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Greene King PLC (GNK)

  Print      Mail a friend       Annual reports

Thursday 01 December, 2011

Greene King PLC

Interim results

RNS Number : 1257T
Greene King PLC
01 December 2011
 



PRESS RELEASE


01 December 2011

GREENE KING plc

 

Interim results for the 24 weeks to 16 October 2011

 

RECORD RESULTS; STRATEGIC PROGRESS DRIVES STRONG GROWTH

 

24 weeks

H111

H112

Change

Revenue

£484.1m

£527.5m

+9.0%

Operating profit*

£110.0m

£115.6m

+5.1%

Operating margin*

22.7%

21.9%

-0.8%pts

Profit before tax*

£73.1m

£77.2m

+5.6%

Adjusted basic earnings per share*

25.2p

26.9p

+6.7%

Dividend per share

6.3p

6.7p

+6.3%

HIGHLIGHTS

·      Retail like-for-like sales growth of 4% and 10% operating profit growth

·      Food growth of 16%; strong sector outperformance

·      Average EBITDA per pub in Pub Partners up 3%

·      Brewing & Brands achieved 2% core brand own-brewed volume growth; profits up 4%

·      Strong cash generation supports interim dividend growth of over 6%

·      Current trading strong; Retail like-for-like sales +4% in last six weeks

STRATEGIC PROGRESS

·      Acquisition of Capital Pub Company; Retail expansion strategy on track with a further 35 sites added to Greene King Retail. Created 800 apprenticeships to support an increased focus on our Retail service proposition   

·      Pub Partners' franchise brand grew to 14 sites trading at the end of the first half; disposal programme on track to reach estate of 1,200 by 2014

·      Further core ale brand investment and innovation: new Old Speckled Hen advertising, accelerated rollout of Greene King IPA Revolution font and launch of Old Golden Hen, Belhaven IPA and Tolly English Ale

Rooney Anand, Greene King chief executive, comments:

 

"This is another record set of results for Greene King, delivering strong sales, profit and earnings growth in a difficult consumer environment. Our largest, fastest-growing and increasingly-branded business, Retail, has achieved 10% profit growth, driven both organically and through our Retail expansion strategy. We took further share in the eating out market with 16% food sales growth in the period. Pub Partners continues to reposition itself towards a more sustainable, customer-focused model, while Brewing & Brands has achieved encouraging growth and market outperformance.

 

Falling consumer confidence and the weakening of the UK economic recovery suggest that we will face another tough trading environment in 2012. Despite this, there are still significant opportunities for growth, and we believe our strategy to grow our Retail estate and our share of the eating out market will help us to maintain our track record of strong earnings and dividends."

 

* before exceptional items

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

 

For further information:

Greene King plc

Rooney Anand, chief executive

Matthew Fearn, group finance director

Tel: 01284 763222




Capital MSL

Steffan Williams

Richard Campbell

Tel: 020 7303 5330

NOTES FOR EDITORS

·      Greene King was founded in 1799 and is headquartered in Bury St. Edmunds, Suffolk. It currently employs 20,000 people across its main trading divisions: Retail, Pub Partners and Brewing & Brands.

·      It operates 2,410 pubs, restaurants and hotels across England, Wales and Scotland, of which 950 are retail pubs, restaurants and hotels, and 1,460 are tenanted, leased and franchised pubs. Its leading retail brands are Hungry Horse, Old English Inns, Eating Inn and Loch Fyne Restaurants. 96% of the estate is either freehold or long leasehold.

·      Greene King also brews quality ale brands from its Bury St. Edmunds and Dunbar breweries, and is the UK's leading cask ale brewer and premium ale brewer. Its core ale brands are Greene King IPA, the no.1 cask ale in the UK, Old Speckled Hen, the no.1 premium ale in the UK, Abbot Ale, the no.1 premium cask ale in the UK and Belhaven Best, the no.1 ale brand in Scotland.



GREENE KING plc

CHAIRMAN'S STATEMENT

RESULTS

We have made a good start to this financial year with strong growth in sales, profits and earnings. Revenue in the first half of the year was up 9.0% to £527.5m, with 5.1% growth in operating profit before exceptionals delivering a record £115.6m. Profit before tax and exceptional items was £77.2m, up 5.6%, and earnings per share was up 6.7% at 26.9p.   

DIVIDEND

Following another good trading period, and mindful of strong cash generation, the board has declared an interim dividend of 6.7p per share, up 6.3% on last year. This will be paid on 27 January 2012 to those shareholders on the register at the close of business on 21 December 2011.   

ACQUISITIONS

As part of our Retail expansion strategy, we completed the acquisition of Capital Pub Company in September for £96.0m. At acquisition there were 33 high quality, largely freehold sites located across London. In addition, we acquired a further five pubs for £3.7m and exchanged or completed on eight greenfield or brownfield sites for pub development, which are spread up and down the country.

 

DISPOSALS

In line with our strategy to reduce the size of our tenanted and leased estate, we disposed of 47 non-core pubs and other properties during the period for £12.8m, close to the book value of the assets.   

BOARD

In July, Mike Coupe joined us as a non-executive director. He is the group commercial director of J Sainsbury plc and brings executive retail experience to our board.

 

We welcomed Matthew Fearn to the board as group finance director in September. He was previously with Brakes Group, De Vere Group plc and Whitbread plc and has a wealth of sector-related experience.

 

PEOPLE

In order to continue growing the business, we rely on a talented and hard-working team and I would like to thank them all for their contribution to our success in the first half of this financial year. I would also like to welcome everyone who has joined Greene King over the last few months and look forward to their contribution as we aim to be the best pub and beer business in the UK.

 

 

  

Tim Bridge
Chairman

30 November 2011



 

CHIEF EXECUTIVE'S REVIEW

 

SUMMARY

 

We delivered a strong first half of this financial year: -

 

·      Revenue was £527.5m, a record interim performance, and up 9.0% on last year, with most of the growth coming from Greene King Retail

·      Operating profit before exceptionals was also a record, up 5.1% to £115.6m

·      Strong operating margin of 21.9%; as expected, this was lower than the comparable period due to changing business mix and the timing of cost inflation mitigation

·      Profit before tax and exceptionals was £77.2m, up 5.6% on last year

·      Adjusted earnings per share was up 6.7% at 26.9p

·      The board has declared an interim dividend of 6.7p per share, 6.3% ahead of last year

MARKET AND BUSINESS OVERVIEW

 

The UK consumer environment has remained challenging through the first half of our financial year. With cost inflation rising ahead of wage inflation and consumers using low interest rates to repair their personal balance sheets, discretionary spending is being squeezed. Given this backdrop, we do not anticipate that conditions will improve in the near future.  

 

In this environment, the on-trade drinking out and eating out markets are performing well, delivering an 'everyday indulgence' to the UK consumer. In the calendar year-to-date, the drinking out market has grown in value by 3.2%*, with volume down and prices rising ahead of inflation, on the back of rising costs and the increasing regulatory burden of duty and tax. The eating out market is forecast to be up 2.8%** in value terms, with volume marginally up and price ahead of last year, but well behind inflation. Provincial RevPAR is expected to grow at 3.0%*** this year.

 

We continued to take market share in the first half. Total drink sales growth in Greene King Retail was 9.9%, total food sales growth was 16.3% and RevPAR was up 7.1%. Pub Partners delivered strong average EBITDA per pub growth of 3.3% and we achieved good volume and profit growth in Brewing & Brands, with core brand own-brewed volumes up 2.0% in an ale market down 6.0%****. Given the high levels of fragmentation in our main markets, we see significant growth opportunities going forward.

 

*       CGA Brand Index 26-12-10 to 8-8-2011

**     Allegra Strategies, Eating Out in the UK 2011

***   PwC UK Hotels Forecast September 2011

**** BBPA

STRATEGIC PROGRESS

 

Our strategy is to improve Greene King's growth and returns to shareholders, through increasing our exposure to the more attractive categories in our markets, such as food, coffee, wine and cask ale. This will be achieved most successfully through: -

 

·      Growing Greene King Retail to around 1,100 sites and improving the overall quality of the estate by targeted acquisitions and investment

·      Improving the quality and sustainability of Pub Partners, our tenanted and leased business, by improving the customer offer, investing in core assets and reducing the estate to 1,200 sites

·      Increasing investment in our core ale brands

In support of these initiatives, operationally, we aim to deliver industry-leading Value, Service and Quality to our customers across Greene King.

 

We have made good progress in all areas of the strategy in the first half of the financial year: -

 

·      We acquired, or transferred in, 40 sites during the period, helped by the acquisition of Capital Pub Company. We achieved 9.6% growth in Retail operating profit and 16.3% growth in food sales, which took food sales to 40% of total Retail sales.

·      In Pub Partners, we disposed of 42 tail sites and grew average EBITDA per pub by 3.3%. We took greater control of the customer offer by rolling out our franchise brand, Meet & Eat, which totalled 14 sites at the end of the first half, and taking the total number of sites with enhanced retail offer influence to 193, or 13% of the core estate.

·      We are utilising Belhaven integration synergies to increase full year investment in our core brands by 7.1%, driving eight percentage points of outperformance versus the UK ale market, and we increased our investment in innovation with an accelerated rollout of the Greene King IPA Revolution font into our internal channels and the launch of Old Golden Hen, Belhaven IPA and Tolly English Ale.

GREENE KING RETAIL

 

OVERVIEW

 

24 weeks

H111

H112

Change

Average number of sites trading

889

922

+3.7%

Revenue

£328.8m

£367.5m

+11.8%

EBITDA

£83.4m

£89.7m

+7.6%

Operating profit

£64.5m

£70.7m

+9.6%

Operating profit margin

19.6%

19.2%

-0.4%pts

EBITDA per site

£93.8k

£97.3k

+3.7%





Greene King Retail is our biggest and fastest growing business, generating 70% of total revenue in the first half of this financial year, and growing its profits by over 23% in the last three years. At the period end, it had 950 pubs, restaurants and hotels across the UK. All sites are either branded or clearly segmented by customer occasion.

 

Our growth and quality improvement strategy for Greene King Retail is based on: -

 

·      Driving industry-leading organic sales growth through our focus on Value, Service and Quality delivery alongside the development of growth categories such as food, wine, coffee and cask ale

·      Maintaining investment levels in our leading brands, such as Hungry Horse and Old English Inns (OEI), and investing in upgrading our food provision and amenity in Local Pubs

·      Acquiring additional sites each year from a number of sources, including packages, single sites, new builds and transfers from Pub Partners

 

In the first half of this year, revenue was £367.5m, 11.8% ahead of last year, with revenue per pub rising 7.8% to an average weekly turnover of £16.6k. Like-for-like (LFL) sales were up 3.8%, consisting of 1.3% volume growth and a 2.5% price/mix improvement. All main sales categories achieved volume growth. Drink LFLs were up 3.0% and food LFLs were up 4.9%, with food now representing 40% of total sales. Operating profit was £70.7m, up 9.6% on last year, with the operating margin down 40bps to 19.2%, due to higher cost inflation versus the comparable period.     

VALUE, SERVICE AND QUALITY

 

VALUE

 

We continue to offer customers great value across Greene King Retail. The latest Hungry Horse menus promote the brand's historic point of difference, namely big, value plates of food, with more entry price dishes and better value communication. In Local Pubs, we extended our successful January lunch time 'meal deal' to the rest of the year in mainstream and premium sites, and we introduced a 'two courses for £7.99' offer in Eating Inn.

 

SERVICE

 

We also invested heavily in our Retail service proposition. Scores in our internal customer service programme have recently hit an all-time high, helped by more stable teams and better team incentivisation schemes. For example, in OEI, we introduced a service transformation programme which has led to lower staff turnover and improved customer satisfaction. Since it was launched, complaints are down 13% and compliments are up 120% and, due to its success, we are rolling the programme out across our other leading retail brands.  

 

QUALITY

 

We increased our investment in people to recruit and retain higher quality retail managers and team members. The centrepiece of our programme is our Discovery Apprenticeship scheme with over 800 team members either fully trained or currently on the scheme. Team member retention rates are much higher than for those not on the scheme and are well ahead of the National Apprenticeship Scheme average of 70%. We also improved our retail manager recruitment programme leading to Local Pubs retail manager turnover falling 12 percentage points and the average length of vacancies in Destination Pubs falling from around 40 days to 15 days in the last 12 months. We also increased the internal appointment rate to 57% across Greene King Retail.

 

We improved the quality of the food offer in Eating Inns including the introduction of hand-pressed burgers and home-made pies. The rollout of illy coffee has continued. We are now up to almost 700 Retail outlets with an illy coffee offer and those sites are seeing a 9% improvement in coffee sales over non-illy sites. And we extended our premium draught lager and cider ranges across the premium Local Pubs estate, with 'world beers' volume growth of c.40%.

 

FOOD

 

The eating out market is a significant long-term growth opportunity for Greene King Retail. Our annualised food sales are over £300m in a fragmented, growing UK market worth around £40bn*.

 

We achieved total food sales growth of 16.3% in the period and LFL food sales growth of 4.9%. Most impressive growth was in our Local Pubs business, where, on the back of our improved segmentation, investment in value and kitchen facilities, and the acquisitions of Realpubs and Capital Pub Company, food sales were up 30%. Most of our food sales growth is cover growth and we will continue to grow sales through covers going forward. We are increasing freshness and upgrading quality every year and we are using our increasing scale to mitigate inflationary cost pressures each year. 

 

*Allegra Strategies

 

BRANDED AND SEGMENTED ESTATE

 

All of our Retail sites are either branded or clearly segmented by customer occasion. Retail brands comprise 40% of the estate; our leading retail brands are Hungry Horse (166 sites), Old English Inns (114 sites), Loch Fyne Restaurants (42 sites) and Eating Inn (37 sites). A focused brand portfolio delivers greater scale economies and improves the efficiency and reliability of both expansion and investment capital. All other sites, mainly in Local Pubs, fit into one of six clearly defined segments; either premium, mainstream or value in terms of customer profile, and either community or high street in terms of location and occasion. To support the pub name as the lead brand, reflecting their localness, we are endorsing these sites with more consistent and clearer Greene King branding as a mark of quality.

 

EXPANSION

 

In the first half we acquired or transferred 40 sites, and disposed of five sites, to take the total number of pubs, restaurants and hotels in Greene King Retail to 950 at the period end. On average the number of sites rose 3.7% to 922. Of those 40 new sites, 37 were single site or package acquisitions, including 33 in the Capital Pub Company acquisition, one was a new build site and two were transfers from Pub Partners.

 

In addition, we exchanged or completed on nine further sites, of which eight were brownfield or greenfield opportunities.

 

We remain on track to meet our Retail expansion strategy targets.

 

CLOVERLEAF

 

Since acquiring Cloverleaf, we have opened two further sites, taking the total to 13, and we are in the process of capturing synergies in areas such as food and drink purchasing, and overheads. Cloverleaf has been trading very well with LFL sales growth of 5% in the first half and comfortably beating its targeted profit. The two additional sites, in Manchester and Sunderland, are delivering an average annualised EBITDA of £600k. We still anticipate opening nine further Cloverleaf sites by April 2013, taking the total estate to 22.

 

REALPUBS

 

Realpubs has also traded well since acquisition with LFL sales growth of 3%. We opened the 14th site, the Vine in Kentish Town, in July and it has traded ahead of expectations since then. Subsequent to the end of the first half, we opened the first Greene King conversion site, the Maynard Arms in Crouch End, and initial trading has been very encouraging. There is a strong pipeline of existing Greene King sites for future conversion to Realpubs.  

 

CAPITAL PUB COMPANY

 

We completed the Capital Pub Company acquisition in September, acquiring 33 high quality, premium Retail sites in London. LFL sales growth has been up 12% since acquisition and we will start capturing the anticipated £2m of synergies in the second half of this year, with the full benefit by April 2013.  

PUB PARTNERS

 

OVERVIEW

 

24 weeks

H111

H112

Change

Average number of pubs trading

1,570

1,489

-5.2%

Revenue

£78.7m

£76.9m

-2.3%

EBITDA

£39.2m

£38.4m

-2.0%

Operating profit

£35.5m

£34.7m

-2.3%

Operating profit margin

45.1%

45.1%

-

EBITDA per pub

£25.0k

£25.8k

+3.3%





 

Pub Partners is responsible for our tenanted, leased and franchised pub operations. Our aim is to build the highest quality, most customer-focused non-managed pub estate in the UK. This will be achieved by recruiting and retaining the best licensees, delivering industry-leading agreement innovation, taking greater control of the customer offer and proactively disposing of the estate tail. In other words, we aim to attract the right licensee, on the right agreement, with the right offer, in the right pub.

 

We are repositioning our estate through a clear, segmented approach: -

 

·      Targeting a core estate of 900 sites operated under traditional tenancies and leases. These require less overhead support and, due to their attractive locations and facilities, are highly cash generative and capable of delivering consistent EBITDA per pub growth.

·      Building an innovation estate of 300 sites operated under new agreement styles and with enhanced influence over the customer offer. These sites are located in more competitive locations and require more overhead support. We are currently at 193 sites.

·      Disposing of the estate tail, currently comprising around 300 sites. These sites will not generate sufficient and sustainable profit to be shared equitably between Pub Partners and its licensees. They require more overhead to support them and capital investment to reposition them, investment that could generate better long-term returns elsewhere in the estate.

 

Our focused strategy is on track and delivering a resilient performance as we continue to reposition Pub Partners for a sustainably profitable future.

 

In the period, Pub Partners achieved revenue of £76.9m, 2.3% down on last year, but on 5.2% fewer pubs. Operating margins were held at 45.1%, with operating profit of £34.7m also down 2.3%. In terms of improving the overall quality of the estate, average EBITDA per pub was up 3.3% to £25.8k, while LFL EBITDA was down 0.3%. In our core estate LFL EBITDA was up 1.2%.

 

RECRUITMENT AND RETENTION

 

We focus on recruiting the best licensees in the market at all times, with our online programme now delivering over 50% of all new licensees. We have a rigorous process, including final sign-off by our operations directors, and we ensure all new licensees attend three mandatory Greene King training courses and the BII PEAT training course, irrespective of previous experience. As a result, licensee turnover has fallen to 18% this year. Other licensee health measures have continued to improve with temporary agreements down to below 5% of the estate, a level not seen since June 2006, closed pubs at just four and bad debts down to 0.6% of sales.

 

AGREEMENTS AND LICENSEE SUPPORT

 

We continue to innovate around our agreements and our licensee support, to help drive increased offer control and influence across the estate. In addition to our standard tenanted and leased agreements, we have taken a greater level of control of the customer offer through Business Builder, Love Your Local and Local Hero, three innovative support initiatives to drive improved profitability for Pub Partners and its licensees.  Each initiative is agreed in conjunction with Value, Service and Quality contracts with the licensee to improve service, standards and the overall amenity in the pubs.

 

Most importantly, we have created a new franchise-style agreement in Pub Partners, called Meet & Eat. Formerly Blueprint, the Meet & Eat franchise was officially launched at the British Franchise Association annual exhibition in September. It is a food, drink, service and entertainment package for the value community segment of the market. We began the year with nine Meet & Eat sites, there were 14 operating at the period end and we expect to have 40 sites operating by the end of this financial year. The potential for this agreement in our existing Pub Partners estate is around 100 sites. The financial performance of the sites converted to date is strong with average turnover rising from £3.2k to £8.3k and on target franchisee annual earnings of £40-45k.

 

DISPOSAL PROGRAMME

 

Our disposal programme remains on track, as we have disposed of 42 sites in the period. At the end of the first half, there were therefore 1,493 sites in Pub Partners, down from 1,700 three years ago. Almost all of the disposals are to individual licensees or for alternative use. We expect to dispose of c. 50 sites in the second half of this financial year and to reach c. 1,200 in 2014.  

BREWING & BRANDS

 

OVERVIEW

 

24 weeks

H111

H112

Change

Revenue

£76.6m

£83.1m

+8.5%

EBITDA

£18.2m

£18.8m

+3.3%

Operating profit

£15.6m

£16.3m

+4.5%

Operating profit margin

20.4%

19.6%

-0.8%pts

 

Our Brewing & Brands division is responsible for brewing, distributing, marketing and selling the leading portfolio of ale brands in the UK. Our strategy is to utilise the most efficient operating model in the industry to fund industry-leading investment in our core ale brands to make them market leaders in their categories. As a result, Greene King is now the no.1 premium ale brewer in the UK* with each of its core brands leading their categories: -

 

·      Greene King IPA is the UK's no.1 cask ale brand**

·      Old Speckled Hen is the UK's no.1 premium ale brand*

·      Abbot Ale is the UK's no.1 premium cask ale brand**

·      Belhaven Best is Scotland's no.1 ale brand*

 

*   CGA Brand Index MAT to 1/10/11, Nielsen Scantrack MAT to 29/10/11

** CGA Brand Index MAT to 1/10/11

 

CORE ALE BRANDS

 

Together, our core ale brands delivered 2.0% volume growth in a UK ale market down 6.0%* over the same period. There were particularly strong performances in the take home, export and free trade channels. This helped to drive revenues up 8.5% to £83.1m in the period and operating profit up 4.5% to £16.3m. We continue to utilise additional cost efficiencies, such as a more efficient and environmentally friendly distribution fleet, with increased investment in innovation and in our growth brands and channels. Overall, we anticipate an increase in core brand marketing investment for the year of 7.1%. Also, our focus on quality has delivered a number of further improvements including an increase of our cold storage capacity to 14,000 casks.

 

·      Greene King IPA has delivered a strong performance in the off-trade, with volume growth of 14%, supported by the brand's relationship with England rugby during the recent Rugby World Cup. Not only is it the UK's leading cask ale brand, but it continues to deliver the best rate of sale amongst the leading brands in the UK.

·      Old Speckled Hen continues to grow strongly with value growth of 7.0% taking its annualised sales value to £35m. It continues to sponsor Dave TV with a campaign around its new 'fox' brand ambassador, which won a People's Choice award.

·      Our Belhaven brands, including Belhaven Best, Scotland's leading ale brand, also continued to perform well with 7% volume growth.

*BBPA

 



INNOVATION

 

We have increased our investment in innovation: -  

 

·      We have increased our investment in the Greene King IPA Revolution font; firstly, we increased the number of Retail and Pub Partners sites with the font by over 50% to 903 and, secondly, we introduced two new font styles for different segments of the Local Pubs estate.

·      We launched Old Golden Hen at the Great British Beer Festival in August. It is listed in all major multiple retailers and it has already gained a listing in a major national pub retail brand.

·      We successfully launched Belhaven IPA into the Scottish market, driving Belhaven cask ale growth by 400%.

·      We launched Tolly English Ale, our new 2.8% ABV ale brand, into our Retail estate, following a successful trial period. During the trial, the presence on the bar of Tolly English Ale helped to grow overall cask ale sales by 5%, through encouraging new cask ale drinking occasions such as lunchtimes and early evenings. 

 

FINANCIAL REVIEW

 

Despite a challenging economic background, the group has continued to make good progress in all areas with revenue growth of 9.0% driven by the retail estate where average revenue per pub grew 7.8%.

 

Although there was a 2% reduction in the size of the total estate, operating profit before exceptional items increased by 5.1% to £115.6m. Excluding the impact of acquisitions and disposals, operating profit increased with sales growth more than offsetting inflation. The operating margin fell 80bps to 21.9% due to the timing of cost inflation and mitigation and to the negative impact of business mix.

 

Interest costs of £38.4m increased by 4.0% representing an effective rate of borrowing of 5.9% resulting in profit before tax and exceptional items of £77.2m, up 5.6% year on year.

 

The tax charge before exceptional items of £19.4m equates to an effective rate of 25%, which we estimate to be the effective rate for the year to 29 April 2012. This compares to an effective rate of 26% in the comparable period.

 

Adjusted earnings per share of 26.9p represents a 6.7% increase on the same period last year.

 

CASH FLOW

 

Operating cash flows remain strong with pre-exceptional EBITDA of £140.8m up 4.0% year on year which, together with a continued working capital inflow of £7.7m, more than covered cash outflows on dividends, tax and organic capital investment. This left positive free cash flow of £13.9m. The overall increase in net debt was £91.6m after investing in new sites to strengthen the quality of the retail estate.

 

CAPITAL INVESTMENT, ACQUISITIONS AND DISPOSALS

 

The strength of the operating cash flow has enabled us to continue to invest in our existing estate as well as cover dividends and debt service obligations. Organic investment in our existing estate increased to £37.6m, compared to £28.6m in the comparable period, as we continued to invest in improving the quality of our retail estate. A total of 194 projects were completed, compared to 170 in the comparable period.

 

On 3 September 2011, we completed the acquisition of The Capital Pub Company plc for a total of £96.0m. This brought us 33 high quality, predominantly freehold sites in the attractive and growing premium eating and drinking out market in London. A further £7.1m was invested in single site acquisitions and £9.9m on previously acquired sites.

 

A total of 47 tail sites were disposed of during the period generating £12.8m of proceeds against a book value of £12.9m.

 

FINANCING AND TREASURY

 

Net debt at the half year was £1,501.8m, an increase of £91.6m from the previous year end, as we invested £115.1m in expanding our retail estate as detailed above. Utilisation of our £400m revolving credit facility was £230m. On a proforma basis (taking into account a full year's contribution from these acquisitions) our net debt to EBITDA ratio remains comfortable at 5.1x.

 

Our credit metrics remained strong with interest rate hedges in place for 91% of our variable rate debt and a blended average interest rate of 5.9%. Fixed charge cover has improved from 2.6x at the year end to 2.8x and interest cover from 2.7x to 3.0x. Our securitised vehicle had a free cash flow debt service cover ratio of 1.5x at the half year giving 27% covenant headroom.

 

PENSIONS

 

The group maintains a defined contribution scheme which is open to all employees. The group's three defined benefit schemes are all closed to new entrants. Under IAS19 the net pension liability was £56.7m compared with £45.7m at the previous balance sheet date. Cash contributions of £10.6m per annum are being made to address this deficit. These contributions are comfortably funded from our free cash flow.

 

DIVIDEND

 

The interim dividend is being increased by 6.3% to 6.7p in line with our stated dividend policy.

 

EXCEPTIONAL ITEMS

 

During the period costs of £20.5m were treated as exceptional due to their size and nature. These included £3.4m of costs relating to the acquisition of Capital Pub Company and an impairment charge of £16.2m made against the carrying value of a small number of our pubs, where specific market conditions are impacting trading. 

 

CURRENT TRADING AND OUTLOOK

 

In the last six weeks, LFL sales in Greene King Retail have continued to outperform the market at +4.4% with food LFL sales at +6.0%. After 28 weeks, average EBITDA per pub in Pub Partners was comfortably ahead of last year. Core brand own-brewed volumes were up 1.8% after 30 weeks of the year.     

 

Looking ahead, weak consumer confidence and discretionary spending power will ensure another tough trading environment in 2012.  However, our focus on delivering excellent value, service and quality to our customers, even more critical in an uncertain consumer environment, continues to deliver growth, as evidenced by a 12% increase in Christmas bookings. We therefore believe we can continue to grow the business through maintaining our market outperformance and our investment in our Retail expansion strategy to deliver another record financial year.

 

 

 

 

Rooney Anand

Chief executive

30 November 2011



Unaudited group income statement

for the twenty-four weeks ended 16 October 2011

 

 

 



24 weeks to 16 Oct 2011


24 weeks to 17 Oct 2010



Before




Before





exceptional

Exceptional


exceptional

Exceptional


 



items

items

Total

items

items

Total

 


Note

£m

£m

£m

£m

£m

£m

 




(Note 3)





 









 

Revenue

2

527.5 

-   

527.5 

484.1 

-   

484.1 

 

Operating costs


(411.9)

(4.2)

(416.1)

(374.1)

(1.1)

(375.2)

 

Impairment of property, plant and equipment

 

 

 

-   

 

(16.2)

 

(16.2)

 

-   

 

(12.7)

 

(12.7)

 

Net (loss)/profit on disposal of property, plant and equipment

 

 

 

-   

 

(0.1)

 

(0.1)

 

-   

 

0.7 

 

0.7 

 

Operating profit

2

115.6 

(20.5)

95.1 

110.0 

(13.1)

96.9 

 

Finance income


1.1 

-   

1.1 

0.4 

-   

0.4 

 

Finance costs


(40.3)

-   

(40.3)

(37.2)

-   

(37.2)

 

Net finance expense from pensions


 

0.8 

 

-   

 

0.8 

 

(0.1)

 

-   

 

(0.1)

 

Profit before tax


77.2 

(20.5)

56.7 

73.1 

(13.1)

60.0 

 

Tax

4

(19.4)

10.8 

(8.6)

(19.0)

10.9 

(8.1)

 

Profit attributable to equity holders of parent


 

57.8 

 

(9.7)

 

48.1 

 

54.1 

 

(2.2)

 

51.9 

 









 

Earnings per share

5







 

- basic




22.4 p



24.2 p

 

- adjusted basic *


26.9 p



25.2 p



 

- diluted




22.3 p



24.1 p

 

- adjusted diluted *


26.8 p



25.1 p



 









 

Dividend proposed per share in respect of the period


 

6.7 p



 

6.3 p



 

 

* Adjusted earnings per share excludes the effect of exceptional items.

 

 



Unaudited group statement of comprehensive income

for the twenty-four weeks ended 16 October 2011

 

 

 




24 weeks to

24 weeks to




16 Oct 2011

17 Oct 2010




£m

£m






Profit for the period



48.1 

51.9 






Other comprehensive income










Cash flow hedges:





Losses taken to equity



(68.7)

(43.2)

Tax on cash flow hedges



16.1 

10.6 




(52.6)

(32.6)






Actuarial losses on defined benefit pension schemes



(16.1)

(7.9)

Tax on actuarial losses



3.5 

1.2 




(12.6)

(6.7)






Other comprehensive loss for the period, net of tax



(65.2)

(39.3)






Total comprehensive (loss)/income for the period, net of tax



(17.1)

12.6 



Unaudited group balance sheet

as at 16 October 2011

 




As at

As at




16 Oct 2011

1 May 2011


Note


£m

£m






Non current assets





Property, plant and equipment



2,175.8 

2,094.9 

Goodwill



730.6 

705.8 

Financial assets



34.4 

35.8 

Deferred tax assets



67.0 

48.7 

Prepayments



6.7 

7.2 

Trade and other receivables


0.1 

0.1 



3,014.6 

2,892.5 






Current assets





Inventories



24.1 

24.7 

Financial assets



6.2 

4.6    

Prepayments



11.6 

11.5 

Trade and other receivables



65.3 

69.6 

Cash and short term deposits



61.3 

59.6 




168.5 

170.0 

Property, plant and equipment held for sale


5.8 

3.7 




174.3 

173.7 









3,188.9 

3,066.2 






Current liabilities





Borrowings



(27.3)

(41.2)

Derivative financial instruments



(8.4)

(4.9)

Trade and other payables



(237.8)

(228.0)

Income tax payable



(49.9)

(49.6)

Provisions



(0.8)

(0.7)




(324.2)

(324.4)






Non current liabilities





Borrowings



(1,535.8)

(1,428.6)

Derivative financial instruments



(176.8)

(111.4)

Deferred tax



(156.2)

(163.1)

Post-employment liabilities



(62.5)

(51.4)

Provisions



(5.7)

(6.4)




(1,937.0)

(1,760.9)









(2,261.2)

(2,085.3)






Total net assets



927.7 

980.9 






Issued capital and reserves





Share capital



27.1 

27.1 

Share premium



250.0 

249.8 

Capital redemption reserve



3.3 

3.3 

Hedging reserve



(136.6)

(84.0)

Own shares



(9.6)

(9.0)

Retained earnings



793.5 

793.7 

Total equity



927.7 

980.9 






Net debt

9


1,501.8 

1,410.2 



Unaudited group cashflow statement

for the twenty-four weeks ended 16 October 2011

 

 

 





24 weeks to

24 weeks to





16 Oct 2011

17 Oct 2010




Note

£m

£m

 






Operating activities






Operating profit




95.1 

96.9 

Operating exceptional items




20.5 

13.1 

Depreciation and amortisation




25.2 

25.4 

EBITDA*




140.8 

135.4 







Working capital and non-cash movements



8

6.5 

10.5 

Interest received




1.1 

0.4 

Interest paid




(42.5)

(41.8)

Tax paid



(19.5)

(15.0)

Net cashflow from operating activities



86.4 

89.5 

 






Investing activities






Purchase of property, plant and equipment




(52.1)

(33.3)

Acquisitions



7

(72.2)

(5.3)

Movements in financial assets




1.0 

2.4 

Sales of property, plant and equipment




12.8 

6.3 

Net cashflow from investing activities




(110.5)

(29.9)







Financing activities






Equity dividends paid



6

(36.2)

(33.6)

Issue of shares




0.2 

1.1 

Purchase of own shares




(0.6)

(2.6)

Financing costs




(4.1)

-   

Net debt acquired



7

(25.9)

-   

Repayment of borrowings




(16.7)

(16.3)

Advance of borrowings



120.0 

20.0 

Net cashflow from financing activities



36.7 

(31.4)













Net increase in cash and cash equivalents




 

12.6 

 

28.2 







Opening cash and cash equivalents




46.4 

27.9 

Closing cash and cash equivalents



9

59.0 

56.1 

 

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

 

 



Unaudited GROUP statement of changes in equity

for the twenty-four weeks ended 16 October 2011

 

 

 


Share

Share

Capital

Hedging

Own

Retained

Total


capital

premium

redemption

reserve

shares

earnings



£m

£m

£m

£m

£m  

£m

£m









At 1 May 2011

27.1 

249.8 

3.3 

(84.0)

(9.0)

793.7 

980.9 









Total profit for the period

-   

-   

-   

-   

-   

48.1 

48.1 

Other comprehensive loss

-   

-   

-   

(52.6)

-   

(12.6)

(65.2)

Total comprehensive (loss)/income

-   

-   

-   

(52.6)

-   

35.5 

(17.1)









Issue of share capital

-   

0.2 

-   

-   

-   

-   

0.2 

Repurchase of shares

-   

-   

-   

-   

(0.6)

-   

(0.6)

Share based payments

-   

-   

-   

-   

-   

1.5 

1.5 

Tax on share based payments

-   

-   

-   

-   

-   

(1.0)

(1.0)

Equity dividends paid

-   

-   

-   

-    

-    

(36.2)

(36.2)









At 16 October 2011

27.1 

250.0 

3.3 

(136.6)

(9.6)

793.5 

927.7 

 

 

 


Share

Share

Capital

Hedging

Own

Retained

Total


capital

premium

redemption

reserve

shares

earnings



£m

£m

£m

£m

£m  

£m

£m









At 2 May 2010

27.1 

247.6 

3.3 

(76.4)

(6.6)

717.9 

912.9 









Total profit for the period

-   

-   

-   

-   

-   

51.9 

51.9 

Other comprehensive loss

-   

-   

-   

(32.6)

-   

(6.7)

(39.3)

Total comprehensive (loss)/income

-   

-   

-   

(32.6)

-   

45.2 

12.6 









Issue of share capital

-   

1.0 

-   

-   

-   

-   

1.0 

Release of shares - share option proceeds

 

-   

 

-   

 

-   

 

-   

 

0.3 

 

(0.2)

 

0.1 

Repurchase of shares

-   

-   

-   

-   

(2.6)

-   

(2.6)

Share based payments

-   

-   

-   

-   

-   

2.1 

2.1 

Tax on share based payments

-   

-   

-   

-   

-   

0.2 

0.2 

Equity dividends paid

-   

-   

-   

-    

-    

(33.6)

(33.6)









At 17 October 2010

27.1 

248.6 

3.3 

(109.0)

(8.9)

731.6 

892.7 

 



 

Notes to the accounts

for the twenty-four weeks ended 16 October 2011

 

 

1     Basis of preparation

 

This interim report has been prepared in accordance with UK listing rules and with IAS 34 'Interim Financial Reporting.

 

The financial information contained in this interim statement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006.  The figures for the year ended 1 May 2011 have been derived from the statutory accounts of the group for that year.    These published accounts were prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted for use in the European Union, and reported on by auditors without qualification or statement under Sections 498(2) and 498(3) of the Companies Act 2006 and have been filed with the Registrar of Companies.

 

A combination of the strong operational cashflows generated by the business, and the significant available headroom on its credit facilities, support the directors' view that the group has sufficient funds available to meet its foreseeable working capital requirements.  The directors have concluded therefore that the going concern basis remains appropriate.

 

The accounting polices adopted in the preparation of the interim report are consistent with those applied in the preparation of the group's annual report for the year ended 1 May 2011.

 

The group does not consider that any standards or interpretations issued by the International Accounting Standards Board (IASB), but not yet applicable, will have a significant impact on the financial statements for the 52 weeks ending 29 April 2012.

 



 

Notes to the accounts

for the twenty-four weeks ended 16 October 2011

 

 

2     Segment information

 

In December 2010 the group announced that the Belhaven business segment would be fully integrated into Greene King.  Changes to the management structure took place in January 2011 with integration taking place progressively from this date.  The segmental analysis below reflects these changes with the information for the 24 weeks to 17 October 2010 restated to be shown in the new format.

 

The group has determined three reportable segments that are largely organised and managed separately according to the nature of products and services provided, brands, distribution channels and profile of customers.  The segments include the following businesses:

 

Retail:  Managed houses and restaurants.

Pub Partners: Tenanted houses

Brewing and Brands: Brewing beer, marketing and selling

 

2011/12 (24 weeks)

Retail

Pub

Brewing

Corporate

Total



Partners

& Brands


operations


£m

£m

£m

£m

£m







External revenue

367.5 

76.9 

83.1 

-   

527.5 







Segment operating profit

70.7 

34.7 

16.3 

(6.1)

115.6 

Exceptional items





(20.5)

Net finance cost





(38.4)

Income tax expense





(8.6)

Net profit for the period





48.1 







Segment assets/(liabilities)

1,716.9 

842.0 

295.9 

(38.5)

2,816.3 

Unallocated liabilities





(1,888.6)

Net assets

1,716.9 

842.0 

295.9 

(38.5)

927.7 







EBITDA*

89.7 

38.4 

18.8 

(6.1)

140.8 

 

 

2010/11 (24 weeks)

Retail

Pub

Brewing

Corporate

Total



Partners

& Brands


operations


£m

£m

£m

£m

£m







External revenue

328.8 

78.7 

76.6 

-   

484.1 







Segment operating profit

64.5 

35.5 

15.6 

(5.6)

110.0 

Exceptional items





(13.1)

Net finance cost





(36.9)

Income tax expense





(8.1)

Net profit for the period





51.9 







Segment assets/(liabilities)

1,452.6 

879.8 

310.4 

(30.8)

2,612.0 

Unallocated liabilities





(1,719.3)

Net assets

1,452.6 

879.8 

310.4 

(30.8)

892.7 







EBITDA*

83.4 

39.2 

18.2 

(5.4)

135.4 

 

* EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptionals.



 

Notes to the accounts

for the twenty-four weeks ended 16 October 2011

 

 

3     Exceptional items

 



24 weeks to

24 weeks to



16 Oct 2011

17 Oct 2010



£m

£m

Operating




Financial systems integration


0.8 

1.1 

Acquisition costs


3.4 

-   

Impairment of property, plant and equipment


16.2 

12.7 

Net profit on disposal of property, plant and equipment


0.1 

(0.7)



20.5 

13.1 

 

Tax




Tax impact of exceptional items


(3.6)

(3.7)

Tax credit on indexation of properties


(1.1)

(0.8)

Tax credit in respect of rate change


(6.1)

(6.4)

Total exceptional tax


(10.8)

(10.9)





Total exceptional items after tax


9.7 

2.2 

 

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

 

Acquisition costs are items of one-off expenditure incurred in connection with acquisition of businesses in the year.  These costs include legal and professional fees incurred by the group and stamp duty which in accordance with IFRS 3 (Revised) can no longer be included within the consideration for the acquisition.  In addition acquisition costs include charges in respect of amounts payable, two years post acquisition and subject to the future profitability of the businesses, to the former owners of Cloverleaf Restaurants and Realpubs, respectively, who have remained employees of the group.

 

During the 24 week period to 16 October 2011 the group has recognised an impairment loss of £16.2m (2010: £12.7m) in respect of its licensed estate.  The impairment has been recognised in respect of pubs where the higher of value-in-use and fair value less costs to sell has fallen below the net book value.

 

The net loss on disposal of property, plant and equipment of £0.1m (2010: profit £0.7m) comprises a total profit on disposal of £2.5m (2010: £1.8m) and a total loss on disposal of £2.6m (2010: £1.1m).

 

Exceptional tax

 

The tax credit on indexation of properties represents the tax impact of movements in RPI during the period on the tax base cost of properties.

 

The Finance Act 2011 reduced the rate of corporation tax from 26% to 25% from 1 April 2012. The effect of the new rate is to reduce the deferred tax provision by a net £4.4m, comprising a credit to the Group Income Statement of £6.1m and a debit to Group Statement of Comprehensive Income of £1.7m.

 

Additional changes to the rate of corporation tax are proposed to reduce the rate by 1% per annum to 23% by 1 April 2014.  These changes had not been substantively enacted at the balance sheet date and consequently are not included in these financial statements. The effect of these proposed reductions would be to reduce the deferred tax liability by £7.1m. 



 

Notes to the accounts

for the twenty-four weeks ended 16 October 2011

 

 

4     Tax

 

The tax charge before exceptional items is £19.4m which equates to an effective tax rate of 25% which is estimated to be the effective rate before exceptional items for the year ended 29 April 2012. This compares to an effective rate of 26% for the same period last year.

 

 

 

5     Earnings per share

 

Basic earnings per share has been calculated by dividing the profit after taxation of £48.1 million (2010: £51.9 million) by the weighted average number of shares in issue of 215.0 million (2010: 215.0 million). 

 

Adjusted earnings per share excludes the effect of exceptional items and is presented to show the underlying performance of the group.

 

Adjusted earnings per share

Earnings

Earnings per share


24 weeks to

24 weeks to

24 weeks to

24 weeks to


16 Oct 2011

17 Oct 2010

16 Oct 2011

17 Oct 2010


£m 

£m 






Basic

48.1 

51.9 

22.4 

24.2 

Exceptional items

9.7 

2.2 

4.5 

1.0 

Adjusted

57.8 

54.1 

26.9 

25.2 

 

Diluted earnings per share has been calculated on a similar basis taking into account 0.6m (2009: 0.5m) dilutive potential shares under option, giving a weighted average number of ordinary shares adjusted for the effect of dilution of 215.6m (2009: 215.5m).

 

 

 

6     Dividends paid

 



24 weeks to

24 weeks to



16 Oct 2011

17 Oct 2010



£m

£m





Declared and paid in the period




Final dividend for 2010/11 - 16.8p (2009/10: 15.6p)


36.2

33.6

 



 

Notes to the accounts

for the twenty-four weeks ended 16 October 2011

 

 

7     Acquisitions

 

On 19 July 2011 an agreement was reached on the terms of a recommended offer for the entire issued share capital of The Capital Pub Company plc.  The offer was declared unconditional on 22 August 2011 with the group assuming control of The Capital Pub Company from 3 September 2011.  On the 5 September 2011 the group announced its intention to  compulsory acquire all outstanding shares in The Capital Pub Company.

 

Fair value of assets acquired

 

The Capital Pub Company

 


Carrying

value

Fair

value


£m

£m




Property, plant and equipment

76.5 

83.1 

Goodwill

0.3 

-   

Investments

0.5 

1.2 

Inventories

0.4 

0.4 

Trade receivables

0.1 

0.1 

Other receivables/prepayments

3.3 

3.3 

Cash and cash equivalents

1.4 

1.4 

Trade payables

(2.2)

(2.2)

Other payables/accruals

(3.7)

(3.7)

Current tax

(0.5)

-   

Deferred tax

(2.3)

(4.8)

Derivatives

(4.1)

(4.1)

Debt acquired

(27.3)

(27.3)

Fair value of net assets acquired

42.4 

47.4 

Goodwill


 24.8 

Consideration


72.2 

 

 

The net cash flow impact of the acquisition has been:

 






£m




Cash consideration


72.2 

Cash acquired


(1.4)



70.8 

Debt acquired and subsequently repaid


 27.3 



98.1 

 

The consideration together with the net debt acquired of £25.9m and subsequent receipt of share option proceeds of £2.1m totals £96.0m and includes £2.7m relating to an additional pub acquired after the announcement of the offer on 19 July 2011.

 

The fair values attributed to the acquisition have been determined provisionally due to the proximity of the acquisition to the half year end.

 

Goodwill has arisen primarily due to expected operating synergies and the difference between property portfolio value and value-in-use.

 



 

Notes to the accounts

for the twenty-four weeks ended 16 October 2011

 

 

The fair value of properties acquired was established following a review of properties that was carried out by qualified surveyors employed by the group.  Properties have been revalued at their existing use value. The values of other current assets and liabilities have been adjusted to amounts to be realised or paid respectively.

 

Since 3 September 2011 The Capital Pub Company has contributed revenue of £3.7m and operating profits of £0.8m.

 

If the acquisition had taken place at the beginning of the period the group's consolidated operating profit for the 24 week period to 16 October 2011 would have increased by £2.3m and consolidated revenue by £10.9m.

 

 

 

8     Working capital and non-cash movements

 



24 weeks to

24 weeks to



16 Oct 2011

17 Oct 2010



£m

£m





Decrease/(increase) in inventories


1.0 

(0.3)

Decrease/(increase) in trade and other receivables


8.1 

(3.5)

(Decrease)/increase in trade and other payables


(0.6)

16.0 

Decrease in provisions


(0.8)

-   

Share-based payments


1.5 

2.1 

Difference between defined benefit pension contributions paid and amounts charged


 

(4.0)

 

(2.7)

Exceptional costs


1.3 

(1.1)

Working capital and non-cash movements


6.5 

10.5 

 



 

Notes to the accounts

for the twenty-four weeks ended 16 October 2011

 

 

9     Analysis and movements in net debt

 



As at

As at

As at



16 Oct 2011

1 May 2011

17 Oct 2010



£m

£m

£m






Cash in hand, at bank


50.6 

50.2 

20.8 

Short term deposits


10.7 

9.4 

37.2 

Overdrafts


(2.3)

(13.2)

(1.9)

Cash and cash equivalents


59.0 

46.4 

56.1 

Current portion of borrowings


(25.0)

(28.0)

(29.6)

Non current portion of borrowings


(1,535.8)

(1,428.6)

(1,351.0)

Closing net debt


(1,501.8)

(1,410.2)

(1,324.5)

 

 

Movements in net debt








24 weeks to

24 weeks to




16 Oct 2011

17 Oct 2010




£m

£m






Net increase in cash and cash equivalents



12.6 

28.2 

Proceeds - advance of loans



(120.0)

(20.0)

Repayment of principal - securitised debt



13.0 

12.3 

Repayment of principal - loans and loan notes



3.7 

4.0 

(Increase)/decrease in net debt arising from cash flows



(90.7)

24.5 

Other non cash movements



(0.9)

(0.9)

(Increase)/decrease in net debt



(91.6) 

23.6 






Opening net debt



(1,410.2)

(1,348.1)

Closing net debt



(1,501.8)

(1,324.5)

 

 

 

10   Post balance sheet events

 

An interim dividend of 6.7p per share (2010: 6.3p) amounting to a dividend of £14.5m (2010: £13.6m) was declared by the directors at their meeting on 30 November 2011. These financial statements do not reflect this dividend payable.

 

 



 

Notes to the accounts

for the twenty-four weeks ended 16 October 2011

 

 

11   Risks and uncertainties

 

The principal risks and uncertainties facing the group during the period under review and going forwards for the remainder of this year have not materially changed from those set out on pages 24 and 25 the 2010/2011 annual report and accounts, which can be viewed via the www.greeneking.co.ukwebsite.  The risks are summarised as follows:

 

·      UK economic conditions

·      Further legislation in relation to alcohol consumption

·      The introduction of legislation in relation to the tied pub model

·      Non compliance with health and safety legislation

·      Supply chain failure and major supply chain problems

·      Poor service standards leading to poor financial performance

·      Information systems and technology failure

·      Failure to meet our financial covenants

·      Financial fraud or material error in our financial statements

·      Inability to attract, retain, develop and motivate talented employees and tenants

 

 

 

Responsibility statement

 

The directors confirm that to the best of their knowledge:

a)    the condensed set of financial statements has been prepared in accordance with IAS34;

b)    the interim management report includes a fair review of the information required by the Financial Statements Disclosure and Transparency Rules (DTR) 4.2.7R - "indication of important events during the first six months and their impact on the financial statements and description of principal risks and uncertainties for the remaining six months of the year"; and

c)    the interim management report includes a fair review of the information required by DTR 4.2.8R - "disclosure of related party transactions and changes therein".

 

On behalf of the board

 

 

Tim Bridge                                                                          Rooney Anand

Chairman                                                                            Chief executive

 



INDEPENDENT REVIEW REPORT TO GREENE KING PLC

 

Introduction

 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 24 weeks ended  16 October 2011 which comprises the group income statement, group statement of comprehensive income, group balance sheet, group cashflow statement, group statement of changes in equity, and the related explanatory notes  that have been reviewed. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

 

Directors' Responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our Responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of Review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 24 weeks ended 16 October 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

Ernst & Young LLP

Cambridge

30 November 2011

 

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