REG - Fuller,Smith &Turner - Final Results <Origin Href="QuoteRef">FSTA.L</Origin> - Part 2
10/06/2016 07:05
- Part 2: For the preceding part double click ID:nRSJ7950Aa
Managed Pubs and Hotels Tenanted The Fuller's Unallocated1 Total
28 March 2015 (revised) Inns Beer Company
£m £m £m £m £m
Revenue
Segment revenue 213.8 31.4 120.9 - 366.1
Inter-segment sales - - (44.6) - (44.6)
Revenue from third parties 213.8 31.4 76.3 - 321.5
Segment result 26.3 13.4 7.6 (5.0) 42.3
Operating exceptional items (1.5)
Operating profit 40.8
Profit on disposal of propertiesPension fund curtailment gain 0.81.2
Net finance costs (6.7)
Profit before tax 36.1
52 weeks ended 28 March 2015 (as previously stated) Managed Pubs and Hotels Tenanted The Fuller's Unallocated1 Total
Inns Beer Company
£m £m £m £m £m
Revenue
Segment revenue 213.8 31.4 122.9 - 368.1
Inter-segment sales - - (46.6) - (46.6)
Revenue from third parties 213.8 31.4 76.3 - 321.5
Segment result 25.0 12.6 8.7 (4.0) 42.3
Operating exceptional items (1.5)
Operating profit 40.8
Profit on disposal of properties 0.8
Pension fund curtailment gain 1.2
Net finance costs (6.7)
Profit before tax 36.1
3. EXCEPTIONAL ITEMS
52 weeks ended 52 weeks ended
26 March 28 March
2016 2015
Amounts included in operating profit: £m £m
Acquisition costs (1.1) (1.2)
Impairment of properties (1.4) (0.7)
Reversal of impairment on property 0.6 0.7
Onerous lease provision release/(charge) 0.2 (0.3)
Deemed remuneration on the future purchase of shares in The Stable (2.2) -
Total exceptional items included in (3.9) (1.5)
operating profit
Profit on disposal of properties 2.9 0.8
Pension fund curtailment gain - 1.2
Exceptional finance costs:Finance charge on net pension liabilities (0.8) (0.8)
Movement in fair value of financial instruments 0.1 -
Total exceptional finance costs (0.7) (0.8)
Total exceptional items before tax (1.7) (0.3)
Exceptional tax:
Change in corporation tax rate (note 5) 1.9 -
Profit on disposal of properties (0.5) (0.2)
Pension fund curtailment gain - (0.2)
Other items 0.8 0.5
Total exceptional tax 2.2 0.1
Total exceptional items 0.5 (0.2)
2.2
0.1
Total exceptional items
0.5
(0.2)
Acquisition costs of £1.1 million during the 52 weeks ended 26 March 2016
(2015: £1.2 million) related to transaction costs on pub and business
acquisitions which qualify as business combinations.
The property impairment charge of £1.4 million during the 52 weeks ended 26
March 2016 (2015: £0.7 million) relates to the write down of licensed
properties to their recoverable value. The reversal of impairment credit of
£0.6 million during the 52 weeks ended 26 March 2016 (2015: £0.7 million)
relates to the write back of previously impaired licensed properties to their
recoverable value.
The onerous lease provision release of £0.2 million during the 52 weeks ended
26 March 2016 (2015: charge of £0.3 million) relates to the change in
circumstances of one previously onerous leasehold property.
Deemed remuneration on the future purchase of shares in The Stable of £2.2
million for the 52 weeks ended 26 March 2016 relates to the remuneration
element of the increase in estimated value of the option over the remaining
49% of The Stable group of companies.
The profit on disposal of properties of £2.9 million during the 52 weeks ended
26 March 2016 (2015: £0.8 million) relates to the disposal of five licensed
properties (2015: four licensed and unlicensed properties).
The pension fund curtailment gain of £1.2 million for the 52 weeks ended 28
March 2015 relates to the closure in January 2015 of the defined benefit
pension scheme to future accrual.
The cash impact of operating exceptional items before tax for the 52 weeks
ended 26 March 2016 was a £1.1 million cash outflow (2015: £1.7 million cash
outflow).
4. FINANCE COSTS
52 weeks ended 52 weeks ended
26 March 28 March
2016 2015
£m £m
Interest expense arising on:
Financial liabilities at amortised cost - loans and debentures 5.7 5.6
Financial liabilities at amortised cost - preference shares 0.1 0.1
Total interest expense for financial liabilities 5.8 5.7
Unwinding of discounts on provisions 0.2 0.2
Total finance costs before exceptional items 6.0 5.9
Finance charge on net pension liabilities (note 3)Movement in fair value of financial instruments (note 3) 0.8(0.1) 0.8-
Total finance costs 6.7 6.7
5. TAXATION
52 weeks ended 52 weeks ended
26 March 28 March
2016 2015
£m £m
Tax on profit on ordinary activities
Current income tax:
Corporation tax 9.3 8.6
Total current income tax 9.3 8.6
Deferred tax:
Origination and reversal of temporary differences (1.2) (0.8)
Change in corporation tax rate (note 3) (1.9) -
Total deferred tax (3.1) (0.8)
Total tax charged in the Income Statement 6.2 7.8
52 weeks ended 52 weeks ended
26 March 28 March
2016 2015
£m £m
Tax relating to items charged/credited to the Statement of Comprehensive Income
Deferred tax:
Change in corporation tax rate 0.6 -
Net gains on valuation of financial assets and liabilities - (0.6)
Net actuarial gains/losses on pension scheme 0.1 (1.7)
Tax charge/(credit) included in the Statement of Comprehensive Income 0.7 (2.3)
Tax relating to items charged/credited directly to equity
Deferred tax:
Reduction in deferred tax liability due to indexation - (0.3)
Share-based payments 0.1 0.1
Current tax:
Share-based payments (0.4) (0.2)
Tax credit included in the Statement of Changes in Equity (0.3) (0.4)
During the period the Finance Act 2015 received Royal Assent. The main impact
was the reduction of the UK corporation tax from 20% to 19% from 1 April 2017
and the reduction from 19% to 18% from 1 April 2020. To the extent that this
rate change will affect the amount of future cash tax payments to be made by
the Group, this will reduce the size of both the Group's Balance Sheet
deferred tax liability and deferred tax asset. The impact in the 52 weeks to
26 March 2016 was an exceptional credit to the Income Statement of £1.9
million, and a charge to the Statement of Comprehensive Income of £0.6
million. A further reduction in rate from 1 April 2020 to 17% has been
announced but has not yet been substantively enacted.
6. EARNINGS PER SHARE
52 weeks ended 52 weeks ended
26 March 28 March
2016 2015
£m £m
Profit attributable to equity shareholders 32.8 28.4
Exceptional items net of tax (0.5) 0.2
Adjusted earnings attributable to equity shareholders 32.3 28.6
Number Number
Weighted average share capital 55,356,000 55,521,000
Dilutive outstanding options and share awards 764,000 804,000
Diluted weighted average share capital 56,120,000 56,325,000
40p 'A' and 'C' ordinary share Pence Pence
Basic earnings per share 59.25 51.15
Diluted earnings per share 58.45 50.42
Adjusted earnings per share 58.35 51.51
Diluted adjusted earnings per share 57.56 50.78
4p 'B' ordinary share
Basic earnings per share 5.93 5.12
Diluted earnings per share 5.85 5.04
Adjusted earnings per share 5.84 5.15
Diluted adjusted earnings per share 5.76 5.08
For the purposes of calculating the number of shares to be used above, 'B'
shares have been treated as one tenth of an 'A' or 'C' share. The earnings
per share calculation is based on earnings from continuing operations and on
the weighted average ordinary share capital which excludes shares held by
trusts relating to employee share options and shares held in treasury of
1,628,444 (2015: 1,463,761).
Diluted earnings per share amounts are calculated using the same earnings
figure as for basic earnings per share, divided by the weighted average number
of ordinary shares outstanding during the year plus the weighted average
number of ordinary shares that would be issued on the conversion of all the
dilutive potential ordinary shares into ordinary shares. Adjusted earnings per
share are calculated on profit before tax excluding exceptional items and on
the same weighted average ordinary share capital as for the basic and diluted
earnings per share. An adjusted earnings per share measure has been included
as the Directors consider that this measure better reflects the underlying
earnings of the Group.
7. DIVIDENDS
52 weeks ended 52 weeks ended
26 March 28 March
2016 2015
£m £m
Declared and paid during the year
Equity dividends on ordinary shares:
Final dividend for 2015: 10.20p (2014: 9.30p) 5.6 5.2
Interim dividend for 2016: 6.90p (2015: 6.40p) 3.9 3.5
Equity dividends paid 9.5 8.7
Dividends on cumulative preference 0.1 0.1
shares (note 4)
Proposed for approval at the Annual General Meeting
Final dividend for 2016: 11.00p (2015: 10.20p) 6.1 5.6
The pence figures above are for the 40p 'A' ordinary shares and 'C' ordinary
shares. The 4p 'B' ordinary shares carry dividend rights of one tenth of
those applicable to the 40p 'A' ordinary shares. Own shares held in the
employee share trusts do not qualify for dividends as the trustees have waived
their rights. Dividends are also not paid on own shares held as treasury
shares.
8. PROPERTY, PLANT AND EQUIPMENT
Land & buildings Plant, machinery & vehicles Containers, fixtures & fittings Total
£m £m £m £m
Cost
At 29 March 2014 409.1 35.8 120.5 565.4
Additions 11.2 2.7 18.6 32.5
Acquisitions 19.7 - 1.8 21.5
Disposals (1.2) (0.7) (12.2) (14.1)
At 28 March 2015 438.8 37.8 128.7 605.3
Additions 48.3 2.4 18.5 69.2
Acquisitions 13.3 0.7 0.2 14.2
DisposalsTransfer to assets held for sale (3.0)(0.5) (2.1)- (6.9)- (12.0)(0.5)
At 26 March 2016 496.9 38.8 140.5 676.2
Depreciation and impairment
At 29 March 2014 26.4 22.6 81.6 130.6
Provided during the year 2.8 2.0 10.7 15.5
Disposals (0.3) (0.6) (11.8) (12.7)
At 28 March 2015 28.9 24.0 80.5 133.4
Provided during the year 3.3 2.1 11.9 17.3
Acquisitions 0.1 0.4 0.1 0.6
Impairment loss net of reversals 0.8 - - 0.8
Disposals (1.2) (2.2) (6.3) (9.7)
At 26 March 2016 31.9 24.3 86.2 142.4
Net book value at 26 March 2016 465.0 14.5 54.3 533.8
Net book value at 28 March 2015 409.9 13.8 48.2 471.9
Net book value at 29 March 2014 382.7 13.2 38.9 434.8
During the 52 weeks ended 26 March 2016, the Group recognised an impairment
loss of £1.4 million (2015: £0.7 million) in respect of the write down of
licensed properties purchased in recent years where their asset values
exceeded either fair value less costs to sell or their value in use. The
impairment losses were driven principally by changes in the local competitive
environment in which the pubs are situated. Following an improvement in
trading performance and an increase in the amounts of estimated future cash
flows of certain previously impaired sites, reversals of £0.6 million were
recognised during the 52 weeks ended 26 March 2016 (2015: £0.7 million).
9. ANALYSIS OF NET DEBT
52 weeks ended 26 March 2016 At 28 March At 26 March
2015 Cash flows Non cash1 2016
£m £m £m £m
Cash and cash equivalents:
Cash and short term deposits 5.1 1.1 - 6.2
5.1 1.1 - 6.2
Debt:
Bank loans (140.0) (36.2) (0.8) (177.0)
Other loans (0.2) 0.2 (0.2) (0.2)
Debenture stock (25.9) - - (25.9)
Preference shares (1.6) - - (1.6)
(167.7) (36.0) (1.0) (204.7)
Net debt (162.6) (34.9) (1.0) (198.5)
(198.5)
1 Non cash movements relate to the amortisation of arrangement fees and the
acquisition of Nectar Imports Limited and G&M Leisure Limited during the
year.
52 weeks ended 28 March 2015 At 29 March At 28 March
2014 Cash flows Non cash1 2015
£m £m £m £m
Cash and cash equivalents:
Cash and short term deposits 4.1 1.0 - 5.1
4.1 1.0 - 5.1
Debt:
Bank loans (116.2) (23.4) (0.4) (140.0)
Other loans (0.2) 0.5 (0.5) (0.2)
Debenture stock (25.9) - - (25.9)
Preference shares (1.6) - - (1.6)
(143.9) (22.9) (0.9) (167.7)
Net debt (139.8) (21.9) (0.9) (162.6)
(162.6)
1 Non cash movements relate to the amortisation of arrangement fees and the
acquisition of The Stable Pizza & Cider Limited.
10. RETIREMENT BENEFIT OBLIGATIONS
2016 2015
£m £m
The amount included in the Balance Sheet
arising from the Group's obligations in
respect of its defined benefit retirement plan
Fair value of Scheme assets 96.0 103.5
Present value of Scheme liabilities (119.5) (127.9)
Deficit in the Scheme (23.5) (24.4)
Key financial assumptions used in the valuation
of the Scheme
Rate of increase in salaries n/a 2.50%
Rate of increase in pensions in payment 3.05% 3.00%
Discount rate 3.55% 3.25%
Inflation assumption - RPI 3.05% 3.00%
Inflation assumption - CPI 2.05% 2.00%
Mortality assumptions Years Years
Current pensioners (at 65) - males 22.2 22.2
Current pensioners (at 65) - females 24.4 24.4
Future pensioners (at 65) - males 23.6 23.5
Future pensioners (at 65) - females 25.9 25.9
2016 2015
£m £m
Assets in the Scheme
Corporate bonds 19.3 20.7
UK equities 40.7 37.0
Overseas equities 20.4 13.2
Absolute return fund 12.0 29.5
Property 1.0 0.9
Cash 1.4 0.9
Annuities 1.2 1.3
Total market value of assets 96.0 103.5
Total market value of assets
96.0
103.5
Defined benefit obligation Fair value of Scheme assets Net defined benefit deficit
2016 2015 2016 2015 2016 2015
£m £m £m £m £m £m
Balance at beginning of the year (127.9) (110.8) 103.5 93.6 (24.4) (17.2)
Included in profit and loss
Current service cost - (1.1) (0.2) - (0.2) (1.1)
Curtailment gain - 1.2 - - - 1.2
Net interest cost (4.2) (4.9) 3.4 4.1 (0.8) (0.8)
(4.2) (4.8) 3.2 4.1 (1.0) (0.7)
Included in Other Comprehensive Income
Actuarial gains/(losses) relating to:
Actual return less expected return on Scheme assets - - (6.8) 8.0 (6.8) 8.0
Experience gains/(losses) arising on Scheme liabilities 7.5 (16.3) - - 7.5 (16.3)
7.5 (16.3) (6.8) 8.0 0.7 (8.3)
Other
Employer contributions 0.2 - - 1.0 0.2 1.0
Employer special contributions - - 1.0 0.8 1.0 0.8
Employee contributions - (0.3) - 0.3 - -
Benefits paid 4.9 4.3 (4.9) (4.3) - -
5.1 4.0 (3.9) (2.2) 1.2 1.8
Balance at end of the year (119.5) (127.9) 96.0 103.5 (23.5) (24.4)
11. PRINCIPAL RISKS AND UNCERTAINTIES
Regulatory Risks
Fuller's operates in a highly regulated sector where government legislation
impacts much of the way we do business and therefore the business model. Any
significant changes in policy could lead to a sudden change or the long term
decline of the business. The two key areas of consideration are the regulation
of the sale of alcohol and the Beer Tie.
We carefully monitor legislative developments and review sales trends and
consumer habits to gauge the impact on our business. We participate in
industry initiatives aimed at the responsible promotion and retailing of
alcohol. We have diversified our offering to include soft drinks, coffee, food
and accommodation to reduce our reliance on alcohol-based revenue, which now
represents 57% of managed house revenue.
We continue to monitor ongoing dialogue between the Government and industry
bodies. Our Directors are members of key industry bodies and committees. The
industry maintains a voluntary code of practice with tenants, which is
regularly reviewed and updated in consultation with numerous pub companies and
industry groups. Fuller's operates an internal code of practice that is more
rigorous than the current Industry code to ensure the transparency and
openness of our Tied agreements. We also provide marketing, training and
promotional support to help tenants run profitable and long term businesses.
Enforced changes to our tied arrangements by the Government would necessitate
changes to our business model, with higher property rents and lower prices for
the supply of drinks being charged.
Health and Safety
The health and safety of the Group's employees and customers is a key concern
to us. We are required to comply with health and safety legislation, including
fire safety and food hygiene. Operating a large number of houses and sites
increases the complexity of ensuring the highest health and safety standards
are adhered to at all times.
A Health and Safety Committee oversees the operation of the Group's health and
safety policies and procedures, and regularly updates its policies and
training programme to ensure all risks are identified and properly assessed
and that relevant regulation is adhered to. We report and investigate all
accidents and near misses. In our Managed Pubs and Hotels we have automatic
fire suppression systems in most of our kitchens to reduce fire risk. All
staff receive food hygiene training as standard and regular kitchen audits/
checks ensure they comply with the standards expected from them. Quality
assurance checks on our core suppliers ensure hygiene standards have been
adhered to before produce even reaches our kitchens.
Loss of Premium Position
The Group operates in a premium market for both Fuller's Inns and The Fuller's
Beer Company. This positioning is key to the success of the business and the
achievement of the Group's strategic goals. The loss of the position would
have a significant impact on the Group's business model and financial
performance.
This strategy has been agreed by the Board and communicated to key senior
staff in the Company. In addition the Executive Committee approves all
significant new product development and acquisition decisions and therefore
controls key changes to the Group. Developments in products offered by
competitors are monitored closely to enable the Group to react quickly to
changes in the market. There is a customer complaints system to track and
monitor the perception of our products and houses in the marketplace to ensure
we are meeting our premium position.
Griffin Brewery Site
The Group's headquarters and sole brewing facility are based at the Griffin
Brewery site in Chiswick. A disaster at this site would seriously disrupt
operations which would impact on the profitability of the Company.
We take various measures to mitigate the impact of such an event. We
continually monitor fire safety and invest in capital projects to reduce the
risk of failure. We store recipes and yeast off-site and have informal
arrangements in place to use alternative facilities.
Brands and Reputation
Fuller's has a wide portfolio of brands and has established an excellent
reputation in the market. Principally, there is a risk that the Group's beer
could become contaminated at source or outlet, which could damage the
reputation of the brand and deter customers.
The Group reduces product contamination risks to an acceptable level by
ensuring that the business is operated to the highest standards by maintaining
long term relationships with suppliers and by significant investment in
security, quality control and cleaning. The Group has in place product recall
procedures together with insurance coverage in the event of contamination. In
addition, the Group runs an active and continuous training programme covering
all aspects of the pub operations and provides its pubs with on-site technical
support.
Information Technology
The Group is increasingly reliant on its information systems to operate on a
daily basis and trading would be affected by any significant or prolonged
failure of these systems. The data held by the Group is a key business asset
and personal data protection is key. Any significant loss of data could lead
to a considerable interruption for the business and fines.
To minimise this risk the IT function has a range of facilities and controls
in place to ensure that in the event of an issue normal operation would be
restored quickly. These include a formal Disaster Recovery Plan, online
replication of systems and data to a third party recovery facility and
external support for hardware and software. The IT systems in place follow
appropriate data protection guidelines to ensure the risk of both personal and
Company data loss is at an acceptable level.
Loss of Key Management and Staff
The Group has a number of key staff who are critical to its success and
therefore there is a risk that if a number of these individuals were to leave
at the same time it may risk the delivery of the Group's strategy.
The Group performs detailed succession planning to ensure that key roles are
considered to ensure appropriate cover is available. In addition the
remuneration policy is set up to ensure the key members of staff are
appropriately remunerated to reduce the likelihood they are attracted to other
competitor businesses.
Loss of Company Values or a Failure to Adhere to Them
Fuller's is a company based on a strong set of values which are key to its
success and future. Should these be undermined or not adhered to, the
Company's unique position and long term future would be jeopardised.
The Company has a unique culture due to its share structure and history which
ensures business decisions are taken for the long term benefit of the Company.
This culture also promotes a long term and collaborative approach that does
not lead to excessive risk taking and the reward system encourages appropriate
behaviour.
The share structure of the Company and family shareholder representation on
the Board and involvement in the Company's management ensure the values are
maintained and followed. Disruptive and short term third parties cannot easily
gain significant holdings and influence.
Consumer Demand Shifts
A significant part of the Group's success is attributable to its ability to
anticipate and react to consumer demand. The way in which the Group responds
to market changes is critical to its ongoing strategy and has a direct impact
on all operational activity.
Management monitor and research consumer trends and run trials of new
technologies, brands and products. We gather consumer feedback through Net
Promoter Score surveys and online and social media reviews. We analyse retail
pricing and market share data to ensure we are competitive but still premium.
The United Kingdom's Exit from the European Union
The business is exposed to the risk that the UK might exit the EU after the
referendum on 23 June 2016. This is considered to be a significant risk to the
viability of the business and the potential impact has therefore been modelled
by the Directors.
Fuller's has strong relationships with EU customers and suppliers which could
be customised in the event of an exit from the EU. Fuller's existing training
and development programme would enable the Group to produce and attract
quality employees from a reduced market workforce. The extensive scenario
planning and analysis performed as part of our business viability exercise
enables the impact of an exit from the EU to be mitigated.
12. SHAREHOLDERS' INFORMATION
Shareholders holding 40p 'C' ordinary shares are reminded that they have 30
days from 10 June 2016 should they wish to convert those 'C' shares to 'A'
shares. The next available opportunity after that will be November 2016. For
further details please contact the Company's registrars, Computershare on 0370
889 4096.
13. POST BALANCE SHEET EVENT
On 27 May 2016 the Group purchased an additional 25% of the shares in The
Stable Pizza & Cider Limited for £2.7 million, bringing the Group's interest
in The Stable Pizza & Cider Limited to 76%.
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