Shepherd Neame Ltd - Interim Results London Stock Exchange
RNS Number : 6945Q
Shepherd Neame Limited
02 March 2016
 

 

2 March 2016

SHEPHERD NEAME LIMITED

ANNOUNCEMENT OF INTERIM RESULTS

 

Shepherd Neame, the Kent-based brewer and pub operator, today announces results for the 26 weeks ended 26 December 2015.

 

Highlights include:

 

·     First set of results under new accounting standard FRS102

·     Turnover increased by 0.3% to £73.7m (20141: £73.5m) with total own beer volumes excluding contract up 0.1%

·     Underlying operating profit2 up 2.9% to £7.2m (20141: £7.0m)

·     Sustained and strong trading in the pub business

-  Managed pub like-for-like sales up 6.5% (2014: +6.8%), with liquor up 5.2%, food up 7.4% and accommodation up 11.2%

-  Tenanted like-for-like EBITDAR3 grew by 2.7% (2014: +3.4%) and average EBITDAR per pub up 7.2% (2014: +4.0%)

·     Statutory profit before tax up to £8.7m (20141: £4.9m) with the increase driven by one-off disposal of land

·     Underlying basic earnings per share4 up 8.5% to 26.7p (20141: 24.6p)

·     Interim dividend increased to 5.45p (2014: 5.30p) per share

 

 

1 Restated for FRS 102

2 Profit before net finance costs, any profit or loss on the disposal of properties, investment property fair value movements and exceptional items

3 Pub earnings before interest, tax, depreciation, amortisation and rent payable

4 Underlying profit less attributable taxation divided by the weighted average number of ordinary shares in issue during the period. The number of shares in issue excludes those held by the Company and not allocated to the employees under the Share Incentive Plan, which are treated as cancelled.

 

 

 

Jonathan Neame, Chief Executive, commented:

 

"I am pleased to report that our half year results have been characterised by a sustained and strong trading in our pub business, positive operating cash flows and significant proceeds from property disposals. Our consistent investment in our brand and pub assets to align them to today's consumer demand has resulted in the sustained quality and performance of the business in a highly competitive marketplace. We remain cautious about the outlook for consumer spending, however I am confident we have the right strategy to succeed and the skills to deliver it."

 

  

 

FOR FURTHER INFORMATION PLEASE CONTACT:

 

Shepherd Neame Limited

Jonathan Neame, Chief Executive

Mark Rider, Finance and IT Director

 

Tel:  01795 532206

Tel:  01795 532206

Kreab

Marc Cohen / Christina Clark

 

Tel:  020 7074 1800

REGIONAL & TRADE MEDIA CONTACT:

John Humphreys

 

Tel:  01795 542051

Note:  The Directors of Shepherd Neame Limited accept responsibility for this announcement.

 

 

NOTES FOR EDITORS 

 

Shepherd Neame is Britain's oldest brewer. Established in 1698 and based in Faversham, Kent it employs around 1,300 people.

 

The Company retails its own beers, on draught and in bottles, under a range of highly successful brand names, including:

 

§ Spitfire: One of the leading premium bottled ales in the UK with national distribution on draught (4.2% abv) and in bottle (4.5% abv). Spitfire Gold, a golden ale (4.1% abv), has been launched to mark the 75th anniversary of the Battle of Britain.

 

§ Whitstable Bay: This range, sold under the Faversham Steam Brewery brand, includes a Pale Ale on draught (3.9%) and in bottle (4%), an Organic Ale (4.5%), Blonde Lager (4.5%) and Black Oyster Stout (4.2%).

 

§ Bishops Finger: Connoisseur premium ale (5.4% abv).  

 

§ Master Brew: The 'Original Kentish Ale' is a well-hopped cask ale (3.7% abv).

 

The Company also brews lagers under license, including:

 

§ Asahi Super Dry: Japan's number one beer (5% abv), which is produced under an exclusive UK license for brewing, sales and marketing.

 

§ Samuel Adams Boston Lager: Number one US craft lager (4.8% abv) brewed under an exclusive license from the Boston Beer Company. The Company also imports Rebel IPA, a strong hopped US craft beer (6.5% abv) and Angry Orchard, America's No. 1 Hard Cider (5%).

 

In the 26 weeks ended 26 December 2015 Shepherd Neame sold 131,000 brewers' barrels of beer (37.7 million pints) including 112,000 brewers' barrels of own brewed beer (32.3 million pints). The majority of these sales were made in the UK although the Company also exports to more than 35 countries.

 

At the half year end, the Company operated 335 pubs, of which 275 were tenanted or leased, 6 were held as investment properties under commercial free of tie leases, and 54 managed. The pub estate ranges from inns and hotels to destination dining, great traditional and local community pubs.   

 

Shepherd Neame's shares are traded on the ISDX Growth Market. See http://www.isdx.com/ for further information and the current share price. 

 

For further information on the Company, see www.shepherdneame.co.uk.

 

 

 

CHAIRMAN'S STATEMENT 

 

 

Interim Results

 

I am pleased to report another strong performance for the Company for the 26 weeks ended 26 December 2015.

 

During this period the consumer economy has remained relatively robust with high employment levels and increasing real earnings, but the weather has been less favourable than in 2014 with persistent heavy rain in the late summer and throughout the autumn. The Rugby World Cup provided a modest benefit in October and Christmas trade was particularly strong.

 

The Company's performance has been characterised by sustained and strong trading in our pub business, positive operating cash flows and significant proceeds from property disposals. Our beer business has performed less well than last year in challenging market conditions and margins have continued to be squeezed as a result of volume reduction from the exit from contract brewing and higher water treatment costs.

 

Accounting Standards

 

This is our first report under the FRS 102 accounting standard, and results in us having to re-state some prior year comparatives prepared under previous UK GAAP accounting rules.

 

There are four principal areas of change: the valuation of our assets; reporting by business segment; and different accounting treatment for both lease commitments and for interest rate swaps. The specific impacts of these changes are set out in the transition document in the Appendix to this document.

 

As part of this process, the company has carried out a revaluation of some of its assets as at 28 June 2014 and incorporated this into our balance sheet. This has increased net assets and reduced balance sheet gearing. This revaluation was of the Company's licensed freehold assets only and excludes licensed leasehold assets and the brewery site. Unlicensed assets that are held for rental income are valued separately as investment property.

 

Financial Performance

 

Turnover for the period increased by 0.3% to £73.7m (2014: £73.5m). Underlying operating profit grew by +2.9% to £7.2m (2014: £7.0m). Underlying profit before tax1 grew by 7.2% to £5.1m (2014: £4.7m) and statutory profit before tax is up to £8.7m (2014: £4.9m), with the increase being driven principally by the one-off disposal of land at Brogdale Road.

 

Basic earnings per ordinary share are up to 52.2p (2014: 26.2p) and underlying basic earnings per share are up 8.5% to 26.7p (2014: 24.6p).

 

Cash flow and Investment

 

Underlying EBITDA2 was £10.8m, up 2.4% (2014: £10.5m). Total cash invested in capital expenditure was £6.3m (2014: £5.2m).

 

During the period we acquired two new outlets to be operated as managed pubs: the Minnis Bay Bar and Restaurant and the Anchor, Hampstead Lock, Yalding. In January 2016, we have acquired a further outlet to be operated under tenancy, the Coastguard at St. Margaret's Bay. All three of these outlets enjoy exceptional beach or waterfront locations and emphasise our strategy to acquire sites with unique character in landmark or high footfall locations.

 

During the period we have realised proceeds from property sales of £8.8m (2014: £0.7m). The principal disposal was 10 acres of land, remaining from the company's farming business, on Brogdale Road in Faversham, which was sold with planning permission for residential dwellings for £7.4m. The Company continues to own 44 acres of land and buildings on the edge of Faversham as a long term investment. In addition we disposed of five (2014: two) tenanted pubs and other assets for £1.4m.

 

These disposals have realised a property profit over the revalued net book value of £3.6m (2014: £0.1m). As a result of these cash proceeds and cash flow from operations, net debt at the half year stands at £61.4m (2014: £72.1m).

 _______________________

1Profit before any profit or loss on the disposal of properties, investment property fair value movements and exceptional items.

2Underlying profit before tax pre net finance costs, depreciation, amortisation, profit or loss on sale of fixed assets excluding property and free trade loan discounts.

 

 

Refinancing

 

In line with our strong cash flow and lower debt levels, we have refinanced during the period to create a more flexible debt structure going forward and reduced costs. The five year term loan and revolving credit facility due to expire in May 2017 have been replaced with a £20m revolving credit facility through to September 2020, with the uncommitted option to extend by a further £10m during that time should the need arise.

 

The existing £60m term loan remains unchanged and matures in 2026. Excluding the overdraft, the Company now has total medium and long term committed credit facilities of £80m.

 

Dividend

 

The Board is proposing an interim dividend of 5.45p (2014: 5.30p), an increase of 2.8%. The dividend will be paid on 24 March 2016 to those shareholders on the register as at 11 March 2016.

 

Board of Directors

 

After more than 10 years of outstanding service to the Board, Oliver Barnes and James Leigh-Pemberton will both step down as non-executive directors during the next six months and we are delighted to welcome two new non-executives to the Board who both enjoy distinguished careers in their chosen fields.

 

Hilary Riva, OBE, 58, will join the Board in April 2016. Hilary has enjoyed a successful career in fashion retailing with various senior roles in the Arcadia group followed by her jointly leading the buyout of Principles, Hawkshead, Warehouse and Racing Green as Managing Director of Rubicon Retail. Following the sale of Rubicon, Hilary was CEO of the British Fashion Council from 2005 to 2009. She is a non-executive director at Shaftesbury plc, the FTSE 250 property company, and at ASOS plc, the largest online fashion retailer, amongst other roles.

 

Richard Oldfield, DL, 60, will join the Board in June 2016. Richard is executive chairman of Oldfield Partners LLP, an investment management firm managing listed equities funds. He is also a director of Witan Investment Trust plc and a trustee of the Royal Marsden Cancer Charity and the Clore Duffield Foundation.

 

I would like to take this opportunity to thank James and Oliver for their very significant individual contributions to the business. They have helped to steer the Company through some challenging times for the industry over the past 10 years and played a big part in helping the Company achieve the strong position we are in today.

 

Operational Review

 

At the half year we operated 335 pubs (2014: 347) of which 275 (2014: 297) are tied tenanted or leased, six (2014: nil) are held as investment properties under commercial free of tie leases, and 54 (2014: 50) are managed. In the period we have acquired two pubs (2014: two) to be managed, disposed of five (2014: two) tenanted pubs and transferred six pubs (2014: nil) from tied tenancy to free of tie lease. We have not made any transfers from tenancy to managed (2014: one) or from managed to tenancy (2014: one) in the period.

 

Our strategic objectives remain to drive footfall to our pubs, to attract, retain and develop the best licensees and to provide a distinctive range of complementary products.

 

We are in the process of developing a new brand identity for the Company to give a more modern and stylish presentation of the Company logo in the estate, online and in other media which will be launched later in the year.

 

I am delighted that our efforts in our pub business have been recognised as the company is listed as a finalist in the Publican Awards Best Tenanted and Leased Pub Company (201+ sites) and also as a finalist in Best Food Offer (51+) sites.

 

Tenanted and Leased Pubs

 

Revenue in the tenanted estate grew by +0.3%, but operating profit fell by -1.1% through a lower number of pubs and increased property investment.

 

Like for like tenanted EBITDAR grew by +2.7% (2014: +3.4%) and average EBITDAR per pub has grown by +7.2% (2014: +4.0%) as the quality and profile of our estate continues to improve.

 

In recent years we have consistently increased the level of investment and quality of training and support within our tied estate, and this period has been no exception, with notable refurbishments to reposition the offer at the Poyntz Arms, East Molesey and the Four Fathoms, Herne Bay as well as many smaller developments. We have several large developments planned for the second half. As we improve our pub estate and quality of services and support, demand for our pubs from licensees remains strong.

 

Managed Pubs and Hotels

 

Managed pubs have again enjoyed an exceptional period with strong like for like growth which has been sustained over several years. Revenue grew by +13.8% and operating profit by +23.0%. Like for like sales grew by +6.5% (2014: +6.8%) with liquor +5.2% (2014: +4.9%), food +7.4% (2014: +7.8%) and accommodation +11.2% (2014: +14.5%).

 

This is the result of substantial investment in our best and largest outlets to modernise and premiumise the offer, improve the quality of drinks offer, invest in food service and quality of rooms and focus on providing a great experience for our customers. In the second half we plan major redevelopments at the Ship & Trades, Chatham Maritime and the Royal Albion Hotel, Broadstairs.

 

We have every reason to believe that the strong profit performance in the managed houses will continue although the additional cost impact from the National Living Wage and Apprenticeship Levy is estimated at £0.1m in the 2016 financial year and rising to around £1.1m between now and 2020.

 

Brewing and Brands

 

The Brewing and Brands business has again had a challenging period with revenue down -8.9% and operating profit down -54.9%. This is driven by a decline in overall own beer volume which was down 11.3%, and higher water treatment costs than in 2014. Own beer excluding contract was up marginally at +0.1%.

 

The UK beer market has seen significant changes in recent years as the growing demand for local products with wider taste and flavour profiles has led to a rapid expansion in the number of micro and craft brewers entering the market, even though overall beer consumption is flat. Shepherd Neame has responded well to this challenge and built an enviable portfolio of great beers such as Spitfire, Bishops Finger, the Whitstable Bay range and our Classic Collection. I am particularly pleased that our Whitstable Bay design and brand development has won a 2016 Brand Effectiveness Award. During this period we have also added Spitfire Gold which has performed well since launch.

 

Shepherd Neame has been brewing and selling Asahi Super Dry under licence in the UK for more than 10 years with an existing contract in place to 2017. We note the proposed purchase of the Peroni, Grolsch and Meantime Brewing businesses by Asahi Group Holdings which remain subject to regulatory approvals and are in discussions with them over the future of our ongoing partnership.

 

Summary

 

This has been another period of strong performance. Our consistent investment in our brand and pub assets to align them to today's consumer demand has resulted in the sustained quality and performance of our business in a highly competitive marketplace.

 

The continued benefit of strong trading combined with exceptional property proceeds and debt refinancing have created a strong financial base from which the Company can seek opportunities for further expansion in the future. We remain cautious about the outlook for consumer spending as heightened security concerns and risks in the economy may dampen confidence. However, I am confident we have the right strategy to succeed and the skills to deliver it.

 

 

Miles Templeman 

Chairman

 

 

 

PROFIT AND LOSS ACCOUNT

26 weeks ended 26 December 2015

 

 

 

FRS 102 Unaudited

26 weeks ended 26 December

2015

FRS 102 Unaudited

26 weeks ended 27 December

2014

(as restated)

FRS 102 Unaudited

52 weeks ended 27 June 2015

(as restated)

 

 

Underlying results

£'000

Items excluded from underlying results

(note 3)

£'000

Total statutory

£'000

Underlying results

£'000

Items excluded from underlying results

(note 3)

£'000

Total statutory

£'000

Total statutory

£'000

Turnover (note 4)

73,709

-

73,709

73,524

-

73,524

138,237

Operating charges

(66,551)

(80)

(66,631)

(66,565)

-

(66,565)

(124,542)

Operating profit

7,158

(80)

7,078

6,959

-

6,959

13,695

Net finance costs

(2,086)

-

(2,086)

(2,226)

-

(2,226)

(4,424)

Profit on disposal of property

-

3,595

3,595

-

76

76

354

Investment property fair value movements

-

93

93

-

81

81

4,086

Profit on ordinary activities before taxation

5,072

3,608

8,680

4,733

157

4,890

13,711

Taxation (note 5)

(1,126)

160

(966)

(1,109)

83

(1,026)

(2,734)

Profit after taxation

3,946

3,768

7,714

3,624

240

3,864

10,977

 

 

 

 

 

 

 

 

 

Earnings per 50p ordinary share

(note 6)

 

 

 

 

 

 

 

Basic

 

 

52.2p

 

 

26.2p

74.3p

Underlying basic

 

 

26.7p

 

 

24.6p

48.7p

Diluted

 

 

51.8p

 

 

26.0p

73.8p

 

 

STATEMENT OF COMPREHENSIVE INCOME

26 weeks ended 26 December 2015

 

 

 

FRS 102 Unaudited

26 weeks ended 26 December

2015

£'000

FRS 102 Unaudited

26 weeks ended

27 December

2014

(as restated)

£'000

FRS 102 Unaudited

52 weeks ended

27 June

2015

(as restated)

£'000

Profit after taxation

7,714

3,864

10,977

Losses arising on cash flow hedges during the period

(1,500)

(5,249)

(2,263)

Tax relating to components of other comprehensive income

748

1,050

453

Other comprehensive losses for the period

(752)

(4,199)

(1,810)

Total comprehensive income/(loss) for the period

6,962

(335)

9,167

 

Balance Sheet 

As at 26 December 2015

 

 

 

 

 

FRS 102 Unaudited

FRS 102 Unaudited

FRS 102 Unaudited

 

26 December 2015

 

27 December 2014

(as restated)

27 June

2015

(as restated)

 

£'000

£'000

£'000

Fixed assets

 

 

 

Tangible fixed assets

276,729

272,712

279,247

Investments and loans

478

771

713

 

277,207

273,483

279,960

Current assets

 

 

 

Stock

6,336

6,234

7,001

Debtors

19,163

21,443

16,103

Deferred tax asset due after one year

3,626

4,541

3,965

Cash

90

5,359

6,793

 

29,215

37,577

33,862

Creditors: amounts falling due within one year

 

 

 

Bank loans and overdrafts

(91)

(1,994)

(1,987)

Creditors

(27,082)

(25,991)

(24,156)

 

(27,173)

(27,985)

(26,143)

Net current assets

2,042

9,592

7,719

Total assets less current liabilities

279,249

283,075

287,679

Creditors: amounts falling due after more than one year

 

 

 

Bank loans

(61,403)

(75,510)

(73,592)

Derivative financial instruments

(19,283)

(20,768)

(17,783)

Deferred lease liability

(1,736)

(1,543)

(1,640)

Provision for liabilities

(13,217)

(14,120)

(14,838)

Net assets

183,610

171,134

179,826

 

 

 

 

Capital and reserves

 

 

 

Called up share capital

7,429

7,429

7,429

Share premium account

1,099

1,099

1,099

Revaluation reserve

73,001

73,005

72,430

Reserve for own shares held

(676)

(606)

(827)

Hedging reserve

(15,683)

(16,615)

(14,226)

Profit and loss account

118,440

106,822

113,921

Equity shareholders' funds

183,610

171,134

179,826

 

These financial statements have not been audited (see note 1).

 

 

 

STATEMENT OF CHANGES IN EQUITY

For the 26 weeks ended 26 December 2015

 

 

 

Share capital

£'000

Share premium

£'000

Revaluation reserve

£'000

Own shares held

£'000

Hedging reserve

£'000

Profit and loss account

£'000

Total

£'000

Balance at 28 June 2014 as previously stated

7,429

1,099

13,125

(908)

-

108,006

128,751

Changes on transition to FRS 102 (see note 11)

-

-

60,167

-

(12,416)

(1,985)

45,766

Balance at 28 June 2014 as restated

7,429

1,099

73,292

(908)

(12,416)

106,021

174,517

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

3,864

3,864

Losses arising on cash flow hedges during the period

-

-

-

-

(5,249)

-

(5,249)

Tax relating to components of other comprehensive income

-

-

-

-

1,050

-

1,050

Total comprehensive income

-

-

-

-

(4,199)

3,864

(335)

Ordinary dividends paid

-

-

-

-

-

(3,074)

(3,074)

Transfer of realised revaluation

-

-

(287)

-

-

287

-

Accrued share based payments

-

-

-

-

-

207

207

Purchase of own shares

-

-

-

(215)

-

-

(215)

Distribution of own shares

-

-

-

376

-

(342)

34

Unconditionally vested share awards

-

-

-

141

-

(141)

-

Balance at 27 December 2014

7,429

1,099

73,005

(606)

(16,615)

106,822

171,134

 

 

 

 

 

 

 

 

 

 

 

Share capital

£'000

Share premium

£'000

Revaluation reserve

£'000

Own shares held

£'000

Hedging reserve

£'000

Profit and loss account

£'000

Total

£'000

Balance at 27 June 2015 as previously stated

7,429

1,099

12,170

(827)

-

112,279

132,150

Changes on transition to FRS 102 (see note 11)

-

-

60,260

-

(14,226)

(1,642)

47,676

Balance at 27 June 2015 as restated

7,429

1,099

72,430

(827)

(14,226)

113,921

179,826

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

7,714

7,714

Losses arising on cash flow hedges during the period

-

-

-

-

(1,500)

-

(1,500)

Tax relating to components of other comprehensive income

-

-

705

-

43

-

748

Total comprehensive income

-

-

705

-

(1,457)

7,714

6,962

Ordinary dividends paid

-

-

-

-

-

(3,178)

(3,178)

Transfer of realised revaluation

-

-

(134)

-

-

134

-

Accrued share based payments

-

-

-

-

-

264

264

Purchase of own shares

-

-

-

(288)

-

-

(288)

Distribution of own shares

-

-

-

301

-

(277)

24

Unconditionally vested share awards

-

-

-

138

-

(138)

-

Balance at 26 December 2015

7,429

1,099

73,001

(676)

(15,683)

118,440

183,610

                             

 

 

 

CASH FLOW STATEMENT

26 weeks ended 26 December 2015

 

 

FRS 102 Unaudited

 

FRS 102 Unaudited

 

FRS 102 Unaudited

 

26 weeks ended

26 weeks ended

52 weeks ended

 

26 December 2015

27 December 2014

(as restated)

27 June 2015

(as restated)

 

£'000

£'000

£'000

£'000

£'000

£'000

Net cash flows from operating activities (note 8)

 

10,430

 

9,194

 

21,375

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Proceeds of sale of tangible fixed assets

8,847

 

735

 

3,155

 

Purchase of tangible fixed assets

(6,327)

 

(5,157)

 

(13,165)

 

Additional loans to customers

(33)

 

(16)

 

(52)

 

Customer loan redemptions

118

 

121

 

173

 

Net cash flows from investing activities

 

2,605

 

(4,317)

 

(9,889)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Dividends paid

(3,178)

 

(3,074)

 

(3,861)

 

Interest paid

(2,074)

 

(2,243)

 

(4,391)

 

Repayment of long term loan

(16,000)

 

-

 

(2,000)

 

New long term loan

2,000

 

-

 

-

 

Issue costs of new long term loan

(313)

 

-

 

-

 

Purchase of own shares

(288)

 

(215)

 

(465)

 

Share option proceeds

24

 

33

 

43

 

Net cash flows from financing activities

 

(19,829)

 

(5,499)

 

(10,674)

 

 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(6,794)

 

(622)

 

812

Cash and cash equivalents at beginning of the period

 

6,793

 

5,981

 

5,981

Cash and cash equivalents at end of the period

 

(1)

 

5,359

 

6,793

 

 

 

NOTES TO THE ACCOUNTS

26 weeks ended 26 December 2015

 

1.   Interim Statement

The financial information contained in this interim statement, which is unaudited, has been prepared under the new accounting standard FRS 102. The financial information does not constitute statutory accounts as defined in s434 of the Companies Act 2006. Statutory accounts for the 52 weeks ended 27 June 2015 prepared under previous UK GAAP, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. The adjustments made to comply with FRS 102 on the date of transition (28 June 2014) have not been audited therefore the financial information is shown as unaudited.

  

 

2.   Accounting policies

The interim accounts have been prepared on the basis of the accounting policies set out in the FRS 102 transition document which can be found in the Appendix to this document.

  

 

3.   Non-GAAP performance measures

Certain items recognised in reported profit or loss before tax can vary significantly from year to year and therefore create volatility in reported earnings which does not reflect the underlying performance of the Company. The Directors believe that "underlying operating profit", "underlying profit before tax", "underlying basic earnings per share", "underlying earnings before interest, tax, depreciation, and amortisation" presented provide a clear and consistent presentation of the underlying performance of ongoing business for shareholders. Underlying profit is not defined by FRS 102 and therefore may not be directly comparable with the "adjusted" profit measures of other companies. The adjusted items are:

-     profit or loss on disposal of properties

-     investment property fair value movements

-     exceptional items - these are items which are either material or infrequent in nature and do not relate to the underlying performance

 

The adjustments made to reported profit before tax to arrive at underlying profit before tax are:

 

 

 

 

26 weeks ended

26 Dec 15

unaudited

26 weeks

ended

27 Dec 14

unaudited

(as restated)

52 weeks ended

27 Jun 15

unaudited

(as restated)

 

 

 

£'000

£'000

£'000

Underlying profit before taxation

 

 

5,072

 

 

 

 

 

 

Profit on disposal of properties

 

 

3,595

76

354

Investment property fair value movements

 

 

93

81

4,086

Exceptional items

 

 

(80)

-

(63)

Total adjustments

 

 

3,608

Profit on ordinary activities before taxation

 

 

8,680

4,890

13,711

 

Exceptional items

Exceptional items of £80,000 for the 26 week period ended 26 December 2015 include legal and professional fees of £38,000 for the Consumer Credit Authorisation application, required by the Financial Conduct Authority; and £42,000 for professional fees related to the transition for reporting under FRS 102. The charge of £63,000 for the 52 weeks ended 27 June 2015 relates to impairment of tangible fixed assets.

 

  

4.   Segmental reporting

The Company has three operating segments which are largely organised and managed separately according to the nature of the products and services provided and the profile of customers:

·     Brewing and Brands which comprises the brewing, marketing and sales of beer, wines and spirits;

·     Managed Pubs and Hotels which comprises managed pubs and managed hotels and;

·     Tenanted and Leased Pubs which comprises pubs operated by third parties under tenancy or lease agreements.

 

Transfer prices between segments are set on an arm's length basis.

 

 

 

Brewing and Brands

Managed Pubs and Hotels

Tenanted and Leased Pubs

Unallocated

Total

26 weeks ended 26 December 2015

£'000

£'000

£'000

£'000

£'000

Turnover

30,448

25,142

17,334

785

73,709

 

 

 

 

 

 

Underlying operating profit

524

4,271

6,493

(4,130)

7,158

Exceptional items

-

-

-

(80)

(80)

Segment operating profit

524

4,271

6,493

(4,210)

7,078

 

 

 

 

 

 

Net finance costs

 

 

 

 

(2,086)

Profit on disposal of property

 

 

 

 

3,595

Investment property fair value movements

 

 

 

 

93

Profit on ordinary activities before taxation

 

 

 

 

8,680

 

 

 

 

 

 

Other segment information

 

 

 

 

 

Capital expenditure - tangible fixed assets

948

2,970

2,070

210

6,198

Depreciation

1,113

1,035

1,004

354

3,506

Underlying EBITDA

1,741

5,312

7,495

(3,776)

10,772

Number of pubs

-

54

275

6

335

 

 

 

 

Brewing and Brands

Managed Pubs and Hotels

Tenanted and Leased Pubs

Unallocated

Total

26 weeks ended 27 December 2014

£'000

£'000

£'000

£'000

£'000

Turnover

33,408

22,092

17,288

736

73,524

 

 

 

 

 

 

Segment operating profit

1,161

3,471

6,567

(4,240)

6,959

 

 

 

 

 

 

Net finance costs

 

 

 

 

(2,226)

Profit on disposal of property

 

 

 

 

76

Investment property fair value movements

 

 

 

 

81

Profit on ordinary activities before taxation

 

 

 

 

4,890

 

 

 

 

 

 

Other segment information

 

 

 

 

 

Capital expenditure - tangible fixed assets

1,018

2,557

1,202

109

4,886

Depreciation

1,187

907

960

360

3,414

Underlying EBITDA

2,487

4,385

7,526

(3,880)

10,518

Number of pubs

-

50

297

-

347

 

 

 

4.   Segmental reporting continued

 

 

Brewing and Brands

Managed Pubs and Hotels

Tenanted and Leased Pubs

Unallocated

Total

52 weeks ended 27 June 2015

£'000

£'000

£'000

£'000

£'000

Turnover

59,718

43,759

33,424

1,336

138,237

 

 

 

 

 

 

Underlying operating profit

1,823

6,665

12,751

(7,481)

13,758

Items excluded from underlying results

-

-

(63)

-

(63)

Segment operating profit

1,823

6,665

12,688

(7,481)

13,695

 

 

 

 

 

 

Net finance costs

 

 

 

 

(4,424)

Profit on disposal of property

 

 

 

 

354

Investment property fair value movements

 

 

 

 

4,086

Profit on ordinary activities before taxation

 

 

 

 

13,711

 

 

 

 

 

 

Other segment information

 

 

 

 

 

Capital expenditure - tangible fixed assets

1,827

6,382

4,180

625

13,014

Depreciation

2,306

1,825

1,958

722

6,811

Underlying EBITDA

4,357

8,464

14,709

(6,757)

20,773

Number of pubs

-

52

286

-

338

 

 

5.   Taxation

 

 

 

 

26 weeks ended

26 Dec 15

26 weeks

ended

27 Dec 14

(as restated)

52 weeks ended

27 Jun 15

(as restated)

 

 

 

£'000

£'000

£'000

Corporation tax

 

 

1,501

1,189

2,251

Deferred tax

 

 

(535)

(163)

483

 

 

 

966

1,026

2,734

 

Taxation has been provided at 22% (2014: 23%) based on the estimated effective tax rate for the 52 weeks to 25 June 2016. The average statutory rate of corporation tax for the 52 weeks to 25 June 2016 is 20% (52 weeks to 27 June 2015: 20.75%).

 

Taxation on items excluded from underlying results for the 26 weeks ended 26 December 2015 includes a deferred tax credit of £683,000 (2014: £nil). This arises from restatement of deferred tax assets and liabilities in respect of accelerated capital allowances and rolled over gains based on the future tax rates of 19% from April 2017 and 18% from April 2020. These rates have been substantively enacted at the balance sheet date and are expected to apply when the timing differences reverse.

 

Similarly, taxation relating to components of other comprehensive income for the 26 weeks ended 26 December 2015 includes a deferred tax credit of £447,000 (2014: £nil) due to restating the deferred tax balances in respect of the revalued freehold licensed properties and derivative financial instruments.

 

 

6.   Earnings per share

The earnings per share are calculated on profit after taxation of £7,714,000 (2014 restated: £3,864,000) and on 14,770,000 shares (2014: 14,733,000) being the weighted average number of ordinary shares in issue during the period, adjusted for shares held in respect of employee incentive plans and options. The diluted earnings per share are calculated on the average number of shares in issue during the period adjusted by 113,000 shares (2014: 127,000). The underlying earnings per share are calculated on profit after tax of £3,946,000 (2014: £3,624,000).

 

 

7.   Dividends

 

 

 

 

26 weeks ended

26 Dec 15

26 weeks

ended

27 Dec 14

52 weeks ended

27 Jun 15

 

 

 

£'000

£'000

£'000

50p ordinary shares:

 

 

 

 

 

Final dividend for 2015: 21.40p (2014: 20.75p)

 

 

3,178

3,074

3,074

Interim dividend for 2015: 5.30p

 

 

-

-

787

Dividends paid

 

 

3,178

3,074

3,861

 

 

8.   Notes to the cash flow statement

 

(a)        Reconciliation of operating profit to cash generated by operations

 

 

 

 

 

26 weeks ended

26 Dec 15

26 weeks

ended

27 Dec 14

(as restated)

52 weeks ended

27 Jun 15

(as restated)

 

 

 

£'000

£'000

£'000

Operating profit

 

 

7,078

6,959

13,695

Adjustment for:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortisation

 

 

3,506

3,414

6,811

Impairment provision

 

 

-

-

63

Charge for share-based payments credited to reserves

 

 

264

207

425

Decrease/(increase) in stocks

 

 

665

183

(584)

(Increase)/decrease in debtors and prepayments

 

 

(3,034)

(3,235)

2,083

Increase in creditors and accruals

 

 

2,944

2,652

951

Free trade loan discounts

 

 

55

64

136

Loss on sale of assets (excluding property)

 

 

53

81

79

Interest received

 

 

8

4

13

Income tax paid

 

 

(1,109)

(1,135)

(2,297)

Cash generated by operations

 

 

10,430

9,194

21,375

 

 

(b)       Analysis of net debt

 

 

 

June 2015

(as restated)

£'000

Cash flow

£'000

Repayment of long

term loan

£'000

New long term loan

£'000

Issue costs of new loan

£'000

Amortisation of issue costs

£'000

December 2015

£'000

Cash

6,793

(6,703)

-

-

-

-

90

Bank overdraft

-

(91)

-

-

-

-

(91)

Cash and cash equivalents

6,793

(6,794)

-

-

-

-

(1)

Debt due within one year

(1,987)

-

2,000

-

-

(13)

-

 

4,806

(6,794)

2,000

-

-

(13)

(1)

Debt due after more than one year

(73,592)

-

14,000

(2,000)

313

(124)

(61,403)

Total

(68,786)

(6,794)

16,000

(2,000)

313

(137)

(61,404)

 

 

  

9.   Capital Expenditure and Commitments

In the 26 weeks ended 26 December 2015, there were additions to tangible fixed assets on an accruals basis of £6,198,000 (2014: £4,886,000). In the financial period, there were disposals of tangible fixed assets with a net book value of £5,305,000 (2014: £740,000). As at 26 December 2015, capital commitments contracted, but not provided for by the Company, amounted to £975,000 (2014: £2,236,000).

 

 

10. Related party transactions

During the 26 weeks ended 26 December 2015 the Company purchased goods to the value of £17,000 (2014: £5,000) including VAT and made sales of £71,000 (2014: £56,000) to St Austell Brewery Company Limited, a company of which Mr J B Neame is a non-executive Director. At 26 December 2015, Shepherd Neame Limited was owed £14,000 (2014: £7,000), including VAT, by St Austell Brewery Company Limited. Shepherd Neame Limited did not owe any balance to St Austell Brewery Company Limited as at 26 December 2015.

 

Ms C Neame, a close member of Mr J B Neame's family, is a director of Charlotte Neame Interior Design Limited which provided goods and design services in respect of the refurbishment of certain Company properties during the period at a cost of £11,000 including VAT (2014: nil). There was a balance of £11,000 owed to this company as at 26 December 2015.

 

Mr A J A Barnes, a close member of Mr G H A Barnes' family, is a partner of Clarke Barnes Solicitors LLP, which provided legal services in respect of Company properties during the period at a cost of £20,000 including VAT and disbursements to third parties (2014: £30,000). At 26 December 2015, Shepherd Neame Limited owed £2,000 to the partnership.

 

Mr N J Bunting, executive director of Shepherd Neame Limited, is also a director of Davy and Company Limited. During the period, the Company made sales to the value of £102,000 (2014: £153,000) to Davy and Company Limited and its associated companies. At 26 December 2015, the balance owed to the Company by the Davy Group of companies, including VAT, was £25,000 (2014: £28,000).

 

 

11. New accounting standard FRS 102

As a consequence of adopting FRS 102, a number of accounting policies have changed to comply with that standard. A description of the nature of change of each accounting policy can be found in the Appendix to this document.

 

Revaluation of properties at transition

The Company has revalued licensed freehold properties to fair value on transition to FRS 102. The properties were revalued individually by the Company's own professionally qualified staff. A sample were verified by Porters, a firm of independent external qualified valuers. The revaluation was in accordance with the provisions of the RICS Valuation - Professional Standards January 2014 ('the Red Book').

 

 

 

11.  New accounting standard FRS 102 continued

 

26 weeks

ended

27 Dec 14

52 weeks

ended

27 Jun 15

 

£'000

£'000

Previous GAAP

 

 

Profit after taxation

3,927

7,257

Adjustments on transition to FRS 102:

 

 

Depreciation on revalued licensed property

(40)

(80)

Impairment and profit on disposal of revalued properties

(139)

465

Revaluation of investment property

81

4,086

Operating leases

(104)

(224)

Customer loans

40

61

Bank loans

2

3

Short-term compensated absences

2

(28)

 

(158)

4,283

Taxation on FRS 102 adjustments

95

(563)

 

(63)

3,720

FRS 102

 

 

Profit after taxation

3,864

10,977

 

 

 

28 Jun 14

27 Dec 14

27 Jun 15

 

£'000

£'000

£'000

Previous GAAP

 

 

 

Equity shareholders' funds

128,751

129,630

132,150

Adjustments to equity on transition to FRS 102:

 

 

 

Revaluation of licensed property

68,391

68,207

68,744

Revaluation of investment property

1,916

2,002

6,035

Operating leases

(1,401)

(1,505)

(1,625)

Customer loans

(225)

(185)

(164)

Bank loans

21

23

24

Short-term compensated absences

(209)

(207)

(237)

Interest rate swaps

(15,520)

(20,768)

(17,783)

Deferred tax

(7,207)

(6,063)

(7,318)

 

45,766

41,504

47,676

FRS 102

 

 

 

Equity shareholders' funds

174,517

171,134

179,826

 

 

 

APPENDIX - TRANSITION TO FINANCIAL REPORTING STANDARD 102

 

Contents

1.0 INTRODUCTION

 

2.0 FINANCIAL IMPACT SUMMARY

2.1  Reconciliation of profit for the 52 weeks ended 27 June 2015

2.2  Reconciliation of equity as at 28 June 2014 and 27 June 2015

 

3.0 BASIS OF PREPARATION

3.1  Presentation of financial information

3.2  FRS 102 - First time adoption

 

4.0 KEY FINANCIAL IMPACTS

4.1  Licensed properties

4.2  Investment properties

4.3  Operating leases

4.4  Financial Instruments

4.5  Short-term compensated absences

4.6  Interest rate swaps

4.7  Deferred and current tax

 

5.0 ACCOUNTING POLICIES

 

6.0 FINANCIAL STATEMENTS

6.1  Profit and loss account for the 52 weeks ended 27 June 2015

6.2  Statement of Comprehensive Income for the 52 weeks ended 27 June 2015

6.3  Balance Sheet as at 27 June 2015

6.4  Statement of changes in equity for the 52 weeks ended 27 June 2015

6.5  FRS 102 Balance sheet restatement as at 28 June 2014 (Opening balance sheet)

 

 

1.0 INTRODUCTION

Shepherd Neame Ltd has historically presented its financial statements under UK Generally Accepted Accounting Practice (UK GAAP). For the year ended 25 June 2016, the Company will be required to prepare its financial statements in accordance with the new accounting standard Financial Reporting Standard 102 (FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland). Accordingly, the interim results for the 26 weeks ending 26 December 2015 will be prepared and reported under FRS 102.

 

This document explains how the Company's reported UK GAAP financial results for the year ended 27 June 2015 and its financial position at that date (which was presented on 23 September 2015) would have been reported under FRS 102. It includes:

 

·     The reconciliation of profit between UK GAAP and FRS 102 for the 52 weeks ended 27 June 2015

·     The reconciliation of equity between UK GAAP and FRS 102 as at 28 June 2014 and 27 June 2015

·     The accounting policies applied in the preparation of this financial information

·     The profit and loss account for the 52 weeks ended 27 June 2015

·     The statement of comprehensive income for the 52 weeks ended 27 June 2015

·     The balance sheet as at 27 June 2015

·     The statement of changes in equity for the 52 weeks ended 27 June 2015

·     The balance sheet at 28 June 2014, the date of transition to FRS 102 (the "opening" FRS 102 balance sheet).

 

The financial information presented in this document is unaudited.

 

 

2.0  FINANCIAL IMPACT SUMMARY

There are no cash impacts from the adoption of FRS 102. The following summarises the impact of FRS 102 on the profit and loss account and equity:

 

2.1 Reconciliation of profit for the 52 weeks ended 27 June 2015

 

 

 

 

2015

2015

2015

 

 

 

£'000

Before tax

£'000

Tax

£'000

After tax

Previous UK GAAP

 

 

 

Profit on ordinary activities

 

 

9,428

(2,171)

7,257

Adjustments to profit on ordinary activities on transition

 

 

 

 

to FRS102:

 

 

 

 

 

Depreciation on revalued licensed properties

 

 

(80)

238

158

Difference on impairment and difference in profit on

 

 

 

 

 

disposal of revalued properties

 

 

465

-

465

Recognition of deferred tax on rolled over gains

 

 

-

(42)

(42)

Revaluation of investment property

 

 

4,086

(796)

3,290

Operating leases

 

 

(224)

45

(179)

Customer loans

 

 

61

(12)

49

Bank loans

 

 

3

(1)

2

Short-term compensated absences

 

 

(28)

5

(23)

 

 

 

4,283

 

 

 

 

 

 

FRS 102

 

 

 

Profit on ordinary activities

 

 

13,711

(2,734)

10,977

 

 

2.2 Reconciliation of equity as at 28 June 2014 and 27 June 2015

 

 

 

 

 

2015

2014

 

 

 

 

£'000

£'000

Previous UK GAAP

 

 

 

 

Equity shareholders' funds

 

 

 

132,150

128,751

Adjustments to equity on transition to FRS 102:

 

 

 

 

Revaluation of licensed property

 

 

 

68,744

68,391

Revaluation of investment property

 

 

 

6,035

1,916

Operating leases

 

 

 

(1,625)

(1,401)

Customer loans

 

 

 

(164)

(225)

Bank loans

 

 

 

24

21

Short-term compensated absences

 

 

 

(237)

(209)

Interest rate swaps

 

 

 

(17,783)

(15,520)

Deferred tax

 

 

 

(7,318)

(7,207)

 

 

 

 

47,676

45,766

FRS 102

 

 

 

 

Equity shareholders' funds

 

 

 

179,826

174,517

 

 

3.0  BASIS OF PREPARATION

The financial information presented in this document has been prepared under the new accounting standard, FRS 102. The transition to FRS 102 has resulted in a number of changes in accounting policies to those used previously. The nature of these changes and their impact on opening equity and profit for the comparative period are explained below.

 

The accounts for the year ended 28 June 2014 were audited but the adjustments made to comply with FRS 102 have not been audited and therefore the statements that follow show the results as being unaudited.

 

3.1  Presentation of financial information

The format of the primary statements contained in this document has been presented in accordance with FRS 102, which is different to old UK GAAP.

 

The Profit and Loss Account now shows interest receivable and payable as "Net finance costs". Certain items recognised in profit or loss can vary significantly from year to year and create volatility in reported earnings, which does not reflect the underlying performance. Underlying operating profit and underlying profit before tax have therefore been identified by the Directors to provide a clear and consistent presentation of the underlying performance of ongoing business for shareholders. The definition of these measures is as follows:

 

Underlying operating profit - profit before net finance costs, any profit or loss on the disposal of properties, investment property fair value movements and exceptional items.

Underlying profit before tax - profit before any loss on the disposal of properties, investment property fair value movements and exceptional items.

 

The Statement of Comprehensive Income replaces the Statement of Recognised Gains and Losses.

 

The Statement of Changes in Equity is presented as a primary statement and comparatives are required, compared to the reconciliation of movements in shareholders' funds in the notes under previous UK GAAP.

 

3.2  FRS 102 - First time adoption

The date of transition to FRS 102 for the Company, to enable comparatives to be calculated, is 28 June 2014. The adoption of FRS 102 for the first time allows companies to take certain exemptions in the year of transition. The Company has elected to take a key transition option, allowing the revaluation of licensed properties to market value at the date of transition and treating this one-off valuation as the "deemed cost".

 

4.0  KEY FINANCIAL IMPACTS

The impact on the Company of FRS 102 is reflected in the attached schedules.

 

4.1  Licensed properties

Under previous UK GAAP, freehold licensed properties were revalued at an open market value on an existing use basis as at 28 June 1997, and adjusted for subsequent disposals in accordance with FRS 15. Under FRS 102, the one-off option to revalue freehold licensed properties at the date of transition was taken, and these were revalued at an open market value as at 28 June 2014. Leasehold properties were not revalued. Deferred tax is provided on all revaluations under FRS 102 whereas previously provision was only made when a binding agreement existed at the balance sheet date to dispose of the assets concerned. Revaluation gains in excess of original cost are taken to Other Comprehensive Income and recognised in the Revaluation reserve.

 

The Company's FRS 102 opening balance sheet at 28 June 2014 shows £4,552,000 reclassified from property, plant and equipment to investment property and a revaluation increase of £68,391,000. The pre-tax impact for the year ended 27 June 2015 due to the difference in depreciation on these properties is an increase in operating costs of £80,000, and the difference in profit on disposal of properties is an increase in property profits of £153,000. The pre-tax impact for the year ended 27 June 2015 due to the difference in impairment charged following revaluation of the properties, is a decrease in operating costs of £312,000.

 

4.2  Investment properties

Under previous UK GAAP, investment property was classified as property held for its investment potential. As the value for the Company was not material relative to total property held, the unlicensed property was not classified separately as investment property. All property was valued at cost less depreciation. Under FRS 102, property (being land or buildings) held in order to earn rentals or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business, is classified as investment property. As a result, certain unlicensed property held by the Company has been reclassified as investment property and must accordingly be valued at fair value and revalued at each reporting date, with the changes in fair value recognised in the Profit and Loss Account.

 

The Company's FRS 102 opening balance sheet at 28 June 2014 shows £4,552,000 reclassified from property, plant and equipment to investment property, and a fair value increase of £1,916,000. At 27 June 2015 the fair value of the investment property was £10,071,000 and the pre-tax impact for the year ended 27 June 2015 due to the difference in fair value, is an increase in profit of £4,086,000. This is recognised in the Profit and Loss Account but excluded from the Company's definition of underlying operating profit.

 

4.3  Operating leases

Under previous UK GAAP, rentals receivable and payable under operating leases were included in turnover on an accruals basis. Under FRS 102, rentals receivable or payable are charged to the profit and loss account on a straight-line basis over the period of the lease.

 

As a result the Company's FRS 102 opening balance sheet at 28 June 2014 includes accrued income of £45,000 for those properties where the Company is the lessor and an accrual of £1,446,000 for increased lease expenses for those properties where the Company is the lessee. The pre-tax impact for the year ended 27 June 2015 is a net increase in operating costs of £224,000.

 

4.4  Financial Instruments

 

i) Discounting of financial assets

Under previous UK GAAP, basic debt instruments such as loans made to customers were accounted for at the transaction price. Under FRS 102, these arrangements constitute a financing transaction and as such are measured at amortised cost using the effective interest rate method.*

 

The Company's FRS 102 opening balance sheet at 28 June 2014 shows a provision of £225,000 to reflect the discounting of the loans to free trade customers (£154,000) and loans to tenanted customers (£71,000). The pre-tax impact for the year ended 27 June 2015 is a decrease in finance costs of £61,000 due to a net unwinding of the discounted provision.

 

ii)   Discounting of financial liabilities

Under previous UK GAAP, amortisation of bank loan issue costs was spread evenly over the period to repayment. Under FRS 102, the amortisation is calculated using the effective interest rate method.

 

The Company's FRS 102 opening balance sheet at 28 June 2014 shows a net asset of £21,000 to reflect the difference in amortisation of the bank loan costs. The pre-tax impact for the year ended 27 June 2015 is a decrease in finance costs of £3,000.

 

4.5  Short-term compensated absences

Under previous UK GAAP, the Company did not make provision for accrued holiday pay earned but not taken before the year end. FRS 102 requires the cost of short-term compensated absences to be recognised when employees render the service that increases their entitlement.

 

The Company's opening balance sheet at 28 June 2014 shows an accrual of £209,000 to reflect this. The accrual at 27 June 2015 had increased to £237,000 and the pre-tax impact for the year ended 27 June 2015 is an increase in operating costs of £28,000.

 

4.6  Interest rate swaps

Under previous UK GAAP, there was no requirement to recognise derivative financial instruments on the balance sheet. Instead the effects of the derivative financial instruments were recognised in profit or loss on settlement. The fair value was disclosed in the notes to the financial accounts, and calculated with reference to the expected future cash flows at prevailing interest rates. Under FRS 102, derivative financial instruments are classified as other financial instruments and are recognised as a financial asset or liability, at fair value, when an entity becomes party to the contractual provisions of the instrument. The fair values for interest rate swaps are a volatile value often referred to as "mark to market" value. This value is determined by marking the fixed rate within the swap against the market for forward interest rates. If forward interest rates are below the fixed swap rate then the swap will have a negative fair value for the Company. If forward interest rates are above the swap rate then there will be a positive fair value for the Company.

 

The Company's FRS 102 opening balance sheet at 28 June 2014 shows a financial liability of £15,520,000, representing interest rate swaps which are fully provided at fair value. At 27 June 2015, the fair value of the interest rate swaps was £17,783,000 and the resulting difference in liability of £2,263,000 has been recognised as other comprehensive income as the hedge is fully effective.

 

*The effective interest method is a method of calculating the actual interest rate in a period based on the amount of a financial instrument's book value at the start of the accounting period. The effective interest rate discounts the expected future cash inflows and outflows over the life of the financial instrument. The interest expense/income

in a period equals the carrying amount of the financial instrument at the beginning of the period multiplied by the effective interest rate for the period.

 

4.7  Deferred and current tax

FRS 102 accounting adjustments have been tax affected where appropriate.

 

Under FRS 102, deferred tax is accounted for on the basis of taxable timing differences that have originated but not reversed at the balance sheet date. FRS 102 requires a deferred tax liability to be recognised on the balance sheet on the revaluation of tangible fixed assets and on taxable gains that have been rolled over into new assets. Under previous UK GAAP this potential liability was disclosed in the notes to the accounts and only recognised on the balance sheet if there was a binding obligation to sell such assets at the balance sheet date. The FRS 102 balance sheet includes an additional net deferred tax liability of £7,207,000 arising from the transitional differences. At 27 June 2015, the net liability has increased to £7,318,000.

 

There is not expected to be a material change to the Company's underlying tax rate as a result of the implementation of FRS 102.

 

 

5.0  ACCOUNTING POLICIES

The following are the significant accounting policies applied in the preparation of the financial information presented in this document.

 

a  Tangible fixed assets and depreciation

Tangible fixed assets are stated at cost or valuation, net of depreciation and any provision for impairment, except in the case of licensed freehold properties, which were revalued to fair value on transition to FRS 102.

 

Assets under construction are not depreciated until they are brought into use. All other tangible assets are depreciated at varying rates calculated to write off their carrying value, less estimated residual value, evenly over their expected useful lives, as follows:

 

·     Freehold brewery buildings                                         25 years

·     Other freehold and long leasehold buildings              50 years

·     Short leaseholds                                                         over the lease term

·     Other plant, equipment, fixtures and vehicles            3 to 20 years

·     Computer hardware and software                              3 to 10 years

 

Residual value represents the estimated amount which would currently be obtained from disposal of an asset, after deducting estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

 

b  Investment properties

Investment properties are carried at fair value and measured at each reporting date with any change recognised in the profit and loss account.

 

c  Fixed asset investments

Fixed asset investments are measured at cost less impairment. The carrying values of the fixed asset investments are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.

 

d  Financial instruments

Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument. Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.

 

(i)  Financial assets and liabilities

All financial assets and liabilities are initially measured at transaction price (including transaction costs), except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value (which is normally the transaction price excluding transaction costs), unless the arrangement constitutes a financing transaction. If an arrangement constitutes a financing transaction, the financial asset or financial liability is measured at the present value of the future payments discounted at a market rate of interest for a similar debt instrument.

 

Debt instruments are subsequently measured at amortised cost using the effective interest method. Debt instruments that are classified as payable or receivable within one year on initial recognition and which meet certain conditions, are measured at the undiscounted amount of the cash or other consideration expected to be paid or received, net of impairment.

 

Financial assets are derecognised when and only when a) the contractual rights to the cash flows from the financial asset expire or are settled, b) the Company transfers to another party substantially all of the risks and rewards of ownership of the financial asset, or c) the Company, despite having retained some, but not all, significant risks and rewards of ownership, has transferred control of the asset to another party.

 

Financial liabilities are derecognised only when the obligation specified in the contract is discharged, cancelled or expires.

 

ii)  Derivative financial instruments - Hedge accounting

The Company uses derivative financial instruments (interest rate swaps) to adjust interest rate exposures. The Company does not hold or issue derivative financial instruments for speculative purposes.

 

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at each reporting date. At the inception of the hedge relationship, the economic relationship between the hedging instrument and the hedged item is documented, along with the risk management objectives and clear identification of the risk in the hedged item that is being hedged by the hedging instrument. Furthermore, at the inception of the hedge the Company determines and documents causes for hedge ineffectiveness.

 

The interest rate swaps are classified as cash flow hedges because the derivative financial instruments hedge the variable interest rate risk of the cash flows associated with the recognised debt instrument measured at amortised cost (the £60m long term loan to 2026).

 

The effective portion of changes in the fair value of the designated hedging instrument is recognised in other comprehensive income. The gain or loss relating to any ineffective portion is recognised immediately in profit or loss. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods in which the hedged item affects profit or loss or when the hedging relationship ends.

 

Hedge accounting is discontinued when the Company revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any gain or loss accumulated in equity at that time is reclassified to profit or loss when the hedged item is recognised in profit or loss. When a forecast transaction is no longer expected to occur, any gain or loss that was recognised in other comprehensive income is reclassified immediately to profit or loss.

 

e Stocks

Stocks are stated at the lower of cost and estimated selling price less costs to sell, which is equivalent to the net realisable value. Cost of own beers produced includes materials and directly attributable fixed and variable production overheads. Cost is calculated using the average cost method. Provision is made for obsolete, slow-moving or defective items where appropriate.

 

f  Accounting for leases

Rentals payable and receivable under operating leases are charged on a straight-line basis over the lease term, even if the payments are not made on such a basis.

 

g  Impairment of assets

Assets, other than those measured at fair value, are assessed for indicators of impairment at each balance sheet date. If there is objective evidence of impairment, an impairment loss is recognised in the Profit and Loss Account as described below.

Non-financial assets

An asset is impaired where there is objective evidence that, as a result of one or more events that occurred after initial recognition, the estimated recoverable value of the asset has been reduced. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use.

 

Where indicators exist for a decrease in impairment loss, the prior impairment loss is tested to determine reversal. An impairment loss is reversed on an individual impaired asset to the extent that the revised recoverable value does not lead to a revised carrying amount higher than the carrying value had not impairment been recognised.

 

Financial assets

For financial assets carried at amortised cost, the amount of an impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate.

 

For financial assets carried at cost less impairment, the impairment loss is the difference between the asset's carrying amount and the best estimate of the amount that would be received for the asset if it were to be sold at the reporting date.

 

Where indicators exist for a decrease in impairment loss, and the decrease can be related objectively to an event occurring after the impairment was recognised, the prior impairment loss is tested to determine reversal. An impairment loss is reversed on an individual impaired financial asset to the extent that the revised recoverable value does not lead to a revised carrying amount higher than the carrying value had no impairment been recognised.

 

h Taxation

 

(i) Current tax

Corporation tax payable is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

 

(ii) Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the

balance sheet date where transactions or events that will result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.

 

Unrelieved tax losses and other deferred tax assets are recognised only to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

 

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on the tax rate and laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax relating to property, plant and equipment measured using the revaluation model and investment property is measured using the tax rates and allowances that apply to sale of the asset.

 

The tax expense or income is presented in the same component of comprehensive income or equity as the transaction or other event that resulted in the tax expense or income.

 

i Turnover

Turnover is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on dispatch of the goods; or on provision of service. Turnover comprises the invoice value of goods inclusive of excise duty and services, net of VAT and discounts. Rental income received from tied estate properties is recognised in the period to which it arises on an accruals basis.

 

j  Retirement benefits

The company operates defined contribution pension schemes. Contributions are charged to the profit and loss account as they become payable in accordance with the rules of the schemes.

 

Other long-term employee benefits are measured at the present value of the benefit obligation at the financial reporting date.

k  Dividends

Dividends payable are shown as a movement in reserves when declared (interim dividend) or approved (final dividend).

 

l  Share-based payment

All options are equity settled. The cost of equity settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined using the Black Scholes pricing model which is considered by management to be the most appropriate method of valuation. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company (market conditions). The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to market-based conditions not achieving the threshold for vesting.

 

At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions. The movement in cumulative expense since the previous balance sheet is recognised in the profit and loss account, with a corresponding entry in equity.

 

 

6.0  FINANCIAL STATEMENTS

 

6.1 Profit and Loss Account for the 52 weeks ended 27 June 2015

 

 

 

 

 

 

 

Previous

FRS 102

 

 

 

 

 

 

 

UK GAAP

Adjustments

FRS 102

 

 

 

 

 

 

£'000

£'000

£'000

Turnover

 

 

 

 

138,267

(30)

138,237

Operating charges

 

 

 

 

(124,177)

(302)

(124,479)

Underlying operating profit

 

 

14,090

(332)

13,758

Operating items excluded from underlying results

 

 

(375)

312

(63)

Operating profit

 

 

 

 

13,715

(20)

13,695

Net finance costs

 

 

 

 

(4,488)

64

(4,424)

Profit on disposal of property

 

 

 

 

201

153

354

Investment property fair value movements

 

 

-

4,086

4,086

Profit on ordinary activities before taxation

 

 

9,428

4,283

13,711

Taxation

 

 

 

 

(2,171)

(563)

(2,734)

Profit after taxation

 

 

 

 

7,257

3,720

10,977

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

 

 

 

49.1p

25.2p

74.3p

Underlying basic earnings per share

 

 

50.3p

(1.6p)

48.7p

Diluted earnings per share

 

 

 

 

48.8p

25.0p

73.8p

                   

 

 

6.2 Statement of Comprehensive Income for the 52 weeks ended 27 June 2015

 

 

 

Previous UK

 GAAP

£'000

FRS 102 Adjustments

£'000

FRS 102

£'000

Profit after taxation

7,257

3,720

10,977

Losses arising on cash flow hedges during the period

-

(2,263)

Tax relating to components of other comprehensive income

-

453

453

Other comprehensive losses for the period

-

(1,810)

(1,810)

Total comprehensive income for the period

7,257

1,910

9,167

Profit for the period attributable to equity shareholders of the Company

7,257

3,720

10,977

Total comprehensive income for the period attributable to equity shareholders of the Company

7,257

1,910

9,167

 

 

 

6.3 Balance Sheet as at 27 June 2015

 

 

 

 

 

Previous UK

GAAP

FRS 102

Adjustments

 

FRS 102

 

£'000

£'000

£'000

Fixed assets

 

 

Tangible fixed assets

204,468

74,779

279,247

Investments and loans

816

(103)

713

 

205,284

74,676

279,960

Current assets

 

 

Stock

7,001

-

7,001

Debtors

16,150

(47)

16,103

Deferred tax asset due after one year

-

3,965

3,965

Cash

6,793

-

6,793

 

29,944

3,918

33,862

Creditors: amounts falling due within one year

 

 

Bank loans and overdrafts

(1,987)

-

(1,987)

Creditors

(23,919)

(237)

(24,156)

 

(25,906)

(237)

(26,143)

Net current assets

4,038

3,681

7,719

Total assets less current liabilities

209,322

78,357

287,679

Creditors: amounts falling due after more than one year

 

 

Bank loans

(73,616)

24

(73,592)

Derivative financial instruments

-

(17,783)

(17,783)

Deferred lease liability

-

(1,640)

(1,640)

Provision for liabilities

(3,556)

(11,282)

(14,838)

Net assets

132,150

47,676

179,826

 

 

 

 

Capital and reserves

 

 

 

Called up share capital

7,429

-

7,429

Share premium account

1,099

-

1,099

Revaluation reserve

12,170

60,260

72,430

Reserve for own shares held

(827)

-

(827)

Hedging reserve

-

(14,226)

(14,226)

Profit and loss account

112,279

1,642

113,921

Equity shareholders' funds

132,150

47,676

179,826

  

 

6.4 Statement of changes in equity for the 52 weeks ended 27 June 2015

 

 

 

Share capital

£'000

Share premium

£'000

Revaluation reserve

£'000

Own shares held

£'000

Hedging reserve

£'000

Profit and loss account

£'000

Total

£'000

Balance at 28 June 2014 as previously stated

7,429

1,099

13,125

(908)

-

108,006

128,751

Changes on transition to FRS 102

-

-

60,167

-

(12,416)

(1,985)

45,766

Balance at 28 June 2014 as restated

7,429

1,099

73,292

(908)

(12,416)

106,021

174,517

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

10,977

10,977

Losses arising on cash flow hedges during the period

-

-

-

-

(2,263)

-

(2,263)

Tax relating to components of other comprehensive income

-

-

-

-

453

-

453

Total comprehensive income

-

-

-

-

(1,810)

10,977

9,167

Ordinary dividends paid

-

-

-

-

-

(3,861)

(3,861)

Transfer of realised revaluation

-

-

(862)

-

-

862

-

Accrued share based payments

-

-

-

-

-

425

425

Purchase of own shares

-

-

-

(465)

-

-

(465)

Distribution of own shares

-

-

-

405

-

(362)

43

Unconditionally vested share awards

-

-

-

141

-

(141)

-

Balance at 27 June 2015

7,429

1,099

72,430

(827)

(14,226)

113,921

179,826

 

 

 

6.5 FRS 102 Balance Sheet restatement as at 28 June 2014

 

 

 

 

 

Previous UK

GAAP

FRS 102

Adjustments

 

FRS 102

 

£'000

£'000

£'000

Fixed assets

 

 

 

Tangible fixed assets

201,591

70,307

271,898

Investments and loans

1,073

(154)

919

 

202,664

70,153

272,817

Current assets

 

 

 

Stock

6,417

-

6,417

Debtors

18,202

(26)

18,176

Deferred tax asset due after one year

-

3,480

3,480

Cash

5,981

-

5,981

 

30,600

3,454

34,054

Creditors: amounts falling due within one year

 

 

 

Bank loans and overdrafts

(1,987)

-

(1,987)

Creditors

(23,477)

(209)

(23,686)

 

(25,464)

(209)

(25,673)

Net current assets

5,136

3,245

8,381

Total assets less current liabilities

207,800

73,398

281,198

Creditors: amounts falling due after more than one year

 

 

 

Bank loans

(75,463)

21

(75,442)

Derivative financial instruments

-

(15,520)

(15,520)

Deferred lease liability

-

(1,446)

(1,446)

Provision for liabilities

(3,586)

(10,687)

(14,273)

Net assets

128,751

45,766

174,517

 

 

 

 

Capital and reserves

 

 

 

Called up share capital

7,429

-

7,429

Share premium account

1,099

-

1,099

Revaluation reserve

13,125

60,167

73,292

Reserve for own shares held

(908)

-

(908)

Hedging reserve

-

(12,416)

(12,416)

Profit and loss account

108,006

(1,985)

106,021

Equity shareholders' funds

128,751

45,766

174,517

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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