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19-Nov-2010: Half Year Results



FULLER, SMITH & TURNER P.L.C.



Financial results for the 26 weeks ended 25 September 2010



Financial Performance


· Revenue up 4% to £121.5 million (2009: £116.9 million1)

· Adjusted1 profit before tax up 11% to £15.7 million (2009: £14.1 million)

· Profit before tax up 11% to £16.8 million (2009: £15.1 million)

· EBITDA2 up 6% to £24.1 million (2009: £22.7 million)

· Adjusted earnings per share3 up 11% to 19.96p (2009: 17.95p)

· Basic earnings per share4 up 23% to 23.70p (2009: 19.21p)

· Interim dividend4 up 6% to 4.75p (2009: 4.50p)



Corporate Progress


· Managed Pubs and Hotels LFL sales up 3.3%

· Managed Pubs and Hotels profits up 8%

· Tenanted Inns LFL profits up 1%

· Total Beer volumes up 1%

· Net debt5 / EBITDA reduced to 2.1 times6



1 Adjusted profit measures exclude exceptional items
2 Pre-exceptional earnings before interest, tax, depreciation, loss on disposal of plant and equipment and amortisation
3 Calculated using adjusted profits after tax and the same weighted average number of shares as for the basic earnings per share and using a 40p ordinary share
4 Calculated on a 40p ordinary share
5 Net debt comprises cash and short term deposits, bank overdraft, bank loans, loan notes, debenture stock and preference shares
6 Calculated using EBITDA for the 52 week period to 25 September 2010




Commenting on the results, Michael Turner, Chairman of Fuller's, said:



"I am pleased to announce an excellent set of results for the first half of our financial year in what has been another challenging period for the industry. Profits have grown in all parts of the business, with particularly strong performances in our Managed Pubs and Hotels led by growth in accommodation and food sales. Adjusted profits before tax (excluding exceptional items) increased by 11% to £15.7 million (2009: £14.1 million), with adjusted earnings per share up 11% to 19.96p (2009: 17.95p).



Our Managed Pubs and Hotels, the largest part of our business, achieved a 3.3% increase in like for like sales, whilst our Tenanted Inns again put in a robust performance, out-performing the industry, as like for like profits increased by 1%. The Fuller's Beer Company's total beer volumes grew by 1%.



We continue to make good progress and like for like sales in our Managed Pubs and Hotels grew by 3.5% for the 33 weeks to 13 November 2010.



Our first half performance has again been boosted by low interest rates and our borrowing costs will rise in the second half. In January VAT will increase to 20% and we expect that, with the announced Government spending cuts, the economic climate is likely to remain challenging for some considerable time.



Nevertheless, we expect the spending cuts to impact the South of England less than other parts of the UK and we are confident that with our strong brands and high quality, well invested estate, we are well placed for further growth."



- Ends -



For further information, please contact:

Fuller, Smith & Turner P.L.C.

Press Office 020 8996 2198 / 2048 / 2175

07889 396197

E-mail: pr@fullers.co.uk



Michael Turner, Chairman: Press 020 8996 2048

James Douglas, Finance Director: Analysts 020 8996 2048



Merlin 020 7726 8400
Paul Downes 07900 244888

Toby Bates 07876 161314



Notes to Editors
Copies of this statement, the Half Year Report and results presentation will be available on the Company's website, www.fullers.co.uk.



Attached:

Chairman's Statement

Unaudited Condensed Group Income Statement

Unaudited Condensed Group Statement of Comprehensive Income

Unaudited Condensed Group Balance Sheet

Unaudited Condensed Group Statement of Changes in Equity

Unaudited Condensed Group Cash Flow Statement

Notes to the Financial Statements



FULLER, SMITH & TURNER P.L.C.

HALF YEAR RESULTS FOR THE 26 WEEKS ENDED

25 SEPTEMBER 2010





CHAIRMAN'S STATEMENT



Whatever You Do, Take Pride


INTRODUCTION



I am pleased to announce an excellent set of results for the first half of our financial year in what has been another challenging period for the industry. Profits have grown in all parts of the business, with particularly strong performances in our Managed Pubs and Hotels led by growth in accommodation and food sales. Adjusted profits before tax (excluding exceptional items) increased by 11% to £15.7 million (2009: £14.1 million), with adjusted earnings per share up 11% to 19.96p (2009: 17.95p).



Our aim is to be the benchmark in retailing and brewing, delivering Quality, Service and Pride in everything we do. Our strategy for achieving this remains fundamentally unaltered, with a long term focus, and a culture of style not fashion. We have an unrivalled portfolio of beer brands which enjoy a premium position, our borrowings are modest and we have an excellent, largely freehold estate of pubs in the South of England.



Revenue rose by 4% to £121.5 million (2009: £116.9 million), and EBITDA increased by 6% to £24.1 million (2009: £22.7 million). We remain strongly cash generative and reduced our net debt from £107.7 million at the start of the financial year to £93.6 million by the end of September. Finance costs fell 17% to £2.4 million (2009: £2.9 million), making a significant contribution to our earnings growth.



Our Managed Pubs and Hotels, the largest part of our business, achieved a 3.3% increase in like for like sales. Revenue increased by 4% to £74.8 million (2009: £71.6 million). Pre-exceptional operating profits increased by 8% to £10.3 million (2009: £9.5 million).



Our Tenanted Inns again put in a robust performance, out-performing the industry, as like for like profits increased by 1%. Revenue increased by 2% to £13.5 million (2009: £13.3 million) and our pre-exceptional operating profits also increased by 2% to £5.1 million (2009: £5.0 million).



The Fuller's Beer Company's total beer volumes grew by 1%, in a challenging and changing market. The overall volume growth comprised a decline of 2% in Own Beer volumes offset by a 6% increase in Foreign Beer volumes (principally lager). Revenue grew by 4% to £51.3 million (2009: £49.4 million) and operating profits grew by 5% to £4.1 million (2009: £3.9 million). We continue to invest in promoting London Pride, our flagship brand. It is the UK's leading premium ale, and a new, heavyweight television, poster and digital campaign was launched during October. This features Top Gear's James May and is in line with our objective to target new sales channels and recruit new customers to the brand.





FINANCIAL PERFORMANCE



Our balance sheet remains in very good health and I am pleased to report that the Group's net debt has fallen by £14.1 million since the year end to £93.6 million notwithstanding £6.1 million of capital investment in the period. Proceeds of £2.6 million from the disposal of non-core properties, including two tenanted pubs, have further assisted cash generation. We had in excess of £33 million undrawn committed banking facilities at the end of the period.



Whilst we arranged a new five year bank facility in May 2010, we benefited from being able to draw on the old facilities until they matured in early November. The new borrowings carry a higher margin than the old facilities but we have mitigated the forthcoming increased cost by taking advantage of lower market interest rates; since May we have entered into contracts to hedge the interest rate risk on £60 million of our new bank borrowings for the next five years. As of 25 September, 93% of the Group's borrowings were at fixed or capped rates. We expect the blended cost of finance on our debt to be 4.5% for the full year.



The extent of the strong cash generation in the period is demonstrated by our net debt already being lower than it was at the end of March 2009, before we acquired nine iconic London freehold pubs for £30.2 million. On an annualised basis the ratio of net debt to EBITDA, which reached 2.8 times in April 2009, has now fallen back to 2.1 times. Net finance costs decreased by 17% to £2.4 million (2009: £2.9 million), mainly due to a £0.4 million decrease in net pension finance costs. However total pension costs remain broadly level with the first half of last year as there was a corresponding increase of £0.3 million in the current service pension costs included within operating profit.



The deficit on the defined benefit pension scheme rose from £12.7 million to £16.4 million during the period, despite employer contributions of £1.0 million. The increase in the deficit is due to the accounting value of the liabilities increasing in line with the reduction in corporate bond rates since March. The triennial valuation of the scheme as at 30 July 2010 is underway and will be completed by the time of the annual report.



Exceptional items in the income statement were a net gain of £1.1 million and comprised profits on the disposal of non-core properties of £1.6 million, insurance claim proceeds (net of costs) of £0.4 million, offset by £0.9 million of property impairments. Exceptional items in the same period last year comprised profits on the disposal of non-core properties of £1.0 million.



Tax has been provided for at an effective rate of 28.7% (2009: 29.1%) on adjusted profits. The overall effective tax rate for the period is 20.8% (2009: 29.1%) and benefits from an exceptional deferred tax credit of £1.3 million, relating to the reduction in corporation tax rate to 27% from 1st April 2011.



In addition to the 11% increase in adjusted profit before tax, the combined effects of the exceptional items caused basic earnings per share to increase by 23% to 23.70p (2009: 19.21p).



During the period, 180,000 'A' ordinary shares and 13,000 'B' ordinary shares were purchased for £1.1 million by the Trustees of the Share Incentive Plan and LTIP Trustees to cover future issuance (2009: 169,000 'A' ordinary shares for £0.8 million).







DIVIDEND



The Board has approved an increase of 6% in the interim dividend to 4.75p (2009: 4.50p) per 40p 'A' and 'C' ordinary share and 0.475p (2009: 0.450p) per 4p 'B' ordinary share. This will be paid on 4 January 2011 to shareholders on the share register as at 17 December 2010.





FULLER'S INNS


Fuller's Inns operates Managed Pubs, Hotels and Tenanted Inns. Our key operational measure for Managed Pubs and Hotels is like for like sales growth and for the 26 week period this increased by 3.3%. Our key operational measure for Tenanted Inns is like for like profit growth. For the 26 week period, this improved by 1% which we believe is an industry leading result.



Our strategy is for all of our pubs to hold a premium position in the marketplace, with an offer built around outstanding cask ale, delicious food, great wines and exemplary customer service. We seek to exploit accommodation opportunities and we invest appropriately in our properties to ensure that they are a great place to socialise. We aim to acquire more Managed Pubs and Hotels and we will divest of pubs which cannot match our brand criteria.



We have chosen to build our pub estate in London and the South of England. Asset prices tend to be higher in these areas than other regions but we believe that this is the place to be and that further acquisition opportunities will arise in this area. London has been shown to be a resilient marketplace and with forthcoming events ranging from the Olympics to the Royal Wedding there will be plenty of attractions bringing customers to the capital.



Two Tenanted Inns were sold during the period and the estate stood at 364 properties on 25 September 2010 of which 163 were operated as Managed Pubs and Hotels and 201 were operated as Tenanted Inns.



Managed Pubs and Hotels


Revenue increased by 4% to £74.8 million (2009: £71.6 million). Pre-exceptional operating profits increased by 8% to £10.3 million (2009: £9.5 million) and EBITDA increased by 7% to £14.4 million (2009: £13.4 million).



The strongest growing segment in our Managed Pubs and Hotels was the accommodation business which has rebounded strongly from a tough prior year. Investments made in pubs such as the Hampshire Hog, Clanfield and The Pilgrim Inn, Marchwood have borne fruit and contributed to this. Also last year we strove to maintain the average room rate charged and this was key to our performance as occupancy improved. Accommodation revenue grew by 11.4% on a like for like basis and now accounts for 7% of total revenue (2009: 6%). We now have 487 bedrooms across the Managed estate and we will continue to add to this number, with a 27 bedroom scheme currently under development at the Drayton Court in Ealing.



Food sales grew 4.2% on a like for like basis and represent 29% of revenue (2009: 28%), excluding the 12 pubs where food is provided by Thai franchisees. Our focus on freshly-cooked food made from locally-sourced produce where possible differentiates us from our competitors and we believe is a key driver of this growth.



Wet sales grew by 2.3% on a like for like basis, with cask ale again outperforming lager, reflecting our commitment to outstanding cask ales. As we anticipated, the football World Cup had a minimal overall effect on the business; the good weather for the first half of the summer was far more significant.



The 11 Central London pubs acquired during 2009 are fully integrated into our business. They have all traded well over the period and benefited from a programme of investment to ensure they meet the high standards of the Fuller's estate.



We increased our capital spending across the Managed Estate compared to the same period last year and also spent more on repairs and maintenance. A major refurbishment at the historic Wykeham Arms, Winchester during September has been well-received and a number of smaller projects across the estate have also been completed to maintain the quality that our customers have come to expect from Fuller's pubs.


Tenanted Inns


Revenue increased by 1% to £13.5 million (2009: £13.3 million), assisted by strong Foreign Beer sales and good early summer weather.



Operating profits rose by 2% from £5.0 million to £5.1 million, whilst EBITDA climbed 2% to £5.9m. Like for like profits were up 1%.



We continue to work closely with our Tenants, developing strong business plans to manage the impact of the economic downturn together. As part of these plans, we have chosen to cap increases to indexed rents at 3% regardless of RPI until the end of the current financial year. Our programme of investment in the tenanted arm of the business remains strong with small, targeted investments made in partnership with our Tenants, focusing on customer-facing areas.



During the period two pubs were sold, the Seven Stars, Kensington, and the White Horse, South Bersted with a further two sold since the period end, the Fur and Feathers, Basingstoke and the White Bear, Hounslow.



Fuller's Master Cellarman initiative remains the ultimate mark of quality within our pubs. Only Tenants with the highest standards of serve and cellar management achieve this award, and 87 of our Tenants now hold this gold standard.






THE FULLER'S BEER COMPANY


The Fuller's Beer Company operates a single brewery in Chiswick. We have diversified routes to market via Fuller's Inns, other On-Trade outlets, the Off-Trade and Export markets. We have an unrivalled portfolio of premium beer brands which have a broad customer appeal. It is this broad-based strategy that has enabled us, in tough market conditions, to record a good performance with revenue up 4% to £51.3 million (2009: £49.4 million). Operating profits increased by 5% to £4.1 million (2009: £3.9 million) and EBITDA increased by 6% to £5.2 million (2009: £4.9 million),

driven by total beer volume growth of 1%.



Total volumes of Own Beer sold across all trade channels declined by 2% to 107,100 barrels (2009: 109,500 barrels) as a result of the challenging climate of the UK Free On-Trade market where Fuller's volumes declined 11%. This decline was offset by good sales in the Off-Trade with growth of 8%, and Export volumes which grew 25%. Our major markets of North America and Northern Europe generated the majority of the overseas growth, and we have seen substantial increases in our newer markets such as Russia and Japan. Exports now account for 14% (2009: 11%) of our total brewed volume and profitability is at record levels, aided by the weaker pound. Our Foreign Beer volumes rose by 6% to 59,000 barrels.



These figures highlight how our diversified sales channel strategy is working for us, driving volume growth in the strong segments whilst limiting our overall exposure to any one route to market.



London Pride remains our leading brand and reinforced its position as the UK's number one premium ale by growing its share of the UK ale market, which was down 8%. This year, London Pride again topped the Publican magazine Licensee's Choice as the cask ale that landlords would most like to have on their bar, while the Morning Advertiser awarded us the title of Regional Cask Ale Supplier for the South East.



We have created a new poster, television and online advertising campaign for London Pride featuring BBC Top Gear's James May, which we launched in October 2010. The campaign is designed to broaden the brand's appeal and to reach new drinkers. We have also continued to support the brand with our key long term sponsorships of the English Golf Union and the London Marathon. These partnerships have raised the brand's profile among key target audiences and are extremely valuable in growing awareness of London Pride. Marketing costs were level with the first half of last year, but with the launch of the new James May campaign, we expect these to rise by £0.3 million in the second half of the year.



Our portfolio of high quality beers performed well over the period with Organic Honey Dew and ESB standing out. Our seasonal ale programme remains very successful, particularly in recruiting new drinkers and in launching new brands, the most recent of which are Seafarers and Bengal Lancer.



Our wine business continued to grow its volumes, with a particularly strong performance coming from sales through our direct delivered Free Trade. Our one-stop-shop, offering premium products and a premium service is increasingly attractive to independent free traders looking to stand out in a tough market.





PEOPLE



The business is now even stronger than before the recession and it is the continued hard work of our staff which has enabled Fuller's to deliver another set of record results. I would like to thank all of our employees for their contribution. I was delighted that Simon Emeny was appointed Group Managing Director with effect from 1st November 2010 and I look forward to continuing to work with him in his new role, maintaining Fuller's successful track record.





CURRENT TRADING AND PROSPECTS


We continue to make good progress and like for like sales in our Managed Pubs and Hotels grew by 3.5% for the 33 weeks to 13 November 2010.



During the first half of the year we continued to invest in the fabric of our estate. In the full year, we expect to spend a total of £12 million on capital projects excluding pub acquisitions.



We have new bank facilities in place and the ability to capitalise on acquisition opportunities as they arise. However, we remain highly selective and are prepared to wait for the right assets to become available.



Our first half performance has again been boosted by low interest rates and our borrowing costs will rise in the second half. In January VAT will increase to 20% and we expect that, with the announced Government spending cuts, the economic climate is likely to remain challenging for some considerable time.



Nevertheless, we expect the spending cuts to impact the South of England less than other parts of the UK and we are confident that with our strong brands and high quality, well invested estate, we are well placed for further growth.



The current financial year will be a 53 week period ending on 2 April 2011. The next Interim Management Statement will be issued on 28 January 2011.



Michael Turner

Chairman

19 November 2010

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Category: Half Year Results

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