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10-Jun-2011: Financial results for the 53 weeks ended 2 April 2011

Financial results for the 53 weeks ended 2 April 2011



Financial Performance



  • Revenue up 6% to £241.9 million (2010: £227.7 million)
  • Adjusted profit before tax[1] up 10% to £29.3 million (2010: £26.6 million)
  • Profit before tax up 16% to £31.0 million (2010: £26.8 million)
  • EBITDA[2] of £46.6 million (2010: £43.6 million)
  • Adjusted earnings per share[3] up 9% to 37.36p (2010: 34.19p)
  • Basic earnings per share[4] up 28% to 44.12p (2010: 34.37p)
  • Final dividend4 increased by 8% to 7.05p (2010: 6.50p[5])


Corporate Progress



  • Another very strong set of results
  • Managed Pubs and Hotels profits6 up 15% with like for like sales up 3.9%
  • Tenanted Inns profits[6] level
  • Total Beer volumes up 2%
  • Net Debt to EBITDA reduced to 1.9 times
  • Since year end four pubs acquired and major brewery investment underway


“I am pleased to announce a very strong set of results for the financial year driven by an excellent performance in our Managed Pubs and Hotels. Our revenues grew by 6% to £241.9 million (2010: £227.7 million) and adjusted profit before tax (excluding exceptional items) increased by 10% to £29.3 million (2010: £26.6 million). Our adjusted earnings per share rose by 9% to 37.36p (2010: 34.19p).



“Over the last five years our adjusted earnings per share have grown 71% demonstrating the Company’s long term consistent out performance of the market. During this period the UK economy has endured the deepest trough since the Second World War and has still not recovered to its pre-recession level.



“We have made a good start to the new financial year in what has been a very unusual first nine weeks of trading with a Royal Wedding, five bank holidays and generally very good weather. Like for like sales in our Managed Pubs and Hotels for the nine weeks to 4 June 2011 have grown by 6.8%. For the same period total beer volumes are 1% higher than last year, with continued weakness in the UK On Trade again offset by growth elsewhere, particularly Exports and the Off Trade.



“With wages in the UK running behind inflation, our customers’ incomes are being squeezed and we will have to work hard in the current year and beyond to earn their custom. We believe, however, that as the consumer is forced to become ever more discerning, our high quality offer of leading beer brands and well invested, often historic, pubs will be increasingly attractive and position us well for growth. We have the financial strength to invest further in new opportunities and should benefit from the “London factor” as the calendar turns towards 2012.



Ends



For further information please contact:



Fuller, Smith & Turner P.L.C.

Press Office: 0208 996 2198/ 2048 / 2175

07789 396197

Email: pr@fullers.co.uk





Merlin

Toby Bates 07876 161314

Paul Downes 07900 244888



Copies of this statement, the Preliminary Announcement and results presentation will be available on the Company’s website, www.fullers.co.uk The presentation will be available from 12.00 pm on 10 June 2011










FULLER, SMITH & TURNER P.L.C.



FINANCIAL RESULTS FOR THE 53 WEEKS ENDED 2 APRIL 2011



CHAIRMAN’S STATEMENT



Whatever You Do, Take Pride



I am pleased to announce a very strong set of results for the financial year driven by an excellent performance in our Managed Pubs and Hotels. Our revenues grew by 6% to £241.9 million (2010: £227.7 million) and adjusted profit before tax (excluding exceptional items) increased by 10% to £29.3 million (2010: £26.6 million). Our adjusted earnings per share rose by 9% to 37.36p (2010: 34.19p).



Over the last five years our adjusted earnings per share have grown 71% while our full year dividend has grown 49%, demonstrating the Company’s long term consistent out performance of the market. During this period the UK economy has endured the deepest trough since the Second World War and has still not recovered to its pre-recession level.



During the year our Managed Pubs and Hotels performed extremely well and like for like sales increased 3.9% driven by growth in accommodation, food and drinks sales and the resilient economy of London and the South East. The eleven iconic pubs purchased in 2009 had a strong trading year.



The damaging effects of duty rises can be seen in the performance of both the Tenanted Inns, where like for like profits were 1% lower, and Fuller’s Beer Company, where Own Beer volumes were static for the 53 week period.



This year we were again delighted to be recognised as The Publican’s Regional Brewer of the Year, an accolade we have been awarded three times in the last five years, as well as the title of Managed Pub Company of the Year for the third time in eight years. We continue to invest in our flagship brand, London Pride, which remains the UK’s leading Premium Ale. London Pride grew its share of the UK ale market[7] in the period to become the number one Free Trade cask ale in the country[8]. However, it is in the Beer Company where the impact of stifling duty increases is most stark: our UK volumes fell 4% whereas Export volumes, where much lower foreign duties apply, grew 16%.



Despite taking the opportunity to increase our committed bank facilities, we reduced our net debt by £19.2 million to £88.5 million (2010: £107.7 million) as, unusually, we did not purchase any pubs during the year. However, since the year end we have agreed to acquire four pubs. Total capital expenditure last year was £12.0 million, and we invested across the existing pub estate with an emphasis on improving customer-facing areas. At the year end we had £34.5 million of undrawn committed funds through our new £100.0 million bank facility that runs until May 2015.



EBITDA increased by 7% to £46.6 million (2010: £43.6 million) and the ratio of net debt to EBITDA has now fallen to 1.9 times (2010: 2.5 times), which gives us great flexibility to invest in future opportunities.



Net exceptional profits before tax were £1.7 million and comprised a profit on the disposal of properties of £2.7 million and insurance claim income of £0.4 million, both offset by property impairments of £1.4 million. After exceptional items, our profit before tax was therefore £31.0 million (2010: £26.8 million). We also benefitted from a non-cash exceptional deferred tax credit of £2.6 million relating to the reduction in the UK corporation tax rate from 28% to 26% which came into effect on 1 April 2011. The impact of these items was that our basic earnings per share were 44.12p (2010: 34.37p).



Net finance costs reduced to £4.8 million from £5.4 million as our finance charge on net pension liabilities fell from £0.9 million to £0.1 million. Net borrowings reduced from £107.7 million at the start of the year to £88.5 million at the year end but interest expense on these borrowings rose slightly from £4.3 million to £4.4 million as our new bank facility was more expensive than the one it replaced, which had been arranged prior to the financial crisis. Our blended cost of borrowings rose from 4.4% last year to 4.5% this year. We expect that with our planned capital investments this will rise to circa 5.1% next year.



Tax has been provided for at an effective rate of 28.3% (2010: 28.2%) on adjusted profits. The Group’s overall effective tax rate was boosted by the one-off effect of the reduction in UK corporation tax rates from 28% to 26% and was 20.0% (2010: 28.4%).



The accounting deficit for defined benefit pensions has decreased by £6.3 million to £6.4 million (2010: £12.7 million). The year on year reduction in the accounting deficit was driven by a further recovery in asset prices during the year with the value of scheme assets increasing from £71.1 million to £77.1 million.



DIVIDEND



The Board recommends a final dividend of 7.05p per 40p “A” and “C” ordinary share and 0.705p per 4p “B” ordinary share be paid on 3 August 2011 to shareholders on the share register as at 1 July 2011. This is an 8% increase on last year’s final and second interim dividend taken together. The total dividend per share of 11.80p per 40p “A” and “C” ordinary share and 1.18p per 4p “B” ordinary share represents a 7% increase on last year and will be covered more than three times by adjusted earnings per share.





FULLER’S INNS



We operate Managed Pubs and Hotels, where we control all aspects of the business, and Tenanted Inns, where we own the pub but it is run by a self-employed entrepreneur who sells our beers and operates under our brand. At the year end we had 162 Managed Pubs and 196 Tenanted Inns in the portfolio, eight fewer than at the start of the period as we disposed of a number of properties which no longer matched our criteria. Since the year end we have agreed to acquire a further three properties for the Managed Pubs and Hotels division and one Tenanted Inn.




Managed Pubs and Hotels



Revenues across our Managed Pubs and Hotels business increased by 7% from £137.9 million to £147.2 million. Like for like sales grew by 3.9% with the balance of sales growth coming from the impact of the 53rd week and the full year effect of pubs acquired in the previous year. Operating profits before exceptional items grew by 15% to £18.1 million (2010: £15.8 million) driven almost equally by sales growth and margin expansion, the latter improving from 11.5% to 12.3%. EBITDA grew by 12% to £26.6 million (2010: £23.7 million). The eleven pubs purchased in 2009 performed extremely well this year with sales up 20% under our ownership.



Four Pillars



The four pillars of our business - outstanding cask conditioned ales, delicious food, great wines, and engaging service - remain the cornerstone of our pub estate. Accommodation, food and drinks all showed strong like for like sales growth up 11.6%, 5.1% and 3.2% respectively.



Cask ale sales have continued to grow in our own estate, achieved partly by the introduction of new beers like Bengal Lancer and Spring Sprinter which add extra interest to our range and give customers further incentives to visit Fuller’s Pubs. Our range of lagers and great wines, handpicked in order to tailor our retail offering to local markets, ensure our pubs remain the gold standard.



Food



Our focus on recruiting and developing skilled chefs to cook fresh food with locally sourced ingredients sets us apart from our competition. Excluding the twelve sites where we run franchised food operations, our food sales represented 29% of total sales in our Managed Pubs and Hotels (2010: 28%). The 5.1% like for like sales growth achieved last year was a direct result of increasing the number of covers as menu prices remained level. Despite our commitment to quality, we managed to hold food cost inflation to 2%, substantially less than UK inflation rate of 4.5%[9].



We see food as being an important growth lever. As such, an objective of each refurbishment in our estate is to maximise the potential of the food opportunity and over the past two years investment projects have seen an average increase of 32% in food sales. However, this is not done at the expense of our drinks sales.



Accommodation



Accommodation is of growing importance within our business. At the year end we had 486 bedrooms across 22 properties with many of our pub bedrooms trading under our successful ‘boutique’ room style which enables us to command a premium rate. Accommodation sales represented 7% of total sales in our Managed Pubs and Hotels (2010: 6%). Like for like sales grew 11.6% last year largely driven by an increase in occupancy of 9%.



Our major development in this part of the business was the refurbishment of the Wykeham Arms in Winchester where we upgraded the bedrooms during the summer and we achieved a 10% increase in room rate in the second half of the year.



This year the business will expand further. In April 2011 we acquired the freehold of the 41 bedroom White Swan Hotel, Stratford-upon-Avon, close to the recently reopened Royal Shakespeare Theatre. This hotel will be extensively refurbished at the end of the year. This month we will open 27 boutique rooms at The Drayton Court in Ealing. This £2.6 million project will add a new dimension to an already very profitable and popular pub. The Drayton Court’s location provides excellent access to Heathrow and Central London from the neighbouring train station.



Acquisition and Investment Strategy



Our focus continues to be on premium pubs and hotels as this is where Fuller’s can add greatest value. Over the past five years our Managed Pubs and Hotels division has achieved the highest like for like sales growth in the sector and our consistent investment in the fabric of the pubs and desire for ceaseless improvement has helped us achieve these excellent results. These levels of investment will be increased in our estate this year as we embark on some exciting projects.



Future acquisitions will focus on acquiring sites that have not yet realised their full potential. These will be pubs and hotels that with investment and careful execution of Fuller’s four pillars can enhance our estate and offer us a higher return than the redevelopment of pubs we already own.



Since the end of the year we have already acquired two sites that fit this description. In addition to the White Swan Hotel we have acquired the freehold of The Crown Inn, Bishop’s Waltham which we will reopen later this year following an extensive refurbishment. Our future development spend on these sites will exceed the purchase price. We have also acquired the leasehold interest in The Cabbage Patch, the iconic Twickenham rugby pub, reinforcing our presence in this area.



We are planning significant projects in seven of our existing pubs this year and investment in new tools to aid all of our managers to improve the efficiency of their operations, for example, to enable better staff scheduling, which will lead to a further improvement in margins in this part of the business.



Tenanted Inns



Revenue in the Tenanted Inns business grew by 3% to £26.9 million (2010: £26.1 million), despite disposing of seven sites during the year. We increased wholesale drinks prices as we passed on higher levels of duty but, recognising the squeeze on our tenants of a weak economy with high inflation, we capped any RPI linked rent increases to 3%. However, our operating costs grew more quickly and consequently operating profits before exceptional items remained level at £9.9 million. Like for like profits were down 1%.



The Fuller’s name adds value to all our pubs, but all of our pubs have to live up to it. Our customers expect the highest of standards when they enter a Fuller’s establishment and as a result we ensure our investment and attention to detail make it impossible to differentiate between managed and tenanted outlets. This year the prestigious Griffin Trophy for Fuller’s best pub was awarded to the Old House at Home, Romsey, a Tenanted Inn, which reflects the high standards we drive throughout our entire pub estate.



The Fuller’s Master Cellarman programme is a key initiative for both Fuller’s and our tenants, ensuring that consumers receive their pint in perfect condition. For those achieving the highest cellar standards we provide a free firkin of London Pride each month.



We firmly believe in working in partnership with our tenants, sharing both risk and reward. We offer them the tools and training they need to run a successful Fuller’s pub. We provide a great brand, an unrivalled drinks portfolio, mystery shopper visits and training across key business areas and marketing. This year we have paid for membership of the British Institute of Innkeeping for all our tenants – the first pub company to do so.



71% of our tenants have received specialist training over the past year. One of the specialist courses we encourage is the Wine & Spirit Education Trust Foundation Certificate. Results from this are already clear with our wine sales to tenants growing by 9% last year. We have increased tenant retention, with every tenant appointed on a substantive agreement during the past 12 months remaining in place. We have reduced vacancies, with 87% of pubs let on substantive agreements and we have increased the average EBITDA per pub by 2.6%.



In the last year we have disposed of seven formerly-tenanted properties which no longer fitted our criteria. A further three remain on the market. Since the year end we have acquired the freehold of the famous Soho pub, The Coach & Horses, which was immortalised in the play “Jeffrey Bernard is Unwell”. It is a welcome addition to the Tenanted Inns portfolio.





FULLER’S BEER COMPANY



The Fuller’s Beer Company put in a robust performance in what remains a difficult marketplace. For the 53 week period total beer volumes increased by 2%, which combined with higher duty rates led to a 6% increase in revenue to £104.1 million (2010: £97.9 million). However, operating profits fell by 1% to £8.8 million (2010: £8.9 million) as a result of higher costs driven by an increased proportion of packaged beer going to the Export and Off Trade markets and a £0.3 million increase in marketing costs.



On a comparable 52 week basis, Own Beer volumes were 2% lower than last year. We have again grown our share of the UK ale market despite volumes of Own Beer sold in the UK declining 4% as a consequence of the continued challenging climate in the Free On Trade market. Our volumes in the Off Trade continued to grow ahead of the market with a 6% increase, whilst a thirst for Fuller’s beer abroad drove Export volumes up 16%. This now means that one in seven barrels of beer that Fuller’s produces is exported to one of 62 countries around the world. Demand continues to be strong in developed markets such as the USA and Canada, but we are also excited to see increasing interest from a number of new countries that are enjoying rapid growth.



In order to support growth in the Off Trade and Export channels we are investing more than £4.5 million in new conditioning tanks at the Griffin Brewery in Chiswick. This will enable us to continue to meet the growing demand for bottled beers both at home and abroad. The tanks will be commissioned in October 2011.



London Pride remains the UK’s leading premium ale and this year became the number one Free Trade cask ale by value in the UK. Again, we have grown share in the UK ale market. We have invested significantly in a new TV and poster advertising campaign for London Pride, starring James May as our brand ambassador. The campaign was designed to recruit new drinkers to the London Pride brand and has been well received by consumers.



Our seasonal ale programme was particularly successful last year, with new beers such as Front Row and Spring Sprinter adding interest to our well-established range. Publicans and consumers alike enjoy variety and beers with the Fuller’s and Gales’ brand signal quality. Bengal Lancer, which this year became a permanent fixture in our bottled beer portfolio, built volumes rapidly in supermarkets and is well placed for another year of further growth. ESB benefitted from strong export and supermarket sales while Seafarers grew 26%, becoming Fuller’s second most popular cask ale in the UK behind London Pride. Organic Honey Dew also performed well, increasing volumes by 11%.



Last year saw the launch of Brewer’s Reserve No 2 and the Past Masters series, a range of limited production run beers based on historic ales from the Fuller’s old brewing books. Both Past Masters and Brewer’s Reserve highlight Fuller’s unique brewing credentials and heritage.





PEOPLE



Since last year’s Annual General Meeting Lynn Fordham has joined the Board as a Non-Executive Director. Nick MacAndrew, our Senior Independent Non-Executive Director and Chairman of the Audit Committee, retires at the forthcoming Annual General Meeting and I would like to thank Nick for his hugely important contribution to the Board over the last ten years. Lynn will follow him as Chairman of the Audit Committee and John Dunsmore will become the Senior Independent Non-Executive Director.



On 1 November 2010, Simon Emeny was promoted to the position of Group Managing Director, a position responsible for all of the operations of the Group. In March 2011, John Roberts resigned from the Board in order to pursue new opportunities. On behalf of my colleagues I would like to thank John for the contribution that he has made to Fuller’s progress, particularly to the marketing of our beer brands during the past 15 years.



During the year Anthony Fuller retired from the Board after 47 years of service. His contribution to the Company can be best explained by the fact that profits have grown by 2,463% since he became Managing Director in 1978. His words of wisdom in the boardroom have been a source of inspiration for all of us. I am delighted that Anthony remains the President of the Company.



The quality of our staff is of the utmost importance to Fuller’s – it is our staff who deliver the great experience our customers expect when they enter a Fuller’s pub or drink a pint of Fuller’s ale. We continue to fill the majority of managerial vacancies in both pubs and head office with internal candidates and last year, for the first time, we launched a Graduate Development Programme. This will help us further in building a long term succession plan for the business and over the coming years we expect to focus even more on staff development and progression at Fuller’s.



We are extremely proud of the level of commitment that our staff have to Fuller’s. This year we entered The Sunday Times Best Companies programme for the first time and were pleased to be noted as ‘One to Watch’ – a significant achievement for a first time entrant. We have a passionate and dedicated team at Fuller’s and we reward them for their outstanding service, both financially and with opportunities to develop their careers with us. Our strong results are a testament to their drive and ambition, and I would like to take this opportunity to thank them for all their hard work over the past year.





CURRENT TRADING AND PROSPECTS



We have made a good start to the new financial year in what has been a very unusual first nine weeks of trading with a Royal Wedding, five bank holidays and generally very good weather. Like for like sales in our Managed Pubs and Hotels for the nine weeks to 4 June 2011 have grown by 6.8%. For the same period total beer volumes are 1% higher than last year, with continued weakness in the UK On Trade again offset by growth elsewhere, particularly Exports and the Off Trade.



We have a strong balance sheet and a track record of excellent cash generation which means we are well placed to invest in new opportunities as they arise. We have agreed four exciting pub acquisitions since the year end and including these purchases we currently expect to invest more than £31 million capital expenditure during the forthcoming year, of which £20 million will be spent on projects within the existing pub estate and the Brewery.



With wages in the UK running behind inflation, our customers’ incomes are being squeezed and we will have to work hard in the current year and beyond to earn their custom. We believe, however, that as the consumer is forced to become ever more discerning, our high quality offer of leading beer brands and well invested, often historic, pubs will be increasingly attractive and position us well for growth. We have the financial strength to invest further in new opportunities and should benefit from the “London factor” as the calendar turns towards 2012.



The next Interim Management Statement will be issued on 29 July 2011.



Michael Turner

Chairman

10 June 2011


[1] Adjusted profit measures exclude exceptional items. The Directors believe that this measure provides useful information for shareholders as to the internal measures of the performance of the group

[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] 2010 comparative comprises both final and second interim dividend

[6] Operating profit before exceptional items

[7] BBPA, March 2011

[8] CGA, April 2011

[9] Office of National Statistics Consumer Price Index, March 2011

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Category: Final Results

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