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25-Nov-2011: Half Year Results


Financial results for the 26 weeks ended 1 October 2011

Financial Performance
• Revenue up 6% to £128.2 million (2010: £121.5 million)
• Adjusted profit before tax1 up 5% to £16.5 million (2010: £15.7 million)
• Adjusted earnings per share2 up 8% to 21.48p (2010: 19.96p)
• EBITDA3 up 4% to £25.0 million (2010: £24.1 million)
• Interim dividend up 6% to 5.05p (2010: 4.75p)

Corporate Progress
• 12 pubs acquired since last year end
• Managed Pubs and Hotels like for like sales up 3.9%
• Managed Pubs and Hotels profits4 up 1%
• Tenanted Inns profits4 up 2%
• Own Beer volumes up 2%
• Beer Company Profits4 up 12%
• Beer Company Managing Director recruited – starts 12 December 2011

1 Adjusted profit is the profit before tax excluding exceptional items. Statutory profit before tax was £16.0 million (2010: £16.8
2 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. Basic earnings per share were 23.07p (2010: 23.70p).
3 Pre-exceptional earnings before interest, tax, depreciation, loss on disposal of plant and equipment and amortisation.
4 Operating profit before exceptional items.

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

“I am pleased to announce a good set of results for the first half of the financial year, driven
by growth in all parts of the business.

“Our revenues grew by 6% to £128.2 million (2010: £121.5 million) and adjusted profit
before tax (excluding exceptional items) increased by 5% to £16.5 million (2010: £15.7
million). Our adjusted earnings per share rose by 8% to 21.48p (2010: 19.96p).

“These results highlight the successful execution of our long term strategy, which has
remained unchanged despite the economic pressures on the UK consumer. The largest part
of our business, Managed Pubs and Hotels, has again traded well with like for like sales up

“Our balance sheet remains very strong and having increased our bank facilities to £120
million during the period we have additional funds available to invest in new opportunities
as they arise. Our strategy is to be highly selective and we have the patience to wait for the
right assets to become available at the right price.


For further information please contact:
Fuller, Smith & Turner P.L.C.
Press Office: 0208 996 2198 / 2048 / 2175
07789 396197
Toby Bates 07876 161314
Paul Downes 07900 244888

Copies of this statement, the Half Year Report and results presentation will be available on
the Company’s website, The presentation will be available from 12.00 pm
on 25 November 2011.

I am pleased to announce a good set of results for the first half of the financial year, driven
by growth in all parts of the business.
Our revenues grew by 6% to £128.2 million (2010: £121.5 million) and adjusted profit before
tax (excluding exceptional items) increased by 5% to £16.5 million (2010: £15.7 million). Our
adjusted earnings per share rose by 8% to 21.48p (2010: 19.96p).
These results highlight the successful execution of our long term strategy, which has
remained unchanged despite the economic pressures on the UK consumer. The largest part
of our business, Managed Pubs and Hotels, has again traded well with like for like sales up
Our Tenanted Inns division has had its best ever first half, with another increase in like for
like profits which are up 1% and operating profit 2% higher than last year.
The Fuller’s Beer Company delivered an excellent performance in an extremely tough UK
market, increasing operating profit by 12% with Own Beer volumes up 2%. Key to this was
another period of very strong growth in export sales.
Since our last year end we have added 12 pubs to our estate, each of which has been
carefully selected to enhance the overall quality of our portfolio. Two of them are now
closed for extensive redevelopment works and will reopen in Spring 2012. The other ten are
established businesses with strong trading histories and we believe that they have the
potential to further flourish under our ownership. Seven of these sites are freehold
properties, nine are in London and all are in our core trading geography.
Three of the pubs join our Tenanted Inns business and the remainder are part of our
Managed Pubs and Hotels division. The pubs we have acquired are:
Managed Pubs and Hotels
• The Lamb & Flag, Covent Garden
• The White Swan Hotel, Stratford‐upon‐Avon
• The Crown Inn, Bishop’s Waltham
• The Cabbage Patch, Twickenham
• The Wellington, Waterloo
• Bluu, Moorgate
• The Pavilion End, Mansion House
• The Hand & Flower, Kensington Olympia
• The Red Lion Hotel, Wendover
Tenanted Inns
• The Coach & Horses, Soho
• The Plough, East Sheen
• The Seven Stars, Carey Street WC2
The Board has approved an increase of 6% in the interim dividend to 5.05p (2010: 4.75p) per
40p ‘A’ and ‘C’ ordinary share and 0.505p (2010: 0.475p) per 4p ‘B’ ordinary share. This will
be paid on 3 January 2012 to shareholders on the share register as at 9 December 2011.
The Group’s net debt has increased by £4.0 million in the first 26 weeks, after spending
£19.3 million purchasing seven pubs and investing across the business. Following the
agreement of an additional £30 million of bank facilities with Rabobank in August 2011, we
had in excess of £50 million undrawn committed banking facilities at the end of the period.
Our total bank facilities now stand at £120 million, split equally between four banks and run
until May 2015.
EBITDA increased by 4% to £25.0 million (2010: £24.1 million) with the ratio of net
debt to EBITDA remaining at the year end position of 1.9 times (2010: 2.1 times). This
provides us with great flexibility to invest in future opportunities and since the period end
we have purchased an additional five pubs for a further £16.0 million.
Net exceptional items before tax of £0.5 million comprised a profit on the disposal of noncore
properties of £0.6 million, a £0.1 million reversal of impairment credit, offset by £1.0
million of acquisition costs and £0.2 million of non‐cash losses in relation to financial
instruments which are not effective for hedge accounting purposes. After exceptional items,
profit before tax was £16.0 million (2010: £16.8 million). Tax on exceptional items was a
credit of £1.4 million, including an exceptional non‐cash deferred tax credit of £1.3 million
relating to the further reduction in the UK corporation tax rate from 26% to 25% which will
come into effect from 1 April 2012.
Adjusted earnings per ordinary A and C share were 21.48p (2010: 19.96p), an increase of 8%.
Due to the benefit of exceptional items, basic earnings per ordinary A and C share at 23.07p
(2010: 23.70p) were greater than the adjusted figure, but 3% lower than the comparative
Net finance costs before exceptional items decreased by 8% to £2.2 million (2010: £2.4
million), due to a £0.2 million decrease in net pension finance costs. Net debt has increased
slightly from £88.5 million on 2 April 2011 to £92.5 million on 1 October 2011 and interest
expense on borrowings has remained level with the same period last year. We expect the
blended cost of finance on our debt to be 4.5% for the full year.
The deficit on the defined benefit pension scheme rose from £6.4 million at the last balance
sheet date to £15.1 million. Asset values at 1 October 2011 were lower as the Eurozone crisis
drove equities sharply down, whilst liabilities rose as corporate bond rates fell.
Tax has been provided for at an effective rate of 26.7% (2010: 28.7%) on adjusted profits.
The overall effective tax rate for the period is 18.8% (2010: 20.8%) and benefits from an
exceptional deferred tax credit of £1.3 million, relating to the next stage in the stepped
reduction in the UK corporation tax rate which will be 25% from 1 April 2012.
During the period, 80,000 ‘A’ ordinary shares were purchased by the Company for treasury
at a total cost of £0.6 million. In addition, 86,000 ‘A’ ordinary shares and 162,000 ‘B’
ordinary shares were purchased for £0.7 million by the Trustees of the Company’s Share
Incentive Plan and Long Term Incentive Plan to cover future issuance. From the period end
to 23 November 2011 we have purchased a further 231,000 ‘A’ ordinary shares for treasury
for £1.6 million and 151,000 ‘B’ ordinary shares were purchased for £0.1 million by the LTIP
The current financial year will revert to a 52 week period, ending on 31 March 2012.
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 typically run by a self‐employed entrepreneur
who sells our beers and operates under our brand. At the period end we had 166 Managed
Pubs and 195 Tenanted Inns in the portfolio, having purchased seven new sites and disposed
of four properties which no longer met our criteria. Since the period end we have acquired a
further five properties for the Managed Pubs and Hotels division.
The seven pub purchases during the period can be categorised into three groups:
development opportunities, London gems, and individual Tenanted Inns.
The White Swan Hotel, Stratford‐upon‐Avon and The Crown Inn, Bishop’s Waltham are
freehold development opportunities. We have traded at The White Swan through the
Summer whilst we applied for planning consent. This has now been received, and the
refurbishment works are underway. The hotel is now closed and will reopen in Spring 2012
with the 41 bedrooms transformed to our stylish boutique standard. On acquisition The
Crown Inn, a 16th Century listed building was closed and in a very poor state. We have
recently received planning approval to substantially redevelop this property and it will also
reopen next Spring with eight new bedrooms. We will invest £4.4 million in developing
these two properties compared to an initial acquisition cost of less than £3.0 million. These
are exciting opportunities for Fuller’s and we are actively seeking other sites where we can
create value through major investment.
The Lamb & Flag and The Cabbage Patch are London gems. Both have previously been
operated by pub entrepreneurs. The Lamb & Flag is located in Covent Garden, an area
where we have been building our presence in recent years, having previously been under
represented. The Cabbage Patch is the world renowned rugby pub in Twickenham. We are
delighted to add this site to our portfolio ahead of the Rugby World Cup coming to England
in 2015. We believe that both of these sites will respond very well to Fuller’s branding. We
have acquired the leasehold interest in both of these properties and have also negotiated
the option to purchase the freehold of The Lamb & Flag for an agreed price in 2013.
We have acquired three freehold pubs for the Tenanted Inns division for £6.0 million. They
are all established, high quality London sites and trade very well. With our strong balance
sheet and low cost of funding we are able to take a long term view when making these
After the end of the period, on 1 November, we acquired five pubs, of which two are
freehold, from Marston’s for £16.0 million. These are high turnover Managed businesses
with 58 bedrooms between them. Four of the pubs are in Central London and the fifth is in
Wendover, Buckinghamshire. We believe that Fuller’s can add significant value to these
pubs through selling our beers, applying our operational model and standards and through
running them under the Fuller’s name. We have already integrated the back office
operations of these pubs into our estate and our focus will now turn to front of house where
we will apply our Four Pillars philosophy.
Managed Pubs and Hotels
Like for like sales in our Managed Pubs and Hotels grew by 3.9%, with first‐time
contributions from acquired pubs increasing total revenues by 5% from £74.8 million to
£78.6 million. Operating profits before exceptional items grew by 1% to £10.4 million (2010:
£10.3 million). EBITDA grew by 2% to £14.7 million (2010: £14.4 million).
Operating margins declined from 13.8% to 13.2% with three key factors responsible. We
have made lower margins on drinks sales as we have not been able to pass on the full 7%
excise duty increase to our customers by raising drinks prices. Unless the duty escalator is
abolished, we expect this margin dilution to continue. As we embark on a period of
investment and expansion in our business we have increased our head office resource to
support this growth, with a particular focus on staff scheduling systems, food, digital
marketing and IT. Finally, as expected the development sites acquired during the period
have reported lower margins than the residual business. Once development is complete
these sites will help improve our overall margin.
During the period we undertook 11 refurbishments across the estate, investing over £3
million. The redevelopment of The Drayton Court Hotel, Ealing was completed with 27
boutique rooms and suites created within the existing building. The Thomas a Becket,
Worthing, The King’s Head, Guildford and The Iron Duke, Mayfair all had full internal and
external refurbishments, designed to allow them to capitalise on their premium local
markets. We have paid particular attention to our pub’s outside spaces and with two other
refurbishments carried out in the period at The Pilot, Chiswick and The Six Bells, Thame, we
have been able to transform their gardens.
Four Pillars
Outstanding cask conditioned ales, delicious food, great wines, and engaging service remain
the foundation of our business. Accommodation, food and drinks all showed good like for
like sales growth, up 10.8%, 4.4% and 3.1% respectively.
Our own cask ales continue to grow in our Managed Pub estate, with like for like sales up an
impressive 8%. We launched new beers such as Ascot Ale and Spring Sprinter, and successful
returning seasonal ales such as Summer Ale and Red Fox added further variety to our offer
and gave our customers another good reason to visit our pubs. Extensive wine training from
the Wine and Spirit Education Trust across the estate has contributed to a 3.4% increase in
like for like wine sales.
Trained and motivated pub staff are key to ensuring that we deliver engaging service, and
following the success of our graduate development scheme launched last year we have
introduced a further programme aimed specifically at hospitality graduates. The new
programme is a two year course and candidates are expected to be ready for a general
manager appointment at its conclusion. We seek both internal and external applications but
recognise the paramount importance of developing our own employees. Already 47% of our
general managers have been promoted internally and we hope to provide opportunities for
many more.
Room sales in our Managed Pubs and Hotels performed well, rising 10.8% on a like for like
basis. Occupancy and average room rate both increased 4% each, with the remaining
increase arising from investment in rooms in existing sites, principally the 27 new bedrooms
at The Drayton Court Hotel which opened in June. Accommodation has become an
increasingly important part of our offer. Three years ago we had 475 rooms; by the end of
the current financial year we will have 612. We continue to improve the quality of our
existing bedrooms with 27 bedrooms completely refurbished at The Fox and Goose, Ealing
during the period.
We continue to focus on further developing our food offer, delivering both freshly prepared
menu items and blackboard specials to entice our customers. We now cook more than four
million meals a year. Like for like food sales increased 4.4%, with a 3% rise in the number of
main meals sold. Fuller’s premium twist to pub classics such as homemade pies, fish and
chips, and sausage and mash continue to prove popular with our customers, accounting for
34% of main meals sold as customers turn to traditional, comforting, but quality, dishes in
these difficult economic times.
Tenanted Inns
Revenue in the Tenanted Inns business increased by 1% to £13.7 million (2010: £13.5
million) and like for like profits grew 1%. With the first time contribution from acquisitions,
operating profit before exceptional items increased by 2% to £5.2 million and the average
EBITDA per pub grew by 5.5%.
Once again we capped RPI‐linked rent increases to 3% to support our tenants in what has
been a tough trading environment for any small business, particularly within our sector. Our
partnership approach with Tenants in these times is particularly valued, with vacancies at
their lowest level in four years. The average tenure of our Tenants is six and a half years, an
impressive statistic for the industry.
We have continued to invest in improving retail standards across the Tenanted estate
through small front of house projects, implementing mystery shopper visits and increased
training for our Tenants. We provide training programmes with a particular focus on cask ale
and wine knowledge. We are proud that, at our expense, all of our Tenants are members of
the British Institute of Innkeeping, the leading industry body.
Since March 2010 we have sold eleven tenanted pubs raising £4.3 million, overall realising a
small profit against book value, which has been reinvested in new acquisitions for the
The Fuller’s Beer Company operates a single brewery in Chiswick, London, where we brew
all of our Own Beers. In addition to our own range, we also distribute beer, cider, wine,
spirits and soft drinks manufactured by other producers. We operate in four main markets.
We sell the full portfolio of products to both Fuller’s Inns and the Free Trade, whilst we sell
our Own Beers to Export destinations and to the Off Trade which comprises UK
supermarkets, convenience stores and off licences.
The Fuller’s Beer Company put in a strong performance over the period with Own Beer
volumes increasing 2% and a strong performance from wine sales, together generating an
increase in revenue of 7% to £54.9 million (2010: £51.3 million). Total beer volumes grew by
1% as foreign beer volumes were level with last year. Operating profit was 12% higher at
£4.6 million (2010: £4.1 million). Operating costs rose 7% due to increases in UK excise duty,
raw materials and packaging costs.
Export volumes, unaffected by the stifling levels of UK excise duty, grew 21%. One in six
barrels of Fuller’s beer is now shipped abroad and we expect this channel to overtake sales
volumes to our own pubs by the end of the year as we focus on expanding our reach further
into Russia, the Baltic states, and the Far East. The broad range of our portfolio – particularly
with the addition of Fuller’s Black Cab stout after the end of the period – makes our beer a
very attractive proposition for import partners. London Pride, ESB and London Porter are our
best‐selling ales abroad, while 75% of Vintage Ale, which is brewed annually from the best
hops and malts of each year, is exported.
The cumulative growth in Export and Off Trade volumes in the last three years is 31% and in
order to meet future demand we are investing £4.5 million in building further tank capacity
for the conditioning of bottled and keg beer. The project has added 30,000 barrels of
capacity, equivalent to around 40% of current annual sales to these markets. The
infrastructure has been built to allow us to almost double its size at a much lower
incremental cost at a future date.
The construction has been very disruptive to our small site in Chiswick and our team have
worked exceptionally hard to eliminate the effect on our customers. Faced with capacity
constraints while the tanks were being built, we chose not to promote as aggressively in the
Off Trade as we did last year and experienced a small volume decline of 3% in the period.
However, our long term strategy remains to grow volumes in the Off Trade and following
our expanded production capacity, we will increase our promotional activity during the
second half of the year to help achieve this.
Whilst export volumes grew by 21%, our total UK Own Beer volumes declined by 1%, despite
volumes sold to our own pubs increasing by 3%. The UK is our largest market and is being
harmed by the compound effect of excessive excise duty increases: the UK On Trade ale
market declined by 6% during the period (Source: British Beer and Pub Association).
Nevertheless we increased our market share as our sales to the Free On Trade only reduced
by 2%. Within the Free on Trade, total volumes sold to customers to whom we deliver direct
from either Chiswick or Horndean grew, reflecting the value placed on our full service
London Pride remains the UK’s leading Premium Ale and has increased its share of the
Premium Cask Ale market over the period. We have continued with our marketing activity to
recruit new drinkers to the brand led by our ambassador James May. In early Summer we
ran a poster campaign with James depicting the slogans ‘Top Beer’ and ‘Because I’m Worth
It’ which attracted good exposure. The new ‘When in London’ campaign, created to further
enhance London Pride’s position as London’s favourite cask ale ahead of 2012, was launched
in October across various media including high profile poster sites across the South East,
London black cabs, buses on key London routes and our first smartphone website.
Fuller’s seasonal ales continue to prove popular, with Spring Sprinter and Red Fox
complementing our core range of ales perfectly. We have also developed two new beers
during the period which have been trialled this Autumn. Mighty Atom is a 2.8% beer which
qualifies for the government’s new duty threshold for low strength beer and has received
critical acclaim in this category. Black Cab is a delicious cask conditioned stout for the UK
market and should provide an interesting export opportunity, as well as being an exciting
proposition in this country.
Since the Annual General Meeting, Alastair Kerr has been appointed to the Board as a Non‐
Executive Director and he brings very valuable retail experience from outside our sector. I
also look forward to welcoming Ian Bray to the Company when he joins the Board as
Managing Director of the Fuller’s Beer Company on 12 December 2011.
Our persistently strong financial performance is the result of the continuing enthusiasm and
commitment of all our staff and I would like to take this opportunity to thank them for their
hard work and dedication.
In addition to the increase in VAT to 20%, Beer duty has risen a staggering 35% since March
2008. This has heavily impacted UK beer volumes, which have fallen 13% over the same
period, and has driven more and more trade out of pubs and into supermarkets. The UK
consumer now pays eight times the duty French consumers pay and more than 11 times the
German and Spanish rates. From a UK fiscal perspective, volumes are down and VAT receipts
are further reduced by driving trade out of pubs and into supermarkets. As pubs suffer
employment is affected, and income and corporation tax receipts are reduced.
This simply doesn’t make sense and I would greatly appreciate every support from you, our
shareholders, in lobbying the Chancellor to cease adding to the penal rates of duty which
exist already and to which a further inflationary and damaging 7% increase in duty is
threatened in March. Our customers are already struggling to cope with inflationary rises in
household bills and the uncertain economic situation.
Our industry adds over £21 billion to the UK economy and supports almost one million
much‐needed jobs. It is a large employer of young people, giving many their first exposure
to the workplace. It is not a sector the Government can afford to neglect, particularly as
their own figures show youth unemployment has now exceeded one million. If we want to
encourage economic growth, our sector can be a key driver but this crippling increase in
duty must be reversed. Anything else will be against the interests of consumers,
employment, recovery in the wider economy, and a return to the proper generation of
We continue to make good progress and in the 33 weeks to 19 November 2011 like for like
sales in our Managed Pubs and Hotels grew by 3.8% and our Own Beer volumes increased by
Our 12 completed pub acquisitions form the basis for the highest level of investment in our
business since the Gales acquisition in 2005. We are also nearing completion of the £4.5
million investment in the Chiswick brewery site to increase capacity for the production of
bottled beer for the Off Trade and Export markets. In aggregate we expect to spend in
excess of £51 million on capital projects in this financial year.
Our balance sheet remains very strong and having increased our bank facilities to £120
million during the period have additional funds available to invest in new opportunities as
they arise. Our strategy is to be highly selective and we have the patience to wait for the
right assets to become available at the right price.
The next Interim Management Statement will be issued on 27 January 2012.
Michael Turner
25 November 2011

Category: Half Year Results

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