fuller smith & turner p.l.c. Report and Accounts 2008 contents Part I Corporate Progress and Financial Highlights Chairman’s Statement The Board of Directors Five Years’ Progress Shareholders’ Information 1 2 14 15 16 WHATEVER YOU DO, TAKE PRIDE. corporate progress • Good underlying growth with adjusted profits up 4% • managed Pubs invested like for like sales up 3.2% (3.6% including hotels) • Fuller’s Inns profits level despite the sale of two hotels in 2007 • Own Beer volumes up 4% • Beer Company profits up 1% • net exceptional profits of £0.8 million (2007: profits of £20.1 million) ADJuSTED PROFIT1 - £m ADJuSTED EARnInGS PER SHARE3 - PEnCE TOTAL DIvIDEnD PER SHARE4 - PEnCE 2008 23.0 2008 29.15 2008 9.70 2007 22.1 2007 27.58 2007 9.09 2006 17.9 2006 21.87 2006 7.90 2005 17.4 2005 20.67 2005 7.38 2004 16.9 2004 19.94 2004 6.92 financial highlights Revenue Adjusted profit1 Profit before tax EBITDA2 Adjusted earnings per share 3 Basic earnings per share 4 Dividend per share 4 net debt 5 net debt/EBITDA 52 weeks to 29 march 2008 £m 181.1 23.0 23.8 40.5 29.15p 34.33p 9.70p 95.5 2.4 52 weeks to 31 march 2007 £m 178.2 22.1 42.2 40.7 27.58p 52.14p 9.09p 96.5 2.4 Change +2% +4% -44% -1% +6% -34% +7% 1 Adjusted profits is the profit before tax excluding 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, bank loans, loan notes, debenture stock and preference shares. Per share measures for the 52 weeks to 31 march 2007 have been restated for the effects of the five for two share split as if the share split had occurred on the first day of this period. FuLLER SmITH & TuRnER P.L.C. Report and Accounts Part I 1 chairman’s statement I am delighted to report another good set of results in what can only be described as a challenging year for the industry. Our adjusted profit before tax (excluding exceptional items) has risen by 4% to £23.0 million (2007: £22.1 million) and our revenues have risen by 2% to £181.1 million (2007: £178.2 million). Our adjusted earnings per share have risen by 6% to 29.15p (2007: of £5.3 million on the disposal of 27.58p) and we have achieved a non-core properties and aggregate 3.6% increase in invested like for provisions for onerous leases and like sales in our managed Pubs and pension costs of £4.5 million. After Hotels, one of the highest increases exceptional items our profit before in the industry. tax was therefore £23.8 million These results show that our underlying business continues to perform strongly, despite the many (2007: £42.2 million) and our basic earnings per share were 34.33p (2007: 52.14p). Fuller’s Inns continues to benefit from a consistent strategy based on quality over quantity, with well-invested pubs underpinned by the excellent delivery of our key offering of outstanding cask conditioned ales, delicious food, great wines and exemplary service. Revenues of £141.5 million (2007: £140.9 million) and pre exceptional operating profits of £23.9 million (2007: £24.0 million) matched the levels achieved last year despite the lost contribution from the hotels we sold in 2007. We were particularly pleased to finish the year by collecting the trophies for both managed Pub Company of the Year (100+ outlets) and Tenanted Pub Company of the Year (200+ outlets) well-publicised factors creating Tax has been provided for at an at The Publican newspaper annual tough conditions in our market. effective rate of 29.5% (2007: industry awards. Our prior year results included an 30.4%) on adjusted profits. Our exceptional profit of £20.1 million overall tax expense for the year has from the very successful sale of two been further reduced as the result hotels, which makes the comparison of a £2.4 million non-recurring of certain financial measures deferred tax credit relating to the unrepresentative of underlying changes in Corporation Tax rates business performance. This year, from 30% to 28%. exceptional profits before tax were £0.8 million, comprising profits WHERE THE mOnEY GOES Paid to government 24.0% Paid to employees 18.4% Paid to investors 4.7% Investment 11.7% Capital repaid to bank 2.4% Goods and services 38.8% 2 FuLLER SmITH & TuRnER P.L.C. Report and Accounts Part I the still & West, Old portsmouth the George iV, chiswick, london W4 chairman’s statement continued The Fuller’s Beer Company has Going forward we have agreed with fuller’s inns also fared well, with pre exceptional the Trustees of the scheme to make Following a good first half, we operating profits rising by 1% to additional contributions of £0.5 experienced a tougher trading £8.0 million (2007: £7.9 million) million per annum to the scheme in environment in the last six months. on revenues that have increased by order to reduce the deficit further. Despite this, we finished the year 3% to £60.3 million (2007: £58.4 million). Our Own Beer volumes were particularly pleasing, with overall growth of 4% spread across the range of brands. London Pride continues to lead the premium ale market and has again grown market share in all sectors. net debt to EBITDA was unchanged at 2.4 times and, in addition, our interest cover has improved substantially to 4.6 times (2007: 3.9 times). With this low level of debt and continued strong cash flow generation we remain well positioned to finance further EBITDA declined marginally to investment within the estate and to £40.5 million (2007: £40.7 million). expand our business. The Group’s net debt has reduced to £95.5 million (2007: £96.5 million) despite special contributions of £8.0 million made to the Group’s defined benefit pension scheme (2007: £2.0 million). The accounting deficit for defined benefit pensions was £5.4 million at the year end (2007: £16.0 million). We continue to deliver excellent returns for our shareholders and the Board recommends an increase of 6% in the final dividend to 6.90p (2007: 6.50p) per 40p ‘A’ and ‘C’ ordinary share and 0.69p (2007: 0.65p) per 4p ‘B’ ordinary share. This will be paid on 25 July 2008 to shareholders on the share register with invested like for like sales growth in managed Pubs and Hotels of 3.6%, a figure which is yet again among the best in our sector. Overall, our pre exceptional operating profits and revenues are level at £23.9 million (2007: £24.0 million) and £141.5 million (2007: 140.9 million) respectively and this after having sold two hotels last year. We continue to operate at the premium end of the market and believe we are well placed to withstand the current economic turmoil. To maintain our position, we continue to improve the quality of our estate, having increased the amount we spend to ensure our pubs are in first class condition. as at 27 June 2008. Accommodation has been a major focus for Fuller’s Inns this year and we have identified a number of sites that have the potential to develop bedroom business. For the last 18 months, we have been leveraging GROuP InvESTmEnT - £ million 2008 18.5 3.9 2007 21.7 3.2 2006 30.6 1.7 2005 17.5 2.3 2004 18.3 1.8 Capital expenditure Share buybacks 4 FuLLER SmITH & TuRnER P.L.C. Report and Accounts Part I chairman’s statement continued the expertise of our Hotels team to tenants, lessees and staff throughout purchases for the managed estate, grow this business and a number of the estate. We have also introduced and stood at 360 on 29 march our pubs now offer superb boutique a new website, with a popular pub 2008. Of this number, 203 were style bedrooms, with the highest finder facility, which has helped tenanted or leased pubs and 157 quality finishing touches, enabling us to promote our pubs to a wider were managed pubs or hotels. to charge a premium rate. As more audience. We are developing pubs are developed to this template, e-commerce, making more and more we will, from this year, be reporting products available through on line managed Pubs and Hotels together. ordering, streamlining our processes We continue to develop and grow our customer base via excellent and providing our managers with greater flexibility. In the morning Advertiser’s list of the 50 Best Pubs in the uK, we were delighted to see two of our pubs feature in the top 10. The Basketmaker’s Arms, a tenanted pub in Brighton, was sixth while the Churchill Arms, our iconic retail marketing and improved The size of our retail estate has managed pub in Kensington, won the recruitment of the best managers, not changed significantly, with two accolade of Britain’s best pub. capital fm’s Johnny Vaughan and Denise Van Outen celebrate st George’s Day at the George iV managed pubs (including hotels) Hotels as one business. Combined down from 8% in 2007 as a result Despite the sale of our two largest managed Pubs and Hotels invested of the sale of the Brigstow and hotels last year, revenues across like for like sales rose by 3.6% and master Brewer hotels. We now our managed Pubs and Hotels business have remained level. Invested like for like sales and it is this measure that we will be have 494 bedrooms across all the reporting from now on. properties in the managed estate. revpar in our Hotels rose by 7.5% and 8.9% respectively and invested like for like sales in our managed Pubs rose by 3.2%. With only six Food and accommodation remain the key growth drivers. Food sales have risen by 8% and now represent 27% of revenue (2007: remaining hotels in our estate and 25%), excluding the 13 pubs more of our managed pubs offering where food is provided by Thai accommodation, we have decided franchisees. Accommodation now to treat our managed Pubs and accounts for 7% of total revenue, FuLLER’S InnS REvEnuE - £ million 2008 141.5 2007 140.9 2006 111.9 2005 98.6 2004 97.0 the turk’s head, twickenham the Victoria, london W2 the churchill Arms, Kensington church street, london W8 chairman’s statement continued We believe that the growth in food Our retail marketing team continued We have also worked hard to help sales is helped by our focus on to find ways to encourage new our lessees combat the smoking ban, locally sourced, freshly cooked customers through the door with particularly in those houses that did meals. Our customers welcome initiatives such as Action Week last not previously serve food. We have this commitment to quality and October. In this example, every pub helped these pubs to invest in low provenance and we have worked in our managed estate was tasked skill food solutions and the results hard to build links with local with putting on at least one event have been very rewarding. farmers and to introduce initiatives during this usually quiet seven days such as Hampshire Fare, while and the results were outstanding. It still maintaining a manageable motivated the managers and their number of direct suppliers. This teams, created excitement around commitment was a crucial factor in the pub, rewarded our existing winning the managed Pub Company customers with something different of the Year title and we will continue and attracted new business. We will to develop our relationships with be repeating this in 2008. these local suppliers. tenanted inns We have completed 18 major Our tenanted business has had a projects during the year (2007: 21) good year with revenues up by 5% and spent record levels on general and average revenue per pub rising maintenance and repair to keep by 2.4%. Our like for like sales have our estate in excellent condition. risen by 0.3% and profits are up 4%. the fuller’s Beer company The Fuller’s Beer Company has had a good year with a 1% increase in pre exceptional operating profits to £8.0 million (2007: £7.9 million) and revenue rising by 3% to £60.3 million (2007: £58.4 million). Our Own Beer volumes rose strongly by 4%, helped by growth of 7% in the off trade and 21% in exports where we continue to break into new markets such as Russia, Japan and China. Our foreign beer volumes, however, have fallen as We acquired two houses for the managed estate – the Pilgrim’s Inn at marchwood and the Ivy House at Chalfont St Giles – and transferred six pubs to Tenanted Inns. There has been significant a result of the weather and the investment in the estate, with a 6% smoking ban and are down by 4% rise in refurbishment costs, and we against an on-trade lager market believe the quality of our pubs and down 7%. the character and enthusiasm of our licensees were major factors in winning the Tenanted Pub Company of the Year award. BEER BARRELS - 000’s 2008 326.0 2007 323.2 2006 284.6 2005 275.1 2004 268.6 8 FuLLER SmITH & TuRnER P.L.C. Report and Accounts Part I the head of the river, Oxford chairman’s statement continued As a leading cask ale brewer, it addition, we continue to pick up is pleasing to report that cask ale awards for our beers with London has grown its share of the Porter, Discovery, London Pride draught beer market for and ESB all featuring in the the first time in a decade. International Beer Challenge In addition premium cask 2007 list of the World’s ale and premium bottled 50 Best Beers. ale are both in growth. We are currently marketing London Pride continues to lead for sale the former Gales Brewery the premium ale market and has site in Horndean. At the end of the again grown its market share in year we purchased the freehold of all sectors. Our sponsorships of a smaller replacement site close the English Golf union and the by, at Dell Piece East, where we are London marathon are now in their about to start building a bespoke second year and are providing a warehouse and distribution centre. great platform for growing sales We aim to be fully operational by and raising brand awareness. We spring 2009 and the cost should be ran television, cinema and poster more than covered by the proceeds advertising campaigns during the from the Horndean Brewery sale. year and our sponsorship of the World match Play golf tournament at Wentworth resulted in substantial coverage on terrestrial television. Finally, the Wine Division had another good year with profits up by 9%. Particularly pleasing was the growth of our agency wine It has been another good year business, which now contributes for our other brands too with, around a third of our total wine for example, Organic Honey Dew sales and is well placed to make showing excellent growth. In further progress in the coming year. FREE TRADE SECTOR BARRELS TOTAL BEER BARRELS Pub Chains 53% Free Houses & Clubs 36% Wholesalers 11% Free on-trade 48% Fuller’s managed Pubs & Hotels 21% Fuller’s Tenanted Inns 14% Take Home/ Supermarkets 11% Exports 6% 1 0 FuLLER SmITH & TuRnER P.L.C. Report and Accounts Part I the fox & Goose, ealing, london W5 chairman’s statement continued people are an outstanding team and it is up our costs and squeezing our During the year, we welcomed their efforts that make us stand out customers’ disposable incomes. James Douglas onto the Board and from the crowd. he was appointed Finance Director on 1 January 2008. Paul Clarke retired as a Director on 30 April 2008 and I would like to take this opportunity to thank him for his support and guidance during his very successful 17 years as Finance current trading And prospects We have had a solid start to the new financial year with invested like for like sales in our managed Pubs and Hotels growing by 2.4% for the nine weeks to 31 may 2008. Despite these inflationary pressures, we intend to hold our gross margins across both our retail and brewing operations. In 2007/8 our gas and electricity costs alone increased by £0.6m. We have fixed prices for around half Director. I further thank all of our The current inflationary pressures of our energy consumption but, at employees for their dedication and in the uK, particularly on grain, current market prices, we would see hard work over the last year. They food and energy, are both pushing this cost to the business rise again 1 2 FuLLER SmITH & TuRnER P.L.C. Report and Accounts Part I 1 2 F u L L E R S m I T H & T u R n E R P . L . C . by at least a further £1.2 million in Our consistent focus on quality, and management team and are well the coming 12 months. commitment to outstanding cask placed to meet the challenges ahead. We enter the coming year with a pub estate in excellent condition and the best possible beer brands on the bar. We will, nevertheless, continue to invest in our pubs and brewery and plan to spend approximately £16 million in capital conditioned ales, delicious food, great wines and exemplary service, continues to provide the best foundations for a stable business. We operate in the premium end of the market and believe this is the only place to be. investment projects (excluding any We have a long-term strategy, strong pub acquisitions) during this new balance sheet, excellent cash flow financial year. generation and an experienced michael Turner Chairman FuLLER SmITH & TuRnER P.L.C. Report and Accounts Part I 1 3 the Board of Directors as at 16 June 2008 From left to right: michael Turner Tim Turner John Roberts Simon Emeny James Douglas marie Gracie Anthony Fuller Ronald Spinney James Espey nick macAndrew nigel Atkinson executive Directors michael turner † Chairman. Aged 57. Joined in 1978. A Chartered Accountant with international experience. Initially ran the Wine Division as Wine Director. Became marketing Director in 1988, managing Director in 1992, Chief Executive in 2002 and Chairman in 2007. Currently Chairman of the British Beer and Pub Association. Chairman of the nominations Committee. James Douglas Finance Director. Aged 42. Appointed in 2007 from LSE-listed telecoms operator Fibernet Group plc, where he was Finance Director. Spent eight years with Deutsche Bank as an investment banker. qualified as a prize-winning Chartered Accountant with PriceWaterhouseCoopers. Holds a first degree in Physics and a masters degree in Economics. company secretary tim turner Commercial Director. Aged 58. Joined in 1977. A solicitor who has overall responsibility for property and acquisitions, legal matters and external affairs. master of The Worshipful Company of Brewers 2006–2007. marie Gracie Aged 42. Appointed in 1998 after an offshore appointment. Formerly Company Secretary of Argos PLC. Company Secretary of Employment Opportunities for the Disabled. A Chartered Secretary and arts graduate. John roberts managing Director, the Fuller’s Beer Company. Aged 50. Appointed in 1996 having previously held a number of strategic marketing and sales positions with Britvic, united Biscuits, Courage and Scottish & newcastle. A graduate in Business Studies and marketing. simon emeny managing Director, Fuller’s Inns. Aged 42. Joined in 1996 from Bass plc where he held a variety of senior operational and strategic planning roles. Appointed a Director in may 1998. non Executive Director of Dunelm Group plc. An economics graduate. president and non executive Director Anthony fuller Aged 68. Joined in 1963. Chairman 1982 – 2007. Became non Executive in 2002. Chairman of the Brewers’ Society 1986 – 1989. master of the Worshipful Company of Brewers 1986 – 1987. Awarded a CBE in 1990. vice Chairman of the Brewers of Europe 2005 – 2007. Formerly Chairman of the Independent Family Brewers of Britain. independent non executive Directors ronald spinney * # † Aged 67. Appointed in April 2000. Senior Independent non Executive Director and Chairman of the Remuneration Committee. Formerly Chairman of Hammerson plc. A non Executive Director of Rockspring Property Holdings Limited and J P morgan Cazenove Holdings. Chairman of Hanover Property unit Trust Investment Advisory Committee. A Chartered Surveyor. Awarded a CBE in 2005. 1 4 FuLLER SmITH & TuRnER P.L.C. Report and Accounts Part I James espey * # † Aged 65. Appointed in may 1998 having previously held senior positions in the Grand metropolitan and Guinness groups and most recently as Chairman of Seagram Distillers PLC. non Executive Director of A G Barr plc and Whyte and mackay Ltd. A graduate and PhD in marketing and strategic planning. nick macAndrew * # Aged 61. Appointed in September 2001. Chairman of the Audit Committee. Director of Wates Group Limited, Jardine Lloyd Thompson Group plc, F & C Asset management plc and formerly Chief Financial Officer of Schroders plc. Recently retired as Chairman of Save the Children Fund. A Chartered Accountant. non executive Director nigel Atkinson * # Aged 54. Appointed in April 2006. Formerly managing Director of George Gale & Co. Ltd, non Executive Chairman of The Ocean Radio Group and non Executive Chairman of Premier Pubs Estates Ltd. Currently non Executive Director of Yellowfin Limited and GCap Charities Ltd. vice Lord-Lieutenant of Hampshire and Chairman of the Council of the Order of St John for Hampshire. * member of the Remuneration Committee. # member of the Audit Committee. † member of the nominations Committee. five Years’ progress profit and loss revenues 1 Pre-exceptional operating profit Interest payable (net) Adjusted profit Exceptional profit/(loss) pre-tax profit Taxation Preference dividends 2 profit attributable to equity shareholders 2004 uK GAAP £m 140.3 18.8 (1.9) 16.9 2.3 19.2 (5.4) (0.1) 13.7 2005 IFRS £m 129.5 19.7 (2.3) 17.4 0.2 17.6 (5.8) (0.1) 11.7 2006 IFRS £m 145.1 22.4 (4.5) 17.9 (2.6) 15.3 (4.9) – 10.4 2007 IFRS £m 178.2 29.8 (7.7) 22.1 20.1 42.2 (13.1) – 29.1 2008 IFRS £m 181.1 29.4 (6.4) 23.0 0.8 23.8 (4.7) – 19.1 eBitDA 27.7 28.2 32.1 40.7 40.5 Assets employed non-current assets Inventories Trade and other receivables Assets classified as held for sale Cash and short term deposits Current borrowings Other current liabilities non-current borrowings Other non-current liabilities net assets per 40p ‘A’ ordinary share Adjusted earnings Basic earnings Dividends (interim and proposed final) net assets net debt net debt/eBitDA Gross capital expenditure (£ million) Average number of employees 196.5 208.6 357.4 345.9 350.6 4.3 11.5 – 10.0 222.3 – (30.8) 191.5 (27.0) (4.7) 159.8 4.4 13.7 – 4.6 231.3 – (25.8) 205.5 (27.0) (26.2) 152.3 5.4 14.7 – 1.4 378.9 (2.8) (36.1) 340.0 (128.6) (55.7) 155.7 5.4 15.0 6.5 8.9 381.7 (7.8) (36.6) 337.3 (97.6) (57.0) 182.7 5.8 15.7 1.8 3.9 377.8 (8.1) (34.3) 335.4 (91.3) (46.4) 197.7 2004 2005 2006 2007 2008 19.94p 24.25p 6.92p £2.81 (17.0) 0.6 18.3 2,105 20.67p 20.96p 7.38p £2.72 21.87p 18.56p 7.90p £2.79 (22.4) (130.0) 0.8 17.5 2,092 4.0 21.6 2,478 27.58p 52.14p 29.15p 34.33p 9.09p £3.32 (96.5) 2.4 21.7 3,097 9.70p £3.55 (95.5) 2.4 18.0 3,067 1 From 28 march 2004 onwards, revenues exclude Excise Duty on wholesale sales. 2 From 3 April 2005 onwards, preference dividends have been included within net finance costs. Per share measures for periods prior to 2008 have been restated for the effects of the five for two share split as if the share split had occurred on the first day of these periods. FuLLER SmITH & TuRnER P.L.C. Report and Accounts Part I 1 5 shareholders’ information 2008 Diary 27 June Record Date 1 July Preference dividends paid shareholder privileges sharegift Shareholders owning more than The Orr mackintosh Foundation 250 ‘A’ or ‘C’ shares or 2,500 ‘B’ operates a charity share donation shares can buy beer, wine and scheme for shareholders with small spirits from the Brewery Store in parcels of shares whose value Chiswick at preferential prices. For makes it uneconomic to sell them. If 23 July details contact Christine Hooper you have a small number of shares Annual General meeting on 020 8996 2091. Shareholders and would like to donate them to Hock Cellar, Griffin Brewery are also offered a discount card charity, details of the scheme can 25 July Final dividend paid 21 november Half year results announcement 2009 Diary January entitling them to certain discounts be found on the Sharegift website in Fullers hotels. www.sharegift.org, or by contacting the Company Secretariat on 020 8996 2115. redesignation of ‘c’ shares ‘C’ ordinary shares can be redesignated as ‘A’ ordinary shares within 30 days of the preliminary and half year announcements by Preference dividends paid sending in your certificates and a Interim dividend paid written instruction to redesignate June Preliminary results announcement prior or during the period to the Company’s Registrars. 1 6 FuLLER SmITH & TuRnER P.L.C. Report and Accounts Part I 6815 ESB PUB POSTER Q7:6815 ESB PUB POSTER 20/12/07 18:01 Page 1 ESB. ESB. THE CHAMPION ALE. THE CHAMPION ALE. f u l l e r s m i t h & t u r n e r p. l . c. 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