Preliminary Results

RNS Number : 8950O

Young & Co's Brewery PLC

04 June 2020

 

Young & Co.'s Brewery, P.L.C.

Preliminary results for the 52 weeks ended 30 MARCH 2020

				Change pre-IFRS 16 illustrative
	2020 post-IFRS 16	2020 pre-IFRS 16 illustrative	2019 pre-IFRS 16
	£m	£m(1)	£m	%
Revenue	311.6	311.6	303.7	+2.6
Adjusted operating profit(2)	46.5	44.8	48.5	-7.6
Adjusted profit before tax(2)	37.7	38.5	43.4	-11.3
Adjusted EBITDA(2)	79.6	71.8	72.8	-1.4
Net debt	280.4	198.7	163.6	-21.5
Net debt to EBITDA	3.5x	2.8x	2.2x	-0.6x
Operating profit	37.9	36.2	44.6	-18.8
Profit before tax	29.1	29.9	39.5	-24.3
Adjusted basic earnings per share(2)	60.18p	62.22p	72.13p	-13.7
Basic earnings per share	39.37p	41.41p	64.36p	-35.7
Dividend per share	10.57p	10.57p	20.78p	-49.1
Net assets per share(3)	12.05p	12.06p	12.12p	-0.5%

All of the results above are from continuing operations.

⁽¹⁾  The 2020 results have been reported under IFRS 16. The 2019 comparatives have not been restated, as permitted by the accounting standard. The 2020 pre-IFRS 16 results, which are for comparative purposes only, have been presented on a non-statutory illustrative basis excluding the impact of IFRS 16. Refer to the business and financial review for details.

⁽²⁾  Reference to an "adjusted" item means that item has been adjusted to exclude non-underlying costs of £8.6 million (2019: non-underlying costs of £3.9 million) (see note 4).

⁽³⁾  Net assets per share are the group's net assets divided by the shares in issue at the period end.

 

PERFORMANCE HIGHLIGHTS

(The 2020 highlights are shown on a pre-IFRS 16 basis for comparative purposes)

• The coronavirus pandemic has had a significant impact on these results. Closure of our pubs for the final 10 days of the financial year and the preceding downturn in trade resulted in an estimated £13.0 million shortfall in revenue, with a disproportionate impact on profits, estimated to be £7.7 million due to the limited opportunity for mitigating actions;

• Total group revenue up 2.6% to £311.6 million. Managed house revenue up 3.0% to £299.1 million, supported by a significant contribution from the Redcomb pubs following their acquisition in January last year; like-for-like sales down 2.4%;

• Managed house adjusted operating profits down 5.0% to £58.4 million; Ram Pub Company adjusted operating profit was £4.1 million, down by £0.9 million;

• Total investment of £70.8 million including significant upgrades to our existing estate as well as the acquisition of five premium businesses in and around our south-west London heartland and the Surrey suburbs;

• Operating cash flow down to £64.7 million - net debt to adjusted EBITDA is at 2.8 times despite downturn in trade due to coronavirus, and timing of acquisitions late in the financial year;

• The Board decided it was not appropriate to recommend payment of the final dividend given the focus on cash conservation in these extraordinary times, resulting in a total dividend of 10.57 pence (2019: 20.78 pence); and

• Improved liquidity as a result of arranging £50.0 million of additional funds and committed facilities. We have agreed with our lending banks to replace existing covenant tests with a £20.0 million available liquidity test through to and including the quarter end in June 2021.

Patrick Dardis, Chief Executive of Young's, commented:

"I am proud of the performance of our business this year despite the unique challenges that we have faced. These results demonstrate the continued strength of our strategy of operating a differentiated, premium and well-invested pub estate."

"The purchase of five of the finest pubs in and around our south-west London heartland and the Surrey suburbs was a real stand out acquisition for us. Their premium offer is a perfect fit for Young's."

"We are grateful for the positive moves made by the Chancellor, extending the Job Retention Scheme to October and the £14.5 million relief we will receive from the business rates holiday to ensure that great businesses like ours survive these particularly tough times."

"We are confident with the steps we have taken to safeguard our business from the immediate threat of coronavirus. The board expects the business to be in a position to return to profitable growth when this unprecedented period is at an end and conditions allow, and we remain confident in our proven strategy."

For further information, please contact:

Young & Co.'s Brewery, P.L.C.	020 8875 7000
Patrick Dardis, Chief Executive
Mike Owen, Chief Financial Officer
MHP Communications	07551 170 451
Tim Rowntree/Alistair de Kare-Silver/Robert Collett-Creedy

PRELIMINARY RESULTS FOR THE 52 WEEKS ENDED 30 MARCH 2020

Chief Executive's review

In recent years we have faced and overcome numerous challenges, but none more threatening than the coronavirus pandemic that has swept around the world in a matter of months. Following the government's instruction in March, we, along with our colleagues in the sector, shut the doors to our pubs. The 10 days of closure and the gradual decline in trade that preceded it resulted in an estimated £13.0 million shortfall in revenue and a disproportionately negative impact on profits, estimated to be £7.7 million. We recognise the importance of this closure of pubs in helping stop the spread of the virus and protect our employees, customers and the wider community as a whole.

In light of the unprecedented challenges posed in recent months, we have strengthened our liquidity position, both on a long-term basis and also in the short-term, to provide additional support. Long-term, we refinanced the £50.0 million term loan that was due to expire in March 2021, with a new five-year facility that takes us to 2025. This facility also has two one-year extension options that could take it out to 2027. On a short-term basis, we issued £30.0 million in commercial paper under the Covid Corporate Financing Facility ('CCFF') last month and also now have the additional benefit of a new £20.0 million facility from NatWest. Excluding our overdraft, Young's now has in place £285.0 million of funds and committed facilities. 

INVESTMENT DRIVES GROWTH

Our strategy is to operate premium, well-invested, individual managed houses. We grow by investing in our pubs, by carefully selected acquisitions and by nurturing, training and investing in our staff. Total group revenue for the period was encouragingly up 2.6% to £311.6 million, an increase of £7.9 million, supported by the acquisitions made in the previous year.

Like-for-like sales ended the period down on the previous year by 2.4%, reflecting the challenges faced. The British weather often played its part, starting with the tough comparatives of last year's exceptional early summer sunshine. Whilst temperatures improved through the later summer months, the remainder of the year was dominated by rain, with the wettest winter on record dampening people's spirits. In December, when our pubs should be at their busiest as festive celebrations are in full swing, trade was hampered by the month-long rail strikes in London, and the first winter election since 1923.

The losses that followed from the unprecedented closures in the final weeks were severe due to the limited opportunity for mitigating action. Operating profit dropped by £8.4 million to £36.2 million (post-IFRS 16 reported operating profit: £37.9 million). Once adjusted for non-underlying items, operating profit was £44.8 million (post-IFRS 16 reported adjusted operating profit: £46.5 million), down by £3.7 million, with an operating margin of 14.4%.

Amidst the tougher weeks of March, there was a significant boost with our purchase of five of the finest pubs in and around our south-west London heartland and the Surrey suburbs, bringing our period-end total pub count to 276 (2019: 269). These pubs are a real standout acquisition for us: they are expected to deliver sales and EBITDA above the average for our managed house estate. Their premium offer is a perfect fit for Young's and presents us with an opportunity to learn from their success. The Canbury Arms (Kingston upon Thames), Crown (St Margaret's, Twickenham), Grantley Arms (Wonersh), Onslow Arms (West Clandon) and the Wheatsheaf (Esher) are run with a focus on great food, a quality drinks offer and operational excellence from wonderful surroundings, and have easily made the transition into the Young's estate. Unfortunately, due to the coronavirus pandemic, we have not had the opportunity to trade them for a period of time, but we remain excited for when they get the chance to open their doors again.

During the period, we added a further five pubs to our managed house division. In April 2019, we opened the Depot (Kidbrooke Village) through our ongoing partnership with Berkeley Homes. In mid-summer, we acquired the freehold of the White Bear (Tunbridge Wells): this was a unique opportunity to add a high turnover pub in an exciting new location for Young's. The New Inn (Ealing) was the latest pub to transfer from the Ram Pub Company, finally re-opening, albeit briefly, in early March following an extensive redevelopment. We also completed on two fantastic sites for our pipeline: Enderby House, a long-leasehold on the banks of the Thames in Greenwich, and the Constitution (Camden), a freehold sitting on Regent's Canal, nestled between the bustling nightlife of Camden Town and the regeneration of King's Cross. There were two managed house disposals in the period, as we exited the tied leases at the Builder's Arms (Chelsea), a pub with Enterprise Inns, and the Alphabet (Islington), a pub leased from Star Pubs & Bars. We also sold the Bristol Ram at the tail of our tenanted estate.

Within the existing estate, we have also made significant investment. In February, after 14 months on-site, we completed a multi-million-pound scheme at the Dog & Fox (Wimbledon Village) adding 11 new boutique hotel rooms and the Coach House, a dedicated and dynamic function space offering capacity for up to 300 people. With further additions to our hotel room numbers, total managed room stock now stands at 687 (2019: 668 rooms). Elsewhere, we have invested heavily in the Redcomb pubs, bringing them in line with the Young's estate and unlocking their potential. The coronavirus shutdown has also impacted our investment plan, with a number of our pubs unable to show themselves following refurbishment this spring. There were also schemes on-site which we were forced to put on standby until we are out the other side of the lockdown; we look forward to completing these in the coming months.

RESILIENCE

We believe that one of the keys to our success is our ability to recruit, train and retain the very best people in the industry, and this is now more important than ever. The decision to retain all our staff following the outbreak of the coronavirus crisis by placing the vast majority on furlough not only helped safeguard the cash flow of the business but also ensures we are in a strong position when we re-open our doors.

Our pubs proudly form vital places in their local communities, providing a place of sanctuary, whether that be somewhere to catch up with friends, meet for a family celebratory meal or relax with a quiet pint or two one sunny evening. During the recent uncertain and worrying times, it was great to see the individual acts of kindness across the estate, as our teams stepped up to help out the most vulnerable in their local communities, gifting food parcels to elderly neighbours, hospices and care homes, and delivering pre-prepared meals to NHS staff and other key workers.

Our main priority is the safety and well-being of our people, our customers and our suppliers at this difficult time. The initial impact of declining volumes and subsequent full closure of our pubs as the virus spread during March was evident on a daily basis. However, predicting the extent of the damage that the coronavirus will have on our business going forward is largely unknown. There is no experience of such a crisis, no clear indicators as to how long the pandemic or enforced shutdown will last and what, if any, will be the lasting effects on consumers. At times like this, our strong balance sheet, underpinned by our predominantly freehold and long leasehold estate (2020: 83%), and combined with relatively modest levels of debt, has never been so vital.

The speed at which our business was able to adapt was commendable, switching our working practices to enable greater home working, with all meetings held in a virtual environment. We have taken decisions that will have an immediate and direct impact on our ability to conserve cash in the short term. Our largest expense, our wage cost, has been minimised with the decision to furlough the majority of our employees, both in the pubs and at Riverside House, combined with the board of directors taking a temporary 20 per cent pay cut. Last month, we accessed £30.0 million of short-term financing from the Bank of England under the CCFF, have further strengthened our long-term capital position and replaced our existing covenant tests with a minimum available liquidity requirement until June 2021.

On behalf of the board and all my colleagues at Young's, I want to say a huge thank you and pay tribute to our wonderful NHS staff, in particular, and also to all the critical workers out there doing their very best to keep us safe and well.

OUTLOOK

One thing we can be sure of is that at some point the pandemic will pass. The fabulous weather we have experienced so far this spring has been a gentle reminder of the enormous opportunity our business has to bounce back once it's safe for the government's restrictions to be lifted. I am looking forward to all of our team reuniting, opening the doors to our great pubs and welcoming back our customers once we are through this.

Whilst the period of closure and any restrictions that may remain are still unknown, there are many things to be excited by. The five new pubs acquired late in March traded for only a matter of days before they were forced to close; they offer an immediate boost to both revenue and bottom line profit, with no additional capital expenditure required. The significant investments we made last year in our existing estate will give us further growth potential as soon as we reopen our pubs - it was one of our most exciting and biggest investment years and I'm looking forward to seeing what our customers think. Optimistically, we are looking forward to continuing our consistent growth records of previous years but accept that it will take time for things to normalise. 

We are grateful for the positive moves made by the Chancellor to ensure that great businesses like ours survive these particularly tough times. Through extending the job retention scheme until October he has given us a degree of certainty in uncertain times, whilst the support of the business rates holiday will be a welcome £14.5 million cost saving in the coming year.

We are confident with the steps we have taken to safeguard our business from the immediate threat of coronavirus. The board expects our pubs to have opened by 3 August and for trading in FY21 to be materially below average. We expect sales to return to more normalised levels in FY22 when this unprecedented period is at an end, and we remain confident in our proven strategy.

 

Business and financial review

MANAGED HOUSES

The past 12 months have provided many highlights for our managed house division as trading was, for the most part, consistent and encouragingly ahead of last year. The acquisition of the Redcomb pubs in January last year has supported the growth achieved, with total managed revenue up by 3.0%, to £299.1 million. Unsurprisingly, the government's enforced closures late in March, and the preceding weeks' decline in sales as the coronavirus started to spread, had a significant impact, with like-for-like sales finishing down by 2.4% (2019: up by 5.1%).

Each year presents itself with fresh challenges as we look to continue our long-standing record of consistently growing profits in our managed house division; this was no different. Despite combating further external increases to our cost base, whether they were business rates, the rising national living wage or from elsewhere, it was the unexpected pub closures that had such a disproportionate impact on profits, especially given the timing so close to the year end. In total, managed adjusted operating profits were down by 5.0%, to £58.4 million (post-IFRS 16 reported adjusted operating profit: £59.9 million).

Our focussed approach of adding hand-picked acquisitions in great locations saw us add further to our managed estate, bringing the total house count to 207 pubs, including 30 hotels, an increase of six pubs over the year.

The standout purchase of five unique pubs in our heartland was a real highlight. Their premium food offers, high-class drinks menus and operational excellence are a perfect fit for Young's. These high turnover pubs will increase our 'batting average' and add further quality to our estate. It is a shame they were only open for a short while before the forced closure, but they will prove to be a great purchase in the coming years.

Elsewhere, it has been another period of extensive investment in the managed estate with a number of eye-catching development projects, an acceleration in our planned investment of the Redcomb pubs and, further maximising our hotel room opportunities, the addition of 19 rooms to our stock. The year culminated with the completion of the multi-million-pound scheme at the Dog & Fox hotel in Wimbledon Village.

Total drink sales were ahead of last year by 2.0%, but down on a like-for-like basis, by 2.6%. With the endless days of beautiful spring sunshine last year, it was always going to be a challenging start to this period, then made even harder by the cooler and more varied weather of the summer. The weather improved latterly in the summer months, leading to record sales over the August bank holiday, and the positives continued through September. As the weather turned in autumn, the rain seemed to dominate the skies for a sustained period and by the time we had reached Christmas it had achieved fame as the wettest winter on record. Last December will also be remembered for the first winter election since 1923 and a month when train strikes struck down London commuters, severely affecting peak trading. All of this came before the coronavirus pandemic spread, culminating in the shutdown of pubs in March and brutally impacting on sales growth comparatives this year.

Rugby autumn international fixtures at Twickenham, which form an integral part of the sporting calendar in our heartland, were moved from November to this summer as part of the preparations for the rugby world cup. Held in Japan, the kick-off times for matches were not ideal due to the time difference, but breakfast audiences in our pubs grew with each round as England progressed all the way to the final. These early morning games proved popular for pints of Guinness, managing to offset the lost sales from the shift in autumn fixtures, with sales of the rugby famed stout ahead of last year by an impressive 11.7%.

Volumes of lager didn't fare as positively. They were competing against tough comparatives with last year's sales boosted by the sunshine start and an equally impressive performance from the men's England football team at their world cup. In this period, lager sales were down by 5.0%, with draught cider also down by 9.5%.

Ahead of autumn, we completed the rebranding of our much-loved Young's beers, including the renamed Young's Original; this extended to new livery on Young's dray lorries, further endorsing our famous brands throughout our heartland. This was not enough to halt the slide of cask ale sales; although cooler temperatures did help boost volumes through the summer months, sales ended down on last year by 4.9%.

Outside of draught lager, the top-selling product was Beavertown Neck Oil, demonstrating the ever-increasing popularity of premium brands to our customers, supported by continuing growth from the keg ale category, where sales were up 4.7%. Premiumisation also hasn't slowed within the wine and spirits categories. Despite the closures preventing gin from breaking more records, the premium priced serves of gin, the colourful selection of spritzers and our growing cocktail range remained attractive to customers. Resurgent rosé wine sales were ahead of last year by 1.7%; although popular through summer months, sales have established themselves throughout the year with the additional upsell opportunity of magnum bottles proving a hit with customers.

In total, food sales were up 5.1%, but down 1.7% on a like-for-like basis. Food sales, at the expense of drink, were the beneficiary of the cooler weather at the start of the year, with sales of Sunday roasts and classic pub dishes performing strongly. At Christmas, pubs looked to maximise the premium offer, serving our guests with stunning centrepieces where they were able to opt for whole roasted turkeys, geese and ribs of beef. It continues to be a challenging marketplace, never more so than now, but we remain confident in our food strategy.

We have an expert team of executive chefs who work tirelessly to ensure that British, seasonal and fresh produce are at the heart of every dish we serve. Our five Young's classics and the ultimate Sunday roasts remain at the core of our strategy. Outside of the classics, chefs have the flexibility to create individual menus and inspirational dishes that are unique to their business. We are proud of the recognition our pubs receive for their food, none more so than the Guinea (Mayfair) which was crowned 10^th Best Gastropub in the UK. This traditional and historic pub has built a reputation as one of London's most acclaimed steakhouses, specialising in serving premium dry aged British beef.

At Young's, it's not just our drink and food that delights our customers and attracts new ones, but much also comes down to the individuality of our pubs themselves. Last winter in Wandsworth, the 'Chronicles of the County Arms' opened its magical doors. Inspired by classic tales, customers were able to step through the 'wardrobe' into an outside trading area that had been creatively transformed into a snow-filled winter forest with frost-covered pine trees, snow-topped tables, woodland features and lanterns. Wrapped in faux fur blankets on the throne-style seating, they were able to enjoy seasonal winter cocktails, accompanied by a gooey cheese fondue, in an enchanted winter garden.

The growth from new hotels in the past two years has driven the rise in accommodation sales, up by 5.3% this year. Total room stock has increased by 107 rooms in this two-year period, both through acquisition and organically, maximising potential room capacity at existing properties, bringing the year-end total room stock to 687. This growth was unable to offset the lost sales from the lockdown in March; like-for-like room sales were down by 3.1%. Total occupancy rates were 70.5%, down by 2.4% pts on the previous year, and RevPar decreased by £2.21, or 3.6%, to £59.23.

The designated capital investment set aside each year for hotels has enabled us to raise more of our room stock to boutique standard, modernising bathrooms and installing air conditioning, to meet the long-term vision of our room quality. This year we have upgraded room standards at the Seagate hotel (Appledore), added new rooms at the established Bear (Esher) and City Gate (Exeter), and, following its acquisition last year, transformed the Canford Hotel, which sits on the cliffs on the south coast near the tourist hotspot of Sandbanks.

INVESTMENT

We were excited to have added further to our managed portfolio, in particular the acquisition of five fantastic premium businesses in March. The Canbury Arms (Kingston upon Thames), Crown (St Margarets in Twickenham), Grantley Arms (Wonersh), Onslow Arms (West Clandon) and the Wheatsheaf (Esher) are a perfect fit, well located in and around our existing managed estate. Elsewhere, we made further major acquisitions, openings and transfers, all of which are unique in their own way. These include:

· the Depot, a new build in a recently opened development in the regeneration area of Kidbrooke in south east London, and another in the list of pubs opened in partnership with Berkeley Homes;

· the White Bear, a freehold purchase in an exciting new territory for Young's in the commuter hub of Tunbridge Wells;

· the New Inn (Ealing), capitalising on a further growth opportunity from within our Ram Pub Company by transferring it to our managed division; and

· the Constitution (Camden) and Enderby House (Greenwich), both of which add to our future pipeline and offer great potential for the coming years. 

A common theme in all of these is their superb location and future potential, both fundamental factors in our investment decisions.  

During the course of the year, including acquisitions, we invested £66.9 million in our managed estate across a number of exciting schemes. After more than a year on-site at the Dog & Fox hotel, our new multi-use function suite, the 'Coach House', opened in January; an additional 11 bedrooms were completed later in March, bringing the total available hotel rooms to 28. Unfortunately, initial bookings have had to be postponed, including what was expected to be its record-breaking Wimbledon tennis fortnight. Once able to re-open after the lockdown, the pub will be ready to capitalise on this investment, eager to show itself to our returning customers.

Originally we had planned to invest in all of the Redcomb pubs over a three-year period; however, we chose to accelerate this and therefore brought forward investment in nine of the pubs during this year, spending a total of £2.7 million. As part of this plan, we have refurbished the Theodore Bullfrog (Charing Cross), including its first floor trading space, undertaken major schemes at the Bickley Arms (Chislehurst), Manor Arms (Streatham), Old Manor (Potters Bar) and the Worplesdon Place (Guildford), and have added two Burger Shacks.

As the country ground to a halt in March, so did the contractors at the Green Man (Putney) where we were part way through transforming the pub, creating additional internal dining covers to complement the expansive external trading area and garden. We will look to complete this project early in the new financial year once restrictions have been lifted.

Alongside these, we have targeted investment in our core estate, with major projects undertaken at the Adam & Eve (Fitzrovia), Duchess of Kent (Islington), Duke's Head (Wallington), Grove (Exmouth), Queen Adelaide (Wandsworth),  Riverside (Vauxhall), Waterfront (Wandsworth) and the White Hart (Barnes).

RAM PUB COMPANY

It has been a tough year for the Ram Pub Company, following the highly successful period last year with the good early summer weather and England's football world cup success which helped drive barrelage growth. On a like-for-like basis, revenue fell by 4.1%.

In total, revenue within the Ram Pub Company was down by 6.9% or £0.9 million, in part reflecting the net reduction in the number of pubs and the impact from reduced beer volumes at key periods of the year. As with our managed houses, all tenanted pubs were forced to close towards the end of March due to the coronavirus pandemic.

Total adjusted operating profit was £4.2 million, a decrease of £0.8 million (post-IFRS 16 reported adjusted operating profit: £4.3 million). This decline in profits is exaggerated somewhat due to an onerous lease adjustment of £0.3 million in the previous year.

In April last year, we transferred the New Inn (Ealing) to our managed house division to maximise its potential further. Other transfer opportunities do exist within the Ram Pub Company and we will look to harvest these when the time is right for both us and our tenants.

Midway through the financial period we opened the Ram Inn (Wandsworth) on the corner of the old Ram Brewery site. This iconic pub, restored back to its former glory, features a traditional bar opening out onto the bustling high street and, on the first floor, an indoor garden equipped with two shuffle-board lanes. We also sold the Bristol Ram, a pub at the tail of the estate, for proceeds of £0.9 million. 

As a result of the above movements, the Ram Pub Company ended the year with 69 pubs, down from 70 in the previous year. 

Within our existing estate, we follow a structured and viable investment programme to ensure that each tenanted pub is maintained at an attractive standard to appeal to customers, current tenants and future business partners. In the past year, we have completed major developments at the Grapes (Wandsworth), Railway Telegraph (Thornton Heath), Rattlebone Inn (Sherston) and the Waterman's Arms (Richmond).

With the challenging end to the period resulting in closures across the estate in March, we were the first pub company to announce a three-month rent holiday for all our tenants, effective from 16 March 2020, as part of a support package to help them through this difficult period. For the majority of our tenants we have extended this for a further month, and we continue to monitor the ongoing situation.

OTHER KEY AREAS

PROPERTY

Our balance sheet strength is underpinned by our predominately freehold estate in many highly desirable locations. 230 of our 276 pubs are freehold or are long-leaseholds with peppercorn rents. Our total estate is now valued at £771.1 million (2019: £807.0 million) with a reduction in value of £56.4 million from last year following the adoption of IFRS 16, which has been reclassified to the right-of-use asset. We have continued to add value through acquisitions, primarily focussing on freehold assets, and major developments to improve our existing pub values.

Each year we revalue our pub estate to reflect current market values. This year we have had to take into account the exceptional circumstances resulting in all our pubs being forced to close following the outbreak of the coronavirus pandemic. Savills, an independent and leading commercial property adviser, has revalued all our freehold properties, supported by Andrew Cox, MRICS, our Director of Property and Tenancies. The valuation method used a number of inputs of which the sustainable level of trade of each pub was key. It incorporates the impact of coronavirus through discounting pre-coronavirus property values by between 0% and 10%, which contains material uncertainty given the lack of comparable transactional activity since the onset of coronavirus and the uncertainty over future trade at the valuation date.

In accordance with International Financial Reporting Standards, individual increases in value have been reflected in the revaluation reserve in the balance sheet (except to the extent that they had previously been revalued downwards) and individual falls in value below depreciated cost have been accounted for through the income statement. None of these adjustments has a cash impact.

Prior to the outbreak of the coronavirus, the pub property market in London and the surrounding areas had remained strong. However, the market uncertainty arising from estate-wide closures and the significant impact on our trading levels and achieved profit resulted in a net downward revaluation movement of £14.6 million (2019: £25.2 million upward movement). This is comprised of a downward movement of £9.3 million (2019: £25.3 million upward movement) reflected in the revaluation reserve and a downward movement of £5.3 million (2019: £0.1 million downward movement) recognised as an adjusting item in the income statement.

 

TREASURY

During the year we remained highly cash generative. Our operating cash flow was £64.7 million (post-IFRS 16 reported operating cash flow: £72.5 million) compared with £69.2 million in 2019, with our premium business and predominantly freehold estate performing strongly.

Total net debt has increased by £35.1 million to £198.7 million (post-IFRS 16 reported net debt: £280.4 million) as a result of significantly reduced trading in March and the investments made during the year, especially the purchase of six pubs, falling in the last quarter. This resulted in an increase in our net debt to adjusted EBITDA ratio, to 2.8 times (2019: 2.2 times), and in our gearing to 33.6% on a pre-IFRS 16 basis (2019: 27.6%).

GOING CONCERN

We have prepared our 2020 financial statements on a going concern basis for the reasons set out below.

With the group's strong balance sheet, supplemented by the actions below, the board of directors is confident that Young's has sufficient liquidity to handle a prolonged period of closure of its pubs.

As mentioned previously, it is not possible to predict the extent of the damage that the coronavirus will have on our business going forward. We have modelled a broad range of scenarios, with our base model assuming our pubs will not re-open before August and the business experiencing significant disruption throughout the remainder of the financial year.

Considering the impact that coronavirus may have on the business, we have moved forward on a number of areas, all underpinning the basis of our business modelling. The rate at which we use cash has been reduced significantly, achieved through a combination of postponing all planned capital investment and furloughing the vast majority of our pub and support teams, combined with the business rates holiday announced by the government. Forward-looking cash conservation measures such as the cancellation of the final period dividend for the year ended and limiting our operating expenses are inherent in our business modelling.

We have strengthened both our short-term and long-term liquidity position. As regards the short-term, we have partially accessed the liquidity available to us under the HM Treasury and the Bank of England's CCFF, issuing commercial paper with a nominal value of £30.0 million and a maturity date of 13 May 2021. We have also entered into a new £20.0 million bilateral revolving credit facility with NatWest, we do not intend to draw on this facility but instead retain it as available liquidity to help us meet the liquidity test referred to below. This has a maturity date falling in May 2021 and we have the option early next year to request an extension of its maturity date by six months and can do the same again later next year. So far as the long-term is concerned, we have entered into a new £50.0 million syndicated facility with NatWest and HSBC split evenly between them. This has an original maturity date falling in May 2025; we have the option next year to request an extension of the maturity date by a further year and can do the same the following year. We have drawn down on this facility and repaid in full the March 2021 £50.0 million syndicated facility with the RBS and Barclays.

All our lending banks were supportive of us accessing additional liquidity and strengthening our balance sheet further. In addition, they have waived any technical 'cessation of business' breach of our banking facilities as a result of our pubs being closed due to the coronavirus pandemic, and our financial covenant tests at June, September and December this year and at March next year have now been replaced with an additional monthly liquidity test requiring us to retain available liquidity of £20.0 million through to and including June 2021. Given the uncertainty over both the timing of the government's lifting of pub closures and the extent of restrictions on the group's ability to trade, including social distancing measures, the compliance with banking covenants beyond 12 months from these financial statements is a material uncertainty. The group remains in regular dialogue with its lending banks and, should such a scenario arise, the group would expect to discuss potential remedies with its banks, including an extension of the covenant changes agreed already, well in advance of June 2021.

Equally, under the more severe scenario where pubs remain closed for longer or initial trade is weaker, we may need further access to the CCFF. The Bank of England's standard terms for the CCFF state that the Bank reserves the right, at its sole discretion, not to provide further funds under the CCFF. This could represent a material uncertainty that may cast doubt about the group's ability to continue as a going concern. However, HM Treasury and the Bank of England have publicly committed to keeping the CCFF open until at least March 2021. On this basis, the board of directors believe that liquidity under the CCFF would be available to the group should it be required (see note 1).

As a result of the above, we have in place £285.0 million of funds and committed facilities from our lending banks, private placement lenders and under the CCFF. Our accessible liquidity is, however, effectively limited to £265.0 million. In addition to this, we have a £10.0 million overdraft with HSBC.

RETIREMENT BENEFITS

We have a defined benefit pension scheme which has been closed to new entrants since 2003. During the course of the year our pension deficit has decreased by £0.4 million to £8.2 million. Compared with last year, the rate of inflation has decreased considerably from 3.3% to 2.8% which has heavily contributed to a decrease in total actuarial assumptions of £9.3 million. However, this has been offset by a £10.0 million reduction in the return on schemes' assets. We have continued our commitment with another year of special contributions, totalling £1.2 million, and remain fully committed to ensuring the pension scheme is adequately funded.

 

ADJUSTING ITEMS

Excluding the £5.3 million net decrease in the property valuation of our estate, as mentioned previously, the majority of the £3.3 million adjusting items expenditure relates to property and investment activity following the acquisitions made in the period.

Direct acquisition costs associated with business combinations of £1.0 million have dropped slightly this year (2019: £1.2 million), largely due to the higher cost associated with the Redcomb purchase last period. Early lease termination costs were agreed at the point of completion with the tenants of the White Bear (Tunbridge Wells) and the Constitution (Camden) in order to capitalise on the opportunity these pubs present within our managed estate. There were additional compensation costs to terminate the lease agreements early at the New Inn (Ealing) which transferred from the Ram Pub Company last April, and an unlicensed property which could form part of a potential exciting new head office development at the rear of the Spread Eagle (Wandsworth). In total, tenant compensation cost in the year of £1.7 million has been included within adjusting items and expensed under IFRS. 

The remaining £0.6 million of adjusting items relates to the loss on disposal of properties during the period. We exited two tied leases forming part of the managed business, the Builder's Arms (Chelsea), a pub with Enterprise Inns, and the Alphabet (Islington), a pub leased from Star Pubs & Bars, and we sold the Bristol Ram from the Ram Pub Company.

TAX

Our corporation tax charge for the year was £9.8 million, with an increase in our effective tax rate of 3.1% pts to 21.8%. This included £1.6 million relating to the re-measurement of our deferred tax liabilities as a result of the increase in the future substantively enacted tax rates from 17.0% to 19.0%.

The group's tax strategy has been published on the Young's website in accordance with recent UK tax law.

IFRS 16

The 2020 results have been reported under IFRS 16. The 2019 comparatives have not been restated, as permitted by the accounting standard; for comparative purposes only, we have presented and commented on the 2020 results on a non-statutory illustrative basis to exclude the impact of IFRS 16. There was no impact on revenue.

Under IFRS 16, removing the rental charge from the income statement results in an increase to EBITDA. Therefore, reported group adjusted EBITDA at £79.6 million would have been £7.8 million higher than the illustrative pre-IFRS 16 £71.8 million. An additional depreciation charge of £6.1 million, largely driven by the right-of-use assets, results in a net increase to our reported adjusted operating profit of £1.7 million compared with pre-IFRS 16 illustrative adjusted operating profit of £44.8 million. 

With a further £2.5 million interest charge under IFRS 16 in this year, our illustrative adjusted profit before tax of £38.5 million was £0.8 million higher than our reported adjusted profit before tax of £37.7 million.

The adoption of IFRS 16 has had the greatest impact on our managed houses division. Excluding this, the managed adjusted operating profit was £58.4 million, £1.5 million lower than reported profit. The remaining £0.2 million was equally split between unallocated and the Ram Pub Company.

Net assets increased by £0.4 million on adoption of IFRS 16. For further details on the balance sheet impact see note 2.

At the year-end, our debt level has risen by £116.8 million to £280.4 million largely due to the introduction of £81.7 million of lease liabilities onto the balance sheet. As a result, net debt to EBITDA increased to 3.5 times (2019: 2.2 times) and gearing increased to 47.5%.

SHAREHOLDER RETURNS

Having started life in 1831, Young's is a long-standing business and we are determined to maintain our long-term, sustainable growth story. We continue to deliver strong performances from our existing estate and our hand-picked developments, focussing on both immediate and maintainable gains.

Following the outbreak of the coronavirus and with our pubs being closed, the focus of the business has been to prioritise cash conservation. The board has therefore concluded that it is not appropriate to recommend payment of a final dividend for the most recent period. 

Further, in view of the ongoing closure of our pubs, the expected lower levels of trade when they re-open and the terms of the new £20.0 million facility with NatWest, the Company will not be paying an interim dividend for the current financial year ending 29 March 2021. The board is very mindful of the importance of dividends to Young's shareholders and intends resuming dividend payments as soon as is practicable, but no decisions have been made about when that will be.

Our adjusted earnings per share now stand at 62.22 pence per share, down 13.7% (post IFRS 16 reported adjusted earnings per share: 60.18 pence). On an unadjusted basis, earnings per share dropped to 39.37 pence.

Patrick Dardis

Chief Executive

3 June 2020

 

GROUP INCOME STATEMENT

For the 52 weeks ended 30 March 2020

		2020	2019
	Notes	£m	£m
Revenue		311.6	303.7
Operating cost before adjusting items		(265.1)	(255.2)
Adjusted operating profit		46.5	48.5
Adjusting items	4	(8.6)	(3.9)
Operating profit		37.9	44.6
Finance costs		(8.6)	(5.0)
Finance charge for pension obligations		(0.2)	(0.1)
Profit before tax		29.1	39.5
Income tax expense	6	(9.8)	(8.0)
Profit for the period attributable to shareholders of the parent company		19.3	31.5

		Pence	Pence
Earnings per 12.5p ordinary share
Basic	8	39.37	64.36
Diluted	8	39.35	64.31

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the 52 weeks ended 30 March 2020

		2020	2019
	Notes	£m	£m
Profit for the period		19.3	31.5
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Unrealised (loss)/gain on revaluation of property	9	(9.3)	25.3
Remeasurement of retirement benefit schemes	11	(0.7)	(1.2)
Tax on above components of other comprehensive income		(3.1)	(3.2)
Items that will be reclassified subsequently to profit or loss:
Fair value movement of interest rate swaps		0.4	0.5
Tax on fair value movement of interest rate swaps		-	(0.1)
		(12.7)	21.3
Total comprehensive income attributable to shareholders of the parent company		6.6	52.8

BALANCE SHEETS

At 30 March 2020

				2020	2019
			Notes	£m	£m
Non-current assets
Goodwill and intangible assets				32.5	33.5
Property and equipment			9	771.1	807.0
Right-of-use assets			10	163.4	-
Deferred tax assets				8.3	7.4
Lease premiums				-	12.9
				975.3	860.8
Current assets
Inventories				3.3	3.7
Trade and other receivables				9.3	8.3
Income tax receivable				0.1	-
Lease premiums				-	0.7
Cash				1.1	8.5
				13.8	21.2
Asset held for sale				0.5	-
Total assets				989.6	882.0
Current liabilities
Borrowings				(50.0)	(7.9)
Lease liabilities			12	(5.3)	(0.6)
Derivative financial instruments				(2.4)	(1.9)
Trade and other payables				(33.3)	(35.9)
Income tax payable				-	(4.8)
				(91.0)	(51.1)
Non-current liabilities
Borrowings				(149.2)	(163.6)
Lease liabilities			12	(77.0)	-
Derivative financial instruments				(3.3)	(4.2)
Deferred tax liabilities				(69.9)	(60.6)
Retirement benefit schemes			11	(8.2)	(8.6)
Other liabilities				(0.2)	(0.5)
				(307.8)	(237.5)
Total liabilities				(398.8)	(288.6)
Net assets				590.8	593.4
Capital and reserves
Share capital				6.1	6.1
Share premium				7.5	6.7
Capital redemption reserve				1.8	1.8
Hedging reserve				(4.4)	(4.8)
Revaluation reserve				248.4	295.1
Retained earnings				331.4	288.5
Total equity				590.8	593.4

STATEMENTS OF CASH FLOW

For the 52 weeks ended 30 March 2020

					2020	2019
				Notes	£m	£m
Operating activities
Net cash generated from operations				13	72.5	69.2
Tax paid					(13.5)	(9.2)
Net cash flow from operating activities					59.0	60.0
Investing activities
Proceeds from disposal of property and equipment					1.0	1.3
Purchases of property, equipment and lease premiums(1)					(32.7)	(33.9)
Business combinations, net of cash acquired					(35.3)	(25.3)
Right-of-use assets acquired					(0.2)	-
Net cash used in investing activities					(67.2)	(57.9)
Financing activities
Interest paid					(8.6)	(5.1)
Issued equity					-	0.3
Equity dividends paid				7	(10.5)	(9.9)
Payments of principal portion of lease liabilities					(8.1)	-
Repayment of borrowings					(8.5)	(12.1)
Proceeds from borrowings					36.5	26.0
Net cash flow used in financing activities					0.8	(0.8)
(Decrease)/increase in cash					(7.4)	1.3
Cash at the beginning of the period					8.5	7.2
Cash at the end of the period					1.1	8.5
(1)  In the current period, in accordance with IFRS 16, there were no investments in lease premiums.

GROUP STATEMENT OF CHANGES IN EQUITY

At 30 March 2020

			Capital
		Share	redemption	Hedging	Revaluation		Retained	Total
		capital(1)	reserve	reserve	reserve		earnings	equity
Notes		£m	£m	£m	£m		£m	£m
At 2 April 2018		11.8	1.8	(5.2)	273.3		267.5	549.2
Total comprehensive income
Profit for the period		-	-	-	-		31.5	31.5
Other comprehensive income
Unrealised gain on revaluation of property	9	-	-	-	25.3		-	25.3
Remeasurement of retirement benefit schemes	11	-	-	-	-		(1.2)	(1.2)
Fair value movement of interest rate swaps		-	-	0.5	-		-	0.5
Tax on above components of other comprehensive income		-	-	(0.1)	(3.5)		0.3	(3.3)
		-	-	0.4	21.8		(0.9)	21.3
Total comprehensive income		-	-	0.4	21.8		30.6	52.8
Transactions with owners recorded directly in equity
Share capital issued		1.0	-	-	-		-	1.0
Dividends paid on equity shares	7	-	-	-	-		(9.9)	(9.9)
Share based payments		-	-	-	-		0.3	0.3
		1.0	-	-	-		(9.6)	(8.6)
At 1 April 2019		12.8	1.8	(4.8)	295.1		288.5	593.4
Impact of IFRS 16 transition	2	-	-	-	(33.6)		34.0	0.4
Restated at 2 April 2019		12.8	1.8	(4.8)	261.5		322.5	593.8
Total comprehensive income
Profit for the period		-	-	-	-		19.3	19.3
Other comprehensive income
Unrealised loss on revaluation of property	9	-	-	-	(9.3)		-	(9.3)
Remeasurement of retirement benefit schemes	11	-	-	-	-		(0.7)	(0.7)
Fair value movement of interest rate swaps		-	-	0.4	-		-	0.4
Tax on above components of other comprehensive income		-	-	-	(3.8)		0.7	(3.1)
		-	-	0.4	(13.1)		-	(12.7)
Total comprehensive income		-	-	0.4	(13.1)		19.3	6.6
Transactions with owners recorded directly in equity
Share capital issued		0.8	-	-	-		-	0.8
Dividends paid on equity shares	7	-	-	-	-		(10.5)	(10.5)
Share based payments		-	-	-	-		0.1	0.1
Tax on share based payments		-	-	-	-		(0.3)	(0.3)
Movement in shares held by The Ram Brewery Trust II		-	-	-	-		0.3	0.3
		0.8	-	-	-		(10.4)	(9.6)
At 30 March 2020		13.6	1.8	(4.4)	248.4		331.4	590.8
(1)  Total share capital comprises the nominal value of the share capital issued and fully paid of £6.1 million (2019: £6.1 million) and the share premium account of £7.5 million (2019: £6.7 million). Share capital issued in the period comprises the nominal value of £nil (2019: £nil) and share premium of £0.8 million (2019: £1.0 million).

 

1. Accounts

This preliminary announcement was approved by the board on 3 June 2020. The financial statements in it are not the group's statutory financial statements. The statutory financial statements for the period ended 1 April 2019 have been delivered to the Registrar of Companies. The auditor has reported on those financial statements and on the statutory financial statements for the period ended 30 March 2020, which are expected to be delivered to the Registrar of Companies shortly. The report for the 2020 accounts was (i) unqualified, (ii) contains a number of material uncertainties in respect of going concern to which the auditor drew attention by way of emphasis without modifying their opinion and (iii) did not contain a statement under s.498(2) or (3) of the Companies Act 2006. EY's report for the accounts of 2019 was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the reports and (iii) did not contain a statement under s.498(2) or (3) of the Companies Act 2006.

The current period and prior period relate to the 52 weeks ended 30 March 2020 and the 52 weeks ended 1 April 2019 respectively.

The financial statements are presented in pounds sterling, which is the functional currency of the parent company, and all values are rounded to the nearest hundred thousand (£0.1 million) except where otherwise indicated.

This preliminary announcement has been agreed with the company's auditor for release.

The audited financial information in this statement has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union. The accounting policies used have been consistently applied and are described in full in the statutory financial statements for the period ended 30 March 2020. The financial statements will also be available on the group's website, www.youngs.co.uk.

Going concern

In response to coronavirus and the closure of all of the group's pubs, management has taken actions to mitigate the consequential and significant impact on both profit and cash flow of this closure. These actions include reducing the group's cash outflows in non-essential areas, accessing some of the government's support packages in order to safeguard employment, agreeing that no final dividend will be declared or paid for 2020 and strengthening both short-term and long-term financing. A number of these actions were taken post-year end and are therefore not reflected in the financial statements at 30 March 2020.

At 30 March 2020, the group had cash of £1.1 million and secured borrowing facilities of £235.0 million, of which £199.2 million was drawn down and of which £50.0 million expires in March 2021. Since that date, further financing has been accessed through the CCFF, whereby £30.0 million of commercial paper with a maturity date of May 2021 has been secured, alongside a new revolving credit facility of £20.0 million with NatWest for an initial period of one year to May 2021. Longer-term, the £50.0 million term loan due to expire in March 2021 has been replaced with a five-year facility expiring in 2025. As at the date of approval of these financial statements, the group has cash of £4.7 million and £285.0 million of funds and committed facilities from its lending banks, private placement lenders and under the CCFF. Of these, £235.0 million is available for at least 12 months and £228.0 million is drawn down. In addition, the group has access to further funding under the CCFF should it be required.

The group has also considered the effects of its latest forecasts on its compliance with bank covenants, which are tested each quarter on a twelve month rolling basis. In anticipation of covenant breaches arising due to the pub closures, the group has agreed with its lending banks that the financial covenants have been replaced by a minimum debt headroom covenant, requiring the group to leave £20.0 million of its available facilities undrawn, until the quarter ending June 2021.

The group has modelled several scenarios surrounding closure and disruption periods as a result of coronavirus in its cash flow forecasts for the coming year. A base case scenario includes reopening some pubs from August 2020, with significantly lower activity levels over the next eight months. More severe scenarios have been modelled, in which either the pubs remain closed or reopen and are then forced to close again. Under the base case, there is headroom under the revised covenants through to June 2021 and there would be no need to access further debt under the CCFF. However, under a more severe scenario where pubs remain closed for longer or initial trade is weaker, we would still comply with revised covenants to 31 May 2021 but may look to access the CCFF further. The Bank of England's standard terms for the CCFF state that the Bank reserves the right, at its sole discretion, not to provide further funds under the CCFF. The Directors note that this could represent a material uncertainty that may cast significant doubt about the group's ability to continue as a going concern. We have discussed this matter with the Bank of England and note that this is the Bank's standard approach to all of its lending facilities and that HM Treasury and the Bank of England have publicly committed to keeping the CCFF open until at least March 2021. On this basis, the board of directors believes that further liquidity under the CCFF would be available to the group should it be required.

Whilst there is no material uncertainty about the group's ability to comply with the revised banking covenants over the next 12 months, those covenants revert to the group's original financial covenants for the 30 June 2021 covenant test. Under the base case scenario, the group expects to comply with covenants at that date but a more severe scenario under which pubs remain closed for longer, or where trading once reopened is worse than forecast, could result in a breach of those covenants at that date. Given the uncertainty over both the timing of the government's lifting of pub closures and the extent of restrictions on the group's ability to trade, including social distancing measures, the compliance with banking covenants beyond 12 months from these financial statements for the 30^th June 2021 test date and thereafter is a  material uncertainty that may cast significant doubt about the group's ability to continue as a going concern. The group remains in regular dialogue with its lending banks and, should such a scenario arise, the group would expect to discuss potential remedies with its banks, including an extension of the covenant changes agreed already, well in advance of June 2021.

Based on these forecasts and sensitivities, the directors are confident that, with the cash conservation plans in place and the debt structure available, there are sufficient financial resources to meet all liabilities as they fall due and comply with all revised bank covenants for at least twelve months from the date of approval of these financial statements. Accepting the two material uncertainties that may cast significant doubt about the group's ability to continue as a going concern, relating to the ability to access further funds under the CCFF and compliance with banking covenants beyond the first 12 months, the board has a reasonable expectation that the group is able to manage its business risks and to continue in operational existence for at least that period. Accordingly, the board continues to adopt the going concern basis in preparing the consolidated financial statements.

The financial statements do not contain the adjustments that would result if the company was unable to continue as a going concern.

 

2. Basis of preparation

IFRS 16: 'Leases', which replaced IAS 17, was effective for the financial period that started on 2 April 2019. IFRS 16 removed the distinction between operating leases and finance leases for the lessee and resulted in most leases being recognised on the balance sheet as a lease liability and a right-of-use asset. The group has applied the modified retrospective method of adoption; under this method, the standard has been applied retrospectively with the cumulative effect of initially applying the standard recognised in retained earnings at the date of initial application, being 2 April 2019.

The cumulative impact of the changes made to the group balance sheet as at 2 April 2019 for the adoption of IFRS 16 is summarised as follows:

				Pre-IFRS 16		Post-IFRS 16
				at 1 April	IFRS 16	at 2 April
				2019	adjustment	2019
				£m	£m	£m
Non-current assets
Goodwill and intangible assets(1)				33.5	(3.9)	29.6
Property and equipment(2)				807.0	(56.4)	750.6
Right-of-use assets				-	148.2	148.2
Lease premium				12.9	(12.9)	-
Other non-current assets				7.4	-	7.4
Total non-current assets				860.8	75.0	935.8
Current assets
Lease premium				0.7	(0.7)	-
Trade and other receivables				8.3	(1.3)	7.0
Other current assets				12.2	-	12.2
Total current assets				21.2	(2.0)	19.2
Current liabilities
Lease liabilities				-	(5.0)	(5.0)
Trade and other payables				(35.9)	1.2	(34.7)
Other current liabilities				(15.2)	-	(15.2)
Total current liabilities				(51.1)	(3.8)	(54.9)
Non-current liabilities
Lease liabilities				(0.6)	(69.0)	(69.6)
Provisions and deferred income				(0.5)	0.2	(0.3)
Other non-current liabilities				(236.4)	-	(236.4)
Total current liabilities				(237.5)	(68.8)	(306.3)
Net assets				593.4	0.4	593.8
Net debt				(163.6)	(74.0)	(237.6)
Equity
Retained earnings(3)				288.5	34.0	322.5
Other equity accounts(3)				304.9	(33.6)	271.3
Total equity				593.4	0.4	593.8

⁽¹⁾  The £3.9 million transition adjustment related to the transfer of operating lease intangible assets into right-of-use assets. There was no impact on goodwill.

⁽²⁾  Property and equipment has been adjusted to transfer the carrying value of long leasehold pubs into the right-of-use assets.

⁽³⁾  The equity adjustment transfers revaluation surplus from long leasehold sites into retained earnings as the cost model is being applied to the right-of-use assets going forwards.

3. Segmental reporting

The group is organised into the reporting segments referred to below. These segments are based on the different resources and risks involved in the running of the group. The executive board of the group internally reviews each reporting segment's operating profit or loss before adjusting items for the purpose of deciding on the allocation of resources and assessing performance.

The group has two operating segments: managed houses and Ram Pub Company. The managed house segment operates pubs. Revenue is derived from sales of drink, food and accommodation. The Ram Pub Company consists of pubs owned or leased by the company and leased or subleased to third parties. Revenue is derived from rents payable by, and sales of drink made to, tenants. Unallocated relates to head office income and costs and unlicensed properties.

Total segment revenue is derived externally with no intersegment revenues between the segments in either period. The group's revenue is derived entirely from the UK.

Income statement	Managed	Ram Pub	Segments
	houses	Company	total	Unallocated		Total
2020	£m	£m	£m	£m	£m
Sales of goods	284.5	8.8	293.3	-	293.3
Accommodation sales	14.0	-	14.0	-	14.0
Total revenue from contracts with customers	298.5	8.8	307.3	-	307.3
Rental income	0.6	3.3	3.9	0.4	4.3
Total revenue recognised	299.1	12.1	311.2	0.4	311.6
Adjusted operating profit/(loss)	59.9	4.3	64.2	(17.7)	46.5
Adjusting items	(7.0)	(1.4)	(8.4)	(0.2)	(8.6)
Operating profit/(loss)	52.9	2.9	55.8	(17.9)	37.9
2019
Sales of goods	276.4	9.7	286.1	-	286.1
Accommodation sales	13.3	-	13.3	-	13.3
Total revenue from contracts with customers	289.7	9.7	299.4	-	299.4
Rental income	0.6	3.3	3.9	0.4	4.3
Total revenue recognised	290.3	13.0	303.3	0.4	303.7
Operating profit/(loss) before exceptional items	61.5	5.0	66.5	(18.0)	48.5
Operating exceptional items	(0.9)	(0.5)	(1.4)	(2.5)	(3.9)
Operating profit/(loss)	60.6	4.5	65.1	(20.5)	44.6
The following is a reconciliation of the operating profit to the profit before tax:
				2020	2019
				£m	£m
Operating profit				37.9	44.6
Finance costs				(8.6)	(5.0)
Finance charge for pension obligations				(0.2)	(0.1)
Profit before tax				29.1	39.5

4. Adjusting items

	2020	2019
	£m	£m
Amounts included in operating profit:
Upward movement on the revaluation of properties(1) (note 9)	1.7	3.4
Downward movement on the revaluation of properties(1) (note 9)	(7.0)	(3.5)
Tenant compensation(2)	(1.7)	(0.5)
Acquisition costs(3)	(1.0)	(1.2)
Net (loss)/profit on disposal of properties(4)	(0.6)	0.4
Guaranteed minimum pension equalisation(5)	-	(2.5)
	(8.6)	(3.9)
Tax on adjusting items:
Tax attributable to adjusting items	(1.6)	0.1
Total adjusting items after tax	(10.2)	(3.8)

⁽¹⁾ The movement on the revaluation of properties is a non-cash item that relates to the revaluation exercise that was completed at the period end date. The revaluation was conducted at an individual pub level and identified an upward movement of £1.7 million (2019: £3.4 million) representing reversals of previous impairments recognised in the income statement, and a downward movement of £7.0 million (2019: £3.5 million), representing downward movements in excess of amounts recognised in equity. These resulted in a net downward movement of £5.3 million (2019: £0.1 million net downward) which has been recognised in the income statement. The downward movement for the period ended 30 March 2020 was split between land and buildings of £5.3 million (2019: £0.1 million downward) and fixtures and fittings of £nil (2019: £nil). See note 3 for segmental information and note 9 for information on the revaluation of properties.

⁽²⁾ Tenant compensation of £1.7 million was paid to the previous tenants of the New Inn (Ealing), White Bear (Tunbridge Wells), Constitution (Camden) and an unlicensed property (Wandsworth) to terminate their lease agreements early. During the prior period, the group paid tenant compensation of £0.5 million to the previous tenants of the Bear (Cobham) and the Bayee Village (Wimbledon) to terminate their lease agreements early.

⁽³⁾ The acquisition costs related to professional fees, stamp duty and stamp duty land tax arising on the acquisition of Spring Pub Limited, a group of 5 sites acquired on 12 March 2020, along with the White Bear (Tunbridge Wells) and the Constitution (Camden). The prior period acquisition costs related to the purchase of Redcomb Pubs Limited, a corporate group with 15 sites acquired on 23 January 2019, along with the People's Park Tavern (Hackney) and the Plantation (Poole). They included legal and professional fees and stamp duty land tax.

⁽⁴⁾ The loss on disposal of properties related to the difference between cash, less disposal costs, received from the lease expiry of the Builder's Arms (Chelsea), termination of lease of the Alphabet (Islington) and the sale of Bristol Ram (Bristol) and the carrying value of their assets, including goodwill, at the dates of disposal. The prior year profit on sale of properties related to the difference between the cash, less selling costs, received from the sale of the King's Arms (Mitcham) and the William IV (Bletchingley) and the carrying value of the assets on the date of sale.

⁽⁵⁾ During the prior period a cost of £2.5 million related to the Guaranteed Minimum Pension (GMP) which was the minimum pension which a UK occupational pension scheme must provide for those employees who were contracted out of the State Earnings-Related Pensions Scheme between 6 April 1978 and 5 April 1997. Following the ruling of the High Court of Justice of England and Wales on 26 October 2018, the need to equalise the effect of differences in GMPs between males and females was made more certain and consequently an allowance for the effect of GMP equalisation had been made in the prior financial period. Although a number of methodologies could have been used to determine the impact, the group adopted method C2 to identify its best estimate of the additional liabilities. These were charged as a past service cost in the income statement as an adjusting item since the liabilities related to employee service between 1990 and 1997 and they had no link to the prior period business performance. The increase in liabilities as at 1 April 2019 was estimated at £2.5 million, assessed using market conditions at the date of the ruling as required by IAS 19.

5. Other financial measures

The table below shows how adjusted group EBITDA, operating profit and profit before tax have been arrived at. They exclude adjusting items which due to their material or non-recurring nature distort the group's performance. These alternative performance measures have been provided to help investors assess the group's underlying performance.  Details of the adjusting items can be seen in note 4. All the results below are from continuing operations.

	Post-IFRS 16 2020			2019
		Adjusting			Adjusting
	Unadjusted	items	Adjusted	Unadjusted	items	Adjusted
	£m	£m	£m	£m	£m	£m
EBITDA	76.3	3.3	79.6	69.0	3.8	72.8
Depreciation and net movement on the revaluation of properties	(38.4)	5.3	(33.1)	(23.5)	0.1	(23.4)
Amortisation of lease premiums	-	-	-	(0.9)	-	(0.9)
Operating profit	37.9	8.6	46.5	44.6	3.9	48.5
Net finance costs	(8.6)	-	(8.6)	(5.0)	-	(5.0)
Finance charge for pension obligation	(0.2)	-	(0.2)	(0.1)	-	(0.1)
Profit before tax	29.1	8.6	37.7	39.5	3.9	43.4

The 2020 results have been reported under IFRS 16 whereas the 2019 results have been reported under IAS 17, with no restatement, as permitted by the accounting standard. The 2020 pre-IFRS 16 results, which are provided for comparative purposes only, have been presented on a non-statutory illustrative basis below, excluding the impact of IFRS 16:

	Pre-IFRS 16 2020			2019
		Adjusting			Adjusting
	Unadjusted	items	Adjusted	Unadjusted	items	Adjusted
	£m	£m	£m	£m	£m	£m
EBITDA	68.5	3.3	71.8	69.0	3.8	72.8
Depreciation and net movement on the revaluation of properties	(31.4)	5.3	(26.1)	(23.5)	0.1	(23.4)
Amortisation of lease premiums	(0.9)	-	(0.9)	(0.9)	-	(0.9)
Operating profit	36.2	8.6	44.8	44.6	3.9	48.5
Net finance costs	(6.1)	-	(6.1)	(5.0)	-	(5.0)
Finance charge for pension obligation	(0.2)	-	(0.2)	(0.1)	-	(0.1)
Profit before tax	29.9	8.6	38.5	39.5	3.9	43.4

6. Taxation

The major components of income tax expense for the years ended 30 March 2020 and 1 April 2019 are:

	2020	2019
Tax charged in the group income statement	£m	£m
Current income tax
Current tax expense	8.6	9.3
Adjustment in respect of current income tax of prior periods	-	(0.4)
	8.6	8.9
Deferred tax
Relating to origin and reversal of temporary differences	(0.4)	(0.9)
Change in corporation tax rate	1.6	-
Adjustment in respect of deferred tax of prior periods	-	-
	1.2	(0.9)
Income tax charged in the income statement	9.8	8.0
Deferred tax in the group income statement
Property revaluation and disposals	1.4	(0.1)
Capital allowances	(1.2)	(0.5)
Retirement benefit schemes	0.6	(0.2)
Share based payments	0.3	0.1
Trade losses	0.1	(0.2)
Deferred tax charged/(credited) in the income statement	1.2	(0.9)
Deferred tax in the group statement of other comprehensive income
Property revaluation and disposals	(1.5)	3.5
Retirement benefit schemes	(0.1)	(0.3)
Interest rate swaps	0.1	0.1
Change in corporation tax rate	4.6	-
Deferred tax charged to other comprehensive income	3.1	3.3

The deferred tax assets and liabilities at the balance sheet date are calculated at the substantively enacted rate of 19%. Previously, the substantively enacted rate for balances that will be realised or settled after 1 April 2020 was 17%, however on 17 March 2020 a resolution having statutory effect was passed setting the corporation tax rate at 19% from 1 April 2020.

 

7. Dividends on equity shares

	2020	2019	2020	2019
	Pence	Pence	£m	£m
Final dividend (previous period)	10.81	10.20	5.3	5.0
Interim dividend (current period)	10.57	9.97	5.2	4.9
	21.38	20.17	10.5	9.9

The board has decided that it is not appropriate to recommend payment of a final dividend in respect of the period ended 30 March 2020.

8. Earnings per ordinary share

(a) Earnings	2020	2020	2019
	Post-IFRS 16	Pre-IFRS 16	Pre-IFRS 16
	£m	£m(1)	£m
Profit attributable to equity shareholders of the parent	19.3	20.3	31.5
Adjusting items	8.6	8.6	3.9
Tax attributable to above adjustments	1.6	1.6	(0.1)
Adjusted earnings after tax	29.5	30.5	35.3
	Number	Number	Number
Basic weighted average number of ordinary shares in issue	49,018,801	49,018,801	48,941,761
Dilutive potential ordinary shares from outstanding employee share options	28,901	28,901	41,753
Diluted weighted average number of shares	49,047,702	49,047,702	48,983,514
(b) Basic earnings per share
	Pence	Pence	Pence
Basic	39.37	41.41	64.36
Effect of adjusting items	20.81	20.81	7.77
Adjusted basic earnings per share	60.18	62.22	72.13
(c) Diluted earnings per share
	Pence	Pence	Pence
Diluted	39.35	41.39	64.31
Effect of adjusting items	20.80	20.80	7.76
Adjusted diluted earnings per share	60.15	62.19	72.07

⁽¹⁾ The 2020 results have been reported under IFRS 16 whereas the 2019 results have been reported under IAS 17, with no restatement, as permitted by the accounting standard. The 2020 pre-IFRS 16 results, which are provided for comparative purposes only, have been presented on a non-statutory illustrative basis, excluding the impact of IFRS 16.

The basic earnings per share figure is calculated by dividing the profit attributable to equity shareholders of the parent company for the period by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share have been calculated on a similar basis taking into account 28,901 (2019: 41,753) dilutive potential shares under the SAYE scheme.

Adjusted earnings per share are presented to eliminate the effect of the adjusting items and the tax attributable to those items on basic and diluted earnings per share.

 

9. Property and equipment

						Fixtures,
					Land &	fittings &
					buildings	equipment	Total
					£m	£m	£m
Cost or valuation
At 2 April 2018					695.6	134.2	829.8
Additions					10.1	23.8	33.9
Business combinations					23.5	5.8	29.3
Disposals					(1.1)	(0.3)	(1.4)
Fully depreciated assets					(0.2)	(15.5)	(15.7)
Revaluation(1)
- upward movement in valuation					34.0	-	34.0
- downward movement in valuation					(10.4)	-	(10.4)
Cost at 1 April 2019					751.5	148.0	899.5
Transition to IFRS 16					(58.2)	-	(58.2)
Restated at 2 April 2019					693.3	148.0	841.3
Additions					6.6	26.1	32.7
Business combinations					27.1	2.6	29.7
Disposals					(1.7)	(0.8)	(2.5)
Transfer out to asset held for sale					(0.8)	(0.4)	(1.2)
Fully depreciated assets					(0.2)	(14.8)	(15.0)
Revaluation(1)
- upward movement in valuation					19.1	-	19.1
- downward movement in valuation					(29.3)	-	(29.3)
At 30 March 2020					714.1	160.7	874.8
Depreciation and impairment
At 2 April 2018					29.9	57.0	86.9
Depreciation charge					1.9	21.5	23.4
Disposals					(0.4)	(0.1)	(0.5)
Fully depreciated assets					(0.2)	(15.5)	(15.7)
Revaluation(1)
- downward movement in valuation					3.5	-	3.5
- upward movement in valuation					(5.1)	-	(5.1)
Cost at 1 April 2019					29.6	62.9	92.5
Transition to IFRS 16					(1.8)	-	(1.8)
Restated at 2 April 2019					27.8	62.9	90.7
Depreciation charge					1.6	24.0	25.6
Disposals					(1.0)	(0.3)	(1.3)
Transfer out to asset held for sale					(0.6)	(0.1)	(0.7)
Fully depreciated assets					(0.2)	(14.8)	(15.0)
Revaluation(1)							-
- downward movement in valuation					7.0	-	7.0
- upward movement in valuation					(2.6)	-	(2.6)
At 30 March 2020					32.0	71.7	103.7
Net book value
At 2 April 2018					665.7	77.2	742.9
At 1 April 2019					721.9	85.1	807.0
At 30 March 2020					682.1	89.0	771.1

⁽¹⁾  The group's net book value impairment during the period was £14.6 million (2019: uplift of £25.2 million). This impairment was recognised either in the revaluation reserve or the income statement, as appropriate.

The impact of the revaluations was as follows:

			2020	2019
			£m	£m
Income statement
Revaluation loss charged as impairment			(7.0)	(3.5)
Reversal of past impairment			1.7	3.4
Net impairment recognised in the income statement			(5.3)	(0.1)
Revaluation reserve
Unrealised revaluation surplus			20.0	35.8
Reversal of past surplus			(29.3)	(10.5)
Net (impairment)/uplift recognised in the revaluation reserve			(9.3)	25.3
Net revaluation (decrease)/increase in property valuation			(14.6)	25.2

Savills, an independent and leading commercial property adviser, has revalued all our freehold properties, supported by Andrew Cox, MRICS, our Director of Property and Tenancies. The valuation method used a number of inputs of which the sustainable level of trade of each pub was key. It incorporates the impact of coronavirus through discounting pre-coronavirus property values by between 0% and 10%, which contains material uncertainty given the lack of comparable transactional activity since the onset of coronavirus and the uncertainty over future trade at the valuation date.

10. Right-of-use assets

Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period:

						Motor	Other
					Property	vehicles	assets	Total
					£m	£m	£m	£m
As at 2 April 2019					147.8	0.3	0.1	148.2
Additions					2.8	0.2	-	3.0
Business combinations					15.0	-	-	15.0
Lease amendments					4.7	-	-	4.7
Depreciation					(7.3)	(0.2)	-	(7.5)
As at 30 March 2020					163.0	0.3	0.1	163.4

11. Retirement benefit schemes

Movement in scheme deficits in the period
		2020			2019
		Health			Health
	Pension	care		Pension	care
	scheme	scheme	Total	scheme	scheme	Total
	£m	£m	£m	£m	£m	£m
Changes in the present value of the schemes are as follows:
Opening deficit	(5.1)	(3.5)	(8.6)	(2.4)	(3.7)	(6.1)
Current service cost	(0.3)	-	(0.3)	(0.3)	-	(0.3)
Past service costs	-	-	-	(2.5)	-	(2.5)
Contributions	1.4	0.2	1.6	1.4	0.2	1.6
Other finance charges	(0.1)	(0.1)	(0.2)	-	(0.1)	(0.1)
Remeasurement through other comprehensive income	(0.5)	(0.2)	(0.7)	(1.3)	0.1	(1.2)
Closing deficit	(4.6)	(3.6)	(8.2)	(5.1)	(3.5)	(8.6)

 

12. Lease liabilities

Set out below are the carrying amounts of lease liabilities and the movements during the period:

		£m
As at 2 April 2019		74.6
Additions		2.8
Business combinations		8.3
Lease amendments		4.7
Accretions of interest		2.5
Payments		(10.6)
As at 30 March 2020		82.3
Current		5.3
Non-current		77.0

13. Net cash generated from operations and analysis of net debt

			2020	2019
			£m	£m
Profit before tax on continuing operations			29.1	39.5
Net finance cost			8.6	5.0
Finance charge for pension obligation			0.2	0.1
Operating profit on continuing operations			37.9	44.6
Depreciation of property and equipment			25.6	23.4
Amortisation of lease premiums			-	0.9
Depreciation of right-of-use assets			7.5	-
Movement on revaluation of properties			5.3	0.1
Net loss/(profit) on disposal of property			0.6	(0.4)
Guaranteed minimum pension equalisation			-	2.5
Difference between pension service cost and cash contributions paid			(1.3)	(1.3)
Movement in other provisions			-	(0.7)
Share based payments			0.1	0.3
Movements in working capital
- Inventories			0.5	(0.4)
- Receivables			(1.8)	2.4
- Payables			(1.9)	(2.2)
Net cash generated from operations			72.5	69.2

Analysis of net debt
				2020	2020	2019
				Post-IFRS	Pre-IFRS	Pre-IFRS
				16	16	16
				£m	£m	£m
Cash				1.1	1.1	8.5
Current borrowings and loan capital				(50.0)	(50.0)	(8.5)
Current lease liability				(5.3)	-	-
Non-current borrowings and loan capital				(149.2)	(149.2)	(163.0)
Non-current lease liability				(77.0)	(0.6)	(0.6)
Net debt				(280.4)	(198.7)	(163.6)

 

14. Post balance sheet events

In response to coronavirus and the closure of all of the group's pubs, management has taken actions to mitigate the consequential and significant impact on both profit and cash flow of this closure. These actions include reducing the group's cash outflows in non-essential areas, accessing some of the government's support packages in order to safeguard employment, agreeing that no final dividend will be declared or paid for 2020 and strengthening both short-term and long-term financing. Further, in view of the ongoing closure of our pubs, the expected lower levels of trade when they re-open and the terms of the new £20.0 million facility with NatWest, the company will not be paying an interim dividend for the current financial year ending 29 March 2021. A number of these actions were taken post-year end and are therefore not reflected in the financial statements at 30 March 2020.

At 30 March 2020, the group had cash of £1.1 million and secured borrowing facilities of £235.0 million, of which £199.2 million was drawn down and of which £50.0 million expires in March 2021. Since that date, further financing has been accessed through the Bank of England's CCFF, whereby £30.0 million of commercial paper with a maturity date of May 2021 has been secured, alongside a new revolving credit facility of £20.0 million with NatWest for an initial period of one year to May 2021. Longer-term, the £50.0 million term loan due to expire in March 2021 has been renewed with a five-year facility expiring in 2025. In anticipation of covenant breaches arising due to the pub closures, the group has agreed with its lending banks that the EBITDA covenants have been replaced by a minimum debt headroom covenants, requiring the group to leave £20.0 million of its available facilities undrawn, until the quarter ending June 2021. See note 1 for further details on going concern.

The group's assets and liabilities have been valued based on information available at 30 March 2020. Post year-end, the coronavirus pandemic has continued to evolve which could have an impact on the value of both assets and liabilities, most notably property valuations and the net pension deficit. These constitute non-adjusting events in accordance with the applicable accounting standard and any change in value will be reflected in the following period's financial statements.

 

END

 

 

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