RNS Number:7947M
Eldridge Pope & Co PLC
26 June 2003
ELDRIDGE, POPE & CO PLC
INTERIM RESULTS FOR THE PERIOD ENDED 5 APRIL 2003
Strategic development
* Merger discussions terminated - proposals did not reflect the underlying
value of the Group
* Back to basics approach - new management team focused on
delivering trading turnaround and enhancing medium and long-term
shareholder value
Financial Highlights (Pre Exceptionals)
TOTAL GROUP
* Turnover up 2.7% to #34.0 million (2002: #33.1 million)
* Operating cash flow #5.2 million (2002: #5.2 million)
* EBITDA #4.5 million (2002: #5.8 million)
* PBT #0.1 million (2002: #1.9 million)
* Net debt reduced to #44.8million (September 2002 : #52.6 million)
* Net assets per share of #2.55 after impairment review
* Interim dividend maintained at 2.94p
Christopher Pope, Chairman, said:
"On 14 April 2003 we announced that the Company had received an approach which
might or might not have led to an offer for the Company. The Board explored
fully whether it would be in the best interests of shareholders and the business
to be part of a larger Group. Following discussions with a number of parties
the Board has concluded that the proposals forthcoming significantly undervalued
the business and its pub portfolio. These discussions have now been terminated
and the Board is confident that greater medium and long-term value can be
achieved for shareholders by trading the business through the current turnaround
phase, and dealing with the factors which tended to obstruct the exit value."
"By mutual agreement, Michael Johnson has left the Company and Susan Barratt,
currently finance director, has been appointed chief executive officer. She will
be responsible for initiating the "back to basics" approach.
"It has been a hard time for all employees, particularly given the level of
press speculation about the Company and I congratulate them on their
steadfastness; I know that they will now put that unhappy period behind them,
and concentrate on their individual part in the recovery which has already
begun."
Susan Barratt, Chief Executive, commented:
"It has been a tough six months and the trading outlook is still unpredictable.
However we are confident that the business will respond to the "back to basics"
approach."
The trend in sales has improved in the second half, with like-for-like sales for
the 10 weeks to 14 June showing a 5.7 % decline. We are focused on maximizing
our financial and operational performance through the busy summer season still
to come."
Enquiries:
Susan Barratt
Eldridge Pope
Tel: 01305 251251
Michael Holmes/Daniel de Belder
The Communication Group plc
Tel: 020 7630 1411
Chairman's Statement
Profit before exceptionals and tax for the half year to 5 April 2003 was #0.1
million (2002: #1.9 million), a disappointing result in extremely difficult
market conditions and a period of significant management disruption.
Strategic Developments
On 14 April 2003 we announced that the Company had received an approach which
might or might not have led to an offer for the Company. The Board explored
fully whether it would be in the best interests of shareholders and the business
to be part of a larger Group. Following discussions with a number of parties
the Board has concluded that the proposals significantly undervalued the
business and its pub portfolio. These discussions have now been terminated and
the Board is confident that greater medium and long-term value can be achieved
for shareholders by trading the business through the current turnaround phase,
and dealing with the factors which tended to obstruct the exit value.
By mutual agreement, Michael Johnson has left the Company and Susan Barratt,
currently finance director, has been appointed chief executive officer. She will
be responsible for initiating the "back to basics" approach.
In this interim report we detail the forward plan and the new team which will
lead it, the substantial value of our property portfolio after full provision
for losses on disposal, and the trends upon which the Board's confidence that a
recovery has already started is based.
Adjusted Net Asset Value Remains High. Cash Flow Positive.
Under-performing assets are being dealt with in two ways: by refocusing
management action and raising standards, and by sale where the resource needed
is not justified by the profit potential. Our financial performance in the
first half has been unduly affected by a small number of poor investment
decisions taken in recent years, these problem units are likely to have been
sold within the current year. The potential loss on these disposals is
recognised in these accounts, as is the impairment, reducing net asset value per
share from #2.90 to #2.55. Following these planned sales the proportion of
freeholds will increase. With net cash generated in the recent half year of #8
million, and gearing down from 74% to 71%, our balance sheet is now sensibly
valued; the successful sale of the Dorchester Site (and associated minority
interests) for #8.75 million (a book profit of #0.7 million) forms part of this
reallocation of resource and reduction of debt.
The Company will be concentrating again on its strengths of quality tenancies,
community pubs, food and accommodation inns, and bars in town centres, including
Toad. As well as quality, unit size is the key to the future in pub retailing;
our policy will continue to be to grow it.
Simplified Strategy and a New Hands on Team
Our forward plan, is for a smaller Company following the planned property sales;
both new investment and overheads will be substantially reduced. Following the
departure of our chief executive Mike Johnson, the Board is delighted that Susan
Barratt has agreed to move from finance director to C.E.O., and also that Chris
Pedder (financial controller), and James Eyre, have agreed to join the Board as
finance director and operations director, respectively. In total, this young
team has 47 years of first hand experience of pubs, balanced with the relevant
financial skills. After a period in which over-ambition and an excessive sense
of urgency have caused investment and operational mistakes to be made in the
past, their priority for the foreseeable future will be to restore our excellent
estate to its full potential, with growth coming from efficiency and people
management, rather than from new investment. Cash generation and debt reduction
are the objective. Our non-executive team has wide senior experience to oversee
this strategy.
The Board believes that the development of the business in line with these
objectives, together with a continued turnaround in trading will restore the
value inherent in the Group, in the interests of all shareholders.
A Quality Estate Below Full Potential
The quality of our estate was demonstrated by the number of approaches received
in the recent discussions. In such negotiations timing is of critical
importance, and this timing was neither favourable nor of our choosing. The cost
of the process in both fees and in management distraction was considerable, but
the team, freed from the uncertainty and distraction such situations create, is
now re-motivated to get the best from the business. All employees will now put
that unhappy period behind them, and concentrate on their individual part in the
recovery which has already begun. The thanks and encouragement of shareholders
is due to every one of them.
Dividend and Prospects
Allowing for the exceptional costs of changes now announced, and of recent
events, we have the firm foundations for recovery this year and next. However,
the principal financial benefits of change, and of the focus of the new team,
will start to accrue next year. As a mark of our confidence that recent trading
difficulties are indeed temporary, the Board has decided to maintain the interim
dividend at the same level as last year (2.94 pence per share), which will be
paid on 25 July 2003 to shareholders on the register as at 4 July 2003.
Summary
The Board's view of the recent past is that we sought to expand too quickly,
reducing the quality of investment, and were thus wrong-footed when the market
turned down. However, we realised our mistakes quickly and acted to reduce
gearing. The process caused us temporarily to lose concentration on the basics
of good pubs. These adverse factors have now been reversed with the new team,
and we shall in the future concentrate on improved trading through local skills
and knowledge, on improved cash flow and debt reduction. Our difficulties have
not blinded us to the quality of our estate and its prospects; we will not
permit the sale of the Company at a price which does not reflect this, and for
the future we will seek to overcome the obstacles to a successful sale, should
this be in the best interests of shareholders
Chief Executive's Report
Introduction
The performance in the first half of 2002/03 has been very disappointing with
profits significantly down on last year. This poor result has been driven by a
combination of well documented industry challenges and a lack of operational
focus.
The operational and financial focus for the first six months of the year has
been threefold:
- to generate and control cash
- to establish a new operations team
- to ensure that the development programme delivers good returns
Progress has been made in all areas.
Financial Performance
At the half year, profit before exceptionals and tax is #0.1 million. This
includes the benefit of approximately #0.4 million from five extra days trading
as a result of bringing the financial reporting in line with the Group's weekly
trading and management accounting periods.
The slowdown in consumer spending has been well documented. When we announced
the results for the last financial year in December, we talked about the
difficulties of forecasting sales for the current year in this trading
environment. Like-for-like sales have declined by 9.6% in the first half, but
the trend in the second half is improving.
While overall turnover has grown by 2.7% to #34.0 million, without the addition
of new business, turnover would have declined by #2.8 million. It has been
challenging to reduce costs quickly enough in line with these lower levels of
business. The impact of this sales decline is further magnified by the
operational gearing in October, November, January and February, our quietest
trading periods, when fixed costs become a disproportionate part of our total
expenditure. This made forecasting for the full year very difficult.
We have maintained tight control of our cash. Cash generated from operations
was #5.2 million in the period. Capital expenditure for the half year was #6.5
million. Capital expenditure for the full year will be #8.6 million (2002 :
#13.0 million) all of which has been committed. We have opened four new sites to
which we were committed, including three new High Street bars and one freehold
food outlet. Our main capital expenditure focus has been on internal
refurbishments. Our programme in the managed estate is now complete for the
financial year. We have completed 13 jobs, spending #2.2 million. We anticipate
a full-year return on incremental capital of 15%.
The disposal of the Dorchester site, together with the minority interests in its
former brewing and packaging businesses was completed on 2 April. Total proceeds
from these disposals were #8.75 million, generating a profit on disposal of #0.7
million. In the first half we also disposed of one tenanted unit, surplus land
at two sites and one unlicensed property, giving total proceeds from all
disposals of #11.9 million, and a total cash inflow of #8.0 million (2002 : #5.0
million outflow).
The net cash inflow has reduced debt to #44.8 million (September 2002: #52.6
million). 66% of our assets are freehold. Gearing has been reduced from 74% to
71%.
The first half accounts include a provision for losses on disposal of subscale
sites of #9.5 million. Their disposal will further reduce our net debt and
improve operational gearing. Following an impairment review of the carrying
value of all of our properties, an impairment charge of #1.2 million has been
taken relating to four specific sites. Following this action net assets of the
Group are #63.2 million (2002 : #71.8 million ). Net asset value per share is
#2.55 (2002 : #2.90).
A desktop valuation of the Company's defined benefit pension scheme had a post
tax deficit of around #8.5 million as at March 2003 (#7.5 million at September
2003). This calculation is consistent with FRS 17 requirements. The next formal
valuation of the scheme is not due until March 2004, but in common with many
companies we expect to significantly increase the level of pension contributions
in future years.
Operations
In our Preliminary Results announcement and the subsequent trading update in
February, we emphasised that the tough trading conditions which started to
emerge in the second half of last year were expected to continue into this
period under review.
In our community pubs, invested like-for like sales declined by 1.0%. The food
and accommodation led business declined by 1.7% and in the High Street bars,
including Toad sites and our freehold town centre pubs, the average decline has
been 12.8% on the same basis.
In our tenanted estate, we have nine fewer houses and on a continuing basis,
turnover is up 1.5%, and profits up 4.1%. We have completed eight joint ventures
with tenants in the first half. Returns from the tenanted business continue to
increase.
In response to deteriorating margins, we have deliberately removed significant
discounting and chosen to maintain margins. Drink margins are marginally down at
70.6% (2002: 70.9%) whilst food margins show a slight improvement to 67.0%
(2002: 66.6%)
A Strategy for Continuing Independence
The new executive team has been given the Board's mandate to lead Eldridge Pope
through the next stage of its life. We aim to create shareholder value through
our strategy focusing on:
- generating cash and reducing debt
- maximising returns on capital
- simplifying the business by focusing on three market segments
* Community pubs
* Food and Accommodation inns
* Town Centre bars
* Focusing on local solutions for local markets.
We will generate cash through the disposal of subscale pubs and through trading
the business harder. The disposal process is in its early stages but we
anticipate that the majority of the sites will be sold by the year-end, with a
cash inflow of approximately #7 million. This will be used to reduce debt.
Pubs
The performance in our local managed pub estate has been the most robust in
these difficult trading conditions. Capital developments in the last two years
are generating incremental returns of 20%, and we have a further nine potential
development projects in the pipeline.
The tenanted business continues to perform well and there is more to come when
we introduce longer leases for selected units, which will generate further
investment opportunities.
Inns
The food market is forecast to grow in real terms by 16% by 2006 (Mintel 2002).
The pub disposal activity will enable us to sharpen our focus, and to free up
training and menu development resource. We aim to achieve a better balance of
centralised efficiencies and local appeal.
The accommodation market continues to be extremely competitive. In April, our
Room At The Inn website, www.roomattheinn.info, became fully operational with an
online booking facility. Accommodation sales are showing a positive trend
through the first six months and into the second half.
At the half year occupancy is at 48% (2002: 46%) with the busier second half to
come. Room rate has fallen marginally against last year.
Bars
Presently we have opened or converted 23 sites under the Toad brand. Five sites
have been identified as not fitting with our vision of Toad in the future and
these will be re-branded or sold. This leaves a profitable core of 18 units.
The industry wide problems concerning the high street pub trade have been well
documented. Toads will continue to compete by focusing on their core
entertainment offer at night, but at the same time we will develop further the
day time offer. Our Toad units capture a slightly older market - 72% of all
customers are aged 22-40, attracted by a safe environment ideal for dancing. 80
% of our evening customers dance during their visit (63% would not come
otherwise).
During the day, 86% of our lunchtime customers eat from the menu. Being serious
about the daytime sets the tone for standards, service and quality in our
customers' minds. We are encouraged that in our last four openings food sales
account for 17% of the sales mix from Sunday to Thursday.
Sales per square foot are good, and at weekends we trade near to capacity. We
plan to build mid-week sales through targeted promotions and tailor our offer to
meet local needs. 63% of customers visit us at least weekly. The focus will be
more on our people and their ability to create a great atmosphere. 71% of our
customers already comment that music and a great atmosphere is the number one
reason for their visit.
There are a further 25 unbranded town centre sites within the estate. They are
in the main traditional town centre pubs which attract a wide range of consumers
as a result of their location.
Outlook
It has been a tough six months and the trading outlook is still unpredictable.
However we are confident that the business will respond to the "back to basics"
approach.
The trend in sales has improved in the second half, with like-for-like sales for
the 10 weeks to 14 June showing a 5.7 % decline. We are focused on maximizing
our financial and operational performance through the busy summer season still
to come.
Note on new Board appointments
Neither James Eyre nor Christopher Pedder has held any directorships in any
publicly quoted company at any time in the past five years and there are no
disclosures to be made pursuant to paragraphs 6.F.2. (b) to (g) of the Listing
Rules.
Consolidated Profit
and Loss Account
for the half year to 5 April 2003
Note Before Except Total Before Except Total Before Except Total
except -ional except -ional except -ional
-ional items -ional items -ional items
items items items
05.04.03 05.04.03 05.04.03 31.3.02 31.3.02 31.3.02 30.9.02 30.9.02 30.9.02
#000 #000 #000 #000 #000 #000 #000 #000 #000
Turnover 33,995 - 33,995 33,110 - 33,110 69,592 - 69,592
Group Operating 1,795 (1,176) 619 3,605 (451) 3,154 9,743 (989) 8,754
profit
Share of operating 158 - 158 147 - 147 362 - 362
profit in
associated
undertakings
Amortisation of
goodwill arising on (17) - (17) (18) - (18) (35) - (35)
acquisition of
associate
Total operating profit
Group and share of 1,936 (1,176) 760 3,734 (451) 3,283 10,070 (989) 9,081
associates
Profit/(loss) on - 1,110 1,110 - (31) (31) - 919 919
disposal of properties
Provision for loss on - (9,500) (9,500) - - - - - -
disposal of properties
Total non-operating - (8,390) (8,390) - (31) (31) - 919 919
items
Profit/(loss) before 1,936 (9,566) (7,630) 3,734 (482) 3,252 10,070 (70) 10,000
interest
Net interest payable:
Group (1,815) - (1,815) (1,813) - (1,813) (3,699) - (3,699)
Associates (1) - (1) (10) - (10) (9) - (9)
(1,816) - (1,816) (1,823) - (1,823) (3,708) - (3,708)
Profit/(loss) on ordinary 120 (9,566) (9,446) 1,911 (482) 1,429 6,362 (70) 6,292
activities before taxation
Taxation charge 3 (117) 1,659 1,542 (631) 135 (496) (2,308) 197 (2,111)
Profit/(loss) on ordinary 3 (7,907) (7,904) 1,280 (347) 933 4,054 127 4,181
activities after taxation
Dividends (730) - (730) (726) - (726) (2,046) - (2,046)
Retained profit/(loss) (727) (7,907) (8,634) 554 (347) 207 2,008 127 2,135
for the year
Earnings per share- 5 0.01p 5.20p 16.43p
pre exceptional items
Earnings per share- 5 -31.96p 3.79p 16.95p
basic
Earnings per share- 5 -31.96p 3.77p 16.89p
diluted
Consolidated Balance Sheet
as at 5 April 2003
As at As at As at
Note 5.4.03 31.3.02 30.9.02
#000 #000 #000
Fixed assets
Tangible assets 6 115,621 125,729 128,206
Investments 12 1,734 1,761
115,633 127,463 129,967
Current assets
Stocks 1,196 1,146 1,142
Debtors 6,075 6,606 9,799
Corporation tax 139 - 183
Cash at bank and in hand 1,557 156 3,130
8,967 7,908 14,254
Creditors: amounts falling due within one year
Bank overdrafts - 10,755 -
Bank loans 1,500 8,000 16,000
Trade and other creditors 10,309 8,320 9,705
Proposed dividend 726 724 1,320
12,535 27,799 27,025
Net current liabilities (3,568) (19,891) (12,771)
Total assets less current liabilities 112,065 107,572 117,196
Creditors: amounts falling due after more than
one year 44,697 32,818 39,723
Provisions for liabilities and charges 4,212 5,018 5,710
Shareholders funds- equity interests 7 63,156 69,736 71,763
Consolidated Cash Flow Statement
for the half year to 5 April 2003
5.4.03 31.3.02 30.9.02
#000 #000 #000 #000 #000 #000
Net cash inflow from operating activities 5,178 5,175 13,215
Dividend from Associate 74 24 24
Returns on investments and servicing of finance
Interest received 66 32 62
Interest paid on finance leases (28) (28) (55)
Interest paid (1,507) (1,944) (3,889)
Net cash outflow from returns on investments
and servicing of finance (1,469) (1,940) (3,882)
Taxation
Tax paid 135 (928) (1,814)
Capital expenditure and financial investment
Purchase of tangible fixed assets (6,533) (6,287) (13,005)
Proceeds from disposal of tangible fixed
assets 10,431 105 1,107
Proceeds from disposal of investments 1,373 - -
Trade loans repaid 145 57 120
5,416 (6,125) (11,778)
Equity dividends paid (1,323) (1,314) (2,039)
8,011 (5,108) (6,274)
Financing
Issue of ordinary share capital 27 241 247
Loans entered into - - 25,000
Loans repaid (9,500) (3,500) (13,500)
Principal repayments of finance lease
obligations (111) (110) (221)
(9,584) (3,369) 11,526
(Decrease)/increase in cash (1,573) (8,477) 5,252
1 PREPARATION OF INTERIM FINANCIAL INFORMATION
The unaudited financial information has been prepared on the basis of the
accounting policies set out in the group's 2002 statutory accounts.
The financial information of the half year does not constitute statutory
accounts for the purposes of Section 240 of the companies Act 1985. The full
accounts for the year ended 30th September 2002, which received an
unqualified audit report, have been delivered to the Registrar of Companies.
The half year result has been reported to the 5 April 2003 to coincide with
the Group's weekly trading periods. The accounts for the full year will be
drawn up to 4 October 2003.
2 NON-CORE OPERATIONS
In the comparative periods the following turnover and operating profit was
previously reported as "non-core operations". It comprised of small managed
pubs which have now been sold.
31.3.02 30.9.02
#000 #000
Turnover 339 696
Operating loss 229 272
3 TAXATION
The tax charge has been estimated on a full provision basis.
4 PENSIONS
The Company operates a defined benefit occupational pension scheme. The
Eldridge, Pope & Co., p.l.c. Pension Scheme. The Scheme is closed to new
entrants. As at 30 September 2002 the Company reported an actuarial deficit
in respect of the Scheme of #10.7m on the FRS 17 basis. Allowing for the
related deferred tax liability this resulted in a net pension liability of
#7.5m as at the balance sheet date.
Hewitt Bacon & Woodrow, the Company's actuarial advisors have estimated that
the actuarial deficit has increased to around #12.0m as at 5 April 2003.
Correspondingly the net pension liability allowing for deferred tax has
increased to around #8.5m. Both figures have been calculated on a basis
consistent with FRS 17 requirements at that date. The primary reason for the
increase in the deficit is an increase in the market's expectation of
long-term future inflation since 30 September 2002.
5 EARNINGS PER SHARE
05.04.03 31.3.02 30.9.02
No shares No shares No shares
Basic weighted average number of ordinary shares in issue 24,728 24,630 24,670
Potential dilutive shares: Employee and executive share options 2 124 90
24,730 24,754 24,760
#000 #000 #000
Earnings pre exceptional items 3 1,280 4,054
Exceptional items after tax (7,907) (347) 127
Reported earnings after tax (7,904) 933 4,181
Earnings per share - pre exceptional items 0.01p 5.20p 16.43p
Earnings per share - basic -31.96p 3.79p 16.95p
Earnings per share - diluted -31.96p 3.77p 16.89p
6 FIXED ASSETS - TANGIBLE
Group and Company Land & Fixtures & Equipment & Total
Buildings Fittings Vehicles
Cost or valuation
At 1 October 2002 113,427 25,727 4,569 143,723
Additions 4,255 2,658 105 7,018
Disposals (8,111) (381) (49) (8,541)
At 5 April 2003 109,571 28,004 4,625 142,200
Depreciation
At 1 October 2002 4,713 7,993 2,811 15,517
Additions 513 1,651 280 2,444
Provision for loss on disposal of properties (i) 6,766 2,734 - 9,500
Impairment (ii) 847 329 - 1,176
Disposals (1,699) (325) (34) (2,058)
At 5 April 2003 11,140 12,382 3,057 26,579
Net book value at 5 April 2003 98,431 15,622 1,568 115,621
Net book value at 30 September 2002 108,714 17,734 1,758 128,206
(i) The provision for the anticipated loss on disposal of properties relates to
properties being marketed at the half year date.
(ii) In accordance with FRS 11 'Impairment of Fixed Assets and Goodwill' the
Directors have considered the carrying values of the group's fixed assets
at 5 April 2003 compared to their recoverable amounts, represented by
their value in use to the group. The value in use has been derived from
discounted cash flow projections using a nominal discount rate of 6.9% on
a pre-tax basis.
As set out in the Chairman's Statement the group's freehold Dorchester
site was sold on 2 April 2003.
7 MOVEMENT IN SHAREHOLDERS' FUNDS
Share Share Revaluation P&L Account Total
Capital Premium Reserve
#000 #000 #000 #000 #000
At 30 September 2002 12,355 155 20,845 38,408 71,763
Share issues during the period 18 9 - - 27
Loss for the period - - - (7,904) (7,904)
Dividend - - - (730) (730)
At 5 April 2003 12,373 164 20,845 29,774 63,156
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR SEEFUISDSESM