Punch Taverns plc 2007 Annual Report and Financial Statements

Financial review continued
Acquisitions and disposals
On 14 September 2006 the Group acquired the Mill House Inns
group, which operated a managed estate of 82 pubs at the
date of acquisition. The consideration for the acquisition was
£164m, which was funded from new short-term borrowings.
On 17 April 2007, the Group completed the acquisition
of 50% of Matthew Clark (Holdings) Limited, the holding
company of the Matthew Clark group of companies. Under
the terms of the arrangement, Punch and Constellation Europe
each own 50% of Matthew Clark. The consideration for
the acquisition was £35m in cash from existing resources.
Two strategic disposals were completed in the year. On 16 May
2007, 869 leased and tenanted pubs were sold to Admiral
Taverns for a total consideration of £328m; for the financial
year ended 19 August 2006 these pubs generated EBITDA of
£30.1m. On 17 September 2006, the Group disposed of its
wholly owned subsidiary Spirit Managed (Old Orleans) Limited,
which operated 31 managed pub restaurants, to Regent Inns
for a consideration of £25.6m.
In addition to these package acquisitions and disposals, we
continue to actively churn the estate through the sale of
individual outlets that are judged to have a less sustainable
future as a pub, and through the acquisition of high quality
individual and small packages of pubs. During the year 85
high quality pubs were acquired for £64m and 86 pubs were
sold raising £51m.
Financing costs
Net underlying financing costs increased by 5% to £328m in
the year, principally due to the increase in average net debt
following the full year inclusion of the Spirit business. The
weighted average interest rate for Group loans and borrowings
on an IFRS basis, including the effect of interest rate swaps,
at the balance sheet date reduced to 6.7% (6.9% in the prior
year) following the successful refinance of £825m of debt
during July 2007.
Interest cover across the year was maintained at 2.0 times,
all at effectively fixed rates of interest.
Taxation
The underlying tax charge of £58m represents an effective
tax rate of 20%, the equivalent rate for the previous year was
22%. The effective tax rate is significantly below the UK
standard rate of 30% due largely to the impact of indexation
allowances on the inherent property gains.
The effective cash tax rate for the year at 7%, based on income
tax payments of £19m, continues to be significantly below that
of the income statement tax charge as we benefit from the
utilisation of brought forward losses.
Exceptional items
In order to provide a trend measure of underlying performance,
profit is presented excluding items which we consider will
distort comparability; whether due to their significant nonrecurring
nature or as a result of specific accounting treatments.
Included in the income statement for the year is £42m of
exceptional operating costs largely reflecting the one-off costs
relating to the reorganisation and integration of the Spirit and
Mill House Inns acquisitions, offset by a £22m credit relating to
reduced property provisions.
In addition, there was a financing credit of £43m, of which
£54m arose from the movement in fair value of interest rate
swaps which do not qualify for hedge accounting, offset by a
£11m charge relating to one-off refinancing costs in the year.
Whilst the interest rate swaps are considered to be effective
in matching the amortising profile of existing floating rate
borrowings, they did not meet the definition of an effective
hedge due to the relative size of the mark to market difference
of the swaps at the date of acquisition.
The tax effect of the above items, together with the release of
various tax provisions relating to tax matters which have now
been settled, had the net effect of a £31m exceptional tax
credit in the year.
Earnings per share
Adjusted basic earnings per share rose by 13% to 84.4p,
compared with 74.9p in 2006. Adjusted diluted earnings
per share of 82.6p was 12% ahead of last year.
Basic reported earnings per share was ahead of underlying
earnings at 104.9p, reflecting the impact of the net exceptional
credit of £54m.
Dividends
The Board is recommending a final dividend for 2007 of 10.2p
per share, up 13% on the final dividend last year. Together with
the interim dividend of 5.1p paid on 29 June 2007, this gives
a total dividend for the year of 15.3p, up 14% on last year.
Subject to approval at the AGM, the total cost for the final
dividend will be £27m and the dividend will be paid on 23
January 2008 to shareholders on the register at 4 January 2008.
EBITDA † Profit before tax †
2007
663.6
2007
281.7
2006
606.3
2006
249.6
2005
413.5
2005
206.8
2004 339.4
2004 156.4
2003 234.6
2003 113.3
† Before exceptional items.
† Before exceptional items.
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