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The Capital Pub Company PLC

('Capital Pub Company' or 'the Company')

Interim Results for the 26 weeks ended 27 September 2008

The Capital Pub Company plc owns and operates an estate of predominantly freehold, free-of-tie, managed pubs in greater London. Its portfolio comprises 24 unbranded free houses, each of which caters specifically for its local market. The majority of the Company's pubs are liquor-led, although a number also provide high quality food. Today, the Company announces interim results for the 26 weeks ended 27 September 2008.

Highlights

 

• Turnover increased 11% to £10.12m (2007: £9.16m)

• Earnings before financial instruments, share option charge, interest, tax, depreciation and amortisation increased 12% to £2.47m (2007: £2.21m)

• Pre-tax profits before movement in fair value of interest rate swaps increased 24% to £1.12m (2007: £0.91m

• With capex plans completed, the Company is highly cash generative and has significant headroom within its banking facilities

• Internally generated funds will be retained for financing future acquisitions and debt reduction in place of an interim dividend

• Current trading remains in line with Board expectations

Clive Watson, Chief Executive of Capital Pub Company PLC, said:

'The estate has had a resilient start to the year performing in line with expectations. Whilst we expect 2009 to be a challenging trading environment, the business is well placed to build on this solid start, achieve maximum costs savings and increase our market share through improved service and focus on our customers.  The goal remains to operate a high quality estate of freehold London pubs.'

1 December 2008

Enquiries:

Capital Pub Company PLC	Today: 020 7457 2020
Clive Watson, Chief Executive	Thereafter: 020 7589 4888
Nick Collins, Head of Finance
Altium	Tel: 020 7484 4040
Ben Thorne
Sam Fuller
College Hill	Tel: 020 7457 2020
Justine Warren
Matthew Smallwood

 Chairman's Statement

I am pleased to report the Interim Results of the Company for the 26 week period to 27 September 2008. 

The Company now has a fully refurbished estate of 24 high quality, predominantly freehold pubs based entirely in London and the focus over the last six months has been to improve operational performance and increase profitability.  

Financial Results 

The Board is delighted with the performance of the Company over the last six months, especially in light of the economic situation.  

• Revenue increased 11% to £10.12m from £9.16m for the same period last year 

• Earnings before financial instruments, share option charge, interest, tax, depreciation and amortisation increased 12% to £2.47m from £2.21m for the same period last year 

• Underlying pre-tax profits (excluding movements in the interest rate swap) increased 24% to £1.12m from £0.91m for the same period last year

• Underlying basic earnings per share (excluding movements in the interest rate swap) increased 21% to 4.04p from 3.34p for the same period last year

This improved performance was driven by better retailing at pub level and the refurbishment of the estate. Furthermore this was achieved despite poor weather during the summer months and last year's one-off increase in sales from the rugby World Cup. 

Balance Sheet and Funding 

The Company remains securely funded with a largely freehold, high quality, asset-backed pub estate. The current level of debt approaching £30m represents gearing of 90%. The average interest rate including bank margin is around 6.5% per annum. The Company has unutilised facilities of around £2m and will use these for further acquisitions as opportunities arise. Underlying cashflow generated from the estate will be used to repay long-term bank borrowings. Under the terms of the loan agreements capital is repaid at £1.3m per annum, commencing in December 2009 until a bullet payment in 2017. 

Movements in the fair value of interest rate swaps taken out against our borrowings have resulted in a non-cash accounting charge of £0.31m. The Company has subsequently started hedge accounting for these and the year end accounts will show movements in fair value reflected in a hedge reserve under equity on the balance sheet.

With all large refurbishments across the estate now complete there is no significant planned capital expenditure and the Company is strongly cash generative. As a result of this the Company remains well within its banking facilities allowing management to focus on the operation of the pubs.

Dividend Policy 

The Board has carefully considered whether to recommend an interim dividend and has come to the conclusion that in the current economic environment it should not do so. The Board believes it is in the best interests of shareholders for the Company to preserve internally generated cash for debt reduction and for financing future acquisitions.

  

Corporate Strategy 

The Company's aim remains to increase the size of its current estate in the medium term and at the same time deliver enhanced returns through better retailing and stringent cost reduction at branch and head office levels. Savings have already been identified, are being implemented and will have some benefit in the current financial year. 

Operations

The Company's focus is on wet-led operations with liquor sales accounting for 80% of total sales. Whilst the food offer in some of the pubs will continue to be fine-tuned, the emphasis is predominantly on providing menus designed to drive liquor sales. 

Margins on both liquor and food sales remain at March 2008 levels underlining the Company's ability to increase sales without the need to offer discounts or promotional offers. 

The continued operational success is a result of the Company's culture of encouraging the pub managers to offer a level and style of service tailored to the local clientele as evidenced by the widespread inclusion of cask conditioned ales.

Developments 

During the period just over £1m was invested in the estate in upgrading and refurbishing four of the pubs. The following pubs were closed for a refurbishment for a combined period of 22 trading weeks:-

• Boaters, Kingston upon Thames re-opened April 2008  

• Merchant, Battersea re-opened April 2008

• The Peer (formally Wellesley Arms), re-opened June 2008

• Southern Belle (formally Puzzle Fulham), re-opened June 2008 

Overall these outlets are trading better than prior to refurbishment and it is anticipated that further sales growth will be achieved. 

 

Management 

In October this year Nicholas Collins was appointed Head of Finance with a view to becoming the Company's Finance Director in January 2009. Nicholas is a qualified Chartered Accountant having trained at Arthur Andersen. For the last six years he has run Fuzzy's Grub which he grew from a start-up to eight retail catering outlets situated in Central London. Nicholas' technical and commercial experience will be of great value to the Company.

Industry Related Issues 

The Company prides itself on the way it manages its pubs and takes great care to avoid irresponsible drinking in its premises. The Board is conscious of the public concern about alcohol abuse and would welcome a Government investigation into the role played by certain supermarkets and others who retail drink at below cost price.

The Board is disappointed that the Chancellor has increased duty on alcohol to offset the majority of any benefit of the reduction in the VAT rate in the pre-Budget report.

 

Shareholder Information

Shareholders who wish to keep up to date with news about the Company should visit our website www.capitalpubcompany.com which includes details of our portfolio of pubs, corporate information and promotional activity. 

Current Trading and Outlook

Trading in London continues to remain relatively robust however it is anticipated that 2009 will prove to be a tougher trading environment.  

We have a high quality pub estate which is securely financed and highly cash generative and the Company believes it is well-placed to enhance value during tougher times and to ensure it is in the best possible shape to take advantage when there is an upturn in the economic environment. I am confident that the management team are ready to meet these challenges.  

JAMES BRUXNER CBE

Chairman

28 November 2008

  Condensed consolidated interim income statement

Note		Period ended 27 September 2008 Unaudited	Period ended 29 September 2007 Unaudited		Year to 29  March 2008 Audited
		£ 000	£ 000		£ 000
Revenue
Ongoing operations		10,124	8,617	16,760
Acquisitions		-	540	2,068
Revenue		10,124	9,157	18,828
Cost of sales		(2,743)	(2,572)	(5,110)
Gross profit
Ongoing operations		7,381	6,232	12,293
Acquisitions		-	353	1,425
Gross profit		7,381	6,585	13,718
Administrative expenses		(5,376)	(4,756)	(9,851)
Operating profit
Ongoing operations		2,005	1,738	3,449
Acquisitions		-	91	418
Operating profit		2,005	1,829	3,867
Operating profit		2,005	1,829	3,867
Share options charge		32	48	41
Depreciation		437	335	577
Earnings before financial instruments, share options charge, interest, tax and depreciation		2,474	2,212	4,485
Loss on disposal of properties		-	-	(36)
Finance costs		(885)	(928)	(1,976)
Finance income		3	8	7
Movement in fair value of interest rate swaps		(309)	61	(1,060)
Profit before taxation		814	970	802
Taxation		(323)	(254)	(324)
Profit for the period attributable to equity shareholders		491	716	478
Earnings per share
	Note
Basic	2	2.48	3.65	2.43
Diluted	2	2.48	3.49	2.36

 

Condensed consolidated interim balance sheet

	27 September 2008 Unaudited		29 September 2007 Unaudited	29  March 2008 Audited
	£ 000		£ 000	£ 000
ASSETS
Non-current assets
Property, plant and equipment	68,160		73,175	67,965
Goodwill	977		977	977
Other non-current assets	997		483	980
Trade and other receivables	279		289	290
	70,413		74,924	70,212
Current assets
Inventories	303		276	258
Prepayments	554		415	122
Trade and other receivables	416		488	502
Derivative financial instruments	-		380	-
Cash and cash equivalents	510		53	415
	1,783		1,612	1,297
Total assets	72,196		76,536	71,509

Condensed consolidated interim balance sheet (continued) 

	27 September 2008 Unaudited			29 September 2007 Unaudited	29  March 2008 Audited
	£ 000			£ 000	£ 000
LIABILITIES
Current liabilities
Bank loans and overdrafts	72			284	782
Trade and other payables	2,021			1,097	1,525
Current tax payable	295			179	296
Accruals	837			1,527	1,508
Derivative financial instruments	1,050			-	741
	4,275			3,087	4,852
Non-current liabilities
Long-term borrowings	30,260			35,739	29,634
Current tax payable	323			242	-
Deferred tax liabilities	4,438			4,244	4,329
	35,021			40,225	33,963
Total liabilities	39,296			43,312	38,815
EQUITY
Issued capital and reserves
Share capital	9,953			9,890	9,890
Share premium	10,589			10,548	10,548
Revaluation reserve	11,045			11,031	11,045
Retained earnings	1,183			1,534	1,113
Share options reserve	130			221	98
Total equity	32,900			33,224	32,694
Total equity and liabilities	72,196			76,536	71,509

Condensed consolidated interim statement of changes in equity 

	Share  Capital	Share  Premium	Revaluation reserve	Retained earnings	Share options reserve	Total equity
	£ 000	£ 000	£ 000	£ 000	£ 000	£ 000
At 1 April 2007	9,801	10,364	10,695	1,224	150	32,234
Shares issued in the period	89	184	-	-	-	273
Changes in tax rates	-	-	336	-	-	336
Dividends paid	-	-	-	(406)	-	(406)
Net cost of share-based payments	-	-	-	-	71	71
Profit for the period	-	-	-	716	-	716
At 29 September 2007	9,890	10,548	11,031	1,534	221	33,224
Shares issued in the period	-	-	-	-	-	-
Changes in tax rates	-	-	14	-	-	14
Dividends paid	-	-	-	(194)	-	(194)
Net cost of share-based payments	-	-	-	11	(123)	(112)
Profit for the period	-	-	-	(238)	-	(238)
At 29 March 2008	9,890	10,548	11,045	1,113	98	32,694
Shares issued in the period	63	41	-	-	-	104
Changes in tax rates	-	-	-	-	-	-
Dividends paid	-	-	-	(421)	-	(421)
Net cost of share-based payments	-	-	-	-	32	32
Profit for the period	-	-	-	491	-	491
At 27 September 2008	9,953	10,589	11,045	1,183	130	32,900

Condensed consolidated interim cash flow statement

	Period ended 27 September2008 Unaudited	Period ended 29 September 2007 Unaudited	Year to 29  March 2008 Audited
	£ 000	£ 000	£ 000
Cash flows from operating activities
Profit after taxation	491	716	478
Adjustments for:
Depreciation and amortisation	437	335	577
Share options charge	32	48	41
Finance income	(3)	(8)	(7)
Finance expense	885	928	1,976
Movement in fair value of interest rate swaps	309	(61)	1,060
Profit on disposal of properties	-	-	36
Taxation expense	323	254	324
Increase in inventories	(45)	(43)	(25)
Increase in debtors	(335)	(624)	(896)
Increase/(decrease) in creditors	274	(574)	(322)
Cash generated from operations	2,368	971	3,242
Interest paid	(1,089)	(928)	(1,886)
Income taxes (paid)/rebates received	89	-	(179)
Net cash from operating activities	1,368	43	1,177
Cash flows from investing activities
Purchase of property, plant and equipment	(1,043)	(11,179)	(14,823)
Proceeds from sale of property, plant and equipment	-	971	9,778
Interest received	3	8	7
Net cash used in investing activities	(1,040)	(10,200)	(5,038)
Cash flows from financing activities
Proceeds from issue of share capital	120	-	273
Proceeds from long-term borrowings	-	9,769	13,082
Repayments of long-term borrowings	-	-	(8,792)
Dividends paid	(269)	-	(600)
Net cash used in financing activities	(149)	9,769	3,963
Net increase/(decrease) in cash and cash equivalents	179	(388)	102
Cash and cash equivalents at beginning of period	259	157	157
Cash and cash equivalents at end of period	438	(231)	259

Notes to the interim financial statements 

 

1  Basis of preparation

These condensed consolidated interim financial statements are for the twenty six weeks ended 27 September 2008. They have been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and as are effective at 28 March 2009 or are expected to be adopted and effective at 28 March 2009. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Company for the year ended 29 March 2008. 

These condensed consolidated interim financial statements have been approved for issue by the Board of Directors on 28 November 2008.

These financial statements have been prepared under the historical cost convention, except for revaluation of certain properties and financial instruments.

These condensed consolidated interim financial statements have been prepared in accordance with the measurement bases and principal accounting policies set out in the annual financial statements for the year ended 29 March 2008.

The financial information set out in this condensed interim report does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The Group's statutory financial statements for the year ended 29 March 2008, prepared under IFRS, have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 237(2) or Section 237(3) of the Companies Act 1985.

2  Earnings per share

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.  

The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares and the post tax effect of dividends and/or interest, on the assumed conversion of all dilutive options and other dilutive potential ordinary shares.  

For the period ended 27 September 2008 there is no dilutive effect of share options as the average share price during the period was lower than the strike prices on the options.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

	Period ended 27 September2008 Unaudited	Period ended 29 September 2007 Unaudited	Year to 29  March 2008 Audited
	£ 000	£ 000	£ 000
Earnings	491	716	478
Earnings, excluding profits on disposal of properties, flotation costs and movements in value of interest rate swaps	800	655	1,574
Number of shares
Weighted average number of shares	19,795,163	19,606,722	19,693,059
Dilutive effect of share options in issue during the period	-	927,753	579,861
Weighted average number of shares	19,795,163	20,534,475	20,272,920
Earnings per share
Basic earnings per share	2.48	3.65	2.43
Fully diluted earnings per share	2.48	3.49	2.36
Basic earnings per share, excluding property disposals, flotation costs and movements in value of interest rate swaps.	4.04	3.34	7.99
Fully diluted earnings per share, excluding property disposals, flotation costs and movements in value of interest rate swaps.	4.04	3.19	7.76

ENDIR ILFFTLELTFIT