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CASTLE MALTING NEWS in partnership with Danish
26 May, 2006

Brewing news UK: Wolverhampton & Dudley Breweries , PLC posts interim results for 26 weeks ended April 1st

Wolverhampton & Dudley Breweries, PLC released May 26 interim results for the 26 weeks ended 1 April 2006.

“These first half-year results include strong growth in turnover and profits reflecting the organic development of the business and acquisitions made over the last 18 months. Good progress has been achieved despite weaker consumer confidence and the impact of higher energy and employment costs as we have exploited the flexibility inherent in our model,” Chairman David Thompson said in a Statement.

“Our acquisitions strategy has brought benefits of additional scale, with our pub estate now numbering 2,358 mainly freehold pubs. This expansion has enabled us to reduce purchasing costs significantly and spread our overheads, as well as to increase our trading geography across England and Wales,” Thompson continued.
“We have maintained our focus on investment across the business, both in pubs and beer brands. As a result, we continue to realise the trading benefits of having one of the highest quality pub estates in the industry whilst our brands business continues to capture market share.”

Results Turnover increased by 9.2% to £281.4 million, reflecting good progress in both pub divisions, and the acquisitions of Burtonwood PLC in January 2005, Jennings Brothers PLC in May 2005 and English Country Inns PLC in September 2005. The acquisition of Celtic Inns in March 2006 did not have a significant impact on these interim results.

Turnover and profit growth was achieved in each of our three trading divisions.

Underlying operating margin increased to 23.6% (2005: 22.6%) despite cost pressure across the business. Good management of costs and acquisition synergies contributed to this improvement.

Underlying profit before taxation increased by 12.9% to £40.2 million. Profit after exceptional items (principally profits relating to property disposals) was £41.0 million (2005: £34.1 million).

Underlying earnings per share increased by 10.0% to 36.2 pence per share (2005: 32.9 pence). Basic earnings per share after exceptional items was 36.2 pence per share (2005: 32.8 pence).

Cashflow from operating activities increased by 72.2% to £99.2 million.

The Board declares an interim dividend of 14.52 pence per share (2005: 13.20 pence) which will be paid on 30 June 2006 to those shareholders on the register at the close of business on 9 June 2006. This increase of 10.0% is in line with earnings growth and is consistent with a track record of dividend increases averaging over 10% for the last 30 years.

The pressures affecting the pub sector, including regulatory and other cost pressures are not new, and are set to continue. Specifically, current and future risks are presented by the proposed smoking ban in England and Wales (due to be implemented in the summer of 2007), rising energy costs, and the impact of an increasing tax burden and other costs on consumers.

These are all catalysts for further consolidation in the industry. Wolverhampton & Dudley Breweries, PLC is well positioned with a strong balance sheet and a low cost of debt. Its integrated business model provides opportunity to create additional value, a factor which has enabled it to make successful acquisitions whilst remaining disciplined about its investment criteria.

Chairman Ralph Findlay stated that these good results are the product of combining value adding acquisitions and organic development in each of our trading divisions.

The integrations of Burtonwood, Jennings and English Country Inns last year were completed quickly, and realised synergy benefits in excess of £6 million per year – ahead of original targets. We completed the acquisition of Celtic Inns, a predominantly freehold estate of 70 mostly tenanted pubs (including 2 pubs acquired shortly after completion) in south Wales and the south of England in March 2006.

Pathfinder Pubs – 543 managed pubs (2005: 537 pubs)

Turnover increased by 3.9% to £153.1 million. Total like-for-like sales increased by 1.0% in the 24 weeks to 18 March 2006 compared to a 3.1% increase at the same stage last year.
Underlying operating margin was 16.9% compared to 17.5% last year. This reduction was principally due to higher electricity and gas prices, higher employment costs as a consequence of above inflationary increases in the national minimum wage, and higher Sky TV costs.

Underlying operating profit increased to £25.9 million (2005: £25.8 million).

We aim to develop our estate through organic investment as well as through acquisition. Seven new pubs were opened in the first half-year: The Elms, Lutterworth; West Meon, Hampshire; The Willows, Blackburn; The Talbot, Wigan; The Crows Nest, Seaham; The Cheshire Tavern, Congleton; and The Nags Head, Routh.

Pathfinder Pubs is a market leader in new build pub development, acquiring sites suitable for a range of formats from good value community pubs to Pitcher & Piano bars. Sites acquired are generally freehold, with subsequent returns on investment exceeding 15%. We expect to open 8 more pubs in the second half-year and around 20 in 2006/7.

In the first half-year we also completed 40 major refurbishments, investing an average £327,000 per pub, with expected cash returns on capital invested of at least 20%. This significant investment included 8 pubs from the former Wizard Inns estate, 1 from English Country Inns and 4 Burtonwood managed houses.

Pitcher & Piano, comprising 27 bars, performed strongly. In the first half-year we re-opened 5 bars, having refurbished units in London (Cornhill), York, Swansea, Harrogate and Taunton, the last being the conversion of a former Wizard outlet.

The Union Pub Company – 1,815 pubs (2005: 1,610 pubs)

Total turnover increased by 22.7% to £86.4 million. Like-for-like sales were 1.0% ahead of last year in the 24 weeks to 18 March 2006, with average profit per pub up by 4.4%. As we increase the number of pubs let on longer term lease agreements, profit measures better reflect the overall impact of higher discounts and rent. Underlying operating margin was 43.9% compared to 42.3% last year.

Underlying operating profit increased by 27.2% to £37.9 million. This increase was achieved through the effective integration of the Burtonwood and Jennings estates last year.

The estate now includes 730 leased pubs and 1,085 pubs on shorter term agreements. We will continue to offer leases to tenants of suitable pubs, and we expect that the proportion of our estate let on longer term agreements will steadily increase to around 60%. For the right pubs, security, the ability to assign, and high discounts are particularly attractive features of our ‘Open House’ lease. Within the former Burtonwood estate, which was mainly let on short term agreements when we acquired the business, new Union Pub Company agreements are being processed in respect of 70% of the tenants.

During the period we completed 37 investment schemes across the estate, investing £7.4 million in total in the tenanted estate. Three trading pubs were acquired for £1.6 million, and 8 pubs were sold, realising proceeds of £5.2 million.

In March, we acquired Celtic Inns for £43.1 million. Of the 70 pubs acquired, 63 are now operated by The Union Pub Company. This acquisition has extended our trading geography for leased and tenanted pubs further southwards, and is consistent with our strategy of investing in good quality freehold pubs.

WDB Brands

Total turnover increased by 5.0% to £41.9 million. Underlying operating margin was 19.3% compared to 20.1% last year as a consequence of higher energy prices and a competitive market. Underlying operating profit increased to £8.1 million (2005: £8.0 million).

The UK beer market has declined by 2% in the last twelve months. We have, however, continued to gain market share. Over the last twelve months our premium ale range, which includes Marston’s Pedigree, Cumberland Ale and Old Empire, has grown by over 12%. Our standard ales, comprising Banks’s, Mansfield, and Marston’s beers, have outperformed the market with particularly strong growth in Marston’s Smooth. Market share increased in both on-trade and off-trade and is now 7.6% of the UK ale market.

Investment in marketing was similar to last year, being maintained at £2.6 million, with particular emphasis on the Marston’s Pedigree ‘Don’t Compromise’ campaign and ‘Caskforce’ quality initiative.

Current trading

Current trading in The Union Pub Company, Pathfinder Pubs and WDB Brands has been satisfactory and in line with expectations. In the 9 weeks to 20 May 2006 like-for-like sales in Pathfinder Pubs were 2.5% ahead of last year.

Increased margin

The underlying operating margin of the Group increased by 1.0% to 23.6%. This increase was achieved despite some significant cost pressures, including a £3 million increase in utility costs across the Group. These cost increases have been more than offset by the synergy benefits achieved from successfully integrating our recent acquisitions and excellent cost management. Also the increased proportion of longer leases in the Union Pub Company has led to higher margins in this part of the business.

Strong cashflow

The business continues to be strongly cash generative – with cashflow from operating activities increasing by 72.2% to £99.2 million. Free cashflow, after the payment of interest, tax and maintenance capital, increased by 177.9% to £64.2 million.

Acquisition of Celtic Inns

Celtic Inns was acquired on 17 March 2006 for £43.1 million including a consideration of £18.1 million and net debt acquired of £25.0 million. The acquisition was funded from existing bank facilities. The Celtic Inns properties have subsequently been independently valued at £31.0 million. Goodwill arising as a result of the acquisition was £15.9 million.

Financing and Balance sheet

The balance sheet remains very strong, supported by a property portfolio of predominantly freehold, community pubs valued at around £1.6 billion. On a 12-month pro-forma basis to 1 April 2006 the ratio of net debt to EBITDA (earnings before interest, taxation, depreciation and amortisation) was 4.7 times and interest cover 3.0 times. Headroom in our bank facility as at 1 April 2006 was £112 million.


The underlying rate of taxation (before exceptional items) has decreased from 31.5% in 2005 to 30.3% in 2006.

Exceptional items

There was a nil after tax impact from exceptional items. This comprised a £0.8 million profit on the sale of fixed assets offset by a taxation cost of £0.8 million representing the tax charge associated with the sale of these assets, of which £0.5 million relates to a prior period adjustment.

Ralph Findlay, Chief Executive, commented: "These good results are the product of combining value adding acquisitions and organic development in each of our trading divisions. Current trading in The Union Pub Company, Pathfinder Pubs and W&DB Brands has been satisfactory and in line with expectations”

Wolverhampton & Dudley Breweries, PLC is the UK's leading independent brewing and pub retailing business. It operates three breweries - Park Brewery in Wolverhampton (brewing Banks's, Hanson's and Mansfield beers), Marston's Brewery at Burton on Trent and Jennings Brewery at Cockermouth in the Lake District. Our pub estate totals 2,358 pubs - 1,816 tenancies within The Union Pub Company and 542 directly managed by Pathfinder Pubs. We brew some of the UK's leading ale brands including Marston's Pedigree, Jennings, Banks's Bitter, Banks's Original, and Mansfield Bitter. Our award-winning ales collected five international brewing medals at the Millenium International Brewing Awards. Key developments in the last decade have enabled The Wolverhampton & Dudley Breweries, PLC to position itself as the UK's premier regional brewer.

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