Punch Taverns plc 2011 Annual Report

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60 Punch Taverns plc Annual Report and Financial Statements 2011 Notes to the financial statements continued for the 52 weeks ended 21 August 2011 1 Accounting policies continued Significant accounting estimates and judgements The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgements including those relating to income taxes, deferred tax, financial instruments, property, plant and equipment, goodwill, intangible assets, valuations, provisions and post-employment benefits. Management bases its estimates and judgements on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions and conditions. The estimates and judgements that have a significant effect on the amounts recognised in the financial statements are detailed below. Goodwill impairment The Group assesses whether goodwill is impaired on at least an annual basis. The recoverable amounts of the cash-generating units (CGUs) to which goodwill has been allocated is determined based on value-in-use calculations. These calculations require assumptions to be made regarding future cash flows and the choice of a suitable discount rate in order to calculate the present value of those cash flows. These assumptions are disclosed in note 14. Actual outcomes could vary from these estimates. Impairment of property, plant and equipment Property, plant and equipment is reviewed for impairment if circumstances suggest that the carrying amount may not be recoverable. Recoverable amounts are determined based on value-in-use calculations and estimated sale proceeds. These calculations require assumptions to be made regarding future cash flows and the choice of a suitable discount rate in order to calculate the present value of those cash flows. These assumptions are disclosed in note 14. Actual outcomes may vary from these estimates. Post-employment benefits The present value of defined benefit pension scheme liabilities is determined on an actuarial basis and depends on a number of actuarial assumptions which are disclosed in note 29. Any change in these assumptions could impact the carrying amounts of pension liabilities. Onerous lease provisions The Group provides for its onerous obligations under operating leases where the property is closed or vacant and for properties where rental expense is in excess of income. The estimated timings and amounts of cash flows are determined using the experience of internal property experts; however, any changes to the estimated method of exiting from the property could lead to changes to the level of the provision recorded. Effectiveness of cash flow hedges The Group performs an assessment of the probability of future cash flows on the floating rate notes and related interest rate swaps. Where future expected hedged cash flows are expected to still be highly probable, the Group continues to account for these as effective cash flow hedges, with the effective portion being recognised in equity. Where future expected cash flows are deemed not to be highly probable but are still expected to occur, the Group discontinues hedge accounting from the date of the assessment. From this date, all movements in the fair value of the cash flow hedges are recognised in the income statement. Where future expected cash flows are deemed to no longer be expected to occur, the Group discontinues hedge accounting from this date and recycles the existing accumulated amounts in equity in the income statement. From this date all future movements in the fair value of the cash flow hedges are recognised in the income statement. Authorisation of financial statements The Group’s and Company’s financial statements of Punch Taverns plc for the period ended 20 August 2011 were authorised for issue by the Board of Directors on 19 October 2011 and the balance sheets were signed on the Board’s behalf by Roger Whiteside and Steve Dando. Corporate information Punch Taverns plc is a public limited company incorporated and domiciled in England. The Company’s shares are listed on the London Stock Exchange.
Punch Taverns plc Annual Report and Financial Statements 2011 61 2 Segmental analysis In the prior period, the Group had two reportable segments, a leased estate and a managed estate. Since the announcement of the strategic review and demerger of the Spirit business, the Group has reassessed its segments, based on how the Group’s operations are reviewed and managed. The demerger of the Spirit business disposes of the former managed segment and an element of the leased segment. The Punch business has been restructured into a core estate and a turnaround estate, each having its own clear strategy. Each of these strategic business units consists of a number of cash-generating units (CGUs), which are individual pubs. These CGUs generate their own revenues, which are consolidated to give the Group revenue and as a result, Group revenue is not reliant on one significant customer. The results for the 52 weeks to 21 August 2010 have been restated to reflect these revised segments. The Chief Operating Decision Maker, represented by the Board, reviews the performance of the core and turnaround divisions separately, at an EBITDA level, as included in the internal management reports. The Group operates solely in the United Kingdom. Core £m 52 weeks to 20 August 2011 Turnaround Unallocated £m £m Drink revenue 270.5 97.6 – 368.1 Rental income 102.1 37.2 – 139.3 Other revenue 8.9 5.4 – 14.3 Underlying revenue 381.5 140.2 – 521.7 Underlying operating costs 1 (163.9) (72.1) (32.0) (268.0) Share of post-tax profit from joint venture – – 4.0 4.0 EBITDA before non-underlying items 217.6 68.1 (28.0) 257.7 Underlying depreciation and amortisation (16.5) Operating non-underlying items (441.5) Net finance costs (127.9) Movement in fair value of interest rate swaps (7.2) UK income tax charge (23.4) Loss for the financial period from continuing operations (358.8) Total £m Governance Business review 1 Unallocated underlying operating costs represent corporate overheads that are not allocated down to the divisional performance. Core £m Restated 52 weeks to 21 August 2010 Turnaround Unallocated £m £m Drink revenue 269.3 119.5 – 388.8 Rental income 104.2 49.5 – 153.7 Other revenue 9.6 6.9 – 16.5 Underlying revenue 383.1 175.9 – 559.0 Underlying operating costs 1 (156.4) (89.3) (26.0) (271.7) Share of post-tax profit from joint venture – – 3.5 3.5 EBITDA before non-underlying items 226.7 86.6 (22.5) 290.8 Underlying depreciation and amortisation (18.7) Operating non-underlying items (193.7) Net finance costs (187.2) Movement in fair value of interest rate swaps (21.2) UK income tax charge (22.2) Loss for the financial period from continuing operations (152.2) Total £m Financial statements 1 Unallocated underlying operating costs represent corporate overheads that are not allocated down to the divisional performance.
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