Announcement PDF RNS Number : 6919F Shepherd Neame Limited 11 March 2020 INTERIM RESULTS A strong performance in the tenanted estate Turnover growth in all divisions Shepherd Neame, Britain's Oldest Brewer and owner and operator of 320 high quality pubs in Kent and the South East, today announces results for the 26 weeks ended 28 December 2019. Financial performance: · Turnover in the period increased to £79.0m (2018: £76.5m), an increase of +3.3% · Underlying operating profit1 was up +1.1% at £8.0m (2018: £7.9m) and underlying profit before tax2 was up +4.8% to £6.2m (2018: £5.9m) benefitting from lower interest charges · Underlying basic earnings per share3 are up +4.7% to 33.1p (2018: 31.6p) · Statutory profit before tax was £5.4m (2018: loss of £4.1m) · The Board is declaring an interim dividend of 6.00p (2018: 5.87p), an increase of +2.2% Operational Highlights: · Managed pubs (69) achieved a solid performance - Total managed sales grew by +4.3% to £37.0m (2018: £35.5m) - Like-for-like sales were up by +0.9% against strong comparatives in the prior year (2018: +4.1%) - Average income4 per managed pub grew by +1.4% (2018: +8.5%) · Tenanted pubs (239) continued to trade strongly despite fewer pubs - Average income per tenanted pub grew by +5.0% (2018: +4.0%) - Divisional underlying operating profit was up +1.7% to £6.7m (2018: £6.6m). Like-for-like tenanted pub income grew by +2.9% (2018: +2.2%) - Winner of the Publican Award for Best Tenanted/Leased Company (up to 500 sites) · Own brand volume returned to growth - Own brand beer and cider volume grew ahead of the market at +3.3% (2018: -1.0%) during the period (versus market growth of +2.6%5) - Divisional turnover grew by +3.5%, underlying operating profit was £0.4m (2018: £0.5m) - We have made a promising start to the new partnership for distributing Singha beer [1] Profit before net finance costs, any profit or loss on the disposal of properties, investment property fair value movements and operating charges which are either material or infrequent in nature and do not relate to the underlying performance. 2 Underlying operating profit less underlying net finance costs. 3Underlying profit less attributable taxation divided by the weighted average number of ordinary shares in issue during the period. The number of shares in issue excludes those held by the company and not allocated to the employees under the Share Incentive Plan, which are treated as cancelled. 4Calculated by dividing pub profit before depreciation, amortisation, rent and property costs and other cost allocations by the average number of divisional pubs trading in a financial period. 5 The British Beer and Pub Association. Current Trading: · For the 35 weeks to 29 February 2020: - Managed pub like-for-like sales up +0.6% - Like-for-like tenanted pub income up +2.6% - Own brand beer and cider volumes up +4.4% Jonathan Neame, Chief Executive, commented: "Shepherd Neame continues to benefit from a well-balanced business. These results demonstrate the strength of our tenanted pubs in a period where managed margin was held back by the challenging cost environment. We are pleased to see that own brand beer and cider volume is outperforming the market. As a result of this strategy we again have delivered a solid performance in the first half. For the rest of the year, we remain concerned about the potential impact of the Covid-19 virus. We have seen no discernible change in customer behaviour to date. Looking forward it is impossible at this stage to gauge the likely impact, but should there be significant restrictions on travel and the movement of people in the coming months, that would have an inevitable bearing on our business and our supply chain. Over the longer term, the quality and profile of the Company's brands and pubs will stand us in good stead and form an excellent platform from which to grow. We are confident we are building an even stronger business for the future." March 2020 Shepherd Neame Tel: 01795 532206 Jonathan Neame, Chief Executive Mark Rider, Finance and IT Director Instinctif Partners Matthew Smallwood Seb Holland NOTES FOR EDITORS Tel: 020 7457 2020 Shepherd Neame is Britain's oldest brewer. Established in 1698 and based in Faversham, Kent it employs around 1,900 people. At the year end, the Company operated 320 pubs, of which 239 were tenanted or leased, 69 managed and 12 were held as investment properties under commercial free of tie leases. The pub estate ranges from inns and hotels to destination dining, great traditional and local community pubs. The Company brews, markets and distributes its own beers to national and export customers under a range of highly successful brand names including traditional classics such as Spitfire and Bishops Finger as well as newer brands, such as Whitstable Bay, Bear Island and Orchard View Cider. The Company also has partnerships with Boon Rawd Brewery Company for Singha beer, Thailand's original premium beer and with Boston Beer Company for Samuel Adams Boston Lager and Angry Orchard Hard Cider. Shepherd Neame's shares are traded on the NEX Exchange Growth Market. See http://www.nexexchange.com/ for further information and the current share price. For further information on the Company, see www.shepherdneame.co.uk. CHAIRMAN'S STATEMENT Interim Results I am pleased to report another solid period in the 26 weeks ended 28 December 2019 with a strong performance in the tenanted estate and turnover growth in all divisions. After an encouraging start to the financial year consumer spend was subdued through the autumn as a consequence of persistent wet weather and political uncertainty in the run up to the General Election. However, we enjoyed a buoyant festive period from mid-December and have made a good start to the second half of the year even though we are lapping a strong February. In the last financial year, we identified two key objectives that will be of long term benefit to the Company: • acquire new sites in North Kent where there will be substantial economic development in the future, and • expand our beer partnerships to sit alongside our modernised range. We have made progress against both these objectives. We have received planning permission and have purchased a site in Ebbsfleet and anticipate commencing the build phase in May 2020. The site will be named the Chalk Yard and will have 17 bedrooms and a pub and restaurant. It will be our largest single pub project to date. We anticipate opening in mid-2021. Also in North Kent, we acquired The Crown, Rochester and intend to redevelop it in due course. This is in addition to the acquisition of the Horse and Groom, Wilmington in the prior year. In January 2020, we closed the Wharf at Crossways in Dartford for a major redevelopment of the pub. The cumulative impact of these four investments in close proximity will transform the profile of the Shepherd Neame pub estate in this rapidly developing area. On the beer side we commenced our distribution partnership for Singha Beer, Thailand's original premium beer, in September 2019. We are pleased with the initial response of customers to the brand and are positive about the opportunities this opens up for us in future years. Singha provides a useful complement to our Spitfire, Whitstable Bay and Bear Island ranges to make an exciting portfolio for our customers. Financial Performance Turnover in the period increased to £79.0m (2018: £76.5m), an increase of +3.3%, driven by higher sales in our managed pubs and brewing and brands businesses. Underlying operating profit was up +1.1% to £8.0m (2018: £7.9m) and underlying profit before tax was up +4.8% to £6.2m (2018: £5.9m) benefitting from lower interest charges. Underlying basic earnings per share was up +4.7% to 33.1p (2018: 31.6p). Statutory profit before tax was £5.4m (2018: loss of £4.1m). The prior year loss was incurred as a result of refinancing and the associated swap contract cancellation charge. The new debt structure provides certainty of funds, at a lower cost of debt and an improved maturity profile. Operating charges - items excluded from underlying results Since the half year, we have identified a transaction in one of our ledgers that gave us cause for concern. We investigated this thoroughly and extensively in consultation with external advisers and our auditors. We have uncovered a series of erroneous charges made against certain accounts, as a result of unlawful action by one employee, who was acting independently over a number of years. This employee has now left the business and we are taking action to attempt to recover our loss. We are in the process of reimbursing fully all those accounts affected. A net charge of £0.5m has been recognised within items excluded from underlying results (see note 3). The sums involved, although significant cumulatively, were not significant in any single year, and are not in aggregate material in the context of the Company's overall finances. We are confident that the matter is isolated and resolved. We have commissioned a full review of our internal controls in the area concerned and have implemented changes. We have also recognised an impairment charge of £0.2m in respect of one property. Capital and Investment We continue to invest in the business for the long term. Capital expenditure was £8.1m (2018: £7.1m), including £1.4m (2018: £2.1m) on new site acquisitions and £6.7m (2018: £5.0m) invested in the pub estate and brewery. We continue to manage our pub and investment property assets actively and have realised a total of £1.2m (2018: £1.5m) from disposals. Tenanted and Managed Pub Operations Overview Our long term investment strategy is to grow through selective single site acquisitions in landmark or high footfall locations. Our recent acquisitions have been in urban areas with a large local catchment and high disposable income. The Crown, Rochester meets these criteria and was acquired in September 2019. It is being run as a managed pub in a prominent location at the end of the High Street overlooking the River Medway. We see further potential for the site as this part of the town is regenerating and will benefit from substantial house building. Meanwhile we continue to dispose of those smaller outlets which no longer fit our strategy, albeit the rate of disposal activity has slowed as the quality of our business has improved. In the period, we acquired one managed pub (2018: two), disposed of two pubs (2018: nil), one investment property (2018: one) and two pieces of land, one with planning permission for residential development. At the half year we operated 320 pubs (2018: 322) of which 239 are tenanted or leased (2018: 244), 69 are managed (2018: 68) and 12 (2018: 10) are operated under commercial free of tie leases. Driving Footfall to our Pubs We have invested £4.7m (2018: £3.3m) in capital expenditure to improve the look and feel of our pubs and a further £1.5m (2018: £1.5m) in repairs and decorations. Our largest investment in the period was the transformation of the Woolpack, Banstead acquired in 2009. It has been operated under lease for most of the time since then. We transferred it to the managed estate in 2019 and have now invested £1.4m. This is an exceptional site in the centre of this affluent town south of London and is now a flagship operation for us in that area. Initial trade since it re-opened in December has been excellent. In the last ten years we have acquired a number of other sites currently operated under lease and that may benefit from a change of operating model to managed. We will review the circumstances on an individual basis as and when they become available over the coming years. Also, in the managed estate, we have redeveloped the Compton Cross, Soho. This was acquired in the previous financial year and re-opened under its original name of the Coach and Horses. This gives us another high profile site in central London. In the second half we will continue with the programme to upgrade our bedroom stock in our inns and hotels. We plan to refurbish nine rooms at The Marine in Whitstable and eight rooms at the Royal Albion in Broadstairs. In the tenanted estate, we have invested in major works at the Red Lion, Charing Heath and the Lord Nelson, Dover. At the former, we have converted a disused barn to create four letting rooms and upgraded the pub; with the latter we have transformed this well located pub now that the long awaited town centre redevelopment is complete. The new signage scheme continues to gain momentum. We have now completed half the estate. The quality and extent of each scheme improves the whole time and has a real and positive impact on customer first impressions. Developing our offer to enhance the customer experience We drive footfall by presenting our pubs inside and outside in an appealing and stylish way. Once we have attracted customers we need to ensure that our offer is suited to today's customer needs and build loyalty to our pubs and brands. In the last two years we have built our Rewards Club to engender loyalty with our customer base, and now regularly communicate offers on food and accommodation. We have recruited more team members in the last six months to strengthen our digital and pub marketing capability. One of the initiatives that has been launched successfully is a series of walks around our rural pubs. Overall pub performance continues to be driven by the shift to premium drinks sales as we continue to enhance our offer and expand the range. Managed like-for-like drink sales were up +1.8% (2018: +5.8%). The eating out market remains very competitive and our food offer evolves to meet customers rapidly changing tastes. This now incorporates a much broader range of lower calorie, vegan and vegetarian dishes. We have also created a bespoke gluten-free burger for our managed estate. We are always looking for ways to team with local producers. Under our Love Food campaign to champion local ingredients, we have worked with Faversham-based Karimix to create a bespoke Kentish tomato chutney. We encourage staff involvement to promote many of the great dishes we serve in our pubs via #shepsfood. The introduction of the Ten Kites system for allergen control and communication has been welcomed by staff and customers alike. This provides interactive menus across our managed house websites and allows customers to use dietary and allergen filters to tailor their choice. It is particularly pleasing to note that our efforts to drive our food business have been recognised as we were a finalist at the Publican Awards for Best Food Offer (Managed > 50 sites). Managed like-for-like food sales were down -0.7% (2018: +2.2%). Accommodation remains in demand in spite of the consumer caution in the autumn but our rate of growth has slowed. Like-for-like accommodation sales were up +0.9% (2018: +0.7%). Occupancy improved to 81.6% (2018: 80.5%) and RevPAR6 was up +1.4% at £74 (2018: £73). Managed Pub performance Total divisional turnover in the managed estate grew by +4.3% to £37.0m (2018: £35.5m). Divisional underlying operating profit declined marginally by -0.2% to £5.4m (2018: £5.4m). Ongoing cost inflation means that margins are under continued pressure with same outlet like-for-like sales up by +0.9% against strong comparative figures from the prior year (2018: +4.1%). Average income per managed pub grew by +1.4% (2018: +8.5%). Tenanted Pub Performance Total divisional turnover in the tenanted estate grew by +1.3% (2018: +0.7%) to £18.4m (2018: £18.1m) despite a fewer number of pubs. Divisional underlying operating profit was up +1.7% to £6.7m (2018: £6.6m). We continue to invest in repair and decorations at a high rate although the rate of increase is levelling out as the quality of overall maintenance and presentation of our pubs is at a high level. Like-for-like tenanted pub income grew by +2.9% (2018: +2.2%). Average income per tenanted pub grew by +5.0% (2018: +4.0%). The sector continues to suffer from high cost inflation from rates and national minimum wage increases. It is therefore welcome to hear recent Government announcements of extending rate relief for smaller pubs. In independent surveys of our licensees we score highly across all areas including in the communication and understanding our Business Development Managers have of our Pubs and the extensive personal support they provide to our licensees. As a consequence of the huge strides we have made in the quality of our tenanted pubs in recent years, we were delighted to win the Publican Award for Best Tenanted/Leased Company (up to 500 sites). Creating demand and building awareness for our brands In the last year, we took a number of measures to refresh and modernise our core brand portfolio. These measures are beginning to bear fruit, as our own brand beer and cider volume grew by +3.3% (2018:-1.0%) ahead of the market. We have had a promising start to the new partnership with Boon Rawd Brewery Company to distribute Singha Beer. The partnership commenced at the end of the summer with a phased transition from the previous supplier. The brand is strong in its Thai restaurant base but is also backed by high level sponsorship activity. This gives us a credible and exclusive world lager to enhance our portfolio. To support these portfolio developments we have strengthened our heartland on-trade sales team. We are also in the process of introducing a comprehensive online ordering platform, which will be operational in the next few months. In the brewery, we continue to invest in quality enhancements and have committed to the installation of a new yeast propagation plant at a total cost of £0.5m. This will be operational by year end. As the market for packaged products changes, particularly in the light of environmental concerns, so do the needs of our customers. As such we are reviewing our small packaging capability. 6 Revenue per Available Room Brewing and brands performance Total divisional turnover grew by +3.5%, with divisional underlying operating profit of £0.4m (2018: £0.5m). We saw growth in our own brands portfolio and overall turnover growth was enhanced by the new partnership with Singha beer. However, total own brewed volumes fell by -7.9% with the final impact of exiting the Lidl own brand contract in the prior year. Investment Property As at 28 December 2019, the Company owns investment property valued at £8.3m (June 2019: £8.8m). Our appeal against the refusal of planning consent for 50 houses on land outside Faversham was dismissed. Nevertheless we believe that this land has long term development prospects and will continue to promote the site through the local planning process. Dividend The Board is declaring an interim dividend of 6.00p (2018: 5.87p), an increase of 2.2%. The dividend will be paid on 2 April 2020 to those shareholders on the register at 20 March 2020. Outlook and Current Trading This has been a satisfactory trading period considering the challenging conditions of the autumn. The tenanted performance has been strong. Recent developments in the brewing and brands business now appear to be bearing fruit and we are optimistic about the potential of some of our recent initiatives. The managed pubs division has performed well but it has been harder to generate like-for-like sales growth in this period. We are excited about the new developments at the Wharf and Woolpack and by the long term potential of the Chalk Yard. Since the half year (and for the 35 weeks to 29 February 2020), like-for-like tenanted pub income has remained strong at +2.6% (2018: +2.6%), own brand beer and cider volumes are up +4.4% (2018: +0.4%) and same outlet likefor-like managed pub sales are up +0.6% (2018: +3.7%). For the rest of the year, we remain concerned about the potential impact of the Covid-19 virus. We have seen no discernable change in customer behaviour to date. Looking forward it is impossible at this stage to gauge the likely impact, but should there be significant restrictions on travel and the movement of people in the coming months, that would have an inevitable bearing on our business and our supply chain. Over the longer term, the quality and profile of the Company's brands and pubs will stand us in good stead and form an excellent platform from which to grow. We are confident we are building an even stronger business for the future. Miles Templeman Chairman CONSOLIDATED PROFIT AND LOSS ACCOUNT 26 weeks ended 28 December 2019 Unaudited 26 weeks ended 28 December 2019 Underlying results note Audited 52 weeks ended 29 June 2019 Unaudited 26 weeks ended 29 December 2018 Items excluded from underlying results Total statutory Items excluded from Underlying underlying results results Total statutory Total Statutory £'000 £'000 £'000 £'000 £'000 £'000 £'000 4 79,035 (71,020) 8,015 (648) (648) 79,035 (71,668) 7,367 76,500 (68,571) 7,929 - 76,500 (68,571) 7,929 145,801 (130,711) 15,090 3,5 (1,843) - (1,843) (2,040) (9,820) (11,860) (13,721) (1,843) - (112) (112) 280 (112) (1,955) 280 (2,040) - (991) (10,811) 663 (991) (12,851) 663 (952) (14,673) 2,848 6,172 (1,297) 4,875 (297) (777) 104 (673) (297) 5,395 (1,193) 4,202 5,889 (1,237) 4,652 139 (10,009) 1,961 (8,048) 139 (4,120) 724 (3,396) 206 3,471 (882) 2,589 (23.1)p (22.9)p 31.6p 17.6p 17.5p 60.9p Turnover Operating charges Operating profit 4 Finance costs Fair value movements on financial instruments charged to profit and loss Net finance costs Profit on disposal of property Investment property fair value movements Profit/(loss) before taxation Taxation Profit/(loss) after taxation Earnings/(loss) per 50p ordinary share Basic Diluted Underlying basic 3,5 3,5 3 3 6 7 28.5p 28.3p 33.1p CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 26 weeks ended 28 December 2019 Unaudited 26 weeks ended 28 December 2019 Unaudited 26 weeks ended 29 December 2018 Audited 52 weeks ended 29 June 2019 £'000 £'000 £'000 4,202 (3,396) 2,589 Profit/(loss) after taxation Gains arising on cash flow hedges during the period 426 567 248 Transfers to the profit and loss account on cash flow hedges - 10,866 10,660 Tax relating to components of other comprehensive income (83) (2,008) (1,931) Other comprehensive gains 343 9,425 8,977 Total comprehensive income 4,545 6,029 11,566 CONSOLIDATED BALANCE SHEET As at 28 December 2019 Unaudited Unaudited 26 weeks ended 26 weeks ended 28 December 2019 29 December 2018 Audited 52 weeks ended 29 June 2019 £'000 £'000 £'000 Fixed assets Intangible fixed assets Tangible fixed assets 775 317,019 564 310,367 760 314,728 Investments and loans 6 18 10 317,800 310,949 315,498 Current assets Stocks Debtors Deferred tax asset 8,004 15,999 975 6,416 16,329 983 7,111 12,945 1,058 Cash at bank and in hand 3,270 2,894 116 28,248 26,622 21,230 Creditors: amounts falling due within one year Bank loans and overdrafts - - (933) (26,474) (23,267) (23,096) (26,474) (23,267) (24,029) 1,774 3,355 (2,799) Total assets less current liabilities 319,574 314,304 312,699 Creditors: amounts falling due after more than one year Bank loans Derivative financial instruments Deferred lease liability (87,211) (6,739) (2,620) (89,088) (6,769) (2,423) (81,160) (6,822) (2,547) Provisions for liabilities (13,956) (12,821) (14,073) Net assets 209,048 203,203 208,097 Capital and reserves Called-up share capital Share premium account Revaluation reserve Own shares Hedging reserve 7,429 1,099 71,394 (1,367) (4,647) 7,429 1,099 73,532 (1,806) (4,542) 7,429 1,099 71,858 (1,551) (4,990) Profit and loss account 135,140 127,491 134,252 Equity shareholders' funds 209,048 203,203 208,097 Creditors Net current assets/(liabilities) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY26 weeks ended 28 December 2019 Called-up share capital Share premium account Revaluation reserve Own shares Hedging reserve Profit and loss account £'000 £'000 £'000 £'000 £'000 £'000 Total £'000 7,429 - 1,099 - 71,858 - (1,551) - (4,990) 426 134,252 4,202 - 208,097 4,202 426 - - - - (83) - (83) Total comprehensive income Ordinary dividends paid Revaluation reserve realised on disposal of properties Accrued share-based payments Purchase of own shares Distribution of own shares - - (464) - 343 - 4,202 (3,573) 464 4,545 (3,573) - - - - (290) 314 - 256 (301) 256 (290) 13 Unconditionally vested share awards - - - 160 - (160) - 7,429 1,099 71,394 (1,367) (4,647) 135,140 209,048 Balance at 29 June 2019 Profit for the period Gains arising on cash flow hedges during the period Tax relating to components of other comprehensive income Balance at 28 December 2019 Called-up Share premium share capital account Balance at 30 June 2018 Loss for the period Gains arising on cash flow hedges during the period Transfers to the profit and loss account on termination of interest rate swaps Transfers to the profit and loss account on hedge ineffectiveness of remaining interest rate swaps Tax relating to components of other comprehensive income Own shares Hedging reserve Profit and loss account £'000 £'000 £'000 £'000 £'000 £'000 Total £'000 7,429 - 1,099 - 73,532 - (1,588) - (13,967) 567 134,547 (3,396) - 201,052 (3,396) 567 - - - - 9,875 - 9,875 - - - - 991 - 991 - - - - (2,008) - (2,008) - - - (595) 210 167 9,425 - (3,396) (3,475) 185 (203) (167) 6,029 (3,475) 185 (595) 7 - 7,429 1,099 73,532 (1,806) (4,542) 127,491 203,203 Total comprehensive income Ordinary dividends paid Accrued share-based payments Purchase of own shares Distribution of own shares Unconditionally vested share awards Balance at 29 December 2018 Revaluation reserve CONSOLIDATED CASH FLOW STATEMENT 26 weeks ended 28 December 2019 Unaudited Unaudited Audited 26 weeks ended 26 weeks ended 29 December 2018 52 weeks ended 28 December 2019 £'000 Net cash flows from operating activities (note 9) Cash flows from investing activities Proceeds of sale of tangible fixed assets Purchase of tangible fixed assets Purchase of intangible fixed assets Customer loan redemptions Acquisition of subsidiaries Cash acquired on acquisition Net cash flows from financing activities £'000 10,347 1,230 (7,985) (92) 1 (151) - Net cash flows from investing activities Cash flows from financing activities Dividends paid Interest paid Settlement of derivative financial instruments Repayment of long-term loans New long-term loans Issue costs of new long-term loans Purchase of own shares Share option proceeds £'000 £'000 £'000 9,316 1,508 (7,074) 58 - (6,997) (3,573) (1,413) 6,000 (290) 13 29 June 2019 £'000 22,497 7,825 (13,710) 61 (5,594) 347 (5,508) (3,475) (1,436) (9,386) (54,500) 67,500 (654) (595) 7 (11,071) (4,341) (3,526) (9,610) (54,500) 59,500 (815) (595) 19 737 (2,539) (13,868) Net increase/(decrease) in cash and cash equivalents 4,087 1,269 (2,442) Cash and cash equivalents at beginning of the period (817) 1,625 1,625 Cash and cash equivalents at end of the period 3,270 2,894 (817) NOTES TO THE ACCOUNTS 28 December 2019 1 Interim Statement The financial information contained in this interim statement, which is unaudited, does not constitute statutory accounts as defined in s434 of the Companies Act 2006. Statutory accounts for the 52 weeks ended 29 June 2019, upon which the auditors issued an unqualified opinion, have been filed with the Registrar of Companies. The financial information comprises the results of Shepherd Neame Limited (the Company) and its subsidiaries (the Group). 2 Accounting Policies The consolidated interim accounts have been prepared under FRS 104 Interim Financial Reporting and on the basis of the accounting policies set out in the statutory accounts for the 52 weeks ended 29 June 2019, except for the adoption of FRS 102.18 regarding intangible assets other than goodwill, as of 30 June 2019. The amendments to FRS 102 following the Triennial Review (December 2017) have been adopted in the period but no material changes have arisen as a result of this. FRS 102.18 Intangible assets other than goodwill The Group adopted FRS 102.18 on 30 June 2019 prospectively. Accordingly, the information presented for comparative periods has not been restated and is presented, as previously reported. FRS 102.18 covers accounting for all intangible assets other than goodwill and intangible assets held by an entity for sale in the ordinary course of business. Intangible assets with finite useful lives are carried at cost less accumulated amortisation and impairment losses. Amortisation is recognised on a straight-line basis over the estimated useful life of between three and five years. Provision is made for any impairment. 3 Non-GAAP reporting measures Certain items recognised in reported profit or loss before tax can vary significantly from year to year and therefore create volatility in reported earnings which does not reflect the underlying performance of the Group. The Directors believe that the "underlying operating profit", "underlying profit before tax", "underlying basic earnings per share", "underlying earnings before interest, tax, depreciation, and amortisation" presented, provide a clear and consistent presentation of the underlying performance of ongoing business for shareholders. Underlying profit is not defined by FRS 102 and therefore may not be directly comparable with the "adjusted" profit measures of other companies. The adjusted items are: • • • • Profit or loss on disposal of properties; Investment property fair value movements; Operating and finance charges which are either material or infrequent in nature and do not relate to the underlying performance; and Fair value movements on financial instruments charged to profit and loss. Unaudited 26 wee