TIDMMARS
RNS Number : 5054D
Marston's PLC
03 December 2009
3 December 2009
MARSTON'S PLC
PRELIMINARY RESULTS FOR THE PERIOD ENDED 3 OCTOBER 2009
Highlights
· Rights issue completed raising net proceeds of GBP165.6 million
- strengthened balance sheet: net debt to EBITDA of 5.7 times (2008: 6.2
times)
· Clear plans and timescales to invest rights issue proceeds
- 60 large, new-build, food-led managed pubs over 3 years
- on track to open 15 new pubs in 2010
· Profit before tax of GBP70.3 million achieved slightly above forecast made at
time of rights issue
· Managed pubs: improving trading momentum, growth in key areas
- managed like-for-like sales (0.6)%; last 9 weeks of year +2.7%;
- like-for-like food sales: +2.8%; H2 +4.4%
- operating margin (0.5)%; H2 +0.3% - good cost management
- trading momentum continuing: like-for-like sales in the first 8 weeks of
new year +3.1%
· Tenanted and leased pubs: outperforming a weak market; improved recent
trading
- operating profit (7.0)%; first 8 weeks of the new year (5.0)%
- launch of range of innovative agreements and initial signs are encouraging
· Brewing: increased market share; revenue and profit growth
- own-brewed beer volumes +8%
- revenue +13.2% and operating profit +3.9%
- strong growth in premium cask ale and premium bottled ale
· Rebased final dividend 3.7 pence per share payable 2 February 2010
The comparatives for 2008 presented in the Highlights above, Chairman's
Statement, Business Review and Financial Review are provided on a comparable 52
week basis, rather than the 53 weeks which was reported in the prior period. The
Highlights above are also before exceptional items.
Commenting, Ralph Findlay, Chief Executive, said:
'This was a creditable performance in a very challenging period. In addition,
the improvement in trading we experienced over the second half-year has
continued in recent weeks, and we have made an encouraging start to the new
financial year. Although we are cautious about predicting recovery, we have good
pubs and popular regional ales which are performing well. We have a strong
platform to make further progress over the coming year.'
ENQUIRIES:
Marston's PLC Hudson Sandler
Ralph Findlay, Chief Executive Andrew Hayes/Nick Lyon/
Andrew Andrea, Group Finance Director James White
Tel: 020 7796 4133 on Thursday 3 December 2009 only Tel: 020 7796 4133
01902 329516 thereafter
NOTES TO EDITORS
* Marston's has an estate of around 2,200 pubs and bars situated across England
and Wales and is the UK's leading brewer of premium cask ales, including
Marston's Pedigree, Hobgoblin, Jennings Cumberland Ale, Brakspear Oxford Gold
and Ringwood Old Thumper. Other popular beers include Banks's and Mansfield.
* The estate comprises 1,688 tenanted or leased pubs, and 496 managed pubs
including Marston's Tavern Table, Two for One and Pitcher & Piano.
* Marston's employs over 11,500 people throughout England and Wales.
Chairman's Statement
Our performance was creditable in a very challenging trading environment. The
high quality of our national pub estate, popular ale brands, attractive consumer
offers and a supportive approach to tenants and lessees helped the Group to
demonstrate resilience, with momentum improving during the course of the year.
We have been successful in anticipating changes in consumer trends. Food sales
increased to 38% of total retail sales in Marston's Inns and Taverns, and we
have continued to increase market share in the beer market with volumes up by
8%. Our growth in the premium cask ale and premium bottled ale market segments
was particularly encouraging.
Having raised GBP165.6 million through the rights issue in July 2009 we will
continue to improve the quality of our pub estate through the development of
large, family friendly, new-build pubs. This investment represents an attractive
growth opportunity and is being implemented according to plan with around 15 new
pubs scheduled to open in 2010. A further 45 new pubs are planned over the
following two years.
Results
Revenue of GBP645.1 million was 1.4% below last year. Group operating margin of
22.8% compared with 23.9% in 2008. Operating profit before exceptional items
(underlying) of GBP147.4 million was 5.7% below last year principally reflecting
the weaker performance of Marston's Pub Company.
Profit before taxation and exceptional items was GBP70.3 million, 13.5% below
last year and slightly above our forecast made at the time of the rights issue.
After non-cash exceptional costs of GBP48.9 million as described in the
Financial Review, profit before taxation and after exceptional items was GBP21.4
million.
Underlying basic earnings per share were 13.4 pence (2008: 18.3 pence).
Financing
Our debt financing is principally long-term debt at low rates of interest
secured on freehold pub assets. Following the extension of our bank facility
announced earlier in the year we have no refinancing requirements until August
2013.
We completed the rights issue in July 2009, raising net proceeds of GBP165.6
million. At least GBP140.0 million of the proceeds will be invested in building
and developing 60 managed pubs over the next three years.
Net debt of GBP1,099.3 million as at 3 October 2009 was GBP168.8 million below
last year (2008: GBP1,268.1 million). Excluding the impact of the rights issue
and associated expenditure on new-build pubs net debt would have been
approximately GBP15 million below last year.
Dividend
The proposed final dividend of 3.70 pence per share gives a total dividend for
the year of 7.14 pence per share, compared to 9.52 pence per share in the prior
year. Following the rights issue the Board has rebased the final dividend for
2009 and also expects to rebase the interim dividend in 2010. The Board's policy
remains to target dividend cover of around 2 times over the medium-term although
the level of cover in any one year may vary.The Board believes that the dividend
has been rebased to an appropriate and sustainable level, with dividend growth a
key priority.
Legislative matters
On 22 October 2009 the Office of Fair Trading (OFT) issued its assessment of the
super-complaint lodged by the Campaign for Real Ale (CAMRA) regarding the UK pub
industry. The OFT did not find evidence that supply ties cause competition
problems with an adverse impact on consumers. In particular, the OFT established
that there is competition and choice in the market and noted that any strategy
which compromises the competitive position of lessees of pub owning companies
would not be sustainable, as their commercial interests are aligned with those
of lessees. As a consequence the OFT decided that further investigation is not
warranted.
We believe the industry has made significant progress in addressing the issues
identified by the Business, Innovation and Skills Committee (BISC). Marston's
Pub Company continues to develop its relationship with tenants and lessees, and
operates in a transparent manner with the objective of a fair division of risk
and reward between the Group and its licensees. We are clear that the principles
underlying existing agreements, including the tie, and fair, sustainable rents,
confer real benefits to tenants. The industry has developed a new Code of
Practice in response to the BISC report which we will implement. Further details
are included in the Business Review.
The Board
Andrew Andrea was appointed Group Finance Director in March 2009, replacing Paul
Inglett who left the Group after 17 years to pursue other opportunities. Andrew
joined the Group in 2002 and has held various financial, commercial and
operational positions in the business.
Outlook
The outlook for the UK economy remains uncertain. Whilst we are still cautious,
immediate cost inflation pressures have eased and we are well positioned to meet
the forthcoming challenges.
Our strategy is differentiated and appropriate for current market conditions and
trends, and we have a defined growth agenda for each of our trading divisions.
In our managed pubs, growth is being driven by an accelerated new-build
programme and a clear focus on value for money. In our tenanted and leased pubs
we have introduced an innovative programme to improve trading in weaker pubs and
to further develop the estate as a whole. In brewing, our market leading brand
portfolio is benefiting from growing consumer interest in high quality regional
cask ales. We are focused on the management of costs, cash flow and return on
capital.
I thank all of our employees for their hard work over the last year. We are
confident that our strategy, market position and the contributions of our
employees will increase shareholder value.
Business Review
Marston's and the industry
We operate around 2,200 pubs in a UK pub sector comprising around 53,000 pubs.
Our products account for approximately 9% of the UK ale market with our share of
the premium cask ale market in pubs around 23%. Our share of the premium bottled
ale market is approximately 17%.
Changes in consumer habits, the smoking ban and investment in pubs and pub food
have altered the nature of pub usage. More pub visits by women, families and an
increasingly mature population led to our development of the 'F-Plan' in our
managed pubs as described in the Strategic Objectives below. We estimate that
65% of all pub visits in Marston's Inns and Taverns are food related.
Intensifying competition, the introduction of the smoking ban in 2007,
aggressive price discounting by supermarkets and the weak economy have led to
increased polarisation in the marketplace. In anticipation of these
changes Marston's Pub Company has disposed of around 400 pubs with limited
potential in recent years and as a result we have a high quality estate. At the
same time, we have been careful to ensure that rents are set at sustainable
levels.
In brewing, 'real ale' has been increasing in popularity as consumers have
become more interested in beers with taste and provenance. Anticipating this
trend, Marston's Beer Company has developed a unique and outstanding range of
regional beers which achieved an increase in market share in 2009.
Beer consumption in pubs has been in overall decline for many years, but there
has been consistent growth in the volume of beer sold in the off-trade.
Marston's Beer Company is the largest supplier of premium bottled ale in the UK
market.
Marston's is a vertically integrated business, and we believe that this business
model has clear advantages. We have greater economies of scale, as we brew our
own ales and control our own supply chain, distributing to over 4,000 pubs and
clubs.
Strategic Objectives
Our strategy has six key objectives:
1. Target growth through the development of a national, high quality pub
estate
In recent years this has been achieved through acquisitions which have widened
our trading area throughout England and Wales; investing in new pub development;
and the disposal of pubs which do not meet our criteria for sustainable returns.
We have a track record of delivering excellent returns from new pub development
and we believe that this programme is a key driver of future shareholder value.
We therefore plan to invest at least GBP140 million of the rights issue proceeds
in the acquisition and development of new pubs over the next 3 years. These pubs
will be large, family friendly, food-led managed pubs.
The Group is a market leader in developing such pubs and we have a highly
skilled, experienced and specialist in-house team. The pubs are built to
cost-efficient standard specifications to assist roll-out. The 30 pubs of this
type that we have opened in the last 5 years have been very successful and have
delivered stronger like-for-like sales than the Group's other managed pubs. In
addition, the pubs achieve a higher average weekly take (GBP20k versus GBP14k
for all the Group's managed pubs) and food represents around 57% of sales. We
have achieved high returns averaging a 15% annual EBITDA (earnings before
interest, tax, depreciation and amortisation) return on invested capital.
The current market environment allows us to take advantage of increased
availability of suitable sites, reduced competition, and lower site acquisition
costs. Combined with more favourable construction costs we believe there is
potential to achieve returns from the new-build programme in excess of the
target level of a 15% EBITDA return on invested capital, with a lower risk
profile than is often associated with buying packages of existing pubs.
It is our intention to build 60 new pubs over the course of the next three
years. In 2010 we expect to open around 15 new sites, with a further 45 planned
to open over the following two years.
2. Develop greater food skills and extend our appeal to new customer
groups
The 'F-Plan' has been developed in Marston's Inns & Taverns to focus on food,
families, females, and 'forty/fifty somethings'. We aim to benefit from longer
term trends towards more eating out; to reposition our customer base in the face
of the long-term decline in alcohol consumption in the on-trade; and to
recognise the demographic effects of a maturing population on pub usage. We
have capitalised on this trend by increasing food sales from 27% of revenue in
2004 to 38% in 2009.
3. Recruit the most skilled tenants and lessees
As the pub sector has become polarised between better pubs and those failing to
meet customer expectations, so the demand for more able licensees has
intensified. Factors which influence licensees who are considering taking on a
particular pub include the quality, location and appeal of the pub itself, the
reputation of the pub owning company in dealing with its tenants and lessees,
and the level and suitability of support provided.
With these factors in mind we have established commercial relationships with
tenants and lessees that are based on openness, transparency, fair rents, a fair
share of risks and rewards, and sustainability. These objectives are reflected
in our Code of Practice, which is British Institute of Innkeeping (BII)
compliant, and the establishment of a 'rent review panel' in 2001 to ensure fair
rents.
We have responded quickly to market pressures on tenanted and leased pubs by
introducing a range of innovative agreements which address the key licensee
concerns of funding, business skills and risk. These agreements are an important
point of difference in a competitive market and are described in detail within
the section on Marston's Pub Company.
We have also developed a comprehensive 'benefits package' for tenants and
licensees which allows them to benefit from Group buying power across a wide
range of goods and services including food, waste management, clothing and
equipment. These benefits can add several thousand pounds to a licensee's
profits.
4. Focus on regional ale brands with genuine provenance
The success of the independent brewing sector in recent years is evidence of
growing interest in beers with taste, quality ingredients and genuine
provenance. Marston's Beer Company is unique in being able to exploit this trend
on a national scale through distribution of local beers from Wychwood Brewery in
Oxfordshire; Ringwood Brewery in the New Forest; Jennings Brewery in the Lake
District; and the Banks's and Marston's breweries in the Midlands.
This strategy provides benefits in two markets. First, locally, in the
independent free trade our performance demonstrates that being the 'local
brewer' with high service levels and national distribution helps to gain and
retain distribution. Second, nationally, when these local beers are made more
widely available, including in the Group's own pubs, there is real consumer
interest in choice, individuality and regionality. This has contributed to the
6% increase in ale volumes in Marston's Inns and Taverns in 2009 and to the
success of our brands sold to other pub companies.
The cost implications of multi-site brewing are not material as the Jennings,
Ringwood and Wychwood breweries are relatively small and local distribution and
account management is at low cost. The local provenance and premium nature of
these beers attracts higher net prices.
We have a particular focus on the higher margin premium ale segment of the
market and have increased volumes in this segment by approximately 90% over the
past five years to 2009 (including the benefit of acquisitions).
5. Create greater value for shareholders through vertical integration
We believe that there are clear economic benefits as a consequence of our
vertically integrated business model. These include:
* the ability to share best practice between divisions in order to optimise the
performance of our pubs and ale portfolio (the development of the Retail
Agreement and the strong performance of our ale brands in our own pubs are
examples);
* the ability to share overheads and systems between trading divisions, increasing
cost efficiency;
* increased cost control in brewing and distribution and therefore greater control
over costs incurred by our pub divisions.
6. Match freehold assets with long-term fixed rate financing
Our financing is robust, principally comprising long-term debt at low rates of
interest secured on freehold pub assets.
Following the rights issue we have strengthened the balance sheet with the ratio
of net debt to EBITDA reducing from 6.2 times in 2008 to 5.7 times at the period
end. We will continue to target a reduction in the ratio of net debt to EBITDA.
Overview of results
Our performance has been resilient over a challenging year demonstrating the
fundamental strengths of the business. In addition to offering outstanding
value for money and high quality products and service, we have benefited from
anticipating and adapting to consumer trends in a number of areas. We have:
* Maintained a rigorous approach to improving pub standards and quality, with a
strong preference for freehold ownership. In the last 5 years we have built over
50 managed pubs and bars targeting the growth sector of the market, and over the
last 3 years we have sold around 400 smaller tenanted pubs with limited
potential. The pub estate is therefore of high and improving quality, enhancing
customers' perceptions of the overall quality and the appeal of our offers.
* Continued to develop the 'F-Plan'. We have developed a focus on food, families,
females and 'forty/fifty somethings' to benefit from longer term trends towards
more eating out; to reposition our customer base in the face of the long-term
decline in alcohol consumption in the on-trade; and to recognise the demographic
effects of a maturing population on pub usage.
Although overall expenditure on eating out is estimated to have contracted
modestly in 2009 we have gained market share with like-for-like food sales
growth of 2.8% in Marston's Inns and Taverns.
* Recognised a growing demand for choice in high quality ales with genuine
provenance. We have leading market shares in both cask and premium bottled ale
and have continued to develop our premium ale portfolio in both the on-trade and
the off-trade.
* Been proactive in generating solutions to the economic pressures affecting
tenants and lessees. In addition to focused tenant support of GBP3 million in
2009, we have introduced a range of market leading, innovative agreements. These
are described further in the section on Marston's Pub Company.
* Improved the performance of our beer brands in Marston's pubs. In Marston's
Inns and Taverns we achieved 6% volume growth of our own ales and a 20% increase
in premium ale volumes.
Marston's Inns and Taverns
As at 3 October 2009 the estate comprised 496 pubs. Total revenue decreased by
3.6% to GBP367.8 million principally reflecting the transfer of 47 smaller pubs
to Marston's Pub Company in 2008. Operating margin of 16.4% was 0.5% below last
year demonstrating effective cost control despite continued growth in food sales
and increased price promotion activity. Underlying operating profit of GBP60.3
million was down 6.5%. The average profit per pub increased from GBP117k to
GBP120k.
Our performance improved steadily throughout the year after a weak first
quarter, and in the last 9 weeks to 3 October 2009 total like-for-like sales
increased by 2.7%, including food sales up by 5.7% and drink sales up by 1.0%.
This stronger performance was achieved despite the generally poor summer
weather, and demonstrates the appeal of our value-for-money offers and our focus
on the 'F-Plan'. For the year, total like-for-like sales were down by 0.6% with
like-for-like food sales up by 2.8% and like-for-like drink sales down 2.4%.
Our overall good performance has been driven by strong trading in high quality
food-led outlets, particularly those with a clear value-for-money offer, such as
'Two for One' (87 pubs). Similarly, the introduction of carvery meals from
GBP3.99 and a range of promotional offers during specific trading hours have
proved extremely popular and these, combined with interesting, refreshed menus
and high quality ingredients, contributed to an increase in meals sold of 4% to
around 23 million meals this year. Average spend per head on food was broadly
similar to the previous year at approximately GBP6.
The improvement in drink sales trends during the year was helped by good growth
in sales of premium cask ale, which increased by 20% in 2009. This encouraging
performance was achieved by extending the availability of our excellent range of
cask beers to all pubs and by giving individual managers greater autonomy in
deciding which brands to sell. Brands such as Ringwood Best Bitter, Brakspear
Oxford Gold, Jennings Cockerhoop and Hobgoblin all saw significant sales
increases.
The introduction of a GBP70 jackpot and increased stakes to GBP1 plays in June
2009 together with new machines such as 'cash in, ticket out' have proved
attractive to players, contributing to like-for-like sales growth in the last
two months of the year against a like-for-like sales decline of 7.2% for the
year as a whole. Income from gaming machines had previously been in decline
since the introduction of the smoking ban in 2007.
Marston's Inns operates around 50 pubs with over 800 rooms maintained to a high,
consistent standard. Performance has been robust with like-for-like sales
growth of 1.3%, including increased occupancy and higher room rates despite
well publicised discounting in the lodge sector. We will continue to invest in
pubs with rooms where appropriate, although we have no plans to develop lodges
separately. We recently announced an informal partnership arrangement with
Travelodge which provides us with additional flexibility in relation to the
new-build programme where sites have the potential for lodge development.
During 2009 we opened 4 new large family friendly pubs as planned, having opened
16 in 2008. The acceleration of the programme from 2010 onwards is described
within the Strategic Objectives. Our criteria for new site development are based
upon demographic data associated with population, income levels and competition
rather than specific geographies; accordingly, we aim to acquire sites
throughout England and Wales. Our investments are likely to be in edge of town
retail parks or prominent sites on arterial routes near residential areas rather
than in the high street, where intense competition continues to affect trading.
Our resilient sales performance was accompanied by robust gross margins, with
drinks and food margins only slightly below last year's. Good controls over
purchasing and labour costs have significantly offset higher costs associated
with the change in sales mix, including increased food service costs and input
cost inflation. Food input cost inflation was approximately 3% in 2009, an
increase of around GBP1.4 million. Bar staff costs represented around 26% of
revenue and were well controlled. We continue to invest in technology to refine
and improve labour scheduling. We expect both food and utility cost inflation to
ease in 2010 having recently negotiated a range of supply contracts on
favourable terms.
The new-build programme is enabling Marston's Inns and Taverns to develop a
managed pub estate which includes the best pubs in the market, and is consistent
with our objective to operate an estate of the highest quality.
Marston's Pub Company
As at 3 October 2009 the tenanted and leased pub estate comprised 1,688 pubs.
Total revenue decreased by 3.9% to GBP175.8 million principally reflecting
reduced volumes sold to tenants and lessees. Operating margin was down 1.6%
to 46.5% and the underlying operating profit was GBP81.8 million, a reduction of
7.0% including approximately GBP3 million of additional support costs for
licensees. Average profit per pub reduced from GBP51k to GBP48k.
Well invested pubs in good locations, operated by dedicated licensees who have
responded to their customers' needs, have continued to perform well: around 80%
of pubs in the tenanted and leased estate achieved like-for-like profits in line
with last year. These are the better pubs in the estate and are let on
substantive, medium to long-term agreements. However, the economic recession has
had a polarising effect on the performances of pubs and has accelerated existing
market trends, contributing to a sharp decline in profits in the weakest 20% of
pubs in the estate.
The weakest 20% of pubs require more intensive management. These pubs are
currently operated under short-term agreements, such as tenancy-at-will, or by
agencies. The lower profitability of these pubs results from low tenant
stability, the costs of agency and a weak consumer proposition.
Although these pubs have underperformed compared to the rest of the estate, the
vast majority are capable of achieving satisfactory returns and we have
developed plans to significantly improve their profitability as follows:
1. Attractive pubs: approximately GBP5 million of additional capital will be
invested in 2010 to ensure that these pubs are better able to meet the
expectations of customers.
2. Lower risk for licensees: we have introduced a 'Tracker' agreement with rent
linked to volume for pubs with an annual rent of up to GBP15,000. This reduces
the financial risk for the licensee, with rent flexing according to the level of
trade in the pub. Approximately 100 pubs are now let on 'Tracker' agreements.
3. Better retail standards: we have developed a highly innovative Retail
Agreement which operates in a similar way to a franchise agreement. Marston's
Pub Company has responsibility for the retail offer, including drinks brands
sold, food menus and pricing. The licensee earns a percentage of revenue and is
responsible for staff in the pub. Marston's Pub Company is responsible for all
other costs, including utilities.
We expect that around 90 pubs will operate under Retail Agreements during the
course of 2010. The agreement offers experienced licensees the opportunity to
run a pub with a reduced cash requirement at lower risk. It also enables
Marston's Pub Company to manage retail standards and ensure that pricing is
market competitive. The performance of the 24 pubs currently operating under
this agreement has been very encouraging.
In addition to these new and innovative developments we will continue to ensure
that all our agreements are written in 'Plain English' accredited by the Plain
English Campaign. We have operated an independent rent review panel since 2001
and fully support the new Pub Independent Rent Review Scheme which will provide
licensees with a low cost dispute resolution service.
Rents must be set on the basis of what is affordable and sustainable in any
given pub operated by a good, capable licensee. With average rent per pub at
around GBP25,500 per year we believe that our rents are appropriate and
competitive. Average rents in the 80% of the estate on substantive agreements
increased by 2% in 2009.
The commercial and training support package available from Marston's Pub Company
is well established and continues to develop. It includes the availability of
online ordering; licensee training days through the 'Skills Bar' programme;
access to Marston's payroll bureau to pay employees; and a 'web-builder'
software package to enable retailers to design their own websites. During 2009
we also invested around GBP3 million in rent alleviation and additional
discounts to support licensees where appropriate. We plan for a similar level of
support in 2010, although as we make capital investments and extend our new
agreements as described above we expect this level of support to reduce over
time.
The intensive management of weaker pubs also includes a reduction in the number
of pubs for which each Business Development Manager (BDM) is responsible. This
is now around 30 pubs, representing a significant investment in resources to
ensure that licensees are given more time, attention and better quality advice.
We believe this number of pubs for each BDM is far lower than the industry
average and is contributing to improved performance. Our BDMs are trained using
external programmes from the BII and our own 'Pedigree People Programme'. This
programme won a National Innkeeper Training Award in 2008.
In 2010 we expect to implement the recently proposed Code of Conduct, developed
by the industry in response to criticisms of the industry by the BISC report.
This Code of Conduct will further improve transparency in agreements and provide
a greater understanding of the rent setting process. We continue to develop our
relationships with tenants and lessees, and to demonstrate that through these
relationships, and as a result of our high quality pubs, Marston's Pub Company
is the leading operator in this sector.
Marston's Beer Company
Total revenue exceeded GBP100 million increasing by 13.2% to GBP101.5 million.
Underlying operating profit increased by 3.9% to GBP16.0 million.
The key to our strong performance, against a weak beer market, is our unique
range of strong national and regional ale brands together with high levels of
marketing support and customer service.
Own-brewed beer volumes increased by 8%. Premium ale, which is now 54% of the
ale portfolio, increased by 26% including 13% growth in the on-trade and 50%
growth in the off-trade.
Operating margin was down by 1.4% to 15.8% as a consequence of the change in
sales mix towards the off-trade, which is lower margin than the on-trade, and
higher brewing costs. Margin trends improved in the second half-year.
Marston's Beer Company is a market leader in premium ale with market shares of
around 23% in premium cask ale in the on-trade and 17% in premium bottled ale in
the off-trade. Our premium ale range includes distinctive characterful beers
such as Marston's Pedigree, Hobgoblin, Marston's Old Empire, Jennings Cumberland
Ale, Brakspear Oxford Gold and Ringwood Old Thumper. Popular local brands such
as Banks's and Mansfield also contribute to our full range of exceptional beers.
This offer is meeting a growing demand from consumers for more choice, better
quality, taste and authenticity.
Approximately 72% of our own-brewed beers are sold to third party customers in
the three distinct trade channels below:
* Free Trade: despite the difficult market we increased profits from sales to the
independent free trade market, winning new distribution as a consequence of our
strong local presence, regional marketing and a high level of service to
customers.
* Pub Companies: volumes sold to tenanted and managed pub companies were down year
on year reflecting the challenging market generally, but we increased profit
overall as a consequence of our stronger brand portfolio and improved pricing.
* Take Home: strong volume and profit growth were achieved following the
acquisition of Wychwood Brewery in 2008, which more than doubled our share in
the growing bottled ale segment to position Marston's Beer Company as the market
leader.
We continue to invest in national and regional advertising campaigns as well as
sponsorships which include Marston's Pedigree being 'The Official Beer of
England Cricket'. The brand enjoyed a particularly strong performance since its
re-launch in February 2009, including growth of over 100% in sales of bottled
Pedigree in the second half-year. The wide range of local radio, print and event
sponsorships for our other regional brands are part of our aim to make Marston's
Beer Company the pre-eminent ale brewer in the country.
Current trading
We have seen an encouraging start to the new year. In Marston's Inns and
Taverns, like-for-like sales increased by 3.1% in the eight weeks ended 28
November 2009 including food sales growth of 5.3% and drink sales up by 1.6%. In
Marston's Pub Company, for the same 8 week period, like-for-like profits were
around 5% below last year representing an improvement in the rate of profit
decline reported for the 2009 financial year. Marston's Beer Company is
performing in line with our expectations.
Financial Review
+----------------+-------+-------+--------+--+---------+---------+----------+--+--------+--------+---------+
| | Revenue | | Underlying | | Margin |
| | | | operating profit | | |
| | | | (note 2) | | |
+----------------+------------------------+--+------------------------------+--+---------------------------+
| | 2009 | 2008 | 2008 | | 2009 | 2008 | 2008 | | 2009 | 2008 | 2008 |
| | GBPm | GBPm | (52 | | GBPm | GBPm | (52 wks) | | % | % | (52 |
| | | | wks) | | | | GBPm | | | | wks) |
| | | | GBPm | | | | | | | | % |
+----------------+-------+-------+--------+--+---------+---------+----------+--+--------+--------+---------+
| Marston's Inns | 367.8 | 388.3 | 381.7 | | 60.3 | 67.2 | 64.5 | | 16.4 | 17.3 | 16.9 |
| and Taverns | | | | | | | | | | | |
+----------------+-------+-------+--------+--+---------+---------+----------+--+--------+--------+---------+
| Marston's Pub | 175.8 | 186.4 | 183.0 | | 81.8 | 90.0 | 88.0 | | 46.5 | 48.3 | 48.1 |
| Company | | | | | | | | | | | |
+----------------+-------+-------+--------+--+---------+---------+----------+--+--------+--------+---------+
| Marston's Beer | 101.5 | 91.4 | 89.7 | | 16.0 | 16.1 | 15.4 | | 15.8 | 17.6 | 17.2 |
| Company | | | | | | | | | | | |
+----------------+-------+-------+--------+--+---------+---------+----------+--+--------+--------+---------+
| Marston's | - | - | - | | (10.7) | (11.7) | (11.6) | | (1.7) | (1.8) | (1.8) |
| Group Services | | | | | | | | | | | |
+----------------+-------+-------+--------+--+---------+---------+----------+--+--------+--------+---------+
| Group | 645.1 | 666.1 | 654.4 | | 147.4 | 161.6 | 156.3 | | 22.8 | 24.3 | 23.9 |
+----------------+-------+-------+--------+--+---------+---------+----------+--+--------+--------+---------+
Results for the 52 weeks to 3 October 2009
Despite the difficult economic environment, Group revenue was only 1.4% down on
a comparable 52 week basis. Group operating margin was 1.1% below last year with
tight cost control continuing to mitigate increases in food, energy and brewing
raw material costs. Performance improved significantly in the second half-year,
with Group revenue broadly flat in comparison to the prior year and operating
margin down 0.5% as inflationary pressures eased on food and brewing raw
materials.
Underlying operating profit reduced by 5.7% to GBP147.4 million and underlying
earnings per share fell to 13.4 pence per share (2008 restated: 18.3 pence per
share).
Operating profit after exceptional items was GBP110.4 million and basic earnings
per share after exceptional items were 3.9 pence per share (2008 restated: 16.3
pence per share).
Prior year earnings per share and dividends per share have been restated for the
bonus element of the rights issue completed in July 2009.
Key performance indicators
The Board of Marston's PLC and the divisional management boards monitor a range
of financial and non-financial performance indicators, reported on a periodic
basis, to measure performance against expected targets. Of these, the key
performance indicators monitored by the Board are:
+-------------------------------------------+---------------+------------+
| | 2009 | 2008 |
| | | As |
| | | restated |
+-------------------------------------------+---------------+------------+
| Group | | |
+-------------------------------------------+---------------+------------+
| 1. Underlying earnings per share | 13.4p | 18.3p |
+-------------------------------------------+---------------+------------+
| 2. Ratio of net debt to EBITDA | 5.7 times | 6.2 times |
+-------------------------------------------+---------------+------------+
| | | |
+-------------------------------------------+---------------+------------+
| Marstons Inns and Taverns | | |
+-------------------------------------------+---------------+------------+
| 3. Like-for-like sales growth | (0.6)% | (0.6)% |
+-------------------------------------------+---------------+------------+
| 4. New site openings | 4 | 16 |
+-------------------------------------------+---------------+------------+
| | | |
+-------------------------------------------+---------------+------------+
| Average profit per pub | | |
+-------------------------------------------+---------------+------------+
| 5. Marstons Inns and Taverns | GBP120k | GBP117k |
+-------------------------------------------+---------------+------------+
| 6. Marstons Pub Company | GBP48k | GBP51k |
+-------------------------------------------+---------------+------------+
| | | |
+-------------------------------------------+---------------+------------+
Definitions
1. Underlying earnings per share are basic earnings per share before
exceptional items.
2. Ratio of net debt to EBITDA is the net debt at the period end compared to
EBITDA before exceptional items.
3. Like-for-like sales growth is the percentage change in revenue for managed
pubs owned by the Group for the whole of the current period under review and the
prior comparative period.
4. New site openings are the number of managed pubs opened either as
new-build pubs, or acquired and refurbished managed pubs, in the period
under review.
5/6. Average profit per pub is operating profit before exceptional items
divided by the average number of pubs in the period.
Dividend
The proposed final dividend of 3.70 pence per share gives a total dividend for
the year of 7.14 pence per share, compared to 9.52 pence per share in the prior
year. Dividend cover at the period-end is 1.6 times (2008: 1.9 times).
The Board has rebased the final dividend for 2009 and also expects to rebase the
interim dividend in 2010. This follows a review of the Company's dividend policy
and payments having regard to the immediate trading environment and longer term
considerations. The Board's policy remains to target a dividend cover of around
2 times over the medium-term although the level of cover in any one year may
vary.
Capital expenditure
Capital expenditure was GBP56.4 million in 2009 and we expect this to increase
to between GBP85 million and GBP90 million in 2010. The level of maintenance
capital expenditure will be broadly similar to 2009, but investment capital will
increase as we invest GBP45 million of the rights issue proceeds in new-build
pubs.
Disposals
We continually review our property portfolio and sell those with low growth
prospects and those with higher alternative use value. Despite a challenging
property market, we sold 70 properties during the year, realising book values
and generating cash of GBP26.0 million.
Estate valuation
In the first half of the year we recognised an impairment predominantly relating
to tenanted pubs let on non-substantive agreements. In the second half of the
year we have recognised a further impairment principally relating to town centre
leasehold properties. Of the total property impairment charge of GBP68.0 million
for the year, GBP24.1 million has been recorded as exceptional in the income
statement and GBP43.9 million has been recorded in the revaluation reserve. In
addition, we have recognised an exceptional charge of GBP12.9 million for
onerous leases, principally in respect of town centre leasehold sites.
Rights issue
Our rights issue, which was successfully completed in July 2009, raised net
proceeds of GBP165.6 million. At least GBP140 million of the proceeds is being
invested in building and developing 60 managed pubs over the next three years.
We are making good progress and are on track for 15 new openings in 2010 and a
further 45 over the following 2 years.
As part of the rights issue process a forecast profit before tax and exceptional
items of not less than GBP69m was announced, which we have exceeded.
Financing
In January 2009 we announced that we had extended our bank facility to August
2013, thereby removing any need for short-term refinancing. The facility will
reduce from GBP400 million to GBP295 million in August 2010, in line with the
Group's requirements.
The higher margin payable under the new facility results in the blended cost of
debt for the Group marginally increasing to 6.7%. This facility, together with
our long-term securitisation of approximately GBP1.1 billion, provides us with
an appropriate level of financing headroom for the medium-term, with a structure
that continues to provide operational flexibility.
The Group has significant headroom on its banking covenants following the rights
issue, and there is adequate headroom on the securitisation covenants.
Importantly, the Group has flexibility within the financing structure to
transfer pubs between the banking and securitisation groups.
Net debt of GBP1,099.3 million at 3 October 2009 is a reduction of GBP168.8
million compared to GBP1,268.1 million at 4 October 2008. The decrease is
principally a result of our rights issue which raised net proceeds of GBP165.6
million. Underlying net debt fell by around GBP15 million, excluding the impact
of the rights issue and associated expenditure on new-build pubs.
For the period ended 3 October 2009 the ratio of net debt to EBITDA before
exceptional items was 5.7 times (2008: 6.2 times) and interest cover was 1.9
times (2008: 2.1 times).
Net finance costs before exceptional items are broadly flat, despite the
reduction in net debt, as a result of the higher margin on the new bank
facility.
At the period-end virtually all gross debt is effectively at fixed rates of
interest.
Treasury management
The Group regularly reviews its forecast short-term and medium-term cash flows,
and excess cash is either placed on short-term deposit or invested in deposits
which are refundable on demand. The vast majority of the Group's borrowings are
fixed through a combination of fixed rate securitised debt and interest rate
swaps.
The financial risks faced by the Group are managed in accordance with Board
approved policies and are subject to regular internal review by a treasury
committee. The banking and securitisation covenants are reviewed throughout the
year by the treasury committee and the Board with a focus on ensuring
appropriate headroom is available, over the short and medium-term.
Pensions
The deficit on our defined benefit pension scheme at the period-end was GBP35.3
million before tax (2008: GBP37.9 million), and GBP25.4 million after tax (2008:
GBP27.3 million).
The triennial valuation of the pension scheme was agreed during the year.
Contributions to the scheme will remain broadly unchanged next year, with a
GBP10 million top-up contribution paid in October 2009. The top-up contribution
increases at 5.75% annually thereafter, with the intention of funding the
deficit over the next nine years.
Taxation
The underlying rate of taxation (before exceptional items) of 20.9% in 2009 is
below the standard rate of corporation tax of 28% principally due to the
favourable agreement of certain prior year tax issues and a reduction in the
deferred tax liability in respect of a number of short leasehold properties that
are now held for sale.
The underlying tax rate has increased by 2.6% from 18.3% in 2008. The prior year
rate benefited from an increase in indexation allowance on properties which has
not been repeated in 2009 since the movement in the Retail Price Index has been
negative.
Exceptional items
There are non-cash, net exceptional charges of GBP39.2 million after tax. This
reflects GBP24.1 million impairment of properties, GBP12.9 million recognition
of property provisions and GBP11.9 million loss on the market valuation of
certain interest rate swaps, less the related tax credit of GBP9.7 million.
Further details are provided in note 3.
GROUP INCOME STATEMENT
For the 52 weeks ended 3 October 2009
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| | | 2009 (52 weeks) | | 2008 (53 weeks) |
+------------------------+-----+-------------------------------------+--+--------------------------------------+
| | | Before | Exceptional | Total | | Before | Exceptional | Total |
| | | exceptional | items | GBPm | | exceptional | items | GBPm |
| | | items | GBPm | | | items | GBPm | |
| | | GBPm | | | | GBPm | | |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| Revenue | | 645.1 | - | 645.1 | | 666.1 | - | 666.1 |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| Operating expenses | | (497.7) | (37.0) | (534.7) | | (504.5) | (4.7) | (509.2) |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| Operating profit | | 147.4 | (37.0) | 110.4 | | 161.6 | (4.7) | 156.9 |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| Finance costs | | (78.0) | - | (78.0) | | (80.6) | - | (80.6) |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| Finance income | | 0.9 | - | 0.9 | | 4.1 | - | 4.1 |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| Movement in fair value | | - | (11.9) | (11.9) | | - | (4.2) | (4.2) |
| of interest rate swaps | | | | | | | | |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| Net finance costs | | (77.1) | (11.9) | (89.0) | | (76.5) | (4.2) | (80.7) |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| Profit before taxation | | 70.3 | (48.9) | 21.4 | | 85.1 | (8.9) | 76.2 |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| Taxation | | (14.7) | 9.7 | (5.0) | | (15.6) | 1.2 | (14.4) |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| Profit for the period | | 55.6 | (39.2) | 16.4 | | 69.5 | (7.7) | 61.8 |
| attributable to equity | | | | | | | | |
| shareholders | | | | | | | | |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| All results relate to | | | | | | | As |
| continuing operations. | | | | | | | restated |
| Earnings per share: | | | | | | | |
+------------------------------+-------------+-------------+---------+--+-------------+-------------+----------+
| Basic earnings per | | | | 3.9p | | | | 16.3p |
| share | | | | | | | | |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| Basic earnings per | | | | 13.4p | | | | 18.3p |
| share before | | | | | | | | |
| exceptional items | | | | | | | | |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| Diluted earnings per | | | | 3.9p | | | | 16.2p |
| share | | | | | | | | |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
| Diluted earnings per | | | | 13.3p | | | | 18.2p |
| share before | | | | | | | | |
| exceptional items | | | | | | | | |
+------------------------+-----+-------------+-------------+---------+--+-------------+-------------+----------+
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the 52 weeks ended 3 October 2009
+----------------------+-------------------------------------+--------+----------+--------+
| | | | 2009 | 2008 |
| | | | (52 | (53 |
| | | | weeks) | weeks) |
| | | | GBPm | GBPm |
+----------------------+-------------------------------------+--------+----------+--------+
| Profit for the period | | 16.4 | 61.8 |
+------------------------------------------------------------+--------+----------+--------+
| (Expense)/income recognised directly in equity | | | |
+------------------------------------------------------------+--------+----------+--------+
| Cash flow hedges | | (39.3) | (38.3) |
+------------------------------------------------------------+--------+----------+--------+
| Actuarial losses on retirement benefits | | (7.6) | (16.8) |
+------------------------------------------------------------+--------+----------+--------+
| Unrealised surplus on revaluation of properties | | 3.0 | - |
+------------------------------------------------------------+--------+----------+--------+
| Reversal of past revaluation surplus | | (43.9) | (4.3) |
+------------------------------------------------------------+--------+----------+--------+
| Tax on items taken directly to equity | | 18.4 | 20.8 |
+------------------------------------------------------------+--------+----------+--------+
| Net losses not recognised in the income statement | | (69.4) | (38.6) |
+------------------------------------------------------------+--------+----------+--------+
| Total recognised (expense)/income for the period | | (53.0) | 23.2 |
+----------------------+-------------------------------------+--------+----------+--------+
GROUP CASH FLOW STATEMENT
For the 52 weeks ended 3 October 2009
+----------------------------------------------------------+-----+-----------+--+-----------+
| | | 2009 | | 2008 |
+----------------------------------------------------------+-----+-----------+--+-----------+
| | | GBPm | | GBPm |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Operating activities | | | | |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Operating profit before exceptional items | | 147.4 | | 161.6 |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Exceptional items | | (37.0) | | (4.7) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Depreciation and amortisation | | 44.4 | | 43.0 |
+----------------------------------------------------------+-----+-----------+--+-----------+
| EBITDA | | 154.8 | | 199.9 |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Working capital and non-cash movements (including | | 15.7 | | (0.2) |
| outflows on integration of acquisitions) | | | | |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Difference between defined benefit pension contributions | | (11.2) | | (16.4) |
| paid and amounts charged | | | | |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Income tax paid | | (12.0) | | (10.9) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Net cash inflow from operating activities | | 147.3 | | 172.4 |
+----------------------------------------------------------+-----+-----------+--+-----------+
| | | | | |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Investing activities | | | | |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Interest received | | 1.4 | | 2.3 |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Sale of property, plant and equipment and assets held | | 26.0 | | 21.5 |
| for sale | | | | |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Purchase of property, plant and equipment and intangible | | (56.1) | | (117.2) |
| assets | | | | |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Movement in other non-current assets | | 2.8 | | 0.1 |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Acquisition of subsidiaries, net of cash acquired | | (5.3) | | (9.0) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Net cash outflow from investing activities | | (31.2) | | (102.3) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| | | | | |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Financing activities | | | | |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Equity dividends paid | | (35.9) | | (35.8) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Proceeds of ordinary share capital issued | | - | | 0.4 |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Purchase of own shares for cancellation | | - | | (29.2) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Net proceeds of rights issue | | 165.6 | | - |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Interest paid | | (73.7) | | (78.6) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Arrangement costs of new bank facilities and issue costs | | (5.0) | | (7.9) |
| paid on securitised debt | | | | |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Proceeds from issue of securitised debt | | - | | 330.0 |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Repayment of securitised debt | | (18.2) | | (15.9) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Repayment of bank loans | | (109.0) | | (212.3) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Repayment of loan notes | | (3.0) | | (1.5) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Capital element of finance leases repaid | | (0.1) | | (0.1) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Net cash outflow from financing activities | | (79.3) | | (50.9) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Net increase in cash and cash equivalents | | 36.8 | | 19.2 |
+----------------------------------------------------------+-----+-----------+--+-----------+
| | | | | |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Reconciliation of net cash flow to movement in net debt | | | | |
+----------------------------------------------------------+-----+-----------+--+-----------+
| | | | | |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Increase in cash and cash equivalents in the period | | 36.8 | | 19.2 |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Cash outflow/(inflow) from decrease/increase in debt | | 130.3 | | (100.2) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Change in debt resulting from cash flows | | 167.1 | | (81.0) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Net debt acquired with subsidiaries | | (0.3) | | (3.1) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Non-cash movements and deferred issue costs | | 2.0 | | 5.1 |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Movement in net debt in the period | | 168.8 | | (79.0) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Net debt at beginning of the period | | (1,268.1) | | (1,189.1) |
+----------------------------------------------------------+-----+-----------+--+-----------+
| Net debt at end of the period | | (1,099.3) | | (1,268.1) |
+----------------------------------------------------------+-----+-----------+--+-----------+
GROUP BALANCE SHEET
As at 3 October 2009
+----------------------------------------------------+----------+-----------+--+-----------+
| | | 3 | | 4 |
| | | October | | October |
| | | 2009 | | 2008 |
+----------------------------------------------------+----------+-----------+--+-----------+
| | | GBPm | | GBPm |
+----------------------------------------------------+----------+-----------+--+-----------+
| Assets | | | | |
+----------------------------------------------------+----------+-----------+--+-----------+
| Non-current assets | | | | |
+----------------------------------------------------+----------+-----------+--+-----------+
| Goodwill | | 224.2 | | 223.9 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Other intangible assets | | 23.9 | | 23.7 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Property, plant and equipment | | 1,894.4 | | 1,975.9 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Deferred tax assets | | 59.4 | | 47.7 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Other non-current assets | | 21.9 | | 24.7 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Derivative financial instruments | | 0.1 | | - |
+----------------------------------------------------+----------+-----------+--+-----------+
| | | 2,223.9 | | 2,295.9 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Current assets | | | | |
+----------------------------------------------------+----------+-----------+--+-----------+
| Inventories | | 17.3 | | 19.0 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Assets held for sale | | 19.5 | | 15.9 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Trade and other receivables | | 79.3 | | 75.0 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Cash and cash equivalents | | 91.3 | | 60.1 |
+----------------------------------------------------+----------+-----------+--+-----------+
| | | 207.4 | | 170.0 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Liabilities | | | | |
+----------------------------------------------------+----------+-----------+--+-----------+
| Current liabilities | | | | |
+----------------------------------------------------+----------+-----------+--+-----------+
| Borrowings | | (21.4) | | (29.2) |
+----------------------------------------------------+----------+-----------+--+-----------+
| Derivative financial instruments | | (16.1) | | (4.2) |
+----------------------------------------------------+----------+-----------+--+-----------+
| Trade and other payables | | (109.6) | | (133.5) |
+----------------------------------------------------+----------+-----------+--+-----------+
| Current tax liabilities | | (24.0) | | (21.5) |
+----------------------------------------------------+----------+-----------+--+-----------+
| | | (171.1) | | (188.4) |
+----------------------------------------------------+----------+-----------+--+-----------+
| Non-current liabilities | | | | |
+----------------------------------------------------+----------+-----------+--+-----------+
| Borrowings | | (1,173.5) | | (1,299.0) |
+----------------------------------------------------+----------+-----------+--+-----------+
| Derivative financial instruments | | (77.0) | | (37.6) |
+----------------------------------------------------+----------+-----------+--+-----------+
| Pension commitments | | (35.3) | | (37.9) |
+----------------------------------------------------+----------+-----------+--+-----------+
| Deferred tax liabilities | | (173.3) | | (189.5) |
+----------------------------------------------------+----------+-----------+--+-----------+
| Other non-current liabilities | | (0.7) | | (0.6) |
+----------------------------------------------------+----------+-----------+--+-----------+
| Provisions for other liabilities and charges | | (17.2) | | (6.0) |
+----------------------------------------------------+----------+-----------+--+-----------+
| | | (1,477.0) | | (1,570.6) |
+----------------------------------------------------+----------+-----------+--+-----------+
| | | | | |
+----------------------------------------------------+----------+-----------+--+-----------+
| Net assets | | 783.2 | | 706.9 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Shareholders' equity | | | | |
+----------------------------------------------------+----------+-----------+--+-----------+
| Equity share capital | | 44.3 | | 22.3 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Share premium account | | 332.5 | | 188.9 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Merger reserve | | 41.5 | | 41.5 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Revaluation reserve | | 396.0 | | 436.1 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Capital redemption reserve | | 6.8 | | 6.8 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Hedging reserve | | (55.4) | | (27.1) |
+----------------------------------------------------+----------+-----------+--+-----------+
| Own shares | | (130.9) | | (134.5) |
+----------------------------------------------------+----------+-----------+--+-----------+
| Foreign exchange reserve | | 0.2 | | 0.2 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Retained earnings | | 148.2 | | 172.7 |
+----------------------------------------------------+----------+-----------+--+-----------+
| Total equity | | 783.2 | | 706.9 |
+----------------------------------------------------+----------+-----------+--+-----------+
NOTES
1. Accounting policies
Basis of preparation
The financial information for the 52 weeks ended 3 October 2009 (2008: 53 weeks
ended 4 October 2008) has been extracted from the audited financial statements,
which have been prepared in accordance with International Financial Reporting
Standards (IFRS) and International Financial Reporting Interpretations Committee
(IFRIC) and Standing Interpretations Committee (SIC) interpretations adopted by
the European Union and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS. The financial statements have been prepared
under the historical cost convention as modified by the revaluation of certain
items, principally land and buildings, derivative financial instruments and
share-based payments.
2. Segmental reporting
Primary reporting format - business segments
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| | 3 October 2009 |
+----------------------------------+----------------------------------------------------------------------+
| | Marston's | Marston's | Marston's | Marston's | Unallocated | Total |
| | Inns and | Pub | Beer | Group | GBPm | GBPm |
| | Taverns | Company | Company | Services | | |
| | GBPm | GBPm | GBPm | GBPm | | |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| Revenue | 367.8 | 175.8 | 101.5 | - | - | 645.1 |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| | | | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| Operating profit before | 60.3 | 81.8 | 16.0 | (10.7) | - | 147.4 |
| exceptional items | | | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| Exceptional items | (34.2) | (2.8) | - | - | - | (37.0) |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| Operating profit | 26.1 | 79.0 | 16.0 | (10.7) | - | 110.4 |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| | | | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| Net assets | 902.9 | 1,087.7 | 156.1 | 2.0 | (1,365.5) | 783.2 |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| | 4 October 2008 |
+----------------------------------+----------------------------------------------------------------------+
| | Marston's | Marston's | Marston's | Marston's | Unallocated | Total |
| | Inns and | Pub | Beer | Group | GBPm | GBPm |
| | Taverns | Company | Company | Services | | |
| | GBPm | GBPm | GBPm | GBPm | | |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| Revenue | 388.3 | 186.4 | 91.4 | - | - | 666.1 |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| | | | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| Operating profit before | 67.2 | 90.0 | 16.1 | (11.7) | - | 161.6 |
| exceptional items | | | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| Exceptional items | (0.7) | (0.7) | (1.9) | (1.4) | - | (4.7) |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| Operating profit | 66.5 | 89.3 | 14.2 | (13.1) | - | 156.9 |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| | | | | | | |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
| Net assets | 974.7 | 1,090.5 | 140.6 | 12.2 | (1,511.1) | 706.9 |
+----------------------------------+-----------+-----------+-----------+-----------+-------------+--------+
Unallocated comprises net debt, tax, derivatives and pension commitments.
3. Exceptional items
+------------------------------------------------------------------+----------+----------+
| | 2009 | 2008 |
+------------------------------------------------------------------+----------+----------+
| | (52 | (53 |
| | weeks) | weeks) |
+------------------------------------------------------------------+----------+----------+
| | GBPm | GBPm |
+------------------------------------------------------------------+----------+----------+
| Operating items | | |
+------------------------------------------------------------------+----------+----------+
| Impairment of freehold and leasehold properties | 24.1 | - |
+------------------------------------------------------------------+----------+----------+
| Recognition of onerous lease and other property related | 12.9 | - |
| provisions | | |
+------------------------------------------------------------------+----------+----------+
| Reorganisation and redundancy costs | - | 3.9 |
+------------------------------------------------------------------+----------+----------+
| Write-off of aborted project fees in respect of potential REIT | - | 0.8 |
| conversion | | |
+------------------------------------------------------------------+----------+----------+
| | 37.0 | 4.7 |
+------------------------------------------------------------------+----------+----------+
| Non-operating items | | |
+------------------------------------------------------------------+----------+----------+
| Movement in fair value of interest rate swaps | 11.9 | 4.2 |
+------------------------------------------------------------------+----------+----------+
| | 48.9 | 8.9 |
+------------------------------------------------------------------+----------+----------+
Impairment of freehold and leasehold properties
Two impairment exercises were undertaken during the period. The first review
predominantly focused on tenanted pubs let on non-substantive agreements and the
second review predominantly focused on leasehold town centre pubs. These
categories of pubs are considered to be those most affected by the weakened UK
economy.
The total impairment identified was GBP68.0m, which has been taken either to the
income statement as an exceptional item or, where the impairment reverses a
previous upwards valuation, to the revaluation reserve.
The impact of the impairments described above is as follows:
+------------------------------------------------------------------+----------+----------+
| | | 2009 |
+------------------------------------------------------------------+----------+----------+
| | | GBPm |
+------------------------------------------------------------------+----------+----------+
| Income statement: | | |
+------------------------------------------------------------------+----------+----------+
| Impairment of other intangible assets | | 0.2 |
+------------------------------------------------------------------+----------+----------+
| Impairment of property, plant and equipment | | 19.7 |
+------------------------------------------------------------------+----------+----------+
| Impairment of assets held for sale | | 4.2 |
+------------------------------------------------------------------+----------+----------+
| | | 24.1 |
+------------------------------------------------------------------+----------+----------+
| Revaluation reserve: | | |
+------------------------------------------------------------------+----------+----------+
| Reversal of past revaluation surplus - property, plant and | | 43.2 |
| equipment | | |
+------------------------------------------------------------------+----------+----------+
| Reversal of past revaluation surplus - assets held for sale | | 0.7 |
+------------------------------------------------------------------+----------+----------+
| | | 43.9 |
+------------------------------------------------------------------+----------+----------+
| Total impairment | | 68.0 |
+------------------------------------------------------------------+----------+----------+
Recognition of onerous lease and other property related provisions
As part of the overall review of properties, a full assessment of property
provisions was undertaken to reflect the most recent circumstances and
expectations.A number of onerous lease and other property related provisions
were identified during the review and these have been recognised in provisions
for other liabilities and charges. These are considered to be linked to the
exceptional events which have impacted the estate as noted above.
Movement in fair value of interest rate swaps
The interest rate swaps are revalued to fair value at each balance sheet date
and the movement is recognised in the income statement unless hedge accounting
is applied. The movement of GBP11.9m (2008: GBP4.2m) in the fair value of swaps,
where hedge accounting has not been applied, is shown as an exceptional item.
Impact of taxation
The current tax credit relating to the above exceptional items amounts to
GBP0.2m (2008: GBP1.4m). The deferred tax credit relating to the above
exceptional items amounts to GBP9.5m (2008: GBP1.2m). In the prior period
GBP1.4m was charged as an exceptional item in relation to the phasing out of
industrial buildings allowances.
Prior period exceptional items
A reorganisation and redundancy programme was undertaken during the prior
period.
Following the Pre-Budget Report on 24 November 2008, it was considered
appropriate to write off all fees incurred to date in respect of a potential
conversion of the Group to Real Estate Investment Trust (REIT) status.
4. Taxation
+------------------------------------------------------------------+----------+----------+
| | 2009 | 2008 |
+------------------------------------------------------------------+----------+----------+
| Income statement | GBPm | GBPm |
+------------------------------------------------------------------+----------+----------+
| Current tax | | |
+------------------------------------------------------------------+----------+----------+
| Current period | 20.5 | 20.1 |
+------------------------------------------------------------------+----------+----------+
| Credit in respect of tax on exceptional items | (0.2) | (1.4) |
+------------------------------------------------------------------+----------+----------+
| Adjustment in respect of prior periods | (3.7) | (3.0) |
+------------------------------------------------------------------+----------+----------+
| | 16.6 | 15.7 |
+------------------------------------------------------------------+----------+----------+
| Deferred tax | | |
+------------------------------------------------------------------+----------+----------+
| Current period | (3.6) | (2.4) |
+------------------------------------------------------------------+----------+----------+
| Adjustment in respect of prior periods | 1.5 | 0.9 |
+------------------------------------------------------------------+----------+----------+
| Exceptional charge in respect of the phasing out of industrial | - | 1.4 |
| buildings allowances | | |
+------------------------------------------------------------------+----------+----------+
| Exceptional credit in respect of the movement in fair value of | (3.3) | (1.2) |
| interest rate swaps | | |
+------------------------------------------------------------------+----------+----------+
| Exceptional credit in relation to impairments and onerous lease | (6.2) | - |
| provisions | | |
+------------------------------------------------------------------+----------+----------+
| | (11.6) | (1.3) |
+------------------------------------------------------------------+----------+----------+
| Taxation charge reported in the income statement | 5.0 | 14.4 |
+------------------------------------------------------------------+----------+----------+
5. Ordinary dividends on equity shares
+------------------------------------------------------------------+----------+----------+
| | 2009 | 2008 |
+------------------------------------------------------------------+----------+----------+
| | GBPm | GBPm |
+------------------------------------------------------------------+----------+----------+
| Paid in the period | | |
+------------------------------------------------------------------+----------+----------+
| Final dividend for 2008 of 6.08p* per share (2007: 6.08p*) | 22.9 | 22.8 |
+------------------------------------------------------------------+----------+----------+
| Interim dividend for 2009 of 3.44p* per share (2008: 3.44p*) | 13.0 | 13.0 |
+------------------------------------------------------------------+----------+----------+
| | 35.9 | 35.8 |
+------------------------------------------------------------------+----------+----------+
A final dividend for 2009 of 3.70p per share amounting to GBP21.1m has been
proposed for approval at the Annual General Meeting, but has not been reflected
in the financial statements.
Subject to approval at the Annual General Meeting this dividend will be paid on
2 February 2010 to those shareholders on the register at close of business on 18
December 2009.
* The 2009 interim and prior period dividends per share have been adjusted
retrospectively for the impact of the rights issue completed in July 2009.
6. Earnings per ordinary share
Basic earnings per share are calculated by dividing the profit attributable to
equity shareholders by the weighted average number of ordinary shares in issue
during the period, excluding treasury shares and those held in the Executive
Share Option Plan and the Long Term Incentive Plan.
Diluted earnings per share are calculated by adjusting the basic earnings per
share to assume the notional exercise of the weighted average number of ordinary
share options outstanding during the period. The effect of the dilutive options
is to increase the weighted average number of shares by 1.9 million (2008: 3.5
million).
Underlying earnings per share figures are presented to exclude the effect of
exceptional items.
+--------------------------------+----------+----------+---------+----------+----------+---------+
| | 2009 | As restated |
| | | 2008 |
+--------------------------------+-------------------------------+-------------------------------+
| | Earnings | Weighted | Per | Earnings | Weighted | Per |
| | | average | share | | average | share |
| | | number | amount | | number | amount |
| | | of | | | of | |
| | | shares | | | shares | |
+--------------------------------+----------+----------+---------+----------+----------+---------+
| | GBPm | m | p | GBPm | m | p |
+--------------------------------+----------+----------+---------+----------+----------+---------+
| Basic earnings per share | 16.4 | 415.8 | 3.9 | 61.8 | 378.9 | 16.3 |
+--------------------------------+----------+----------+---------+----------+----------+---------+
| Diluted earnings per share | 16.4 | 417.7 | 3.9 | 61.8 | 382.4 | 16.2 |
+--------------------------------+----------+----------+---------+----------+----------+---------+
| | | | | | | |
+--------------------------------+----------+----------+---------+----------+----------+---------+
| Underlying earnings per share | | | | | | |
| figures: | | | | | | |
+--------------------------------+----------+----------+---------+----------+----------+---------+
| Basic earnings per share | 55.6 | 415.8 | 13.4 | 69.5 | 378.9 | 18.3 |
| before exceptional items | | | | | | |
+--------------------------------+----------+----------+---------+----------+----------+---------+
| Diluted earnings per share | 55.6 | 417.7 | 13.3 | 69.5 | 382.4 | 18.2 |
| before exceptional items | | | | | | |
+--------------------------------+----------+----------+---------+----------+----------+---------+
The weighted average number of ordinary shares in issue in the prior period has
been adjusted retrospectively for the bonus element of the rights issue
completed in July 2009.
7. Analysis of net debt
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| | 2009 | Cash | Non-cash | Acquisitions | 2008 |
| | | flow | movements | | |
| | | | and | | |
| | | | deferred | | |
| | | | issue | | |
| | | | costs | | |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| | GBPm | GBPm | GBPm | GBPm | GBPm |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Cash and cash equivalents | | | | | |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Cash at bank and in hand | 91.3 | 31.2 | - | - | 60.1 |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Bank overdraft | - | 5.6 | - | - | (5.6) |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| | 91.3 | 36.8 | - | - | 54.5 |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Trade and other receivables | | | | | |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Prepaid issue costs | 4.3 | - | 4.3 | - | - |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| | 4.3 | - | 4.3 | - | - |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Debt due within one year | | | | | |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Loan notes | (5.4) | 3.0 | - | (0.3) | (8.1) |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Bank loans | 0.7 | - | 0.5 | - | 0.2 |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Securitised debt | (16.7) | 18.2 | (19.3) | - | (15.6) |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Finance leases | - | 0.1 | - | - | (0.1) |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| | (21.4) | 21.3 | (18.8) | (0.3) | (23.6) |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Debt due after one year | | | | | |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Bank loans | (125.0) | 109.0 | (0.3) | - | (233.7) |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Securitised debt | (1,048.4) | - | 16.8 | - | (1,065.2) |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| Preference shares | (0.1) | - | - | - | (0.1) |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| | (1,173.5) | 109.0 | 16.5 | - | (1,299.0) |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
| | (1,099.3) | 167.1 | 2.0 | (0.3) | (1,268.1) |
+----------------------------------+-----------+----------+-----------+--------------+-----------+
Included within cash at bank and in hand is an amount of GBP3.9m (2008:
GBP3.9m), which relates to a letter of credit with Royal Sun Alliance and is
considered to be restricted cash.
In addition, cash held in connection with the securitised business is governed
by certain restrictions under the covenants associated with the securitisation.
Prepaid issue costs are in respect of the extension to the Group's bank facility
that was agreed during the period.
Bank loans due within one year represent unamortised issue costs expected to be
charged to the income statement within 12 months of the balance sheet date.
8. Movements in total equity
+------------------------------------------------------------------+----------+----------+
| | 2009 | 2008 |
+------------------------------------------------------------------+----------+----------+
| | GBPm | GBPm |
+------------------------------------------------------------------+----------+----------+
| Total equity at beginning of the period | 706.9 | 748.5 |
+------------------------------------------------------------------+----------+----------+
| Total recognised (expense)/income for the period | (53.0) | 23.2 |
+------------------------------------------------------------------+----------+----------+
| Dividends paid | (35.9) | (35.8) |
+------------------------------------------------------------------+----------+----------+
| Proceeds of ordinary share capital issued | - | 0.4 |
+------------------------------------------------------------------+----------+----------+
| Purchase/cancellation of own shares | - | (29.2) |
+------------------------------------------------------------------+----------+----------+
| Net proceeds of rights issue | 165.6 | - |
+------------------------------------------------------------------+----------+----------+
| Other movements | (0.4) | (0.2) |
+------------------------------------------------------------------+----------+----------+
| Net movement in total equity | 76.3 | (41.6) |
+------------------------------------------------------------------+----------+----------+
| Total equity at end of the period | 783.2 | 706.9 |
+------------------------------------------------------------------+----------+----------+
Notes:
a. The contents of this preliminary announcement, which constitute summary
financial statements as defined in Section 427 of the Companies Act 2006, have
been extracted from the audited statutory accounts of the Group for the 52 weeks
ended 3 October 2009, which will be filed with the Registrar of Companies in due
course. The statutory accounts for the 53 weeks ended 4 October 2008 have been
delivered to the Registrar of Companies. The independent auditors' report on
these accounts is unqualified and does not contain any statements under Section
237(2) or (3) of the Companies Act 1985.
b. The annual report for the 52 weeks ended 3 October 2009 will be posted to
shareholders in the week commencing 14 December 2009. Copies will be obtainable
from Hudson Sandler Limited (020 7796 4133) or from The Company Secretary,
Marston's PLC, Marston's House, Brewery Road, Wolverhampton, WV1 4JT.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BIBDDBXGGGCD
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