Marston’s preliminary results for 52 weeks ended 4 October 2014 show that it continues to pursue its stated strategy, opening 27 new build pub-restaurants, and selling 388 smaller wet-led pubs.
Commenting on the results, Ralph Findlay, Chief Executive, said:
“This year we have made good progress in transforming the quality of our pub estate through the continuation of our new-build development plans and the disposal of weaker pubs. Our Brewing business is benefiting from our category leadership in premium ale and new product development.
“There are some signs of modest economic improvement, with the emergence of real wage growth and resilience within the economic regions outside London.
“Looking forward, we will continue with our expansion strategy to invest in at least 25 new-build pubs each year. We also remain on track to dispose of the residual 200 pubs targeted for sale from our Taverns estate over the next 12 months to create the desired structure for our business for the future.”
Douglas Jack from Numis commented:
“The dilution from the sale of 202 tenanted pubs to New River Retail in November 2013 has annualised. Thus, earnings growth should now resume; we forecast 11% PBT growth (to £91.8m; consensus £93.8m) in 2015E. In addition, we believe the dividend, yielding 5% and up 5%, is attractive.”
Current trading
The year has started well, with like-for-like sales growth in Destination and Premium pubs of 2.1% for the 7 weeks to 22 November, including food sales growth of 2.1% and drinks sales growth of 2.0%. Operating margins are up on last year. In Taverns, like-for-like sales have grown by 2.0% and in Leased, profits are up on last year. In Brewing, trading is ahead of last year with another strong Halloween performance from Hobgoblin.
Highlights
- Solid trading performance
- Underlying Group revenue up 1% to £787.6 million and underlying PBT down 3.6% to £83.0 million, reflecting disposals and shorter trading period.
- Like-for-like profit growth in retained pub estate.
- Brewing business continued to grow revenue and operating profits.
- Return on capital remains strong at 10.5%.
- Two year transformation of pub estate on track, average profit per pub up 10%
- Strong underlying revenue and profit growth in Destination and Premium driven by new-build investment, with 27 openings this year.
- 100th new-build pub opened in Dumfries in September.
- Continued conversion of Taverns to franchise – 535 now converted.
- High quality Leased business delivered like-for-like profit and rental growth.
- Average profit per pub up 10% in retained pub estate.
- Final dividend up 4.9% to 4.3p per share reflecting progress and confidence in strategy
- Encouraging start to new financial year
- Destination and Premium like-for-like sales up 2.1%. Margins ahead of last year.
- Taverns like-for-like sales up 2.0%.
- Core Leased like-for-like profits up on last year.
- Brewing ahead of last year, particularly strong performance from Hobgoblin over Halloween.
Group Overview
“These results demonstrate that our strategy is delivering value, achieved through investment in new-build pubs generating superior returns, the development of franchise-style pubs, and planned disposals. The transformation of our pub estate is well underway and on plan, and we are pleased to report solid progress including growth in our retained pub business and in Brewing.
“In looking at the performance for the Group as a whole, our year-on-year comparisons reflect significant disposal activity, in particular the portfolio disposal of 202 pubs in November 2013 (which generated annual revenue of £29.6 million and operating profit of £10.8 million), and the fact that 2013 included a 53rd trading week.
“Our plans to invest in pub-restaurants nationally and sell smaller wet-led pubs are on track. We met our targets for the 2014 financial year, opening 27 new-build pub-restaurants including our 100th new-build pub in Dumfries, Scotland. We continue to see good opportunities for future investment at attractive returns.
“We also sold 388 smaller wet-led pubs and other assets, realising proceeds of £144 million for reinvestment. As at the year end, the Group’s estate comprised 1,689 pubs against 2,050 in 2013.
“The continuing successful implementation of our strategy is demonstrated by our financial performance: we are seeing good growth in our Destination and Premium estate, increased exposure to the dining market, and growth in our retained Taverns and Leased estates reflected in a 19% increase in average profit per pub over the last two years.
“Additionally, around 75% of profits from our pubs are now generated by managed or franchise- style pubs in which we have direct control over the retail offer. This will continue to increase as we implement our strategy, ensuring that we are better able to deliver consistency of service and standards, and to offer outstanding value to our customers in more pubs.
“Our performance in pubs was underpinned by an excellent year in Brewing, where our focus on premium and regional beers reflects strong consumer interest in this segment of the market.
“In spite of our disposal activity and a 53rd trading week in 2013, total underlying revenue increased by 0.6% compared to 2013 reflecting the contribution from new pub-restaurants, solid like-for-like sales growth in our pubs, and growth in Brewing. Operating margin was 1.7% below last year as a consequence of the conversion of formerly tenanted pubs to franchise-style agreements, which generate higher profits but at a lower percentage operating margin.
“Underlying operating profit was £156.1 million (2013: £168.2 million) including the impact of disposals referred to above and the non-recurrence of the 53rd trading week. Allowing for these, underlying operating profit increased in each of our core business segments.
“Underlying profit before tax was £83.0 million (2013: £86.1 million) with lower interest charges from debt repayments partially offsetting the impact of disposals. Basic underlying earnings per share for the period were 11.7 pence per share (2013: 12.0 pence per share).
“Net debt at the period end was £1,198 million. Net debt includes £1,043 million of long-term structured finance with a stable repayment profile, and no exposure to increases in interest rates. Excluding property leases with freehold reversion entitlement, the ratio of net debt to underlying EBITDA was 5.4 times at the period end. Net debt to EBITDA is expected to reduce over time as our long-term debt amortises, and it remains our intention to target a ratio of around 5 times in the medium term. We have significant flexibility in our financing options, including the selective use
of sale and leaseback where appropriate, without compromising our preference for an estate of which more than 90% is freehold.
“Cash return on cash capital employed remains strong at 10.5%. This is slightly behind last year reflecting the short-term effect of the portfolio disposal in November 2013. We remain focused on improving returns and are confident that the implementation of our strategy will increase returns over time.
“The proposed final dividend of 4.3 pence per share provides a total dividend for the year of 6.7 pence per share, and represents a 5% increase on 2013. Dividend cover was 1.7 times (2013:
1.9 times) reflecting the portfolio disposal. Our dividend policy remains to target consistent progressive increases in dividend at a cover of around 2 times over the medium term.”