Marston’s has reported preliminary results for the 52 weeks ended 3 October 2015, with Ralph Findlay, CEO commenting on the strong results:
“The three year transformation of our pub portfolio towards an optimised estate is now largely complete. We approach 2016 with our business successfully positioned at the forefront of industry trends with high quality, well-invested pub assets which are fit for the future. We have great people and a growing portfolio of leading beer brands where our focus on premium and local provenance continues to serve us well.
“Looking forward, we remain on track to open at least 20 new-build pubs this year and have in place a carefully selected site pipeline in key regional locations for 2016 and beyond. Whilst new-build, food-led pubs remain our core growth driver, we have evolved our strategy to capitalise upon other opportunities for expansion where we see attractive returns potential.
“At this early stage of the current year trading has begun well and we look forward to building on this momentum over the months ahead to deliver another year of good progress for the Group.”
Highlights
- Strong trading performance:
- Underlying Group revenue up 7% to £845.5 million
- Underlying profit before tax up 10% to £91.5 million
- Underlying earnings per share up 10% to 12.9p
- Profit growth in all trading segments despite disposals
- Operating cashflow up £34.5 million to £162.3 million
- Leverage reduced 0.3x to 5.1x
- Return on capital up 0.3% to 10.8%
- Statutory profit before tax up £90.5 million to £31.3 million
- Transformation of pub estate well advanced, average profit per pub up to £100k:
- 25 new pub restaurants completed this year, creating 1,250 new jobs
- Continued conversion of Taverns to Franchise – around 550 now converted
- High quality Leased business delivered like-for-like profit and rental growth
- Average profit per pub up 15% in 2015, up around 40% since 2012
- Market-leading beer business continues to grow strongly:
- Strong brand portfolio continues to outperform market with volumes up 15%
- Innovation continues – Hobgoblin Gold c.20k barrels sold since launch this year
- Thwaites acquisition complements strategy and fully integrated
- Final dividend up 4.7% to 4.5p per share reflecting progress and confidence in strategy; dividend cover improved to 1.8 times
- Well positioned for growth in 2016
- Good start to new financial year, in line with expectations
- At least 20 new-build pubs, including first new-build Tavern planned for current year, as well as 2 Revere bars and 5 lodges
- Focus on premium and craft beer driving growth and delivering market outperformance
The Group Overview states:
“We are pleased to report that we have achieved earnings growth across all of our business segments, with double digit growth in underlying earnings, demonstrating further good progress in implementing our strategy. The three-year transformation of our pub portfolio is now largely complete and we enter 2016 with a high quality portfolio of pub assets which are fit for the future.
“Our strategy has been consistent over a number of years and is focused on the ongoing improvement in the quality of our pub estate through the continuation of our new-build programme and the disposal of lower-end pubs which no longer have a sustainable future. In 2013 we announced the acceleration of our disposal plans.
“Since 2013, we have reduced the size of the pub estate from 2,050 pubs to a core 1,600 pubs which now substantially completes the disposal programme. Importantly, average profit per pub, a good indicator of pub quality, has increased to around £100k per pub, up around 40% since 2012.
“The new-build programme remains our key growth driver. Since 2009, when the current investment plan started, we have opened 134 new-build pub-restaurants which have high levels of profitability and strong returns. The results of this year’s estate valuation highlight that, on average, the market value of a Marston’s new-build pub-restaurant is 40% higher than build cost, demonstrating the creation of significant shareholder value. For mature pub-restaurants last revalued in 2012 we saw a further appreciation in values, demonstrating that valuation uplifts are sustainable and that these pubs continue to be successful over the medium to longer term.
“Around 78% of profits from our pubs are now generated by managed or franchise-style pubs in which Marston’s has direct control over the retail offer, ensuring that we are better able to deliver consistent service, standards and value across the estate. This proportion will continue to increase as we build more pubs and convert most of the remaining tenanted pubs to franchise-style agreements.
“In Brewing, we have continued to outperform the market with our growing portfolio of market-leading brands. Our focus remains on growing our portfolio of premium and regional beers, as this is the growth segment of the market and we believe in the importance of local provenance backed up by significant distribution capabilities. Our core business achieved both revenue and earnings growth in the year, supplemented by the acquisition of the Thwaites beer business in April.
“Total underlying revenue increased by 7.4% from 2014 reflecting like-for-like growth in our pubs, the impact of new openings, growth in our beer brands, and the acquisition of Thwaites’ beer business. As previously forecast, our operating margin was 0.2% below last year reflecting lower margins in Brewing as a result of the contract to supply Thwaites’ pubs. Underlying operating margin increased in each of our pub segments, demonstrating our ability to grow our business by delivering a consistent and excellent customer experience rather than relying on the high level of discounting which has been prevalent in the market.
“Underlying operating profit of £165.4 million (2014: £156.1 million) was up 6.0% despite the impact of disposals and a £2 million increase in pension costs. Profit growth was achieved in each of our trading segments.
“Underlying profit before tax was up 10.2% to £91.5 million (2014: £83.0 million) principally reflecting the contribution from new pub-restaurants and a strong performance from Brewing. Basic underlying earnings per share for the period increased by 10.3% to 12.9 pence per share (2014: 11.7 pence per share).
“On a statutory basis profit before tax was £31.3 million (2014: loss of £59.2 million) and earnings per share were 4.1 pence per share (2014: 8.9 pence loss per share).
“Net debt at the period end was £1,245 million. Net debt includes £860 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 5.1 times at the period end (2014: 5.4 times) and net debt to EBITDA is expected to reduce over time as our long-term debt amortises. 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.
“During the period we completed the triennial pension valuation as at 30 September 2014. As a consequence, the cash contributions to the scheme will be reduced to c.£8 million per annum from October 2015 (2015:
£14.0 million).“Cash return on cash capital employed improved to 10.8% (2014: 10.5%) reflecting the contribution of new- build pub-restaurants and the disposal of low-returning pubs. We remain focused on improving returns and are confident that the implementation of our strategy will continue to increase returns over time.
“The proposed final dividend of 4.5 pence per share provides a total dividend for the year of 7.0 pence per share, which is a 4.5% increase on 2014. Dividend cover was 1.8 times (2014: 1.7 times). Our dividend policy remains to target consistent progressive increases in the dividend at a cover of around 2 times over the medium term.”
