Final Results
Marston's PLC
30 November 2007
30 November 2007
MARSTON'S PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 29 SEPTEMBER 2007
Highlights
• Record underlying* earnings per share up 10.1% to 26.2 pence (2006: 23.8
pence)
- basic earnings per share of 27.9 pence (2006: 23.8 pence)
• Total dividend for the year up 20.0% to 12.83 pence per share (2006:
10.69 pence)
• Average profit per tenanted pub up 13.0%
• Managed like-for-like sales up 4.6%; food sales up 13.3%
• Robust trading since year end - managed like-for-like sales up 2.1%
• £120m returned to shareholders during the year
• Gain of £162 million (before tax) from revaluation of estate
• Successful refinancing since the year end
* The underlying results reflect the performance of the Group before exceptional
items. The Directors consider that these figures provide a useful indication
of the underlying performance of the Group.
Commenting, Ralph Findlay, Chief Executive, said
'We remain cautious about consumer confidence, regulatory cost pressures and the
short term impact of the smoking ban. We are, however, well positioned to
continue to exploit current trends, including the continuing growth in casual
dining. We regard our value for money offers and mid-market position as
appropriate for the current economic climate.'
ENQUIRIES:
Marston's PLC Hudson Sandler
Ralph Findlay, Chief Executive Andrew Hayes/Nick Lyon/
Paul Inglett, Finance Director James White
Tel: 020 7796 4133 on Friday 30 November 2007 only Tel: 020 7796 4133
01902 329516 thereafter
To access interviews with Ralph Findlay and Paul Inglett, available in video,
audio and text, go to www.cantos.com. High quality images for the media to
access and download free of charge are available from Visual Media Online at
www.vismedia.co.uk
Chairman's statement
These results were achieved in a year of significant change. As a consequence of
detailed planning, investment and a continuing emphasis on the quality of our
pub estate, we were prepared and well positioned for the introduction of smoking
bans in England and Wales.
On 8 January 2007, we changed the name of the Company to Marston's PLC. This has
enabled us to adopt a more cohesive, integrated approach to the management of
our pubs and beer brands and reflects the fact that in recent years we have
become a national business.
The development of a national, high quality pub estate is one of our key
strategic objectives. Acquisitions made during the year, including the Eldridge
Pope estate of 153 pubs in the south of England, were consistent with this
objective. This objective is also being achieved in our managed pub estate
through becoming a leading developer of new build pubs.
The increasing quality of our pub estate is demonstrated by good like-for-like
sales growth in our managed pubs, with particularly strong growth in food sales,
and a significant increase in average profit per pub in our tenanted and leased
estate.
In brewing, our increasing focus on national distribution of a range of premium
cask ale brands is reflected in the fact that we are now the UK's largest brewer
of premium cask ale, with a market share in this segment of over 20% by volume.
The trading performances of the Group and the individual trading divisions are
contained within the Business review.
Results
Turnover increased by 9.6% to £652.8 million (2006: £595.5 million). This
includes the acquisitions of Sovereign Inns in January 2007 for £19.6 million,
Eldridge Pope also in January 2007 for £156.5 million, and Ringwood Brewery in
July 2007 for £17.8 million. Each of these acquisitions was funded through debt.
On 10 May 2007, 279 smaller tenancies were sold to aAim Group for £82.5 million.
Underlying profit before taxation was £98.0 million (2006: £101.5 million) and
profit after exceptional items and before tax was £94.7 million (2006: £101.5
million).
Earnings before interest, tax, depreciation and amortisation (EBITDA) and before
exceptional items increased by 7.6% to £205.9 million.
Underlying basic earnings per share increased by 10.1% to 26.2 pence per share
(2006: 23.8 pence). Basic earnings per share including exceptional items were
27.9 pence per share (2006: 23.8 pence).
Comparative figures in relation to earnings per share and dividends have been
adjusted to reflect the
4-for-1 share split effected on 9 January 2007.
On 25 May 2007 we announced an increase in the share buy-back programme from
£100 million to £150 million to be achieved during the calendar year through
market purchases. During the financial period to 29 September 2007 we purchased
28.1 million shares at a total cost of around £120 million.
Net debt at the year-end was £1,189.1 million, resulting in interest cover of
2.5 times (2006: 3.0 times).
Dividend
The Board proposes a final dividend of 8.47 pence per share bringing the total
dividend for the year to 12.83 pence per share (2006: 10.69 pence), an increase
of 20.0% on the previous year. The Company has increased dividends by an average
of over 12% per annum for a period of more than 30 years and continues to adopt
a progressive dividend policy. The final dividend, if approved, will be paid on
31 January 2008 to those shareholders on the register at the close of business
on 4 January 2008.
FTSE4Good
In September 2007 Marston's PLC was added to the FTSE4Good Index, the leading
global responsible investment index. This index reflects increasing attention to
the management of environmental and social risks. The fact that we have met the
corporate responsibility criteria for the index demonstrates the development of
policies and management systems to manage these risks. These policies can be
viewed on our corporate website at www.marstons.co.uk.
Employees
Our success is due to the contributions made by our employees, whether they work
in our pubs, breweries or in support functions. In particular, our good response
to the challenges presented by the smoking ban and the poor summer weather
reflects the tremendous loyalty and dedication of our staff.
Directors
Peter Lipscomb has indicated his intention to retire from the Board at the
Annual General Meeting on 25 January 2008. Peter was appointed as Deputy
Chairman and non-executive director in 2000, and has made a significant
contribution to the successful development of the Company. Robin Hodgson became
the Senior Independent Director on 1 October 2007.
In October 2006 we were pleased to announce the appointment of Rosalind
Cuschieri, Commercial Director of Warburtons Limited, as a non-executive
director.
Outlook
Although we remain cautious about consumer confidence, regulatory cost pressures
and the short term impact of the smoking ban over the winter months, we are
confident that our high quality estate, strong balance sheet, conservative
financing and strong cash flow will enable us to continue to exploit
opportunities for further profitable growth. The Board remains confident in the
future growth prospects of the Group.
David Thompson
Chairman
Business review
Overview of results
We have achieved these good results in a challenging environment, which included
the introduction of a smoking ban in Wales on 2 April 2007 and in England on 1
July 2007. We completed, in advance of the ban, a well planned £20 million
investment programme in over 90% of our pubs which have outside trading areas,
contributing to the robust performance of our managed and tenanted pubs.
Additionally, around 150 pubs were significantly affected by flooding in June
and July which either resulted in pub closure or prevented customers from
visiting. The weather in May, June and July was unseasonably wet, particularly
so in comparison to the previous year which benefited from good summer weather
and the 2006 football World Cup.
Turnover increased by 9.6% to £652.8 million (2006: £595.5 million) including
the acquisitions of Sovereign Inns, Eldridge Pope and Ringwood Brewery.
Underlying operating margin was 25.0% (2006: 25.6%). This good performance was
achieved, despite significant cost and legislative pressures, by maximising
synergies from acquisitions, transferring smaller managed pubs to tenancy and
maintaining good cost control.
Profit before tax and exceptional items was £98.0 million (2006: £101.5 million)
reflecting increased interest costs associated with the share buy-back programme
described in the Chairman's statement. This was slightly below our original
expectations due to the impact of higher interest rates, flood related repair
costs and the poor summer weather.
Underlying basic earnings per share before exceptional items increased by 10.1%
to 26.2 pence per share reflecting the benefit of a lower underlying tax charge
of 21.0% (2006: 27.8%) as described in the Financial review.
Strategy and Objectives
Marston's strategy is to exploit the existing skills we have in each area of our
business and the vertically integrated business model to achieve superior return
on capital. Our key objective is to create shareholder value but we also
recognise that we have responsibilities to a range of stakeholders including
local communities, suppliers, customers and employees.
The key operational and financial elements of our strategy are as follows:
1. Target growth through the development of a national, high
quality pub estate
2. Develop greater food skills and extend our appeal to
families, females and more mature customers
3. Recruit skilled tenants and lessees better able to compete
in a developing market
4. Increase distribution of our ale brands
5. Create greater value for shareholders through vertical
integration
6. Match freehold assets with long term fixed rate financing
An important feature of our pub estate is that 98% by value of our pubs are
owned on a freehold or long leasehold basis, as we believe that this is the most
effective way of ensuring that we have sufficient operational flexibility to
maximise the trading potential of each outlet. This flexibility includes being
able to invest appropriately in response to changes in customer preferences or
to better utilise land and buildings to maximise trading potential. Over the
long term, shareholders have also benefited from significant capital
appreciation.
Our accounting policy is to revalue our properties on a regular basis so that
the carrying value does not differ significantly from fair values at each
balance sheet date.
In matching freehold assets with long term financing, we have set a target range
for interest cover of between 2.25 to 2.75 times. Interest cover for the year
just ended was 2.5 times, reflecting the return of £120 million to shareholders
and acquisitions made during the year. We will continue to ensure that the
balance sheet is efficiently financed having regard to the strong underlying
cash flow of the business.
Recent developments in property financing such as Real Estate Investment Trusts
(REITs) and structures which involve the disposal of property assets have
focused attention on the underlying attractions of freehold pub estates. We do
not currently believe that the potential benefits of these structures outweigh
the implementation costs or their increased risk, but will nevertheless continue
to review the situation as the market develops.
Divisional performance for the financial year ended 29 September 2007
1. Marston's Inns & Taverns
Total turnover increased by 11.2% to £367.8 million (2006: £330.7 million).
Underlying operating profit increased by 5.0% to £66.7 million (2006: £63.5
million).
Like-for-like sales growth of 4.6% was achieved against a challenging background
including the introduction of the smoking ban and poor summer weather which
caused serious flooding in June and July 2007, materially affecting around 50
managed pubs.
This was nevertheless a good performance, helped significantly by like-for-like
food sales growth of 13.3%. Marston's Inns & Taverns has captured market share
of the casual dining market over a 5 year period and has increased food sales
from 27% of retail turnover in 2003 to 34% in 2007. Including associated drinks
sales, we estimate that 65% of total sales are now made to customers for whom
dining is the primary reason for visiting the pub.
This growth in food sales has been achieved through consistent investment in
upgrading pubs, menu development with a greater emphasis on local sourcing,
healthy eating, and focused promotional activity targeted on families and a more
mature customer base.
The development of a number of operating formats which are appropriate for
different markets has also contributed to this strong performance. Our community
food-led formats include Marston's Tavern Table and Marston's Two for One. These
formats offer excellent value for money in modern, well invested pubs and in
each case food sales are over 50% of total retail sales. Food sales are also
important for our high street brands, Pitcher & Piano, Que Pasa and Bluu, with
food sales representing between 15% and 30% of total sales in those outlets.
Like-for-like wet sales increased by 0.6% against strong comparatives which
included the benefits of a good summer and the 2006 football World Cup. This
growth is a consequence of the introduction of a range of initiatives including
investment in glycol cooling within our managed pubs; enabling draught beers to
be served consistently at a lower temperature, thus meeting increased consumer
demand for colder beers. We also introduced a formal guest ale policy, helping
to increase premium ale volumes by 9% and we regularly update and improve our
wines and spirits offers, achieving volume growth of 9% in this category during
the year.
Underlying operating margin was 18.1% (2006: 19.2%) reflecting the acquisition
of Eldridge Pope and the timing of achieving associated cost savings. Price
increases during the year were broadly inflationary, with cost increases from
the 6% rise in the minimum wage in October 2006 and higher energy prices. These
cost increases were offset by retail price increases and the removal of SkyTV
from nearly 100 pubs.
The Eldridge Pope pub estate of 153 pubs, including 40 tenancies, has performed
in line with expectations and the integration process is complete. Of 18 pubs
earmarked for disposal at the date of acquisition, 12 have been or are in the
process of being sold. Opportunities for the extension of branded high street
bars were also identified. To date four Marston's unbranded pubs have been
converted to Que Pasa, with further conversions planned in 2008.
Marston's Inns & Taverns' strategy of investment in new build pubs is the
principal driver of organic growth in the division. We aim to open 20 new pubs
per year, having achieved 19 openings in 2007. All new community pubs have
Marston's branding and are located in areas of significant residential
development. The majority have a food sales mix of 50-60%, and so we anticipate
that the current food sales mix of 34% will rise to around 40% by 2010 provided
the current rate of development is maintained.
An important element of our emphasis on high levels of customer service in our
pubs is training. Marston's Inns & Taverns runs a full range of structured
induction and development programmes for staff and licensees, and benefits from
a dedicated in-house training centre.
2. Marston's Pub Company
Total turnover increased by 12.4% to £200.9 million (2006: £178.8 million).
Underlying operating profit increased by 13.1% to £90.8 million.
These results were achieved against a challenging background including the
introduction of the smoking ban and poor summer weather, with around 100
tenanted pubs seriously affected by flooding.
Operating margin increased by 0.3% to 45.2% (2006: 44.9%). Average EBITDA per
pub increased by around 13% to approximately £65,000 per pub demonstrating the
improving quality of the estate. This increase reflects underlying growth of
around 3% and the effect of the disposal of 279 pubs to aAim Group in May 2007.
Income is made up of rent charged to tenants or lessees, the margin made on
supplying a range of drinks products - principally beer, stouts, cider, wines
and spirits - and our share of gaming machine income.
Of our 1,722 tenanted or leased pubs, over 50% are leased on long term
agreements with five year rent review periods. The remainder are let on shorter
term agreements with typically three year rent review periods. The underlying
rate of rental increases, including the effect of rent reviews was approximately
3%.
During the year income from gaming machines fell by 2.4%, influenced in the
second half-year by the introduction of the smoking ban. The experience of pub
operators in Scotland was that the smoking ban had a disproportionate effect on
gaming machine income and this decline was therefore expected. The majority of
our agreements are on the basis of a 50% share of machine income after rent
payable on gaming machines.
Other than the disposal of 279 pubs in May 2007 changes to the estate included
the acquisition of 33 freehold pubs trading as Sovereign Inns in January 2007
and 40 tenanted pubs within the Eldridge Pope estate. Additionally, 27 pubs were
acquired during the remainder of the year including seven acquired with Ringwood
Brewery and four from The Rutland Pub Company. The Hourglass in Devizes, was
opened in August 2007 and is Marston's Pub Company's first new build tenanted
pub.
In addition to the recruitment of good tenants and lessees the quality of pubs
in the estate is a key factor behind our strong performance. We invested £48.5
million, including 118 major refurbishment schemes, much of that investment
being targeted at providing tenants with more opportunities to develop or extend
their food offers. Across Marston's Pub Company around 80% of our pubs have a
meaningful food offer.
Marston's Pub Company has supported tenants in a number of ways during this
challenging year. Tenants and lessees of the 100 pubs severely affected by
flooding experienced significant disruption, although insurance cover for flood
damage and loss of business has offset these losses substantially.
We also supported tenants by investing in pub gardens, patios and shelters ahead
of the introduction of the smoking ban, with around £10 million invested in
around 1,400 schemes.
3. Marston's Beer Company
Total turnover was £84.1 million (2006: £86.0 million). Underlying operating
profit was £17.4 million (2006: £18.0 million).
There are two specific areas where we have lost business. Firstly, as a
consequence of the acquisition of Pyramid Inns by Admiral Taverns in 2006,
Marston's Beer Company is no longer the principal supplier to the former Pyramid
pubs. Secondly, we have reduced the level of trade we have with third party
wholesalers to protect margins and improve control over assets, principally
containers. These events will continue to impact upon turnover until March 2008,
although the profit impact is minimal.
Our own core brands performed strongly and ahead of the market, with volumes up
by over 6% overall. The UK ale market declined by around 5% last year,
consistent with long established trends which we expect to continue. Against
this trend, our premium ale brands have continued to show strong growth, with
Marston's Pedigree up by nearly 6% and Jennings Cumberland Ale up by 30%.
Ringwood Brewery, acquired in July 2007, also performed well. Our own brands
market share of the premium cask ale market is now over 20%.
This strong volume performance is linked not only to acquisitions made during
the year, in particular Eldridge Pope, but also to our association with cricket.
Becoming the 'Official Beer of England', and the subsequent sponsorship of Sky's
coverage of international cricket events, has significantly raised the profile
of Marston's beer brands.
We have also benefited from our continued focus on good quality regional cask
ales with positive imagery, particularly the Jennings beers. The recent
acquisition of Ringwood Brewery and the completion of new three year supply
agreements for Fosters, Carling and Carlsberg, offers customers more choice than
ever before.
Operating margin decreased by 0.2% to 20.7% reflecting increased investment in
marketing, particularly in Marston's Pedigree, and higher energy costs.
Cost increases expected during 2008 include a significant increase in the price
of malted barley, which will result in a cost increase of approximately £1
million per annum. This increase will be partly offset by the beneficial terms
of the new lager contracts which have been renegotiated recently.
Current Trading
Trading overall in the 8 weeks to 24 November 2007 has been in line with
expectations. Like-for-like sales in Marston's Inns and Taverns were 2.1% ahead
of last year, including like-for-like growth in food sales of 9.1%. This growth
was achieved against strong comparatives last year with reported like-for-like
sales growth of 9.1% for the same period last year. Trading in Marston's Pub
Company and Marston's Beer Company has been satisfactory.
Since the introduction of the smoking ban trends which were previously in
evidence ban have continued. Investments made in external trading areas, ahead
of the introduction of the smoking ban, and the continuing development of our
food offers have contributed to our performance in the new financial year.
We remain cautious about consumer confidence, regulatory cost pressures and the
short term impact of the smoking ban. We are, however, well positioned to
continue to exploit current trends, including the continuing growth in casual
dining. We regard our value for money offers and mid-market position as
appropriate for the current economic climate.
In summary, each trading division has made good progress and is adapting well to
the changing market.
Financial review
Underlying
Turnover operating profit Margin
(note 2)
2007 2006 2007 2006 2007 2006
£m £m £m £m % %
Marston's Inns and 367.8 330.7 66.7 63.5 18.1 19.2
Taverns
Marston's Pub Company 200.9 178.8 90.8 80.3 45.2 44.9
Marston's Beer Company 84.1 86.0 17.4 18.0 20.7 20.9
Marston's Group Services - - (11.7) (9.5) (1.8) (1.6)
Group 652.8 595.5 163.2 152.3 25.0 25.6
Group turnover increased by 9.6% to £652.8 million, as a result of strong
like-for-like sales and the benefit of acquisitions. Underlying operating profit
increased by 7.2% to £163.2 million and underlying basic earnings per share
increased by 10.1% to 26.2 pence per share.
Operating profit after exceptional items was £160.7 million, up 5.5% on the
prior year, and underlying basic earnings per share (after exceptional items)
was 27.9 pence per share, up 17.2% on the prior year.
Dividend
The proposed final dividend of 8.47 pence per share gives a total dividend for
the year of 12.83 pence per share, an increase of 20% on the prior year.
Dividend cover at the year-end is 2.0 times (2006: 2.2 times).
Acquisitions
Eldridge Pope was acquired on 25 January 2007 for £156.5 million, comprising
consideration of £84.5 million for the equity and net debt acquired of
£72.0 million. The Eldridge Pope properties were valued independently at
£129.6 million. Goodwill arising on the acquisition was £58.3 million
(note 11a).
In the current financial year the Eldridge Pope acquisition has been broadly
profit neutral, and we forecast that it will be earnings enhancing thereafter.
The integration has been completed successfully and the Group is currently
realising synergies of £4.6 million per annum, as anticipated.
Sovereign Inns was acquired on 16 January 2007 for £19.6 million, comprising
consideration of £14.3 million for the equity and net debt acquired of
£5.3 million. The Sovereign Inns properties were independently valued at
£19.1 million. Goodwill arising on the acquisition was £4.8 million (note 11b).
The Ringwood Brewery, including seven freehold pubs, was acquired on 12 July
2007 for £17.8 million, comprising consideration of £19.9 million for the equity
and net cash acquired of £2.1 million. The acquired properties were
independently valued at £9.9 million. Goodwill arising on the acquisition was
£6.3 million (note 11c).
Disposals
As part of our overall strategy to continually improve the quality of our
estate, on 10 May 2007 we sold 279 tenanted pubs to Piccadilly Licensed
Properties Limited, a company owned and controlled by aAim Group, for a cash
consideration of £82.5 million. The pubs had an asset value of £81.1 million and
generated annual EBITDA of £7.5 million.
Capital expenditure
As well as improving the overall quality of our estate through the aggressive
churning of our portfolio, we continue to invest significant amounts of capital
expenditure to ensure we maintain a pub estate of the highest quality. Total
capital expenditure for the Group was £146.3 million and included
£48.5 million spent in Marston's Pub Company and £37.4 million spent in
Marston's Inns and Taverns, in addition to £46.0 million spent on purchasing new
pubs and new site developments.
Share buy-backs
During the year the Group purchased 28.1 million Marston's shares at a total
cost of around £120 million. As planned, we expect to complete the remainder of
the previously announced commitment to £150 million of share buy-backs in this
calendar year.
Financing
Net debt increased to £1,189.1 million at 29 September 2007, compared to £893.7
million at 30 September 2006. This increase is principally as a result of the
three acquisitions and the ongoing share buy-backs referred to above.
For the year ended 29 September 2007 the ratio of net debt to EBITDA was 5.8
times and interest cover 2.5 times.
Net finance costs before exceptional items have increased by £14.4 million
compared to the prior year, primarily as a result of the increased net debt but
also as a consequence of higher short term interest rates during the year.
Since the year-end we have taken advantage of more attractive long term interest
rates to fix the cost of all of our bank debt using interest rate swaps.
Post balance sheet event - debt refinancing
We announced on 19 November 2007 the terms of a £330 million tap of our
securitisation backed by the transfer of 437 freehold and long leasehold
tenanted pubs from the non-securitised estate to the securitised estate. The
transaction completed on 22 November 2007. The net funds raised were used to
repay existing bank facilities. Our strong credit profile and the high quality
of our pub estate ensured we achieved a very competitive cost of financing and
also increased the financial and operational flexibility of the Group. At the
same time, we maintained £400 million of the existing bank facilities, resulting
in available bank facility headroom of £250 million at 22 November 2007.
Following this refinancing, all of our borrowings are at effectively fixed rates
of interest with a blended cost of debt of approximately 6.1%.
Treasury, risk and internal controls
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.
All of the Group's borrowings are now 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.
The banking and securitisation covenants are reviewed throughout the year as
part of the internal reporting process with a focus on ensuring appropriate
headroom is available. Every six months the financial position of the Group in
respect of the securitisation covenants is reported externally to financial
institutions and made available on the Group's website (www.marstons.co.uk).
Operational compliance with all securitised covenants is managed and regularly
reviewed by the treasury, risk and internal audit function.
We have an ongoing programme to identify key operational and financial risks
across the Group and, where possible, to mitigate the potential impact of those
risks. This programme is managed by the treasury, risk and internal audit
function.
Pensions
The Eldridge Pope Pension Scheme was merged with the Marston's PLC Pension and
Life Assurance Scheme on 7 September 2007. An additional contribution of £11.3
million has been made to the Marston's PLC Scheme since the year-end as a
consequence of the different funding levels of the schemes at the time of
merger. The previously disclosed schedule of top-up contributions of
£7.2 million per annum, intended to eliminate the Marston's PLC Scheme funding
deficit by 2014, will increase to £10 million per annum as a result of an
agreement with the pension trustees in relation to the refinancing announced on
19 November 2007 and the merger of The Eldridge Pope Pension Scheme.
The deficit on our final salary pension scheme reduced to £38.6 million before
tax (2006: £53.1 million), and £27.8 million after tax (2006: £37.2 million).
Estate revaluation
During this financial year around 2,000 pubs have been revalued principally as a
consequence of the refinancing referred to above. This has resulted in a net
gain of £162 million (an after tax gain of £117 million after accounting for the
associated deferred tax) which is equivalent to an average increase of
approximately 12% compared to book values. The majority of these pubs were last
revalued in 2005. This uplift in valuations demonstrates the continued benefit
we accrue from the ownership of a predominantly freehold estate.
Share split
The Group completed a 4-for-1 share split on 9 January 2007. Historic earnings
per share have been restated to reflect the split (note 7).
Taxation
The underlying rate of taxation (before exceptional items) has reduced to 21.0%
from 27.8% in 2006. This is due principally to a deferred tax credit in respect
of properties, mainly due to indexation allowances and the favourable agreement
of certain prior year tax issues.
The benefit of the basic rate of corporation tax falling from 30% to 28%, and
changes to the capital allowances regime have resulted in a reduction in the
deferred tax provision of £7.2 million. This has been accounted for as a one-off
exceptional item which, together with £1.0 million of tax relief on exceptional
costs, has resulted in an exceptional tax credit of £8.2 million.
Exceptional items
There is a net exceptional credit of £4.9 million after tax, comprising the £8.2
million tax credit referred to above, offset by £3.3 million of costs in
relation to the acquisition of Eldridge Pope.
GROUP INCOME STATEMENT
for the 52 weeks ended 29 September 2007
2007 2006
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
£m £m £m £m £m £m
Revenue 652.8 - 652.8 595.5 - 595.5
Operating expenses (489.6) (2.5) (492.1) (443.2) - (443.2)
Operating profit 163.2 (2.5) 160.7 152.3 - 152.3
Finance costs (68.0) (0.8) (68.8) (52.1) - (52.1)
Finance income 2.8 - 2.8 1.3 - 1.3
Net finance costs (65.2) (0.8) (66.0) (50.8) - (50.8)
Profit before taxation 98.0 (3.3) 94.7 101.5 - 101.5
Taxation (20.6) 8.2 (12.4) (28.2) - (28.2)
Profit for the period
attributable to equity
shareholders 77.4 4.9 82.3 73.3 - 73.3
All results relate to continuing operations.
As
restated
Earnings per share:
Basic earnings per share 27.9p 23.8p
Basic earnings per share
before exceptional items 26.2p 23.8p
Diluted earnings per share 27.6p 23.5p
Diluted earnings per share before
exceptional items 26.0p 23.5p
A final dividend of 8.47p (2006: 7.06p) per ordinary share has been proposed and
will be paid on 31 January 2008.
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the 52 weeks ended 29 September 2007
2007 2006
£m £m
Profit for the period 82.3 73.3
Income/(expense) recognised directly in equity
Cash flow hedges 15.6 0.3
Actuarial gains/(losses) on retirement benefits 27.4 (18.0)
Unrealised surplus/(deficit) on revaluation of properties 164.9 (3.7)
Tax on items taken directly to equity (42.4) 10.3
Net gains/(losses) not recognised in the income statement 165.5 (11.1)
Total recognised income for the period 247.8 62.2
GROUP CASH FLOW STATEMENT
for the 52 weeks ended 29 September 2007
2007 2006
£m £m
Operating activities
Operating profit 160.7 152.3
Depreciation and amortisation 42.7 39.1
EBITDA* 203.4 191.4
Working capital and non-cash movements (including outflows (30.1) 13.1
upon integration of acquisitions)
Difference between defined benefit pension contributions (7.7) (10.5)
paid and amounts charged
Income tax paid (9.6) (4.0)
Net cash inflow from operating activities 156.0 190.0
Investing activities
Interest received 1.9 1.6
Sale of property, plant and equipment 102.0 36.8
Investment in plant and equipment for existing business (100.3) (71.0)
Purchase of new pubs/site developments (46.0) (28.1)
Movement in non-current assets (1.7) (2.0)
Acquisition of subsidiaries, net of cash acquired (113.9) (22.4)
Repayment of debt of subsidiaries upon acquisition (57.9) (13.7)
Movement in available-for-sale investments 31.8 (31.8)
Net cash outflow from investing activities (184.1) (130.6)
Financing activities
Equity dividends paid (34.1) (31.0)
Issue of shares 1.1 2.6
Sale of own shares by share trust - 0.9
Purchase of treasury shares (115.5) (14.8)
Purchase of own shares for Long Term Incentive Plan (0.6) (6.6)
Purchase of own shares for cancellation (5.3) -
Interest paid (57.7) (47.5)
Arrangement costs of new bank facilities and issue costs (1.1) (0.7)
paid on securitised debt
Repayment of securitised debt (11.4) (10.1)
Advance of loans 443.6 43.0
Repayment of loans (155.0) (14.2)
Settlement of debentures (18.9) -
Repayment of loan notes and loan stock (2.2) (0.8)
Capital element of finance leases repaid (0.1) (0.1)
Net cash inflow/(outflow) from financing activities 42.8 (79.3)
Net increase/(decrease) in cash and cash equivalents 14.7 (19.9)
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash and cash equivalents in the 14.7 (19.9)
period
(Decrease)/increase in available-for-sale investments (31.8) 31.8
Cash inflow from increase in debt (256.0) (17.8)
Change in debt resulting from cash flows (273.1) (5.9)
Net debt acquired with subsidiaries (22.1) (14.2)
Non-cash movements (0.2) (1.8)
Movement in net debt in the period (295.4) (21.9)
Net debt at beginning of the period (893.7) (871.8)
Net debt at end of the period (1,189.1) (893.7)
* EBITDA - Earnings before interest, tax, depreciation and amortisation
GROUP BALANCE SHEET
as at 29 September 2007
2007 2006
£m £m
Assets
Non-current assets
Intangible assets 9.7 5.5
Goodwill 217.8 148.3
Property, plant and equipment 1,934.3 1,584.0
Deferred tax assets 40.4 48.9
Other non-current assets 24.8 23.1
2,227.0 1,809.8
Current assets
Inventories 16.7 12.8
Assets held for sale 7.2 26.2
Trade and other receivables 69.4 50.6
Derivative financial instruments 2.4 -
Financial assets: available-for-sale investments - 31.8
Cash and cash equivalents 42.4 39.8
138.1 161.2
Liabilities
Current liabilities
Borrowings (97.9) (38.6)
Derivative financial instruments - (0.5)
Trade and other payables (119.3) (108.1)
Current tax liabilities (21.5) (11.2)
(238.7) (158.4)
Non-current liabilities
Borrowings (1,133.6) (926.7)
Derivative financial instruments (1.6) (14.3)
Pension commitments (38.6) (53.1)
Deferred tax liabilities (195.2) (162.6)
Other non-current liabilities (0.4) (0.7)
Provisions (8.5) (2.0)
(1,377.9) (1,159.4)
Net assets 748.5 653.2
Shareholders' equity
Equity share capital 23.0 23.0
Share premium account 188.5 187.5
Merger reserve 41.5 41.5
Revaluation reserve 438.4 311.2
Capital redemption reserve 6.1 6.0
Hedging reserve 0.5 (10.4)
Own shares (135.3) (21.5)
Retained earnings 185.8 115.9
Total equity 748.5 653.2
NOTES
1 Accounting policies
Basis of preparation
The financial information for the period ended 29 September 2007 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 1985 applicable to companies reporting
under IFRS. The financial statements have been prepared under the historical
cost convention as modified by the revaluation of land and buildings and
derivative financial instruments.
2 Segmental reporting
Primary reporting format - business segments
For primary segment reporting purposes, the Group is considered to have four
distinguishable business segments, being Marston's Inns and Taverns (formerly
Pathfinder Pubs), Marston's Pub Company (formerly The Union Pub Company),
Marston's Beer Company (formerly WDB Brands) and Marston's Group Services
(formerly Central).
29 September 2007
Marston's Marston's Marston's Marston's
Inns and Pub Beer Group
Taverns Company Company Services Unallocated Total
£m £m £m £m £m £m
Revenue 367.8 200.9 84.1 - - 652.8
Operating profit before
exceptional items 66.7 90.8 17.4 (11.7) - 163.2
Exceptional items (0.6) (0.4) (0.5) (1.0) - (2.5)
Operating profit after
exceptional items 66.1 90.4 16.9 (12.7) - 160.7
Net assets 943.0 1,074.0 120.6 14.1 (1,403.2) 748.5
30 September 2006
Marston's Marston's Marston's Marston's
Inns and Pub Beer Group
Taverns Company Company Services Unallocated Total
£m £m £m £m £m £m
Revenue 330.7 178.8 86.0 - - 595.5
Operating profit before
exceptional items 63.5 80.3 18.0 (9.5) - 152.3
Exceptional items - - - - - -
Operating profit after
exceptional items 63.5 80.3 18.0 (9.5) - 152.3
Net assets 680.6 905.3 102.5 51.3 (1,086.5) 653.2
Unallocated comprises net debt, tax, derivatives and pension commitments.
3 Exceptional items
2007 2006
£m £m
Operating items
Costs of reorganisation of newly acquired subsidiaries 2.5 -
Non-operating items
Write-off of unamortised finance costs following arrangement of new 0.8 -
bank facilities
3.3 -
The funding of the acquisition of Eldridge Pope (note 11) during the period
necessitated a renegotiation of the Group's borrowing facilities.
The current tax credit relating to the above exceptional items amounts to £1.0m
(2006: £nil). In addition, £7.2m has been credited as exceptional in relation
to the change in tax rate and abolition of balancing charges.
4 Finance costs and income
2007 2006
Finance costs £m £m
Bank interest payable 20.4 7.5
Securitised debt interest payable 41.9 42.5
Other interest payable 1.7 0.6
Amortisation of issue costs on securitised debt 1.0 0.9
Amortisation of issue costs on bank loan 0.3 0.2
Net finance expense in respect of retirement benefits 2.7 0.4
Exceptional finance costs (note 3) 0.8 -
68.8 52.1
Finance income
Deposit and other interest receivable (2.8) (1.3)
Net finance costs 66.0 50.8
5 Taxation
2007 2006
Income statement £m £m
Current tax
Current period 20.9 22.9
Adjustment in respect of prior periods - (0.5)
20.9 22.4
Deferred tax
Current period (0.7) 6.1
Adjustment in respect of prior periods (0.6) (0.3)
Exceptional credit in respect of the change in tax rate and (7.2) -
abolition of balancing charges
(8.5) 5.8
Taxation charge reported in the income statement 12.4 28.2
£1.0m of the current tax credit relates to the tax on exceptional items (note
3).
6 Ordinary dividends on equity shares
2007 2006
£m £m
Paid in the period
Final dividend for 2006 of 7.06p per share (2005: 6.42p) 21.5 19.8
Interim dividend for 2007 of 4.36p per share (2006: 3.63p) 12.6 11.2
34.1 31.0
A final dividend for 2007 of 8.47p per share amounting to £23.6m has been
proposed for approval at the annual general meeting, but has not been reflected
in the financial statements. This dividend will be paid on 31 January 2008 to
those shareholders on the register at close of business on 4 January 2008. A
4-for-1 share split was completed on 9 January 2007.
7 Earnings per ordinary share
Basic earnings per share is 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 Employee
Share Ownership Plan and the Long Term Incentive Plan.
Diluted earnings per share is 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 2.5 million (2006: 3.1
million).
Underlying earnings per share figures are presented to exclude the effect of
exceptional items.
2007 2006
Weighted Weighted
average average
number of Per share number of Per share
Earnings shares amount Earnings shares amount
£m m p £m m p
Basic earnings per 82.3 295.2 27.9 73.3 308.5 23.8
share
Diluted earnings per 82.3 297.7 27.6 73.3 311.6 23.5
share
Underlying earnings
per share figures:
Basic earnings per 77.4 295.2 26.2 73.3 308.5 23.8
share before
exceptional items
Diluted earnings per 77.4 297.7 26.0 73.3 311.6 23.5
share before
exceptional items
Historic earnings per share and the weighted average number of shares have been
restated to reflect the 4-for-1 share split that was completed on 9 January
2007.
8 Working capital and non-cash movements
2007 2006
£m £m
Income from non-current assets (0.5) (0.4)
(Increase)/decrease in inventories (1.4) 1.0
(Increase)/decrease in trade and other receivables (11.7) 1.4
(Decrease)/increase in trade and other payables (16.0) 11.4
Profit on disposal of property, plant and equipment (4.7) (5.1)
Impairment of properties 2.8 3.8
Share based payments 1.4 1.0
Working capital and non-cash movements (30.1) 13.1
9 Analysis of net debt
Non-cash flow
2007 Cash flow Acquisitions 2006
£m £m £m £m £m
Cash and cash equivalents
Cash at bank and in hand 42.4 2.6 - - 39.8
Bank overdraft (7.1) 12.1 - - (19.2)
35.3 14.7 - - 20.6
Financial assets
Available-for-sale - (31.8) - - 31.8
investments
- (31.8) - - 31.8
Debt due within one year
Loan notes (9.2) 2.0 - (2.1) (9.1)
Bank loans (70.3) (70.6) 0.1 - 0.2
Securitised debt (11.2) 11.4 (12.2) - (10.4)
Finance leases (0.1) 0.1 (0.1) - (0.1)
(90.8) (57.1) (12.2) (2.1) (19.4)
Debt due after one year
Bank loans (372.5) (218.0) (0.2) - (154.3)
Securitised debt (760.9) - 11.2 - (772.1)
Finance leases (0.1) - 0.1 - (0.2)
Loan stock - 0.2 - (0.2) -
Debentures - 18.9 0.9 (19.8) -
Preference shares (0.1) - - - (0.1)
(1,133.6) (198.9) 12.0 (20.0) (926.7)
(1,189.1) (273.1) (0.2) (22.1) (893.7)
Included within cash at bank and in hand is an amount of £3.9m (2006: £3.9m)
relating to a letter of credit with Royal Sun Alliance, which is considered to
be restricted cash.
Available-for-sale investments represent the Group's holding in a short-term
investment fund from which cash can be withdrawn on demand and without penalty
and therefore it has been classified within net debt.
Bank loans due within one year include unamortised issue costs expected to be
charged to the income statement within 12 months of the balance sheet date.
10 Movements in total equity
2007 2006
£m £m
Total equity at beginning of the period 653.2 640.2
Total recognised income and expense for the period 247.8 62.2
Dividends paid (34.1) (31.0)
Proceeds of ordinary share capital issued 1.1 2.6
Purchase/cancellation of own shares (121.4) (21.4)
Sale of own shares - 0.9
Share based payments 1.4 1.0
Tax in relation to share based payments 0.5 0.7
Equity minority interests - (2.0)
Net movement in total equity 95.3 13.0
Total equity at end of the period 748.5 653.2
11 Acquisitions
(a) Eldridge Pope
On 25 January 2007, the Group acquired 100% of Nouveaustar Limited ('Eldridge
Pope') and its wholly owned subsidiaries. The acquisition has been accounted for
under acquisition accounting principles and is therefore included in the
consolidated balance sheet as at 29 September 2007.
Fair value Provisional
adjustments
Book value Revaluations Other fair value
£m £m £m £m
Property, plant and equipment 107.4 28.8 - 136.2
Intangible assets: lease premiums - 1.1 - 1.1
Intangible assets: negative goodwill (0.4) - 0.4 -
Inventories 2.1 - - 2.1
Trade and other receivables 5.6 - (0.1) 5.5
Cash and cash equivalents 3.6 - - 3.6
Bank overdraft (1.2) - - (1.2)
Trade and other payables (19.7) - - (19.7)
Borrowings (69.5) - (4.9) (74.4)
Pension commitments (13.0) - (5.0) (18.0)
Derivative financial instruments - - 0.2 0.2
Provisions - (7.7) - (7.7)
Deferred tax 1.5 (8.0) 5.0 (1.5)
Net assets acquired 16.4 14.2 (4.4) 26.2
Cash consideration (including 84.5
acquisition fees)
Goodwill arising on consolidation 58.3
The attributed fair values are provisional.
The revaluation adjustment reflects the valuation of the acquired estate as at
25 January 2007. The valuation was carried out by independent chartered
surveyors Colliers CRE on an open market value basis. Valuations reflecting
onerous leases have been included in provisions. Deferred tax on property
revaluations has been recognised on acquisition.
The other fair value adjustments reflect the elimination of negative goodwill,
the fair values of the debentures, derivative financial instruments and defined
benefit pension scheme commitments at the date of acquisition, and the
associated deferred tax.
The net cash outflow in respect of the acquisition of Eldridge Pope was:
£m
Acquisition of equity
Cash 84.5
Net cash held by subsidiary (2.4)
82.1
Acquisition of debt
Immediate repayment of subsidiary's debt 52.3
Net cash outflow in respect of the acquisition 134.4
The purchase agreement for Eldridge Pope required the immediate repayment of
certain borrowings, which were included in its balance sheet at the date of
acquisition. The debt repayments have therefore been classified as part of the
overall consideration for the acquisition of Eldridge Pope.
(b) Sovereign Inns
On 16 January 2007, the Group acquired 100% of Sovereign Inns Limited
('Sovereign Inns'). The acquisition has been accounted for under acquisition
accounting principles and is therefore included in the consolidated balance
sheet as at 29 September 2007.
£m
Book value of net assets acquired 3.7
Fair value adjustments 5.8
Goodwill 4.8
Consideration satisfied by cash 14.3
The attributed fair values are provisional. Fair value adjustments were made to
the value of the acquired estate of £9.6m and deferred tax thereon of £(3.8)m.
The valuation of the estate was carried out by independent chartered surveyors
Brownill Vickers & Platts on an open market value basis.
The net cash outflow in respect of the acquisition of Sovereign Inns was:
£m
Acquisition of equity
Cash 14.3
Net cash held by subsidiary (0.3)
14.0
Acquisition of debt
Immediate repayment of subsidiary's debt 5.6
Net cash outflow in respect of the acquisition 19.6
The purchase agreement for Sovereign Inns required the immediate repayment of
certain borrowings, which were included in its balance sheet at the date of
acquisition. The debt repayments have therefore been classified as part of the
overall consideration for the acquisition of Sovereign Inns.
(c) Ringwood Brewery
On 12 July 2007, the Group acquired 100% of Ringwood Brewery Limited ('Ringwood
Brewery'). The acquisition has been accounted for under acquisition accounting
principles and is therefore included in the consolidated balance sheet as at 29
September 2007.
£m
Book value of net assets acquired 7.4
Fair value adjustments 6.2
Goodwill 6.3
Consideration satisfied by cash 19.9
The attributed fair values are provisional. Fair value adjustments were made to
the value of the Ringwood brand of £2.9m, the acquired estate of £4.0m and
deferred tax thereon of £(0.7)m. The valuation of the brewery was carried out by
independent chartered surveyors Donaldsons on an open market value basis. The
valuation of the pub estate was carried out by independent chartered surveyors
Christie + Co on an open market value basis.
The net cash outflow in respect of the acquisition of Ringwood Brewery was:
£m
Acquisition of equity
Cash 19.9
Net cash held by subsidiary (2.1)
Net cash outflow in respect of the acquisition 17.8
(d) Prior period acquisitions
On 17 March 2006, the Group acquired Celtic Inns Holdings Limited. The fair
value adjustments stated in the financial statements for the period ended 30
September 2006 are now confirmed with no adjustments made to those previously
published.
On 6 July 2006, the Group acquired Bluu Limited. An additional £0.1m of acquired
liabilities have been identified during the period to 29 September 2007 and
recorded as a fair value adjustment.
12 Events after the balance sheet date
On 22 November 2007, £330.0m of secured loan notes were issued in connection
with the securitisation of an additional 437 of the Group's freehold and long
leasehold tenanted pubs. The loan notes are secured on the properties and their
future income streams. On the same date, £313.0m of existing bank loans were
repaid from the funds raised.
Notes:
a. The contents of this preliminary announcement, which do
not constitute statutory accounts as defined in Section 240 of the Companies Act
1985, have been extracted from the audited statutory accounts of the Group for
the 52 weeks ended 29 September 2007, which will be filed with the Registrar of
Companies in due course. The statutory accounts for the 52 weeks ended 30
September 2006 have been delivered to the Registrar of Companies. The
independent auditors' report on these accounts are unqualified and do not
contain any statements under Section 237(2) or (3) of the Companies Act 1985.
b. Subject to approval of the shareholders at the annual
general meeting, the proposed divided of 8.47 pence per share will be paid on 31
January 2008 to shareholders on the register at the close of business on 4
January 2008.
c. The annual report for the year ended 29 September 2007
will be posted to all shareholders in the week commencing 16 December 2007.
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
Friday, 22nd November 2024
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