Interim Results
Marston's PLC
25 May 2007
25 May 2007
INTERIM RESULTS FOR THE 26 WEEKS ENDED 31 MARCH 2007
Financial
• Underlying1 earnings per share2 up 10.6% to 10.01 pence (2006: 9.05
pence)
• Interim dividend2 up 20.1% to 4.36 pence per share (2006: 3.63 pence per
share)
• Underlying operating margin, excluding acquisitions, up 0.2% to 24.1%
(2006: 23.9%)
• Share buy-back to be increased from £100 million to £150 million
Operational
• Marston's Inns and Taverns like-for-like sales up 7.0%
• Marston's Pub Company average EBITDA per pub3 up 15%
• Marston's Beer Company - market share and volume growth for key brands
• Integration of Eldridge Pope completed at the end of March - business
performing strongly
• Smoking ban - investment plans complete; encouraging early indications
in Wales
• Good current trading in all divisions, with like-for-like sales in
Marston's Inns and Taverns up 6.6% for the 33 weeks to 19 May 2007
Ralph Findlay, Chief Executive, commented:
'We continue to benefit from targeting the growing pub food market in both
managed and tenanted pubs. Our new-build programme, the acquisition of Eldridge
Pope and the recent disposal of 279 tenanted pubs mean that the quality of our
principally freehold pub estate continues to improve, and that food sales
continue to increase as a proportion of our turnover. We are also achieving
growth and greater market share in our key ale brands, particularly Marston's
Pedigree and Jennings Cumberland Ale.'
1 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.
2 Prior year comparatives in this release relating to earnings per share and
dividend per share have been restated to take account of the 4-for-1 share
split which was effective from 8 January 2007.
3 Excluding 279 pubs sold on 10 May 2007
ENQUIRIES:
Marston's PLC Hudson Sandler
Ralph Findlay, Chief Executive Andrew Hayes/Nick Lyon/James White
Paul Inglett, Finance Director
Tel: 0207 796 4133 on 25 May; Tel: 0207 796 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 strong first half-year results demonstrate our ability to drive sustained
organic growth as well as good returns from acquisitions. These results are
being achieved through the implementation of our strategy to increase our
emphasis on food, families and female customers in response to well established
trends in our market place. Our foremost priority is our focus on customers and
operational excellence, as demonstrated by the strong like-for-like sales growth
achieved in Marston's Inns and Taverns.
The recent acquisitions of Eldridge Pope and Sovereign Inns, together with the
disposal of 279 smaller, wet-led tenanted pubs announced on 10 May 2007, provide
additional opportunities for continued development. Our geographical spread has
widened and the average quality of the estate has been further improved.
Results
Turnover increased by 8.5% to £305.3 million (2006: £281.4 million), including
£13.4 million contributed by acquisitions, principally Eldridge Pope.
Underlying operating margin, excluding acquisitions, increased to 24.1% (2006:
23.9%) notwithstanding significantly higher energy costs and a 5.9% increase in
the national minimum wage from October 2006. Underlying operating profit from
existing operations (excluding acquisitions) increased by 4.8% to £70.4 million
(2006: £67.2 million).
Underlying profit before taxation increased by 1.5% to £41.6 million (2006:
£41.0 million) after the impact of higher interest costs resulting from the
share buy-back programme and acquisitions. Profit after exceptional items, which
relate principally to integration costs, was £38.4 million
(2006: £41.0 million).
Underlying earnings per share increased by 10.6% to 10.01 pence per share (2006:
9.05 pence per share). Basic earnings per share after exceptional items were
9.25 pence per share (2006: 9.05 pence per share).
Dividend
The Board declares an interim dividend of 4.36 pence per share (2006: 3.63 pence
per share) which will be paid on 29 June 2007 to those shareholders on the
register at the close of business on 8 June 2007. The increase of 20.1% reflects
our strong trading performance and, in particular, strong underlying cash flow.
Dividends paid to shareholders have increased by over 10% per annum for the last
30 years.
Share buy-backs
On announcing the acquisition of Eldridge Pope we confirmed our intention to
return around £100 million to shareholders this financial year, subject to
retaining the flexibility to make further acquisitions should suitable
opportunities arise. During February and March 2007 we purchased and placed in
treasury 9.1 million shares at a total cost of £40.2 million.
The disposal of 279 smaller tenanted pubs for £82.5 million, announced on 10 May
2007, provides a further opportunity to return cash to shareholders, and we have
therefore decided to increase the amount to be returned from £100 million to
around £150 million. This is to be achieved in this calendar year through
further market purchases. Thereafter, we will continue to target an efficient
balance sheet structure and will review the potential for further capital
returns on an ongoing basis.
Financing structure
We have examined carefully the potential for realising greater shareholder value
through creating a Real Estate Investment Trust ('REIT') under the legislation
introduced by the government earlier this year. We estimate currently that the
costs of implementing a REIT structure by splitting the business into an
operating company and property company would largely offset the potential tax
benefits of doing so. Additionally, the freehold ownership of pubs gives
critical operational flexibility in today's rapidly changing trading environment
and has also allowed shareholders to benefit from capital appreciation.
Consequently, we do not plan at this stage to split the business into an
operating and property company, but will continue to review the situation as the
market for REITs in the pub sector develops.
Prospects
A ban on smoking in public places was introduced in Wales on 2 April 2007 and is
due to be implemented in England on 1 July 2007. Following the disposal of 279
pubs on 10 May 2007 we currently have 182 pubs in Wales, and although it is too
soon to draw conclusions about the impact of the ban, trading to date has been
encouraging.
Our preparations for the ban in England are well advanced. Over 90% of our pubs
have gardens, patios or some form of outside trading area. We have made
excellent progress in developing our food offers in Marston's Inns and Taverns,
with food sales now comprising 33% of total retail sales within our managed
pubs. The disposal of 279 smaller tenanted pubs, representing some 14% of our
tenanted and leased estate, has reduced significantly our exposure to those pubs
which are most vulnerable to the impact of the ban.
The integrations of the Eldridge Pope and Sovereign Inns acquisitions were
completed to plan and open up a number of additional development opportunities.
We continue to evaluate acquisitions that are consistent with our strategy and
review all the value-generating opportunities that our integrated model offers
from potential transactions.
Our integrated business model provides us with wider investment opportunities
and increased operational flexibility. The Board remains confident that our
strong balance sheet, relatively conservative financing and strong cash flow
will allow us to continue to target further investments meeting our return on
capital criteria.
David Thompson
Chairman
Chief Executive's review
Business development
These good results include turnover growth of 8.5% and growth in underlying
earnings per share of 10.6%. Underlying profit before taxation is ahead of last
year despite higher interest costs resulting from share buy-backs and
acquisitions.
Well established trends in our market, including the growth of pub dining,
greater emphasis on drinking more responsibly and regulatory changes such as the
smoking ban, open up new opportunities for our business. Our operational
strategy has been developed carefully to ensure that we derive the maximum
benefit from a high quality estate that is particularly well suited to this
changing environment.
Our acquisitions strategy and our plans for growing the business, through
building new pubs and acquiring existing trading pubs are focussed on building
on our success in attracting families and females into pubs with a strong food
offer. We have also been successful in extending our trading geography.
In the high street, we have concentrated on developing bars which are more able
to attract customers through a high quality offer, rather than price-led
discounting. We have invested in differentiated offers such as Pitcher & Piano,
Bluu and, through the acquisition of Eldridge Pope, Que Pasa.
In our tenanted and leased estate, operated as Marston's Pub Company, we
invested a record £24.1 million in pub refurbishment ahead of the smoking ban.
Our investment focus is on enabling tenants and lessees to exploit the full
potential of their pubs, with an emphasis on food development.
These trends are also having a positive impact on Marston's Beer Company. The
increasing emphasis on food in our pubs is attracting more consumers who are
interested in locally sourced ingredients, higher quality products, and regional
beers. As a result, we are seeing good growth in premium cask ale, particularly
Marston's Pedigree and Jennings Cumberland Ale.
The acquisition of Eldridge Pope was completed on 25 January 2007 for £155.1
million (excluding acquisition costs of £1 million). Eldridge Pope has a high
quality substantially freehold estate of 135 pubs (excluding 18 pubs to be sold)
based predominantly in Southern England. The estate comprises 95 managed pubs
and 40 tenanted pubs. The pubs have a strong emphasis on food, which represents
approximately 30% of managed pub turnover. Twenty six pubs, operated as
'Nostalgic Inns', also offer accommodation.
The acquisition provides opportunities to convert appropriate Eldridge Pope
sites into existing Marston's formats including Pitcher & Piano, Marston's
Tavern Table, Taverner's Carvery and Two for One, as well as to extend the Que
Pasa format within the existing Marston's estate. In the tenanted estate there
is the potential to move the current tenancy agreements to longer term Marston's
Pub Company agreements and scope to improve performance through investment. Both
the managed and tenanted pubs offer the opportunity for increased distribution
of beers from Marston's Beer Company.
Our target of 20 pub openings this year from new site development or individual
pub acquisitions is on-track.
Marston's Inns and Taverns
As at 31 March 2007, the managed pub estate comprised 568 pubs (2006: 543 pubs).
In the second half of last year 93 pubs were transferred to Marston's Pub
Company. Acquisitions include the Eldridge Pope managed estate of 113 pubs
(including 18 pubs to be sold) and seven new build managed pubs in Brighton,
London, Hertfordshire, Cheshire, Nuneaton, Bristol and Exeter. Eleven high
street bars were sold during the half-year.
Turnover increased by 1.0% to £154.6 million (2006: £153.1 million) including
like-for-like sales growth of 7.0%. Like-for-like food sales increased by 14.0%,
with food sales now comprising 33% of total sales in the division. Underlying
operating profit increased to £26.1 million (2006: £25.9 million) and underlying
margins were maintained at 16.9%.
This strong growth in like-for-like sales is principally volume led, with
average prices broadly in line with last year. Room income, which comprises
around 2% of turnover, also increased following the introduction of more
effective web-based marketing and links with on-line booking agencies.
Accommodation is a larger component of turnover in the Eldridge Pope estate.
Further growth is targeted via the integration of the two pub estates,
introducing centralised booking and by developing a consistent approach to
marketing around 800 rooms available across the managed pub estate.
Growth in food sales has been a key component of our strategy over recent years
and we now have one of the highest proportion of sales from food in the sector.
We have introduced a clearer, more consistent 'branding' of our food pubs, using
the Marston's name, to communicate the range and value of our offers.
A comprehensive menu development programme has resulted in menus with more
emphasis on local sourcing, healthy eating options and more variety for
children. Our focus on quality and value contributed to our strong like-for-like
sales growth, which continues to be driven by more customer visits rather than
through higher prices.
In addition to the good performance of food pubs, investment in branded and
unbranded high street pubs and bars has also achieved good returns. Pitcher &
Piano openings in Brighton, Exeter and Worcester have taken the number of
Pitcher & Piano bars to 26. We believe that up to six Que Pasa sites have the
potential to trade more profitably as Pitcher & Piano bars, with around 15
unbranded bars similarly earmarked for conversion to Que Pasa.
In addition to £13.3 million invested in the seven new pubs, £18.5 million was
invested in the existing estate, including the major refurbishment of 27 pubs
and bars.
Marston's Pub Company
As at 31 March 2007, the tenanted and leased pub estate comprised 1,967 pubs
(2006: 1,815 pubs). Since 2 April 2006, 93 pubs have been transferred from
Marston's Inns and Taverns. Acquisitions include the Eldridge Pope tenanted
estate of 40 pubs, the Sovereign Inns estate of 33 freehold pubs across the
Midlands, and 10 other pubs. Nine pubs were sold in the first half-year to 31
March 2007 and 279 smaller tenanted pubs were sold for £82.5 million on 10 May
2007.
Total turnover increased by 12.4% to £97.1 million (2006: £86.4 million).
Underlying operating margin increased to 44.6% (2006: 44.0%) and underlying
operating profit increased by 13.9% to £43.3 million (2006: £38.0 million).
Trends in Marston's Pub Company reflect increasing rents as a consequence of
conversion from shorter term to longer term agreements, and growth in non-tied
products, particularly food.
The 279 pubs sold on 10 May 2007 were mainly pubs with limited potential to
develop a meaningful food offer. As a consequence average profit (EBITDA) per
pub (excluding the 279 pubs sold on 10 May 2007) increased by 15% to £64k per
pub on an annualised basis.
To enhance our ability to benefit from these trends, we completed 107 major
schemes of refurbishment in the first half-year, averaging around £100k per pub,
and invested a further £7 million on external trading areas ahead of the smoking
ban. Although capital investment in external trading areas is only one response
to the ban - addressing the opportunities and changing customer profile being
equally important - we have been impressed by the willingness of our operators
to be proactive in addressing the issues.
As the pub market responds to growth in pub dining, there is greater emphasis on
recruiting the right tenant for the right pub and ensuring that they are
properly equipped and trained in what is becoming a very competitive market.
This year, for example, we trained all of our Business Development Managers
using the British Institute of Innkeepers ('BII') Profitable Business Portfolio
as part of a professional development programme covering all aspects of pub
management.
In addition to a full support package of business training for tenants and
lessees, we launched an 'al fresco' dining roadshow touring Marston's outlets
across the country. We are hosting workshops for Marston's licensees including
cooking demonstrations, advice on creating the perfect outdoor space and tips on
creating the ideal menu. Licensees attending are provided with a DVD and support
details to help recreate the experience in their own pubs.
To attract the best tenants and lessees, visible commitment to good practice is
becoming more important. Marston's Pub Company has worked with the BII to
provide greater clarity and more trading information for in-coming tenants and
lessees, partly in response to the 2004 Trade & Industry Select Committee
inquiry into pub companies. As a result, we were amongst the first to receive
BII accreditation recognising that our code of practice gives clear information
about the expectations that prospective tenants should have of us.
We are also introducing open-book accounting as part of our response to the
inquiry, and more flexibility and choice in lease agreements with clearer
guidelines in terms of rent policy, repair agreements and beer discounts. The
adoption of open-book accounting will see all new licensees required to work
with a specialist firm of accountants in their first year.
These are significant operational changes which we believe will help to ensure
that we and our licensees are properly equipped to deal with changes in the pub
market.
Marston's Beer Company
Turnover of £40.2 million compares to £41.9 million last year and reflects the
planned withdrawal from several low margin wholesalers, and the loss of
non-owned brand sales into the Pyramid Pub Company as a result of its
acquisition by Admiral Taverns.
Our own key brands have outperformed the beer market, with Marston's Pedigree,
Marston's Smooth, Jennings Cumberland Ale and Banks's Original achieving volume
growth of 1.0%. Our performance in premium ale - mainly Marston's Pedigree and
Jennings Cumberland Ale - was particularly strong, with increased market share
and volume growth of 4.8%, consolidating our position as the 'Number 1' brewer
of premium cask ale in the UK.
Underlying operating margin was 18.4% compared to 19.1% last year, and
underlying operating profit was £7.4 million (2006: £8.0 million) after
increasing investment in our lead brands. This investment was focussed on
Marston's sponsorship of the England and Wales Cricket Board, Sky's television
coverage of the Cricket World Cup and activities to increase Jennings'
distribution in the Lake District.
Our objectives in developing a close involvement with cricket include building
upon the relationships we already have with Surrey (as The Official Beer of
Surrey and The Oval), Warwickshire, Worcestershire, Derbyshire, Durham and
Somerset and gaining new ones. We were delighted, therefore, to announce in
April 2007 that Marston's Pedigree is now also the Official Beer of Lords and
the MCC.
The decision to reduce low margin business with certain wholesale customers
principally affected factored brands rather than our own brands. This decision
was taken in order to strengthen our high level of control over beer containers
and to limit the risk of beer being sold to tenants and lessees through
unauthorised trade channels. The impact on profitability has been minimal.
Reinforcing our uncompromising stance on beer quality, we have again teamed up
with The Morning Advertiser to launch the second year of CaskForce, an
initiative to improve the quality of beer in pubs, while also offering licensees
the chance to win the first prize: a year's rent on their pub.
Current trading
Current trading in Marston's Inns and Taverns, Marston's Pub Company and
Marston's Beer Company has been good and in line with expectations. In the 33
weeks to 19 May 2007 like-for-like sales in Marston's Inns and Taverns were 6.6%
ahead of last year, with continuing strong growth in food sales.
Ralph Findlay
Chief Executive
Financial review
Underlying
Turnover operating profit Margin
(note 2)
2007 2006 2007 2006 2007 2006
£m £m £m £m % %
Marston's Inns and 154.6 153.1 26.1 25.9 16.9 16.9
Taverns
Marston's Pub Company 97.1 86.4 43.3 38.0 44.6 44.0
Marston's Beer 40.2 41.9 7.4 8.0 18.4 19.1
Company
Central - - (6.4) (4.7) (2.1) (1.7)
Existing operations 291.9 281.4 70.4 67.2 24.1 23.9
Eldridge Pope 12.9 - 0.6 - 4.7 -
acquisition
Sovereign Inns 0.5 - 0.3 - 60.0 -
acquisition
Group 305.3 281.4 71.3 67.2 23.4 23.9
Results
These interim results reflect a strong Group performance. Turnover increased by
8.5% to £305.3 million. Underlying operating profit has risen by 6.1% to £71.3
million and underlying earnings per share has risen by 10.6% to 10.01 pence per
share.
Operating profit after exceptional items was £68.9 million, up 2.5% on the prior
year, and basic earnings per share (after exceptional items) was 9.25 pence per
share, up 2.2% on the prior year.
Growth has been driven by strong like-for-like sales, the benefit of
acquisitions and effective cost control.
Eldridge Pope was acquired on 25 January 2007 and contributed £0.6 million to
underlying operating profit during the period. This modest profit for the two
months post acquisition reflects the seasonality of the business. Interest costs
of £1.7 million were incurred during the period in relation to the additional
borrowings required to acquire Eldridge Pope.
In the current financial year Eldridge Pope is expected to be broadly profit
neutral, and earnings enhancing thereafter. The integration has been completed
successfully and the Group has already secured ongoing synergies of £4.6 million
per annum, which are currently being realised.
Margin
The underlying operating margin of the Group, excluding acquisitions, increased
by 0.2% to 24.1%. This was achieved despite higher energy costs and the increase
in the national minimum wage. Central costs have increased compared to the prior
year principally as a result of one-off costs of £0.5 million associated with
changing our name to Marston's PLC in January 2007 and increased pension costs.
Dividend
The interim dividend is increased to 4.36 pence per share (2006: 3.63 pence per
share), an uplift of over 20% on last year. The Group has increased dividends by
an average of over 10% per annum for more than 30 years. Dividend cover at the
half-year is 2.3 times (2006: 2.5 times).
Acquisition of Eldridge Pope
Eldridge Pope was acquired on 25 January 2007 for £155.1 million, comprising
consideration of £83.2 million for the equity and net debt acquired of £71.9
million. New bank facilities were arranged to fund the acquisition. The Eldridge
Pope properties were valued independently at £128.9 million. Goodwill arising on
the acquisition was £59.1 million (note 7).
Acquisition of Sovereign Inns
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 acquisition was funded from existing bank facilities at that time.
The Sovereign Inns properties were independently valued at £19.1 million.
Goodwill arising on the acquisition was £4.8 million (note 8).
Sale of 279 pubs
Subsequent to the half-year, 279 tenanted pubs were sold 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. The transaction took place on 10 May
2007 and hence does not impact on these interim results. All of the pubs were
included within assets held for sale at 31 March 2007.
Cash flow
The business continues to be highly cash generative with EBITDA (earnings before
interest, tax, depreciation and amortisation) of £89.6 million and net cash
inflow from operations of £69.4 million in the period. The significant movement
in working capital was principally the result of temporary timing differences,
the majority of which are expected to reverse in the second half of this year.
Financing
Net debt at 31 March 2007 was £1,145.7 million, compared to £893.7 million at 30
September 2006, principally reflecting increased borrowings to fund the two
acquisitions and ongoing share buy-backs in the period.
Interest on around 70% of the net debt at 31 March 2007 is fixed by the Group's
fixed rate securitised debt, interest rate swaps and debentures acquired with
Eldridge Pope. The percentage of borrowings at a fixed interest rate is lower
than in the prior year, as a result of additional variable interest rate bank
borrowings to fund the recent acquisitions and share buy-backs.
Net interest costs before exceptional items have increased by £3.5 million
compared to the prior year as a result of increased net debt and base rate
interest rate rises. The approximate impact of a 1% rise in interest rates is an
additional £4 million annual interest cost for the Group.
On a 12-month pro-forma basis to 31 March 2007 the ratio of net debt to EBITDA
was 5.5 times. Interest cover was 2.9 times for the 12 months to 31 March 2007.
The available headroom in the Group's bank facilities at the half-year (prior to
the disposal of 279 tenanted pubs on 10 May 2007) was approximately £120
million.
Share buy-backs
During the interim period the Group purchased 9.1 million Marston's shares for
£40.2 million, which are held as treasury shares. This is part of our share
buy-back programme which we have decided to increase from the £100 million first
announced in December 2006 to £150 million for this calendar year. The
additional return of cash to shareholders follows the sale of 279 pubs on 10 May
2007.
Share split
The Group completed a 4-for-1 share split on 8 January 2007. Historic earnings
per share have been restated to reflect the split (note 6).
Taxation
The underlying rate of taxation (before exceptional items) has reduced to 27.2%
from 31.7% in 2006 (full year 2006: 27.8%), reflecting an increased deferred tax
credit arising from additional indexation on properties. The tax charge in the
interim results is calculated by applying an estimate of the expected effective
rate of taxation for the full year.
Exceptional items
Exceptional costs of £3.2 million (£2.3 million after tax) arose in relation to
the acquisition of Eldridge Pope. Reorganisation costs of £2.4 million were
incurred and a finance cost of £0.8 million was recognised on the write off of
the unamortised finance costs relating to the existing bank facilities,
following the arrangement of new borrowings to fund the acquisition of Eldridge
Pope.
Paul Inglett
Finance Director
GROUP INCOME STATEMENT (UNAUDITED)
for the 26 weeks ended 31 March 2007
26 weeks to 31 March 2007 26 weeks to 1 April 2006 52 weeks to
30 September
2006
Notes Before Exceptional Total Before Exceptional Total Total
exceptional items exceptional items
items items
£m £m £m £m £m £m £m
Revenue
Existing operations 291.9 - 291.9 281.4 - 281.4 595.5
Acquisitions 13.4 - 13.4 - - - -
Total revenue 2 305.3 - 305.3 281.4 - 281.4 595.5
Operating expenses 3 (234.0) (2.4) (236.4) (214.2) - (214.2) (443.2)
Operating profit
Existing operations 70.4 - 70.4 67.2 - 67.2 152.3
Acquisitions 0.9 (2.4) (1.5) - - - -
Total operating
profit 2 71.3 (2.4) 68.9 67.2 - 67.2 152.3
Finance costs 3 (30.5) (0.8) (31.3) (26.8) - (26.8) (52.1)
Finance income 0.8 - 0.8 0.6 - 0.6 1.3
Net finance costs 4 (29.7) (0.8) (30.5) (26.2) - (26.2) (50.8)
Profit before
taxation 41.6 (3.2) 38.4 41.0 - 41.0 101.5
Taxation 5 (11.3) 0.9 (10.4) (13.0) - (13.0) (28.2)
Profit for the
period attributable
to equity
shareholders 30.3 (2.3) 28.0 28.0 - 28.0 73.3
All results relate to continuing operations.
Earnings per share:
As As
restated restated
Basic earnings per
share 6 9.25p 9.05p 23.78p
Basic earnings per
share before
exceptional items 6 10.01p 9.05p 23.78p
Diluted earnings per
share 6 9.14p 8.98p 23.53p
Diluted earnings per
share before
exceptional items 6 9.89p 8.98p 23.53p
A dividend of 4.36p (2006: 3.63p) per ordinary share has been proposed and will
be paid on 29 June 2007.
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE (UNAUDITED)
for the 26 weeks ended 31 March 2007
26 weeks to 26 weeks 52 weeks to
31 March to 1 April 30 September
2007 2006 2006
£m £m £m
Profit for the period 28.0 28.0 73.3
Income/(expense) recognised directly in
equity:
Cash flow hedges 10.7 (3.3) 0.3
Pension scheme actuarial losses - - (18.0)
Unrealised (deficit)/surplus on
revaluation of properties (2.6) 0.2 (3.7)
Tax on items taken directly to equity (0.9) 0.4 10.3
Net gains/(losses) not recognised
in the income statement 7.2 (2.7) (11.1)
Total recognised income for the period 35.2 25.3 62.2
GROUP CASH FLOW STATEMENT (UNAUDITED)
for the 26 weeks ended 31 March 2007
26 weeks to 26 weeks to 52 weeks to
31 March 1 April 30 September
2007 2006 2006
Notes £m £m £m
Operating activities
Operating profit 68.9 67.2 152.3
Depreciation and amortisation 20.7 20.3 39.1
EBITDA* 89.6 87.5 191.4
Working capital and non-cash
movements 10 (19.6) 4.0 2.6
Income tax (paid)/received (0.6) 7.7 (4.0)
Net cash inflow from operating 69.4 99.2 190.0
activities
Investing activities
Interest received 1.1 0.7 1.6
Sale of property, plant and
equipment 12.8 15.9 36.8
Investment in plant and
equipment for existing business (48.1) (39.1) (71.0)
Purchase of new pubs/site
developments (20.9) (11.7) (28.1)
Movement in non-current assets (1.3) (0.5) (2.0)
Acquisition of subsidiaries, net
of cash acquired (95.8) (20.4) (22.4)
Repayment of debt of subsidiaries
upon acquisition (57.9) (10.0) (13.7)
Movement in available-for-sale
investments 31.8 (32.3) (31.8)
Net cash outflow from investing (178.3) (97.4) (130.6)
activities
Financing activities
Equity dividends paid (21.5) (19.8) (31.0)
Issue of shares 0.3 1.3 2.6
Sale of own shares by share trust - 0.8 0.9
Purchase of treasury shares (40.2) - (14.8)
Purchase of own shares for Long
Term Incentive Plan - (4.6) (6.6)
Interest paid (26.4) (21.7) (47.5)
Arrangement costs of new bank
facilities (1.1) - -
Repayment of securitised debt (5.7) (4.7) (10.1)
Issue costs paid on securitised
debt - (0.7) (0.7)
Advance of loans 381.2 76.0 43.0
Repayment of loans (165.0) (48.2) (14.2)
Repayment of loan notes (0.7) - (0.8)
Capital element of finance leases
repaid (0.1) (0.1) (0.1)
Movement in other financial assets (2.1) - -
Net cash inflow/(outflow) from
financing activities 118.7 (21.7) (79.3)
Net increase/(decrease) in cash
and cash equivalents 11 9.8 (19.9) (19.9)
Reconciliation of net cash flow
to movement in net debt
Increase/(decrease) in cash
and cash equivalents in the
period 11 9.8 (19.9) (19.9)
(Decrease)/increase in
available-for-sale
investments (31.8) 32.3 31.8
Increase in other financial
assets 2.1 - -
Cash inflow from increase in
debt (209.7) (23.0) (17.8)
Change in debt resulting from
cash flows 11 (229.6) (10.6) (5.9)
Net debt acquired with subsidiaries 11 (22.0) (14.2) (14.2)
Non-cash movements 11 (0.4) (1.3) (1.8)
Movement in net debt in the period (252.0) (26.1) (21.9)
Net debt at beginning of period 11 (893.7) (871.8) (871.8)
Net debt at end of period 11 (1,145.7) (897.9) (893.7)
* EBITDA - Earnings before interest, tax, depreciation and amortisation
GROUP BALANCE SHEET (UNAUDITED)
as at 31 March 2007
As restated
31 March 1 April 30 September 2006
2007 2006 £m
Notes £m £m
Assets
Non-current assets
Intangible assets 6.8 5.2 5.5
Goodwill 212.3 147.1 148.3
Property, plant and 1,711.2 1,594.3 1,584.0
equipment
Deferred tax assets 51.1 46.8 48.9
Financial assets: other 2.1 - -
receivables
Other non-current assets 24.4 24.2 23.1
2,007.9 1,817.6 1,809.8
Current assets
Inventories 16.1 14.6 12.8
Assets held for sale 84.9 2.7 26.2
Trade and other 58.9 50.1 50.6
receivables
Derivative financial 2.4 - -
instruments
Financial assets: - 32.3 31.8
available-for-sale
investments
Cash and cash equivalents 36.8 64.6 39.8
199.1 164.3 161.2
Liabilities
Current liabilities
Borrowings (65.4) (64.0) (38.6)
Derivative financial - (0.6) (0.5)
instruments
Trade and other payables (114.3) (100.5) (108.1)
Current tax liabilities (20.1) (12.7) (11.2)
(199.8) (177.8) (158.4)
Non-current liabilities
Borrowings (1,119.2) (930.8) (926.7)
Derivative financial (6.3) (17.8) (14.3)
instruments
Pension commitments (72.2) (45.6) (53.1)
Deferred tax liabilities (171.6) (164.9) (162.6)
Other non-current (0.3) (0.9) (0.7)
liabilities
Provisions (9.0) (2.1) (2.0)
(1,378.6) (1,162.1) (1,159.4)
Net assets 628.6 642.0 653.2
Shareholders' equity
Equity share capital 23.0 22.8 23.0
Share premium account 187.8 186.4 187.5
Merger reserve 41.5 41.5 41.5
Revaluation reserve 310.5 311.6 311.2
Capital redemption reserve 6.0 6.0 6.0
Hedging reserve (2.9) (12.9) (10.4)
Own shares (61.7) (4.8) (21.5)
Retained earnings 124.4 91.4 115.9
Shareholders' equity 12 628.6 642.0 653.2
NOTES
1 Basis of preparation of interim financial information
This interim financial information has been prepared in accordance with the
accounting policies as set out in the accounts for the 52 weeks ended 30
September 2006. The Group has not adopted IAS 34 'Interim Financial Reporting';
this standard is not mandatory in the United Kingdom.
The financial information for the 52 weeks ended 30 September 2006 is extracted
from the audited accounts for that period, which have been delivered to the
Registrar of Companies. The auditors' report was unqualified and did not contain
a statement under Section 237 (2) or (3) of The Companies Act 1985.
The balance sheet at 1 April 2006 has been restated to reflect the Group's
adoption of the Amendment to IAS 19 'Employee Benefits' and a deferred tax asset
in respect of derivative financial instruments that was not previously recorded.
Available-for-sale investments have been presented separately from cash and cash
equivalents. These items were reflected in the accounts for the 52 weeks ended
30 September 2006 and hence are applied consistently in this interim financial
information.
On 8 January 2007 the name of the Company was changed to Marston's PLC (formerly
The Wolverhampton & Dudley Breweries, PLC) and this is consistent throughout
this financial information.
2 Segmental analysis
The names of the trading divisions were changed on 8 January 2007 to Marston's
Inns and Taverns (formerly Pathfinder Pubs), Marston's Pub Company (formerly The
Union Pub Company) and Marston's Beer Company (formerly WDB Brands).
31 March 2007
Marston's Marston's Marston's
Inns and Pub Beer Eldridge Sovereign
Taverns Company Company Pope Inns Central Unallocated Total
£m £m £m £m £m £m £m £m
Revenue 154.6 97.1 40.2 12.9 0.5 - - 305.3
Operating profit
before exceptional
items 26.1 43.3 7.4 0.6 0.3 (6.4) - 71.3
Exceptional items - - - (2.4) - - - (2.4)
Operating profit
after exceptional
items 26.1 43.3 7.4 (1.8) 0.3 (6.4) - 68.9
Net assets 715.2 941.4 109.6 179.0 23.9 21.9 (1,362.4) 628.6
Included above are nine weeks trading by Eldridge Pope (note 7) and eleven weeks
trading by Sovereign Inns (note 8). Eldridge Pope includes managed and tenanted
houses and a free trade business. Sovereign Inns consists of tenanted houses
only.
Goodwill on acquisitions is included within the net assets of the relevant
segment.
1 April 2006
Marston's Marston's Marston's
Inns and Pub Beer
Taverns Company Company Central Unallocated Total
£m £m £m £m £m £m
Revenue 153.1 86.4 41.9 - - 281.4
Operating profit
before exceptional
items 25.9 38.0 8.0 (4.7) - 67.2
Exceptional items - - - - - -
Operating profit
after exceptional
items 25.9 38.0 8.0 (4.7) - 67.2
Net assets 777.0 820.8 115.4 21.5 (1,092.7) 642.0
Unallocated comprises net debt, tax, derivatives and pension commitments.
3 Exceptional items
31 March 1 April
2007 2006
£m £m
Costs of reorganisation of newly acquired subsidiaries 2.4 -
Write-off of unamortised finance costs following arrangement of
new bank facilities 0.8 -
3.2 -
The funding of the acquisition of Eldridge Pope (note 7) during the period
necessitated a renegotiation of the Group's borrowing facilities.
NOTES
4 Finance costs and income
31 March 1 April
2007 2006
£m £m
Finance costs
Bank interest payable 7.4 2.9
Securitised debt interest payable 21.0 21.3
Other interest payable 0.4 0.7
Amortisation of issue costs on securitised debt 0.6 0.5
Amortisation of issue costs on bank loan 0.1 0.1
Net finance expense in respect of retirement benefits 1.0 1.3
Exceptional finance costs (note 3) 0.8 -
31.3 26.8
Finance income
Deposit and other interest receivable (0.8) (0.6)
Net finance costs 30.5 26.2
5 Taxation
The taxation charge for the 26 weeks ended 31 March 2007 is calculated by
applying an estimate of the effective tax rate for the 52 weeks ending 29
September 2007.
31 March 1 April
2007 2006
£m £m
Current tax 9.5 11.4
Deferred tax 0.9 1.6
10.4 13.0
Changes announced in the Budget 2007 have not yet been substantively enacted and
therefore the impact has not been reflected in the estimate of the effective tax
rate for the year.
6 Earnings per ordinary share
31 March 2007 1 April 2006
As As
restated restated
Weighted Weighted
average Per average Per
number share number share
Earnings of shares amount Earnings of shares amount
£m m p £m m p
Basic earnings per share 28.0 302.7 9.25 28.0 309.3 9.05
Diluted earnings per share 28.0 306.5 9.14 28.0 311.7 8.98
Underlying earnings per
share figures
Basic earnings per share
before exceptional items 30.3 302.7 10.01 28.0 309.3 9.05
Diluted earnings per share
before exceptional items 30.3 306.5 9.89 28.0 311.7 8.98
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 8 January
2007.
Basic earnings per share is calculated by dividing the profit after tax by the
weighted average number of shares in issue during the period excluding treasury
shares and those held in the Employee Share Ownership Plan and 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 dilutive options is
to increase the weighted average number of shares by 3.8m (2006: 2.4m).
Underlying earnings per share figures are presented to exclude the effect of
exceptional items. The Directors consider that the supplementary figures provide
a useful indication of performance.
NOTES
7 Acquisition of 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 31 March 2007.
Book value Fair value Provisional
adjustments fair value
Revaluations Other
£m £m £m £m
Non-current assets 107.0 28.3 0.4 135.7
Current assets 11.3 - 0.2 11.5
Current liabilities (20.9) - - (20.9)
Non-current liabilities (81.0) (14.8) (5.4) (101.2)
Net assets acquired 16.4 13.5 (4.8) 25.1
Cash consideration
(including acquisition
fees of £1.0m) 84.2
Goodwill arising on
consolidation 59.1
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 84.2
Net cash held by subsidiary (2.4)
81.8
Acquisition of debt
Immediate repayment of subsidiary's debt 52.3
Net cash outflow in respect of the acquisition 134.1
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.
8 Acquisition of 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 31 March 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.
NOTES
9 Prior period acquisitions
On 17 March 2006 the Group acquired Celtic Inns Holdings Limited. The fair value
adjustments stated in the accounts for the 52 weeks 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 31 March 2007 and recorded
as a fair value adjustment.
10 Working capital and non-cash movements
31 March 1 April 30 September
2007 2006 2006
£m £m £m
Income from non-current assets (0.3) (0.2) (0.4)
Difference between defined benefit pension 1.1 - (10.5)
contributions paid and amounts charged
(Increase)/decrease in inventories (1.2) (1.0) 1.0
(Increase)/decrease in trade and other receivables (1.3) 3.0 1.4
(Decrease)/increase in trade and other payables (17.1) 2.4 11.4
Profit on disposal of property, plant and (1.7) (0.8) (5.1)
equipment
Impairment of properties prior to transfer to 0.3 - 3.8
assets held for sale
Share based payments 0.6 0.6 1.0
Working capital and non-cash movements (19.6) 4.0 2.6
11 Analysis of net debt
31 March 30 September
2007 Cash flow Non-cash flow Acquisitions 2006
£m £m £m £m £m
Cash and cash
equivalents
Cash at bank and in 36.8 (3.0) - - 39.8
hand
Bank overdraft (6.4) 12.8 - - (19.2)
30.4 9.8 - - 20.6
Financial assets
Available-for-sale - (31.8) - - 31.8
investments
Other receivables 2.1 2.1 - - -
2.1 (29.7) - - 31.8
Debt due within one
year
Loan notes (8.4) 0.7 - - (9.1)
Bank loans (39.7) (40.2) 0.3 - 0.2
Securitised debt (10.8) 5.7 (6.1) - (10.4)
Finance leases (0.1) 0.1 (0.1) - (0.1)
(59.0) (33.7) (5.9) - (19.4)
Debt due after one
year
Loan notes (2.1) - - (2.1) -
Bank loans (330.5) (176.0) (0.2) - (154.3)
Securitised debt (766.6) - 5.5 - (772.1)
Finance leases (0.1) - 0.1 - (0.2)
Loan stock (0.1) - - (0.1) -
Debentures (19.7) - 0.1 (19.8) -
Preference shares (0.1) - - - (0.1)
(1,119.2) (176.0) 5.5 (22.0) (926.7)
(1,145.7) (229.6) (0.4) (22.0) (893.7)
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. Other receivables
represent cash collateralised in respect of the acquired loan notes.
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.
NOTES
12 Movements in total equity
As restated
31 March 1 April 30 September
2007 2006 2006
£m £m £m
Total equity at beginning of the period 653.2 650.8 650.8
Effect of adoption of IAS 32 and IAS 39 on 2 - (10.6) (10.6)
October 2005
Restated total equity at beginning of the 653.2 640.2 640.2
period
Total recognised income for the period 35.2 25.3 62.2
Dividends paid (21.5) (19.8) (31.0)
Proceeds of ordinary share capital issued 0.3 1.3 2.6
Sale of own shares from share trust - 0.8 0.9
Purchase of own shares held as treasury shares (40.2) - (14.8)
Purchase of own shares by share trust - (4.6) (6.6)
Share based payments 1.6 0.8 1.7
Equity minority interests - (2.0) (2.0)
Net movement in total equity (24.6) 1.8 13.0
Total equity at end of the period 628.6 642.0 653.2
13 Events after the balance sheet date
An interim dividend of £12.9m, being 4.36p (2006: 3.63p) per ordinary share, has
been proposed and will be paid on 29 June 2007 to those shareholders on the
register at the close of business on 8 June 2007. This interim financial
information does not reflect this dividend payable.
On 10 May 2007 the Group sold 279 tenanted pubs to Piccadilly Licensed
Properties Limited for a cash consideration of £82.5m, generating no profit or
loss on disposal after the recognition of associated selling costs.
14 Interim report
The interim report was approved by the Board on 25 May 2007.
15 Copies
Copies of this report have been sent to shareholders and are available to the
public on request from: The Company Secretary, Marston's PLC, Marston's House,
Wolverhampton, WV1 4JT.
This information is provided by RNS
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