REG - Marston's Plc - RESULTS FOR THE 26 WEEKS ENDED 2 APRIL 2022
18/05/2022 07:00
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RNS Number : 8415L Marston's PLC 18 May 2022
18 May 2022
MARSTON'S PLC
RESULTS FOR THE 26 WEEKS ENDED 2 APRIL 2022
CONTINUED STRATEGIC MOMENTUM, TRADING NORMALISED, SOLID BALANCE SHEET;
CLEAR GROWTH PLANS
Marston's, a leading UK operator of 1,482 pubs, today announces its Interim
Results for the 26 weeks ended 2 April 2022. The period under review, which
commenced on 3 October 2021, included a period of disrupted trading in
December due to the Omicron variant of COVID-19.
Return to more normalised trading despite COVID disruption
· H1 like-for-like sales 97% of 2019 despite restrictions over
Christmas trading period
· Brains estate performing well despite longevity of restrictions in
Wales
· Return to pub operating profit; £39.9 million (H1 2021: loss of
£(57.2) million)
· CMBC profitability impacted in H1, anticipate improvement in H2
Strong H1 cash generation; improving balance sheet
· £30 million H1 cash inflow from operating activities; underlying
net cash inflow (excluding one-offs) of £13 million. Further cash inflow
anticipated in H2
· Net asset value (NAV) improved by 7 pence per share since October
2021; disposals 35% ahead of net book value
· Financial strategy on track to reduce net debt to below £1 billion
by 2025
"Pubs to be proud of" underpinned by significant change management programme
underway
· Revitalised leadership group; 30% new to role including 5 external
recruits
· Clear plans to reposition pub estate into simplified segmental
structure to generate strong returns: Community, Signature and Revere
o 10 conversions completed in H1; 8 planned for H2
· Menu overhaul driving simplicity and efficiency without
compromising guest satisfaction
· Recruit, Reward, Retain: innovative people plans in challenging
labour market
Well-positioned to meet challenging market conditions
· Pubs historically resilient to challenging consumer environments
· Current trading in line and stable, with like-for-like sales in the
last 6 weeks slightly higher relative to 2019
· Well-positioned, predominantly freehold pub estate with limited
exposure to city centres
· Managing inflationary challenges within our control
· No compromise on guest experience: service, standards, product
· Accelerated transition away from Two for One format, complete by
October 2022 to improve returns
Financial Highlights
Underlying* Total*
2022 2021 2022 2021
Total revenue £369.7m £55.1m £369.7m £55.1m
Pub operating profit/(loss) £39.9m (£57.2)m £45.9m £(59.4)m
Share of associate £(2.0)m £(20.6)m £(2.0)m £(20.6)m
Profit/(loss) before Tax £(7.5)m £(122.4)m £25.6m £(105.5)m
Net profit/(loss) £(6.1)m £(107.6)m £19.4m £(92.5)m
Earnings/(loss) per share (1.0)p (17.0)p 3.1p (14.6)p
Net cash (outflow)/inflow £(8.9)m £109.5m
*Results from continuing operations
· The financial performance for the period reflects the disruption to
trading from the pandemic during the key Christmas trading period and through
to January 2022
· Solid balance sheet position with c. £90m of headroom (banking and
cash facilities)
Commenting, Andrew Andrea, CEO said:
"We are pleased that since restrictions lifted trading has largely normalised
enabling us to return to profitable trading, as well as focusing - and making
considerable progress - on our strategic growth plans towards achieving £1
billion of sales. We remain on track to reduce the Group's debt by the end
of FY2022.
"We continue to evolve our estate to maximise returns and will have
transitioned away from the value food segment, our Two for One brand, by the
end of September. Investment into our estate through conversions and
refurbishments continued in H1, with a further eight projects scheduled in H2,
targeting a minimum return of 30%.
"Whilst mindful of the challenges which every hospitality business currently
faces, trading remains stable and we look forward to an uninterrupted summer.
We are navigating our way through cost increases, mitigating these as much
as we can through cost efficiencies and pricing strategies, whilst welcoming
customers back without compromise to the best Marston's guest experience.
The pub remains the home of affordable socialising and has continually
proven its resilience in previous times of economic challenge. We are
operating a "business as usual" mindset, positioning the Group's balanced and
well invested pub estate for future sustainable like-for-like growth over the
medium to long term."
ENQUIRIES:
Marston's PLC Tel: 01902 329516 Instinctif Partners Tel: 020 7457 2010/2005
Andrew Andrea, Chief Executive Officer Justine Warren
Hayleigh Lupino, Chief Financial Officer Matthew Smallwood
NOTES TO EDITORS
· Marston's is a leading pub operator with a 40% holding in Carlsberg
Marston's Brewing Company
· It operates an estate of 1,482 pubs situated nationally, comprising
managed, franchised and leased pubs
· Marston's employs around 12,000 people
· The Group uses a number of alternative performance measures (APMs)
to enable management and users of the financial statements to better
understand elements of financial performance in the period. APMs referenced
within this report are explained in the Performance and Financial Review
section.
GROUP OVERVIEW
2022 PERFORMANCE OVERVIEW
As we entered the current financial year under review, encouraging trading
momentum in October and November continued to build on the strong consumer
demand we had experienced since restrictions were eased in summer 2021.
Promising levels of Christmas forward bookings in line with FY2019 indicated
a potentially buoyant Christmas and New Year trading period before the
emergence of the Omicron variant and the subsequent introduction of renewed
restrictions temporarily impacted trading momentum once again. The Group's
pubs in Wales and Scotland were more significantly affected than those in
England as tighter restrictions were enforced for longer in those geographies.
Whilst the first half year results illustrate the influence of the trading
restrictions imposed as a consequence of the Omicron variant in December,
impacting the critical Christmas trading period and through to the end of
January, we remain encouraged that we have traded well either side of that
period when restrictions have been lifted and consumer demand for our pubs has
remained robust. With the impact of COVID hopefully now behind us and
despite the well documented cost inflation which all businesses are facing
currently, we are operating a "business as usual" mindset, positioning the
Group's well-balanced and well-invested pub estate for future sustainable
like-for-like growth over the medium to long term.
As more normalised trading has returned, there is clear evidence that demand
for the pub remains strong and people are seeking to socialise. Following the
launch of our "Pubs to be proud of" strategy as described below, in the last
six months the business has undergone a significant programme of change
management, including the external appointment of 5 key leadership roles,
which will put Marston's in a robust position to take advantage of the
opportunities that arise as the UK emerges from the pandemic.
Trading
Total revenue for the 26 weeks ended 2 April 2022 was £369.7 million (H1
2021: £55.1 million)(1); this is significantly higher than the same period
last year reflecting the disruption to H1 2021 trading as a consequence of the
pandemic, but also includes some disruption to revenue in this period
following Omicron restrictions. The Group's pubs in Wales and Scotland were
more significantly impacted than those in England by the tighter restrictions
that were enforced during the period.
Total like-for-like sales(2) for the period were 97% of FY2019, being the
relevant pre-COVID comparator period, reflecting the impact of the Omicron
variant and consumer sentiment related to this during the critical Christmas
trading period. Total EPOS sales in our managed and franchise pubs were 99%
of H1 2019. Drinks sales have outperformed food sales during the period.
Prior to the emergence of the Omicron variant and the introduction of renewed
restrictions, like-for-like sales(2) in the first eight weeks to 27 November
were +1.3%, like-for-like sales(2) declined by (8.8)% in the following eight
weeks as a result of the disruption. The final ten weeks of the period to 2
April 2022 were (0.9)% below FY2019.
The underlying(3) loss before tax was £(7.5) million (H1 2021: loss of
£(122.4) million)(1). Basic underlying(3) loss per share for the period was
(1.0) pence per share (H1 2021: loss of (17.0) pence per share)(1).
Underlying(3) operating profit of £37.9 million (H1 2021: loss of £(77.8)
million)(1) comprises underlying(3) pub profit of £39.9 million (H1 2021:
loss of £(57.2) million)(1) and loss from associates of £(2.0) million (H1
2021: loss of £(20.6) million)(1).
On a statutory basis, the Group generated a profit before tax of £25.6
million (H1 2021: loss of £(105.5) million)(1). The difference between the
statutory and underlying(3) profit principally reflects £27.4 million of
interest rate swap movements, as well as £6.5 million of VAT claims; the
Group has submitted claims to HM Revenue & Customs (HMRC) in respect of
the VAT treatment of gaming machines from 1 January 2006 to 31 January 2013.
Basic earnings per share were 3.1 pence per share (H1 2021: 31.5 pence per
share). The H1 2021 basic earnings per share comparative includes the impact
of the sale of the Brewing business.
Cash, Financing and Balance Sheet
During the period the Group had a net cash outflow(4) of £(8.9) million, as
highlighted in note 10; the net cash outflow(4) excluding IFRS 16 lease
liabilities was £(13.4) million(5). This included a £22 million net outflow
for the one-off items outlined in the Preliminary Results Presentation in
November 2021 relating to £50 million deferred duty/VAT and the £28 million
CMBC contingent consideration. Excluding the one-off items, there is an
underlying net cash inflow(4) of £13 million.
Net debt, excluding IFRS 16 lease liabilities and largely secured on our 82%
freehold estate, was £1,246.5 million (FY2021: £1,232.3 million)(4), with
the increase driven by the cash flows outlined above as a result of the
increased investment in capital expenditure, and other non-cash movements
shown in note 10. Total net debt of £1,619.7 million includes IFRS 16 lease
liabilities of £373.2 million.
We have secure medium-term financing in place with banks and our private
placement. At the period end we had a £280 million bank facility available
until 2024, of which £230 million was drawn providing headroom of £50
million. Cash balances were £39 million. In addition, we have a £40 million
private placement in place until 2024.
During the period under review we were successful in reaching agreements with
our lending banks and private placement provider to make appropriate
amendments in respect of certain financial covenants, with amendments in place
until Q2 2023. This support underlines the importance of good, long-term
relationships with all our stakeholders, and we thank them for their continued
support.
Marston's has secure long-term financing in place in the form of a
securitisation. We satisfied the scheduled repayment for Q1, demonstrating
solid cash generation even under trading restrictions. At the period close
there is £20 million of the £120 million securitisation liquidity facility
utilised, with repayment expected by October 2022.
Naturally, the trading restrictions due to the pandemic have impacted
performance and, due to the seasonality of the business, the Group's financial
results and cash flows have therefore been disproportionately affected in the
first half. Historically, the second half of the financial year sees higher
revenue, profitability and cash generation.
This trend also applies to CMBC, with the pandemic and the current macro
environment having an impact on CMBC's current trading results which will
impact the 2022 out-turn. However, we remain confident that there will be
future dividends from CMBC when there is a return to more normalised market
conditions and, as previously reported, the synergy upsides are generated from
the completion of the integration programme.
The financial statements continue to be prepared on a going concern basis but
with a material uncertainty arising from the ongoing impact of COVID and
possible future lockdowns which may require further amendments to certain
financial covenants. Full details are included in note 1 to the financial
statements.
Dividend
The Board confirms that given the disruption to trading and the road to
recovery from COVID in the current financial year, and the current
uncertainty, there is no intention to pay dividends in respect of financial
year 2022. The Board is cognisant of the importance of dividends to
shareholders and intend to keep potential future dividends under review.
Current Trading and Outlook
Trading since the half year end remains encouraging despite the current
inflationary pressures households are facing, with increased cost of living
from energy bills and food. Total like-for-like sales in our managed and
franchised pubs are slightly higher relative to 2019. We have significantly
reappraised the menus across the business, launching them in the first week of
April with positive initial customer feedback.
Whilst our "Two for One" format which currently operates in 76 pubs has served
us well over the years, it has become more challenged more recently and we
have therefore taken the opportunity to reposition this part of the portfolio.
During the first half year we have successfully trialed a switch from the
Two for One price mechanic to a single price point which has delivered an
encouraging sales outperformance relative to the control group. As a
consequence, we have decided to accelerate the removal of Two for One from the
portfolio with a view to completing this exercise by the end of the current
financial year. These pubs will continue to follow the segmental journey
outlined below in future years; however, we are confident that swift action
will improve the performance of these pubs in the interim.
Cost and labour pressures continue to be prevalent and will be higher than
initially anticipated at the start of the financial year. As previously
highlighted the Group's electricity contract ended at the end of March and the
current situation with Russia and Ukraine has also had an impact on energy and
supply of goods. We are working hard to mitigate as many of these cost
pressures as possible and we expect to offset some of these higher levels of
inflation through a combination of cost efficiencies and pricing strategies,
however, there will inevitably be some impact on our earnings for the year
despite the mitigating actions. Nevertheless, we are not prepared to
compromise the quality of both product and service in our pubs; we are
unrelentingly focussed upon delivering great guest experiences.
Looking forward, whilst consumer sentiment may come under some short-term
pressure, we are not experiencing any material trading evidence of that
currently. Irrespective, the pub, and specifically the community pub, where
the majority of our estate is located, has proved its resilience time and time
again over history. Both our customer insight and experience implies that
people still want to socialise, with the pub historically being the place to
fulfil that "affordable socialising" occasion, prioritising experience and
leisure expenditure over bigger ticket spend which tends to be curtailed.
Post-pandemic trading clearly demonstrated the demand for the local pub in
our communities and we remain confident that it will prevail in both the short
and longer term. We have injected additional investment into our pubs, our
marketing and our people to ensure the prospects for the business are strong
for the medium to longer term.
STRATEGIC PRIORITIES
Strategic and Operational Review
At the 2021 Preliminary Results we set out our new vision "Pubs to be proud
of" with a purpose "to bring people together, to create happy, memorable,
meaningful experiences". This vision embodies our cultural DNA of being a pub
operator at our core, whilst focusing on consistently delivering high levels
of guest satisfaction and standards through our great pub teams.
Underpinning this vision are clear operational targets which are being
measured by external customer and employee led endorsement such as Reputation,
EHO and Peakon, together with the evolution of a stronger sales culture aimed
at further improving both footfall into our pubs and spend per guest visit.
Importantly, the targets set at pub level form part of the incentive targets
across the business, including the Board and Executive team, to provide
consistency of focus at all levels.
Our Corporate Goals
The corporate goals underpinning the vision are twofold:
"Better than the Rest": Consistent medium and long-term outperformance of
the market in both food-led and wet-led pubs.
"Back to a Billion": This encompasses two financial targets, namely:
- Achieving sales of £1 billion by 2025 - this requires around £200
million of sales growth from the pre-pandemic levels, including Brains, over
the next four years
- Reducing net debt to below £1 billion by 2025 - this is consistent
with our previously stated financial strategy
In delivering these goals we will drive shareholder value by creating a
business that is growing sales, earnings and cash generation, reducing debt
levels and increasing the underlying NAV of the business through increasing
returns.
Delivering our Goals: Making progress on our Three Strategic Pillars
Guest Obsessed - this pillar ensures that our guests are at the heart of all
of our decisions and everything we do.
Insight and data driven decisions
As previously announced, we launched a new guest insight platform, Reputation,
in October, which generates a Reputation score for each of our 1,500 pubs
based on social media feedback, regardless of operating model. This has now
embedded itself across our business with very strong engagement in our pub
teams. Our score has increased by 100 since inception, but we see
opportunity to improve this score further with the target for pubs being a
minimum score of 800. The functionality of Reputation also enables the pub
teams to understand exactly what specific elements of service need to improve
on a pub by pub basis.
We continue to take advantage of the benefits of our new EPOS system, which
enables us to make more targeted commercial decisions, and more detailed
target setting at pub level, with daily targets now set for every lunchtime
and evening session.
Evolution of our estate
In response to changing market dynamics, we have categorised our pubs into
three core trading formats to meet changing consumer trends, thereby reducing
our exposure to a pure mainstream offer synonymous with discounting and a
focus on price over experience, and maximise the trading opportunity in each
pub. Importantly, consistency remains key across all formats. Conversion
of the estate to these categories will take place over the next four years:
· "Community" these are good value, local pubs at the heart of their
community. We have both food-led and wet-led pubs in this category. We are
unlocking growth through zoning that clearly defines the bar and dining areas
of the pub. Where we have adopted this model, we have seen growth from
increased drinks volume whilst continuing to deliver strong food sales.
· "Signature" in this format we elevate the everyday for our guests
placing an emphasis on a warm, timeless country-pub atmosphere with food and
drink provenance at the fore. We target a frequency of 1-2 visits per month,
in suburban towns and villages where quality of food, a friendly welcome and
familiarity are key drivers.
· "Revere" is our most aspirational offer. Guests visiting these pubs
have a higher level of disposable income, are well-travelled, eat out
frequently and are willing to pay for an elevated experience. In addition, a
Signature guest will trade up to a Revere pub or bar for a special occasion.
As we set out in our Preliminary Results in 2021, our immediate priority was
our food-led business and we have a clear journey to reposition the food-led
estate over the course of the next four years. We have concluded the same
exercise with our c. 900 managed and franchised wet-led pub business. The
review indicates that c. 90 pubs should be converted to Signature over the
next four years, and we are planning to convert our first Signature wet-led
pub later this year.
Guest Driven Category Management
Quality of food and drink is the single biggest influencer of guest
satisfaction and during the period we have undertaken a full review of our
menus, both in terms of menu numbers and number of dishes on the menu.
Consequently, we have streamlined the Group's menus across the estate,
significantly reducing the number of menus and aligning them to the Community,
Signature and Revere customer segmentation. In addition, we have reduced the
size of the menu by at least 35%-50% without compromising customer
satisfaction. The new menus were launched on 5 April and initial guest and
team feedback is very positive. We plan to complete a similar exercise for
our drinks range by the end of June. As part of this review we have also
completed an insight driven review of our pricing architecture and strategy.
This has enabled us to take pricing decisions more confidently and
significantly reduced the number of price bands within the business.
This exercise has significantly simplified our business, and whilst the
primary driver of the decisions is through guest and operational insight, this
will drive efficiencies in operating our business going forward.
Enhancing the Guest Journey
During the pandemic we saw an increasing proportion of our business being
pre-booked relative to impulse visits and our view is that this trend is
likely to continue. During the period we have rolled out the Collins booking
system into our managed pubs and have trialled centralised call booking
services. Both initiatives enhance the booking journey by making it easy to
make reservations for our customers and ensure we capture maximum sales.
Raise the Bar - this pillar focuses on ensuring we raise our standards in
everything we do and are driven by continuous improvement.
Investing in people
We employ 12,000 people directly in our c. 530 managed pubs and an estimated
10,000 indirectly in our c. 950 franchise and leased pubs. Our people are at
the heart of creating a "Pub to be proud of" and engaging and investing in our
teams to help them improve the performance is critical to our success. In the
last six months, we have overhauled our 28 strong leadership group, with 10
role changes being filled with either external hires or internal promotion.
Reward - the challenge of attracting talent into the sector has been well
documented, but we believe working in hospitality either on a casual basis or
as a career choice is incredibly attractive. However, we recognise that
economically we need to ensure we are offering attractive rates of pay
relative to other sectors in order to attract the best talent. In March we
increased the minimum hourly wage rates in the business ahead of the national
minimum wage rates for all age groups. The annual cost of this measure is
around £3.5 million but we view this as a key investment in people that will
pay for itself through improved service standards and ensure even lower rates
of churn.
Resourcing - having appointed a new Director of Resourcing in the period, we
have introduced several innovative initiatives to improve our recruitment
programme. App-based recruitment platforms are facilitating shorter hiring
timelines and have improved our digital communication strategy to ensure we
tap into all relevant social media channels. Our apprenticeship programme
continues to attract young talent and the stars of the future, with 62
apprentices hired in the first half of the year.
Training and development - we have introduced a more agile and dynamic
training and development agenda into Marston's through our two digital
platforms, Attensi and Campus, to ensure we can identify development needs
quickly and offer innovative training solutions. In addition, we have launched
a digital review platform to facilitate more frequent performance and
development conversations.
Communication and engagement - the pandemic reinforced the paramount
importance of regular and effective communication with our teams. We have
introduced the Peakon engagement system this year which provides a platform
for quick and regular feedback to and from our people. As described above
for managed pubs, the Peakon score forms part of the bonus structure. We
have appointed an agency to further enhance our employer brand to ensure
Marston's is seen as the number one place to come and work in the pub sector.
Operational excellence
During the period we reorganised the senior operations team reporting into the
two operations directors, which included the external recruitment of two
Directors of Operations in our food-led business and an internal promotion to
Director of Operations in our wet-led team. This has further raised the
calibre of our operations team in addition to bringing continued fresh
thinking into the team to challenge our existing ways of working and evolve.
As described above, we aspire to achieve the goals underpinning the vision in
all of our pubs. In addition to providing excellent guest experiences
evidenced through the satisfaction scores, we are focused on ensuring that the
guest experience is delivered in pubs by operating to the appropriate
standards with a clear target EHO score. We have launched a standards drive
across our pubs with a new audit app, and have included health and safety
scores in bonus schemes for the first time this year.
We will Grow - this pillar focuses on the actions that will drive the £1
billion sales target.
Effective Capital Expenditure - "Make Capex Great"
One of the key drivers of our organic growth plans is the capital investment
programme for both maintenance and conversion purposes. We have reappraised
our internal capital processes under the "Make Great" banner. The cross
functional review has had input from all departments across the business to
ensure we are maximising returns from our investments.
From a maintenance perspective, it is critical that the fabric of our pubs is
not compromised, regardless of segment. We announced at the Preliminary
Results that we had formalised the planned maintenance programme and reduced
the maintenance cycle from six to four years. Our aspiration is to reduce
this further to three years in the medium term at an annual cost of around
£40 million per annum.
Our investment capital plans are defined by the segmentation exercise referred
to above. As such, we have clear visibility of which pubs we plan to convert
over the course of the next four years. This provides us with a long lead
time ahead of the investment itself and permits our commercial, recruitment
and training teams to comprehensively plan support for each investment. This
new process is already proving successful with 10 conversions completed in the
first half year and performance ahead of the capital appraisal.
Following the disruption of the Omicron variant, we have deferred some of this
year's programme but still intend to convert 8 pubs in the second half year.
Looking forward, as previously guided we intend to convert at least 50 pubs
per annum with annual conversion spend of £20-£25 million per annum.
Continued evolution of franchise
In 2021 we introduced a unique new franchise agreement, "Pillar", which
enabled leased pubs with an independent food offer to receive all of the
positive elements of a franchise-style arrangement without compromising their
food proposition. We have now rolled out this agreement to 51 pubs. The
combination of food entrepreneurial flair from the licensee, together with
Marston's drink expertise and cost efficiencies, has driven growth in both the
sales and profit of these pubs, economically benefitting both parties.
In addition, we are trialling the franchise model in 4 food-led pubs with
encouraging initial trading. We are reviewing the extent to which franchise
could be rolled out further into the food-led estate.
Creating a stronger sales culture - Project Boost
We are seeking to engender a more entrepreneurial culture through all of our
pubs irrespective of whether they are managed or partnership. Project Boost
is designed to create a reward structure over and above the base salary and
bonus scheme or operating partner share, to recognise and celebrate
outstanding performance.
To that end we removed the cap on our operational bonuses ensuring our pub
teams and operating partners are focused on maximising sales over and above
the annual targets. We have recently announced the "800 Club" initiative,
rewarding those pubs with a Reputation score in excess of 800 and a 5* EHO
score. The scheme operates a quarterly "retain it or lose it" with the
qualifying licensees receiving a cash reward at the end of each quarter. The
feedback we have received on this initiative has been excellent.
For our front of house teams, we are in the process of trialling a series of
footfall and trading up incentives to understand which of these drives sales
uplift at key times of the year.
ESG - Roadmap to Net Zero
Marston's has always maintained a proactive approach to ESG. We view ESG as
integral to our operations and of increasing relevance to all of our
stakeholders: employees, suppliers, investors and most importantly, guests.
Last year we set out our commitment and plans to achieve net zero by 2030, and
by then we anticipate being in a position whereby we achieve a 90% reduction
of our emissions for Scope 1 and 2 through identified actions with a 10%
offset required to become carbon neutral across Scope 1 and 2. This roadmap
remains unchanged and is perhaps more economically relevant given the position
regarding global energy supply in the medium term. We also believe there is
a significant opportunity to drive down energy usage in pubs through improved
working practices and we have recently launched the "Going Green" initiative
in our pubs which uses weekly league tables and incentivisation to encourage
our pubs to focus on day-to-day reduction in usage.
In addition, we are committed to reducing food waste and are in the process of
setting out actions and targets to significantly reduce wastage in the medium
term. We will set this out in more detail in the Preliminary Results.
From a social perspective, pubs are an invaluable local hub and our focus is
on two areas:
Charity - the importance that local pubs play in contributions to charity is
long held. We are in the process of reviewing how we more effectively
channel our efforts to support both local and national charities, with a view
to launching several initiatives in the second half of the year.
Local employment - the pub sector is a great place to offer opportunities to
the young and disadvantaged. Our apprenticeship programme continues to grow,
with 241 employees on an apprenticeship programme, of which around half are
under 25. Apprenticeships offer a rich vein of talent pipeline, with
retention of nearly 80% after completion. We are extending the programme
further in May with the launch of the Level 2 Chef Academy. We are also
focused on providing employment opportunities for disadvantaged individuals
seeking a "second chance". We are excited by the launch of our "Latitude"
programme which is targeting the recruitment of ex-offenders into our
business. Working with partners such as Novus and Only a Pavement Away, this
offers access to a rich and skilled talent pool seeking a kickstart to life
after prison.
We are committed to supporting the mental health and wellbeing of every person
at Marston's by continuing to build the capability of line manager's and their
teams, through training, enhancing awareness and stress reduction. We have
partnered with The Burnt Chef Project, who are helping us with large‑scale
cultural awareness through training in mental health, resilience and open
conversations. Most recently we have signed the menopause pledge and are in
the process of implementing a menopause policy to support line managers and
colleagues to have better conversations.
A culture of strong governance is embedded through the organisation.
Specifically, we strongly encourage the promotion of women in the
organisation, evidenced by a Board and Executive with greater than 50% female
representation, and around 40% of leadership group roles are held by female
colleagues.
PERFORMANCE AND FINANCIAL REVIEW
Pubs
Total revenue increased to £369.7 million (H1 2021: £55.1 million)(1), this
is significantly higher than the same period last year reflecting the
disruption to H1 2021 trading as a consequence of the pandemic, but also
includes disruption to revenue in the period following Omicron restrictions.
Consequently, there was an underlying(3) pub profit of £39.9 million after
administrative costs (H1 2021: loss of £(57.2) million)(1). Total
underlying(3) operating profit of £37.9 million (H1 2021: loss of £(77.8)
million)(1) comprises underlying(3) pub profit of £39.9 million (H1 2021:
loss of £(57.2) million)(1) and loss from associates of £(2.0) million (H1
2021: £(20.6) million)(1).
Within our pub business we operated 297 pubs under the traditional tenanted
and leased model generating revenues of £19.7 million and underlying(3)
operating profit of £10.7 million. It is still our intention to convert the
tenanted and leased estate to turnover based models in the medium term.
Share of Associate (Carlsberg Marston's Brewing Company)
The operating loss from CMBC in the period of £(2.0) million reflects
Marston's PLC's share of the statutory loss after tax generated by CMBC in the
period. CMBC's results also reflect the impact of the Omicron variant of COVID
in the period.
Taxation
The estimated underlying(3) rate of taxation is forecast at 18.7% for FY2022
(FY2021: 12.1%), which is slightly below the statutory rate of corporation
tax. This is caused mainly by the favourable impact of the super deduction in
respect of qualifying capital expenditure and the share of net of tax income
from associates, broadly offset by the adverse impact of deferred tax movement
recognised at 25%.
Non-underlying items
There is a net non-underlying credit of £25.5 million after tax. The credit
principally comprises a £27.4 million net gain in respect of interest rate
swap movements and a £6.5 million credit for VAT claims to HM Revenue &
Customs (HMRC) in respect of the VAT treatment of gaming machines from 1
January 2006 to 31 January 2013. An explanation of non-underlying items is
included within note 4.
Capital expenditure and disposals
Capital expenditure was £29.1 million in the period (H1 2021: £19.2
million); the increase reflects £10.2 million of investment capital as set
out in the strategy on segmentation of the pub estate. We expect that
capital expenditure will be around £55 million in 2022.
Cash proceeds of £28.2 million were received in respect of the contingent
consideration for disposal of the Brewing business and £3 million has been
realised in relation to the disposal of non-core pubs and unlicensed
properties, which achieved a 35% higher price than the net book value.
Property
As set out previously our plan is to move to annual external valuations and
pubs will be valued on a rotational basis, with approximately one third
inspected each year. The next external valuation of the property portfolio
will be undertaken in July 2022, the results of which will be reflected in the
full year accounts.
Financing
The Group has a range of medium and long-term financing providing an
appropriate level of flexibility and liquidity for the medium term: a £280
million bank facility to March 2024; £40 million of other facilities; a
long-term securitisation of approximately £660 million; and long-term lease
financing of £337 million.
Net debt (excluding lease liabilities) at 2 April 2022 of £1,246.5 million is
£14.2 million higher than last year (FY2021: £1,232.3 million) reflecting
the net outflow of £22 million for the one-off payments outlined in the
Preliminary Results Presentation in November 2021 relating to deferred
duty/VAT and the CMBC contingent consideration. Lease liabilities as at 2
April 2022 were £373.2 million, an increase of £1.6 million on last year
(FY2021: £371.6 million).
In the 2021 financial statements it was highlighted that the Group would
require further amendments to its covenants in financial year 2022. During
the period the Group was granted amendments to its financial covenants across
the lending banks and other provider. The Group has secured further
amendments and waivers for the financial year 2022, due to the trading
restrictions imposed as a consequence of the Omicron variant in December,
impacting the critical Christmas trading period and further restrictions until
the end of January 2022 for pubs in Wales and Scotland.
There was an operating cash inflow of £30 million in the period,
significantly ahead of last year principally reflecting higher profits in the
period.
Pensions
The balance on our final salary scheme was a £4.9 million surplus at 2 April
2022 which compares favourably to the £14.4 million deficit at last year end.
This improvement has been primarily driven by the increase in the discount
rate assumption, from 2.0% in October 2021 to 2.7% in April 2022, reflecting
the increase in corporate bond yields since the year end.
APMs
The Group uses APMs to enable management and users of the financial statements
to better understand elements of financial performance in the period. APMs
referenced earlier in this report are explained as follows:
(1) 2021 comparative figures include the results for continuing operations
only.
(2) Like-for-like sales reflects sales for all pubs that were trading in the
two periods being compared, expressed as a percentage.
(3) Non-underlying items are presented separately on the face of the income
statement and are defined as those items of income and expense which, because
of the materiality, nature and/or expected infrequency of the events giving
rise to them, merit separate presentation to enable users of the financial
statements to better understand elements of financial performance in the
period, so as to facilitate comparison with future periods. An explanation
of non-underlying items is included within note 4. Underlying
(loss)/earnings per share are reconciled to statutory earnings/(loss) per
share within note 8.
(4) Net cash flow represents the movement in cash and cash equivalents during
the period less the cash movement in debt during the period. A
reconciliation of net cash flow to movement in net debt is shown in note 10.
Net cash flow may also be described as "change in debt resulting from cash
flows".
(5) The reconciliation of net cash flow to movement in net debt in note 10 has
been set out below excluding IFRS 16 lease liabilities.
26 weeks ended 26 weeks ended
2 April 2022 3 April 2021
£m £m
Increase/(decrease) in cash and cash equivalents in the period 3.3 (28.2)
Disposals - 0.1
Cash (inflow)/outflow from movement in debt (16.7) 128.4
Net cash (outflow)/inflow (13.4) 100.3
Disposals and classified as held for sale - (0.1)
Non-cash movements and deferred issue costs (0.8) (0.8)
Movement in net debt in the period (excluding IFRS 16) (14.2) 99.4
Net debt at beginning of the period (excluding IFRS 16) (1,232.3) (1,328.9)
Net debt at end of the period (excluding IFRS 16) (1,246.5) (1,229.5)
Responsibility Statement of the Directors in respect of the Interim Results
The Directors confirm that these condensed consolidated interim financial
statements have been prepared in accordance with IAS 34 'Interim Financial
Reporting' and that the interim management report includes a fair review of
the information required by DTR 4.2.7R and DTR 4.2.8R of the United Kingdom
Financial Conduct Authority, namely:
· an indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
· material related party transactions in the first six months of the
financial year and any material changes in the related party transactions
described in the last Annual Report and Accounts.
The Directors of Marston's PLC are listed in the Marston's PLC Annual Report
and Accounts for 2 October 2021. A list of current Directors is maintained
on the Marston's PLC website: www.marstonspubs.co.uk
(http://www.marstonspubs.co.uk) .
By order of the Board:
Andrew Andrea Hayleigh
Lupino
Chief Executive Officer Chief Financial
Officer
18 May 2022 18 May
2022
GROUP INCOME STATEMENT (UNAUDITED)
For the 26 weeks ended 2 April 2022
26 weeks to 2 April 2022 26 weeks to 3 April 2021 52 weeks to
2 October
2021
Note Non- Non- Total
Underlying underlying Total Underlying underlying Total £m
£m £m £m £m £m £m
Continuing operations
Revenue 3 369.7 - 369.7 55.1 - 55.1 401.7
Operating expenses (329.8) 6.0 (323.8) (112.3) (2.2) (114.5) (492.2)
Loss from associates (2.0) - (2.0) (20.6) - (20.6) (14.5)
Operating profit/(loss) 4 37.9 6.0 43.9 (77.8) (2.2) (80.0) (105.0)
Finance costs 5 (45.8) (0.1) (45.9) (45.1) (1.7) (46.8) (95.4)
Finance income 5 0.4 0.5 0.9 0.5 - 0.5 0.9
Interest rate swap movements 4, 5 - 27.4 27.4 - 5.3 5.3 8.4
Contingent consideration fair value movement 4, 5 - (0.7) (0.7) - 15.5 15.5 20.0
Net finance costs 4, 5 (45.4) 27.1 (18.3) (44.6) 19.1 (25.5) (66.1)
(Loss)/profit before taxation (7.5) 33.1 25.6 (122.4) 16.9 (105.5) (171.1)
Taxation 4, 6 1.4 (7.6) (6.2) 14.8 (1.8) 13.0 42.8
(Loss)/profit for the period from continuing operations (6.1) 25.5 19.4 (107.6) 15.1 (92.5) (128.3)
Discontinued operations
Profit from discontinued operations 7 - - - 1.7 290.1 291.8 291.1
(Loss)/profit for the period attributable to equity shareholders (6.1) 25.5 19.4 (105.9) 305.2 199.3 162.8
Earnings/(loss) per share: Note 26 weeks to 26 weeks to 52 weeks to
2 April 3 April 2 October
2022 2021 2021
p (Restated) p
p
Basic earnings/(loss) per share 8
Total 3.1 31.5 25.7
Continuing 3.1 (14.6) (20.3)
Discontinued - 46.1 46.0
Basic underlying (loss)/earnings per share 8
Total (1.0) (16.7) (13.4)
Continuing (1.0) (17.0) (13.6)
Discontinued - 0.3 0.3
Diluted earnings/(loss) per share 8
Total 3.0 31.5 25.7
Continuing 3.0 (14.6) (20.3)
Discontinued - 46.1 46.0
Diluted underlying (loss)/earnings per share 8
Total (1.0) (16.7) (13.4)
Continuing (1.0) (17.0) (13.6)
Discontinued - 0.3 0.3
The number of dilutive potential ordinary shares for the 26 weeks ended 3
April 2021 has been restated as nil, as in accordance with IAS 33 'Earnings
per Share' the potential ordinary shares are not dilutive as their inclusion
would reduce the loss per share for continuing operations. As such the
diluted earnings/(loss) per share figures for the 26 weeks ended 3 April 2021
have been restated accordingly.
GROUP STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For the 26 weeks ended 2 April 2022
26 weeks to 26 weeks to 52 weeks to
2 April 3 April 2 October
2022 2021 2021
£m £m £m
Profit for the period 19.4 199.3 162.8
Items of other comprehensive income that may subsequently be reclassified to
profit or loss
Gains arising on cash flow hedges 6.7 4.6 5.9
Transfers to the income statement on cash flow hedges 9.1 10.2 19.7
Other comprehensive income of associates 1.5 - -
Tax on items that may subsequently be reclassified to profit or loss (4.0) (2.8) 1.7
13.3 12.0 27.3
Items of other comprehensive income that will not be reclassified to profit or
loss
Remeasurement of retirement benefits 16.1 13.6 17.5
Unrealised surplus on revaluation of properties - - 59.1
Reversal of past revaluation surplus - - (105.0)
Tax on items that will not be reclassified to profit or loss (4.0) (2.6) (12.3)
12.1 11.0 (40.7)
Other comprehensive income/(expense) for the period 25.4 23.0 (13.4)
Total comprehensive income for the period 44.8 222.3 149.4
Other comprehensive income/(expense) for the current and prior period relates
wholly to continuing operations.
GROUP CASH FLOW STATEMENT (UNAUDITED)
For the 26 weeks ended 2 April 2022
26 weeks to 26 weeks to 52 weeks to
2 April 3 April 2 October
2022 2021 2021
(Restated)
Note £m £m £m
Operating activities
Profit for the period 19.4 199.3 162.8
Taxation 6.2 (13.7) (43.5)
Net finance costs 18.3 25.6 66.2
Depreciation and amortisation 22.1 20.8 42.7
Gain on disposal of subsidiary - (290.9) (290.5)
Working capital movement (33.7) (15.3) (6.4)
Non-cash movements 1.5 22.8 100.6
(Decrease)/increase in provisions and other non-current liabilities (0.4) 0.3 2.3
Difference between defined benefit pension contributions paid and amounts (3.8) (3.2) (7.0)
charged
Income tax received 0.6 7.5 7.5
Net cash inflow/(outflow) from operating activities 30.2 (46.8) 34.7
Investing activities
Interest received 0.4 0.3 0.5
Sale of property, plant and equipment and assets held for sale 3.0 12.8 16.2
Purchase of property, plant and equipment and intangible assets (29.1) (19.2) (46.6)
Disposal of subsidiary 28.2 228.4 228.0
Movement in trade loans - 0.1 0.1
Finance lease capital repayments received 1.4 0.4 1.2
Net transfer to other cash deposits - - (1.2)
Net cash inflow from investing activities 3.9 222.8 198.2
Financing activities
Interest paid (43.0) (46.7) (96.3)
Swap termination costs - (19.9) (19.9)
Proceeds from sale of own shares - - 0.1
Repayment of securitised debt (18.3) (17.3) (35.4)
Advance/(repayment) of bank borrowings 40.0 (106.1) (80.1)
Capital element of lease liabilities repaid (4.5) (9.2) (19.8)
(Repayment)/advance of other borrowings (5.0) (5.0) 10.0
Net cash outflow from financing activities (30.8) (204.2) (241.4)
Net increase/(decrease) in cash and cash equivalents 10 3.3 (28.2) (8.5)
The cash flow statement for the 26 weeks ended 3 April 2021 has been restated
such that it starts with the profit for the period rather than the underlying
operating loss. This restatement has had no impact on the net cash flows
from operating, investing or financing activities or on the net decrease in
cash and cash equivalents in the period.
GROUP BALANCE SHEET (UNAUDITED)
As at 2 April 2022
2 April 3 April 2 October
2022 2021 2021
Note £m £m £m
Non-current assets
Goodwill - - -
Other intangible assets 35.4 36.6 36.1
Property, plant and equipment 9 1,997.8 2,105.5 1,984.2
Interests in associates 276.8 274.0 277.4
Other non-current assets 14.9 16.2 15.9
Deferred tax assets 36.1 23.5 47.6
Retirement benefit surplus 4.9 - -
2,365.9 2,455.8 2,361.2
Current assets
Inventories 12.8 8.4 12.9
Trade and other receivables 31.0 45.4 52.3
Current tax assets - 0.5 1.0
Other cash deposits 10 3.2 2.0 3.2
Cash and cash equivalents 10 35.5 12.5 32.2
82.5 68.8 101.6
Assets held for sale 4.7 6.8 5.1
87.2 75.6 106.7
Current liabilities
Borrowings 10 (64.1) (61.5) (67.5)
Trade and other payables (197.0) (204.6) (220.7)
Current tax liabilities (1.7) - -
Provisions for other liabilities and charges (1.1) (1.7) (1.5)
(263.9) (267.8) (289.7)
Non-current liabilities
Borrowings 10 (1,594.3) (1,565.2) (1,571.8)
Derivative financial instruments (127.3) (184.4) (170.5)
Other non-current liabilities (6.0) (4.7) (5.5)
Provisions for other liabilities and charges (9.8) (7.4) (9.6)
Retirement benefit obligations - (21.2) (14.4)
(1,737.4) (1,782.9) (1,771.8)
Net assets 451.8 480.7 406.4
Shareholders' equity
Equity share capital 48.7 48.7 48.7
Share premium account 334.0 334.0 334.0
Revaluation reserve 360.5 417.8 360.5
Capital redemption reserve 6.8 6.8 6.8
Hedging reserve (69.6) (96.7) (81.4)
Own shares (111.0) (111.9) (111.1)
Retained earnings (117.6) (118.0) (151.1)
Total equity 451.8 480.7 406.4
GROUP STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
For the 26 weeks ended 2 April 2022
Equity Share Revaluation Capital Retained
share premium reserve redemption Hedging Own earnings Total
capital account reserve reserve shares equity
£m £m £m £m £m £m £m £m
At 3 October 2021 48.7 334.0 360.5 6.8 (81.4) (111.1) (151.1) 406.4
Profit for the period - - - - - - 19.4 19.4
Remeasurement of retirement benefits - - - - - - 16.1 16.1
Tax on remeasurement of retirement benefits - - - - - - (4.0) (4.0)
Gains on cash flow hedges - - - - 6.7 - - 6.7
Transfers to the income statement on cash flow hedges - - - - 9.1 - - 9.1
Tax on hedging reserve movements - - - - (4.0) - - (4.0)
Other comprehensive income of associates - - - - - - 1.5 1.5
Total comprehensive income - - - - 11.8 - 33.0 44.8
Share-based payments - - - - - - 0.7 0.7
Sale of own shares - - - - - 0.1 (0.1) -
Changes in equity of associates - - - - - - (0.1) (0.1)
Total transactions with owners - - - - - 0.1 0.5 0.6
At 2 April 2022 48.7 334.0 360.5 6.8 (69.6) (111.0) (117.6) 451.8
For the 26 weeks ended 3 April 2021
Equity Share Revaluation Merger Capital Retained
share premium reserve reserve redemption Hedging Own earnings Total
capital account reserve reserve shares equity
£m £m £m £m £m £m £m £m £m
At 4 October 2020 48.7 334.0 430.6 23.7 6.8 (108.7) (111.9) (374.3) 248.9
Profit for the period - - - - - - - 199.3 199.3
Remeasurement of retirement benefits - - - - - - - 13.6 13.6
Tax on remeasurement of retirement benefits - - - - - - - (2.6) (2.6)
Gains on cash flow hedges - - - - - 4.6 - - 4.6
Transfers to the income statement on cash flow hedges - - - - - 10.2 - - 10.2
Tax on hedging reserve movements - - - - - (2.8) - - (2.8)
Total comprehensive income - - - - - 12.0 - 210.3 222.3
Transfer disposals to retained earnings - - (15.0) (23.7) - - - 38.7 -
Transfer tax to retained earnings - - 2.2 - - - - (2.2) -
Changes in equity of associates - - - - - - - 9.5 9.5
Total transactions with owners - - (12.8) (23.7) - - - 46.0 9.5
At 3 April 2021 48.7 334.0 417.8 - 6.8 (96.7) (111.9) (118.0) 480.7
NOTES
1 BASIS OF PREPARATION OF INTERIM FINANCIAL INFORMATION
Marston's PLC is a company domiciled in the UK. The consolidated interim
financial information for the 26 weeks ended 2 April 2022 incorporates the
financial statements of Marston's PLC and all of its subsidiary undertakings
(the 'Group'). The Group is primarily an operator of pubs and bars across
the UK.
This interim financial information has been prepared in accordance with IAS 34
'Interim Financial Reporting' in conformity with the requirements of the
Companies Act 2006. The same accounting policies, presentation and methods
of computation are followed in the interim financial information as applied in
the Group's audited financial statements for the 52 weeks ended 2 October
2021.
The financial information for the 52 weeks ended 2 October 2021 is extracted
from the audited accounts for that period, which have been delivered to the
Registrar of Companies. The Auditor's report was unqualified and did not
contain a statement under section 498 (2) or (3) of the Companies Act 2006.
However the Auditor's report contained an emphasis of matter relating to a
material uncertainty that may cast significant doubt on the Group's and
Company's ability to continue as a going concern.
The interim financial information does not constitute statutory accounts
within the meaning of section 434 of the Companies Act 2006. The interim
financial information for the 26 weeks ended 2 April 2022 and the comparatives
to 3 April 2021 are unaudited.
The Group does not consider that any standards or interpretations issued by
the International Accounting Standards Board, but not yet applicable, will
have a significant impact on the financial statements for the 52 weeks ending
1 October 2022.
Going concern
The impact of COVID-19 on the economy and the hospitality industry has
resulted in lower revenue, profit and operating cash flow since March 2020 and
has heightened uncertainty about the future financial performance of the
Group, which could cast significant doubt over the Group's ability to trade as
a going concern. The COVID-19 pandemic has resulted in a variety of
temporary operating restrictions and, although the hospitality industry has
now reopened in full, there is still uncertainty as to whether any
restrictions, such as social distancing measures, will be reintroduced or
whether any further local or national lockdowns will be required.
The Group's sources of funding include its securitised debt, a £280.0 million
bank facility available until 2024, of which £230.0 million was drawn at 2
April 2022, and a £40.0 million private placement available until 2024.
There are two covenants associated with the Group's securitised debt. The
FCF DSCR is a measure of free cash flow to debt service for the group headed
by Marston's Pubs Parent Limited, and is required to be a minimum of 1.1 over
both a two-quarter and four-quarter period, and the Net Worth is derived from
the net assets of that group of companies. There was headroom of £354.9
million on the Net Worth Covenant, headroom of 0.1 on the two-quarter FCF DSCR
Covenant and headroom of 0.2 on the four-quarter FCF DSCR Covenant at 2 April
2022.
There are two covenants associated with the Group's bank and private placement
borrowings. The Debt Cover covenant is a measure of net borrowings to EBITDA
(a maximum of 5.5 times from 2 July 2022, reducing on a stepped basis to 3.5
times from 1 April 2023) for the non-securitised group of companies and the
Interest Cover covenant is a measure of EBITDA to finance charges (a minimum
of 1 times from 2 April 2022, rising on a stepped basis to 2 times from 1 July
2023 with the Group's bank and 3 times from 1 April 2023 with private
placement borrowings) for that group of companies. The Group has agreed with
its bank and private placement lenders to replace the Debt Cover covenant with
an absolute covenant in respect of net borrowings for the quarter to 2 April
2022. There was headroom of £47.0 million on the net borrowings covenant
and headroom of 0.4 on the Interest Cover covenant at 2 April 2022.
The Directors have performed an assessment of going concern over the period of
12 months from the date of signing these financial statements, to assess the
adequacy of the Group's financial resources. In performing their assessment,
the Directors considered the Group's financial position and exposure to
principal risks, including the ongoing impact of COVID-19. The Group's
forecasts assume that sales and costs will continue at levels experienced in
recent months.
The Directors have also considered a severe but plausible downside scenario,
incorporating further lockdowns at a national level for a total of two months
in the coming winter, which would have the effect of substantially reducing
sales, profit and operating cash flow. It has been assumed that there is no
access to government support measures such as furlough payments in this
scenario, and certain mitigating actions within management's control have been
assumed, such as the deferral of uncommitted capital expenditure. The
conclusion of this assessment was that the Directors are satisfied that the
Group has sufficient liquidity to withstand such a severe but plausible
downside scenario. However, under this severe but plausible downside
scenario, further covenant waivers/amendments would be required.
There is a material uncertainty as to whether the financial covenants will be
met or whether the Group's lenders will agree to further waivers if required.
The Group will continue to have regular communication with its lenders
throughout this period and on the basis of the previous waivers secured and
the return to pre-pandemic levels of trading in recent months the Directors
expect to be able to secure any future waivers required.
Considering the above, the Directors are satisfied that the Group has adequate
resources to continue in operational existence for the foreseeable future,
being at least 12 months from the date of signing these financial statements.
For this reason, the Directors continue to adopt the going concern basis of
accounting in preparing these financial statements. However, a material
uncertainty exists, in particular with respect to the ability to achieve
further covenant waivers or amendments if required, which may cast significant
doubt on the Group's ability to continue as a going concern and, therefore, to
continue realising its assets and discharging its liabilities in the normal
course of business. The financial statements do not include any adjustments
that would result from the basis of preparation being inappropriate.
2 SEGMENT REPORTING
The Group is considered to have one operating segment under IFRS 8 'Operating
Segments' and no disclosures are presented. This is in line with the
reporting to the chief operating decision maker and the operational structure
of the business. The measure of profit or loss reviewed by the chief
operating decision maker is underlying profit/loss before tax for the total of
continuing and discontinued operations.
3 REVENUE
2 April 3 April
2022 2021
Revenue £m £m
Retail sales 348.9 51.5
Wholesale sales 15.3 2.2
Revenue from contracts with customers 364.2 53.7
Rental income 5.5 1.4
Total revenue 369.7 55.1
4 NON-underlying items
In order to illustrate the underlying trading performance of the Group,
presentation has been made of performance measures excluding those items which
it is considered would distort the comparability of the Group's results.
Non-underlying items are presented separately on the face of the income
statement and are defined as those items of income and expense which, because
of the materiality, nature and/or expected infrequency of the events giving
rise to them, merit separate presentation to enable users of the financial
statements to better understand elements of financial performance in the
period, so as to facilitate comparison with future periods. As management of
the freehold and leasehold property estate is an essential and significant
area of the business, the threshold for classification of property related
items as non-underlying is higher than other items.
2 April 3 April
2022 2021
£m £m
Non-underlying operating items
VAT claims (6.0) -
Impact of COVID-19 - 1.0
Past service cost in respect of Guaranteed Minimum Pension equalisation - 0.5
Reorganisation and restructuring costs - 0.7
(6.0) 2.2
Non-underlying non-operating items
Net interest on net defined benefit asset/liability 0.1 0.3
Interest on VAT claims (0.5) -
COVID-19 financing costs - 1.4
Interest rate swap movements (27.4) (5.3)
Contingent consideration fair value movement 0.7 (15.5)
(27.1) (19.1)
Total non-underlying items (33.1) (16.9)
VAT claims
The Group has submitted claims to HM Revenue & Customs (HMRC) in respect
of the VAT treatment of gaming machines from 1 January 2006 to 31 January
2013. Following detailed information gathering to support the claims made
the Group has recognised the estimated amounts receivable, including interest,
in the current period.
Net interest on net defined benefit asset/liability
The net interest on the net defined benefit asset/liability in respect of the
Group's defined benefit pension plan was a charge of £0.1 million (2021:
£0.3 million).
Interest rate swap movements
The Group's interest rate swaps are revalued to fair value at each balance
sheet date. For interest rate swaps which were designated as part of a
hedging relationship a gain of £6.7 million (2021: £4.6 million) has been
recognised in the hedging reserve in respect of the effective portion of the
fair value movement and £3.5 million (2021: £3.7 million) has been
reclassified from the hedging reserve to underlying finance costs in the
income statement in respect of the cash paid in the period.
The ineffective portion of the fair value movement has been recognised within
the income statement. The cash paid of £0.8 million (2021: £0.8 million)
has been recognised within underlying finance costs to ensure that underlying
finance costs reflect the resulting fixed rate paid on the associated debt.
The remainder of the ineffective portion of the fair value movement, a gain
of £0.5 million (2021: loss of £1.4 million), has been recognised within
non-underlying items. In addition £5.6 million (2021: £6.5 million) of the
balance remaining in the hedging reserve in respect of discontinued cash flow
hedges has been reclassified to the income statement within non-underlying
items.
For interest rate swaps which were not designated as part of a hedging
relationship the fair value movement has been recognised within the income
statement. The cash paid of £5.2 million (2021: £6.0 million) has been
recognised within underlying finance costs to ensure that underlying finance
costs reflect the resulting fixed rate paid on the associated debt. The
remainder of the fair value movement, a gain of £32.5 million (2021: £15.5
million), equal to the change in the carrying value of the interest rate swaps
in the period, has been recognised within non-underlying items.
The Group terminated one of its interest rate swaps in the prior period
resulting in a loss of £2.3 million which was recognised within
non-underlying items.
Contingent consideration fair value movement
The contingent consideration on the disposal of Marston's Beer Company Limited
was initially recognised at its fair value at the date of disposal and was
subsequently remeasured at its fair value at 3 April 2021, 2 October 2021 and
the date of settlement. The movement in fair value has been recognised
within non-underlying items.
4 NON-underlying items (CONTINUED)
Impact of taxation
The current tax charge relating to the above non-underlying items amounts to
£2.0 million (2021: £nil). The deferred tax charge relating to the above
non-underlying items amounts to £5.6 million (2021: £1.8 million).
Prior period non-underlying items
In order to mitigate the spread of COVID-19 the UK government implemented
various operating restrictions in the hospitality industry, such as pub
closures, reduced opening times and social distancing measures. These had a
significant impact on the Group's business and its customers. Certain
associated costs/charges, which primarily comprised bad debt provisions and
stock write-offs, were classified as a non-underlying item in the prior
period.
On 26 October 2018 a High Court ruling indicated that Guaranteed Minimum
Pensions must be equalised for men and women. On 20 November 2020 a further
High Court ruling indicated that historic cash equivalent transfer values that
were calculated on an unequalised basis should be topped up if an affected
member makes a successful claim. This additional requirement was reflected
in the calculation of the Group's net defined benefit asset/liability in the
prior period and the resulting additional past service cost of £0.5 million
was classified as a non-underlying item.
Following the disposal of the Group's brewing business, and in light of the
ongoing impact of the COVID-19 outbreak, the Group undertook a central
restructuring exercise in the prior period as part of a full review of its
overhead costs.
As a result of the COVID-19 outbreak and the consequential impact on its
trading ability, the Group obtained certain waivers from its lenders,
primarily in respect of covenants. The costs related to this were classified
as a non-underlying item in the prior period.
5 FINANCE COSTS AND INCOME
2 April 3 April
2022 2021
£m £m
Finance costs
Bank borrowings 5.9 5.4
Securitised debt 17.9 19.0
Lease liabilities 9.4 8.3
Other lease related borrowings 10.6 10.6
Other interest payable and similar charges 2.0 1.8
45.8 45.1
Non-underlying finance costs
Net interest on net defined benefit asset/liability 0.1 0.3
COVID-19 financing costs - 1.4
0.1 1.7
Total finance costs 45.9 46.8
Finance income
Finance lease and other interest receivable (0.4) (0.5)
(0.4) (0.5)
Non-underlying finance income
Interest on VAT claims (0.5) -
(0.5) -
Total finance income (0.9) (0.5)
Interest rate swap movements
Hedge ineffectiveness on cash flow hedges (net of cash paid) (0.5) 1.4
Change in carrying value of interest rate swaps (32.5) (15.5)
Transfer of hedging reserve balance in respect of discontinued hedges 5.6 6.5
Loss on termination of interest rate swaps - 2.3
(27.4) (5.3)
Contingent consideration fair value movement
Contingent consideration fair value movement 0.7 (15.5)
0.7 (15.5)
Net finance costs 18.3 25.5
6 TAXATION
The underlying taxation credit for the 26 weeks ended 2 April 2022 has been
calculated by applying an estimate of the underlying effective tax rate for
the 52 weeks ending 1 October 2022 of 18.7% (26 weeks ended 3 April 2021:
12.1%).
2 April 3 April
2022 2021
£m £m
Current tax 2.7 -
Deferred tax 3.5 (13.0)
6.2 (13.0)
The taxation charge/(credit) includes a current tax charge of £2.0 million
(2021: £nil) and a deferred tax charge of £5.6 million (2021: £1.8 million)
relating to the tax on non-underlying items.
The March 2021 Budget announced that the main rate of corporation tax would
change from 19% to 25% with effect from 1 April 2023. This change was
substantively enacted on 24 May 2021. This will increase the Group's future
current tax charge accordingly.
7 DISCONTINUED OPERATIONS
On 4 October 2020 the Group transferred its brewing operations into a
wholly-owned subsidiary, Marston's Beer Company Limited. On 30 October 2020
the Group sold Marston's Beer Company Limited to Carlsberg Marston's Limited
(formerly Carlsberg Marston's Brewing Company Limited) in exchange for a cash
receipt of £232.4 million, contingent consideration of up to £34.0 million
and a 40% shareholding in Carlsberg Marston's Limited.
Results of discontinued operations
3 April 2021
Underlying Non-
£m underlying Total
£m £m
Revenue 22.1 - 22.1
Operating expenses (20.7) (1.1) (21.8)
Operating profit 1.4 (1.1) 0.3
Net finance costs (0.1) - (0.1)
Profit before taxation 1.3 (1.1) 0.2
Taxation 0.4 0.3 0.7
Profit after taxation 1.7 (0.8) 0.9
Gain on disposal of discontinued operations - 290.9 290.9
Profit for the period attributable to equity shareholders 1.7 290.1 291.8
Non-underlying operating items related to the impact of COVID-19 and business
separation costs.
8 EARNINGS PER ORDINARY SHARE
Basic earnings/(loss) per share are calculated by dividing the profit/(loss)
attributable to equity shareholders by the weighted average number of ordinary
shares in issue during the period, excluding treasury shares and those held on
trust for employee share schemes.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. These represent share options granted to employees where the
exercise price is less than the weighted average market price of the Company's
shares during the period.
Underlying (loss)/earnings per share figures are presented to exclude the
effect of non-underlying items. The Directors consider that the
supplementary figures are a useful indicator of performance.
8 EARNINGS PER ORDINARY SHARE (CONTINUED)
2 April 2022 3 April 2021
(Restated)
Earnings Per share Earnings Per share
amount amount
£m p £m p
Basic earnings/(loss) per share
Total 19.4 3.1 199.3 31.5
Continuing 19.4 3.1 (92.5) (14.6)
Discontinued - - 291.8 46.1
Diluted earnings/(loss) per share
Total 19.4 3.0 199.3 31.5
Continuing 19.4 3.0 (92.5) (14.6)
Discontinued - - 291.8 46.1
Underlying (loss)/earnings per share figures
Basic underlying (loss)/earnings per share
Total (6.1) (1.0) (105.9) (16.7)
Continuing (6.1) (1.0) (107.6) (17.0)
Discontinued - - 1.7 0.3
Diluted underlying (loss)/earnings per share
Total (6.1) (1.0) (105.9) (16.7)
Continuing (6.1) (1.0) (107.6) (17.0)
Discontinued - ‑ 1.7 0.3
2 April 3 April
2022 2021
(Restated)
m m
Basic weighted average number of shares 633.1 632.7
Dilutive potential ordinary shares 8.1 -
Diluted weighted average number of shares 641.2 632.7
The number of dilutive potential ordinary shares for the 26 weeks ended 3
April 2021 has been restated as nil, as in accordance with IAS 33 'Earnings
per Share' the potential ordinary shares are not dilutive as their inclusion
would reduce the loss per share for continuing operations.
9 PROPERTY, PLANT AND EQUIPMENT
£m
Net book amount at 3 October 2021 1,984.2
Additions 35.0
Net transfers to assets held for sale and disposals (1.4)
Depreciation, revaluation and other movements (20.0)
Net book amount at 2 April 2022 1,997.8
£m
Net book amount at 4 October 2020 2,038.3
Additions 99.6
Net transfers to assets held for sale and disposals (13.4)
Depreciation, revaluation and other movements (19.0)
Net book amount at 3 April 2021 2,105.5
The net profit on disposal of property, plant and equipment, intangible assets
and assets held for sale was £0.7 million (2021: loss of £2.1 million).
Additions in the prior period included £90.5 million of right-of-use assets
recognised as part of a transaction with S.A.Brain & Company,Limited.
10 NET DEBT
2 April 2 October
2022 2021
Analysis of net debt £m £m
Cash and cash equivalents
Cash at bank and in hand 35.5 32.2
35.5 32.2
Financial assets
Other cash deposits 3.2 3.2
3.2 3.2
Debt due within one year
Bank borrowings 0.7 0.7
Securitised debt (37.9) (36.9)
Lease liabilities (7.3) (6.7)
Other lease related borrowings 0.4 0.4
Other borrowings (20.0) (25.0)
(64.1) (67.5)
Debt due after one year
Bank borrowings (229.3) (188.9)
Securitised debt (621.2) (640.3)
Lease liabilities (365.9) (364.9)
Other lease related borrowings (337.8) (337.6)
Other borrowings (40.0) (40.0)
Preference shares (0.1) (0.1)
(1,594.3) (1,571.8)
Net debt (1,619.7) (1,603.9)
2 April 2 October
2022 2021
£m £m
Net debt excluding lease liabilities (1,246.5) (1,232.3)
Lease liabilities (373.2) (371.6)
Net debt (1,619.7) (1,603.9)
Other cash deposits comprises deposits securing letters of credit for
reinsurance contracts. Included within cash and cash equivalents is an
amount of £5.5 million (at 2 October 2021: £5.6 million), which relates to
collateral held in the form of cash deposits. These amounts are considered
to be restricted cash. In addition, any cash held in connection with the
securitised business is governed by certain restrictions under the covenants
associated with the securitisation.
2 April 3 April
2022 2021
Reconciliation of net cash flow to movement in net debt £m £m
Increase/(decrease) in cash and cash equivalents in the period 3.3 (28.2)
Disposals - 0.1
Cash (inflow)/outflow from movement in debt (12.2) 137.6
Net cash (outflow)/inflow (8.9) 109.5
Non-cash movements and deferred issue costs (6.9) (88.6)
Disposals and classified as held for sale - (0.1)
Movement in net debt in the period (15.8) 20.8
Net debt at beginning of the period (1,603.9) (1,633.0)
Net debt at end of the period (1,619.7) (1,612.2)
11 FINANCIAL INSTRUMENTS
The only financial instruments which the Group holds at fair value are
contingent consideration and derivative financial instruments, which are
classified as at fair value through profit or loss or derivatives used for
hedging.
Fair value hierarchy
IFRS 13 'Fair Value Measurement' requires fair value measurements to be
recognised using a fair value hierarchy that reflects the significance of the
inputs used in the measurements, according to the following levels:
Level 1 - unadjusted quoted prices in active markets for identical assets or
liabilities.
Level 2 - inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.
Level 3 - inputs for the asset or liability that are not based on observable
market data.
The tables below show the levels in the fair value hierarchy within which fair
value measurements have been categorised:
2 April 2022 2 October 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets as per the balance sheet £m £m £m £m £m £m £m £m
Contingent consideration - - - - - 28.9 - 28.9
2 April 2022 2 October 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Liabilities as per the balance sheet £m £m £m £m £m £m £m £m
Derivative financial instruments - 127.3 - 127.3 - 170.5 - 170.5
There were no transfers between Levels 1, 2 and 3 fair value measurements
during the current or prior period.
The Level 2 fair values of derivative financial instruments have been obtained
using a market approach and reflect the estimated amount the Group would
expect to pay or receive on termination of the instruments, adjusted for the
Group's own credit risk. The Group utilises valuations from counterparties
who use a variety of assumptions based on market conditions existing at each
balance sheet date. The fair values are highly sensitive to the inputs to
the valuations, such as discount rates, analysis of credit risk and yield
curves.
The Level 2 fair value of contingent consideration was obtained using a market
approach and reflected the estimated amount the Group expected to receive.
There was an agreed formula for the amount of contingent consideration to be
received which referenced the recovery of the share price performance as at 30
October 2021 of a pre-agreed basket of companies to pre-COVID-19 levels. The
final agreed consideration value calculated at 30 October 2021 was £28.2
million.
The fair values of all the Group's other financial instruments are equal to
their book values, with the exception of borrowings. The carrying amount
less impairment provision of finance lease receivables, trade receivables and
other receivables, and the carrying amount of other cash deposits, cash and
cash equivalents, trade payables and other payables, are assumed to
approximate their fair values. The carrying amount (excluding unamortised
issue costs) and the fair value of the Group's borrowings are as follows:
Carrying amount Fair value
2 April 2 October 2 April 2 October
2022 2021 2022 2021
£m £m £m £m
Bank borrowings 230.0 190.0 230.0 190.0
Securitised debt 662.3 680.6 599.9 614.7
Lease liabilities 373.2 371.6 373.2 371.6
Other lease related borrowings 361.7 361.7 361.7 361.7
Other borrowings 60.0 65.0 60.0 65.0
Preference shares 0.1 0.1 0.1 0.1
1,687.3 1,669.0 1,624.9 1,603.1
12 SIGNIFICANT EVENTS AND TRANSACTIONS
Additional contributions of £3.8 million (26 weeks ended 3 April 2021: £3.7
million) were made in the period to the Marston's PLC Pension and Life
Assurance Scheme.
Further detail regarding significant events and transactions that have taken
place since 2 October 2021 is provided outside of the interim financial
statements in the Group Overview and the Performance and Financial Review.
13 RELATED PARTY TRANSACTIONS
Details of related party transactions with the Group's associate, Carlsberg
Marston's Limited (formerly Carlsberg Marston's Brewing Company Limited), are
as follows:
Transaction amount Balance outstanding
2 April 3 April 2 April 2 October
2022 2021 2022 2021
£m £m £m £m
Purchase of goods (80.6) (3.0) (72.3) (42.4)
Rendering of services 1.7 1.8 0.7 0.5
Settlement of liabilities on behalf on associate 120.9 66.5 58.4 78.3
Receipt of cash on behalf of associate (234.9) (158.7) (28.9) (62.7)
14 CAPITAL COMMITMENTS
Capital expenditure authorised and committed at the period end but not
provided for in this interim financial information was £3.6 million
(at 2 October 2021: £2.7 million).
15 SEASONALITY OF INTERIM OPERATIONS
The Group's financial results and cash flows have, historically, been subject
to seasonal trends between the first and second half of the financial year.
Traditionally, the second half of the financial year sees higher revenue and
profitability, as a result of better weather conditions.
There is no assurance that this trend will continue in the future.
16 EVENTS AFTER THE BALANCE SHEET DATE
An interim dividend has not been proposed for the current period. No interim
dividend was paid for the prior period.
17 PRINCIPAL RISKS AND UNCERTAINTIES
The Group set out on pages 24 to 29 of its 2021 Annual Report and Accounts the
principal risks and uncertainties that could impact its performance. These
risks and uncertainties were as follows:
Pandemic
There is a risk that COVID-19 infection rates increase leading to further
restrictions on the public and further trading regulations for pubs and
lodges.
Liquidity
While the UK recovers from the pandemic there is still a risk of regional
lockdowns or national measures which could impact upon the ability of pubs to
trade and therefore put the liquidity of the business under strain.
Health and safety
Breaches of health and safety regulations attract media attention and high
penalties.
There is also the risk of further COVID-19 trading restrictions.
Food safety
Breaches of food standards regulations attract adverse media attention and
high penalties.
There is a risk that information is collected incorrectly from suppliers
and/or misinterpreted for the Group's menu items. There is also a risk if a
team member mis-advises a guest on ingredients or serves the wrong meal.
Increased regulation directly affecting the Group, or the Group's suppliers,
could increase the complexity of the information to be provided and the cost
of compliance.
Financial
There is the risk of a breach of the covenants with the Group's lenders,
incorrect reporting of financial results and unauthorised transactions.
Market and operational
Failure to attract or retain the best people could negatively impact pub
performance. Recruitment could be more of a challenge due to the high number
of vacancies currently within the sector.
There is the risk of disruption to key suppliers, particularly those closely
involved with day-to-day activities (logistics, food, drink), or a shortage of
commodities.
There is also the risk of disruption to food supplies from the EU due to
administration, or customs checks, impacting upon the Group's offering to
guests and its cost base.
There is the risk that the Group's pubs, brands or services fail to attract
guests, do not reflect changing preferences or offer poor service or quality.
Equally there is the risk that the Group's prices become uncompetitive.
Inflationary pressure on costs might be difficult to pass on, resulting in
reduced margin.
17 PRINCIPAL RISKS AND UNCERTAINTIES (CONTINUED)
Political and economic
Supply chain disruption could reduce the ability of the UK to recover and grow
the economy. It could also fuel further inflation resulting in less
disposable income for consumers.
The import of goods from the EU could be disrupted by the government's plan to
start customs checks in early 2022. Fresh food is reliant upon fast
delivery. In the event of disruption, it could be difficult to source
alternative supplies of food and drink for the same cost.
Information technology
Threats to IT are both external and internal and could result in a network
outage, denial of service or loss, theft or corruption of data.
The Group has so far not experienced significant disruption in food and drink
supplies from the new EU customs checks introduced on 1 January 2022 however
the risk of future disruption is still present as stricter checks are still to
come into force. The risks from supply chain disruption and further
inflation have increased in recent months as a result of the conflict in
Ukraine. All of the other risks and uncertainties above have not changed
significantly since the Annual Report and Accounts was published and are
expected to remain present for the second half of the financial year.
18 INTERIM RESULTS
The Interim Results were approved by the Board on 18 May 2022.
19 COPIES
Copies of these results are available on the Marston's PLC website
(www.marstonspubs.co.uk (http://www.marstonspubs.co.uk) ) and on request from
the Group Secretary, Marston's PLC, Marston's House, Brewery Road,
Wolverhampton, WV1 4JT.
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