REG - Marston's Plc - RESULTS FOR THE 52 WEEKS ENDED 2 OCTOBER 2021
30/11/2021 07:00
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RNS Number : 9499T Marston's PLC 30 November 2021
30 November 2021
MARSTON'S PLC
RESULTS FOR THE 52 WEEKS ENDED 2 OCTOBER 2021*
POSTIVE MOMENTUM, STRENGTHENED BALANCE SHEET;
CLEAR PLANS FOR FUTURE GROWTH
Improved trading post lockdown, sales levels above 2019
· Full year 2021 sales impacted by significant disruptions from the
pandemic
· Improving trading trends since reopening outdoors in April
o Like-for-like sales** since restrictions lifted in July 102% of 2019
· Strong accommodation sales benefitting from staycations
Strengthened balance sheet; strong cash management through pandemic
· Net debt of £1,232 million, £97 million reduction since 2020
· Strong cash management throughout pandemic; no recourse to equity
market
· Financial strategy on track to reduce net debt to below £1
billion by 2025
Carlsberg partnership completed 30 October 2020
· £256 million of net proceeds including £28.2 million contingent
due December 2021
· Retain 40% stake in a high-quality beer business currently held
at £277 million
· Higher levels of synergies expected of c.£35-40 million, driving
future value creation
Innovative transaction to operate SA Brain pubs
· Operate a high-quality portfolio of 107 pubs in Wales on
long-term arrangement
· Proforma EBITDA of £7 million with additional opportunity of
£2-3 million synergy benefits
· Capital-light acquisition provides template for future
transactions
Clear strategy with clear targets
· High-quality pub estate nationwide, with limited exposure to city
centres
· "Pubs to Be Proud Of" - Guest-focused pub strategy with clear
operational targets
· "Back to a Billion" - Sales above £1 billion, borrowings below
£1 billion by 2025
· Plan to reposition 290 food-led pubs to meet changing consumer
dynamics
· Evolution of franchise model with formulation of the new "Pillar"
agreement for food-led leased pubs
Net Zero commitment
· Market-leading environmental actions to date
· Clear roadmap to achieve 2030 commitment to Scope 1 and 2
emissions
· Aligned to industry commitment to 2040 net zero for Scope 3
emissions
Encouraging current trading, navigating through headwinds
· Current trading encouraging - total LFL sales 1.3% versus 2019
despite reduction in VAT relief
· Christmas bookings encouraging and in line with 2019
· Hedging and long-term contracts in place to manage 2022 inflation
headwinds
· Less exposed to labour challenges due to predominantly suburban
pub estate
Financial Highlights
Underlying Total*
2021 2020 2021 2020
Total revenue £423.8m £821.0m £423.8m £821.0m
Total (loss)/profit before tax £(100.0)m £(22.0)m £119.3m £(397.1)m
(Loss)/earnings per share (13.4)p (1.7)p 25.7p (56.8)p
Net cash flow £118.1m £50.5m £118.1m £50.5m
* Total revenue includes continuing and discontinuing operations
· On a statutory basis revenue was £401.7m and loss before tax was
£(171.1)m. This excludes discontinued operations.
· The financial performance for the period reflects the significant
disruption to trading from the pandemic during the period and the sale of
Marston's Beer Company to Carlsberg Marston's Brewing Company.
· The statutory profit before tax reflects the profit on disposal of
the beer business of £291 million and a non-cash impairment charge of £84
million for property.
· The business has a strong balance sheet position. As at the balance
sheet date, the Group had drawn down £190 million of a £280 million bank
facility providing headroom of £90 million.
· The financial figures above combine the total revenue and earnings of
both continuing and discontinued operations in the period.
Commenting, Andrew Andrea, CEO said:
"It is extremely encouraging that trading momentum has built well since
reopening and trading is now exceeding FY2019 levels. We were delighted to
fully reopen our estate in July, once restrictions were lifted, and welcome
our guests and team members back into our pubs. Whilst there are still some
challenges to navigate over the months ahead, we believe the worst of the
pandemic is now behind us and Marston's has emerged a stronger, more focused
business which is in great shape. Importantly, consumer demand for the pub
and the role which this great British institution plays, at the heart of
communities up and down the country, has never been stronger.
"Over the last 18 months, the Government provided much welcomed support to the
hospitality industry, which has been so hard hit by the pandemic. We urge
them to continue to assist the sector as it continues its recovery by
maintaining VAT at 12.5%.
"Marston's enters the year ahead as a focused pub business with a clear
strategic plan, a profitable and cash generative business, a strong balance
sheet and a 40% share in CMBC, our partnership with Carlsberg, which has such
exciting potential. Our debt reduction plans remain on track and our
well-invested, predominantly freehold, suburban pub estate is well placed to
benefit from many of the positive consumer dynamics and drivers post
pandemic. Whilst still early days, Christmas bookings look encouraging and
we look to the future with renewed optimism."
*Prior year was a 53-week period to 3 October 2020
**Like-for-like sales is defined as sales this year compared to sales in 2019,
the same pubs trading in both periods, expressed as a percentage
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 c1,500 pubs situated nationally,
comprising managed, franchised and leased pubs
· Marston's employs around 12,000 people
GROUP OVERVIEW
2021 PERFORMANCE OVERVIEW
The 2021 results were significantly impacted for a second year by the COVID-19
pandemic, with severe disruption to trading during the year as a direct
result. Our pubs were open for only 54% of the total trading days in the
period ended 2 October 2021 and when they were permitted to open, they were
mandated to operate under significant trading restrictions due to the
Government's response to the pandemic. These restrictions ranged from
outdoor only trading to table service only, as well as numerous other
variations dependent upon the different tier systems in operation across the
UK.
Following the period of closure in the first half of the year, we were able to
trade outdoors from 12 April in England and from 26 April in Scotland and
Wales. On reopening, it was clear that there was continued strong demand
from our guests for the pub and we have been encouraged by the trading
momentum experienced from April onwards. We were pleased to be trading
robustly and above 2019 levels again from July in the later part of the period
under review.
During the December 2020 lockdown period, Marston's also entered into an
agreement to operate a portfolio of 147 pubs in Wales from SA Brain, under a
combination of leased and management contract arrangements.
Trading
Total revenue for the 52 weeks ending 2 October 2021 was £424 million, 48%
below last year. The prior year comparatives are for a 53-week period and
included Marston's Beer Company. The Carlsberg Marston's Brewing Company
("CMBC") partnership with Carlsberg completed at the end of October 2020 and,
therefore, total revenue includes one month's contribution from the beer
business. Total pub revenue for the year was £402 million, 22% below last
year, reflecting the significant disruption to trading as a consequence of the
pandemic.
During the first half of the year pubs were trading under significant
restrictions or closed. In the second half year, pubs were permitted to reopen
initially for outdoor trading during April, and subsequently indoor trading
was permitted across all of the Group's pub estate from 17 May, albeit subject
to the continuance of various social distancing restrictions until 19 July.
We were able to open c70% of our pubs under outdoor trading restrictions
from 12 April and the Group's entire estate of c1,500 pubs has been open since
17 May.
Since re-opening on 12 April, we have seen an improving sales trend from 77%
of 2019 levels on a like for like basis, during the period of outdoor trading
only to a return to growth over 2019 levels, with sales 2% higher across our
managed and franchised pubs from July. Overall, trading since 12 April has
been at 94% of 2019 levels which includes the benefit of the temporary VAT
reduction on food and non-alcoholic drink sales.
The Group's £2 million investment in "Inside-Out" schemes, the investment
plan for outdoor areas, during Autumn and Winter 2020 supported our sales
performance during the outdoor only trading period, which also benefitted from
warmer weather and the uplift from the delayed Euro 2020 tournament until full
reopening in July.
Accommodation sales have been very strong in the period since re-opening and
benefitted from the demand for UK staycations. Since fully reopening in July,
these have been 38% higher than 2019.
During the period we agreed to run the pub operations of SA Brain in Wales,
with the transaction completing on 5 April 2021. These pubs were also impacted
by the significant disruption from the pandemic. These pubs reopened
alongside the existing Marston's pub estate in Wales initially for outdoor
trading only from 26 April and were fully open from July. Encouragingly, the
SA Brain pubs have performed well and are trading ahead of expectations. The
transaction is accounted for predominantly under IFRS 16 leases.
The financial consequences of significant disruption caused by the pandemic
during the period, which included full closure of pubs, outdoor trading only
and table service only, are reflected in significantly reduced profit.
Underlying EBITDA was £35.3 million (2020: £125.6 million), and the total
underlying operating loss was £7.4 million (2020: £74.0 million profit). The
total underlying loss before tax was £100.0 million (2020: £22.0 million).
The basic underlying loss per share for the period was 13.4 pence per share
(2020: 1.7 pence per share).
During the period the business accessed Government support in the form of the
Coronavirus Job Retention Scheme (£43.6 million) and COVID-19 assistance
grants (£10.9 million) alongside the VAT reduction and business rate relief.
The total profit before tax was £119.3 million (2020: £397.1 million loss)
including discontinued operations, and earnings per share were 25.7 pence per
share (2020: 56.8 pence per share loss). The difference between underlying
profit before tax and profit before tax is £219.3 million of non-underlying
items, of which £291 million relates to the disposal of the beer business to
CMBC.
The performance of the Group is assessed using several alternative performance
measures which are all derived from statutory figures as presented in the
financial statements. The following statutory measures are also relevant when
considering the performance of the Group: revenue £401.7m (2020: £515.5m),
operating loss £105.0m (2020: £285.5m), loss before taxation: £171.1m
(2020: £388.7m), profit/loss from discontinued operations £291.1m (2020:
£(11.1)m) and net (decrease)/increase in cash and cash equivalents £(8.5m)
(2020: £3.1m).
Cash flow, Financing and Balance Sheet
Despite the trading challenges described above, the Group remained focused on
cash management during the year, particularly during periods of closure. We
continued to prioritise cash preservation throughout the disrupted trading
period, but also maintained an appropriate level of pub investment to ensure
our pubs were well positioned to re-commence trading in April. The Group
generated a net cash inflow for the period of £118 million, a £67 million
improvement on 2020. This improvement principally reflects £228 million of
net proceeds from the disposal of Marston's Beer Company offset by the cash
outflows arising from the periods of pub closure.
Net debt, excluding IFRS 16 lease commitments, was £1,232 million (2020:
£1,329 million), with the decrease driven by the cash flows described above.
Total net debt of £1,604 million includes lease obligations of £372 million
following the adoption of IFRS 16.
The increase in IFRS 16 obligations primarily reflects the impact of the
transaction to acquire the SA Brain pub operations.
We have secure medium-term financing in place. At the period end we had a
£280 million bank facility available until 2024, of which £190 million was
drawn providing headroom of £90 million. In addition, we have a £40
million private placement in place until 2024.
During the year we were successful in reaching agreements with our lending
banks and bondholders to make appropriate amendments in respect of certain
financial covenants, and to provide waivers where necessary. These included
strong support from bondholders for covenant waivers, with amendments in place
until January 2022, and the adoption of temporary liquidity and profit
covenants with banks and private placement provider also to January 2022. This
collaborative approach was helped by open and constructive dialogue in a
period of great uncertainty and underlines the importance of good, long-term
relationships with all our stakeholders, and we thank them for their continued
support. It remains the case that the Group will need to seek further banking
covenant waivers in 2022.
The partnership between Carlsberg UK and Marston's Beer Company to form CMBC
completed on 30 October 2020. On completion, we received net proceeds of
£228 million. In addition, we will receive a payment of £28.2 million for
the contingent consideration, which is planned to offset the one-off tax
repayment of £50 million in respect of VAT and duty, delayed due to the first
national lockdown in March 2020. Naturally, the prolonged periods of on-trade
closure and subsequent trading restrictions due to the pandemic has impacted
performance. Correspondingly, and as previously stated, there will be no
dividend payable from CMBC in financial year 2021, although we expect future
dividends from CMBC to come through following the re-opening of pubs, the
successful integration and increased synergy benefits.
Marston's has secure long-term financing in place. Having satisfied the
scheduled repayments for the securitisation for quarters one, two and four,
demonstrating solid cash generation even under significant trading
restrictions, we drew upon the liquidity facility to meet the April
quarter-end principal and interest payments. At the period close we had
utilised £25 million of the £120 million securitisation liquidity facility,
with £5 million repaid in October 2021.
In summary, we have significant cash headroom in our bank facility to provide
operational liquidity, and a securitisation liquidity facility to protect
bondholder payments for at least 12 months should that be required in the
event of any further unexpected interruptions to trading. Importantly, over
90% of our medium to long-term financing is hedged thereby minimising any
exposure to interest rate increases that may arise over the next few years.
As a result of the impact of the COVID-19 pandemic, we forecast that
additional covenant waivers/amendments will be required. Whilst there is no
certainty that such amendments would be granted (this has been disclosed as a
material uncertainty in the financial statements), given our experiences to
date we are confident of securing these where necessary.
Dividend
Given the significant disruption to trading in the financial year under review
and the potential for continuing uncertainty, the Board has decided not to
propose a dividend in respect of financial year 2021. The Board is cognisant
of the importance of dividends to many of our shareholders and we continue to
review the timing of the resumption of dividend payments in earnest.
Current Trading and Outlook
Trading since the year end remains encouraging. Total like-for-like sales in
our managed and franchised pubs are up 1.3% relative to 2019. October
earnings were in line with our expectations. Bookings for the Christmas
period are encouraging and building in momentum. In our food-led business
both Christmas Day and Christmas Fayre bookings are in line with 2019, albeit
walk-in trade typically accounts for a significant proportion of overall sales
over the Christmas trading period.
It has been well publicised that the wider industry is facing challenges in
respect of staff recruitment and cost inflation, alongside supply issues.
Whilst the labour market remains tight, particularly in city centres, we are
currently managing this well. The national minimum wage increase was in line
with our expectation of a resumption of the 5-6% increase, which we were
observing before the pandemic. The majority of our 2022 costs are now
contracted in, specifically gas to 2023 and electricity to the end of March
2022. With regards to supply chain challenges, we have seen some small pockets
of disruption however, we are continuing to work closely with our suppliers to
manage this.
Looking forward, we believe the worst of the pandemic is now behind us, albeit
we will have to navigate through the coming winter months if any further
Government restrictions are put in place. Trading since April demonstrates
that demand to visit the pub remains strong and we have clear plans in place
to return Marston's to sustainable pre-pandemic levels of profitability,
evolving and adapting the business to ensure it is fit for long term purpose
and achieving our "Back to a Billion" goals.
STRATEGIC PRIORITIES
Market Dynamics
The pandemic has significantly changed the dynamics of the market and our
focus has been on ensuring that our pub estate is optimally positioned to meet
those challenges and respond to evolving consumer trends. There are four key
dynamics of the changing market, which we believe we are well equipped to
benefit from:
Our guests want to celebrate and socialise outside home: Since reopening in
April, there is clear evidence of a strong demand for guests to socialise
outside the home environment with comparative sales performance improving
steadily as restrictions were relaxed further.
On-Trade contraction of supply: In recent years expansion in the eating-out
market has been relatively subdued. Supply has contracted significantly during
the year, particularly in casual dining, and we expect this trend to continue
for the foreseeable future which presents a clear opportunity for us to
increase market share.
Lifestyle changes favour suburban locations: The pandemic has significantly
changed the way in which we live and work, with a significant shift to
homeworking for example. Whilst we believe that a return to office working
will re-emerge in time, there are strong indications that more flexible
working patterns will prevail in the long term, with many large organisations
looking to reduce office space in city centre locations. Our principally
suburban estate is well-placed to exploit this change.
Experience replacing convenience as reason to visit: In the years preceding
the pandemic, the eating-out market was subject to significant discount
activity. Today, options for eating at home have significantly improved, with
increased home delivery options, the emergence of "finish at home" premium
dining and the premiumisation of food offers in supermarkets. As referenced
above, there is strong demand to socialise outside the home, but the focus and
expectation of our guests is driven by experience and quality, rather than
convenience or price.
Strategic and Operational Review
Following the sale of Marston's Beer Company into CMBC, we have become a
focused pub operator for the first time in the Group's long history.
During the year we launched 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,
whilst focussing on consistently delivering high levels of guest satisfaction
and standards through our great pub teams.
Underpinning this vision are clear operational targets which will be measured
by external customer and employee led endorsement such as Google, EHO and
Glassdoor, together with sales targets aimed at further improving spend per
guest visit.
Our Corporate Goals
The corporate goals underpinning the vision are twofold:
"Better than the Rest": Continued outperformance of the Peach Market Tracker
in both food-led and wet-led pubs outside the M25
"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 on several fronts:
· Organic sales and earnings growth: by growing sales and
earnings beyond pre-pandemic levels we are driving cash flow growth that can
be deployed to reinvest in the business, continue to pay down debt and resume
sustainable and progressive dividends.
· Capital allocation: adopting a capital allocation policy that
focuses on paying down debt, resuming sustainable dividends and considering
earnings enhancing, capital-light acquisitions.
· Improve asset value and return on capital: over the last two
years our property value has been impaired by around £350 million, reflecting
the impact of the pandemic. Our organic growth plans provide an opportunity
to restore the impaired value as well as improving return on capital.
· "Committed to be a responsible and sustainable business":
achieving our roadmap to Net Zero for Scope 1,2 and 3 emissions alongside
creating champion targets for key ESG issues relevant to our business.
How we will deliver our goals
Focused and balanced leadership team. In order to deliver our goals, we have
structurally changed the executive team ("Executive") to ensure decisions are
made in a timely and efficient manner, with close alignment between executive
members and minimal layers between the Executive and pub teams. Together with
the Chief Executive and Chief Financial Officer, the Group's Executive
comprises two Operations Directors, a Commercial Marketing Director, Group HR
Director and Group Secretary. Of particular note, our Commercial Marketing
Director, Mags Dixon, joined the Group in September 2021 and brings with her a
wide range of sector experience with a number of leading hospitality brands.
Strategic Pillars. Underpinning the vision are three strategic pillars to
which we align all of our internal actions:
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
In October we launched a new guest insight platform, Reputation, which
generates a Reputation score for every pub based on social media feedback,
regardless of operating model. This platform highlights guest satisfaction
levels and also enables us to compare each pub to local competitors. As such,
it provides us with a basis from which we can determine whether we are the
best pub in the area or where there is scope for further improvement.
Following the investment in our EPOS system we have a rich pool of data from
which we can understand our guest behaviours by each day and daypart in the
week. This enables us to make more targeted commercial decisions, which
together with the social media and demographic data ensures we have the right
customer offer in all of our pubs.
Creating memorable experiences
Prior to the pandemic the food-led business was exposed to significant
discounting across the market and as such the market was very price focused.
Since reopening, this balance has shifted, with guests placing more emphasis
on the overall pub experience, with ambience and quality of service ranking
far higher in customer satisfaction surveys. Quality of food and drink is of
course critical, but is taken as a given by our guests and whilst the insight
shows that price is less important in choosing a venue, we are cognisant that
pubs must remain an affordable treat where visit frequency is more than once a
month.
Focus on the peak periods; minimise distraction
Coming out of the pandemic, footfall levels are still below 2019. We are
focused on maximising sales in the key peak trading periods, namely lunchtime
and evening and believe greatest value is created by harnessing our efforts
and allocating resource to the dayparts of the week when guests are most
likely to visit. As a consequence, we have taken the decision to restrict
where we are serving breakfast, principally to pubs with accommodation, and we
no longer offer delivery. Whilst the door is not closed to these
opportunities in the future, our experience thus far is that these have
delivered negligible profit contributions and are a distraction to the pubs'
core business.
Raise the Bar - this pillar focusses 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 561 managed pubs and an estimated
10,000 indirectly in our 940 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.
The pandemic presented an opportunity to review all aspects of our people
agenda.
Resourcing - the challenge for recruiting quality talent into our business has
been more pronounced as we emerged from the pandemic during a period which has
seen widely reported labour shortages in the hospitality sector. During the
various periods of lockdown, we developed and relaunched our recruitment
websites and are reviewing the role of app-based recruitment systems for
employees seeking more flexible working arrangements. However, we recognise
that we need to evolve our processes further to ensure we are bringing the
right calibre of individual into the business for the long term rather than
simply filling pub vacancies to meet short-term pressures. We have recently
appointed a new Head of Resourcing with significant sector experience to
oversee the continued evolution and development of our recruitment agenda.
Training and development: We have introduced a more agile and dynamic
training and development agenda into Marston's, to ensure we can identify
development needs quickly and offer innovative training solutions.
Our legacy annual review cycle has been replaced by a more agile, regular
monthly conversation with a continuous focus on performance and personal
development. We are developing an app-based system to ensure this process is
efficient and not cumbersome for our people or their managers.
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.
Operational excellence
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.
Focused improvement - "Make Great"
In tandem with the focus on peak trading sessions, we have launched an
internal initiative "Make Great". The first initiative was "Make Sundays
Great". We set up a cross functional project team to review and enhance the
whole Sunday guest experience, resulting in simplified menus, improved
specification of the roast meal, marketing campaign and a trade-up incentive
scheme. The initial results are extremely encouraging, with improved
lunchtime trading results, higher guest satisfaction and a higher mix of roast
dinners, with most food-led formats showing an improvement of nearly 20%
relative to 2019.
We have extended "Make Great" to our capex process as described below and have
set up new teams to enhance other key trading initiatives such as Steak Night
and Saturday evenings in food-led pubs.
We will Grow - this pillar focusses on the actions that will drive the £1
billion sales target.
Evolution of our estate: In response to the changing market dynamics post
pandemic, we have conducted a detailed review of our pub estate. Following
this review, we have decided to categorise our pubs into three core trading
formats in our food business to reflect 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.
Underpinning this is the "Make Capex Great" programme which has focused the
capex process as follows:
- Set long term sales and profit aspirations for the pub and assess
the capex investment based on this rather than the incremental return on
investment
- Enhanced market support for the first 12 weeks after reopening for
new launches
- Early identification of conversion sites to ensure all resourcing
and marketing requirements are addressed prior to the capex investment. 25
conversion sites are planned for 2022 and 50 conversion sites have been
identified for financial year 2023.
It is our intention to invest around £50-55 million of capital over the next
four years to complete the programme at a minimum target return of 30%.
A good example of the type of investments we are targeting is the Bankfield
Inn, Bilston. The Bankfield was a carvery site (previous name "White
Rabbit") with average net sales of £15k per week, comprising £4k of drink
sales. We converted the pub to Marston's Community trading format in May
2021 with an investment of £250k and the pub is now consistently trading at
£21k per week with drink sales of £10k. The proforma EBITDA of the pub is
targeted at £230k based on current sales.
Continued evolution of franchise - Pillar agreement
In 2009, Marston's pioneered the introduction of franchise-style agreements
which have subsequently become widespread across the pub sector. We believe
that the franchise operating model in community pubs creates the best
experience for our customers as well as being the most flexible and attractive
model for licensees.
Our aspiration is to continue to roll out turnover-based agreements across our
leased estate. The progress to date has been restricted to pubs that can
accommodate a Marston's food menu and therefore implementation of such
arrangements for a leased pub with an independent food offer has proved
challenging. In 2021 we introduced a new franchise agreement, "Pillar" which
meets those challenges.
The Pillar agreement enables a partner to operate their own menu through our
EPOS system. As with the franchise model, the operating costs of the pubs
excluding labour are borne by Marston's ensuring the pub is operating on
national managed house cost terms. Having successfully trialled the new
agreement in 32 sites, we now plan to roll out this highly innovative
agreement to at least another 30 pubs in 2022. This unique model enables
food entrepreneurs amongst our tenants and lessees to participate in the
Marston's franchise agreement without compromising their personal creativity.
Economically, the pilot has demonstrated that the combination of food
entrepreneurial flair from the licensee, together with Marston's drink
expertise and cost efficiencies, drives a high level of outlet profit which is
mutually beneficial to both parties.
Creating a stronger sales culture - Project Boost
Our objective is to create a more entrepreneurial culture across the
organisation, rewarding outperformance wherever that is achieved. This
initiative is designed to provide incentives to our strongest performers
across the business including our partnership sites.
Boost is also intended to ensure we are delivering our financial results in
the correct manner - satisfaction and standards are embedded into all of our
schemes across the organisation. In 2022, our operational bonuses are
uncapped - if a pub significantly outperforms their targets then they will be
rewarded accordingly.
Innovative growth strategy
In our view, consolidation opportunities will remain within the pub sector
over the next few years and we are continuing to consider ways in which we
might participate without compromising our objective to reduce borrowings to
below £1 billion. The Brains transaction was a good example of an innovative
deal which required minimal capital outlay to acquire the operations of a
high-quality pub estate. Looking forward, it is our intention to review
similar opportunities with the strict criteria that any acquisitions must be
underpinned by strong earnings per pub and rental cover of at least two times
earnings. We have established an agreement with property partners to work with
us on opportunities as they arise.
CARLSBERG MARSTONS BREWING COMPANY ("CMBC")
Following the disposal of the brewing business into CMBC we retain a 40% stake
in a high-quality business that is well placed for growth.
Our partnership has started well, and we are working with Carlsberg to drive
the business forward. The team have done an outstanding job on integration
and providing the platform to drive the synergies identified in the original
process. As reported previously, we anticipate the synergies are now
expected to be in the range £35-40 million - significantly in excess of the
£24 million reported on completion.
The CMBC team are developing the sales and marketing plans to drive the
underlying business forwards and maintain the market-leading position of both
businesses. We are encouraged by the plans presented to us and are confident
that these plans can drive further growth in the coming years.
The carrying value of our shareholding is £277 million. Importantly this does
not reflect either the synergies or business progression referenced above
which should realise improving value looking forward.
ESG - Roadmap to Net Zero
Marston's has always maintained a proactive approach to our ESG strategy. We
view ESG as integral to our operations and of increasing relevance to all of
our stakeholders; employees, suppliers, investors and most importantly guests.
Our environmental team have won numerous awards, most recently being awarded
the food industry FEJ Award for Energy Efficiency and Sustainability for the
third year in succession. Our achievements to date are significant:
- First pub company to achieve zero waste to landfill status, with a current
recycling level of 78%
- All replaced plastic garden furniture is made from 100% recycled products
- Reduced carbon emissions, with all managed and franchised pubs fitted with
LED lighting
- We operate our own water licence saving around 30 million pints of water
per annum
In addition, we now have rapid charging points for electric cars in over 100
of our pub car parks, one of the largest private networks in the UK. In the
last six months we broke through the "one million miles sold" barrier from our
charging network and the roll out across our estate continues.
During the year, we have identified the actions required for our carbon
net-zero roadmap. Our internal remit is to achieve the actions identified to
meet our stated goals
In October 2021 we signed up to the Zero Carbon commitment to achieve net-zero
by 2030 for Scope 1 and 2 emissions (i.e. emissions directly under our
control) and 2040 for Scope 3 emissions (i.e. the emissions of our suppliers).
Although there are many initiatives to reducing our emissions, the majority of
our roadmap to our 2030 (Scope 1 and 2) targets requires three specific
actions:
- Move to renewable energy (April 2022)
- Investment in induction technology in our kitchens (target by end of
2026)
- Move to low carbon heating solution (target end 2030)
By implementing these clear plans, in 2030 we anticipate being in a position
whereby we achieve a 90% reduction of our emissions goals for Scope 1 and 2
through identified actions with a 10% offset required to become carbon neutral
across Scope 1 and 2.
PERFORMANCE AND FINANCIAL REVIEW
Underlying
Revenue operating (loss)/profit
2021 2020 2021 2020
£m £m £m £m
Pub outlet 401.7 515.5 34.8 84.7
Administrative costs - - (29.1) (28.0)
Total pub 401.7 515.5 5.7 56.7
Share of associate - (14.5) -
Total continuing 401.7 515.5 (8.8) 56.7
Brewing (discontinued) 22.1 305.5 1.4 17.3
Total 423.8 821.0 (7.4) 74.0
Pubs
Revenue decreased by 22% to £401.7 million principally reflecting the impact
of COVID-19 and the significant restrictions to pub trading during the
period.
Within our pub business we operated 332 pubs under the traditional tenanted
and leased model generating revenues of £24.7 million and underlying
operating profit of £11.5 million.
Pub outlet operating profit was £34.8 million (2020: £84.7million).
Reported underlying operating margin of 8.7% is below last year
reflecting the lower turnover.
Share of Associate (Carlsberg Marston's Brewing Company Limited)
The operating loss from CMBC in the period of £14.5 million reflects
Marston's PLC's share of the statutory loss after tax generated by CMBC in the
period. This improved in the second half of the year due to re-opening of
the on-trade. This loss comprises £4 million of underlying trading losses,
£2.5 million of restructuring costs, and £8 million in respect of the
adjustment to the contingent payment value since completion.
Taxation
The total underlying loss before tax for continuing and discontinued
operations was £100.0 million (2020: £22.0 million), upon which the total
underlying tax credit for continuing and discontinued operations was £15.5
million (2020: £11.5 million). This gives a total underlying rate of taxation
of 15.5% (2020: 52.3%). The tax rate is lower than the standard rate of
corporation tax primarily due to the post-tax share of loss from associates
included in the underlying loss before tax.
Non-underlying items
There is a net non-underlying credit of £247.3 million after tax, of which a
charge of £42.1 million relates to continuing operations and a credit of
£289.4 million relates to discontinued operations.
The charge in respect of continuing operations primarily relates to the
external estate valuation of the Group's effective freehold properties and the
impairment review of the Group's leasehold properties undertaken in the
period, which resulted in a £83.9 million charge to the income statement.
Other non-underlying items comprise £12.2 million of costs/charges from
COVID-19, primarily relating to covenant waivers and contract penalties,
central reorganisation costs of £1.0 million, a pension scheme past service
cost of £0.5 million in respect of Guaranteed Minimum Pension equalisation, a
charge of £0.6 million in respect of the net interest on the net defined
benefit pension asset/liability, a £8.4 million net gain in respect of
interest rate swap movements and a £20.0 million gain in respect of the fair
value of the contingent consideration from the disposal of the Group's brewing
operations. There is a credit of £7.9 million relating to the tax on these
non-underlying items along with a deferred tax credit of £19.8 million in
relation to the change in corporation tax rate.
The credit in respect of discontinued operations primarily comprises the
profit on disposal of the Group's brewing operations, offset by business
separation and COVID-19 costs.
Capital expenditure and disposals
Capital expenditure was £46.6 million in the year (2020: £63.7
million). We expect that capital expenditure will be around £55 million
in 2022, comprising maintenance of £41 million and investment of £14
million.
Cash proceeds of £228.0 million were received in respect of the disposal of
the Marson's Beer Company and £16.2 million have been realised in relation to
the disposal of pubs and our unlicensed property portfolio. The balancing
cash payment of £28.2 million from Carlsberg, for the disposal of Marston's
Beer Company, will be received in December 2021.
Property
The Group's properties went through an external valuation with CBRE during the
second half of the year and the results have been reflected in the full year
accounts. The resulting carrying value of the estate is £1.9 billion and as a
result of the valuation and leasehold impairment review there is an effective
freehold impairment of £102 million and a leasehold impairment of £27
million. The average multiples used in the valuation of 7.8 times were at the
lower end of our expectations and the multiples disclosed by both peers in
their valuations and recent comparable transactions.
Pensions
The deficit on our final salary scheme was £14.4 million at 2 October 2021
which compares favourably to the £37.2 million deficit at last year end.
The decrease in the deficit is due principally to a significant decrease in
the liability, driven by an increase in the discount rate. We have concluded
the 2020 triennial valuation and agreed with the Trustees to maintain funding
at the existing levels of contribution.
Notes:
-Prior period was a 53-week period to 3 October 2020
-Revenue and earnings numbers reflect the combination of both continuing and
discontinued operations
GROUP INCOME STATEMENT
For the 52 weeks ended 2 October 2021
2021 2020
Underlying Non- Underlying Non-
£m underlying Total £m underlying Total
(note 3) £m (note 3) £m
£m £m
Continuing operations
Revenue 401.7 - 401.7 515.5 - 515.5
Operating expenses (396.0) (96.2) (492.2) (458.8) (342.2) (801.0)
Loss from associates (14.5) - (14.5) - - -
Operating (loss)/profit (8.8) (96.2) (105.0) 56.7 (342.2) (285.5)
Finance costs (93.4) (2.0) (95.4) (96.1) (2.7) (98.8)
Finance income 0.9 - 0.9 1.0 1.0 2.0
Interest rate swap movements - 8.4 8.4 - (6.4) (6.4)
Contingent consideration fair value movement - 20.0 20.0 - - -
Net finance costs (92.5) 26.4 (66.1) (95.1) (8.1) (103.2)
Loss before taxation (101.3) (69.8) (171.1) (38.4) (350.3) (388.7)
Taxation 15.1 27.7 42.8 14.6 25.6 40.2
Loss for the period from continuing operations (86.2) (42.1) (128.3) (23.8) (324.7) (348.5)
Discontinued operations
Profit/(loss) for the period from discontinued operations 1.7 289.4 291.1 13.3 (24.4) (11.1)
(Loss)/profit for the period attributable to equity shareholders (84.5) 247.3 162.8 (10.5) (349.1) (359.6)
The results for the current period reflect the 52 weeks ended 2 October 2021
and the results for the prior period reflect the 53 weeks ended 3 October
2020.
Earnings/(loss) per share: 2021 2020
p p
Basic earnings/(loss) per share
Total 25.7 (56.8)
Continuing (20.3) (55.1)
Discontinued 46.0 (1.8)
Basic underlying (loss)/earnings per share
Total (13.4) (1.7)
Continuing (13.6) (3.8)
Discontinued 0.3 2.1
Diluted earnings/(loss) per share
Total 25.7 (56.8)
Continuing (20.3) (55.1)
Discontinued 46.0 (1.8)
Diluted underlying (loss)/earnings per share
Total (13.4) (1.7)
Continuing (13.6) (3.8)
Discontinued 0.3 2.1
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the 52 weeks ended 2 October 2021
2021 2020
£m £m
Profit/(loss) for the period 162.8 (359.6)
Items of other comprehensive income that may subsequently be reclassified to
profit or loss
Gains/(losses) arising on cash flow hedges 5.9 (3.8)
Transfers to the income statement on cash flow hedges 19.7 21.3
Tax on items that may subsequently be reclassified to profit or loss 1.7 (0.3)
27.3 17.2
Items of other comprehensive income that will not be reclassified to profit or
loss
Remeasurement of retirement benefits 17.5 (6.5)
Unrealised surplus on revaluation of properties 59.1 -
Reversal of past revaluation surplus (105.0) (151.2)
Tax on items that will not be reclassified to profit or loss (12.3) 17.7
(40.7) (140.0)
Other comprehensive expense for the period (13.4) (122.8)
Total comprehensive income/(expense) for the period attributable to equity 149.4 (482.4)
shareholders
Other comprehensive expense for the current and prior period relates wholly to
continuing operations.
The results for the current period reflect the 52 weeks ended 2 October 2021
and the results for the prior period reflect the 53 weeks ended 3 October
2020.
GROUP CASH FLOW STATEMENT
For the 52 weeks ended 2 October 2021
2021 2020
(Restated)
£m £m
Operating activities
Profit/(loss) for the period 162.8 (359.6)
Taxation (43.5) (37.5)
Net finance costs 66.2 104.1
Depreciation and amortisation 42.7 51.6
Gain on disposal of subsidiary (290.5) -
Working capital movement (6.4) 71.9
Non-cash movements 100.6 334.1
Increase in provisions and other non-current liabilities 2.3 1.0
Difference between defined benefit pension contributions paid and amounts (7.0) (7.3)
charged
Income tax received/(paid) 7.5 (1.8)
Net cash inflow from operating activities 34.7 156.5
Investing activities
Interest received 0.5 1.5
Sale of property, plant and equipment and assets held for sale 16.2 74.9
Purchase of property, plant and equipment and intangible assets (46.6) (63.7)
Disposal of subsidiary 228.0 -
Movement in trade loans 0.1 1.2
Finance lease capital repayments received 1.2 1.5
Net transfer to other cash deposits (1.2) -
Net cash inflow from investing activities 198.2 15.4
Financing activities
Equity dividends paid - (30.4)
Interest paid (96.3) (91.0)
Swap termination costs (19.9) -
Proceeds from sale of own shares 0.1 -
Repayment of securitised debt (35.4) (33.4)
Repayment of bank borrowings (80.1) (60.7)
Capital element of lease liabilities repaid (19.8) (8.3)
Advance of other borrowings 10.0 55.0
Net cash outflow from financing activities (241.4) (168.8)
Net (decrease)/increase in cash and cash equivalents (8.5) 3.1
The cash flows for the current period reflect the 52 weeks ended 2 October
2021 and the cash flows for the prior period reflect the 53 weeks ended 3
October 2020.
The cash flow statement for the 53 weeks ended 3 October 2020 has been
restated such that it starts with the loss for the period rather than
underlying operating profit. This restatement has had no impact on the net
cash flows from operating, investing or financing activities or on the net
increase in cash and cash equivalents in the period.
GROUP BALANCE SHEET
As at 2 October 2021
2 October 3 October
2021 2020
£m £m
Non-current assets
Goodwill - -
Other intangible assets 36.1 32.5
Property, plant and equipment 1,984.2 2,038.3
Interests in associates 277.4 -
Other non-current assets 15.9 17.5
Deferred tax assets 47.6 16.7
2,361.2 2,105.0
Current assets
Inventories 12.9 10.4
Trade and other receivables 52.3 16.2
Current tax assets 1.0 8.0
Other cash deposits 3.2 2.0
Cash and cash equivalents 32.2 40.6
101.6 77.2
Assets held for sale 5.1 349.7
106.7 426.9
Current liabilities
Borrowings (67.5) (64.7)
Derivative financial instruments - (37.0)
Trade and other payables (220.7) (222.1)
Provisions for other liabilities and charges (1.5) (1.1)
(289.7) (324.9)
Liabilities held for sale - (111.0)
(289.7) (435.9)
Non-current liabilities
Borrowings (1,571.8) (1,610.9)
Derivative financial instruments (170.5) (187.4)
Other non-current liabilities (5.5) (3.9)
Provisions for other liabilities and charges (9.6) (7.7)
Retirement benefit obligations (14.4) (37.2)
(1,771.8) (1,847.1)
Net assets 406.4 248.9
Shareholders' equity
Equity share capital 48.7 48.7
Share premium account 334.0 334.0
Revaluation reserve 360.5 430.6
Merger reserve - 23.7
Capital redemption reserve 6.8 6.8
Hedging reserve (81.4) (108.7)
Own shares (111.1) (111.9)
Retained earnings (151.1) (374.3)
Total equity 406.4 248.9
GROUP STATEMENT OF CHANGES IN EQUITY
For the 52 weeks ended 2 October 2021
Equity Share Revaluation reserve Capital Hedging Own Retained Total
share premium Merger redemption reserve shares earnings equity
capital account reserve reserve
£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 - - - - - - - 162.8 162.8
Remeasurement of retirement benefits - - - - - - - 17.5 17.5
Tax on remeasurement of retirement benefits - - - - - - - (2.5) (2.5)
Gains on cash flow hedges - - - - - 5.9 - - 5.9
Transfers to the income statement on cash flow hedges - - - - - 19.7 - - 19.7
Tax on hedging reserve movements - - - - - 1.7 - - 1.7
Property revaluation - - 59.1 - - - - - 59.1
Property impairment - - (105.0) - - - - - (105.0)
Deferred tax on properties - - (9.8) - - - - - (9.8)
Total comprehensive (expense)/income - - (55.7) - - 27.3 - 177.8 149.4
Share-based payments - - - - - - - 1.2 1.2
Sale of own shares - - - - - - 0.8 (0.7) 0.1
Transfer disposals to retained earnings - - (15.1) (23.7) - - - 38.8 -
Transfer tax to retained earnings - - 0.7 - - - - (0.7) -
Changes in equity of associates - - - - - - - 6.8 6.8
Total transactions with owners - - (14.4) (23.7) - - 0.8 45.4 8.1
At 2 October 2021 48.7 334.0 360.5 - 6.8 (81.4) (111.1) (151.1) 406.4
For the 53 weeks ended 3 October 2020
Equity Share Revaluation reserve Capital Hedging Own Retained Total
share premium Merger redemption reserve shares earnings equity
capital account reserve reserve
£m £m £m £m £m £m £m £m £m
At 29 September 2019 (as originally reported) 48.7 334.0 598.9 23.7 6.8 (125.9) (112.0) 36.9 811.1
Prior period adjustment - - - - - - - 3.6 3.6
Adjustment for asset class split - - (29.9) - - - - (14.4) (44.3)
Tax impact of asset class split - - 4.4 - - - - (0.6) 3.8
At 29 September 2019 (as restated) 48.7 334.0 573.4 23.7 6.8 (125.9) (112.0) 25.5 774.2
Adjustment for adoption of IFRS 16 - - - - - - - (15.9) (15.9)
Tax impact of IFRS 16 adjustment - - - - - - - 3.0 3.0
At 29 September 2019 (as adjusted) 48.7 334.0 573.4 23.7 6.8 (125.9) (112.0) 12.6 761.3
Loss for the period - - - - - - - (359.6) (359.6)
Remeasurement of retirement benefits - - - - - - - (6.5) (6.5)
Tax on remeasurement of retirement benefits - - - - - - - 2.0 2.0
Losses on cash flow hedges - - - - - (3.8) - - (3.8)
Transfers to the income statement on cash flow hedges - - - - - 21.3 - - 21.3
Tax on hedging reserve movements - - - - - (0.3) - - (0.3)
Property impairment - - (151.2) - - - - - (151.2)
Deferred tax on properties - - 15.7 - - - - - 15.7
Total comprehensive (expense)/income - - (135.5) - - 17.2 - (364.1) (482.4)
Share-based payments - - - - - - - 0.4 0.4
Sale of own shares - - - - - - 0.1 (0.1) -
Transfer disposals to retained earnings - - (8.1) - - - - 8.1 -
Transfer tax to retained earnings - - 0.8 - - - - (0.8) -
Dividends paid - - - - - - - (30.4) (30.4)
Total transactions with owners - - (7.3) - - - 0.1 (22.8) (30.0)
At 3 October 2020 48.7 334.0 430.6 23.7 6.8 (108.7) (111.9) (374.3) 248.9
NOTES
For the 52 weeks ended 2 October 2021
1 Accounting policies
Basis of preparation
The financial information for the 52 weeks ended 2 October 2021 (2020: 53
weeks ended 3 October 2020) has been extracted from the audited financial
statements, which have been prepared in accordance with International
Financial Reporting Standards (IFRS) and IFRS Interpretations Committee and
Standing Interpretations Committee interpretations, adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union, and in
conformity with the requirements of the Companies Act 2006. The financial
statements have been prepared under the historical cost convention as modified
by the revaluation of certain items, principally effective freehold land and
buildings, certain financial instruments, retirement benefits and share-based
payments.
Going concern
The impact of COVID-19 on the economy and the hospitality industry has
resulted in lower revenues, profit and operating cash flow since March 2020
and has heightened uncertainty about the future financial performance of the
Group and the Company, 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 £190.0 million was drawn at 2
October 2021, 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. The Group has secured waivers
from its bondholders in respect of the FCF DSCR Covenant up to and including 2
October 2021 for the two-quarter test and up to and including 1 January 2022
for the four-quarter test.
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 3.5 times) for the non-securitised group of companies and the
Interest Cover covenant is a measure of EBITDA to finance charges (a minimum
of 2 times from 2 April 2022, rising to 2.5 times from 1 October 2022, and
further rising to 3 times from 1 April 2023) for that group of companies.
The Group has agreed with its bank and private placement lenders to replace
these existing financial covenant tests with a series of absolute covenants in
respect of net borrowings and EBITDA for each quarter up to and including 1
January 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, rising broadly in line with inflation. Deferred VAT will be
repaid on its due date and the expected increase in the VAT rate from 12.5% to
20% in April 2022 will be absorbed by the Group. There is a forecast breach
in both the Debt Cover and Interest Cover bank and private placement covenants
at 2 April 2022.
The Directors have also considered a severe but plausible downside scenario,
incorporating further lockdowns at a national level in January and February
2022, 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, the Debt Cover and Interest Cover bank and private placement
covenants and the FCF DSCR Covenant for the securitisation are all forecast to
be breached at 2 April 2022.
As the forecasts indicate that covenants are expected to be breached within
the next 12 months, the Directors have concluded that a material uncertainty
over going concern exists. 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 the future waivers
required.
Considering the above, the Directors are satisfied that the Group and the
Company have 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 the required covenant waivers or amendments, 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
In the prior period the Group had three distinguishable operating segments
being Pubs and Bars, Brewing and Group Services. Following the disposal of
the Group's brewing operations in October 2020, 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 NON-Underlying items
2021 2020
£m £m
Non-underlying operating items
Reorganisation and restructuring costs 1.0 -
Impairment of freehold and leasehold properties 83.9 105.1
Write-off of acquisition and development costs - 0.9
Past service cost in respect of Guaranteed Minimum Pension equalisation 0.5 -
Impairment of goodwill - 200.6
Portfolio disposals - 22.4
Impact of COVID-19 10.8 16.4
VAT claims - (3.2)
96.2 342.2
Non-underlying non-operating items
Net interest on net defined benefit asset/liability 0.6 0.6
Interest on VAT claims - (1.0)
COVID-19 financing costs 1.4 2.1
Interest rate swap movements (8.4) 6.4
Contingent consideration fair value movement (20.0) -
(26.4) 8.1
Total non-underlying items for continuing operations 69.8 350.3
Reorganisation and restructuring costs
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 current period as part of a full review of its
overhead costs.
Impairment of freehold and leasehold properties
At 4 July 2021 the Group's effective freehold properties were revalued by
independent chartered surveyors on an open market value basis. The Group
also undertook an impairment review of its leasehold properties in the current
period.
In the prior period, in light of the COVID-19 outbreak, the Group undertook a
detailed valuation review of its pub estate, which resulted in the impairment
of a number of these properties.
The revaluation and impairment adjustments in respect of the above were
recognised in the revaluation reserve or income statement as appropriate.
The amount recognised in the income statement comprises:
2021 2020
£m £m
Impairment of property, plant and equipment 104.0 105.1
Reversal of past impairment of property, plant and equipment (22.3) -
Impairment of assets held for sale 1.8 -
Valuation fees 0.4 -
83.9 105.1
Past service cost in respect of Guaranteed Minimum Pension equalisation
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 has been
reflected in the calculation of the Group's net defined benefit
asset/liability in the current period and the resulting additional past
service cost of £0.5 million has been classified as a non-underlying item.
Impact of COVID-19
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 comprise bad debt and lease related
provisions, contract penalties and stock write-offs, have been classified as a
non-underlying item in the current and prior 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 £0.6 million (2020:
£0.6 million).
COVID-19 financing 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. In the prior period the Group also
obtained additional financing facilities from its lenders. The costs related
to this have been classified as a non-underlying item in the current and prior
period.
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 £5.9 million (2020: loss of £3.8 million) has
been recognised in the hedging reserve in respect of the effective portion of
the fair value movement and £7.2 million (2020: £6.7 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 £1.6 million (2020: £1.7 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 loss of
£0.8 million (2020: gain of £0.5 million), has been recognised within
non-underlying items. In addition £12.5 million (2020: £14.6 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 £11.6 million (2020: £11.4 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 £24.0 million (2020: £7.7
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 current period
resulting in a loss of £2.3 million which has been 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 has
been subsequently remeasured at its fair value at 2 October 2021. The
movement in fair value has been recognised within non-underlying items.
Impact of taxation
The current tax credit relating to the above non-underlying items amounts to
£nil (2020: £3.2 million). The deferred tax credit relating to the above
non-underlying items amounts to £7.9 million (2020: £20.6 million). In
addition, there is a non-underlying deferred tax credit of £19.8 million
(2020: £1.8 million) in relation to the change in corporation tax rate.
Prior period non-underlying items
In the 52 weeks ended 28 September 2019 the Group decided to focus its capital
expenditure upon its existing estate and as such acquisition and development
costs of £0.9 million in respect of sites which the Group no longer intended
to acquire and/or develop were written off in the prior period.
In the prior period the Group fully impaired the goodwill that was allocated
to the Pubs and Bars segment. The inputs to the value in use calculation
were significantly impacted by the COVID-19 outbreak.
As part of its debt reduction strategy, the Group disposed of two portfolios
of smaller wet-led leased, tenanted and franchised pubs and associated
properties in the prior period. The net loss on disposal and associated
costs were classified as a non-underlying item, together with dilapidations
costs from a previous portfolio disposal.
In the prior period the Group recognised a net credit of £3.2 million in
respect of VAT claims, along with the associated interest of £1.0 million.
This comprised credits received from HM Revenue & Customs (HMRC) in
relation to VAT on gaming machine income, following HMRC's decision not to
further appeal the case brought by The Rank Group Plc, net of the reversal of
amounts previously recognised in respect of VAT on pension scheme management
expenses.
4 Taxation
2021 2020
Income statement £m £m
Current tax:
Current period - (2.9)
Adjustments in respect of prior periods (0.5) (0.3)
Credit in respect of tax on non-underlying items - (3.2)
(0.5) (6.4)
Deferred tax:
Current period (14.6) (4.3)
Adjustments in respect of prior periods - (7.1)
Credit in respect of tax on non-underlying items (7.9) (20.6)
Non-underlying credit in relation to the change in tax rate (19.8) (1.8)
(42.3) (33.8)
Taxation credit for continuing operations reported in the income statement (42.8) (40.2)
5 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 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 Brewing Company Limited.
Results of discontinued operations
2021 2020
Underlying Non- Underlying Non-
£m underlying Total £m underlying Total
£m £m £m £m
Revenue 22.1 - 22.1 305.5 - 305.5
Operating expenses (20.7) (1.4) (22.1) (288.2) (24.8) (313.0)
Operating profit/(loss) 1.4 (1.4) - 17.3 (24.8) (7.5)
Net finance costs (0.1) - (0.1) (0.9) - (0.9)
Profit/(loss) before taxation 1.3 (1.4) (0.1) 16.4 (24.8) (8.4)
Taxation 0.4 0.3 0.7 (3.1) 0.4 (2.7)
Profit/(loss) after taxation 1.7 (1.1) 0.6 13.3 (24.4) (11.1)
Gain on disposal of discontinued operations - 290.5 290.5 - - -
Profit/(loss) for the period attributable to equity shareholders 1.7 289.4 291.1 13.3 (24.4) (11.1)
Non-underlying operating items in the current period relate to the impact of
COVID-19 and business separation costs. Non-underlying operating items in
the prior period related to the impact of COVID-19, disposal costs and the
impairment of central assets associated with discontinued operations.
Disposal of discontinued operations
2021
£m
Consideration received in cash (net of disposal costs) 228.1
Shares in Carlsberg Marston's Brewing Company Limited 285.1
Balance owed by Marston's Beer Company Limited at completion 55.5
Contingent consideration 8.9
Total consideration 577.6
Goodwill 29.7
Other intangible assets 62.1
Property, plant and equipment 157.6
Trade loans 8.0
Inventories 28.5
Trade and other receivables 56.8
Cash and cash equivalents 0.1
Borrowings (21.1)
Trade and other payables (20.8)
Deferred tax liabilities (13.8)
Net assets disposed of 287.1
Gain on disposal of discontinued operations 290.5
2021
£m
Consideration received in cash (net of disposal costs) 228.1
Cash and cash equivalents disposed of (0.1)
Net cash inflow on disposal 228.0
6 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/(loss) 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.
2021 2020
Earnings Per share Per share
amount Earnings amount
£m p £m p
Basic earnings/(loss) per share
Total 162.8 25.7 (359.6) (56.8)
Continuing (128.3) (20.3) (348.5) (55.1)
Discontinued 291.1 46.0 (11.1) (1.8)
Diluted earnings/(loss) per share
Total 162.8 25.7 (359.6) (56.8)
Continuing (128.3) (20.3) (348.5) (55.1)
Discontinued 291.1 46.0 (11.1) (1.8)
Underlying (loss)/earnings per share figures
Basic underlying (loss)/earnings per share
Total (84.5) (13.4) (10.5) (1.7)
Continuing (86.2) (13.6) (23.8) (3.8)
Discontinued 1.7 0.3 13.3 2.1
Diluted underlying (loss)/earnings per share
Total (84.5) (13.4) (10.5) (1.7)
Continuing (86.2) (13.6) (23.8) (3.8)
Discontinued 1.7 0.3 13.3 2.1
2021 2020
m m
Basic weighted average number of shares 632.8 632.7
Dilutive potential ordinary shares - -
Diluted weighted average number of shares 632.8 632.7
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.
7 Net debt
2021 2020
Analysis of net debt £m £m
Cash and cash equivalents
Cash at bank and in hand 32.2 40.6
32.2 40.6
Financial assets
Other cash deposits 3.2 2.0
3.2 2.0
Debt due within one year
Bank borrowings 0.7 0.7
Securitised debt (36.9) (34.9)
Lease liabilities (6.7) (15.9)
Other lease related borrowings 0.4 0.4
Other borrowings (25.0) (15.0)
(67.5) (64.7)
Debt due after one year
Bank borrowings (188.9) (268.2)
Securitised debt (640.3) (677.2)
Lease liabilities (364.9) (288.2)
Other lease related borrowings (337.6) (337.2)
Other borrowings (40.0) (40.0)
Preference shares (0.1) (0.1)
(1,571.8) (1,610.9)
Net debt (1,603.9) (1,633.0)
Other cash deposits comprises deposits securing letters of credit for
reinsurance contracts. Included within cash and cash equivalents is an
amount of £5.6 million (2020: £6.0 million) relating to collateral held in
the form of cash deposits. These amounts are both considered to be restricted
cash. In addition, any other cash held in connection with the securitised
business is governed by certain restrictions under the covenants associated
with the securitisation.
2021 2020
Reconciliation of net cash flow to movement in net debt £m £m
(Decrease)/increase in cash and cash equivalents in the period (8.5) 3.1
Increase in other cash deposits 1.2 -
Disposals 0.1 -
Cash outflow from movement in debt 125.3 47.4
Change in debt resulting from cash flows 118.1 50.5
Non-cash movements and deferred issue costs (88.9) (10.6)
Disposals and classified as held for sale (0.1) 21.1
Movement in net debt in the period 29.1 61.0
Net debt at beginning of the period (1,633.0) (1,398.7)
Adjustment for adoption of IFRS 16 - (295.3)
Net debt at end of the period (1,603.9) (1,633.0)
2021 2020
£m £m
Net debt excluding lease liabilities (1,232.3) (1,328.9)
Lease liabilities (371.6) (304.1)
Net debt (1,603.9) (1,633.0)
8 Ordinary dividends on equity shares
2021 2020
Paid in the period £m £m
Final dividend for 2020 of nil per share (2019: 4.8p) - 30.4
Interim dividend for 2021 of nil per share (2020: nil) - -
- 30.4
A final dividend for 2021 has not been proposed.
Notes:
(a) The financial information contained in this
preliminary announcement does not constitute the Group's statutory accounts
within the meaning of section 434 of the Companies Act 2006. The financial
information has been extracted from the audited statutory accounts of the
Group for the 52 weeks ended 2 October 2021, which will be filed with the
Registrar of Companies in due course. The independent auditor's report on
these accounts is unqualified and does not contain any statements under
section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for
the 53 weeks ended 3 October 2020 have been delivered to the Registrar of
Companies.
(b) The Annual Report and Accounts for the 52 weeks ended
2 October 2021 will be posted to shareholders on 20 December 2021. The
Annual Report and Accounts can be downloaded from the Marston's PLC website:
www.marstons.co.uk (http://www.marstons.co.uk) . Alternatively, copies will
be obtainable from the Group Secretary, Marston's PLC, Marston's House,
Brewery Road, Wolverhampton, WV1 4JT.
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