6 December 2022
MARSTON’S PLC
RESULTS FOR THE 52 WEEKS ENDED 1 OCTOBER 2022
IMPROVED PROFITABILITY, SUBSTANTIAL INCREASE IN NET ASSET VALUE AND POSITIVE CASH FLOW WITH CONTINUED STRATEGIC MOMENTUM
Marston’s, a leading UK operator of 1,468 pubs, today announces its Preliminary Results for the 52 weeks ended 1 October 2022. The period under review, which commenced on 3 October 2021, included a period of disrupted trading in December 2021 /January 2022 due to the re-emergence of COVID-19 in the form of the Omicron variant.
| Underlying* | Total* | |||
| 2022 | 2021 | 2022 | 2021 | |
| Total revenue | £799.6 m | £401.7 m | £799.6 m | £401.7 m |
| Pub operating profit/(loss) | £115.4 m | £ 5.7 m | £ 142.1 m | £ (90.5) m |
| Share of associate | £3.3 m | £ (14.5) m | £ 3.3 m | £ (14.5) m |
| Profit/(loss) before tax | £27.7 m | £ (101.3) m | £ 163.4 m | £ (171.1) m |
| Net profit/(loss) | £27.5 m | £ (86.2) m | £ 137.2 m | £ (128.3) m |
| Earnings/(loss) per share | 4.3 p | (13.6) p | 21.7p | (20.3) p |
| Net cash inflow/(outflow) | £26.2 m | £118.1 m | £26.2 m | £118.1 m |
| NAV per share | £1.02 | £0.64 |
*From continuing operations
Return to more normalised trading despite Omicron disruption
· Full year like-for-like sales 99% of 2019 despite disrupted Christmas trading period
· Drink sales continued to outperform food sales demonstrating the trading resilience of the Group’s predominantly community pub estate
· Final 10 weeks of FY2022 like-for-like sales were +3% vs. 2019 and +4% vs. 2021
· Increase in pub operating profit: £115.4 million (FY2021: £5.7 million)
· Improved share of CMBC’s profits: £3.3m (FY2021: loss of £(14.5) million)
Positive cash generation, debt reduction and NAV increase
· £26 million net cash inflow from operating activities; underlying net cash inflow (excluding one-offs) of £48 million
· Continued progress with debt reduction strategy: net debt (excluding IFRS 16) reduced by £16 million to £1,216 million (2021: 1,232 million) despite the one-off £22 million net outflows outlined previously
· Property value £2.1 billion, representing an increase of £93.4 million vs. 2021
· Net asset value (NAV) per share increased by c.60% from £0.64 to £1.02 since October 2021
· £9.9 million generated from non-core disposals; disposals 40% ahead of net book value
Positive momentum on “Pubs to be proud of” strategy
· “Back to a Billion”: sales and net debt targets by 2026
· Significant improvement in guest, engagement and standards metrics
· Continued focus on repositioning pub estate into simplified format structure to generate strong returns: 22 transformational conversions completed and successful exit from Two for One format
· Simplification of menus driving guest satisfaction and spend per head; enhanced operational and purchasing efficiencies
· Commencement of new digital strategy following external appointment of Director of Digital
· People change programme including significant change in leadership and operational teams, reshaped reward and enhanced engagement and training programme
· Strong ESG agenda encapsulated by “Doing more to be proud of” including energy saving initiatives, focus on social purpose and good governance with improving EHO scores
Current trading and outlook
· Well-positioned to meet challenging market conditions
· Positive current trading, with like-for-like sales in the last 8 weeks +6.8% vs. last year
· Well-positioned, predominantly freehold pub estate with limited exposure to city centres
· Continued investment in repositioning the pub estate
· Managing inflationary challenges within our control: offsetting costs through efficiencies and pricing strategies
· The first winter World Cup and the first Christmas period without restrictions in three years to look forward to. For the two England World Cup games, like-for-like drink sales were c.+50% vs. 2021
Commenting, Andrew Andrea, CEO said:
” I am pleased to report a strong performance over the last 12 months evidenced by a doubling of revenue growth, a return to profit and steady progress with our debt reduction strategy. We have a clear and focused strategy which provides a strong platform for future growth, and it is encouraging to see the actions and initiatives which we have undertaken in 2022 beginning to deliver positive results.
Demand for our predominantly community-based pubs continues to be encouraging despite ongoing macro uncertainty and our estate is well-placed to benefit from changing patterns in consumer behaviour. We are managing cost inflation well and remain confident that our commitment to continue to reduce the Group’s debt and return sales to back to £1 billion will drive NAV and shareholder value.
Current trading to the end of November has been positive with encouraging levels of Christmas bookings as we look forward to the first restriction free festive period in three years. Additionally, the World Cup has benefited trading, delivering like for like drink sales of c.+50% for the home team games. Whilst uncertainty remains, Marston’s remains well-financed and in great shape to weather the challenges ahead with the right formula, the right strategy and the right team to continue to make progress and deliver shareholder value. “
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 1,468 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 are explained and reconciled in the appendix to the financial statements.
GROUP OVERVIEW
2022 PERFORMANCE OVERVIEW
2022 has been a year of two halves. The first half year results were impacted by trading restrictions and consumer confidence as a consequence of the disruption caused by the Omicron variant, affecting December 2021 and the critical Christmas trading period through to the end of January 2022. During the second half, we were encouraged that we traded well and consumer demand for our pubs remained robust as more normalised trading conditions resumed. With the impact of COVID-19 restrictions hopefully behind us and despite the well-documented cost inflation, which all businesses are facing currently, the Group will benefit from an estate that is balanced across formats and locations, with well-invested pubs, and is set for future sustainable like-for-like growth and shareholder value creation over the medium to long term.
In 2021 we launched our new vision “Pubs to be proud of” with a purpose “to bring people together, to create happy, memorable, meaningful experiences”, which 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. The performance supports the progress we are making against our strategy and the transformation which has been implemented across the business in FY2022. Our primary corporate goals remain: reaching two £1 billion financial targets over time, namely the achievement of sales of £1 billion and reducing the Group’s debt excluding IFRS 16 lease liabilities to below £1 billion. We continue to make progress on both of these goals.
Trading
Revenue increased by 99% to £799.6 million (2021: £401.7 million from continuing operations), principally reflecting recovery from a period severely impacted by COVID-19 and the significant restrictions to pub trading during the prior year.
As expected, given the significant impact of the Omicron variant during H1 and the important 2021 festive season, like-for-like retail sales for the year as a whole were 1% below 2019 levels, the last pre-pandemic trading year. However, like-for-like retail sales for the 10 weeks to 1 October 2022 were 3% up compared to 2019 and 4% up compared to 2021, showing encouraging recovery and the positive impact of our strategy.
Drink sales have outperformed food sales, once again demonstrating the trading resilience of our predominantly community pub estate. We continue to have confidence that our pub strategy is beginning to deliver positive momentum, evidenced by the trading performance. Our strategy is centered upon delivering affordable pub experiences for our guests in a quality environment both inside and out in our well-invested pub gardens and outdoor trading areas.
Underlying operating profit excluding income from associates was £115.4 million (2021: £5.7 million) with a margin of 14.4% (2021: 1.4%); H1 margin was 10.8% and H2 margin was 17.6%. Underlying operating profit, including income from associates, was £118.7 million (2021: loss of £(8.8) million).
Property and net assets
The Group has moved to annual external valuations of its properties and all pubs will be inspected on a rotational basis. Each year, valuation will be based on a physical inspection of approximately one third of the estate with the remainder subject to a desktop valuation.
The carrying value of the estate is now £2.1 billion (2021: £2.0 billion); as a result of the valuation and leasehold impairment review there is an effective freehold impairment reversal of £88.4 million and a leasehold impairment reversal of £5.0 million, giving a £93.4 million increase in net book value.
During the period, net asset value increased by £241.7 million to £648.1 million. This is primarily due to the increase in the value of our estate and reduction in liabilities from interest rate swaps. As a result of this, net asset value per share has increased to £1.02 (2021: £0.64).
Debt and financing
The vast majority of our borrowing is long-dated and asset-backed. 90% of our borrowings are hedged and therefore not at risk of any changes in interest rate movements that may occur during the year. Further detail is set out in the Performance and Financial Review.
Net debt, excluding IFRS 16 lease liabilities, was £1,216 million, a reduction of £16 million from last year (2021: £1,232 million). Total net debt of £1,594 million (2021: £1,604 million) includes IFRS 16 lease liabilities of £378 million (2021: £372 million).
Carlsberg Marston’s Brewing Company (CMBC)
The pandemic and the macroeconomic environment have had an impact on CMBC’s trading results in FY2022. The income from CMBC of £3.3 million (2021: loss of £(14.5) million) reflects the Group’s share of the statutory profit after tax generated by CMBC. Whilst CMBC’s results show a recovery from last year, they also reflect the impact of the Omicron variant during the year; H1 saw a loss of £(2.0) million.
Dividends from associates of £19.4 million were received (2021: £nil), primarily resulting from one-off working capital movements. We remain confident we will receive regular future dividends from CMBC when there is a return to a more normalised market.
Dividend
The Board confirms that given the disruption to trading and the road to recovery from COVID-19 in the financial year under review, and the continued macroeconomic uncertainty, no dividends will be paid in respect of financial year 2022. The Board is cognisant of the importance of dividends to shareholders and intends to keep potential future dividends under review.
Current trading and outlook
Trading since the year end remains encouraging. Like-for-like sales in our managed and franchised pubs are up 6.8% vs the same period last year. October earnings were in line with our expectations. Bookings for Christmas Day and Christmas Fayre are encouraging and are building in momentum. Total bookings for the Christmas period are higher than in 2019 and in line with our plans, albeit walk-in trade typically accounts for a significant proportion of overall sales over the Christmas trading period.
For the two England World Cup games, like-for-like drink sales on those days were c.+50% compared to 2021.
We remain cognisant of the current macroeconomic environment with the cost-of-living crisis, the impact of the conflict in Ukraine and the resulting challenges this brings in respect of cost inflation and the potential impact on disposable income, as well as potential supply issues. However, pubs have demonstrated their resilience time and time again and, to date, there is little in our trading performance to suggest that there has been a change to consumer behaviour; our guests still want to go out and have an affordable treat in a Marston’s pub.
Similar to others in the hospitality business, our major cost lines within the business are food, drink, labour and energy. We continue with a relentless focus on managing costs to mitigate the inflationary impact on the business. 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.
Food and drink: c.60% of food is contracted until FY2023 or beyond. For drinks, 74% of the cost is contracted beyond FY2023 and the annual price increases for these contracts are in line with our previous guidance.
Labour: following the Autumn Statement and the higher than initially anticipated increases to NLW/NMW, effective April 2023, we estimate the impact to be an additional c.£2 million of higher costs in FY2023. As part of our pricing review, we will seek to mitigate the majority of this cost.
Energy: the Group’s gas price is fixed until the end of March 2025 with no additional incremental spend anticipated. The Group’s electricity is hedged for H1 of FY2023, covering the six-month period from October 2022 to March 2023. The Government’s six-month energy price cap for businesses is helpful and further protects our H1 energy spend. Regarding H2, we await the review of the price cap, expected by 31 December 2022, albeit at this stage the guidance we have provided on energy costs for the Group’s financial year as a whole remains the same. In keeping with our commitment to our ESG strategy, we continue to focus on making efforts to mitigate energy costs wherever possible, such as adopting further energy efficient or saving schemes.
Looking ahead, whilst the short-term outlook is of course uncertain, we remain confident in the future prospects of the Group . What is clear is that people want – and are continuing – to visit our predominantly community pubs. Our customer insight and experience concludes that people still want – and are keen – to socialise, with the pub historically being the place to fulfil that “affordable socialising” occasion, prioritising experience and leisure expenditure over bigger ticket spend. The level of customer demand we are experiencing is encouraging and underpins our confidence that we have the right strategy in place and that it is delivering positive progress on our clearly stated strategic goals. Over and above this, the World Cup and the first Christmas period without restrictions in three years present excellent trading opportunities for Marston’s pubs.
ESG – ‘Doing more to be proud of’
We remain committed to driving a positive ESG agenda under our ‘Doing More to be proud of’ initiative, with a target to achieve Net Zero by 2030 for Scope 1 and 2 emissions and by 2040 for Scope 3 and reduction in our food waste by 50% by 2030. We are also focusing on our social impact, including exploring a partnership with the Trussell Trust and providing employment opportunities for vulnerable groups under our Latitude programme. Our commitment to standards and good governance remains with EHO scores of 5* being a KPI.
This year, we will also publish our first TCFD report, detailing the impact of climate change on our business. More information on our initiatives and TCFD report will be available on our website and in our 2022 Annual Report and Accounts, available in December.
STRATEGIC PRIORITIES
Market Dynamics
Despite the challenging macroeconomic environment, our focus has been to ensure we deliver great pub experiences to our guests, at an affordable price in a well-invested estate. History demonstrates that pubs are resilient and are viewed as an affordable treat.
There are five key dynamics of the changing market, which we believe we are well-equipped
to benefit from:
Our guests still want to socialise outside the home: the desire to socialise remains strong. A recent CGA survey highlighted that going out to socialise was the number one item of spend to protect in the current environment.
“Brand Pub” is in strong demand : the strategy we set out a year ago focused on creating “Pubs to be proud of” ensuring all of our pubs welcomed drinkers and diners equally. Our strategy remains unchanged. This winter, our campaign will be aimed at welcoming our guests into Marston’s warm and cosy pubs as the place to socialise at an affordable price, and enjoy the first winter World Cup.
Lifestyle changes favour community pubs versus town centres: emerging from the pandemic the shift to hybrid working has embedded itself, with office workers typically working 1-2 days a week at home. In addition, in the current climate, for pubs that offer the right experience, guests will consider staying within their local community rather than spending money to travel to a city or town centre. Over 90% of our pubs are in suburban areas and are well placed to exploit this trend. We are focused on providing a “town centre” experience in our suburban pubs, ranging from an improved menu and a guest-led drinks range to ensuring we provide the right entertainment or occasion-led experiences for the local community.
Experience replacing convenience as reason to visit: as referred to 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. We seek to be regarded as the “best pub around here” offering a great value, affordable treat but not at the lowest price.
“Al fresco” drinking and eating is here to stay: the demand to eat and drink outside has been increasing for many years, a trend further bolstered post-pandemic. To maximise our opportunity we have invested in outside space with c.85% of our pubs having gardens and c.50 pubs having outdoor screens to show sport, enhancing trading performance throughout the seasons. Order and pay at table systems are key to driving garden sales and we invested in technology during the year to improve both the guest and operational journey. Encouraged by the 2022 performance, we believe our outdoor spaces can be enhanced further by investing £4 million across the estate in 2023 on garden projects to deliver an even better guest experience.