Marston's profits hit by share buybacks

Midlands brewer Marston's has announced first half pre-tax profits down more than 15 per cent, but said the decline was principally the result of its £150m share buyback programme.

The brewer said that bolstered by recent acquisitions including Eldridge Pope and Ringwood Brewery overall turnover for the 26 weeks to March 29, 2008, rose 3.6 per cent to £316.4m, with operating profit up 5.4 per cent at £72.6m.

Earnings per share were unchanged at 10p while the interim dividend of 4.8p was up 10.1 per cent.

Marston's also confirmed it had no plans to become a real estate investment trust (REIT) at this time. "We do not plan currently to change the existing structure of the group," said chairman David Thompson, "as we do not believe that the potential benefits outweigh the implementation costs or increased risk, but we will nevertheless continue to keep the situation under review."

Marston's underlying operating margin was lower at 22.9 per cent (versus 23.4 per cent in 2007), "reflecting both the increasing popularity of food offers across our pub estate compared to higher margin wet sales and machine income, and higher energy, food and brewing raw materials costs".

Underlying profit before taxation was £35.0m, down 15.9 per cent, "reflecting the higher interest costs associated with the £150 million share buy-back programme in 2007".

The group said it remained cautious about prospects for the rest of 2008, noting that the government's duty rise had "widened the gap between pubs and supermarkets", but remained confident it had the right business structure to ride out the current tough trading environment.

Marston's managed pub business, Inns & Taverns, saw turnover rise 11.2 per cent to £183.8m in the review period, with operating profits up 6.8 per cent to £28.3m, although operating margins dipped from 16 per cent to 15.4 per cent, due to the shift towards food sales, up 7.8 per cent.

Like-for-like drink sales fell 3.1 per cent, while machine income slid 10.3 per cent, reflecting the effect of the smoking ban.

The group's leased and tenanted pub operation saw turnover of £92.7m, down from £99.8m, "reflecting the sale of 279 pubs to aAIM last year".

Underlying operating margin increased by 2.5 per cent to 46.7 per cent while underlying operating profit was £43.3m, down from £44.1m in 2007. Average profit per pub increased by 10.1 per cent in the first half of the year with like-for-like profit per pub being 0.6 per cent below last year.

Turnover at the group's brewing arm, Marston's Brewing Company, was £39.9m, down from £40.2m last year "reflecting the planned withdrawal from a number of low margin wholesalers as described in 2007".

Hit by rising raw material costs, underlying operating profit was £7.0m, down from £7.4m. Marston's said volumes of its own brands were 2.5 per cent lower in the first half year, and 0.5 per cent ahead on an annualised basis.

"Although the first half of this year has been difficult, good differentiated brands with local provenance are significantly outperforming the market," it added.