Christmas sales were strong with a rise in sales of 4.5%, compensating for more subdued trading in the first three weeks of December as a consequence of poor weather.
Marston’s reported costs had generally been in line with guidance provided at the preliminary results in November, however, the recently announced 6.2% rise in the national minimum wage from April is higher than the pubco/brewer anticipated and will increase second half year costs by a further estimation of between £2m and £3m.
For the beer arm of the business, volumes were slightly behind last year, which Marston’s said was reflecting a weaker performance in the off-trade in December, particularly with lager sales. However, excluding lager, volumes were in line with last year.
The company also revealed it is still intending to reduce is borrowing by £200m by 2023, with the hope of generating annual net cash flow of at least £50m after dividends by that time.
Disposal programme
It aims to achieve this as quickly as possible, mainly though the acceleration of its disposal programme.
In the year to date, Marston’s has completed or exchanged on £60m of disposals. After originally targeted £40m of disposal proceeds, it increased that to £70m in November 2019 and has now further pushed this to between £85m and £90m.
Marston’s CEO Ralph Findlay said: “Marston’s has delivered a creditable performance in a challenging market.
“Trading in the key Christmas fortnight was good and has remained solid since, which is encouraging. Our balanced pub portfolio enables us to perform well in the context of current market dynamics and our beer company has continued to increase market share in the on and off-trade in the period.
“We are making excellent progress on our debt reduction strategy – well ahead of the original 2023 target. Looking forward, greater clarity on the political agenda should positively impact consumer confidence.
“Overall, the economic environment for the consumer looks encouraging with low unemployment and healthy wage growth providing us with increasing confidence the market will grow in 2020.”
Consumer confidence
Paul Ruddy, equity analyst at investment banking firm Goodbody, said 2019 was a difficult market for leisure companies, and Marston’s was no exception.
He added: “The recently announced further increase in the national living wage will only add to cost pressures at a time when consumer confidence has been stagnant.
“Despite making good progress with its debt reduction programme, leverage remains high in the business and the costs headwinds now indicate profits will decline in the year ahead.
“However, management did note that with low employment and healthy wage growth, the outlook for the consumer looks to be improving, bringing the potential for market growth in 2020.
“An improved consumer backdrop would be very helpful in overcoming the myriad of cost headwinds facing the sector.”
