Reporting its latest results for the 52 weeks ended 2 October 2021, Marston's rise in sales was supported strongly in its most recent quarter from 25 July to 2 October, which saw a return to growth above 2019 figures when sales were 2% higher across its managed and franchised pubs.
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.
During the pandemic, its pubs were open for only 54% of the total trading days and suffered additionally through trading restrictions. Total pub sales were £402m for the year, representing 78% of last year.
During the lockdown period, Marston’s entered into an agreement to operate a portfolio of 156 pubs from SA Brain, under a combination of leased and management contract arrangements. These pubs reopened alongside the existing Marston’s pub estate in Wales and have performed well and ahead of expectations.
The company invested £2m in “Inside-Out” schemes in autumn and winter in 2020, meaning it was able to open about 70% of its pubs under outdoor trading restrictions and the group’s entire estate of circa 1,500 pubs was reopened in May this year.
Limited exposure
Marston’s said during the 10-week period since 25 July, overall sales continued to improve and were in line with expectations and that like-for-like sales achieved 102% versus 2019 levels. It added the balanced estate it operates, comprising community pubs nationwide with limited exposure to London and city centres, had been a major factor in supporting this “rapid return” to above pre-pandemic levels, along with strong trade at its premium pubs. Accommodation sales had also been “excellent” after benefiting from the growth in staycation breaks.
The group said it was focused on cash preservation while restrictions were in place but also made investments “to ensure our pubs were well maintained, primed and ready for trading to recommence”.
Net borrowings (excluding IFRS16 commitments) as of 2 October were £1,232m, which is £97m below last year, following the completion of its joint venture with Carlsberg in October 2020 that delivered net proceeds of £228m. At the end of the year, Marston’s had £90m of headroom against its £280m bank facility. Some 94% of the business’s borrowings are fully hedged and, therefore, are not at risk of any changes in interest rate movements that may occur during the year.
The Wolverhampton-based company said of labour issues that it is “currently managing this well”, taking into account the rise in national minimum wage. It added the majority of its 2022 costs are now contracted in, specifically gas to 2023 and electricity to the end of March 2022, while it continues to work closely with its supply chain after seeing “some small pockets of disruption”.
Marston’s said it planned to reduce borrowings to below the £1bn mark by financial year 2025. It has “two one-off cash items”, these being a tax repayment of £50m for VAT and duty, and the contingent consideration receipt for the disposal of Marston’s Beer Company to the joint venture, the value of which was £25m at the half year. Meanwhile, the carrying value of Carlsberg Marston’s Brewing Company at the half year was £274m, excluding contingent consideration.
Its capital expenditure is anticipated to be about £55m, which comprises maintenance of circa £40m and investment of circa £15m. Marston’s said this is materially lower than pre-pandemic capex (excluding Marston’s Beer Company), however, it said it is set to change its IT strategy to become cloud-based and, while this is cash neutral, there will be a shift of £6m from capital expenditure to operating expenditure.
Trading momentum
Marston’s chief executive Andrew Andrea said: “We are delighted to be fully open again since trading restrictions were lifted in July. We are encouraged by the trading momentum that we have experienced since April and pleased to be trading robustly and above 2019 levels again.
“Our business benefits from an optimally balanced pub estate of food and wet-led pubs that are predominately suburban, community-based and well located for the changes in consumer behaviour that we are seeing. However, we are mindful of consumer confidence in the short term and the challenges impacting the economy and our industry. Government messaging will remain a key factor in determining sentiment.
“Looking ahead, we are now keenly focused on our strategy of delivering exceptional experiences for our guests. We will continue to invest in our teams and pubs as we strive to meet our clear goals.”
Goodbody leisure analyst Paul Ruddy said: “Marston’s has updated on encouraging trading momentum that it has experienced since April and it is good to see that it is trading above 2019 levels in recent trading, helped by the VAT cut. Indeed, we can see a similar rebound in sales across the sector to pre-Covid levels as people’s appetite for eating and drinking in restaurants has not dwindled despite many months in lockdown.
“There are undoubtedly several challenges facing the sector including labour shortages and supply chain disruption, but Marston’s is managing this and appears to be in a relatively good position, having locked in key utility costs. For the sector, the sales recovery trajectory looks very healthy but cost inflationary pressures have contributed to a pull back in the share prices. Whether these headwinds are short term, or more structural, continues to be the key debating point.”
