Slide 1: Preliminary Results 2007
Preliminary y Results 2007
Slide 2: David Thompson, Chairman
David Thompson Chairman
Slide 3: Highlights
Highlights 1. Strong full-year results in a challenging environment • good organic growth • effective integration of acquisitions 2. Continued increase in quality of estate • acquisitions – Sovereign Inns, Eldridge Pope, Ringwood Brewery • organic investment • disposals – 279 tenanted pubs sold 10 M
Slide 4: Paul Inglett, Finance Director
Paul Inglett Finance Director
Slide 5: Financial highlights
Financial highlights +20.0% Compound annual growth of 12.7% over last 30 years ge vs. 2006 Impact of £120m +10.1% +9.6% share buy- backs % chang +7.2% 7 2% (3.4)% revenue p perating g profit p before EPS* profit* o £652.8m £163.2m £98.0m 26.2p dividend 12.83p *before exceptional items tax* continued
Slide 6: Like-for-like sales and turnover mix
Like-for-like sales(1) Turnover mix ge vs. 2006 community pubs +5.3% town centre pubs +3.1% food 34% % chang +4.6% machines 3% accommodation 2% drink 61% (1.0)% *excluding Eldridge Pope and any pubs acquired in last 2 years food continues to be key driver of growth 6
Slide 7: Like-for-like sales
Like-for-like sales*(2) Impact of flooding: 150 +13.5% 13.5% +13.4% 13.4% nge vs. 2006 6 pubs b materially t i ll affected +9.6% +9.2% % chan +6 6% +6.6% H1 +7.0%; H2 +2.6%; FY +4.6% *excluding Eldridge Pope and any pubs acquired in last 2 years LFL’s remain positive, strong growth in food sales 7
Slide 8: Impact of smoking ban
Impact of smoking ban Like-for-like sales growth*: pre smoking ban vs. post smoking ban • continuation of trends will impact margins +13.8% - gross margins: drink 73% f d food 67% +11.1% machines 80% - wage costs: extra c.3% of sales to % change vs. 2006 serve food vs. drink +5.5% • impact of winter
Slide 9: Influences on margins
Influences on margins 2007 2008 Benefits of renegotiation of LFL sales growth +4.6% lager contracts Energy costs fixed at lower Average selling prices* prices flat rates t Gross margin % flat NMW increase of 3 3.2% 2% Volume growth 4.6% Food cost inflation * drink and food focus remains on growing l
Slide 10: Asset valuations
Asset valuations Securitised Other estate pubs Total No of pubs No. 1 911 1,911 87 1 998 1,998 Net revaluation gain1 £m 147 15 162 A erage increase Average % 12% 10% 12% Lotting premium2 £m 304 % 22% • c.90% of pubs valued during the year • average gain of 12% in 2 years since majority of estate las
Slide 11: Balance sheet
Balance sheet 2007 2006 £m £m Fixed assets** 1,942 1,610 • impact of acquisitions, benefit of £162m revaluation gain Goodwill & investments 252 177 Net debt (1,189) (894) • impact of acquisitions and share buy-backs Deferred tax (155) (114) Net other liabilities (101) (126) • +ve revaluation gains N
Slide 12: Tap of securitisation (1)
Tap of securitisation(1) No. of Debt EBITDA1 pubs £m £m 2005 securitisation iti ti 1 474 1,474 783 122 Tap issue 437 330 25 Enlarged securitisation 1,911 1,113 147 • tap issue is a combination of value and asset tap • average g cost of debt of tap p issue is 6.03% 1 proforma run-rate EBITDA as at 30
Slide 13: Tap of securitisation (2)
Tap of securitisation(2) No. off N bt1 Debt D EBITDA2 Debt D bt pubs £m £m multiple Managed 286 322 51 6.3x Tenanted 1,625 791 96 8.2x Enlarged securitisation 1,911 1,113 147 7.6x • achieved most efficient leveraged tenanted securitisation in the market • 361 pubs still outside securitisation • oper
Slide 14: Financing
Financing 1. Financing ratios 12 months to Sept 2007 Target • interest cover 2.5x 2.25x – 2.75x d bt : EBITDA • nett debt 5.8x 58 5 25 – 6.00x 5.25x 6 00 2. Balance sheet efficiency • committed to £150m of share buy-backs this calendar year • increased full year dividend by 20% • average cost of fun
Slide 15: Financial summary
Financial summary 1. Good progress in key financial measures • continued double digit earnings growth • 20% increase in full year dividend 2. Improved balance sheet efficiency • £120m share buy-backs, further £30m to follow • opportunity to gear up business further • net revaluation gain of £162m 3.
Slide 16: Ralph Findlay, Chief Executive
Ralph Findlay Chief Executive
Slide 17: Operational and financial elements of strategy
Operational and financial elements of strategy 1. Develop national, high quality pub estate 2. Develop greater food skills, broaden consumer appeal 3. R it skilled 3 Recruit kill d tenants t t and d lessees l 4. Increase distribution of our ale brands 5. Create greater value through vertical integra
Slide 18: Acquisitions have extended our trading geography
Acquisitions have extended our trading geography Jennings 2005 Burtonwood 2005 128 pubs 460 pubs tenanted and brewing tenanted and managed £ 3 £73m £ 68 £168m Celtic Inns 2006 Wizard Inns 2004 63 pubs 63 pubs tenanted and managed managed £43m £91m Eldridge Pope 2007 Ringwood Brewery 2007 153 p pubs
Slide 19: New site development drives organic growth
New site development drives organic growth Pub openings 23 19 Foxglove, Mansfield • 2008 openings include: London, Birmingham, Ludlow, Ipswich, Sittingbourne, Brynmawr, Ashford, Chester • average investment c.£2m: EBITDA returns 15%+ • investment focus: food, families, females, fortysomethings, prem
Slide 20: Estate management contributes to improving quality
Estate management contributes to improving quality 1. Transfer of managed pubs to tenancy • 19 in 2007; 93 in 2006 • turnover threshold for managed pubs has steadily increased • facilitates reduction in overheads, provides operational flexibility • well understood process – c.600 pubs transferred si
Slide 21: More people eat out in pubs
More people eat out in pubs 1. Food sales are 34% of total retail sales • up from 27% in 2003 2 2. Strong growth in like like-for-like -for-like food sales +16% +14% % change vs. 2006 +13% +12% % • opportunity to ‘upsell’ wider range - main courses are 80% of total food sales driven by format and me
Slide 22: Strong growth in food related sales
Strong growth in food related sales +11.8% % • wine volume +8.5% +9.1% % change vs. 2006 • top selling wines: £8 - £12 per bottle* - Hardy Hardy’ss VR Chardonnay +5.6% - Canaletto Pinot Grigio - Sutter Home White Zinfandel +2.6% (1.9)% draught spirits wine soft drinks liqueurs/ cocktails * average a
Slide 23: Good formats, great value
Good formats, great value Food sales Spend per mix head £ Blue Bell, Rotherham (Tavern Table) 1. Community y • Marston’s Tavern Table • Marston’s Two for One 50 – 60% 4.50 – 7.00 • Marston’s Taverner’s Carvery The Lawns, Yate (Taverner’s Carvery) 2. High Street • Pitcher & Piano • Que Pasa 15 – 30%
Slide 24: New sites have a greater food focus
New sites have a greater food focus 2010 food sales forecast to be c.40% of retail sales 24
Slide 25: Drink sales – value drivers
Drink sales – value drivers Total drink sales £225m* Gross margin vs. draught beers wines 12% draught g 53% (2.6)% spirits 8% soft drinks 14% (5.8)% bottled beers wine coffee 1% liqueurs/cocktails 4% bottled beers 8% * 12 months to September 2007 draught beer portfolio is key to margin management 25
Slide 26: Competition for skilled licensees
Competition for skilled licensees 1. Longer term lease agreements more attractive to licensees • average lease premium on assignment in 2007: £74,000 2. High level of disclosure of information to licensees • Marston’s Pub Company agreements are BII accredited • ‘plain English’ agreements 3. Key feat
Slide 27: 'Sustainable Growth, Uncompromising Standards'
‘Sustainable Growth, Uncompromising Standards’ 1. Exploiting changing consumer trends • less reliance on wet sales, more exposure to growth 2. Demanding excellence from ourselves and our retailers • investment in training; use of technology 3 Helping our retailers to maximise their turnover 3. • sup
Slide 28: Healthcheck on tenant's profitability
Healthcheck on tenant’s profitability 1. Average annual rent review increases of c.3% 2 2. Bad debts 0.2% 0 2% of turnover (2006: 0.3%) 0 3%) 3. 70% of tenants receive discounts 4. 0.4% closed pubs (2006: 0.2%) 5. Rent concessions 1.2% of rent roll (2006: 0.6%) • one-off impact of flooding 6. % cust
Slide 29: More support, more training, better systems
More support, more training, better systems 1st ‘pubco’ website rated by the ‘Plain English Campaign’ 29
Slide 30: Beer brands: outperformance in a weak market
Beer brands: outperformance in a weak market Sector Declining market, declining margins Focus on premium cask ale Focus on free trade Focus on beer quality • differentiated • extending geographical • Cask Force: 2,500 • more ‘niche’ orientated distribution entrants in 2007 • Marston’s Pedigree +6% •
Slide 31: Supported by consistent marketing
Supported by consistent marketing £5m marketing investment • Official Beer of • ‘Genuine Taste of the England Cricket Lake District District’ • Sky coverage of • Banks’s Stadium • Keswick Jazz Festival Cricket World Cup Walsall FC • The Lowther Show • Skyy coverage g of • local radio • World s Bigge
Slide 32: Vertical integration - an efficient business model
Vertical integration - an efficient business model 1. Greater operating flexibility • managed to tenanted transfers 2. Greater control over cost base • brew own ales and control supply chain • enables more flexible customer service 3. Economies of scale • Marston’s Beer Company distributes to over 4
Slide 33: Freehold ownership confers clear benefits
Freehold ownership confers clear benefits 1. 98% of estate by value is freehold or long leasehold • freehold ownership provides greater operational flexibility • provides p p potential for capital p appreciation pp over the long g term 2. Pub estate provides relatively stable, predictable cash flow
Slide 34: Summary
Summary 1. Good results in a challenging environment • 10.1% growth in underlying earnings per share • recent refinancing increases operating and financial flexibility 2. Substantial cash returns to shareholders • £120m share buy-back this year • dividend per share +20% 3. Clear operational and fina
Slide 35: Appendices
gS , ener Appendices 4 ; — s; t te Mtsetitsen <a! tanee
Slide 36: Financial highlights
Financial highlights* 2007 2006 % change Revenue £m 367.8 330.7 + 11.2% EBITDA £m 88.8 83.4 + 6.5% Operating profit £m 66.7 63.5 + 5.0% Operating margin % 18.1 19.2 (1.1)% Average no. of pubs 520 536 *before exceptional items 36
Slide 37: Financial highlights
Financial highlights* 2007 2006 % change R Revenue £ £m 200 9 200.9 178 8 178.8 +12 4% +12.4% EBITDA £m 100.6 89.8 +12.0% Operating profit £m 90.8 80.3 +13.1% Operating margin % 45.2 44.9 + 0.3% Average no. of pubs 1,810 1,767 *before exceptional items 37
Slide 38: Financial highlights
Financial highlights* 2007 2006 % change Revenue £m 84.1 86.0 (2.2)% EBITDA £m 25.3 25.0 +1.2% Operating profit £m 17.4 18.0 (3.3)% Operating margin % 20.7 20.9 (0.2)% *before exceptional items 38
Slide 39: Estate movement
Estate movement Pub numbers September 2006 459 1,893 2,352 Corporate acquisitions* 113 80 193 New builds/single site acquisitions 19 20 39 M to T transfers (19) 19 - Disposals (22) (290) (312) September 2007 550 1,722 2,272 *Eldridge Pope, Sovereign Inns, Ringwood Brewery 39
Slide 40: Additional information and guidance
Additional information and guidance • Average number of shares in 2007 295.2m • Number of shares in issue as at 29 Sep 2007 278.6m • Additional dilutive number of shares 2.5m Forecast 2008 • Forecast tax rate 25% - 27% • Capex forecast : Existing business £65m : New builds/sites £50m : Pub acquisiti
Slide 41: Preliminary Results 2007
Preliminary y Results 2007 www.marstons.co.uk