Slide 1: Interim Results
Interim Results y | 2 -_ ‘=. » { | 5 im ~~ «a Varese SS.
Slide 2: 2
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Slide 3: David Thompson, Chairman
David Thompson Chairman 3
Slide 4: Highlights
Highlights 1. Challenging trading environment • smoking bans, higher costs, weaker consumer confidence 2. Impact of smoking bans as expected • good growth in food sales, consistent with longterm trends • declines in higher margin wet sales and machine income 3. Consistent progressive dividend polic
Slide 5: Paul Inglett, Finance Director
Paul Inglett Finance Director 5
Slide 6: Financial highlights
Financial highlights 26 weeks to 29 March 2008 % change Revenue £316.4m +3.6 % EBITDA* £94.6m +2.8 % Operating profit* £72.6m +1.8 % Impact of Profit before tax* £35.0m (15.9)% £150m share buybacks EPS* 10.0p Dividend 4.80p +10.1 % *before exceptional items continued double digit growth in divide
Slide 7: Like-for-like sales
Likeforlike sales Likeforlike sales growth* % change Drink (3.1)% food 35% drink 60% Food +7.8 % Machines (10.3)% machines 3% TOTAL +0.3 % accommodation 2% *24 weeks to 15 March 2008, excluding any pubs acquired in last 2 years food sales continue to be key driver of growth 7
Slide 8: Impact of smoking ban
Impact of smoking ban Likeforlike sales growth*: pre smoking ban vs. post smoking ban +13.8% +9.3% +5.5% +1.7% +1.0% +0.2% (3.0)% (8.6)% drink food machines total *excluding any pubs acquired in last 2 years robust trading despite very challenging environment 8
Slide 9: Impact on 2007/2008 margins
Impact on 2007/2008 margins Average selling prices flat** • competitive pressures Drink margins* • renegotiation of lager contracts Food margins* • food cost inflation • increased food mix Net margins • additional costs to serve * drink and food net margins affected by sales mix and rising costs 9
Slide 10: Margin outlook 2008/2009
Margin outlook 2008/2009 1. Wage costs • NMW increase of 3.8% from October 2008 • cost of additional 4 days holiday pay from October 2008 £1.0m p.a. 2. Utilities • gas costs fixed to October 2010 • electricity costs fixed until June 2008 expected increase £3m p.a. 3. Food/commodities • food cost i
Slide 11: Split of assets
Split of assets* 2,274 pubs + Securitisation Bank facilities Marston’s Pubs Limited Other Group companies 285 Managed pubs 268 Managed pubs 1,622 Tenanted pubs 99 Tenanted pubs 1,907 367 + * as at 29 March 2008 84% of pubs are securitised 11
Slide 12: Performance of Marston's securitised estate
Performance of Marston’s securitised estate £130m £126.9m £122.0m MAT EBITDA £m £119.8m £117.1m £116.7m £100m Year to: Dec 06 Mar 07 June 07 Sept 07 Dec 07 Mar 08 performance in line with “runrate” 12 expectations
Slide 13: Securitisation highlights: year to March 2008
Securitisation highlights: year to March 2008 1. Securitisation results Actual • gross debt* outstanding as at 29 March 08 £1,106.3m • EBITDA £126.9m • free cash flow (FCF) £100.1m • debt service (DSCR) £59.5m 2. Financial covenants Covenant (i) FCF : DSCR 1.7x >1.1x (ii) Net worth £535.8m >£90m * b
Slide 14: Financing structure
Financing structure £m securitisation 1,106 • amortises to 2035 bank facility* 221 • £400m available facility • expires August 2010 bank overdraft 10 gross debt 1,337 • 93% at fixed rates cash/debt issue costs (67) Net debt 1,270 • average cost of debt c.6.1% 1. Flexibility to switch assets between
Slide 15: Key financing ratios
Key financing ratios* Group financing ratios EBIT interest cover 2.3x EBITDA interest cover 2.9x Net debt: EBITDA 6.1x £400m bank facility Actual Covenant Net debt: EBITDA 2.7x <5.5x * 12 months to March 2008 significant financial headroom available 15
Slide 16: REITs
REITs 1. Issues to consider • retained ownership of freehold assets • business structure • financing and transaction costs • existing low tax charge • potential investment constraints • relative valuations 2. Continue to keep under review continue to monitor market developments 16
Slide 17: Financial summary
Financial summary 1. Robust underlying performance of business • 10.1% increase in dividend 2. Balance sheet • asset values supported by 98% freehold estate by value • £150m share buyback completed in 2007 3. Financing structure • efficient financing structure • 93% of debt fixed at average rate of
Slide 18: Questions?
www.drinkaware.co.uk
Slide 19: Ralph Findlay, Chief Executive
Ralph Findlay Chief Executive 19
Slide 20: Marston's strategy
Marston’s strategy 1. Develop national, high quality pub estate • mainly community pubs, substantially freehold estate • refurbishment, singlesite or package acquisitions • managed and tenanted pubs 2. Develop greater food skills, broaden consumer appeal • ‘F’ Plan – Food, Families, Females, Forty/
Slide 21: Market drivers of strategy
Market drivers of strategy Demographics Market trends Competitors • ageing population • choice, vfm, service • the home • rising female employment • eating out • supermarkets • flexible working • provenance, authenticity • other ‘pubcos’ • increasing diversity • ontrade vs. offtrade • restaurants
Slide 22: Estate development: average EBITDA returns 15%+
Estate development: average EBITDA returns 15%+ 1. 20+ sites per year: newbuild programme foodled pubs Pitcher & Piano 2. Site pipeline foodled Pitcher & Piano • 11 units on site/land banked 8 3 • 11 contracts exchanged 9 2 • 25 sites under negotiation 22 3 estate development creates value 22
Slide 23: New build – typical targeted performance
New build – typical targeted performance £2,000k £1,000k £300k £240k • c.£20k per week • low maintenance • EBIT return 12% • site + build cost • 50–60% food sales energy efficient • EBITDA multiple 6.7x high turnover, high food sales, high return on capital 23
Slide 24: Substantially freehold estate (98%)
Substantially freehold estate (98%) 1. Freehold offers potential for capital appreciation • significant revaluation gains: c.£400m between 2004 and 2007 2. Value of leases declines over time • nil value at the end of the lease (typically 25 years) • increased amortisation throughout life of lease 3.
Slide 25: Consistent food skills development and growth
Consistent food skills development and growth LFL growth 2007 +13.3% Food mix LFL growth 2008* + 7.8% c.40% 35% 33% % of total retail sales 23% *24 weeks to 15 March 2008 total food related sales estimated to be c.65% of retail sales 25
Slide 26: Value for money offers in great pubs
Value for money offers in great pubs Food sales Spend per mix head 1. Community • Marston’s Tavern Table • Marston’s Two for One 50 – 60% £4.50 – £7.00 • Marston’s Taverner’s Carvery 2. High Street • Pitcher & Piano • Que Pasa 15 – 30% £6.00 – £10.00 • Bluu ‘F’ Plan: Food, Families, Females, Forty/F
Slide 27: Food sales facts and figures
Food sales* facts and figures 1. Average spend per head on food £6.01 • slight increase on 2007 • volume growth of +6% 2. Over 20m main meals sold each year • 290 different main meals vs 2007: +30 • volume of main meals sold vs 2007: +4% 3. Other ‘dishes’ also in growth • starters + 8% • side orders
Slide 28: Sustainable Growth, Uncompromising Standards
‘Sustainable Growth, Uncompromising Standards’ 1. Exploiting changing consumer trends • more flexible agreements – including ‘turnover rent’ model 2. Demanding excellence from ourselves and our retailers • My Marston’s Online; web based payroll 3. Helping our retailers to maximise their turnover • c
Slide 29: Tenant and lessee recruitment
Tenant and lessee recruitment 1. Over 80% of pubs serve food • c.30% of pubs ‘foodled’ 2. 12% of pubs have letting rooms • c.1,300 rooms across the estate – 56% categorised as ‘premium’ 3. Outperforming market in nonbeer categories % change MPC* Market** wines + 6.9 (3.0) spirits + 0.5 (4.0) packa
Slide 30: Sustainable rents, fair pricing to tenants
Sustainable rents, fair pricing to tenants Gross margin mix other 5% rent 40% • wet margin 48.1% wet sales 55% pricing control over ‘own brewed’ ales • average rent per pub c.£26k increases at rent review c.4% >50% of estate ‘long lease’ • ‘other’ is mainly machine income • net profit margin 4
Slide 31: Tenants health check issues
Tenants health check issues 1. Few closed pubs • 26 pubs currently closed • over half of market pub closures are free trade pubs* 2. Rent concessions increasing – but <2% • 1.6% of rent roll (2007: 1.2%) • 79 rent reviews, none went to arbitration 3. Lease assignments, applications remain strong • 3
Slide 32: Marston's is gaining market share
Marston’s is gaining market share 1. 2007/2008 beer market performance weak • exacerbated by smoking bans • pub investment has been foodled 2. Marston’s brands 2.5%* down (MAT +0.5%)* • premium ale brands +0.1% (MAT +7.2%) Marston’s Pedigree, Old Empire Jennings Cumberland Ale, Snecklifter Ri
Slide 33: Marston's is leading the market in premium ale
Marston’s is leading the market in premium ale 1. c.20% share* of the UK premium cask ale market • Marston’s Pedigree is Britain’s no.1 premium strength cask ale 2. c.18% share* of the UK bottled ale market • largest brewer of premium bottled ale in the UK • 3 brands in ‘Top 20’: Hobgoblin, Marston’
Slide 34: Differentiated through well known brands
Differentiated through well known brands 1. Marston’s has an unrivalled portfolio of ale brands 2. Acquisition of Wychwood brewery strengthens take home position • take home ale market share 4.0% 7.6%* • bottled ale market share 7.2% 18.4%* * industry sources unique combination of brands and service
Slide 35: Free trade performance
Free trade performance 1. Increased distribution, gross margin • turnover and volume well ahead of market • higher throughputs 2. Business ‘solution’ approach • helping to improve customers’ profitability • focus on brands and service 3. Building on ‘Official Beer of England’ cricket deal 4. Buildin
Slide 36: Free trade development
Free trade development Jan 07 Eldridge Pope Ringwood New business Pubs Refresh wide brand range, broader trading geography 36
Slide 37: Summary
Summary 1. Challenging first six months, cautious outlook • rising energy, food costs in 2008 and 2009 • weak consumer confidence 2. Business development ontrack • new build programme • managed to tenanted transfers • Marston’s Beer Company development 3. Current trading • April weak as expected
Slide 38: Questions?
www.drinkaware.co.uk
Slide 39: Appendices
Appendices 39
Slide 40: Financial highlights
Financial highlights1 2008 20072 % change Revenue £m 183.8 165.3 + 11.2% EBITDA £m 39.9 37.0 + 7.8% Operating profit £m 28.3 26.5 + 6.8% Operating margin % 15.4 16.0 (0.6)% Average no. of pubs 550 500 1before exceptional items 2 restated to include acquisition of Eldridge Pope 40
Slide 41: Financial highlights
Financial highlights1 2008 20072 % change Revenue £m 92.7 99.8 (7.1)% EBITDA £m 48.7 49.1 (0.8)% Operating profit £m 43.3 44.1 (1.8)% Operating margin % 46.7 44.2 + 2.5% Average no. of pubs 1,723 1,913 1before exceptional items 2 restated to include acquisition of Eldridge Pope and Sovereign Inns 41
Slide 42: Financial highlights
Financial highlights* 2008 2007 % change Revenue £m 39.9 40.2 (0.7)% EBITDA £m 10.9 11.2 (2.7)% Operating profit £m 7.0 7.4 (5.4)% Operating margin % 17.5 18.4 (0.9)% *before exceptional items 42
Slide 43: Estate movement
Estate movement Pub numbers September 2007 550 1,722 2,272 New builds/single site acquisitions 8 3 11 Disposals (5) (4) (9) March 2008 553 1,721 2,274 43
Slide 44: Additional information and guidance
Additional information and guidance • Average number of shares in H1 2008 273.6m • Number of shares in issue as at 22 May 2008 270.0m • Additional dilutive number of shares 2.8m Forecast 2008 • Forecast tax rate c.22% • Capex forecast*: existing business £70m new builds/sites £40m pub acquisitions £
Slide 45: www.marstons.co.uk Interim Results 2008
www.marstons.co.uk Interim Results 2008