Marston's PLC

Good morning everybody. Welcome to the Marsden's interim results for financial year 26. My name is Justin Platt. I'm the CEO and with me I have Stephen Hobson, our Chief Financial Officer. We'll take you through the results today and we'll do so with the following running order. I'll give some quick headlines. Stephen will then talk to the financials. I'll then come back to give an update on some of the strategic progress we've made in the first half and then we'll take some time for questions. So it's been a really good first half for us. It's been a first half when we've made really excellent strategic progress. And that progress sets us up for a very strong year overall. Profit-wise, we've done pretty well. So we've grown profit before tax at almost 8%. Alongside that, yet another period of margin expansion. And we've done that despite some of the well-known cost headwinds. but also with some of the closure periods that we've taken as we've refurbished our estate in line with the formats. The formats have been a key success of the first half. We've done 60 of them against a plan of 50, and as we've come to, they've all performed very, very well. So all of that leaves us feeling very encouraged and positive about the second half, and hence we maintain our view on expectations for the year. So that's the headlines. I'll let Stephen take you through the financials and then I'll come back shortly.

Thank you. Thanks, Justin. And good morning, everyone. So I'm going to give you an update on what we feel is a strong financial performance in the first half, which has set up very well to deliver a good result for the year in line with all your expectations. If I start with the group's key financial highlights for the period, which show EBITDA margins continuing to expand and pre-tax profits increasing year on year. As is the case every year, the group is second half weighted in terms of revenues, profits and cash flows. This year's in particular, due to the impact of our new pub formats, the World Cup, and the phasing of some cash flows, which I'll bring out as we go through the slides. Total revenue was $422.7 million, down 1.1% year on year. EBITDA was £85.9 million, flat year-on-year, with EBITDA margin expanding 20 basis points to 20.3%. This builds on the strong margin expansion delivered last year. EBITDA and revenue were both impacted by the temporary closure periods associated with our new pub formats programme, and I'll share further detail on this in the coming slides. Underlined profit before tax was £20.5 million, up almost 8% against 2025. which, as you can see on the chart on the right-hand side, was itself a substantial step up against a small loss in 2024. There was a recurring free cash outflow in the period of 15.6 million, reflecting business seasonality alongside higher capital investment and cash tax payments. We remain confident in delivering over 50 million of recurring free cash flow for the full year in line with our CMD targets. And finally, we continue to make good progress on deleveraging reducing our leverage to 4.7 times from 4.9 times at this stage one year ago. I'll now turn to the income statement in a bit more detail. So as I mentioned, the income statement for the first half reflects continued margin expansion and profit growth, marking another period of cross-discipline and operational efficiencies, whilst also seeing increased investments for future top and bottom line growth. The acceleration of investment into our new pub formats is already delivering strong returns and will support revenue and profit growth in future periods, but clearly there is an impact from having more pubs shut in the near term while we convert them into our new summits. The average closure time is kept to just three weeks, but of course in that time, whilst you make those sales, we incur both the usual cost of running the pub and also some additional costs relating to training and restocking things like consumable items. The net impact of the additional closure periods was 2.2 million pounds of lost revenue and two million pounds of EBITDA in the first half, which is included in the underlying numbers presented on this slide. So overall revenue is down 1.1% year on year, including the 2.2 million pound closure impacts I just mentioned. And I'll give you some more color on sales in the next slide. EBITDA was flat year on year, despite the two million pound impact from closure periods. And again, I'll come on to how we achieved that in more detail shortly. Net finance costs were slightly lower year on year, benefiting from continued deleveraging, and depreciation also fell slightly as a result of lower capital expenditure in recent years and a high mix of spending in the land and buildings category, which is revalued each year rather than depreciated. As a result, profit before tax increased 7.9% to 20.5 million, and earnings per share increased 9.1% to 2.4 pence per share. Before moving on, it's important to note that the revenue and profit headwind from closure periods in H1 won't repeat in H2, as the new pub format programme for the year is now complete, with 60 pubs open, all of which will contribute to sales and profit growth in H2, alongside, of course, the 31 pubs that we converted last year. Moving on to focus on revenue in a bit more detail, I've mentioned that total revenue was £422.7 million. Within that, like-for-like sales were half a percent lower, which was ahead of the hospitality market, and which corresponds to a £2 million decline. In addition, I just covered the £2.2 million impact of having the closure periods, which related to our new pub formats. Very encouragingly, those new pub formats delivered life-like sales growth of around 20% in the post-opening periods, although clearly the impact of that in the first half was limited, given the relatively short period of time post-opening. Turning to H2, I'd like to make two points in relation to revenues. First, on the bottom left of the slide, like-for-like sales up to the end of week 31 were 1.5% lower year-to-date. However, you'll remember last year, that five-week period post the half-year showed like-for-like sales growth of over 10% due to the timing of a much later Easter, Mother's Day moving into H2, and some great weather. I thought it would be, therefore, helpful to note that the two-year like-for-likes in that five-week period have actually been quite strong. And overall, we'd say that the underlying trend from H1 is unchanged. Second, as I've mentioned a couple of times, we do have the benefit in the second half of all of our 91 new pub format being up and trading with no closure periods. The chart on the bottom middle of the slide shows our expectation as to the year-on-year sales impact in the second half of this, which in total is equivalent to almost £11 million of sales upside or 2.3% of total revenue growth in the second half. The first two bars, which relate to last year's formats and then this year's formats, impact life-like sales. The bar on the right-hand side, reduced closure periods, clearly doesn't impact life-like sales, but nonetheless it does represent the material revenue upside, which will continue to expand in future years as we accelerate the pace of our investment programme. And the number is maybe surprisingly large to you, because the sites we've been doing have been larger than average sites for the business, and therefore there's more of a sales upside. So overall, the opportunity exists to go faster in life flight growth in the second half because of this, as well as harnessing the upside from the World Cup, which Justin will talk to shortly. Moving on to margin, a key target that we set out in our October 2024 capital markets day was to grow our underlying EBITDA margin by 200 to 300 basis points compared to 2024 levels. Following strong progress last year, we've delivered a further 20 basis points of margin expansion in the first half, And this comes despite ongoing cost headwinds and the impact of the closure periods that I've just discussed. There are a few points I'd like to pick out on this slide. First, labour productivity efficiencies have once again fully offset the significant impact of increases to the national living wage and also changes to national insurance, which came into effect from April 2025. This has been achieved predominantly through further refinement of our labour scheduling tool, which continues to deliver meaningful efficiency gains. As Justin will cover, this has been achieved just as our customer reputation score continues to improve. Second, the negative movement from utilities shown on the chart has nothing to do with current market movements in energy prices. It's actually due to a gas contract which came into effect from spring 2025 after the company had enjoyed a very long-term contract which fixed its gas prices for the previous five years. Looking forward, we're well hedged on energy, with electricity prices fixed for the business in total for this financial year, and our gas pricing locked in until the end of FY27, which negates the impact of any short-term volatility. And third, the business continues to find opportunities to improve margins, both through revenue and COGS management, shown on the left-hand side of the chart, and also other efficiencies, which is on the right-hand side. And between them, they've delivered just over a percentage point of EBITDA expansion in the half. So, setting aside the impact of the closure period, our EBITDA margins moved forward 60 basis points year-on-year, which gives us confidence in the second half. And then including the impact of those closure periods, EBITDA margin was 20.3% in the period. We have good cost visibility going into H2. I've talked about energy already, but also on other key cost areas, and as such, we continue to expect to make further progress over the full year as we move towards our medium-term margin targets. Turning now to the pub estate, since the introduction of our strategy in 2024, Marston's has successfully delivered growth through the core estate with EBITDA per pub after central costs increasing 29% to £155,000 over that period. Growth has come from strong operational execution as well as many cost and revenue initiatives. But one of the most powerful levers in recent times has been through our investment strategy. And as the chart on the right shows, the EBITDA per pub after central costs in our invested pubs has increased materially from £265,000 pre-investment to £354,000 post-investment. This £90,000 increase per pub, which represents a 35% EBITDA return on our £260,000 average investment per site, illustrates quite well the speed of progress, both in terms of driving profitability and estate quality that can be made through our investment programme. And looking ahead, we expect to build on this further through the acceleration of that program, which Justin will cover shortly. Overall, this is resulting in a higher quality, better performing estate, giving us confidence in our ability to drive further life-like sales and EBITDA going forward. Turning now to cash flow. As a reminder, cash generation in the group is naturally weighted towards the second half, with H2 typically significantly more profit and cash generative than H1. This effect is more pronounced this year, driven by the decision to complete the investment format programme all within the first half, alongside the timing of corporation tax payments and other items which I'll cover shortly. Really importantly, we remain confident in delivering our £50 million recurring free cash flow target for the year as a whole. So, starting from the top, cash-adjusted EBITDA saw marginal growth despite the cost headwinds and closure periods which I've covered already. Working capital saw an outflow of £9.3 million, reflecting business seasonality as well as the number of supplier payments which made this outflow higher than usual. But we expect this to unwind over the second half with a small working capital inflow for the year as a whole. On tax, as we communicated at the prelims, we've now moved to the so-called very large company corporation tax regime. The impact of that is that in FY26 we have made six or we will make six quarterly tax payments as opposed to the usual four. four of those cash tax payments were made in H1, with the remaining two to come in the second half. So you should expect to see the cash tax lower in H2 than the 7.1 million on the screen. Net interest increased slightly year-on-year, although we expect this to be slightly lower year-on-year by the year-end. And then, as I mentioned, CapEx was the largest driver of the year-on-year movement, increasing by £8 million year-on-year. reflecting the decision to weight the format investment programme into H1 to maximise value generation, including all the trading benefits that we're going to see in the second half. We do expect full-year capex to remain within the 7% to 8% turnover range which we communicated back at the C&D. As a result of all these factors, recurring free cash flow was an outflow of £15.6 million. However, we expect a strong reversal in H2 of that, and as I said at the top of the slide, we remain confident in delivering over £50 million of recurring free cash flow in the year as a whole. I now turn to the group's debt structure. So our long-term financing structures remain in place, and those long-term structures are supported by our revolving credit facility, which in the year we extended for one further year until July, 2028. Our Securitisation continues to provide long-term, predictable financing. Scheduled amortization saw a reduction of 44.7 million compared to this time last year and continues to be the main driver of deleveraging for the group as a whole. It's worth noting that while there remain operational restrictions in place as a result of the securitization, our team continues to make significant progress internally to manage and reduce those restrictions as we continue to delever. Other lease-related borrowings, or OLRBs, remain relatively stable in the period, reflecting the long-term nature of that financing. And the balance on our £200 million banking facility at half-year was £56 million, or £53 million net of un-amortised issue costs, as per the slide, reflecting the cash outflow that I've just discussed. Compared to the same point last year, leverage excluding IFRS 16 leases is down by 0.2 of a turn, and we remain on track to reduce net debt to around four times by the end of the year. Moving to the balance sheet. Our balance sheet remains really robust and is underpinned by £2.2 billion of property assets, with 82% of the estate held as effective freeholds. The net book value of our PPE increased by £136 million compared to a year ago, reflecting the property revaluation which we discussed at the full year. As I've just shown, net debt excluding lease liabilities reduced to £857.7 million, a year-on-year reduction of £23.4 million, with lease liabilities relatively flat year-on-year. Other liabilities increased £18.9 million, primarily due to the deferred tax impact from the proxy reval gain in FY25. And together, these movements have driven a £134.5 million increase in net assets, which now stands at £812.9 million, which is up 21% year-on-year. As a result, NAV per share has increased to 128 pence, underpinning the value of the business, and we expect this value to continue to grow through the coming periods. And then moving finally to the outlook, before I hand back to Justin, there are five key points I'd like to make here. First, we remain confident in the trading outlook for FY26. We do expect lifelike sales to increase over the balance of the year, supported by the rollout of the new pub formats and the opportunity that the World Cup brings in the summer. Secondly, our format program itself is clearly now establishing itself as a key growth engine for the business. With 91 sites now operating under our new formats in total, we expect to see an increasingly meaningful contribution as we move through the second half and into future years. Third, we expect further margin expansion in H2, supported by good cost visibility and continued productivity improvements, keeping us on track to deliver our medium-term target of 200 to 300 basis point improvement against 2024 levels. In terms of cash, the outflows seen in H1 are expected to unwind in H2, with a group on track to deliver another year of over £50 million of recurring free cash flow. And then finally, we'll continue to reduce our leverage with further progress towards four times by the end of the year. So, to summarise, we've delivered a strong first half with clear financial progress, and we remain confident in meeting our FY26 expectations and delivering another strong set of results at our prelims in the autumn. Thanks very much. I'll hand back to Justin.

Thank you, Stephen. So, yeah, I'll take you through some of the progress we've made strategically in the first half. Just as a reminder, the approach we take to driving value at Marston's is to be a high margin, highly cash generative local pub company. We do that with a focus on differentiated formats that appeal across a range of consumer segments. That was what we laid out at the Capital Markets Day and continues to underpin our approach. The five value drivers you can see on the screen, the two I will talk to today are the first two. I execute in the market leading operating model and using CapEx to create these differentiated pub formats. So first of all on the operating model, I mean really this is about the essence of running a good pub business. It's effectively balancing revenue delivery, cost efficiency and guest satisfaction to drive returns. As Stephen has said, we've done that successfully in the first half to reliably deliver profit growth. And we've done that with both sides of the slide here. So from a revenue point of view, tough market, but steady H1. And we've done that really through our peak performance. So peak trading up north of 5% and within that, best ever Christmas. So from the revenue side, steady and resilient. Alongside, though, we've complemented that with our approach to margin, as Stephen said. Continuing to look at every single line of the P&L where we can drive productivity, combination of offering a great guest offer whilst also managing our costs. I think that final point on the slide is also very important. Taking a very disciplined and judicious approach to discounting in the first half. As the markets got a bit softer, there's been an avalanche of discounts across the pubs and the restaurant space, particularly on food, I'm talking here. And whilst we have offered discounts in certain places where we believe it can enhance the experience and our returns, we've been quite careful with that. What we didn't want to do was trade the top line for the bottom line. So overall, the combination of the two has allowed us to deliver that reliable profit. But alongside that, of course, But business only wins if you keep doing this right, if you keep giving guests a great time. So the great news is that whilst we've driven the profit growth, we've continued to make good strides on guest experience. So reputation scores up again at 806, continuing to make progress. And we do that on three things. There's probably three big drivers behind this. The first one, events. For those of you in the room, you can see the posters around the room. This is about giving guests a reason to come to our pubs. So in the first half, we've had a Luke Humphreys Darts Tournament. We've got a Trivial Pursuit National Pub Quiz. And the family IP Matilda we've been bringing to our pubs. So appeal across a range of demographics to really drive engagement across our pubs. Alongside that, we've continued with order and pay. Order and pay is really important to us, giving guests the opportunity to not have to get up from their table to order their food or drink. That continues to grow and do well for us and supports guest service. But underneath all of it, really is about the service that our managers offer locally. It's about having a passionate team of people who are passionate about delivering great guest service day in, day out. And they've continued to do that through the first half of the year. So on the operating model overall, good delivery on profit, continued progress on guest experience. That leaves us feeling really good about the foundation that that leaves us for the second half. So that's the operating model. Secondly, onto the formats. So as we've said, We've launched 60 of these new format pubs in the first half. The plan was 50, so we're ahead of plan. Roughly half of them on the grandstand products and half of them on the two-door, such that we've got north of 90 out there now. So, really, really good progress. They're all doing exceptionally well. Normally, when you launch new formats like this, you kind of get a winner and one that's soft. What surprises is all of them have worked well across different formats and demographics. You've got a top line growth across these products of 20%. And the returns, you remember our hurdle is 30%. The returns at the moment are averaging 35%. So very, very popular. It doesn't matter whether it's Woody's for families, if it's Two Door, which is a split two-in-one pub, or Grandstand, our locals pubs. Great appeal, great returns. So the real standout performer amongst these, certainly in the first half of this year, has been Grandstand. So what I thought I would do is just give you a bit more depth into what's behind the Grandstand model to help you understand the way some of our formats operate. And I thought one of the best ways to do that was for you to hear from some of our local pub managers about what this Grandstand pub is all about.