Marston'S Plc Unsp/Adr

My name is Justin Platt. I'm the Chief Exec. Welcome to the Masters Interims 24. Hayley Lupino, our CFO, I'm sure many of you know. Thank you for taking the time to join us today. We really do appreciate it. The way we're going to split our time, I'll give a quick overview now. Hayley will then take you through the financials in some depth. And then given it's my first results meeting, I thought I'd share a little bit on what I've been up to, some initial impressions on the business. And then of course, at the end, we'll take some time for your questions. So as you'll have seen from the R&S, a good first half, strong trading, like for likes at 7.3%. That's ahead of market. And we've been able to translate that into earnings growth. So the combination of our revenue growth with some of the margin improvements that we've made has allowed us to deliver 53 million pounds of operating profit, which is up more than 20% year on year. And in turn, that's enabled us to continue to pay down our debt And all of that is alongside some really good progress operationally. So as you know, we've been doing a lot of work to simplify the business. So not only has that helped us drive some efficiency in a number of areas, but more importantly, it's allowed us to make some real strides with the guests. So we've driven our reputation scores up as high as 787 this time, which we're really, really pleased with. So really good first half to the year. And as we were just saying over coffee, we're feeling very positive about the outlook for half two. So more of that to come. But let me hand over to Hayley and she'll talk you through the financials.

Thanks, Justin. Good morning, everybody. This morning, I'm going to take you through the financial results for H1. So if we start off with the top line then, like-for-like sales up 7.3% versus H1 2023. And in each of those periods and those months, we consistently outperformed the market, as you know, with the peach tracker. And then if we break it down by quarter, Q1, Strong like-for-likes at 8.2%, including the key festive dates of Christmas, Boxing Day, etc. And then as we moved into Q2, good like-for-likes with 6.6%, but clearly there's been an impact with the wettest February and March. So overall, good like-for-likes, but within that, both volume and value are up versus previous year. And that has led to a strong earnings and operating profit growth with significant margin improvement. So revenue, 428 million, up 5.2%. As Justin said, pub operating profit increase of over 20% to 53 million in the period, but further progress made on our pub operating margins, 170 basis points in H1, and I'll come on to that shortly to show you the make-up of how that's been delivered. Finance costs increased last year due to the Bank deal being signed in H2 of last year, if you remember. And then income from associates, although a small loss in the period, we received £13.8 million cash dividend in H1 versus £10.6, and I'll come on to that shortly. A loss before tax of £1 million and a loss per share of £0.1. As a reminder, a third of our profit is earned in H1, two thirds in H2, clearly interest cost depreciation are flat across the year. So if we come back to operating margins then, 10.6 in FY23, energy and property have delivered a 1.3. 0.2 of that is from what we set out back in December, initiatives to drive usage down, et cetera, and repairs. 1.1 of that is due to the changing electricity prices year on year. Then we've continued with the business simplification that we've been on for the last 18 months that's driven 0.4 and if you remember back in the summer we announced the head office restructure which delivered 0.4 of that margin alongside our continued focus on pub labour and operational efficiencies of 0.1. During the period we've also invested in driving demand into pubs so we've got some increased market investment which gets us to that 12.3 for H1. That has led to an improving operating cash flow. So 91 million in the period versus 70 in the year before. After interest, a pre-investment free cash flow of 43 million versus 29 in H1. With regards to capex, 22 million in H1, and we expect to spend no more than 50 million for the full year. If you remember, guidance was 50 to 55 previously. And then with regards to disposals at H1, 10 million of the 50 million target has been delivered. Since H1, we've done a further 16 million up until the weekend. So on track to deliver that 50 million target of disposals for the full year. And then that has impacted debt by 25 million, Justin alluded to earlier, debt reduction in H1. We can see that continued debt reduction over the last few years. And also from a securitisation point, you can see that also continuing to decrease year on year. And it's a long-term, low-cost, structured piece of finance. And all of that is underpinned by the freehold asset estate that we have. We announced this morning the £340 million amend and extend of our financing facility out to July 26th. Again, as a reminder, 120 million of that is hedged against interest rates at low rates of 3.73 and 3.45. Within the financing facility, we've got significant headroom on the RCF during the year. And then as we move into securitisation, I've talked about that being low cost. But key there as well is the £120 million of liquidity facility that is available, that is not drawn on. And then our long-term leasing, which is capped and collared at 1% to 4%. So a debt structure that is 93% of it medium to long-term that's hedged, but underpinned by £2.1 billion of assets. And if we look at property, we have stable NAV overall. Our continued disposals have touched on that in terms of the 26 million progress made to date. So the expectation of 50. High quality, 83% freehold pub estate underpinned by that asset value. Stable NAV. And then with regards to pensions, the triennial valuation was completed for the end of September. The six million net annual contribution that we make towards the deficit ceases from the end of this financial year. The original plan was November 25, so more than a year in advance. So that six million drops to free cash flow from 2025. With regards to CNBC, already alluded to the positive. cash contribution in H1, 13.6 million versus 10.6 in the previous H1. The small loss is driven by the accelerated investment in 1664 and brand marketing. And similar to ourselves, seasonality of the business where H2 makes the majority of its profits. So if we look into, if we've moved into H2, in summary, we've got like for like sales for the last six weeks of 4%, excluding the additional bank holiday in the previous year, that's 5.3. We expect to deliver the 8 million cost savings efficiencies this year, including the impact of the transaction, finance transaction costs that we set out back in December. So we're on track with that and you've seen that from the profitability increase. And then, you know, that margin 200 basis points improvement, you know, we're on track to deliver that as well to give some reassurance to everyone. And as I've said, we now have financing in place for the medium term, moving from the short term with 93% of our financing hedged and asset backed. So I'll now hand over to Justin to talk a little bit more about the operational business.

Thank you, Hayley. As I said, given I'm a few months in, I thought I'd share a little bit on what I've been up to and some of my early impressions on the business. I've got a consumer background. I've spent the last 12 years at Merlin Entertainment in a variety of operational and strategic roles. I'm absolutely passionate about guest experience and driving guest experience. I've been doing that for a number of years with attractions and theme parks. Really what that's about is the core of your business is giving your guests a great time. And you give them a great time and they'll come back. And if they do that, you can give your shareholders a great time because you can monetize it effectively. And that's very much what I've been doing in my time at Merlin. And I already see lots of parallels with the pub sector. to be able to do the same thing. And that's what I'm in the midst of now, is assessing that and looking how we can take the business forward in the pub sector. So as you'd expect, I'm immersing myself in the business, trying to understand all the drivers, spending a lot of time with the team, looking at the analytics, and then importantly, getting out into the estate as much as possible, visiting all of our pubs across the UK over a period of time. I started out on a wet morning in January. in a pub in Warrington in the north of England with Vicky and Les, a cup of tea, them explaining to me what drives their business. They run a fantastic business up there and that's the first of many, but really understanding those pubs that I've done over the last few months and as I will continue to do through this year, will help me identify really what our core priorities should be in time. Once we're through that work, the plan is to run an investor day in the autumn to take you through that in some depth. Excuse me, but as we go, What I would say is the UK pub market is a great place to be. It offers significant value opportunity. If you go to the basics of human need, We all desire and need togetherness and to socialise. All of us do that every week. And the advent of screens and screens in our lives actually strengthens demand for that. So the core need of socialising is absolutely essential to us. And then if you look at the UK, and the UK is quite a peculiar phenomenon for this globally, the UK pubs are right at the heart of that. 80-odd percent of us visited a pub last year. More than a third of us went at least monthly. I think many of us, hopefully some in this room, went many more times than that. Pubs are a central part of our society. That's why you've got a market that's worth more than $28 billion. That's why you've got a market that will continue to grow, and you can look at the CAGRs up there. So socialising is important and pubs is a key outlet for that. I think what's particularly useful for us, if you look at it, is though the local segment can be very lucrative for those who get it right. A couple of things. I think the move of spend from cities to suburbs allied to what we're seeing as a growth in low tempo socialising. And what I mean by that is nipping out for a couple of pints or a quick bite to eat with the family. Those two things are starting to really bring the local sector into its own and hence the resilience and the performance of the local sector over the last 12 months. Now it's not all easy, because of course you've got to deliver to guest needs in order to win. The chart on the right there shows the five factors you need to deliver on. You deliver on those five factors and nine in 10 people will come visit you at a pub. Now you'll be reading up there, there's no rocket science up there. There's no big strategic wows on what's going to drive that pub visit. But that's kind of the point. A pub business, it's not about a clever strategy a pub business will be successful through brilliant and relentless execution delivering on guest needs and monetizing that effectively that's what drives a pub business so it's a locally led operating model and your local manager is absolutely central to that the the tone that your local manager sets for their guests and also for delivering your profitability is absolutely key to driving your demand and being able to monetize it So socialising is important. Pubs are at the heart of that. And then within it, the local pub segment can be very lucrative if you get it right. And as I look at it, Marston's has got some really good fundamentals in order to build on that. We're 90% of our estate is suburban and community. We're 83% freehold, so we've got a strong asset base behind us. We've got a well-balanced management model, so the mix of our managed estate versus our retail partnership estate gives us flexibility. You get all of these things right, you get that operating model singing, it can generate really good, consistent streams of cash. So this is an average pub, this is an average one of our pubs, an example of one of our pubs in Gloucestershire, a million pounds of revenue a year, and that churns out 300,000 pounds of free cash flow. So the trick with this is about getting that operating model working, you get that operating model working, and you total that up, and that can give you good, steady, reliable cash flow. So good fundamentals for Marsden to build on. And I look at what we've delivered in the first half. We've done that very well. Talk about some of the operational progress. So first of all, with our guests, three things. Our product offer. We've simplified and strengthened our food menus. Our food menus are more popular than ever. Our food quality scores are the highest they've ever been. The kebab meal there on the right hand side is our most popular new item of the year. So the new menus have gone down really, really well. So the product quality is up. Our service scores are higher than they've been. And then finally the atmosphere and the environment in the pubs are scoring stronger than they did this time a year ago. So those three things together are what's contributing to our reputation being strong and hence we've driven our reputation from what was 750 this time last year to 787. So good delivery from a consumer point of view. Add to that from an efficiency point of view, Hayley touched earlier on the progress we've made on our margin. So a number of initiatives here that have allowed us to do that. Obviously labour's our biggest cost. Our labour scheduling tool's been very important to us, having the right people on at the right time, and then no people on when you don't need them. Using that tool's been very important. I think there's still more to go out there for us actually, but that scheduling tool's helped us with our labour costs. And on the previous slide, I talked about the benefits of the menu for our guests. That efficiency and that simplification we've driven in the menu has also allowed us to take out some cost from the food and drink side. Add to that, of course, we're always focused on our utility costs and we've made some good progress on our cost efficiency in the first half. And then the third area, I've been blown away actually since I joined Marston's on the commitment and the delivery on ESG that is already underway. From a product point of view, we've rescued more than 15,000 meals from the waste. We have a partnership with the Trussell Trust. We help them on eradicating food poverty. From a planet point of view, we continue to install electric vehicle chargers across our pub estate, across our car parks. And at the start of this year, we implemented a massive new solar tech capability at our pub support centre in the Midlands, which is groundbreaking in itself. But assuming that works, we'll be rolling that out across our estate as well. And then finally, people-wise, we're really proud in March. Obviously, our people are central to our success in terms of providing service. And we're very proud in March to be awarded Best Large Pub Company Employer. So good progress on ESG. Take those in the round. We're really pleased with our operational progress in the first half. And as I said at the start, we're feeling very encouraged about the outlook for the second half. The core of any business, particularly in hospitality, is about driving demand. People have got to want to come and see you. People have got to want to come and socialise in your environment. I think our demand drivers will speak for themselves in the second half of the year. Potentially the biggest football tournament in this country since the 60s, and that's in England. That's with Harry Kane, but also possibly with Scotland as well. We'll do really, really well behind the Euros this summer. A big demand driver in our pubs. We've invested significant funds over the last couple of years in extending our outdoor spaces. So we've got really good beer gardens now that builds extra capacity and gives us an extra environment. And I've already touched on our food menus that are proving very, very popular. So we're feeling very positive about the demand we can create. And we'll continue with that focus on costs that we've done in the first half across labour, across food and drink and utilities. So we're feeling good about half two and feeling encouraged. And beyond then, What we'll get to outline is an approach for the reliable delivery of free cash flow. Any hospitality business has to be anchored on the left hand side of that chart in driving the operating model. And the pub sector is no different. It starts with driving demand, creating reasons for people to want to come to your pubs. And then when they do come, giving them reasons to spend more. When they come and visit you, you give them an amazing time. You absolutely blow their socks off so they'll want to come back. and of course underpin all of that with an efficient, lean, flexible approach to your cost base. You get those three things in balance, that's what drives the operating model, that's what will spew out regular delivery of free cash flow. And the balance is important. You can't get too carried away on one or other of those. If you get too greedy on cost, that reputation will slip. If you push reputation and get a little bit flabby on your cost base, of course your margins will slip. So the trick is getting that Holy Trinity of the three things together and delivering on it. Given my background, it won't surprise you to know though, but what you will see is a clear-eyed focus on the consumer to underpin that. Really well-defined target segments and unique propositions against each of those target segments. We have a well-invested estate today, but what I'll be looking for is judicious ways in which we can spend capital to drive incremental growth and get the returns. So more of that to come in the autumn. As I say at that stage we will outline the value drivers for growth targeting that free cash flow and we'll be very clear then in terms of the metrics that we'll use to track success. And as we outline them we'll be very transparent about them and we'll share them with you on a consistent basis. So to summarise, strong half one performance. We're very encouraged by the outlook for half two. We think we're in a good market. We think we're well placed to win in that market. And we'll see you in the autumn to outline the value drivers and a plan for free cash flow. Thank you very much. So with that, we'll take some time for questions.

Good morning Justin, Hayley, Vince and Ryan here from Good Buddy. Two questions for me please. Firstly, I think Hayley mentioned that volumes have remained positive throughout the period. Can you give a bit more colour on that between the food categories and the beverage categories and I guess is that positive volumes more consumers or are you starting to see more spend per consumer in terms of If you're coming from a main course or they're getting a starter and dessert, or as you said, just more bodies through the door based on your positive reputations scores. And then secondly, you mentioned the increase in marketing spend being a headwind to margins in H1. How should we, could you give a bit more color in terms of what tangibly what those investments are going behind? I guess it's not a, typically it's not the type of business or industry where you'd be putting national media campaigns, but just understand sort of conceptually where that's going and sort of outlook for that spend for H2 and where do you think that spend needs to be in year two and three? Thank you.

So, yeah, in terms of our like for likes, it's a mix of volume and value. Within that, our food or what we call our covers performance is up a couple of points, drinks volumes up a little bit, and then the rest we've driven through value. And that value is a move quite a lot to increase spend per guest. So there's a couple of trends there. more spend per head on our covers and our menus but also you continue to see a move to premium drinks so particularly premium lagers and world lagers do very well and we've we've certainly seen that in the first half is there anything you wanted to add on that before we did the marketing and then and then on the on the marketing spend That's about driving trial. So we'll get increased trial of guests, particularly for our covers business. So encouraging people to come and take meals with us. And what you would expect is two things. You'd expect that extra investment will drive more trial into our pubs, but as long as we deliver, we'll then get the repeat rate through the back end as well. So what that starts to look like, by the way, is leaflets with money off offers to come and join us. limited in terms of the discount, but enough to warrant the visit.

Great. Thank you. And just in terms of the financial impact for H2 Beyond?

It's broadly similar, because we've done the investment upfront to do the repeat visit second.

Fair. Thank you. Thank you.

Hi, Doug. Hi. Doug . I've got three questions, please. The first one is, how many pubs have you sold in the first half? And is the EBITDA multiple consistent with the NAV multiple of about 9.5 for the group as a whole? Second one is, of course, you've got a target of 200 basis points margin improvement over two to three years. It looks like you've done 170 of those. Are you looking to perhaps adjust that target at some point? And in terms of CNBC, they spent a lot more on marketing in the first half. Should we expect something like that in the second half? Because obviously it does impact the associate profit coming through from them. So the kind of outlook for marketing from CNBC. Thanks.

I'll take the CNBC one, and then you take the first two.

Okay, fine. So in terms of the 10 million that we did, it's broadly the same number of pubs, so 10 pubs or so. We've said in the statement today that we've sold them at net book value. So if you think what they're valued at and multiple, it's broadly in line with that multiple, depending on the operating model. in terms of the 200 basis points uh doug i think you know we set 8.9 in december last year for operational efficiencies the 1.7 today includes some of the energy pricing so um i think we would continue to target the 200 first and then we've looked to revisit what we think as part of the uh longer term invest today as we come back in

And on CNBC, yeah, that investment is behind a big launch of a relaunch of Cronenberg, a big launch of the 1664 brand. And so, no, the investment has come in the first half. That's very much when they put them. It's all about their media spend. That's when they put their media spend out there. So, no, we don't expect the cost of that in the second half. But, of course, we would expect the top line growth to come from that in the second half.

Hi, it's Alan Barnfather from Librem. A couple of questions. Just on the disposals, you talk about targeting specific areas in the future. Is there a specific area where those pubs have been disposed, either geographically or consumer... facing positioning and then just secondly on Carlsberg again could you remind me of the dividend payment dates because obviously it was a nice dividend in the first half just trying to work out what the full year dividend should be because it's decoupled from the profit on the P&L so any help there would be great

Okay. I mean, the first one, in terms of disposals, I think we set those pubs last year in terms of we didn't think long-term they had viability within our estate or fitted the sort of demographics. So it's not a specific geography. It depends on the pub itself. No, it's a mix really, and also what investment is required for the future. So that's not work that's been done in the H1, it was done previously to set that target of 50. In terms of CNBC, the dividend of 13.8 in H1, if you think about last year, we had 20 million for the full year. It was roughly split half and half, and it relates to their sort of January to, sorry, the H1 dividend relates to June to December. So it's difficult to give guidance today, Anna, on what that will be. But if you look at the profiling of last year, it splits roughly 50-50.

So it's on the target of producing debts of 60 to 70 million. 50 is coming from disposals. That means 20. Think about that. It's just from the dividend. So any operating profit, any operating cash flow is able to run that. Yes.

So you're on target. Yes. Yes. If that was the question, are we on target for our debt reduction strategy? Based on H1 results, yes.

Yeah. Any more for any more? Okay, well, great to meet you all. We're around afterwards if anyone wants another chat. Thank you very much for coming. See you soon.