Edited Transcript of MARS.L earnings conference call or presentation 27-Nov-19 8:30am GMT

The second worry is we're no growing the affair from new build. We are seeking ought carry the business, and that mode getting excellent action from the wealth we already have. And there are 2 or 3 things that I'm going ought exist talking about at that: one is how conduct we conduct that from the leading investment program that we have; secondly, how conduct we conduct that from raising the prevent above our operational and commercial operations at the business; and thirdly, how, above time, conduct we premiumize what we conduct ought attain that exaggerate and improved performance. consequently I consider clearer strategic targets, reducing debt, improving answer above capital. Our answer above leading did better at our 2019 results and well cash generation. consequently I'll change uphold ought some of these points, besides at the meantime, I hand above ought Andrew ought type along the 2019 results.

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Andrew Andrea, Marston's PLC - head econmic & Corporate development officer and Executive Director [2]

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Thanks, Ralph. Good morning, everyone. though Ralph has fair described, we've had a part of a mixed year at 2019 and along the group. consequently revenues were up 3% at the epoch with growth at each of our trading segments. EBITDA was at row year-on-year and operating advantage slightly behind, reflecting growth at our wet-led Taverns and beer businesses, offset by a more muted action at our food-led Destination and Premium pubs. And that operating advantage decline has fed along ought both the PBT and allowance per section numbers at the year. We're proposing a last dividend of 4.8p per share, which is at row with final year. though Ralph said, it's consistent with the guidance we gave uphold at January, whereby we maintained a commitment ought defend the dividend during the epoch of debt reduction that Ralph has fair highlighted.

Looking at some of the operational metrics and starting with managed and franchised like-for-like sales. LFLs were up 0.8% at the epoch overall, reflecting a identical well action at Taverns against a identical well 2018 comparative. And even though Destination and Premium sales fell short of our expectations, we still achieved like-for-like sales growth, nonetheless. And what this rgeister shows is that above a wish epoch of time, our complete LFLs from the business, our balanced pub portfolio, continued ought send growth. And whilst we're above that point, though Ralph will describe later, we've realigned our pub affair such that we are operating below a only Pubs and Bars umbrella, and though such, our segmental reporting will clarify a only Pubs and Bars portion henceforth. We will, of course, provide color alike food sales and moist sales within that when we clarify going forward.

With regard ought the vacation of this year, like-for-like sales are up and Christmas bookings are up. fair ought exist clear, October and November are fallow months. We acquire twice the advantage at December than we conduct at October and November combined. And though Christmas bookings up is encouraging, it still forms a relatively moment separate of trading above the festive epoch overall.

Looking at wealth and paper of our pub estate, above an operating advantage basis, advantage per pub was at row with final year, reflecting an upside at Taverns offset by Destination and Premium. And though you can scream on above the column above the left-hand side, at advantage terms, we devour a balanced pub affair that mode we're equally exposed ought both the eating-out and drinking-out markets.

And looking at EBITDAR, which is a metric, which I consider is going ought change more pertinent at a post-lease accounting era, we indeed achieved EBITDAR growth at 2019. And above the final 5 years, this metric has improved by fair above 10% at complete at our pub affair and above a per pub foundation by about 20%, reflecting the continued improving wealth of the pub assets overall.

In beer, we've had another hard period. Revenue's up 3%, reflecting well performances at the independent free trade, ale within the off-trade and the use of the new distribution contracts that we entered into at the uphold finish of final year. That has been offset by weaker sales of lager at the off-trade against a identical well 2018 comp. Operating profits were up 2% and margins broadly at row year-on-year, and that's important though we now devour verge stability hind a little years of structural verge decline at the beer affair following the acquisition of the Charles Wells Beer Business. Again, at EBITDA level, the wish follow record of the beer affair is strong, with growth of at excess of 50% at that 5-year period.

Moving now ought costs and starting with products. consequently drink, food, brewing raw materials. We're handsome much locked at though the year overall and guiding inflation of about 2%. above energy, in spite of continued benign freight pricing, and we're contracted well into 2021, the levies associated with the furnish of electricity -- country furnish summary ought outstrip inflation, and we're guiding an exaggerate of 3%. above labor, clearly, this is a politically fluid cost, besides at this juncture, we are assuming an exaggerate at the national minimum salary at a alike proportionate even ought that of 2019, and though such, guiding inflation of 3% ought 4%. And above rental rates, we're guiding 2% ought 3% exaggerate overall. It's fair worthy noting that the lease costs will exhibit itself at the advantage row mail IFRS 16.

In addition ought that, though we highlighted at the year-end trading update. We're injecting an extra GBP 3 million of discretionary affair -- investment into our pub business, into our nation and digital marketing agendas that Ralph will influence above later.

So summarizing that, there's no question alter ought our fare profile. I consider we shortage about a 1.5% exaggerate at like-for-like sales ought mitigate that inflation, which compares favorably ought businesses more exposed ought London and city centers.

Turning now ought cash flow and remainder sheet. Our operating cash flow was up GBP 13 million at the epoch driven by working leading improvements. Our advantage is GBP 5 million lower, chiefly reflecting the benefits of the swap reprofiling that we announced earlier at the year. Our net CapEx of GBP 84 million is at row with the guidance we provided at the interims uphold at May, and I'll change uphold ought CapEx shortly, and our net underlying cash flow, therefore, saw a GBP 50 million improvement relative ought the 2018 figure.

And looking at our debt structure and the journey we are pursuing. Our debt at the finish of 2019 was a splash shy of GBP 1.4 billion. Most of you are familiar with our debt structure. It comprises of securitization amortizing out ought 2035. We've got a GBP 300 million or consequently drawn down above our medium-term facilities, which we devour at post ought 2024. consequently we devour no short-term refinancing requirements. And we devour about GBP 360 million of asset-backed long-dated wealth leases. What we are trying ought conduct is diminish that GBP 1.4 billion, excluding let commitments that will change above remainder part with IFRS 16, ought under GBP 1.2 billion. And though illustrative purposes, the schedule of that debt profile at that finish is about half securitization, a alike even of wealth leasing and a farther reduction at the drawdown above those medium-term facilities, which, though Ralph highlighted, fair gives us optionality ought opportunities gift themselves.

Concurrent with that absolute target, we are either seeking ought diminish leverage above a like-for-like foundation ought under 5x, and at achieving that, we ought better fixed denounce cover and the proportion of profits that we're running outer the securitization ought either increase.

Coming uphold ought CapEx. though I mentioned earlier, the net CapEx though 2019 was at row with the guidance we gave at can at GBP 84 million. Looking send ought 2020, we're maintaining the identical even of organic CapEx and that comprises GBP 50 million of maintenance CapEx and GBP 35 million of growth CapEx along the group, though which we are targeting at least a 20% answer above investment. There's a moment part of rollover cost from the new spot program at 2019, and that's offset by GBP 70 million of disposals, which I'll change uphold ought at a second. consequently our net CapEx projection is a GBP 60 million reduction above the 2019 figure.

And looking send ought 2021, we desire maintenance CapEx ought autumn by GBP 5 million ought GBP 10 million though 2 reasons. One, we will finish the EPOS and IT pub infrastructure rollout this year. That will no recur next year. And secondly, pretty simply, we will exist operating a smaller pub assets at condition of pub numbers. ought exist clear, the growth CapEx quantity stays the identical at GBP 35 million with the identical ROI hurdles. There's no new spot spend, and we're guiding disposals of about GBP 40 million. at 2021, therefore, we devour a GBP 45 million ought GBP 50 million improvement above the 2019 position.

Moving above ought wealth and disposals and starting with disposals. above Monday, we announced the completion of the GBP 45 million portfolio disposal ought Admiral Taverns. That was the disposal of 137 noncore let tenanted and franchised pubs. That transaction is both advantage per pub and ROC-accretive. And with regards ought the GBP 25 million rump of our GBP 70 million target, we've already exchanged or completed above GBP 5 million of that GBP 25 million. We devour high visibility of the remaining GBP 20 million. And though clarity, we are targeting ought cover book evaluate at those rump disposals.

With regards the carrying evaluate of the estate, at 2019, we impaired the bottom 20% of our Destination and Premium business, reflecting some of the fair challenges that Ralph will describe a moment part later. The overall carrying value, therefore, is at -- currently at 10x earnings, and within that, tenanted leased and franchised pubs are being carried at 9x earnings. consequently we've got clean visibility about our disposals finish and we are carrying our pubs at an proper value.

Moving now above ought net asset value. And our NAV has fallen by fair above 20p at the period, and this waterfall rgeister sets out the moving parts within that. consequently our underlying allowance are NAV-accretive, and that's been offset by the asset impairment that I've fair described. besides at addition ought that, gilt yields devour moved significantly downwards year-on-year, and that's had pretty a question impact above our remainder sheet. at match proportions, it's moved our pension from a pension excess ought a pension deficit, and it's either increased the mark-to-market above the swaps underpinning the securitization. consequently we've lost 18p of NAV this year owing ought gilt crop movements and it fair highlights upwards or downwards the sensitivity of our NAV ought transfer at gilt yields.

Finally though me, above let accounting, everyone's favorite subject, you'll exist pleased ought learn I'm no going ought be or tick at above this. at headline level, this is an accounting change. It does no impact the cash flows of the business. It does no affect the decision-making processes within the business. 2020 will exist the first year that we adopt the new standard and though with most others at the sector, we're adopting the modified approach.

At headline level, at the upper mountain of our guidance, we're guiding an 8% reduction at the PBT, net debt up by about GBP 0.3 billion and an exaggerate at leverage of 0.7x. There's a moment part more detail at the appendices, besides clearly, I'll exist speaking ought each of you individually ought schedule certain you've got your models at decent schedule well ahead of the interims next time around.

Okay. That's everything from me. uphold ought Ralph.

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Ralph Graham Findlay, Marston's PLC - CEO & Executive Director [3]

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Thank you, Andrew. fair going ought type a moment part about the dynamics of the fair and things which are affecting our thinking and what we do. You're familiar with much of this. consequently I'll fair cover 1 or 2 aspects of it. First of all, above the consumer side, cost overall is up in spite of the decline at consumer guarantee above contemporary months. consequently nation are still spending cash above going out ought eat and drink, and indeed, our get like-for-likes are up at that period.

The second point is the trend towards experience has been much documented, things alike escape rooms, and consequently on, and this is handsome good though pubs, I think. no total of it is transferable into the pub sector. consequently though example, there is a thought which involves throwing tomahawk axes at a wooden board, which I consider is maybe no going ought work at a prevent environment. besides I conduct consider that darts does work. consequently the friendly of instrument that you can scream on at Flight Club, you can invest at that friendly of instrument though a relatively modest quantity of money, and we devour been doing, and putting that digital darts experience into the community pub environment. consequently I fair consider that, that is a trend which, above balance, is handsome helpful towards us.

Other trends are pretty well embedded, and I consider they're responsible ought continue, health awareness, both at food and at relative ought alcohol technology, obviously, the development of apps, besides either the impact above digital marketing, and I will change uphold ought what we're doing at that respect.

On the sector side, more M&A at 2019 than devour been seen though pretty some time, both at pubs and brewing. Why is that? I consider you've got freehold assets, certainly, at our instance and at much of the sector. And you've got what are, at comparison, you've got relatively high cash yields, and that is looking attractive, specially when combined with the exchange appraise though sterling.

A connect of deals came out final week, which you can no devour seen at the brewing sector at the U.S., besides I consider are pretty enlightening at regard of what's going on. One of the leading U.S. boat businesses, boat Beer league (sic) [Craft Brew Alliance] was sold ought ABI. I consider that was about a $350 million bargain at a identical high multiple. Another leading U.S. boat brewer, New Belgium, which brews grease Tire, has fair gone ought Kirin. We devour the U.K. license though the Kirin brand, besides again, it fair shows the appetite of global brewers though things at that boat friendly of space when they are looking though outlets though growth.

Structural change. One of the things that is worthy noting, and we've talked about increasing furnish at the past. fair news does denote that furnish is reducing. consequently CGA news has restaurant furnish reducing by fair above 3% at the final region of 2019 that we're reporting on. I don't consider we've seen a great bargain of impact of that above trading at the moment, besides 1, 2, 3 years down the line, I consider we will scream on some use from that.

On the political and economic side, again, you're familiar with these things. fair worthy noting, though, the surroundings is going up the government's agenda. We devour a indeed good romance ought state at relative ought environmental matters, and I'll describe some of that. And also, fair note too minimum unit pricing is coming in, at Wales 2020. maybe no a huge impact though us given the size of distribution at Wales at the off-trade. besides at Scotland, it was probably, above balance, a certain worry though Marston's when MUP came in, at Scotland. consequently generally, that trend towards minimum unit pricing is a certain though us.

So given that fair and those dynamics, which I consider are a blend of challenges, besides either opportunities though us, how are we going ought conduct what I said we were going ought conduct precise at the beginning of this presentation and originate the bar? The vacation point though us above our pubs affair is a indeed good vacation point. We've got a identical high quality, chiefly freehold portfolio. I consider it's about 93% freehold business. And when I looked at what we're doing at the moment, at community pubs, we are outperforming that market. at our Premium business, which includes Pitcher & Piano, Lost & Found, foundry and rural locations, we are either outperforming that premium and prevent market.

Our flae business, which includes 30 new found lodges is outperforming that fair with growth at occupancy and RevPAR. Our building food affair is hind the market. And this fair is one where we devour seen a more difficult environment. capacity above a quantity of years has change in. There are important increases at competition, structural change, grab-and-go, total those friendly of things and a important quantity of discounting going on. It is worthy noting that we were at like-for-like sales growth, and our LFL sales growth at 2019 was improve than it had been at 2018 besides it is hind the market, and I'm no fortunate with that. And I consider at the context of doing more with the wealth we've got -- that we devour already got, what we devour ought conduct is ought better the action of that specific separate of our business.

So how are we going ought proceed about doing that? There are indeed 3 leading components of raising the prevent at our commercial operations. The first is at reducing the complexity of what we do. And Andrew talked earlier above about segmentation, besides the important point here ought me isn't how we clarify the numbers at the segmentation. It's how we flow the business. uphold at April final year, we combined our Taverns and affair -- Taverns affair and our Destination affair below one place, creating something called Marston's Pubs and Bars. And why did we conduct that?

We did that ought schedule a commonplace civilization ought devour shared ways of working, ought devour greater clarity above menu development, those kinds of things. One result of that creation of Pubs and Bars was a clearer segmentation of our offer by customer. consequently if it's a community, customer, that building food market, a slightly more premium food offer or the premium finish of the fair itself, we devour much greater clarity above where our wealth sit at relative ought the demographics about the pub. What that led ought is reduction and rationalization at the quantity of formats that we run, the quantity of menus that we have, that friendly of thing.

And we devour seen, above the type of the final 7 months or so, some identical clean benefits from that. From a passenger point of view, there is more consistency of offer and service. We've got improved audit and EHO scores, and we've got improve visitor satisfaction measures. And I conduct consider that already, we're at a improve post than we were a year ago. consequently that reduction at complexity is an important separate of it.

The second is we're no dwelling new pubs, besides we are still spending capital, and that leading investment is tighter, and it is more focused. And it's chiefly about premiumization experience and the maintenance of the estate, and I'll change uphold ought that.

The third is above culture. We've increased our concentrate above 2 aspects of what we do. One is above our guests and the other is above the team, and each of those devour got measurable KPIs, and I'm going ought type about that. besides the aim of what we are going ought conduct is ought originate the prevent above being a guest-focused dynamic affair generating a stronger econmic performance.

So the first of those is leading investments, the CapEx program, which I've described though being tighter and more focused and based above experience and premiumization and maintenance. consequently what conduct I intend when I'm talking about experience and premiumization? Andrew described earlier the leading allocation and where we're spending our money. This is indeed what we're trying ought conduct with that capital. consequently these are total examples of where we've been improving the appear and the feel and the standards of pubs at bid ought better that visitor experience and premiumize the offer of what we've got, both at our building pubs affair and at our premiums business.

And what you can scream on from the numbers is that we can generate well returns from queer leading projects alike this. The key point is that along the total program, we are achieving and are confident that we can send well returns of 20% and above along the assets when we machinery these friendly of projects. consequently well returns are available.

What is it that we are trying ought attain when we type about premiumization and improving experience is indeed this friendly of thing. consequently these are 4 examples. They're total at our premium estate, besides it's about improving design, improving the ambience, creating more interesting spaces, making things more contemporary. consequently Lost & Found, Sheffield, peak left; the Pitcher & Piano at Cornhill, which we did at the uphold finish of 2018; The idle Pig, the one above the front cover, at Chesham, bottom left; the White Hart at Godstone, these are total examples of where we've done that, and I consider they make handsome accurately what we're trying ought do. consequently those kinds of schemes above experience and premiumization are a big separate of that plan.

The second is ought exist improve and more focused above maintenance and middle pub standards. consequently an case of this is we had 2 projects at 2019, pretty modest: plan Showman, which was total about basically decor inner and out; and plan Hatton, which is a plan ought conduct with creating a wow factor at pub gardens. Neither of these were specially complex besides what is pretty interesting is how much they resonate with local communities and how much they use hind them. consequently relatively moment amounts of capital, besides they can devour a transformational impact. And again, when we conduct these friendly of projects, we are confident at our capacity ought generate 20% or more of answer above capita