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Thu 27th Nov 2014 - Marston’s reports “encouraging start” to new year
Marston’s reports “encouraging start” to new year: Brewer and retailer Marston’s has reported a “solid trading performance” with underlying Group revenue up 1% to £787.6 million and underlying PBT down 3.6% to £83.0 million in the 52 weeks to 4 October, reflecting disposals and shorter trading period. The company reported an encouraging start to its current financial year with Destination and Premium pub like-for-likes up 2.1% and Taverns like-for-likes up 2%. Its brewing business continued to grow revenue and operating profits and return on capital remains strong at 10.5%. The company said its two-year transformation of its pub estate is on track, with average profit per pub up 10%. Strong underlying revenue and profit growth in Destination and Premium division has been driven by new-build investment, with 27 openings this year. A total of 535 Taverns have now been converted to franchise. Average profit per pub is up 10% in its retained pub estate. Brewing is ahead of last year, particularly strong performance from Hobgoblin over Halloween. Chief executive Ralph Findlay said: “This year we have made good progress in transforming the quality of our pub estate through the continuation of our new-build development plans and the disposal of weaker pubs. Our Brewing business is benefiting from our category leadership in premium ale and new product development. There are some signs of modest economic improvement, with the emergence of real wage growth and resilience within the economic regions outside London. Looking forward, we will continue with our expansion strategy to invest in at least 25 new-build pubs each year. We also remain on track to dispose of the residual 200 pubs targeted for sale from our Taverns estate over the next 12 months to create the desired structure for our business for the future.” Findlay told Propel that only 7.5% of its pub profit is derived from its 343 tied leased pub estate (out of a total estate of 1690 pubs), the part of the business that would be affected by the market rent only proposals. He said that he thought “more and more” pub operators would consider other pub operating models, such as the franchise model pioneered by Marston’s five years ago. “Five years ago we started to go in a different direction converting pubs to franchised and selling hundreds of smaller wet-led pubs.” Findlay said that its 25 new-build openings in 2015 would include at least eight in the south-east of England. The company would also be looking to add one or two new Pitcher & Piano sites next year for opening in 2016 and its premium Revere business has a further three openings planned for next year to add to it existing eight sites. Douglas Jack, of Numis Securities, said: “The dilution from the sale of 202 tenanted pubs to New River Retail in November 2013 has annualised. Thus, earnings growth should now resume; we forecast 11% PBT growth (to £91.8m; consensus £93.8m) in 2015E. In addition, we believe the dividend, yielding 5% and up 5%, is attractive.”

The company outlined its strategy as follows:

1.  Operating a high quality pub estate 
Building new pub-restaurants: “Since 2009 we have opened over 100 pub-restaurants offering family dining at reasonable prices. These pubs generate high turnover, typically averaging £27,000 per week with a food sales mix in excess of 50%. Good site selection has generated consistent returns on investment, extended our trading geography to include southern England and Scotland and created significant value for shareholders. We opened 27 pub-restaurants in 2014, creating 1,500 jobs and expect to open at least 25 in both 2015 and 2016, with sites also being acquired for longer-term development. The trading style of our new-build pub-restaurants is described in more detail within the ‘Destination’ section below.”
Innovation and investment in community pubs: “We pioneered franchise-style agreements in 2009 to improve customer experiences and enhance earnings in our community pubs. In 2014, the success of pub franchising was demonstrated through the award of the British Franchise Association’s “Young Franchisee of the Year” to a Marston’s licensee. Franchise-style agreements now operate in 535 Taverns pubs with our aim being to convert most of the remainder by 2016. Franchise-style agreements differ significantly from traditional tenanted and leased models. The pub operating model is directed by Marston’s, the agreements do not include rent or payments for beer, and risks to the licensee are reduced. In our view, therefore, it is unlikely that the introduction of ‘market rent only’ options as recently proposed by Parliament will have a material impact on pubs in our Taverns estate.”
Disposal of smaller wet-led pubs: “We disposed of 388 pubs and other assets during the year generating proceeds of £144 million, and anticipate generating a further c£70 million proceeds in 2015, mainly from disposals in Taverns.”
2.  Operating a range of pub brands, formats and flexible business models:
Destination: “Our Destination pubs offer family dining at reasonable prices, with excellent service in a relaxed pub environment. We operate two principal brands – Marston’s “Two for One”, and “Milestone Rotisserie”. The food sales mix of this business is 57%.”
Premium pubs and bars: “Our Pitcher & Piano bars and Revere pubs offer premium food and drink in attractive town centre and suburban locations. The food sales mix is 27%. We converted three pubs to Revere in 2014, and expect three conversions in 2015, with the acquisition of new sites targeted for 2016.”
Taverns: “Our community pubs include franchised pubs, managed pubs, and tenancies. Over the next two to three years we expect that most of our Taverns pubs will be operated under our franchise model. Typically, these are wet-led pubs although food sales are growing and represented 24% of sales in 2014.”
Leased pubs: “These distinctive pubs benefit from a greater degree of independence and committed licensees. The leased model, with longer-term assignable agreements, attracts skilled entrepreneurs who build value through developing their own businesses. We contribute through our expertise in attracting the right lessee, dealing in a fair manner, and providing business support.” 
Marston’s Inns: “ We offer high quality accommodation in 44 pubs within the Destination and Premium segment. In total, we have around 700 rooms including those in four lodges operated directly by us, with three new lodges planned to be built in 2015.” 

Shaftesbury – we’re experiencing very strong demand for West End restaurants: West End landlord Shaftesbury has reported very strong demand for restaurant space within its portfolio. The company has circa 250 sites in the West End with circa 600,000 square feet of space. Chairman Jonathan Lane stated: “The wide variety of restaurants, cafes and pubs across our portfolio is an important part of our overall tenant-mix strategy, drawing footfall to our villages. Where possible, we are bringing in more food and beverage operators to our villages, improving the quality of the offer and seeking further planning consents. We have 124 larger restaurants and bars (rental value over £100,000 pa) which provide 85% of our current income from restaurants, cafes and leisure. The remaining 15% comes from 126 smaller units. The Longmartin joint venture has ten restaurant and leisure units, of which seven have rental values greater than £100,000 pa. We continue to experience extremely strong demand for our restaurants, cafes and leisure space and, consequently, our vacancy levels remain minimal. We have completed lettings, renewals and rent reviews with a rental value of £7.2 million in the year, representing 23.1% of our current restaurant and leisure income. This included the introduction of eleven new concepts to our villages. EPRA restaurant vacancy in the wholly owned portfolio was 3.1% at 30 September 2014, all of which was under offer. The improvements we have made to Kingly Street since its pedestrianisation in 2010 have already turned Carnaby into a dining destination. During the year we completed the transformation of Kingly Court, Carnaby, into a lively restaurant and leisure hub, which now boasts eighteen restaurants and cafes offering a diverse variety of cuisines with al-fresco dining, four bars and clubs and a large yoga studio. Extending to 43,000 sq ft, this new dining destination provides 1,000 covers and complements the restaurants and bars on Kingly Street and Ganton Street. It is already attracting additional footfall, from neighbouring streets, to Carnaby and increasing dwell times. Our development scheme on Kingly Street, where we are creating a new 6,500 sq ft flagship restaurant over the ground floor and basement is due to complete early in 2015. We have commenced marketing and interest is strong. This scheme has also unlocked an opportunity to improve the adjacent 1,800 sq ft restaurant. Anchoring the food and beverage offer at the north end of Kingly Street, we expect these restaurants will bring further footfall to the area. To capitalise on the level of occupier demand for restaurants, cafes and leisure space in the West End, we are identifying opportunities to secure vacant possession of buildings where we can improve the space we offer, accelerate rental growth, and, in some cases, unlock further value by introducing new uses to currently under-utilised upper floors. Since October 2013, we have secured possession of 46,000 sq ft of space where we have introduced exciting new concepts or currently are improving the accommodation available.”

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