Member Info for londoner7

I don't see how the Bloomberg article can be described as good news for MARS. It describes a long term decline in beer production due to a shortage in barley due to climate change. It seems to me the focus of the article is to highlight the impact of climate change on the lifestyle of the masses, i.e. beer drinkers. Generally speaking if the cost to supply a product increases then the demand for the product decreases. In the case of beer there are probably greater factors at play, particularly effects on health impacting the demand for beer. It's well documented that real ale demand in the UK is falling, however that doesn't mean that a brewer like MARS can't do well if the other suppliers are dropping out. And with MARS as the largest brewer that gives them an advantage in the volume market.

But in terms of margin this is often a two stage process. Initally, the producer will absorb costs impacting their margins, before they pass on those costs to the consumer, assuming those costs persist beyond one season.

As fairdealer20 points out there was a barley shortage last summer, and it may be this which has impacted margins in the beer division for the latest year. A 45% increase in beer division revenues doesn't pay the dividend, it's the cash profits that do. And I hope that investors here realise that most of the 45% revenue increase is due to the Charles Wells acquisiton. Yes. more detail in the accounts than the headline numbers suggest.

As to yesterday's rise in the share price I think it had more to do with yesterday morning's news that, "Wages have risen at the fastest pace in almost 10 years, easing the pressure on UK households". As MARS shareholders, that is something to celebrate.

barchid, I think your assessment of finance charges is spot on.

I've had a reply from MARS. Mention of a closed period etc etc but the respondent addressed my key question around my math based on the numbers given. The 0.5% reduction in margins was for D&P only, not the group. So my calculation on EBIT and finance charges are wrong. As I said, something didn't look right, I just didn't know where the problem was.

In fact, I think limiting the reduction in D&P margin to 0.5% against a 1.2% reduction in like-for-like sales is a very credible performance and supports the comment, "We have maintained a keen focus on cost control and continue to remain disciplined in terms of pricing, discounting and promotion". The subtelty of the paragraph was lost on this investor and on this basis the focus on cost control puts my concern around the 0.1% LfL in perspective. A decent D&P result in a difficult market.

That said the results were below expectations, group margins are down greater than 0.5% and the issue seems to be around the margin on the beer businees - the update would have been clearer if MARS had given the margin for the group, but I can now work that out from the information given. . I am still surprised that MARS highlighted "each of our trading segments offset by higher interest charges". My opinion at the moment is that these charges are not much above the increase indicated in the securities profile. The Nov 21st numbers will clear this up.

Best,
Londoner7

barchid, no reply. As I said, it seems a big jump since the half way stage, so big that I think I must have missed something. Just don't know what. All will be revealed in next months accounts.

I was surprised by the announcement of the acquisition of 15 ex M&B pubs, after MARS previously saying they are cutting back on capex for new pub builds - dropping from 15 to 10 for the coming year. Is it a move back towards wet led pubs? The price isn't given so maybe it's a great deal, but adding £1m of EBITDA in 2020 is £67K pa per pub and in total only equates to about 0.5% of group EBITDA. Again, I'm finding the numbers hard to fathom. I'm looking forward hearing more at next month's accounts presentation.

Some good old fashioned director buys. Not options, discounted placings etc etc.

A good vote of confidence.

Wet led pubs revenue looks good at 3.8% maintained into the last 10 weeks.
Brewery revenue looks particularly good - tricky to discount the benefit of the CW acquisition but however I cook it beer revenue growth looks good.
Total revenue beat my target of £1,120m and broker consensus of £1,080m.
Positive write up in today's Times.

That's all good, but two areas bug me.
i) D&P like for like revenue growth and ii) the increase in finance charges.

i) D&P - Ralph said, "Although trading in Destination food-led pubs was weaker, this predominantly reflects issues beyond our control relating to unseasonal weather extremes and the World Cup." But over the last 10 weeks the comparatives with last year were easy to beat - in the same period last year LfL down 0.8%. And the weather over the last few months was okay, as I recall better than last year. Yet MARS only managed 0.1% LfL for the 10 week period. They talk of momentum from the weather and World Cup headwinds but momentum from a weak 2017 is static.

ii) Finance - with margins expected to be 0.5% below last year that equates to 17.1% for this year. Applying that to the 15% growth in revenues gives us 1.15 * 992.3 * 0.171 = £195.1m EBIT. If Pre tax is £104 then finance charge is £91.1m, up from £74.4m last year. The securitisation profile predicted an increase of £1.7m, but that still leaves an additional £15m in finance charges.

But for this £15m extra in finance charges EPS would be over 14.8p. On a full 18% tax charge on the £104m pre-tax, EPS will be 12.9p (the tax charge should be lower). The £104m estimate is referred to as underlying so that doesn't suggest an exceptional finance hit. There was no sign of an increase in finance costs of this level at the half way stage, yet the full year trading update states "higher interest charges". I hadn't factored in this increase, perhaps the brokers had!

The more I look at this the more I think I must have made an error in my assessment. Could someone please point it out? Perhaps I need a pint of Pedigree to clear my head. No doubt all will be clear on the 21st Nov.

As Tempus says, "The debt, at about £1.3 billion, is high, but most of it is long term with a fixed rate of interest."

Yesterday I wrote to MARS investor relations with my numbers on the finance charges - hopefully accounts are have a good laugh at my school boy calculations.

Villagreg, these are my expectations:

In Destination and Premium, like-for-like sales were 0.8% below last year.
In Taverns, like-for-like sales were 3.5% above last year.
Total managed and franchised pub sales were up 5%
Brewing up around 50% with good growth in the underlying business.
On pubs and lodges, I expect some of the 15 pubs planned for the year will miss the financial year end.

But that's all revenue. I'll be mostly interested in what they have to say about margins. At best I'm expecting slightly down on last year. If there's anything market moving I'd expect it to be centred on cost/margin commentary.

On pubs and lodges, I expect some of the 15 pubs planned for the year will miss the financial year end.

Behind closed doors, he(she) will tell you what you want to hear. ;-)

spindok, you say, "I feel like a rabbit in the headlights".

It's times like these that action is often a good response. But, what action?

Only you can decide but this book might help.

"The art of execution” by lee freeman shor

I recommend it to all rabbits!

farhantahir, I'd say all three, with HS2 as the missing ingredient.

But first perspective on "this massive share price decline". It's hard to fine a direct peer to Breedon so I've taken a sample of construction related companies and viewed their price change since the closing price on the day of their most result results (all in the last 3 months). Note that two popped on the day of results and one fell, with Breedon and another stable, but I think the closing price is the best comparison with today's price.

Breedon -13.2%
Marshalls -13.5%
Hill & Smith -13.7%
Polypipe -8.8%
Galliford -15.8%

All are down, why? I think essentially for the reasons you outlined, the economy and concerns over Brexit, alongside weak construction data. Whatever your thoughts on the rights and wrongs of Brexit it is hard not to accept the transistion is having a negative impact on the economy.

But I want to touch on something else. When governments start to focus on current spending, NHS, public sector wages, welfare, then something has to give and historically that has been capital spending.

I noticed in her speech to conference Theresa May in a section on infrastuction didn't mention HS2. I think the fact that it is the largest infreastructure project but wasn't mentioned is significant. It was due to start contruction this Nov and has been delayed till June 2019. Expect more on this. Most voters wll not benefit directly from this spending or to be blunt their land values will not appreciate, so they are inclined to be against it and their local politicians having a short term horizon will follow suit.

HS2 is important to Breedons long term prospects. If it is pulled it will impact.

In the short term I'm looking to next months MPA numbers which have more relevance to Breedon than the more general construction numbers.

Villagreg, companies tend to follow the format of previous years so take a look at last year's year end trading update. An update on trading was given at the 42 week stage. Peers have reported over the more recent period and if you're familiar with MARS business and last years comparisons you'll have a good idea what to expect for the last 10 weeks.

Put it all together and you should have a good idea of what to expect in tomorrow's update, and be prepared to react to something better or worse than your expectations. The RNS will be at 7am so you'll have an hour to digest the news before the market opens.

The removal of this cap should benefit the Partnerships & Regeneration segment of the business.

steakpie, the info on fees is taken from the 2017 Annual Report pg11.

I'm not clear on your 2nd point. The extract from the RNS is in " "

I was tight for space - down to a few chracters, so I want to expand on one comment.

JB and AC should be working to safeguard the interests of Mosman shareholders,

within this alliance and focus their own technical talents on the other projects, Strawn, Welch, Arkoma and OZ. In media interviews JB and AC have praised the Baja team so I hope the disappointment of the initial Stanley 1 results is a temporary hic up. Baja seem to have convinced JB and AC that's the case.

Da_Gee, I agree, the services of JB and AC are not cheap. They are elected directors representing the interests of Mosman's shareholders, but I don't see any fees acruing to Mosman as a part of this alliance.. It would be great to see the detail of the agreement but that isn't going to happen. However, I think the release says a lot. This is what we have been told in the RNS:

"Mosman and Baja have now signed detailed Strategic Alliance documention that facilitates both companies working together on Baja projects, seeking new ventures in east Texas, and the contractual basis for technical work and operations on those projects with a Technical Services Agreement, all effective 1 September 2018. Mosman will have a 50% interest in all existing and new projects, other than the acquisition of interests in two existing projects (Champion and Challenger) where Baja has an interest in leases which are detailed below:

The Baja team have demonstrated they can source opportunities, negotiate lease positions, do the technical work to identify high return exploration and development projects in Texas, where the oil and gas business has social licence, existing infrastructure, low costs, and a well priced market for sale of production.

The significant advantage for Mosman with this Strategic Alliance is the synergy of working with Baja to source new projects, and to develop existing projects with a very strong local business development and technical team, without the cost of establishing such a team and the associated infrastructure."

It seems clear to me that the technical talent within the alliance is being supplied by the Baja team for which they will recieve a fee.

As a Mosman shareholder I hope and expect the Baja team to lead this alliance. JB and AC should be working to safeguard the interests of Mosman shareholders.

Their interests are covered by their own service agreements. Here is an element of AC's agreement:

In accordance with that agreement, Mr Carroll must provide a minimum of five days per month of service to Mosman for a retainer of A$10,000 per month. In addition, if required, additional services will be provided at a daily rate of A$2,000 per day.

In the 12 months to June 2017 AC was paid A$260,000 (US$195,000) for 130 days of service for his technical work and an additional A$60,000 for his role as director. JB and others have similar service agreements.

As JB said in his recent media interview, "geologists aren't cheap". Our north american, ex BHP guy, will have his own service agreement with Mosman.

I don't question the value of any of these people, I just want to point out that the technical services agreement with Baja is another example of the service ties to Mosman.

This isn't a them and us, I hope all parties perform to the best of their abilities, but most important to me, I believe that the investment case for Mosman has improved this week.

LOL

I'd guess someone who bought in at 44p in the heady days of July 2014.

In the old days an investor could push the evidence of their errors to the back of the sock draw, safe in the knowledge the stock certificate would remain hidden till probate.

Today, they are faced with a big red blot in their portfolio every time they go online and no doubt have a quiet sob to themselves.

Exorcise those demons!

This morning MAB updated on trading for the last 8 weeks.

" Sales have strengthened since our last update, on 2nd August. In the 8 weeks to 22 September like-for-like sales growth was 2.2% on a calendar basis, aligning dates to account for the impact of the additional (53rd) week in our accounting period last year. The period has also seen a more normalised split between drink and food sales following a period of very strong drink growth over the summer.
On a reporting basis like-for-like sales growth was 0.8% in the past 8 weeks, and 1.2% in the year to date. Total sales have increased by 0.5% in the year to date impacted by the disposals in the prior year."

I don't know why a 1 week shift should make such a big difference (2.2% versus 0.8%) on a calendar basis versus a repoting basis but the market seems to like it so I guess the read across to MARS is recent like for like should be of the order of 2.2%. We should get confirmation with the MARS update 10th Oct, but look out for this: if the latest 10 week like for like is good it will get a mention, otherwise it won't and will be absorbed into the 52 week number. That's a pattern I've noticed in trading updates.

Unlike MAB who have been contracting their estate. MARS have been expanding, note the 5.2% growth in total sales at the 42 week stage. Given that pub expansion occured late into last year this growth could be maintained for the full year. I felt the half year results to end March were good considering the Beast from the East, but the minimum pay increases only took effect in April so will put pressure on full year margins. Margins are expected to be lower but the question will be to what degree the £5m in costs savings mentioned a year ago, the synergies in the CW brewery due this year and the pub expansion will compensate. Analysts are predicting a slight (-2%) pullback in EPS. Positive growth in the EPS at the Nov 21st finals would be nice.

Who knows? Not me. I'm just hoping - too many moving parts for me to fathom, and I'd guess that's also true for the analysts.

I think it's fair for Richteex, Doug666 and others to be critical of Mosman's activities todate.

My communications with another poster prompted me to review last year's updates on Strawn. The acquisition cost $150K gross and a further $150K gross was bugeted for work overs. Over the subsequent 8 months we saw reports of peak flow rates of 30 bopd, monthly averages of 15-18 bopd, before Mosman, as operator, settled on maximising operating cash flows rather than oil flows and 2018 H1 averaged 8.3 bopd gross.

A 10% investment in Arkoma cost Mosman $500K. I trust Mosman did their due dilligence, but while the oil price climbed over the subsequent 15 months, the investment value seems to be going the other way. Inland may be the operator but Mosman has a responsibility for their own investment decisions.

At Welch the early prospects were centred around, horizontal wells producing 60-100 bopd each. While the timetable for an investment decision was the end of the year, horizontal wells haven't got much of a mention in recent updates. The legacy production has benefited from investment with latest reports of 50 bopd, but at what cost? In the 6 months to Dec 2017 Mosman spent $975K in the US. $310K for the Welch acquisition, $125K on Arkoma, where did the other $540K go? Another $100K was spent on more recent Welch workovers, but I'm not sure if that covered the recent well brought online in July.

Enter Baja and the Stanley project - the latest great hope. Early indications were very good. 150 bopd gross with 20 bopd net to Mosman after royalties. At the completion of drilling, 1st August, the update was, "there is no reason to change the pre-drill Operator forecasted initial flow rates of approximately 150 bopd (gross)". On 4th Sept we are told, "Stanley-1 has now been completed for production and is currently flowing oil to tanks." Cue consternation on this board at the failure of the market to recognise Mosman's good news update. Two weeks later we are told that there is 8 bopd of oil flowing to the tanks, and presumably the remaining 59 boepd composed of gas which is constrained by facilities, which now need to be upgraded. We are told that in time the oil mix will improve - I trust it will.

But let's be honest, todate there is a consistancy in the outcome of Mosman's activities. Until this changes I can understand some investors asking, Where's the beef?

Da_Gee, from July's RNS

"Mosman has acquired a 16.5% Working Interest by agreeing to pay 22% of the cost of the well, and some prior costs. Baja and other parties have committed to paying the remainder of the costs of the well."

The reference to other parties suggests that Baja hold less than the 83.5% balance in the Stanley project. As other posters have indicated I'd assume Mosman's working interest in Stanley 1 remains at 16.5% post this update.

One of the challenges with Mosman is following their cash position. Without any current access to debt it's important to maintain a handle on their cash position. Best not to be surprised by an equity placement to cover overheads.

Previously, I've used a corporate cost figure of $65K per month, and a net back (cash) figure of $36 for their net production. In a recent update Mosman provided their net cash figure to the end of June A$1.3m (US$975). Using this 'stake in the ground' provides me with an opportunity to test my numbers.

Cash in (US$):
Dec 2017 cash $623K - other current assets and liabilities balance
Equity Feb $650K
Blackstone $50K - payment for share of asset evaluation
Equity May $780K
Production cash flow $159K - 4417 net barrels x $36 net back
Total cash in $2,262K to end of June
End of June cash position of $975K indicates $1.287K spent in H1.

Cash out (US$):
Arkoma 2% $28K - paid for test costs, I've used pro rata on 15% payment
Arkoma 15% plus ESP costs $425K
Loan to GEM $75K
Welch upgrade $100K
Cost of equity placements 100K (I used 7% from 2017 accounts, cost of capital)
Corporate costs $390K ($65K per month)
Oz $150K - I assume this was substantially spent in H1 with completion of seismic.
Total cash spent = $1,268K

$1,287K - $1,268K = $19K. This small difference gives me confidence in my numbers, assuming I haven't missed a missed a significant component - always possible. Note a corporate cost of $68K per month would bring these numbers into alignment. Costs were $72K last year and $74K to June 2016.

I've based the project costs on RNS updates. If I've missed something please let me know, and I'm happy to explain any numbers I've used.

This is just my stab at the numbers ahead of the report to end of June expected in Nov, but given today's update I want to extend my assessment to the end of Sept.

Cash end June $975K
Production cash flow $146K (3 months) I've added 20 bopd for welch to an extention of the average H1 net figure
Corporate costs $195K (3 months)
Stanley 1 costs $135K
Today's Baja acquisitions $151K
Total indicates an end Sept cash balance of $640K

By my estimate corporate costs exceed production cash flow by $16K per month ($65K-$49K). If Stanley 1 achieves close to the initial expectations then cash flow could turn positive at the corporate level. However, even at $16K per month net corporate outgoings I don't see another equity placing to cover overheads any time soon.

As they say DYOR

Very nice awards. I guess the bonus metrics weren't impacted by the issues around AWPR and costs associated with the Carillion debacle. We should see the detail in the annual accounts.

As usual the main villians had already cut and run with their earlier bonus' intact before news of the AWPR contract problems were revealed. That said, I only got in after the news so I've been lucky to enjoy the share price recovery. Longer term holders were not so lucky.

I'm always struck by the naivety of some shareholders who believe management have their interests at heart. This pattern of LTI awards and rotation of kingpins is common across the board and suggests otherwise.