Marstons Regulatory News (MARS)

Risk context

The risk

Potential impact

Mitigation

COVID-19 uncertainty regarding the continued impact upon public health and our behaviour.

The duration of measures taken to reduce the infection rate

is uncertain.

There is a risk that infection rates increase leading to further restrictions on the public and further trading regulations for pubs and lodges.

Ability of our teams to operate safely.

Reduced numbers of guests, and shorter stays.

Increased operating costs.

• Tracking Government advice and implementing it effectively.

• Adaption of our pubs to facilitate social distancing.

• Training our team members.

• Building contingency plans for future lockdowns.

• Consulting with our employees on safety concerns and operational issues.

• Simplified menus, streamlined guest offering to concentrate upon offering the highest guest satisfaction at the right margin.

• Regular scrutiny of asset values.

Movement - No change in risk: COVID-19 remains a risk to our business. The world is still in the midst of the pandemic. Future variants of the virus are possible while vaccination rates remain low in many countries. Future Government restrictions on trading could be announced in response to the NHS once again coming under pressure.

Opportunity: Our pubs were sorely missed during the lockdowns, demonstrating their importance to communities. Pubs can benefit from the increased spend by the public within the locality of their homes due to changing work location patterns and more holidays taken in the UK. The changing marketplace creates opportunities to standout to

our guests.

Risk context

The risk

Potential impact

Mitigation

Financial strategy is to

reduce debt.

While the UK recovers from the

pandemic there is still a risk of regional lockdowns or national measures which could impact

upon the ability of the pubs to trade.

The liquidity of the business could come under strain as a result of steps taken by the Government.

· Significant headroom in our bank facility to provide operational liquidity. See page 31 (of the Annual Report and Accounts) for our Viability Statement.

• Reduce debt.

• Conserve liquid funds by reducing costs.

• Maintain strong relationships with financial backers.

· Continual demonstration that pubs can operate in a COVID-19-safe manner.

· Lobby Government on the importance of the pub trade to the UK economy.

· Plan for resilience within our financial model to cover further short-term disruption.

Movement - No change in risk: Uncertainty remains regarding the UK recovery from the pandemic, infection rates and future Government policies.

Opportunity: In the medium-term, competition may reduce as a result of operators having scaled back their activity, or left the market, bringing opportunities at the right rate of return.

Risk context

The risk

Potential impact

Mitigation

The safety of our guests, our people and the public is fundamental to our activities. We seek to attain the highest levels of safety. Lapses of safety damage the trust and reputation of the Group.

Breaches of health and safety regulations attract media attention and high penalties.

Further COVID-19 trading restrictions.

Financial penalties Significant damage to reputation.

• Health, safety and hygiene management systems embedded.

• Operating instructions amended to reflect Government instructions. Pub teams trained on the new instructions. Pubs audited on their implementation.

• Dedicated safety advisers seeking continuous improvement.

• Regular independent expert safety audits at our pubs.

• Training of team members.

• Escalation of potential safety threats to senior operational management.

Movement - No change in risk: Breaches of safety are taken seriously by all levels of our business. When our systems of control are found to be at fault, we confront any failing honestly, in order to learn and build stronger processes for the future.

Opportunity: In a competitive marketplace there is an increased opportunity for us to be differentiated by our absolute commitment to guest care and building long-term trust.

Risk context

The risk

Potential impact

Mitigation

The provision of accurate and reliable information on food to our guests is paramount.

Our guests trust in our high standards of food hygiene, but this can be quickly eroded by individual incidents.

Breaches of food standards regulations attract adverse media attention and high penalties.

Public concern over allergens continues to grow.

There is a risk that information is collected incorrectly from our suppliers and/or misinterpreted for our menu items. There is also a risk if a team member mis-advises a guest on ingredients or serves the wrong meal.

Increased regulation directly affecting Marston's, or our suppliers, could increase the complexity of the information to be provided and the cost of compliance.

Financial penalties.

Significant damage to reputation.

• Maintain excellent levels of compliance through policies, training and monitoring.

• E-learning module on allergens for completion by all pub team members.

• Working with our supply chain to maintain robust systems for identifying constituent food ingredients.

• Due diligence on accepting new suppliers, monitoring and tracking.

• Tracking meal constituents all the way through to our menus and the descriptions contained therein and the accompanying allergens lists supplied to our team members and the public.

• Rigorous investigation of complaints.

• Tracking legislative changes and adapting operations.

· Food information system facilitating the collection of detailed information on food constituents, providing a clear audit trail and removing, where possible, the chance of manual error.

• Smaller menus than previously, allowing a greater focus upon quality.

Movement - No change in risk: The risk remains significant because of the wide variety of food items we source, and levels of food intolerance amongst the public.

Opportunity: There is an opportunity to enhance Marston's reputation for food safety and the care of our guests. Our implementation this year of a new food information system will allow us to collect and provide more detail to our guests and enhance safety further.

Risk context

The risk

Potential impact

Mitigation

The Group's financial system handles many transactions accurately and securely.

Accurate reporting is key to running the business effectively, and in compliance with our financial covenants.

Breach of the covenants with our lenders. Incorrect reporting of financial results.

Unauthorised transactions.

The pension deficit will increase while investment yields fall.

Further lockdowns or other COVID-19 safety restrictions could impact upon the normal operation of our pubs and lodges.

Covenants could be impacted by a fall in profit.

Loss of investor confidence and reputational damage. Breach of covenants, resulting in additional financial operating restrictions.

• Covenant waiver permission sought from bondholders/financial lenders.

• Regular detailed management accounts, budgets and forecasts.

• Detailed financial data collected from our sites.

• Financial auditing of our sites based on data analysis.

• Constant monitoring of financial ratios.

• Internal and external audits.

• Segregation of duties.

• Access controls within our systems.

• Levels of authority.

• Commitment to reduce debt.

• Management of the pension's investment portfolio to spread risk.

Movement - No change in risk: There are strong controls mitigating this risk to a low level. Uncertainty regarding further Government imposed COVID-19 safety restrictions in the future remains. The impact on our covenants is reduced by clear communications to, and engagement with, our lenders which explains the effect of the current trading conditions.

Opportunity: To further strengthen our relationships with our bondholders, communicating information on the business and its recovery from the pandemic.

Risk context

The risk

Potential impact

Mitigation

Marston's revenue is dependent upon being able to offer, and attract, our guests to an enjoyable experience of high quality at the right price. It is reliant upon attracting back existing guests and winning new guests.

Marston's competes for high calibre people to operate our pubs. Our strategic objectives are heavily reliant upon the quality and training of our people.

Uninterrupted operations are dependent on the continual supply of goods and services often from single sources.

The operational performance of our partnership with Carlsberg is materially significant to our total profit.

Failure to attract or retain the best people negatively impacting pub performance.

Recruitment could be more of a challenge due to the high number of vacancies currently within the sector.

Disruption to key suppliers, particularly those closely involved with our day-to-day activities (logistics, food, drink), or shortage of commodities could significantly impact

Marston's operations.

Disruption to food supplies from the EU due to administration, or customs checks, impacting upon our offering to guests and our cost base.

That our pubs, brands or services fail to attract guests, do not reflect changing preferences, or offer poor service or quality. Equally there is a risk that our prices become uncompetitive.

Inflationary pressure on costs might be difficult to pass on, resulting in reduced margin.

Reduction in the number of sales or lost opportunities to increase our value proposition.

Reduction in guest satisfaction levels, and repeat visits to our pubs.

Increased costs as a result of seeking alternative suppliers.

· Continual awareness of our people offer compared to our competitors through participation in appropriate networks.

• Improved training, induction and development programmes.

• Surveying the engagement of our employees and identifying action points for teams.

• Continual assessment of guest preferences; market and consumer insight data.

• Continual analysis of sales performance data of single sites and by pub format.

• Pricing strategy built upon careful analysis, in sufficient detail, of guests' sensitivities.

• Marketing, including digital marketing campaigns.

• Cost control, including menu margin analysis.

• Investment, location and design of our pubs.

• Continual assessment of suppliers' resilience and capacity.

• Site visits to our suppliers to assess crisis planning.

• Contingency planning: identifying how products or services can be substituted.

Movement - Increasing: Competition to recruit the best people is likely to increase during the 2021/22 financial year. Short-term supply chain problems are increasingly likely to create some disruption, which the Group will seek to alleviate. The operation of our pubs could be impacted upon by further, or extended, trading restrictions as a result of the pandemic.

Opportunity: Post pandemic, pubs have an opportunity to build on the renewed interest in pubs.

Risk context

The risk

Potential impact

Mitigation

The Government could bring in additional restrictions for pubs and lodges to operate within.

Supply chain issues could continue to create operational problems for our suppliers.

Inflationary pressure could increase the cost of the Group's inputs, whilst undermining consumer confidence.

Supply chain disruption could reduce the ability of the UK to recover and grow the economy. It could also fuel further inflation resulting in less disposable income for consumers.

The import of goods from the EU could be disrupted by the Government's plan to start customs checks in early 2022. Fresh food is reliant upon fast delivery. In the event of disruption, it could be difficult to source alternative supplies of food and drink for the same cost.

Costs of food, commodities and equipment could rise as a result of a lack of supply.

It may be harder to secure long-term agreements with our suppliers.

Customs duty border checks could disrupt our supply chain impacting upon the availability of food and drink brands to our pubs.

• Positioning our guest offer at the right price point.

• Continue to lobby Government on the COVID-19 safety measures operated within our premises.

• Continual assessment of supply contracts and renegotiation of terms when they fall due, to protect our business from customs duties.

• Where feasible, working with our key suppliers to hold stocks in the UK of food and drink sufficient to cover short-term disruption.

• Consider alternative sources of supply if our suppliers have trouble importing goods.

Movement - Increasing: We recognise the disruptive effect that cross-border controls could have upon our imports, and those of our suppliers. Increasing inflation would impact the cost base for many of our suppliers and pub operations, and also for our tenants.

Opportunity: The Government's delay in custom checking all goods from the EU until the start of 2022 is welcome, and will hopefully result in greater efficiency during the customs declaration process. Pubs normally remain very competitive when prices are rising in the economy, offering an experience which is value for money.

Risk context

The risk

Potential impact

Mitigation

Our business activity is reliant upon the Group's IT network to communicate, operate effectively, serve our guests, process transactions and report on results.

The continuous operation of our business is dependent upon the uninterrupted running of our computer network, site links and the internet.

An increased cyber threat as criminals try to take advantage of the increase in homeworking compared with two years ago.

Marston's handles the personal contact details of many of its guests who opt to use the Wi-Fi or receive mails, as well as a large number of employees.

Threats to IT are both external and internal and could result in a network outage, loss, theft or corruption of data or denial of service.

Reduction in the effectiveness of operations, business interruption and loss of profit.

Regulatory fines as a result of the loss of data.

• Anti-virus and firewall protection.

• Access control, password protection and IT policy adherence.

• Network controls and monitoring.

• Penetration testing and remediation.

• Backup procedures.

• Data recovery plans and rehearsals.

• Raising employee awareness regarding IT security.

• Data security policies, processes and training.

• Data breach incident response plan and scenario training.

• Work at home policy.

• Additional network bandwidth and additional VPN access.

Movement - No change in risk: Global cyber risk has evolved in recent years, targeting the theft of personal data, launching ransomware attacks and intercepting transfers of money. Marston's has invested in its network protection, firewall and device monitoring functionality. Penetration testing is conducted on its network and, each year, specific cyber risk reviews are conducted on security by an independent team.

Opportunity: The ability for our support teams to securely work from home, as required, creates greater agility and resilience for the business. Our engagement with guests through technology in a cyber secure manner creates more digital marketing opportunities.