Marstons Regulatory News (MARS)

1. Pandemic

Risk context

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.

The risk

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

and lodges.

Potential impact

Ability of our teams to operate safely.

Reduced numbers of guests, and shorter stays.

Increased operating costs.

Mitigation

• Tracking government advice and implementing it effectively.

• Adapting our pubs to facilitate distancing.

• Training our team members.

• Building contingency plans for future lockdowns.

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

• Simplifying our menus, streamlining our guest proposition and our supply chain to concentrate on offering the highest guest satisfaction at the right margin.

• Regular scrutiny of asset values.

Impact

The pandemic has impacted the valuation of the Group. Hospitality sector share prices are depressed to a historic low. The determination of asset values must consider future trading levels which are at present uncertain.

Movement - Increased: The world is in the midst of a global pandemic. Until a vaccine has been successfully deployed, our operating environment and the ability to engage with our guests remains potentially disrupted.

Opportunity: Our pubs have been sorely missed by guests when forced to close, and upon reopening, their popularity especially during the EOHO promotion has been a reminder of their importance to their community. The situation reinforces our guests' loyalty to their local pub. Pubs can benefit from the increased spend by the public within the locality of their homes. The changing marketplace provides opportunity for us to stand out to our guests.

The vaccination of the most vulnerable has begun in the UK, hopefully this will continue successfully, leading to widespread immunisation in 2021.

2. Liquidity

Risk context

Business strategy is to reduce debt, however

short-term disruption could necessitate the need for additional finance.

The risk

While the UK battles the pandemic, there is a risk of regional lockdowns or national measures which could impact upon the ability of the pubs to trade.

Potential impact

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

Mitigation

• Continue to lobby Government for pubs to remain open with the assurance that they can operate in a COVID-19 safe manner.

• Lobby Government for more financial support.

• Reduce debt.

• Conserve liquid funds by cutting back on capex spend and reducing costs.

• Maintain strong relationships with financial backers.

Pandemic impact

Successive waves of the pandemic could impact upon the confidence

of banks to back those businesses most affected, such as hospitality.

• Significant headroom in our bank facility to provide operational liquidity for at least 18 months without further recourse.

• 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 - Increased: UK Government have taken action to help protect the hospitality business during the pandemic, which has helped liquidity within Marston's, however trading conditions are likely to remain disrupted in the short term.

Opportunity: In the medium-term competition may reduce as a result of operators scaling back or leaving the market, bringing opportunities at the right rate of return.

3. Health and safety

Risk context

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.

The risk

Breaches of health and safety regulations might endanger the health of an individual, attract media attention and high penalties.

Potential impact Significant damage to reputation.

Mitigation

• Health, safety and hygiene management systems embedded.

• 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.

Pandemic impact

The Government and local authorities have issued instructions for hospitality venues to operate safely which have changed depending upon the rate of infection.

Once issued, regulations have been communicated by our Health and Safety team to our operational managers to ensure they are clear about the steps they need to follow. Pub teams have been retrained on new measures when necessary. Our health and safety audits and our Regional Safety Advisers have checked upon compliance at site level.

Movement - Increased: There is an increased responsibility for Marston's to operate safely during the current pandemic. 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 to be differentiated in our guests' minds by our absolute commitment to guest care, thereby building long-term trust

4. Food safety

Risk context

Our guests must be provided with accurate and reliable information on the food ingredients within our products. It is paramount

that we can guarantee this and that we keep their trust. Public concern over allergens has grown in recent years and attracts media coverage.

The risk

Breaches of food standards regulations attract adverse media attention and

high penalties.

The reliability of the information given to our team members, their training, and their care to engage with this matter is key.

Our guests' trust in our high standards of food hygiene could be quickly eroded by individual incidents.

Potential impact

Increased regulation directly affecting Marston's, or our suppliers, could increase the complexity

of the information to be provided and the cost of compliance.

Mitigation

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

• The release of a new 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.

Pandemic impact

Disruption to the food supply chain resulting in financial pressure on food suppliers to the hospitality industry. Wasted food and drink trapped in sites locked down.

• Since the first reopening of pubs we have reduced our menus, with a higher focus upon the quality of our food items.

• Limiting the number of food items also supports our suppliers' margins.

• Substitution of food items to avoid waste.

Movement - Decreased: The decrease in the number of menu items has brought greater focus upon the quality of food. Increased training on allergens for our pub teams.

Opportunity: There is an opportunity for Marston's reputation for food safety and the care of our guests to grow. In 2021 we will continue with the development of a new food information system to collect more detail from our suppliers and enhance safety further.

5. Financial covenants, pension fund deficit, and accounting controls

Risk context

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.

The Group's assets are valued on the basis of future profitability. The pandemic increases uncertainty and therefore increases the risk that the accounting valuation diverges from market valuation.

The risk

Breach of the covenants with our lenders.

Incorrect reporting of financial results.

Unauthorised transactions.

The pension deficit will increase while investment yields fall.

Potential impact

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

Mitigation

• 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.

Pandemic impact

Lockdowns and COVID-19 safety restrictions impact upon the normal operation of our pubs and lodges.

Covenants could be impacted by a fall in profit.

• Communication and good relations with our bond holders and financial lenders enabled agreement to make appropriate covenant amendments and waivers where necessary.

Movement - Increased: There are strong controls mitigating this risk to a low level. The pandemic has however reduced our profitability this year. The impact on our covenants is reduced by clear communication and good long-term relationships with our lenders in order to effectively explain the impact of the current trading conditions.

Opportunity: The collection of financial data from our sites continues to increase the knowledge of our guests' spend. In recent years we have developed our capability to analyse this data to a depth not previously possible. The use of the data improves the margins we achieve on food and drink. It also means that offers to guests can be more focused, and marketing campaigns can be deployed more quickly across the pub estate.

6. Market/operational

Risk context

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 pandemic caused additional operating costs due to business disruption such as stock write-offs and bad debts.

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

The risk

Our pubs, brands or services fail to attract guests, do not reflect changing

guest preferences or offer poor service or quality. Equally there is a risk that our prices

become uncompetitive.

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

Trading restrictions and the impact on consumer confidence as a result of COVID-19 creates the risk of substantially lower sales until a vaccine is widely deployed.

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, with or without a trade agreement.

Increases in customs duties could impact our offering to guests and our cost base.

Potential impact

Longer-term reduction of sales as a result of the pandemic, or losing

opportunities to increase our value proposition.

The business will look to reduce costs in reaction to a sustained reduction in sales.

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

Increased costs as a result of seeking alternative suppliers in order to build more resilience within our supply chain.

Mitigation

• Continual assessment of guests 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 at sufficient detail of guests' sensitivities.

• Marketing, including digital marketing campaigns.

• Costs reduced in response to any sustained loss of sales, 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.

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

• Improved training, induction and development programmes.

• Surveying our employee engagement and identifying action points for teams.

Organised transition of processes into the new joint venture with Carlsberg.

Pandemic impact

Local and

national lockdowns.

Compliance with evolving regulation.

Guest care.

Safety of our people.

Supporting our suppliers.

• Enhanced safety controls.

• Campaigns and promotions.

• Communicating with our guests, collecting feedback, acting upon points of improvement and keeping their trust.

• Working with our suppliers to remove complexity.

Movement - Lower likelihood: The threat from intense competition on price amongst hospitality companies has receded this year. The operation of our pubs could be impacted upon by further or extended trading restrictions as a result of the pandemic.

Opportunity: The reopening of the pubs rekindled guests' appreciation of their local pubs. The importance of pubs to social interaction with communities and individual wellbeing has been reinforced by the crisis. Pubs have an opportunity to build on renewed interest.

7. Political and economic

Risk context

The UK economy could stay in recession, compounded by UK Government and the EU failing to conclude a trade deal by December 2020.

The failure to conclude a trade agreement to date has increased business

uncertainty regarding the flow of goods and services to and from the EU.

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

The risk

High persistent levels of unemployment could impact consumer spend in our pubs, particularly those with a more premium focus.

The import of goods, including fresh food, from the EU could be disrupted. In the event of disruption, it could be difficult to source alternative supplies of food and drink for the same cost.

Potential impact

Our costs to import food and drink could rise

as a result of customs duties imposed beyond December 2020.

These costs could also rise as a result of a lack of supply.

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

Border delays could disrupt our supply chain, impacting upon the availability of food and drink brands to our pubs.

Mitigation

• Positioning our customised offer at the right price point.

• Lobbying 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.

Pandemic impact

With little or no scientific data, pubs can be blamed for increased rates

of infection.

• Effective deployment and management of COVID-19 safety measures.

• Lobby Government to keep pubs open.

• Keep the public's trust.

Movement - Lower impact: Trade talks with the EU have reached a broad consensus of agreement compared to the position a year ago. However, significant uncertainty still exists and the scenario of both sides pulling away from talks is a possibility. Irrespective of an agreement, new cross border controls could still cause disruption to imports from the EU for our suppliers.

Opportunity: Measures brought in by the UK Government will ease the flow of goods when they arrive in the UK during the first half of 2021. Government investment in the infrastructure of customs handling should thereafter provide greater efficiency during the customs declaration process.

The impact on the UK economy by the pandemic is likely to be felt for a long time. The Government's preference is for lockdowns at a local level rather than national, which allows the pubs to operate during the periods in which restrictions are released.

8. Information Technology

Risk context

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.

Marston's handles the personal contact details of many of its guests who opt to use the wifi or receive emails, as well as a large number of our people.

The risk

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.

Potential impact

Reduction in the effectiveness of operations,

business interruption and loss of profit.

Regulatory fines as a result of the loss of data

Mitigation

• 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 people awareness regarding IT security.

• Data security policies, processes and training.

Pandemic impact

An increase in homeworking.

An increased cyber threat as criminals try to take advantage.

• Raised people awareness regarding IT security.

• Network monitoring increased, additional VPN capacity provided.

• Homeworking policy communicated.

Movement - Slight net movement: Global cyber risk has evolved in recent years, targeting the theft of personal data, launching ransomware attacks and intercepting transfers of money.

For many years Marston's has invested in its network protection, firewall and device monitoring functionality. Marston's conducts penetration testing 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, if required, creates greater agility and resilience for our business.

Our engagement with guests creates more digital marketing opportunities, for which security and continuity of our network, as well as the trust of our guests, is fundamental.