Marstons Regulatory News (MARS)

30 Nov 2007 07:01

Marston's PLC30 November 2007 30 November 2007 MARSTON'S PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 29 SEPTEMBER 2007 Highlights • Record underlying* earnings per share up 10.1% to 26.2 pence (2006: 23.8 pence) - basic earnings per share of 27.9 pence (2006: 23.8 pence) • Total dividend for the year up 20.0% to 12.83 pence per share (2006: 10.69 pence) • Average profit per tenanted pub up 13.0% • Managed like-for-like sales up 4.6%; food sales up 13.3% • Robust trading since year end - managed like-for-like sales up 2.1% • £120m returned to shareholders during the year • Gain of £162 million (before tax) from revaluation of estate • Successful refinancing since the year end * The underlying results reflect the performance of the Group before exceptional items. The Directors consider that these figures provide a useful indication of the underlying performance of the Group. Commenting, Ralph Findlay, Chief Executive, said 'We remain cautious about consumer confidence, regulatory cost pressures and theshort term impact of the smoking ban. We are, however, well positioned tocontinue to exploit current trends, including the continuing growth in casualdining. We regard our value for money offers and mid-market position asappropriate for the current economic climate.' ENQUIRIES: Marston's PLC Hudson SandlerRalph Findlay, Chief Executive Andrew Hayes/Nick Lyon/Paul Inglett, Finance Director James WhiteTel: 020 7796 4133 on Friday 30 November 2007 only Tel: 020 7796 413301902 329516 thereafter To access interviews with Ralph Findlay and Paul Inglett, available in video,audio and text, go to www.cantos.com. High quality images for the media to access and download free of charge are available from Visual Media Online at www.vismedia.co.uk Chairman's statement These results were achieved in a year of significant change. As a consequence ofdetailed planning, investment and a continuing emphasis on the quality of ourpub estate, we were prepared and well positioned for the introduction of smokingbans in England and Wales. On 8 January 2007, we changed the name of the Company to Marston's PLC. This hasenabled us to adopt a more cohesive, integrated approach to the management ofour pubs and beer brands and reflects the fact that in recent years we havebecome a national business. The development of a national, high quality pub estate is one of our keystrategic objectives. Acquisitions made during the year, including the EldridgePope estate of 153 pubs in the south of England, were consistent with thisobjective. This objective is also being achieved in our managed pub estatethrough becoming a leading developer of new build pubs. The increasing quality of our pub estate is demonstrated by good like-for-likesales growth in our managed pubs, with particularly strong growth in food sales,and a significant increase in average profit per pub in our tenanted and leasedestate. In brewing, our increasing focus on national distribution of a range of premiumcask ale brands is reflected in the fact that we are now the UK's largest brewerof premium cask ale, with a market share in this segment of over 20% by volume. The trading performances of the Group and the individual trading divisions arecontained within the Business review. Results Turnover increased by 9.6% to £652.8 million (2006: £595.5 million). Thisincludes the acquisitions of Sovereign Inns in January 2007 for £19.6 million,Eldridge Pope also in January 2007 for £156.5 million, and Ringwood Brewery inJuly 2007 for £17.8 million. Each of these acquisitions was funded through debt. On 10 May 2007, 279 smaller tenancies were sold to aAim Group for £82.5 million. Underlying profit before taxation was £98.0 million (2006: £101.5 million) andprofit after exceptional items and before tax was £94.7 million (2006: £101.5million). Earnings before interest, tax, depreciation and amortisation (EBITDA) and beforeexceptional items increased by 7.6% to £205.9 million. Underlying basic earnings per share increased by 10.1% to 26.2 pence per share(2006: 23.8 pence). Basic earnings per share including exceptional items were27.9 pence per share (2006: 23.8 pence). Comparative figures in relation to earnings per share and dividends have beenadjusted to reflect the4-for-1 share split effected on 9 January 2007. On 25 May 2007 we announced an increase in the share buy-back programme from£100 million to £150 million to be achieved during the calendar year throughmarket purchases. During the financial period to 29 September 2007 we purchased28.1 million shares at a total cost of around £120 million. Net debt at the year-end was £1,189.1 million, resulting in interest cover of2.5 times (2006: 3.0 times). Dividend The Board proposes a final dividend of 8.47 pence per share bringing the totaldividend for the year to 12.83 pence per share (2006: 10.69 pence), an increaseof 20.0% on the previous year. The Company has increased dividends by an averageof over 12% per annum for a period of more than 30 years and continues to adopta progressive dividend policy. The final dividend, if approved, will be paid on31 January 2008 to those shareholders on the register at the close of businesson 4 January 2008. FTSE4Good In September 2007 Marston's PLC was added to the FTSE4Good Index, the leadingglobal responsible investment index. This index reflects increasing attention tothe management of environmental and social risks. The fact that we have met thecorporate responsibility criteria for the index demonstrates the development ofpolicies and management systems to manage these risks. These policies can beviewed on our corporate website at www.marstons.co.uk. Employees Our success is due to the contributions made by our employees, whether they workin our pubs, breweries or in support functions. In particular, our good responseto the challenges presented by the smoking ban and the poor summer weatherreflects the tremendous loyalty and dedication of our staff. Directors Peter Lipscomb has indicated his intention to retire from the Board at theAnnual General Meeting on 25 January 2008. Peter was appointed as DeputyChairman and non-executive director in 2000, and has made a significantcontribution to the successful development of the Company. Robin Hodgson becamethe Senior Independent Director on 1 October 2007. In October 2006 we were pleased to announce the appointment of RosalindCuschieri, Commercial Director of Warburtons Limited, as a non-executivedirector. Outlook Although we remain cautious about consumer confidence, regulatory cost pressuresand the short term impact of the smoking ban over the winter months, we areconfident that our high quality estate, strong balance sheet, conservativefinancing and strong cash flow will enable us to continue to exploitopportunities for further profitable growth. The Board remains confident in thefuture growth prospects of the Group. David ThompsonChairman Business review Overview of results We have achieved these good results in a challenging environment, which includedthe introduction of a smoking ban in Wales on 2 April 2007 and in England on 1July 2007. We completed, in advance of the ban, a well planned £20 millioninvestment programme in over 90% of our pubs which have outside trading areas,contributing to the robust performance of our managed and tenanted pubs. Additionally, around 150 pubs were significantly affected by flooding in Juneand July which either resulted in pub closure or prevented customers fromvisiting. The weather in May, June and July was unseasonably wet, particularlyso in comparison to the previous year which benefited from good summer weatherand the 2006 football World Cup. Turnover increased by 9.6% to £652.8 million (2006: £595.5 million) includingthe acquisitions of Sovereign Inns, Eldridge Pope and Ringwood Brewery. Underlying operating margin was 25.0% (2006: 25.6%). This good performance wasachieved, despite significant cost and legislative pressures, by maximisingsynergies from acquisitions, transferring smaller managed pubs to tenancy andmaintaining good cost control. Profit before tax and exceptional items was £98.0 million (2006: £101.5 million)reflecting increased interest costs associated with the share buy-back programmedescribed in the Chairman's statement. This was slightly below our originalexpectations due to the impact of higher interest rates, flood related repaircosts and the poor summer weather. Underlying basic earnings per share before exceptional items increased by 10.1%to 26.2 pence per share reflecting the benefit of a lower underlying tax chargeof 21.0% (2006: 27.8%) as described in the Financial review. Strategy and Objectives Marston's strategy is to exploit the existing skills we have in each area of ourbusiness and the vertically integrated business model to achieve superior returnon capital. Our key objective is to create shareholder value but we alsorecognise that we have responsibilities to a range of stakeholders includinglocal communities, suppliers, customers and employees. The key operational and financial elements of our strategy are as follows: 1. Target growth through the development of a national, high quality pub estate2. Develop greater food skills and extend our appeal to families, females and more mature customers3. Recruit skilled tenants and lessees better able to compete in a developing market4. Increase distribution of our ale brands5. Create greater value for shareholders through vertical integration6. Match freehold assets with long term fixed rate financing An important feature of our pub estate is that 98% by value of our pubs areowned on a freehold or long leasehold basis, as we believe that this is the mosteffective way of ensuring that we have sufficient operational flexibility tomaximise the trading potential of each outlet. This flexibility includes beingable to invest appropriately in response to changes in customer preferences orto better utilise land and buildings to maximise trading potential. Over thelong term, shareholders have also benefited from significant capitalappreciation. Our accounting policy is to revalue our properties on a regular basis so thatthe carrying value does not differ significantly from fair values at eachbalance sheet date. In matching freehold assets with long term financing, we have set a target rangefor interest cover of between 2.25 to 2.75 times. Interest cover for the yearjust ended was 2.5 times, reflecting the return of £120 million to shareholdersand acquisitions made during the year. We will continue to ensure that thebalance sheet is efficiently financed having regard to the strong underlyingcash flow of the business. Recent developments in property financing such as Real Estate Investment Trusts(REITs) and structures which involve the disposal of property assets havefocused attention on the underlying attractions of freehold pub estates. We donot currently believe that the potential benefits of these structures outweighthe implementation costs or their increased risk, but will nevertheless continueto review the situation as the market develops. Divisional performance for the financial year ended 29 September 2007 1. Marston's Inns & Taverns Total turnover increased by 11.2% to £367.8 million (2006: £330.7 million).Underlying operating profit increased by 5.0% to £66.7 million (2006: £63.5million). Like-for-like sales growth of 4.6% was achieved against a challenging backgroundincluding the introduction of the smoking ban and poor summer weather whichcaused serious flooding in June and July 2007, materially affecting around 50managed pubs. This was nevertheless a good performance, helped significantly by like-for-likefood sales growth of 13.3%. Marston's Inns & Taverns has captured market shareof the casual dining market over a 5 year period and has increased food salesfrom 27% of retail turnover in 2003 to 34% in 2007. Including associated drinkssales, we estimate that 65% of total sales are now made to customers for whomdining is the primary reason for visiting the pub. This growth in food sales has been achieved through consistent investment inupgrading pubs, menu development with a greater emphasis on local sourcing,healthy eating, and focused promotional activity targeted on families and a moremature customer base. The development of a number of operating formats which are appropriate fordifferent markets has also contributed to this strong performance. Our communityfood-led formats include Marston's Tavern Table and Marston's Two for One. Theseformats offer excellent value for money in modern, well invested pubs and ineach case food sales are over 50% of total retail sales. Food sales are alsoimportant for our high street brands, Pitcher & Piano, Que Pasa and Bluu, withfood sales representing between 15% and 30% of total sales in those outlets. Like-for-like wet sales increased by 0.6% against strong comparatives whichincluded the benefits of a good summer and the 2006 football World Cup. Thisgrowth is a consequence of the introduction of a range of initiatives includinginvestment in glycol cooling within our managed pubs; enabling draught beers tobe served consistently at a lower temperature, thus meeting increased consumerdemand for colder beers. We also introduced a formal guest ale policy, helpingto increase premium ale volumes by 9% and we regularly update and improve ourwines and spirits offers, achieving volume growth of 9% in this category duringthe year. Underlying operating margin was 18.1% (2006: 19.2%) reflecting the acquisitionof Eldridge Pope and the timing of achieving associated cost savings. Priceincreases during the year were broadly inflationary, with cost increases fromthe 6% rise in the minimum wage in October 2006 and higher energy prices. Thesecost increases were offset by retail price increases and the removal of SkyTVfrom nearly 100 pubs. The Eldridge Pope pub estate of 153 pubs, including 40 tenancies, has performedin line with expectations and the integration process is complete. Of 18 pubsearmarked for disposal at the date of acquisition, 12 have been or are in theprocess of being sold. Opportunities for the extension of branded high streetbars were also identified. To date four Marston's unbranded pubs have beenconverted to Que Pasa, with further conversions planned in 2008. Marston's Inns & Taverns' strategy of investment in new build pubs is theprincipal driver of organic growth in the division. We aim to open 20 new pubsper year, having achieved 19 openings in 2007. All new community pubs haveMarston's branding and are located in areas of significant residentialdevelopment. The majority have a food sales mix of 50-60%, and so we anticipatethat the current food sales mix of 34% will rise to around 40% by 2010 providedthe current rate of development is maintained. An important element of our emphasis on high levels of customer service in ourpubs is training. Marston's Inns & Taverns runs a full range of structuredinduction and development programmes for staff and licensees, and benefits froma dedicated in-house training centre. 2. Marston's Pub Company Total turnover increased by 12.4% to £200.9 million (2006: £178.8 million).Underlying operating profit increased by 13.1% to £90.8 million. These results were achieved against a challenging background including theintroduction of the smoking ban and poor summer weather, with around 100tenanted pubs seriously affected by flooding. Operating margin increased by 0.3% to 45.2% (2006: 44.9%). Average EBITDA perpub increased by around 13% to approximately £65,000 per pub demonstrating theimproving quality of the estate. This increase reflects underlying growth ofaround 3% and the effect of the disposal of 279 pubs to aAim Group in May 2007. Income is made up of rent charged to tenants or lessees, the margin made onsupplying a range of drinks products - principally beer, stouts, cider, winesand spirits - and our share of gaming machine income. Of our 1,722 tenanted or leased pubs, over 50% are leased on long termagreements with five year rent review periods. The remainder are let on shorterterm agreements with typically three year rent review periods. The underlyingrate of rental increases, including the effect of rent reviews was approximately3%. During the year income from gaming machines fell by 2.4%, influenced in thesecond half-year by the introduction of the smoking ban. The experience of puboperators in Scotland was that the smoking ban had a disproportionate effect ongaming machine income and this decline was therefore expected. The majority ofour agreements are on the basis of a 50% share of machine income after rentpayable on gaming machines. Other than the disposal of 279 pubs in May 2007 changes to the estate includedthe acquisition of 33 freehold pubs trading as Sovereign Inns in January 2007and 40 tenanted pubs within the Eldridge Pope estate. Additionally, 27 pubs wereacquired during the remainder of the year including seven acquired with RingwoodBrewery and four from The Rutland Pub Company. The Hourglass in Devizes, wasopened in August 2007 and is Marston's Pub Company's first new build tenantedpub. In addition to the recruitment of good tenants and lessees the quality of pubsin the estate is a key factor behind our strong performance. We invested £48.5million, including 118 major refurbishment schemes, much of that investmentbeing targeted at providing tenants with more opportunities to develop or extendtheir food offers. Across Marston's Pub Company around 80% of our pubs have ameaningful food offer. Marston's Pub Company has supported tenants in a number of ways during thischallenging year. Tenants and lessees of the 100 pubs severely affected byflooding experienced significant disruption, although insurance cover for flooddamage and loss of business has offset these losses substantially. We also supported tenants by investing in pub gardens, patios and shelters aheadof the introduction of the smoking ban, with around £10 million invested inaround 1,400 schemes. 3. Marston's Beer Company Total turnover was £84.1 million (2006: £86.0 million). Underlying operatingprofit was £17.4 million (2006: £18.0 million). There are two specific areas where we have lost business. Firstly, as aconsequence of the acquisition of Pyramid Inns by Admiral Taverns in 2006,Marston's Beer Company is no longer the principal supplier to the former Pyramidpubs. Secondly, we have reduced the level of trade we have with third partywholesalers to protect margins and improve control over assets, principallycontainers. These events will continue to impact upon turnover until March 2008,although the profit impact is minimal. Our own core brands performed strongly and ahead of the market, with volumes upby over 6% overall. The UK ale market declined by around 5% last year,consistent with long established trends which we expect to continue. Againstthis trend, our premium ale brands have continued to show strong growth, withMarston's Pedigree up by nearly 6% and Jennings Cumberland Ale up by 30%.Ringwood Brewery, acquired in July 2007, also performed well. Our own brandsmarket share of the premium cask ale market is now over 20%. This strong volume performance is linked not only to acquisitions made duringthe year, in particular Eldridge Pope, but also to our association with cricket.Becoming the 'Official Beer of England', and the subsequent sponsorship of Sky'scoverage of international cricket events, has significantly raised the profileof Marston's beer brands. We have also benefited from our continued focus on good quality regional caskales with positive imagery, particularly the Jennings beers. The recentacquisition of Ringwood Brewery and the completion of new three year supplyagreements for Fosters, Carling and Carlsberg, offers customers more choice thanever before. Operating margin decreased by 0.2% to 20.7% reflecting increased investment inmarketing, particularly in Marston's Pedigree, and higher energy costs. Cost increases expected during 2008 include a significant increase in the priceof malted barley, which will result in a cost increase of approximately £1million per annum. This increase will be partly offset by the beneficial termsof the new lager contracts which have been renegotiated recently. Current Trading Trading overall in the 8 weeks to 24 November 2007 has been in line withexpectations. Like-for-like sales in Marston's Inns and Taverns were 2.1% aheadof last year, including like-for-like growth in food sales of 9.1%. This growthwas achieved against strong comparatives last year with reported like-for-likesales growth of 9.1% for the same period last year. Trading in Marston's PubCompany and Marston's Beer Company has been satisfactory. Since the introduction of the smoking ban trends which were previously inevidence ban have continued. Investments made in external trading areas, aheadof the introduction of the smoking ban, and the continuing development of ourfood offers have contributed to our performance in the new financial year. We remain cautious about consumer confidence, regulatory cost pressures and theshort term impact of the smoking ban. We are, however, well positioned tocontinue to exploit current trends, including the continuing growth in casualdining. We regard our value for money offers and mid-market position asappropriate for the current economic climate. In summary, each trading division has made good progress and is adapting well tothe changing market.Financial review Underlying Turnover operating profit Margin (note 2) 2007 2006 2007 2006 2007 2006 £m £m £m £m % % Marston's Inns and 367.8 330.7 66.7 63.5 18.1 19.2TavernsMarston's Pub Company 200.9 178.8 90.8 80.3 45.2 44.9Marston's Beer Company 84.1 86.0 17.4 18.0 20.7 20.9Marston's Group Services - - (11.7) (9.5) (1.8) (1.6) Group 652.8 595.5 163.2 152.3 25.0 25.6 Group turnover increased by 9.6% to £652.8 million, as a result of stronglike-for-like sales and the benefit of acquisitions. Underlying operating profitincreased by 7.2% to £163.2 million and underlying basic earnings per shareincreased by 10.1% to 26.2 pence per share. Operating profit after exceptional items was £160.7 million, up 5.5% on theprior year, and underlying basic earnings per share (after exceptional items)was 27.9 pence per share, up 17.2% on the prior year. Dividend The proposed final dividend of 8.47 pence per share gives a total dividend forthe year of 12.83 pence per share, an increase of 20% on the prior year.Dividend cover at the year-end is 2.0 times (2006: 2.2 times).Acquisitions Eldridge Pope was acquired on 25 January 2007 for £156.5 million, comprisingconsideration of £84.5 million for the equity and net debt acquired of £72.0 million. The Eldridge Pope properties were valued independently at £129.6 million. Goodwill arising on the acquisition was £58.3 million (note 11a). In the current financial year the Eldridge Pope acquisition has been broadlyprofit neutral, and we forecast that it will be earnings enhancing thereafter.The integration has been completed successfully and the Group is currentlyrealising synergies of £4.6 million per annum, as anticipated. Sovereign Inns was acquired on 16 January 2007 for £19.6 million, comprisingconsideration of £14.3 million for the equity and net debt acquired of £5.3 million. The Sovereign Inns properties were independently valued at £19.1 million. Goodwill arising on the acquisition was £4.8 million (note 11b). The Ringwood Brewery, including seven freehold pubs, was acquired on 12 July2007 for £17.8 million, comprising consideration of £19.9 million for the equity and net cash acquired of £2.1 million. The acquired properties were independently valued at £9.9 million. Goodwill arising on the acquisition was £6.3 million (note 11c). Disposals As part of our overall strategy to continually improve the quality of ourestate, on 10 May 2007 we sold 279 tenanted pubs to Piccadilly LicensedProperties Limited, a company owned and controlled by aAim Group, for a cashconsideration of £82.5 million. The pubs had an asset value of £81.1 million andgenerated annual EBITDA of £7.5 million. Capital expenditure As well as improving the overall quality of our estate through the aggressivechurning of our portfolio, we continue to invest significant amounts of capitalexpenditure to ensure we maintain a pub estate of the highest quality. Totalcapital expenditure for the Group was £146.3 million and included£48.5 million spent in Marston's Pub Company and £37.4 million spent inMarston's Inns and Taverns, in addition to £46.0 million spent on purchasing newpubs and new site developments. Share buy-backs During the year the Group purchased 28.1 million Marston's shares at a totalcost of around £120 million. As planned, we expect to complete the remainder of the previously announced commitment to £150 million of share buy-backs in this calendar year. Financing Net debt increased to £1,189.1 million at 29 September 2007, compared to £893.7million at 30 September 2006. This increase is principally as a result of the three acquisitions and the ongoing share buy-backs referred to above. For the year ended 29 September 2007 the ratio of net debt to EBITDA was 5.8times and interest cover 2.5 times. Net finance costs before exceptional items have increased by £14.4 millioncompared to the prior year, primarily as a result of the increased net debt butalso as a consequence of higher short term interest rates during the year. Since the year-end we have taken advantage of more attractive long term interestrates to fix the cost of all of our bank debt using interest rate swaps. Post balance sheet event - debt refinancing We announced on 19 November 2007 the terms of a £330 million tap of oursecuritisation backed by the transfer of 437 freehold and long leaseholdtenanted pubs from the non-securitised estate to the securitised estate. Thetransaction completed on 22 November 2007. The net funds raised were used torepay existing bank facilities. Our strong credit profile and the high qualityof our pub estate ensured we achieved a very competitive cost of financing andalso increased the financial and operational flexibility of the Group. At thesame time, we maintained £400 million of the existing bank facilities, resultingin available bank facility headroom of £250 million at 22 November 2007. Following this refinancing, all of our borrowings are at effectively fixed ratesof interest with a blended cost of debt of approximately 6.1%. Treasury, risk and internal controls The Group regularly reviews its forecast short term and medium term cash flows,and excess cash is either placed on short term deposit or invested in depositswhich are refundable on demand. All of the Group's borrowings are now fixed through a combination of fixed ratesecuritised debt and interest rate swaps. The financial risks faced by the Groupare managed in accordance with Board approved policies and are subject toregular internal review. The banking and securitisation covenants are reviewed throughout the year aspart of the internal reporting process with a focus on ensuring appropriateheadroom is available. Every six months the financial position of the Group inrespect of the securitisation covenants is reported externally to financialinstitutions and made available on the Group's website (www.marstons.co.uk).Operational compliance with all securitised covenants is managed and regularlyreviewed by the treasury, risk and internal audit function. We have an ongoing programme to identify key operational and financial risksacross the Group and, where possible, to mitigate the potential impact of thoserisks. This programme is managed by the treasury, risk and internal auditfunction. Pensions The Eldridge Pope Pension Scheme was merged with the Marston's PLC Pension andLife Assurance Scheme on 7 September 2007. An additional contribution of £11.3million has been made to the Marston's PLC Scheme since the year-end as aconsequence of the different funding levels of the schemes at the time ofmerger. The previously disclosed schedule of top-up contributions of£7.2 million per annum, intended to eliminate the Marston's PLC Scheme fundingdeficit by 2014, will increase to £10 million per annum as a result of anagreement with the pension trustees in relation to the refinancing announced on19 November 2007 and the merger of The Eldridge Pope Pension Scheme. The deficit on our final salary pension scheme reduced to £38.6 million beforetax (2006: £53.1 million), and £27.8 million after tax (2006: £37.2 million). Estate revaluation During this financial year around 2,000 pubs have been revalued principally as aconsequence of the refinancing referred to above. This has resulted in a netgain of £162 million (an after tax gain of £117 million after accounting for the associated deferred tax) which is equivalent to an average increase of approximately 12% compared to book values. The majority of these pubs were last revalued in 2005. This uplift in valuations demonstrates the continued benefit we accrue from the ownership of a predominantly freehold estate. Share split The Group completed a 4-for-1 share split on 9 January 2007. Historic earningsper share have been restated to reflect the split (note 7). Taxation The underlying rate of taxation (before exceptional items) has reduced to 21.0%from 27.8% in 2006. This is due principally to a deferred tax credit in respectof properties, mainly due to indexation allowances and the favourable agreementof certain prior year tax issues. The benefit of the basic rate of corporation tax falling from 30% to 28%, andchanges to the capital allowances regime have resulted in a reduction in thedeferred tax provision of £7.2 million. This has been accounted for as a one-offexceptional item which, together with £1.0 million of tax relief on exceptionalcosts, has resulted in an exceptional tax credit of £8.2 million. Exceptional items There is a net exceptional credit of £4.9 million after tax, comprising the £8.2million tax credit referred to above, offset by £3.3 million of costs inrelation to the acquisition of Eldridge Pope. GROUP INCOME STATEMENTfor the 52 weeks ended 29 September 2007 2007 2006 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total £m £m £m £m £m £m Revenue 652.8 - 652.8 595.5 - 595.5Operating expenses (489.6) (2.5) (492.1) (443.2) - (443.2)Operating profit 163.2 (2.5) 160.7 152.3 - 152.3Finance costs (68.0) (0.8) (68.8) (52.1) - (52.1)Finance income 2.8 - 2.8 1.3 - 1.3Net finance costs (65.2) (0.8) (66.0) (50.8) - (50.8)Profit before taxation 98.0 (3.3) 94.7 101.5 - 101.5Taxation (20.6) 8.2 (12.4) (28.2) - (28.2)Profit for the period attributable to equity shareholders 77.4 4.9 82.3 73.3 - 73.3 All results relate to continuing operations. As restated Earnings per share:Basic earnings per share 27.9p 23.8pBasic earnings per share before exceptional items 26.2p 23.8pDiluted earnings per share 27.6p 23.5pDiluted earnings per share before exceptional items 26.0p 23.5p A final dividend of 8.47p (2006: 7.06p) per ordinary share has been proposed andwill be paid on 31 January 2008. GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the 52 weeks ended 29 September 2007 2007 2006 £m £mProfit for the period 82.3 73.3Income/(expense) recognised directly in equityCash flow hedges 15.6 0.3Actuarial gains/(losses) on retirement benefits 27.4 (18.0)Unrealised surplus/(deficit) on revaluation of properties 164.9 (3.7)Tax on items taken directly to equity (42.4) 10.3Net gains/(losses) not recognised in the income statement 165.5 (11.1)Total recognised income for the period 247.8 62.2 GROUP CASH FLOW STATEMENTfor the 52 weeks ended 29 September 2007 2007 2006 £m £mOperating activitiesOperating profit 160.7 152.3Depreciation and amortisation 42.7 39.1EBITDA* 203.4 191.4Working capital and non-cash movements (including outflows (30.1) 13.1upon integration of acquisitions)Difference between defined benefit pension contributions (7.7) (10.5)paid and amounts chargedIncome tax paid (9.6) (4.0)Net cash inflow from operating activities 156.0 190.0 Investing activitiesInterest received 1.9 1.6Sale of property, plant and equipment 102.0 36.8Investment in plant and equipment for existing business (100.3) (71.0)Purchase of new pubs/site developments (46.0) (28.1)Movement in non-current assets (1.7) (2.0)Acquisition of subsidiaries, net of cash acquired (113.9) (22.4)Repayment of debt of subsidiaries upon acquisition (57.9) (13.7)Movement in available-for-sale investments 31.8 (31.8)Net cash outflow from investing activities (184.1) (130.6) Financing activitiesEquity dividends paid (34.1) (31.0)Issue of shares 1.1 2.6Sale of own shares by share trust - 0.9Purchase of treasury shares (115.5) (14.8)Purchase of own shares for Long Term Incentive Plan (0.6) (6.6)Purchase of own shares for cancellation (5.3) -Interest paid (57.7) (47.5)Arrangement costs of new bank facilities and issue costs (1.1) (0.7)paid on securitised debtRepayment of securitised debt (11.4) (10.1)Advance of loans 443.6 43.0Repayment of loans (155.0) (14.2)Settlement of debentures (18.9) -Repayment of loan notes and loan stock (2.2) (0.8)Capital element of finance leases repaid (0.1) (0.1)Net cash inflow/(outflow) from financing activities 42.8 (79.3)Net increase/(decrease) in cash and cash equivalents 14.7 (19.9) Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash and cash equivalents in the 14.7 (19.9)period(Decrease)/increase in available-for-sale investments (31.8) 31.8Cash inflow from increase in debt (256.0) (17.8)Change in debt resulting from cash flows (273.1) (5.9)Net debt acquired with subsidiaries (22.1) (14.2)Non-cash movements (0.2) (1.8)Movement in net debt in the period (295.4) (21.9)Net debt at beginning of the period (893.7) (871.8)Net debt at end of the period (1,189.1) (893.7) * EBITDA - Earnings before interest, tax, depreciation and amortisation GROUP BALANCE SHEETas at 29 September 2007 2007 2006 £m £mAssetsNon-current assetsIntangible assets 9.7 5.5Goodwill 217.8 148.3Property, plant and equipment 1,934.3 1,584.0Deferred tax assets 40.4 48.9Other non-current assets 24.8 23.1 2,227.0 1,809.8Current assetsInventories 16.7 12.8Assets held for sale 7.2 26.2Trade and other receivables 69.4 50.6Derivative financial instruments 2.4 -Financial assets: available-for-sale investments - 31.8Cash and cash equivalents 42.4 39.8 138.1 161.2LiabilitiesCurrent liabilitiesBorrowings (97.9) (38.6)Derivative financial instruments - (0.5)Trade and other payables (119.3) (108.1)Current tax liabilities (21.5) (11.2) (238.7) (158.4)Non-current liabilitiesBorrowings (1,133.6) (926.7)Derivative financial instruments (1.6) (14.3)Pension commitments (38.6) (53.1)Deferred tax liabilities (195.2) (162.6)Other non-current liabilities (0.4) (0.7)Provisions (8.5) (2.0) (1,377.9) (1,159.4) Net assets 748.5 653.2Shareholders' equityEquity share capital 23.0 23.0Share premium account 188.5 187.5Merger reserve 41.5 41.5Revaluation reserve 438.4 311.2Capital redemption reserve 6.1 6.0Hedging reserve 0.5 (10.4)Own shares (135.3) (21.5)Retained earnings 185.8 115.9Total equity 748.5 653.2 NOTES 1 Accounting policies Basis of preparation The financial information for the period ended 29 September 2007 has beenextracted from the audited financial statements, which have been prepared inaccordance with International Financial Reporting Standards (IFRS) andInternational Financial Reporting Interpretations Committee (IFRIC) and StandingInterpretations Committee (SIC) interpretations adopted by the European Unionand with those parts of the Companies Act 1985 applicable to companies reportingunder IFRS. The financial statements have been prepared under the historicalcost convention as modified by the revaluation of land and buildings andderivative financial instruments. 2 Segmental reporting Primary reporting format - business segments For primary segment reporting purposes, the Group is considered to have fourdistinguishable business segments, being Marston's Inns and Taverns (formerlyPathfinder Pubs), Marston's Pub Company (formerly The Union Pub Company),Marston's Beer Company (formerly WDB Brands) and Marston's Group Services(formerly Central). 29 September 2007 Marston's Marston's Marston's Marston's Inns and Pub Beer Group Taverns Company Company Services Unallocated Total £m £m £m £m £m £m Revenue 367.8 200.9 84.1 - - 652.8 Operating profit before exceptional items 66.7 90.8 17.4 (11.7) - 163.2Exceptional items (0.6) (0.4) (0.5) (1.0) - (2.5) Operating profit after exceptional items 66.1 90.4 16.9 (12.7) - 160.7 Net assets 943.0 1,074.0 120.6 14.1 (1,403.2) 748.5 30 September 2006 Marston's Marston's Marston's Marston's Inns and Pub Beer Group Taverns Company Company Services Unallocated Total £m £m £m £m £m £m Revenue 330.7 178.8 86.0 - - 595.5 Operating profit before exceptional items 63.5 80.3 18.0 (9.5) - 152.3Exceptional items - - - - - - Operating profit after exceptional items 63.5 80.3 18.0 (9.5) - 152.3 Net assets 680.6 905.3 102.5 51.3 (1,086.5) 653.2 Unallocated comprises net debt, tax, derivatives and pension commitments. 3 Exceptional items 2007 2006 £m £mOperating itemsCosts of reorganisation of newly acquired subsidiaries 2.5 - Non-operating itemsWrite-off of unamortised finance costs following arrangement of new 0.8 -bank facilities 3.3 - The funding of the acquisition of Eldridge Pope (note 11) during the periodnecessitated a renegotiation of the Group's borrowing facilities. The current tax credit relating to the above exceptional items amounts to £1.0m(2006: £nil). In addition, £7.2m has been credited as exceptional in relationto the change in tax rate and abolition of balancing charges. 4 Finance costs and income 2007 2006Finance costs £m £m Bank interest payable 20.4 7.5Securitised debt interest payable 41.9 42.5Other interest payable 1.7 0.6Amortisation of issue costs on securitised debt 1.0 0.9Amortisation of issue costs on bank loan 0.3 0.2Net finance expense in respect of retirement benefits 2.7 0.4Exceptional finance costs (note 3) 0.8 - 68.8 52.1Finance incomeDeposit and other interest receivable (2.8) (1.3)Net finance costs 66.0 50.8 5 Taxation 2007 2006Income statement £m £mCurrent taxCurrent period 20.9 22.9Adjustment in respect of prior periods - (0.5) 20.9 22.4Deferred taxCurrent period (0.7) 6.1Adjustment in respect of prior periods (0.6) (0.3)Exceptional credit in respect of the change in tax rate and (7.2) -abolition of balancing charges (8.5) 5.8Taxation charge reported in the income statement 12.4 28.2 £1.0m of the current tax credit relates to the tax on exceptional items (note3). 6 Ordinary dividends on equity shares 2007 2006 £m £mPaid in the periodFinal dividend for 2006 of 7.06p per share (2005: 6.42p) 21.5 19.8Interim dividend for 2007 of 4.36p per share (2006: 3.63p) 12.6 11.2 34.1 31.0 A final dividend for 2007 of 8.47p per share amounting to £23.6m has beenproposed for approval at the annual general meeting, but has not been reflectedin the financial statements. This dividend will be paid on 31 January 2008 tothose shareholders on the register at close of business on 4 January 2008. A4-for-1 share split was completed on 9 January 2007. 7 Earnings per ordinary share Basic earnings per share is calculated by dividing the profit attributable toequity shareholders by the weighted average number of ordinary shares in issueduring the period, excluding treasury shares and those held in the EmployeeShare Ownership Plan and the Long Term Incentive Plan. Diluted earnings per share is calculated by adjusting the basic earnings pershare to assume the notional exercise of the weighted average number of ordinaryshare options outstanding during the period. The effect of the dilutive optionsis to increase the weighted average number of shares by 2.5 million (2006: 3.1million). Underlying earnings per share figures are presented to exclude the effect ofexceptional items. 2007 2006 Weighted Weighted average average number of Per share number of Per share Earnings shares amount Earnings shares amount £m m p £m m pBasic earnings per 82.3 295.2 27.9 73.3 308.5 23.8shareDiluted earnings per 82.3 297.7 27.6 73.3 311.6 23.5share Underlying earningsper share figures:Basic earnings per 77.4 295.2 26.2 73.3 308.5 23.8share beforeexceptional itemsDiluted earnings per 77.4 297.7 26.0 73.3 311.6 23.5share beforeexceptional items Historic earnings per share and the weighted average number of shares have beenrestated to reflect the 4-for-1 share split that was completed on 9 January2007. 8 Working capital and non-cash movements 2007 2006 £m £m Income from non-current assets (0.5) (0.4)(Increase)/decrease in inventories (1.4) 1.0(Increase)/decrease in trade and other receivables (11.7) 1.4(Decrease)/increase in trade and other payables (16.0) 11.4Profit on disposal of property, plant and equipment (4.7) (5.1)Impairment of properties 2.8 3.8Share based payments 1.4 1.0Working capital and non-cash movements (30.1) 13.1 9 Analysis of net debt Non-cash flow 2007 Cash flow Acquisitions 2006 £m £m £m £m £mCash and cash equivalentsCash at bank and in hand 42.4 2.6 - - 39.8Bank overdraft (7.1) 12.1 - - (19.2) 35.3 14.7 - - 20.6Financial assetsAvailable-for-sale - (31.8) - - 31.8investments - (31.8) - - 31.8Debt due within one yearLoan notes (9.2) 2.0 - (2.1) (9.1)Bank loans (70.3) (70.6) 0.1 - 0.2Securitised debt (11.2) 11.4 (12.2) - (10.4)Finance leases (0.1) 0.1 (0.1) - (0.1) (90.8) (57.1) (12.2) (2.1) (19.4)Debt due after one yearBank loans (372.5) (218.0) (0.2) - (154.3)Securitised debt (760.9) - 11.2 - (772.1)Finance leases (0.1) - 0.1 - (0.2)Loan stock - 0.2 - (0.2) -Debentures - 18.9 0.9 (19.8) -Preference shares (0.1) - - - (0.1) (1,133.6) (198.9) 12.0 (20.0) (926.7) (1,189.1) (273.1) (0.2) (22.1) (893.7) Included within cash at bank and in hand is an amount of £3.9m (2006: £3.9m)relating to a letter of credit with Royal Sun Alliance, which is considered tobe restricted cash. Available-for-sale investments represent the Group's holding in a short-terminvestment fund from which cash can be withdrawn on demand and without penaltyand therefore it has been classified within net debt. Bank loans due within one year include unamortised issue costs expected to becharged to the income statement within 12 months of the balance sheet date. 10 Movements in total equity 2007 2006 £m £m Total equity at beginning of the period 653.2 640.2Total recognised income and expense for the period 247.8 62.2Dividends paid (34.1) (31.0)Proceeds of ordinary share capital issued 1.1 2.6Purchase/cancellation of own shares (121.4) (21.4)Sale of own shares - 0.9Share based payments 1.4 1.0Tax in relation to share based payments 0.5 0.7Equity minority interests - (2.0)Net movement in total equity 95.3 13.0Total equity at end of the period 748.5 653.2 11 Acquisitions (a) Eldridge Pope On 25 January 2007, the Group acquired 100% of Nouveaustar Limited ('EldridgePope') and its wholly owned subsidiaries. The acquisition has been accounted forunder acquisition accounting principles and is therefore included in theconsolidated balance sheet as at 29 September 2007. Fair value Provisional adjustments Book value Revaluations Other fair value £m £m £m £m Property, plant and equipment 107.4 28.8 - 136.2Intangible assets: lease premiums - 1.1 - 1.1Intangible assets: negative goodwill (0.4) - 0.4 -Inventories 2.1 - - 2.1Trade and other receivables 5.6 - (0.1) 5.5Cash and cash equivalents 3.6 - - 3.6Bank overdraft (1.2) - - (1.2)Trade and other payables (19.7) - - (19.7)Borrowings (69.5) - (4.9) (74.4)Pension commitments (13.0) - (5.0) (18.0)Derivative financial instruments - - 0.2 0.2Provisions - (7.7) - (7.7)Deferred tax 1.5 (8.0) 5.0 (1.5)Net assets acquired 16.4 14.2 (4.4) 26.2Cash consideration (including 84.5acquisition fees)Goodwill arising on consolidation 58.3 The attributed fair values are provisional. The revaluation adjustment reflects the valuation of the acquired estate as at25 January 2007. The valuation was carried out by independent charteredsurveyors Colliers CRE on an open market value basis. Valuations reflectingonerous leases have been included in provisions. Deferred tax on propertyrevaluations has been recognised on acquisition. The other fair value adjustments reflect the elimination of negative goodwill,the fair values of the debentures, derivative financial instruments and definedbenefit pension scheme commitments at the date of acquisition, and theassociated deferred tax. The net cash outflow in respect of the acquisition of Eldridge Pope was: £mAcquisition of equityCash 84.5Net cash held by subsidiary (2.4) 82.1Acquisition of debtImmediate repayment of subsidiary's debt 52.3Net cash outflow in respect of the acquisition 134.4 The purchase agreement for Eldridge Pope required the immediate repayment ofcertain borrowings, which were included in its balance sheet at the date ofacquisition. The debt repayments have therefore been classified as part of theoverall consideration for the acquisition of Eldridge Pope.(b) Sovereign Inns On 16 January 2007, the Group acquired 100% of Sovereign Inns Limited('Sovereign Inns'). The acquisition has been accounted for under acquisitionaccounting principles and is therefore included in the consolidated balancesheet as at 29 September 2007. £m Book value of net assets acquired 3.7Fair value adjustments 5.8Goodwill 4.8Consideration satisfied by cash 14.3 The attributed fair values are provisional. Fair value adjustments were made tothe value of the acquired estate of £9.6m and deferred tax thereon of £(3.8)m.The valuation of the estate was carried out by independent chartered surveyorsBrownill Vickers & Platts on an open market value basis. The net cash outflow in respect of the acquisition of Sovereign Inns was: £mAcquisition of equityCash 14.3Net cash held by subsidiary (0.3) 14.0Acquisition of debtImmediate repayment of subsidiary's debt 5.6Net cash outflow in respect of the acquisition 19.6 The purchase agreement for Sovereign Inns required the immediate repayment ofcertain borrowings, which were included in its balance sheet at the date ofacquisition. The debt repayments have therefore been classified as part of theoverall consideration for the acquisition of Sovereign Inns. (c) Ringwood Brewery On 12 July 2007, the Group acquired 100% of Ringwood Brewery Limited ('RingwoodBrewery'). The acquisition has been accounted for under acquisition accountingprinciples and is therefore included in the consolidated balance sheet as at 29September 2007. £m Book value of net assets acquired 7.4Fair value adjustments 6.2Goodwill 6.3Consideration satisfied by cash 19.9 The attributed fair values are provisional. Fair value adjustments were made tothe value of the Ringwood brand of £2.9m, the acquired estate of £4.0m anddeferred tax thereon of £(0.7)m. The valuation of the brewery was carried out byindependent chartered surveyors Donaldsons on an open market value basis. Thevaluation of the pub estate was carried out by independent chartered surveyorsChristie + Co on an open market value basis. The net cash outflow in respect of the acquisition of Ringwood Brewery was: £mAcquisition of equityCash 19.9Net cash held by subsidiary (2.1)Net cash outflow in respect of the acquisition 17.8 (d) Prior period acquisitions On 17 March 2006, the Group acquired Celtic Inns Holdings Limited. The fairvalue adjustments stated in the financial statements for the period ended 30September 2006 are now confirmed with no adjustments made to those previouslypublished. On 6 July 2006, the Group acquired Bluu Limited. An additional £0.1m of acquiredliabilities have been identified during the period to 29 September 2007 andrecorded as a fair value adjustment. 12 Events after the balance sheet date On 22 November 2007, £330.0m of secured loan notes were issued in connectionwith the securitisation of an additional 437 of the Group's freehold and longleasehold tenanted pubs. The loan notes are secured on the properties and theirfuture income streams. On the same date, £313.0m of existing bank loans wererepaid from the funds raised. Notes: a. The contents of this preliminary announcement, which donot constitute statutory accounts as defined in Section 240 of the Companies Act1985, have been extracted from the audited statutory accounts of the Group forthe 52 weeks ended 29 September 2007, which will be filed with the Registrar ofCompanies in due course. The statutory accounts for the 52 weeks ended 30September 2006 have been delivered to the Registrar of Companies. Theindependent auditors' report on these accounts are unqualified and do notcontain any statements under Section 237(2) or (3) of the Companies Act 1985. b. Subject to approval of the shareholders at the annualgeneral meeting, the proposed divided of 8.47 pence per share will be paid on 31January 2008 to shareholders on the register at the close of business on 4January 2008. c. The annual report for the year ended 29 September 2007will be posted to all shareholders in the week commencing 16 December 2007.Copies will be obtainable from Hudson Sandler Limited (020 7796 4133) or fromThe Company Secretary, Marston's PLC, Marston's House, Brewery Road,Wolverhampton, WV1 4JT. This information is provided by RNS The company news service from the London Stock Exchange