Marstons Regulatory News (MARS)

28 November 2013

MARSTON'S PLC

PRELIMINARY RESULTS FOR THE PERIOD ENDED 5 OCTOBER 2013

Revenue, Profit and Dividend Growth

FINANCIAL HIGHLIGHTS

· Group revenue - up 9% to £782.9 million (2012: £719.7 million).

· Underlying operating profit - up 7% to £168.3 million (2012: £157.9 million).

· Underlying PBT - up 1% to £88.4 million, despite higher interest costs.

· Return on capital - 0.5% improvement versus 2012.

· Final dividend - up 5% to 4.1 pence per share.

· Bank facility extension to November 2018 - extends maturity of Group debt.

· Current trading - encouraging start to year.

OPERATING HIGHLIGHTS AND STRATEGY 

· Destination and Premium - strong sales and profit growth driven by new-build investment, including 22 openings in the year, performing ahead of target

· Taverns - H2 profit growth in managed pubs and 600 pubs converted to franchise

· Brewing - revenue and profit up with increased market share

· Acceleration of new-builds - increased planned rate of expansion of new-builds to 25-30 sites per annum

· Disposals of lower turnover wet-led pubs

- 130 pubs and other assets sold or exchanged during the year for c.£50 million

- Agreement to dispose of 202 sites for £90 million at 7.6x EBITDA multiple

- Target £60-70 million disposals per annum in 2014 and 2015 from Taverns estate

CURRENT TRADING - 7 WEEKS TO 23 NOVEMBER

· Destination and Premium -like-for-like sales up 3.1%; like-for-like food sales up 4.6%; like- for-like wet sales up 1.0%

· Taverns- managed and franchised like-for-like sales up 2.1%; tenanted profits in line with expectations

· Leased - like-for-like profits in line with last year

· Brewing - in line with expectations

Commenting, Ralph Findlay, Chief Executive Officer, said:

"In 2013 we achieved good growth in turnover and operating profit despite significant challenges. This reflects our unstinting focus on what our customers want: excellent service and value for money in high quality pubs and bars. In 2013 we served 30 million meals, with food now the principal reason for around 80% of customer visits in our Destination pubs.

Looking forward we will accelerate our high-return new-build programme whilst increasing the level of disposals from our lower turnover wet-led pubs. We have made an encouraging start to the new financial year and remain confident that our proven strategy is aligned to the underlying trends in the sector."

ENQUIRIES:

Marston's PLC Hudson Sandler

Ralph Findlay, Chief Executive Officer Andrew Hayes/Wendy Baker

Andrew Andrea, Chief Financial Officer Kate Hoare/ Alex Brennan

Tel: 020 7796 4133 on 28th November 2013 only Tel: 020 7796 4133

01902 329516 thereafter

NOTES TO EDITORS

2013 Performance summary

Our performance in the second half year was strong after a challenging first half year affected by poor weather. The contrast between the two periods was significant: compared to the prior year underlying operating profit declined by 1.5% in the first half but increased by 12.6% in the second. Good trading momentum has continued into the new financial year.

Revenue increased by 8.8% to £782.9 million, with growth in Destination and Premium, Taverns (community pubs) and Brewing and the benefit of a 53rd trading week.

Underlying operating profit increased by 6.6% to £168.3 million, with growth in Destination and Premium and in Brewing. Operating profit in Taverns was below last year principally due to a significant level of disposals, poor weather in the first half year and a more subdued performance in our tenanted pubs in line with market trends, mostly offset by growth in our managed and franchised pubs.

Operating margin of 21.5% was 0.4% below last year. We achieved higher operating margins in Destination and Premium as a consequence of opening new-build pub-restaurants with higher profit conversion (25 in 2012 and 22 in 2013) and in Leased as a consequence of reduced temporary management costs and tighter cost control. This was offset by the conversion of pubs from tenancy to a franchise model within Taverns (around 600 at the year end, compared to around 500 last year), and a higher off-trade sales mix in Brewing.

Underlying profit before tax of £88.4 million was up 0.7% (2012: £87.8 million) despite the anticipated higher interest costs. These were due principally to contractual increases in securitised interest - these have now peaked and securitised interest costs abate from financial year 2014 onwards.

Underlying earnings of 12.3 pence per share (2012: 12.3 pence per share) were in line with last year.

Net debt at the year end excluding lease financing was lower at £1,082 million (2012: £1,121 million); debt to EBITDA on the same basis reduced to 5.3 times (2012: 5.6 times) reflecting the benefit of lease financing of £109 million arranged during the year.

We continue to make good progress on improving returns, with cash return on cash capital employed having improved to 10.8%, representing an increase of 1.2% since 2010.

The proposed final dividend of 4.1 pence per share, giving a total dividend for the year of 6.4 pence per share, represents a 5% increase compared to 2012. Dividend cover was 1.9 times (2012: 2.0 times). Our dividend policy is to target progressive increases in dividend at a cover of around 2 times in the medium term.

Current trading

We have seen an encouraging start to the new financial year. In Destination and Premium, like-for-like sales in the seven weeks to 23 November increased by 3.1% with food sales growth of 4.6% and wet sales up by 1.0%. We have opened seven new pub-restaurants to date. In Taverns, like-for-like sales in managed and franchised pubs are up 2.1% and tenanted profits are in line with expectations. In Leased pubs profits are in line with last year and in Brewing our beer brands are performing in line with our expectations.

Strategy and operations

Our financial objectives remain: maintaining sustainable growth, increasing return on capital and reducing leverage over time.

Our strategy, as described below, focuses on the organic development of the business. The potential for developing through acquisition is reviewed regularly and measured against the consistently strong returns achieved through our organic investments. In 2014 we intend to accelerate our new-build development plans and to initiate a more aggressive disposal programme for smaller wet-led pubs.

There are five key components to our plans:

1. Operating high quality pubs for current and future consumers

New-build pub-restaurants

Investment in new-build pub-restaurants continues to be the primary growth driver for Marston's. In 2013 we opened 22 new-build pub-restaurants across the UK, including our first pubs in Scotland. Over the past seven years we have built more than 100 new pub-restaurants throughout England, Wales and Scotland.

Our pub-restaurants are well located and designed to combine traditional pub ambience with convenience and provide attractive, relaxed dining options. We focus particularly on value for money with high standards of service and building pub-restaurants which are ideal for day to day convenience, special treats or celebrations.

From an investment perspective, the organic new-build programme has generated consistently higher returns on capital invested than historical acquisitions across the industry, reflecting careful selection of hand-picked sites, attractive pub design and build, and a strong consumer offer. The performance of our new-build programme since 2010 has been good, consistently beating our target return on capital of 16.5% representing an investment multiple of 6x EBITDA. This high return on capital has generatedsignificant value for investors, demonstrated by the 2012 estate valuation of the new-build pubs which yielded an uplift of over 50% against build cost.

Site selection is critical to the success of our new-build pub-restaurants. Our experienced acquisitions team have established good relationships with site developers, helping to maintain a 'preferred partner' status based on knowledge and experience. As a consequence we have a strong, visible site pipeline for the foreseeable future.

Our success in finding good sites and the strong financial results achieved through building new pub-restaurants have enabled us to increase our expansion target from 20-25 per year to 25-30 per year.

Accelerated disposal of smaller wet-led pubs

Consumer expectations are changing and demand for better-quality pub and dining experiences is increasing, stimulated by greater choice and new, exciting brands and formats. This trend provides opportunity, but it also exposes an increasing number of pubs - and licensees - to a developing market which is demanding higher standards.

The pubs most exposed to this trend tend to be smaller, wet-led pubs where food sales are modest or incidental, and which lack the position or scale to compete effectively with either well-implemented managed formats or very high quality independent operators. These pubs have also suffered most from the government's taxation and legislative changes in recent years. As a result we now aim for a higher number of disposals, principally from the Taverns estate, with a target of £60-70 million proceeds per annum for financial years 2014 and 2015.

These more aggressive disposal plans are intended to improve returns over time; assist the funding of the new-build programme; and improve further the quality of our estate. During 2013 we sold or exchanged contracts on 130 pubs and other assets generating net proceeds of around £50 million. In addition, since the year end we have unconditionally exchanged contracts on the disposal of a package of 202 pubs for a consideration of £90 million at a sale multiple of 7.6x EBITDA. As a consequence, the quality of our remaining estate will improve.

Development of a range of pub brands and formats appropriate to local markets

Our range of pub brands and formats is one of the strengths of our business model, enabling us to meet different customer expectations for different occasions and in different markets: in each format, our objective is to be "the best place around here" - for celebrating, socialising and convenience. Our formats are in one of three principal groups, each of which achieved like-for-like sales growth in 2013.

Destination food: our 314 pubs in this category are principally in two brands - Marston's "Two for One" (138 pubs), and "Milestone" (82 pubs). Both brands offer excellent value for money to customers, with a focus on offering high quality food and drink in a relaxing pub environment at affordable prices. Service standards are high, including full table service in all sites. Our focus on service and pub ambience together with interesting and varied menus supports a high food sales mix of around 56%. Our new-build pub-restaurants are operated under these two brands.

Premium pubs and bars: our 35 outlets are Pitcher & Piano bars and Revere pubs. Pitcher & Piano performed well in 2013 with good growth in like-for-like sales and profit. Pitcher & Piano is popular with young, more affluent adults attracted to lively bars in premium locations. Food sales are increasingly important and now account for 25% of sales. We opened a new Pitcher & Piano in Hitchin during the summer which has traded strongly, and we will selectively seek to expand the estate as appropriate locations become available. Revere pubs are high quality pubs in very strong locations which benefit from a premium offer with an independent trading style. The first six Revere pubs opened in 2013 with six more identified for conversion in 2014.

Taverns: Taverns is our community pubs business, including 135 managed pubs, 603 franchise pubs and 578 tenancies. We aim to offer traditional pub entertainment and everyday value food and drink in a traditional 'community local' pub environment. Typically, these are wet-led pubs, although food sales are increasing and represent around 25% of sales mix. We will continue to invest, where necessary, in these pubs. Over the next 2-3 years we expect that most of our Taverns pubs will be operated under our successful franchise model which is described in further detail below.

In Marston's Inns we offer high quality pub accommodation in around 50 pubs. In addition, we are co-located with national lodge operators on 12 sites that have already been developed, and in 2013 we opened three Marston's lodges - Aberystwyth, Chepstow and Redditch - adjacent to pub-restaurants.

2. Value and service

Over the last decade our organic development has been underpinned by the 'F-Plan': a focus on Food, Families, Females and Forty/Fifty somethings. The plan was introduced in anticipation of consumer trends including the development of the UK eating-out market; social and demographic changes including higher female employment and a maturing UK population; and the potential for pubs to offer a better experience to families. We are confident that this focus remains appropriate today.

In our Managed pubs we served over 30 million meals last year and in our Destination pubs food is the primary driver for around 80% of customer visits. We consistently outperformed the Peach Market Tracker - an accepted index of pub and restaurant performance - in 2013 and have increased our share of the eating-out market. The appeal of our pubs to families is strong and increasing, demonstrated by a 19 % increase in kids' meals served in the year.

Consumer expectations are increasing and the pace of change is rapid. We aim to continue to increase market share within the informal pub-dining sector through offering excellent choice, outstanding value and high service standards - key priorities for customers today. Our menus are refreshed frequently and offer choice from traditional pub favourites to international meals and lower calorie alternatives. The introduction of full table service, and new retail technology such as hand-held tills, exemplifies our commitment to service improvement - initiatives like this assist with customer communication, contributing to double digit growth in starters, desserts and coffee sales in 2013.

We measure our success through our online customer feedback process which we call the "SMILE" report for obvious reasons. SMILE provides quick feedback enabling us to respond faster in improving customer service.

Our people are critical to the success of our service ethos. We have comprehensive recruitment and training programmes designed to ensure that we recruit the best staff available in a highly skilled area, with clear development, training and career paths for all of our pub staff. There is a perception in the UK that careers in the pub sector are low paid and low skilled. As the growing number of great managers and chefs attracted to our pubs demonstrates, this is a highly skilled business, and there is a clear pathway for talented young people with front-of-house and catering skills. Marston's opens 20-30 new pub-restaurants a year, each one creating around 50 new jobs, many of which are accessible to young people and in places where jobs are considered scarce.

3. Evolution of our franchise model

Our franchise model was introduced in 2009 with the principal objectives of improving the consumer offer in tenanted community pubs and improving profitability in those pubs for both Marston's and licensees. Our franchise agreement, with some variations, now operates in around 600 pubs and has three principal benefits for licensees:

· Simplicity: licensees typically earn around 20% of turnover, with no payments for rent, food or drinks, which are all supplied by Marston's. Licensees are thus focused on revenue maximisation.

· Reduced funding requirement: licensees are only required to provide a refundable deposit, typically £5,000, but do not have to buy fixtures and fittings.

· Reduced licensee risk: other than payroll costs, Marston's has responsibility for the cost of goods sold, operating expenses and stock. We ensure that these costs are managed efficiently through using our established retail systems and our Group purchasing power.

The benefits to Marston's are clear: the post-conversion profitability of the franchised estate is strong with £1.5 million profit growth achieved in 2013. Licensee stability is high, at over 90%, and we receive more applicants for pubs operating under a franchise model than for those operating under traditional agreements: prospective licensees clearly value the benefits described above. Around 30% of applications are from people new to the pub sector.

We first introduced franchise models into pubs which were formerly tenanted, but in 2013 extended the model into 20 previously managed pubs achieving positive results. We anticipate extending this further into the Taverns managed estate, and over time expect that all Taverns community pubs will operate under franchise models. In our view, this combines the benefits of an incentivised, entrepreneurial licensee able to 'act local' with the control and scale benefits offered by the managed model.

In summary, we anticipate that the franchised estate will continue to grow in 2014 and that over time, all of our Taverns estate will operate under either a managed or franchise model.

4. Focus on pub quality and support in leased pubs

Over the last five years, the market-wide performance of tenanted and leased estates has been weak. We have separated our leased estate from the tenanted estate and, as described above, we have clear plans to convert our tenanted pubs to the franchise model or to accelerate disposals depending upon our assessment of sustainability.

The performance of Marston's leased estate has consistently been more robust than the sector generally. The reasons for this include:

· A consistent approach to setting fair, sustainable rents over many years

· Transparency in dealing with licensees

· Assistance for licensees from good Business Development Managers, and wide-ranging support in terms of promotions, cost management, advice and online facilities.

Essential to the long-term sustainability of this segment is a high quality estate of attractive, well-located pubs capable of meeting increasing consumer demand for better quality experiences, and which are therefore capable of attracting good, entrepreneurial licensees. These are likely to be food-led rather than wet-led, and able to compete against value managed formats through offers characterised by individuality, differentiated menus, service and quality. We believe our high quality leased estate offers these characteristics.

We recognise that the success and sustainability of these pubs is down to good lessees: we contribute with a robust appointment process, fair dealing and support thereafter. The fact that we have a relatively small leased estate of less than 400 high quality pubs contributes to our ability to foster good working relationships with our lessees.

5. Differentiation in the beer market through a 'localness' and premium ale strategy

There are two consumer trends which have influenced our brewing strategy in recent years.

First, the ale market has fragmented as a consequence of increasing consumer interest in provenance, choice and taste - particularly in traditional ales. This trend broadly mirrors the growth of craft beers in the US, and is evident in the UK by the growth in micro-breweries (there are now around 1,000 breweries across the country). There is less interest in conventional 'big brand' behaviour amongst beer drinkers.

Second is the demand for more premium beers. This is linked to interest in taste, but also reflects the increasing importance of eating out in pubs: the choice of beer is more likely to be premium when it accompanies a meal.

In determining our brewing strategy some years ago, we anticipated these trends. We have a competitive advantage in not only being able to brew beers from five breweries in England, but also being able to sell them across the UK.

This strategy has produced demonstrable success: in 2013 we increased ale volumes by 6% in a market which declined by 3%, building on the volume growth and market share gains achieved in recent years. Over the past five years we have increased our premium ale volumes by around 25% in total and around 42% in the off-trade against a declining market. We are leaders in premium cask ale, with a market share of 18%, and in bottled ale with a share of 24%.

Our wide brand portfolio is supported by high standards of service to our customers in the independent free trade and pub sector generally, and through category knowledge and leadership including publication of The Cask Ale Report and The Premium Bottled Ale Report, which can be accessed on our website.

Innovation is critical to our future plans. Examples of brewing innovation include the ground-breaking fastcaskTM system which has enabled us to expand the market for cask ale; and the launch of our 'Single Hop' programme, which is now in its second year and involves the creation of different flavoured beers using hops from around the world. In 2013 we introduced our own craft beer range including Revisionist lager; Marston's Oyster Stout; and Shipyard IPA - the product of an alliance with one of the largest craft brewers in the US, the Shipyard Brewing Co. from Portland, Maine.

Our marketing activity reflects the character of our brands: Marston's Pedigree is 'The Official Beer of England Cricket'; by contrast, Hobgoblin is the 'Unofficial Beer of Halloween'. Regionally, we support local brands through sponsorship of events including the New Forest Show, the Henley Regatta and the Keswick Jazz Festival.

Future growth is targeted through continued developments in the off-trade; the export market; and the provision of brewing, packaging and distribution services to third parties.

PERFORMANCE AND FINANCIAL REVIEW

Destination and Premium

Total revenue increased by 14.1% to £349.2 million reflecting the continued strong performance of our new-build pub-restaurants, growth in like-for-like sales and the benefit of the 53rd trading week. Underlying operating profit of £70.3 million was up 23.8% (2012: £56.8 million). Average profit per pub increased to £207k, up 11.9%.

Total like-for-like sales were 2.2% above last year, with growth in the second half year of 4.1%. Like-for-like food sales were up by 3.9% through a combination of volume growth and increased sales of starters, desserts and coffee which contributed to a 27p increase in spend per head. In Destination pubs, food now accounts for 56% of total sales (2012: 54%) and in Premium pubs and bars food is 25% of sales (2012: 24%).

Like-for-like wet sales increased by 0.2%, outperforming the declining UK on-trade drinks market. We continue to see growth in more premium products, with premium cask ale volumes up 9% and premium lager up 11%. Wine sales increased by 13% and now account for 24% of drinks sales (2012: 22%).

We achieved a 1.5% improvement in operating margin through moderate price increases and tight cost control.

Taverns

Total revenue increased by 3.8% to £250.8 million reflecting the increased revenue contribution from more pubs operating under the franchise model. Underlying operating profit was £69.5 million, a decrease of 5.1%, principally reflecting a significant level of disposals, poor weather in the first half year and a more subdued performance in our tenanted pubs in line with market trends. Average profit per pub is in line with last year.

In our managed and franchised pubs like-for-like sales were in line with last year and operating profits were up 3.7%, reflecting the continued success of pubs operating under the franchise model.

Tenanted like-for-like operating profits were down 7.7% in the period, an improvement on the decline in the first half, reflecting the continued challenges facing small wet-led tenanted pubs in the current market and representing a relatively subdued performance given the better weather in the second half year.

Operating margin was 2.6% below last year at 27.7%, primarily due to the conversion of pubs which were formerly tenanted to franchise models. These agreements generate increased profit but the operating margin percentage is reduced as a consequence of accounting for sales at full retail value.

Leased

Total revenue decreased by 4.6% to £55.6 million, principally reflecting lower volumes in line with the market. Underlying operating profit of £26.0 million was in line with last year. Average profit per pub increased by 2.1% to £67k, and licensee stability remained high at 92%.

As with tenanted pubs, underlying measures of lessee 'health', including rent alleviations, improved during the financial year. Operating margin was 2.2% above last year at 46.8%, primarily due to a higher mix of rental income, and lower support costs.

Brewing

Total revenue increased by 12.0% to £127.3 million. Underlying operating profit increased by 3.0% to £16.9 million.

Overall ale volumes were up 6% on last year, with premium cask ale volumes up 4% and bottled ale volumes up 19%. We have maintained our position as 'category market leader', increasing our market share in each of these categories by over 1%. Hobgoblin saw growth of 16%, and is now our largest brand.

In the independent free trade, our account base increased by 3% to more than 3,800 customers, and premium ale sales to this sector increased by 6%. In the take home market we continue to perform very strongly with volumes up 18%.

Operating margin was down versus last year at 13.3%, reflecting the higher proportion of volume through the off-trade, which commands a lower margin percentage.

Capital expenditure and disposals

Capital expenditure was £150.8 million in 2013 (2012: £129.8 million), including the construction of 22 pub-restaurants. The principal reasons for the increase are: an additional £13.6 million on new-builds as we plan to accelerate the new-build programme for 2014 and 2015; and £7 million in respect of a new bottling line within Brewing which was originally intended to be funded through an operating lease. We expect that capital expenditure will be around £140 million in 2014, including around £80 million for the construction of 25-30 new pub restaurants.

During the year we generated £46.2 million of cash from the sale of 130 pubs and other assets.

Financing

At 5 October 2013 the Group had a £257.5 million bank facility to May 2016, and the amount drawn down at 5 October 2013 was £191 million. Subsequent to the year end, this facility has been extended to November 2018 on attractive terms. This facility, together with a long-term securitisation of approximately £1 billion and the lease financing arrangements described below, provides us with an appropriate level of financing headroom for the medium term. The Group has sufficient headroom on both the banking and securitisation covenants and also has flexibility to transfer pubs between the banking and securitisation groups.

During the period, the Group entered into three new lease financing arrangements which have a net value of £108.6 million as at 5 October 2013. This financing is a form of sale and leaseback agreement whereby the freehold reverts to the Group at the end of the term at nil cost, consistent with our preference for predominantly freehold asset tenure. The agreements range from 35 to 40 years and provide the Group with an extended debt maturity profile at attractive rates of interest. Unlike a traditional sale and leaseback, the associated liability is recognised as debt on the balance sheet due to the reversion of the freehold.

Net debt excluding lease financing of £1,082 million at 5 October 2013 is a decrease of £39 million compared to £1,121 million at 29 September 2012. Operating cashflow of £169.4 million remains strong driven by solid profits and tight control of working capital.

For the period ended 5 October 2013 the ratio of net debt excluding lease financing to EBITDA before exceptional items reduced to 5.3 times (2012: 5.6 times). It remains our intention to reduce this ratio to below 5.0 times, principally through EBITDA growth generated from our new-build investment programme.

Pensions

Our final salary pension scheme at the year end showed a deficit of £5.1 million before tax (2012: £24.5 million). 

Taxation

The underlying rate of taxation (before exceptional items) of 20.8% in 2013 is below the standard rate of corporation tax of 23.5% primarily due to credits in respect of deferred tax on property.

The underlying tax rate has increased by 0.4% from 20.4% in 2012.

Exceptional items

There are net exceptional charges of £11.4 million after tax. This primarily reflects reorganisation and non-core estate disposal costs of £10.8 million relating to the restructuring of our operations across the Group. The reorganisation is expected to generate around £3-4 million of annual underlying cost savings. Additionally there is an exceptional charge of £4.9 million in respect of the write-off of various items of cellar equipment no longer in use in the business, an exceptional charge of £6.4 million in respect of the recognition of the provision for repayment of refunds received relating to the Rank case and an exceptional gain of £3.5 million in respect of the mark-to-market movement in the fair value of certain interest rate swaps. There is an exceptional tax credit of £7.2 million, of which £4.1 million relates to the items described above and £3.1 million relates to deferred tax in respect of the change in the rate of corporation tax.

GROUP INCOME STATEMENT

For the 53 weeks ended 5 October 2013

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the 53 weeks ended 5 October 2013

* During the prior period a revaluation of the Group's freehold and leasehold properties was undertaken, resulting in a net decrease in property values of £21.6 million. An unrealised surplus on revaluation of £329.9 million, and a reversal of past revaluation surplus of £136.9 million, were recognised in the revaluation reserve, and a net charge of £214.6 million was recognised in the income statement.

GROUP CASH FLOW STATEMENT

For the 53 weeks ended 5 October 2013

GROUP BALANCE SHEET

As at 5 October 2013

GROUP STATEMENT OF CHANGES IN EQUITY

For the 53 weeks ended 5 October 2013

NOTES

1 Accounting policies

Basis of preparation

The financial information for the 53 weeks ended 5 October 2013 (2012: 52 weeks ended 29 September 2012) has been extracted from the audited financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) and Standing Interpretations Committee (SIC) interpretations adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention as modified by the revaluation of certain items, principally land and buildings, derivative financial instruments, retirement benefits and share-based payments.

2 Segment reporting

In the prior period the Group had four distinguishable operating segments being Managed Pubs, Tenanted and Franchised, Brewing and Group Services. The Group has now restructured how its pub operations are managed and reported. The five operating segments set out above reflect this new structure. The results for the 52 weeks ended 29 September 2012 have been restated to reflect these revised segments.

Unallocated comprises net debt, tax, derivatives and retirement benefits.

3 Exceptional items

Reorganisation and non-core estate disposal costs

During the current period the Group restructured both its pub estate and its operating segments. An exceptional charge of £10.8 million, including the net loss on disposal of non-core properties, was recognised during the period in respect of this.

Write-off of cellar equipment

As part of a review of its fixed asset register the Group identified various items of cellar equipment which it assessed were no longer in use by the business and which would not have been utilised in the current period. These assets were subsequently written off with the charge and depreciation for the period shown as an exceptional item.

In previous periods the Group received refunds totalling £5.9 million from HM Revenue & Customs (HMRC). This followed Tribunal/Court of Appeal hearings involving The Rank Group Plc ('Rank'), which concluded that there had been a breach of fiscal neutrality in the treatment of gaming machine income as liable to UK VAT. HMRC issued protective assessments to recover the repayments pending the result of further Court hearings. On 30 October 2013 the Court of Appeal found in favour of HMRC and as such it is likely that the Group will be required to repay the refunds of £5.9 million plus interest of £0.5 million thereon. A provision for these amounts has therefore been recognised in the period.

Movement in fair value of interest rate swaps

The Group's interest rate swaps are revalued to fair value at each balance sheet date. The movement in fair value of interest rate swaps which are not designated as part of a hedge relationship, and the ineffective portion of the movement in fair value of interest rate swaps which are accounted for as hedging instruments are both recognised in the income statement. The net gain of £3.5 million (2012: £2.9 million) is shown as an exceptional item.

Impact of taxation

The current tax credit relating to the above exceptional items amounts to £1.8 million (2012: £3.0 million). The deferred tax credit relating to the above exceptional items amounts to £2.3 million (2012: £38.0 million). In addition, £3.1 million (2012: £2.1 million) has been credited as exceptional in relation to the change in corporation tax rate.

Prior period exceptional items

At 1 July 2012 the Group's freehold and leasehold properties were revalued by independent chartered surveyors on an open market value basis. The resulting revaluation adjustments were taken to the revaluation reserve or income statement as appropriate. The amount recognised in the income statement comprised:

During the prior period the Group entered into a new bank facility. As such the unamortised finance costs relating to the previous facility were written off.

During the prior period the Group recognised the interest on outstanding tax liabilities in respect of a number of tax issues under negotiation with HMRC.

The Group held an interest rate swap of £20.0 million which was designated as a cash flow hedge of the forecast floating rate interest payments arising on the first £20.0 million of borrowings under the Group's previous bank facility. As the Group entered into a new bank facility in the prior period, these forecast transactions were no longer expected to occur. Therefore the cumulative hedging loss of £0.8 million that had been reported in equity was transferred to the income statement.

On 22 March 2012 the Group entered into four new fixed-to-floating interest rate swaps of £35.0 million each. In total, these swaps were equal and opposite to the two existing floating-to-fixed interest rate swaps of £70.0 million each, which the Group entered into in order to fix the interest rate payable on the Group's unsecured bank borrowings. The total fair value of the four new swaps at inception was £15.1 million.

On 22 March 2012 the Group also entered into two new floating-to-fixed interest rate swaps of £60.0 million each. Going forward these swaps will fix the interest rate on the Group's unsecured bank borrowings. In total, the fair value of these two new swaps at inception was £(18.9) million.

4 Taxation

5 Ordinary dividends on equity shares

A final dividend for 2013 of 4.10p per share amounting to £23.4 million has been proposed for approval at the Annual General Meeting, but has not been reflected in the financial statements.

Subject to approval at the Annual General Meeting, this dividend will be paid on 3 February 2014 to those shareholders on the register at close of business on 20 December 2013.

6 Earnings per ordinary share

Basic earnings per share are calculated by dividing the profit/(loss) attributable to equity shareholders by the weighted average number of ordinary shares in issue during the period, excluding treasury shares and those held in the Executive Share Option Plan and the Long Term Incentive Plan.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. These represent share options granted to employees where the exercise price is less than the weighted average market price of the Company's shares during the period.

Underlying earnings per share figures are presented to exclude the effect of exceptional items.

* The 2012 diluted earnings per share is the same as the basic earnings per share as the inclusion of the dilutive potential ordinary shares would reduce the loss per share and as such is not dilutive in accordance with IAS 33 'Earnings per Share'.

7 Net debt

Bank loans due within one year represent unamortised issue costs expected to be charged to the income statement within 12 months of the balance sheet date. Bank loans due after one year represent amounts drawn down under the Group's revolving credit facility, net of unamortised issue costs expected to be charged to the income statement after 12 months from the balance sheet date.

Other lease related borrowings represent amounts due under sale and leaseback arrangements that do not fall within the scope of IAS 17 'Leases'.

Net debt does not include other financial liabilities such as trade and other payables.

Included within cash at bank and in hand is an amount of £2.6 million (2012: £3.7 million) relating to a letter of credit with Royal Sun Alliance Insurance, an amount of £0.5 million (2012: £0.5 million) relating to a letter of credit with Aviva, and an amount of £8.5 million (2012: £8.5 million) relating to collateral held in the form of cash deposits. These amounts are considered to be restricted cash.

In addition, cash held in connection with the securitised business is governed by certain restrictions under the covenants associated with the securitisation.

Notes:

(a) The contents of this preliminary announcement, which constitute summary financial statements as defined in Section 427 of the Companies Act 2006, have been extracted from the audited statutory accounts of the Group for the 53 weeks ended 5 October 2013, which will be filed with the Registrar of Companies in due course. The statutory accounts for the 52 weeks ended 29 September 2012 have been delivered to the Registrar of Companies. The independent auditors' report on these accounts is unqualified and does not contain any statements under section 498 (2) or (3) of the Companies Act 2006.

(b) The annual report and accounts for the 53 weeks ended 5 October 2013 will be posted to shareholders on 17 December 2013. Copies will be obtainable from Hudson Sandler Limited (020 7796 4133) or from The Company Secretary, Marston's PLC, Marston's House, Brewery Road, Wolverhampton, WV1 4JT.