Marstons Regulatory News (MARS)

25 May 2007 07:02

Marston's PLC25 May 2007 25 May 2007 INTERIM RESULTS FOR THE 26 WEEKS ENDED 31 MARCH 2007 Financial • Underlying1 earnings per share2 up 10.6% to 10.01 pence (2006: 9.05 pence) • Interim dividend2 up 20.1% to 4.36 pence per share (2006: 3.63 pence per share) • Underlying operating margin, excluding acquisitions, up 0.2% to 24.1% (2006: 23.9%) • Share buy-back to be increased from £100 million to £150 million Operational • Marston's Inns and Taverns like-for-like sales up 7.0% • Marston's Pub Company average EBITDA per pub3 up 15% • Marston's Beer Company - market share and volume growth for key brands • Integration of Eldridge Pope completed at the end of March - business performing strongly • Smoking ban - investment plans complete; encouraging early indications in Wales • Good current trading in all divisions, with like-for-like sales in Marston's Inns and Taverns up 6.6% for the 33 weeks to 19 May 2007 Ralph Findlay, Chief Executive, commented: "We continue to benefit from targeting the growing pub food market in bothmanaged and tenanted pubs. Our new-build programme, the acquisition of EldridgePope and the recent disposal of 279 tenanted pubs mean that the quality of ourprincipally freehold pub estate continues to improve, and that food salescontinue to increase as a proportion of our turnover. We are also achievinggrowth and greater market share in our key ale brands, particularly Marston'sPedigree and Jennings Cumberland Ale." 1 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. 2 Prior year comparatives in this release relating to earnings per share and dividend per share have been restated to take account of the 4-for-1 share split which was effective from 8 January 2007. 3 Excluding 279 pubs sold on 10 May 2007 ENQUIRIES: Marston's PLC Hudson Sandler Ralph Findlay, Chief Executive Andrew Hayes/Nick Lyon/James WhitePaul Inglett, Finance DirectorTel: 0207 796 4133 on 25 May; Tel: 0207 796 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 toaccess and download free of charge are available from Visual Media Online atwww.vismedia.co.uk Chairman's statement These strong first half-year results demonstrate our ability to drive sustainedorganic growth as well as good returns from acquisitions. These results arebeing achieved through the implementation of our strategy to increase ouremphasis on food, families and female customers in response to well establishedtrends in our market place. Our foremost priority is our focus on customers andoperational excellence, as demonstrated by the strong like-for-like sales growthachieved in Marston's Inns and Taverns. The recent acquisitions of Eldridge Pope and Sovereign Inns, together with thedisposal of 279 smaller, wet-led tenanted pubs announced on 10 May 2007, provideadditional opportunities for continued development. Our geographical spread haswidened and the average quality of the estate has been further improved. Results Turnover increased by 8.5% to £305.3 million (2006: £281.4 million), including£13.4 million contributed by acquisitions, principally Eldridge Pope. Underlying operating margin, excluding acquisitions, increased to 24.1% (2006:23.9%) notwithstanding significantly higher energy costs and a 5.9% increase inthe national minimum wage from October 2006. Underlying operating profit fromexisting operations (excluding acquisitions) increased by 4.8% to £70.4 million(2006: £67.2 million). Underlying profit before taxation increased by 1.5% to £41.6 million (2006:£41.0 million) after the impact of higher interest costs resulting from theshare buy-back programme and acquisitions. Profit after exceptional items, whichrelate principally to integration costs, was £38.4 million (2006: £41.0 million). Underlying earnings per share increased by 10.6% to 10.01 pence per share (2006:9.05 pence per share). Basic earnings per share after exceptional items were9.25 pence per share (2006: 9.05 pence per share). Dividend The Board declares an interim dividend of 4.36 pence per share (2006: 3.63 penceper share) which will be paid on 29 June 2007 to those shareholders on theregister at the close of business on 8 June 2007. The increase of 20.1% reflectsour strong trading performance and, in particular, strong underlying cash flow.Dividends paid to shareholders have increased by over 10% per annum for the last30 years. Share buy-backs On announcing the acquisition of Eldridge Pope we confirmed our intention toreturn around £100 million to shareholders this financial year, subject toretaining the flexibility to make further acquisitions should suitableopportunities arise. During February and March 2007 we purchased and placed intreasury 9.1 million shares at a total cost of £40.2 million. The disposal of 279 smaller tenanted pubs for £82.5 million, announced on 10 May2007, provides a further opportunity to return cash to shareholders, and we havetherefore decided to increase the amount to be returned from £100 million toaround £150 million. This is to be achieved in this calendar year throughfurther market purchases. Thereafter, we will continue to target an efficientbalance sheet structure and will review the potential for further capitalreturns on an ongoing basis. Financing structure We have examined carefully the potential for realising greater shareholder valuethrough creating a Real Estate Investment Trust ('REIT') under the legislationintroduced by the government earlier this year. We estimate currently that thecosts of implementing a REIT structure by splitting the business into anoperating company and property company would largely offset the potential taxbenefits of doing so. Additionally, the freehold ownership of pubs givescritical operational flexibility in today's rapidly changing trading environmentand has also allowed shareholders to benefit from capital appreciation.Consequently, we do not plan at this stage to split the business into anoperating and property company, but will continue to review the situation as themarket for REITs in the pub sector develops. Prospects A ban on smoking in public places was introduced in Wales on 2 April 2007 and isdue to be implemented in England on 1 July 2007. Following the disposal of 279pubs on 10 May 2007 we currently have 182 pubs in Wales, and although it is toosoon to draw conclusions about the impact of the ban, trading to date has beenencouraging. Our preparations for the ban in England are well advanced. Over 90% of our pubshave gardens, patios or some form of outside trading area. We have madeexcellent progress in developing our food offers in Marston's Inns and Taverns,with food sales now comprising 33% of total retail sales within our managedpubs. The disposal of 279 smaller tenanted pubs, representing some 14% of ourtenanted and leased estate, has reduced significantly our exposure to those pubswhich are most vulnerable to the impact of the ban. The integrations of the Eldridge Pope and Sovereign Inns acquisitions werecompleted to plan and open up a number of additional development opportunities.We continue to evaluate acquisitions that are consistent with our strategy andreview all the value-generating opportunities that our integrated model offersfrom potential transactions. Our integrated business model provides us with wider investment opportunitiesand increased operational flexibility. The Board remains confident that ourstrong balance sheet, relatively conservative financing and strong cash flowwill allow us to continue to target further investments meeting our return oncapital criteria. David ThompsonChairman Chief Executive's review Business development These good results include turnover growth of 8.5% and growth in underlyingearnings per share of 10.6%. Underlying profit before taxation is ahead of lastyear despite higher interest costs resulting from share buy-backs andacquisitions. Well established trends in our market, including the growth of pub dining,greater emphasis on drinking more responsibly and regulatory changes such as thesmoking ban, open up new opportunities for our business. Our operationalstrategy has been developed carefully to ensure that we derive the maximumbenefit from a high quality estate that is particularly well suited to thischanging environment. Our acquisitions strategy and our plans for growing the business, throughbuilding new pubs and acquiring existing trading pubs are focussed on buildingon our success in attracting families and females into pubs with a strong foodoffer. We have also been successful in extending our trading geography. In the high street, we have concentrated on developing bars which are more ableto attract customers through a high quality offer, rather than price-leddiscounting. We have invested in differentiated offers such as Pitcher & Piano,Bluu and, through the acquisition of Eldridge Pope, Que Pasa. In our tenanted and leased estate, operated as Marston's Pub Company, weinvested a record £24.1 million in pub refurbishment ahead of the smoking ban.Our investment focus is on enabling tenants and lessees to exploit the fullpotential of their pubs, with an emphasis on food development. These trends are also having a positive impact on Marston's Beer Company. Theincreasing emphasis on food in our pubs is attracting more consumers who areinterested in locally sourced ingredients, higher quality products, and regionalbeers. As a result, we are seeing good growth in premium cask ale, particularlyMarston's Pedigree and Jennings Cumberland Ale. The acquisition of Eldridge Pope was completed on 25 January 2007 for £155.1million (excluding acquisition costs of £1 million). Eldridge Pope has a highquality substantially freehold estate of 135 pubs (excluding 18 pubs to be sold)based predominantly in Southern England. The estate comprises 95 managed pubsand 40 tenanted pubs. The pubs have a strong emphasis on food, which representsapproximately 30% of managed pub turnover. Twenty six pubs, operated as'Nostalgic Inns', also offer accommodation. The acquisition provides opportunities to convert appropriate Eldridge Popesites into existing Marston's formats including Pitcher & Piano, Marston'sTavern Table, Taverner's Carvery and Two for One, as well as to extend the QuePasa format within the existing Marston's estate. In the tenanted estate thereis the potential to move the current tenancy agreements to longer term Marston'sPub Company agreements and scope to improve performance through investment. Boththe managed and tenanted pubs offer the opportunity for increased distributionof beers from Marston's Beer Company. Our target of 20 pub openings this year from new site development or individualpub acquisitions is on-track. Marston's Inns and Taverns As at 31 March 2007, the managed pub estate comprised 568 pubs (2006: 543 pubs).In the second half of last year 93 pubs were transferred to Marston's PubCompany. Acquisitions include the Eldridge Pope managed estate of 113 pubs(including 18 pubs to be sold) and seven new build managed pubs in Brighton,London, Hertfordshire, Cheshire, Nuneaton, Bristol and Exeter. Eleven highstreet bars were sold during the half-year. Turnover increased by 1.0% to £154.6 million (2006: £153.1 million) includinglike-for-like sales growth of 7.0%. Like-for-like food sales increased by 14.0%,with food sales now comprising 33% of total sales in the division. Underlyingoperating profit increased to £26.1 million (2006: £25.9 million) and underlyingmargins were maintained at 16.9%. This strong growth in like-for-like sales is principally volume led, withaverage prices broadly in line with last year. Room income, which comprisesaround 2% of turnover, also increased following the introduction of moreeffective web-based marketing and links with on-line booking agencies.Accommodation is a larger component of turnover in the Eldridge Pope estate.Further growth is targeted via the integration of the two pub estates,introducing centralised booking and by developing a consistent approach tomarketing around 800 rooms available across the managed pub estate. Growth in food sales has been a key component of our strategy over recent yearsand we now have one of the highest proportion of sales from food in the sector.We have introduced a clearer, more consistent 'branding' of our food pubs, usingthe Marston's name, to communicate the range and value of our offers. A comprehensive menu development programme has resulted in menus with moreemphasis on local sourcing, healthy eating options and more variety forchildren. Our focus on quality and value contributed to our strong like-for-likesales growth, which continues to be driven by more customer visits rather thanthrough higher prices. In addition to the good performance of food pubs, investment in branded andunbranded high street pubs and bars has also achieved good returns. Pitcher &Piano openings in Brighton, Exeter and Worcester have taken the number ofPitcher & Piano bars to 26. We believe that up to six Que Pasa sites have thepotential to trade more profitably as Pitcher & Piano bars, with around 15unbranded bars similarly earmarked for conversion to Que Pasa. In addition to £13.3 million invested in the seven new pubs, £18.5 million wasinvested in the existing estate, including the major refurbishment of 27 pubsand bars. Marston's Pub Company As at 31 March 2007, the tenanted and leased pub estate comprised 1,967 pubs(2006: 1,815 pubs). Since 2 April 2006, 93 pubs have been transferred fromMarston's Inns and Taverns. Acquisitions include the Eldridge Pope tenantedestate of 40 pubs, the Sovereign Inns estate of 33 freehold pubs across theMidlands, and 10 other pubs. Nine pubs were sold in the first half-year to 31March 2007 and 279 smaller tenanted pubs were sold for £82.5 million on 10 May2007. Total turnover increased by 12.4% to £97.1 million (2006: £86.4 million).Underlying operating margin increased to 44.6% (2006: 44.0%) and underlyingoperating profit increased by 13.9% to £43.3 million (2006: £38.0 million). Trends in Marston's Pub Company reflect increasing rents as a consequence ofconversion from shorter term to longer term agreements, and growth in non-tiedproducts, particularly food. The 279 pubs sold on 10 May 2007 were mainly pubs with limited potential todevelop a meaningful food offer. As a consequence average profit (EBITDA) perpub (excluding the 279 pubs sold on 10 May 2007) increased by 15% to £64k perpub on an annualised basis. To enhance our ability to benefit from these trends, we completed 107 majorschemes of refurbishment in the first half-year, averaging around £100k per pub,and invested a further £7 million on external trading areas ahead of the smokingban. Although capital investment in external trading areas is only one responseto the ban - addressing the opportunities and changing customer profile beingequally important - we have been impressed by the willingness of our operatorsto be proactive in addressing the issues. As the pub market responds to growth in pub dining, there is greater emphasis onrecruiting the right tenant for the right pub and ensuring that they areproperly equipped and trained in what is becoming a very competitive market.This year, for example, we trained all of our Business Development Managersusing the British Institute of Innkeepers ('BII') Profitable Business Portfolioas part of a professional development programme covering all aspects of pubmanagement. In addition to a full support package of business training for tenants andlessees, we launched an 'al fresco' dining roadshow touring Marston's outletsacross the country. We are hosting workshops for Marston's licensees includingcooking demonstrations, advice on creating the perfect outdoor space and tips oncreating the ideal menu. Licensees attending are provided with a DVD and supportdetails to help recreate the experience in their own pubs. To attract the best tenants and lessees, visible commitment to good practice isbecoming more important. Marston's Pub Company has worked with the BII toprovide greater clarity and more trading information for in-coming tenants andlessees, partly in response to the 2004 Trade & Industry Select Committeeinquiry into pub companies. As a result, we were amongst the first to receiveBII accreditation recognising that our code of practice gives clear informationabout the expectations that prospective tenants should have of us. We are also introducing open-book accounting as part of our response to theinquiry, and more flexibility and choice in lease agreements with clearerguidelines in terms of rent policy, repair agreements and beer discounts. Theadoption of open-book accounting will see all new licensees required to workwith a specialist firm of accountants in their first year. These are significant operational changes which we believe will help to ensurethat we and our licensees are properly equipped to deal with changes in the pubmarket. Marston's Beer Company Turnover of £40.2 million compares to £41.9 million last year and reflects theplanned withdrawal from several low margin wholesalers, and the loss ofnon-owned brand sales into the Pyramid Pub Company as a result of itsacquisition by Admiral Taverns. Our own key brands have outperformed the beer market, with Marston's Pedigree,Marston's Smooth, Jennings Cumberland Ale and Banks's Original achieving volumegrowth of 1.0%. Our performance in premium ale - mainly Marston's Pedigree andJennings Cumberland Ale - was particularly strong, with increased market shareand volume growth of 4.8%, consolidating our position as the 'Number 1' brewerof premium cask ale in the UK. Underlying operating margin was 18.4% compared to 19.1% last year, andunderlying operating profit was £7.4 million (2006: £8.0 million) afterincreasing investment in our lead brands. This investment was focussed onMarston's sponsorship of the England and Wales Cricket Board, Sky's televisioncoverage of the Cricket World Cup and activities to increase Jennings'distribution in the Lake District. Our objectives in developing a close involvement with cricket include buildingupon the relationships we already have with Surrey (as The Official Beer ofSurrey and The Oval), Warwickshire, Worcestershire, Derbyshire, Durham andSomerset and gaining new ones. We were delighted, therefore, to announce inApril 2007 that Marston's Pedigree is now also the Official Beer of Lords andthe MCC. The decision to reduce low margin business with certain wholesale customersprincipally affected factored brands rather than our own brands. This decisionwas taken in order to strengthen our high level of control over beer containersand to limit the risk of beer being sold to tenants and lessees throughunauthorised trade channels. The impact on profitability has been minimal. Reinforcing our uncompromising stance on beer quality, we have again teamed upwith The Morning Advertiser to launch the second year of CaskForce, aninitiative to improve the quality of beer in pubs, while also offering licenseesthe chance to win the first prize: a year's rent on their pub. Current trading Current trading in Marston's Inns and Taverns, Marston's Pub Company andMarston's Beer Company has been good and in line with expectations. In the 33weeks to 19 May 2007 like-for-like sales in Marston's Inns and Taverns were 6.6%ahead of last year, with continuing strong growth in food sales. Ralph FindlayChief Executive Financial review Underlying Turnover operating profit Margin (note 2) 2007 2006 2007 2006 2007 2006 £m £m £m £m % % Marston's Inns and 154.6 153.1 26.1 25.9 16.9 16.9TavernsMarston's Pub Company 97.1 86.4 43.3 38.0 44.6 44.0Marston's Beer 40.2 41.9 7.4 8.0 18.4 19.1CompanyCentral - - (6.4) (4.7) (2.1) (1.7)Existing operations 291.9 281.4 70.4 67.2 24.1 23.9 Eldridge Pope 12.9 - 0.6 - 4.7 -acquisitionSovereign Inns 0.5 - 0.3 - 60.0 -acquisitionGroup 305.3 281.4 71.3 67.2 23.4 23.9 Results These interim results reflect a strong Group performance. Turnover increased by8.5% to £305.3 million. Underlying operating profit has risen by 6.1% to £71.3million and underlying earnings per share has risen by 10.6% to 10.01 pence pershare. Operating profit after exceptional items was £68.9 million, up 2.5% on the prioryear, and basic earnings per share (after exceptional items) was 9.25 pence pershare, up 2.2% on the prior year. Growth has been driven by strong like-for-like sales, the benefit ofacquisitions and effective cost control. Eldridge Pope was acquired on 25 January 2007 and contributed £0.6 million tounderlying operating profit during the period. This modest profit for the twomonths post acquisition reflects the seasonality of the business. Interest costsof £1.7 million were incurred during the period in relation to the additionalborrowings required to acquire Eldridge Pope. In the current financial year Eldridge Pope is expected to be broadly profitneutral, and earnings enhancing thereafter. The integration has been completedsuccessfully and the Group has already secured ongoing synergies of £4.6 millionper annum, which are currently being realised. Margin The underlying operating margin of the Group, excluding acquisitions, increasedby 0.2% to 24.1%. This was achieved despite higher energy costs and the increasein the national minimum wage. Central costs have increased compared to the prioryear principally as a result of one-off costs of £0.5 million associated withchanging our name to Marston's PLC in January 2007 and increased pension costs. Dividend The interim dividend is increased to 4.36 pence per share (2006: 3.63 pence pershare), an uplift of over 20% on last year. The Group has increased dividends byan average of over 10% per annum for more than 30 years. Dividend cover at thehalf-year is 2.3 times (2006: 2.5 times). Acquisition of Eldridge Pope Eldridge Pope was acquired on 25 January 2007 for £155.1 million, comprisingconsideration of £83.2 million for the equity and net debt acquired of £71.9million. New bank facilities were arranged to fund the acquisition. The EldridgePope properties were valued independently at £128.9 million. Goodwill arising onthe acquisition was £59.1 million (note 7). Acquisition of Sovereign Inns 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 £5.3million. The acquisition was funded from existing bank facilities at that time.The Sovereign Inns properties were independently valued at £19.1 million.Goodwill arising on the acquisition was £4.8 million (note 8). Sale of 279 pubs Subsequent to the half-year, 279 tenanted pubs were sold 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. The transaction took place on 10 May2007 and hence does not impact on these interim results. All of the pubs wereincluded within assets held for sale at 31 March 2007. Cash flow The business continues to be highly cash generative with EBITDA (earnings beforeinterest, tax, depreciation and amortisation) of £89.6 million and net cashinflow from operations of £69.4 million in the period. The significant movementin working capital was principally the result of temporary timing differences,the majority of which are expected to reverse in the second half of this year. Financing Net debt at 31 March 2007 was £1,145.7 million, compared to £893.7 million at 30September 2006, principally reflecting increased borrowings to fund the twoacquisitions and ongoing share buy-backs in the period. Interest on around 70% of the net debt at 31 March 2007 is fixed by the Group'sfixed rate securitised debt, interest rate swaps and debentures acquired withEldridge Pope. The percentage of borrowings at a fixed interest rate is lowerthan in the prior year, as a result of additional variable interest rate bankborrowings to fund the recent acquisitions and share buy-backs. Net interest costs before exceptional items have increased by £3.5 millioncompared to the prior year as a result of increased net debt and base rateinterest rate rises. The approximate impact of a 1% rise in interest rates is anadditional £4 million annual interest cost for the Group. On a 12-month pro-forma basis to 31 March 2007 the ratio of net debt to EBITDAwas 5.5 times. Interest cover was 2.9 times for the 12 months to 31 March 2007.The available headroom in the Group's bank facilities at the half-year (prior tothe disposal of 279 tenanted pubs on 10 May 2007) was approximately £120million. Share buy-backs During the interim period the Group purchased 9.1 million Marston's shares for£40.2 million, which are held as treasury shares. This is part of our sharebuy-back programme which we have decided to increase from the £100 million firstannounced in December 2006 to £150 million for this calendar year. Theadditional return of cash to shareholders follows the sale of 279 pubs on 10 May2007. Share split The Group completed a 4-for-1 share split on 8 January 2007. Historic earningsper share have been restated to reflect the split (note 6). Taxation The underlying rate of taxation (before exceptional items) has reduced to 27.2%from 31.7% in 2006 (full year 2006: 27.8%), reflecting an increased deferred taxcredit arising from additional indexation on properties. The tax charge in theinterim results is calculated by applying an estimate of the expected effectiverate of taxation for the full year. Exceptional items Exceptional costs of £3.2 million (£2.3 million after tax) arose in relation tothe acquisition of Eldridge Pope. Reorganisation costs of £2.4 million wereincurred and a finance cost of £0.8 million was recognised on the write off ofthe unamortised finance costs relating to the existing bank facilities,following the arrangement of new borrowings to fund the acquisition of EldridgePope. Paul InglettFinance Director GROUP INCOME STATEMENT (UNAUDITED)for the 26 weeks ended 31 March 2007 26 weeks to 31 March 2007 26 weeks to 1 April 2006 52 weeks to 30 September 2006 Notes Before Exceptional Total Before Exceptional Total Total exceptional items exceptional items items items £m £m £m £m £m £m £m Revenue Existing operations 291.9 - 291.9 281.4 - 281.4 595.5 Acquisitions 13.4 - 13.4 - - - - Total revenue 2 305.3 - 305.3 281.4 - 281.4 595.5 Operating expenses 3 (234.0) (2.4) (236.4) (214.2) - (214.2) (443.2) Operating profit Existing operations 70.4 - 70.4 67.2 - 67.2 152.3 Acquisitions 0.9 (2.4) (1.5) - - - - Total operating profit 2 71.3 (2.4) 68.9 67.2 - 67.2 152.3 Finance costs 3 (30.5) (0.8) (31.3) (26.8) - (26.8) (52.1) Finance income 0.8 - 0.8 0.6 - 0.6 1.3 Net finance costs 4 (29.7) (0.8) (30.5) (26.2) - (26.2) (50.8) Profit before taxation 41.6 (3.2) 38.4 41.0 - 41.0 101.5 Taxation 5 (11.3) 0.9 (10.4) (13.0) - (13.0) (28.2) Profit for the period attributable to equity shareholders 30.3 (2.3) 28.0 28.0 - 28.0 73.3 All results relate to continuing operations. Earnings per share: As As restated restated Basic earnings per share 6 9.25p 9.05p 23.78p Basic earnings per share before exceptional items 6 10.01p 9.05p 23.78p Diluted earnings per share 6 9.14p 8.98p 23.53p Diluted earnings per share before exceptional items 6 9.89p 8.98p 23.53p A dividend of 4.36p (2006: 3.63p) per ordinary share has been proposed and willbe paid on 29 June 2007. GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE (UNAUDITED) for the 26 weeks ended 31 March 2007 26 weeks to 26 weeks 52 weeks to 31 March to 1 April 30 September 2007 2006 2006 £m £m £m Profit for the period 28.0 28.0 73.3Income/(expense) recognised directly inequity:Cash flow hedges 10.7 (3.3) 0.3Pension scheme actuarial losses - - (18.0)Unrealised (deficit)/surplus onrevaluation of properties (2.6) 0.2 (3.7)Tax on items taken directly to equity (0.9) 0.4 10.3 Net gains/(losses) not recognisedin the income statement 7.2 (2.7) (11.1) Total recognised income for the period 35.2 25.3 62.2 GROUP CASH FLOW STATEMENT (UNAUDITED) for the 26 weeks ended 31 March 2007 26 weeks to 26 weeks to 52 weeks to 31 March 1 April 30 September 2007 2006 2006 Notes £m £m £m Operating activitiesOperating profit 68.9 67.2 152.3Depreciation and amortisation 20.7 20.3 39.1 EBITDA* 89.6 87.5 191.4Working capital and non-cash movements 10 (19.6) 4.0 2.6Income tax (paid)/received (0.6) 7.7 (4.0) Net cash inflow from operating 69.4 99.2 190.0activities Investing activitiesInterest received 1.1 0.7 1.6Sale of property, plant and equipment 12.8 15.9 36.8Investment in plant and equipment for existing business (48.1) (39.1) (71.0)Purchase of new pubs/site developments (20.9) (11.7) (28.1)Movement in non-current assets (1.3) (0.5) (2.0)Acquisition of subsidiaries, net of cash acquired (95.8) (20.4) (22.4)Repayment of debt of subsidiaries upon acquisition (57.9) (10.0) (13.7)Movement in available-for-sale investments 31.8 (32.3) (31.8) Net cash outflow from investing (178.3) (97.4) (130.6)activities Financing activitiesEquity dividends paid (21.5) (19.8) (31.0)Issue of shares 0.3 1.3 2.6Sale of own shares by share trust - 0.8 0.9Purchase of treasury shares (40.2) - (14.8)Purchase of own shares for Long Term Incentive Plan - (4.6) (6.6)Interest paid (26.4) (21.7) (47.5)Arrangement costs of new bank facilities (1.1) - -Repayment of securitised debt (5.7) (4.7) (10.1)Issue costs paid on securitised debt - (0.7) (0.7)Advance of loans 381.2 76.0 43.0Repayment of loans (165.0) (48.2) (14.2)Repayment of loan notes (0.7) - (0.8)Capital element of finance leases repaid (0.1) (0.1) (0.1)Movement in other financial assets (2.1) - - Net cash inflow/(outflow) from financing activities 118.7 (21.7) (79.3) Net increase/(decrease) in cash and cash equivalents 11 9.8 (19.9) (19.9) Reconciliation of net cash flow to movement in net debtIncrease/(decrease) in cash and cash equivalents in theperiod 11 9.8 (19.9) (19.9)(Decrease)/increase in available-for-saleinvestments (31.8) 32.3 31.8Increase in other financial assets 2.1 - -Cash inflow from increase in debt (209.7) (23.0) (17.8) Change in debt resulting from cash flows 11 (229.6) (10.6) (5.9)Net debt acquired with subsidiaries 11 (22.0) (14.2) (14.2)Non-cash movements 11 (0.4) (1.3) (1.8) Movement in net debt in the period (252.0) (26.1) (21.9)Net debt at beginning of period 11 (893.7) (871.8) (871.8) Net debt at end of period 11 (1,145.7) (897.9) (893.7) * EBITDA - Earnings before interest, tax, depreciation and amortisation GROUP BALANCE SHEET (UNAUDITED) as at 31 March 2007 As restated 31 March 1 April 30 September 2006 2007 2006 £m Notes £m £mAssetsNon-current assetsIntangible assets 6.8 5.2 5.5Goodwill 212.3 147.1 148.3Property, plant and 1,711.2 1,594.3 1,584.0equipmentDeferred tax assets 51.1 46.8 48.9Financial assets: other 2.1 - -receivablesOther non-current assets 24.4 24.2 23.1 2,007.9 1,817.6 1,809.8Current assetsInventories 16.1 14.6 12.8Assets held for sale 84.9 2.7 26.2Trade and other 58.9 50.1 50.6receivablesDerivative financial 2.4 - -instrumentsFinancial assets: - 32.3 31.8available-for-saleinvestmentsCash and cash equivalents 36.8 64.6 39.8 199.1 164.3 161.2LiabilitiesCurrent liabilitiesBorrowings (65.4) (64.0) (38.6)Derivative financial - (0.6) (0.5)instrumentsTrade and other payables (114.3) (100.5) (108.1)Current tax liabilities (20.1) (12.7) (11.2) (199.8) (177.8) (158.4)Non-current liabilitiesBorrowings (1,119.2) (930.8) (926.7)Derivative financial (6.3) (17.8) (14.3)instrumentsPension commitments (72.2) (45.6) (53.1)Deferred tax liabilities (171.6) (164.9) (162.6)Other non-current (0.3) (0.9) (0.7)liabilitiesProvisions (9.0) (2.1) (2.0) (1,378.6) (1,162.1) (1,159.4) Net assets 628.6 642.0 653.2Shareholders' equityEquity share capital 23.0 22.8 23.0Share premium account 187.8 186.4 187.5Merger reserve 41.5 41.5 41.5Revaluation reserve 310.5 311.6 311.2Capital redemption reserve 6.0 6.0 6.0Hedging reserve (2.9) (12.9) (10.4)Own shares (61.7) (4.8) (21.5)Retained earnings 124.4 91.4 115.9Shareholders' equity 12 628.6 642.0 653.2 NOTES 1 Basis of preparation of interim financial information This interim financial information has been prepared in accordance with theaccounting policies as set out in the accounts for the 52 weeks ended 30September 2006. The Group has not adopted IAS 34 'Interim Financial Reporting';this standard is not mandatory in the United Kingdom. The financial information for the 52 weeks ended 30 September 2006 is extractedfrom the audited accounts for that period, which have been delivered to theRegistrar of Companies. The auditors' report was unqualified and did not containa statement under Section 237 (2) or (3) of The Companies Act 1985. The balance sheet at 1 April 2006 has been restated to reflect the Group'sadoption of the Amendment to IAS 19 'Employee Benefits' and a deferred tax assetin respect of derivative financial instruments that was not previously recorded.Available-for-sale investments have been presented separately from cash and cashequivalents. These items were reflected in the accounts for the 52 weeks ended30 September 2006 and hence are applied consistently in this interim financialinformation. On 8 January 2007 the name of the Company was changed to Marston's PLC (formerlyThe Wolverhampton & Dudley Breweries, PLC) and this is consistent throughoutthis financial information. 2 Segmental analysis The names of the trading divisions were changed on 8 January 2007 to Marston'sInns and Taverns (formerly Pathfinder Pubs), Marston's Pub Company (formerly TheUnion Pub Company) and Marston's Beer Company (formerly WDB Brands). 31 March 2007 Marston's Marston's Marston's Inns and Pub Beer Eldridge Sovereign Taverns Company Company Pope Inns Central Unallocated Total £m £m £m £m £m £m £m £m Revenue 154.6 97.1 40.2 12.9 0.5 - - 305.3Operating profitbefore exceptional items 26.1 43.3 7.4 0.6 0.3 (6.4) - 71.3Exceptional items - - - (2.4) - - - (2.4) Operating profitafter exceptional items 26.1 43.3 7.4 (1.8) 0.3 (6.4) - 68.9 Net assets 715.2 941.4 109.6 179.0 23.9 21.9 (1,362.4) 628.6 Included above are nine weeks trading by Eldridge Pope (note 7) and eleven weekstrading by Sovereign Inns (note 8). Eldridge Pope includes managed and tenantedhouses and a free trade business. Sovereign Inns consists of tenanted housesonly. Goodwill on acquisitions is included within the net assets of the relevantsegment. 1 April 2006 Marston's Marston's Marston's Inns and Pub Beer Taverns Company Company Central Unallocated Total £m £m £m £m £m £m Revenue 153.1 86.4 41.9 - - 281.4Operating profit before exceptionalitems 25.9 38.0 8.0 (4.7) - 67.2Exceptional items - - - - - - Operating profit after exceptionalitems 25.9 38.0 8.0 (4.7) - 67.2 Net assets 777.0 820.8 115.4 21.5 (1,092.7) 642.0 Unallocated comprises net debt, tax, derivatives and pension commitments. 3 Exceptional items 31 March 1 April 2007 2006 £m £m Costs of reorganisation of newly acquired subsidiaries 2.4 -Write-off of unamortised finance costs following arrangement of new bank facilities 0.8 - 3.2 - The funding of the acquisition of Eldridge Pope (note 7) during the periodnecessitated a renegotiation of the Group's borrowing facilities. NOTES 4 Finance costs and income 31 March 1 April 2007 2006 £m £mFinance costsBank interest payable 7.4 2.9Securitised debt interest payable 21.0 21.3Other interest payable 0.4 0.7Amortisation of issue costs on securitised debt 0.6 0.5Amortisation of issue costs on bank loan 0.1 0.1Net finance expense in respect of retirement benefits 1.0 1.3Exceptional finance costs (note 3) 0.8 - 31.3 26.8Finance incomeDeposit and other interest receivable (0.8) (0.6)Net finance costs 30.5 26.2 5 Taxation The taxation charge for the 26 weeks ended 31 March 2007 is calculated byapplying an estimate of the effective tax rate for the 52 weeks ending 29September 2007. 31 March 1 April 2007 2006 £m £m Current tax 9.5 11.4Deferred tax 0.9 1.6 10.4 13.0 Changes announced in the Budget 2007 have not yet been substantively enacted andtherefore the impact has not been reflected in the estimate of the effective taxrate for the year. 6 Earnings per ordinary share 31 March 2007 1 April 2006 As As restated restated Weighted Weighted average Per average Per number share number share Earnings of shares amount Earnings of shares amount £m m p £m m p Basic earnings per share 28.0 302.7 9.25 28.0 309.3 9.05Diluted earnings per share 28.0 306.5 9.14 28.0 311.7 8.98 Underlying earnings per share figuresBasic earnings per share before exceptional items 30.3 302.7 10.01 28.0 309.3 9.05Diluted earnings per share before exceptional items 30.3 306.5 9.89 28.0 311.7 8.98 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 8 January2007. Basic earnings per share is calculated by dividing the profit after tax by theweighted average number of shares in issue during the period excluding treasuryshares and those held in the Employee Share Ownership Plan and Long TermIncentive 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 dilutive options isto increase the weighted average number of shares by 3.8m (2006: 2.4m). Underlying earnings per share figures are presented to exclude the effect ofexceptional items. The Directors consider that the supplementary figures providea useful indication of performance. NOTES 7 Acquisition of 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 31 March 2007. Book value Fair value Provisional adjustments fair value Revaluations Other £m £m £m £m Non-current assets 107.0 28.3 0.4 135.7Current assets 11.3 - 0.2 11.5Current liabilities (20.9) - - (20.9)Non-current liabilities (81.0) (14.8) (5.4) (101.2)Net assets acquired 16.4 13.5 (4.8) 25.1Cash consideration (including acquisitionfees of £1.0m) 84.2Goodwill arising on consolidation 59.1 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 84.2Net cash held by subsidiary (2.4) 81.8Acquisition of debtImmediate repayment of subsidiary's debt 52.3Net cash outflow in respect of the acquisition 134.1 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. 8 Acquisition of 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 31 March 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. NOTES 9 Prior period acquisitions On 17 March 2006 the Group acquired Celtic Inns Holdings Limited. The fair valueadjustments stated in the accounts for the 52 weeks ended 30 September 2006 arenow confirmed with no adjustments made to those previously published. On 6 July 2006 the Group acquired Bluu Limited. An additional £0.1m of acquiredliabilities have been identified during the period to 31 March 2007 and recordedas a fair value adjustment. 10 Working capital and non-cash movements 31 March 1 April 30 September 2007 2006 2006 £m £m £m Income from non-current assets (0.3) (0.2) (0.4)Difference between defined benefit pension 1.1 - (10.5)contributions paid and amounts charged(Increase)/decrease in inventories (1.2) (1.0) 1.0(Increase)/decrease in trade and other receivables (1.3) 3.0 1.4(Decrease)/increase in trade and other payables (17.1) 2.4 11.4Profit on disposal of property, plant and (1.7) (0.8) (5.1)equipmentImpairment of properties prior to transfer to 0.3 - 3.8assets held for saleShare based payments 0.6 0.6 1.0Working capital and non-cash movements (19.6) 4.0 2.6 11 Analysis of net debt 31 March 30 September 2007 Cash flow Non-cash flow Acquisitions 2006 £m £m £m £m £mCash and cashequivalentsCash at bank and in 36.8 (3.0) - - 39.8handBank overdraft (6.4) 12.8 - - (19.2) 30.4 9.8 - - 20.6Financial assetsAvailable-for-sale - (31.8) - - 31.8investmentsOther receivables 2.1 2.1 - - - 2.1 (29.7) - - 31.8Debt due within oneyearLoan notes (8.4) 0.7 - - (9.1)Bank loans (39.7) (40.2) 0.3 - 0.2Securitised debt (10.8) 5.7 (6.1) - (10.4)Finance leases (0.1) 0.1 (0.1) - (0.1) (59.0) (33.7) (5.9) - (19.4)Debt due after oneyearLoan notes (2.1) - - (2.1) -Bank loans (330.5) (176.0) (0.2) - (154.3)Securitised debt (766.6) - 5.5 - (772.1)Finance leases (0.1) - 0.1 - (0.2)Loan stock (0.1) - - (0.1) -Debentures (19.7) - 0.1 (19.8) -Preference shares (0.1) - - - (0.1) (1,119.2) (176.0) 5.5 (22.0) (926.7) (1,145.7) (229.6) (0.4) (22.0) (893.7) Available-for-sale investments represent the Group's holding in a short-terminvestment fund from which cash can be withdrawn on demand and without penalty,and therefore it has been classified within net debt. Other receivablesrepresent cash collateralised in respect of the acquired loan notes. 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. NOTES 12 Movements in total equity As restated 31 March 1 April 30 September 2007 2006 2006 £m £m £m Total equity at beginning of the period 653.2 650.8 650.8Effect of adoption of IAS 32 and IAS 39 on 2 - (10.6) (10.6)October 2005Restated total equity at beginning of the 653.2 640.2 640.2periodTotal recognised income for the period 35.2 25.3 62.2Dividends paid (21.5) (19.8) (31.0)Proceeds of ordinary share capital issued 0.3 1.3 2.6Sale of own shares from share trust - 0.8 0.9Purchase of own shares held as treasury shares (40.2) - (14.8)Purchase of own shares by share trust - (4.6) (6.6)Share based payments 1.6 0.8 1.7Equity minority interests - (2.0) (2.0)Net movement in total equity (24.6) 1.8 13.0Total equity at end of the period 628.6 642.0 653.2 13 Events after the balance sheet date An interim dividend of £12.9m, being 4.36p (2006: 3.63p) per ordinary share, hasbeen proposed and will be paid on 29 June 2007 to those shareholders on theregister at the close of business on 8 June 2007. This interim financialinformation does not reflect this dividend payable. On 10 May 2007 the Group sold 279 tenanted pubs to Piccadilly LicensedProperties Limited for a cash consideration of £82.5m, generating no profit orloss on disposal after the recognition of associated selling costs. 14 Interim report The interim report was approved by the Board on 25 May 2007. 15 Copies Copies of this report have been sent to shareholders and are available to thepublic on request from: The Company Secretary, Marston's PLC, Marston's House,Wolverhampton, WV1 4JT. This information is provided by RNS The company news service from the London Stock Exchange