Marston : Interim results - 16 May 2023

16 May 2023

MARSTON'S PLC

RESULTS FOR THE 26 WEEKS ENDED 1 APRIL 2023

CONTINUED STRATEGIC MOMENTUM: REVENUE AND OPERATING PROFIT GROWTH, POSITIVE

CASH FLOW AND CONTINUED DEBT REDUCTION

Marston's, a leading UK operator of 1,440 pubs, today announces its Interim Results for the 26 weeks ended 1 April 2023.

* All activities relate to continuing operations

**Includes a £34.5 million net loss in respect of interest rate swap movements; a partial reversal of the £109.2 million net gain reported in FY2022

Revenue and pub operating profit growth, despite macroeconomic environment

• H1 like-for-like sales up 10.7% vs last year and up 17.9% vs FY2020
• Drink sales continue to perform well and food sales were encouraging, demonstrating the trading resilience of the Group's predominantly community pub estate
• Increase in pub operating profit: £43.1 million (H1 FY2022: £39.9 million); due to the seasonal nature of the business, the majority of profit is typically earned in H2
• Improved share of CMBC's profits: £2.2 million (H1 FY2022: loss of £(2.0) million)

Positive cash generation, debt reduction, continued NAV momentum and extension of bank funding

• Operating cash inflow of £69.9 million (H1 FY2022: £30.2 million) and net cash inflow for the period of
  £11.5 million (H1 FY2022: outflow of £8.9 million)
• Continued progress with debt reduction strategy: net debt excluding IFRS 16 lease liabilities reduced
  by £12.1 million to £1,204.1 million (FY2022: £1,216.2 million)
• Net asset value (NAV) per share of £0.98 (H1 FY2022: £0.71)
• £24.3 million generated from non-core strategic disposals to date at 39% ahead of net book value, with disposals totalling £50-60 million anticipated in FY2023
• Successfully secured amendment and extension of banking facilities totalling £340 million, comprising £300 million RCF and £40 million private placement
• 63% of the £65 million capital expenditure earmarked for FY2023 invested in H1, thereby maximising the benefit in H2

Continued evolution of pub portfolio

• Well-positioned,predominantly freehold pub estate, with limited exposure to city centres and community pubs continuing to benefit from consumer lifestyle changes
• Simplified estate categorisation with a core focus on mainstream market
• Completed 42 capital schemes in H1 with a further 14 planned for H2; £4m garden investment

• Majority of estate repositioning to be completed by FY2026

Continued momentum on 'Pubs to be proud of' strategy, driving strong results

• Progress on 'Back to a Billion' by 2026 sales and net debt targets
• Consecutive market outperformance in the first six months of the year
• Category evolution delivering encouraging results with food and drink spend per head up 9% and gross margin up 2%
• Significant improvement in guest satisfaction, team engagement and pub standards metrics
• 'Doing more to be proud of': progress on ESG agenda, including energy saving initiatives, charity community partnerships; positive approach to Diversity & Inclusion

Current trading and outlook

• Positive current trading, with like-for-like sales in the last six weeks +7.9% vs. last year. Key Easter and first May bank holiday dates were also strong
• Continuing to manage inflationary challenges within our control: energy costs secured with electricity fixed until end of H1 FY2024 and gas until end of March 2025; offsetting other costs through efficiencies and pricing strategies
• Trading patterns normalising with encouraging consumer resilience. Garden investment positions estate well for the summer
• Operating profit in line with expectations, with further cash generation and debt reduction expected

Commenting, Andrew Andrea, CEO said:

"The strategy which we outlined 18 months ago is progressing well and generating positive results which is pleasing. Our H1 performance clearly demonstrates that consumers remain as keen as ever to celebrate - and socialise within - the Great British Pub. The macro environment is becoming increasingly stable and recent evidence suggests that both the cost outlook, and consumer confidence, are steadily improving. The actions we are taking are building a demonstrably better business and Marston's predominantly community pub estate continues to benefit from changing consumer lifestyles.

We continue to deliver upon our clear strategic objective to reduce debt and progress our path to profitability, albeit the seasonality of our trading profile means that the majority of the Group's profit is characteristically H2 weighted. We have invested ahead in H1, to capitalise on the benefits of this in H2, and remain on track to meet our operating profit, cash generation and debt reduction targets for the year. We look forward to delivering further positive progress as the year unfolds and remain confident that we have the strategy and the team in place to do so, maximising the opportunities open to us in the future and delivering shareholder value."

NOTES TO EDITORS

• Marston's is a leading pub operator with a 40% holding in Carlsberg Marston's Brewing Company.
• It operates an estate of 1440 pubs situated nationally, comprising managed, franchised and leased pubs.
• Marston's employs around 11,000 people.
• The Group uses a number of alternative performance measures (APMs) to enable management and users of the financial statements to better understand elements of financial performance in the period. APMs are reconciled to the interim financial information in note 17 to the interim financial statements.

GROUP OVERVIEW

H1 2023 PERFORMANCE OVERVIEW

We have continued to make progress in embedding our vision 'Pubs to be proud of', with a purpose 'to bring people together, to create happy, memorable, meaningful experiences', embodying our DNA of being a pub operator at our core, whilst focusing on consistently delivering high levels of guest satisfaction and standards through our great pub teams.

Due to the seasonal nature of the Group's business, the majority of profit is typically earned in the second half of the year. We traded well despite the uncertain macroeconomic environment and cost inflation. We have worked hard to mitigate as many of these cost pressures as possible through a combination of cost efficiencies and pricing increases.

The Group benefits from an estate that is balanced across formats and locations, with well-invested pubs, and is set for future sustainable like-for-like growth and shareholder value creation over the medium to long term. What is clear is that people are continuing to visit our predominantly community pubs. The pub has historically been the place to fulfil that affordable socialising occasion, prioritising experience and leisure expenditure over bigger ticket spend.

Our primary corporate goals remain: reaching two £1 billion financial targets by 2026, namely the achievement of sales of £1 billion and reducing the Group's debt (excluding IFRS 16 lease liabilities) to below £1 billion. We continue to make progress towards both goals.

Trading

Revenue for the 26 weeks ended 1 April 2023 was £407.0 million (H1 2022: £369.7 million); 10.1% higher than the same period last year reflecting the continued rebuilding of trading momentum post Omicron.

Like-for-like sales for the period were up 10.7% vs last year, continuing to show strong like-for-like performance, encouraging recovery from COVID-19 and the positive impact of our strategy. Like-for-like sales were up 17.9% vs the same period in FY2020, which included a brief period of COVID-19 impact in late March 2020.

Drink sales have continued to perform well, once again demonstrating the trading resilience of our predominantly community pub estate. We were also pleased that the gap between drink and food sales performance is narrowing. We continue to have confidence that our pub strategy is delivering positive momentum, evidenced by the trading performance. Our strategy is centered upon providing affordable pub experiences for our guests in a quality environment, both inside and out, in our well-invested pub gardens and outdoor trading areas.

Underlying operating profit, excluding income from associates (CMBC) was £43.1 million (H1 2022: £39.9

million) with a margin of 10.6% (H1 2022: 10.8%), which was expected due to increased energy costs.

Underlying operating profit, including income from associates, was £45.3 million (H1 2022: £37.9 million).

Debt and financing

We have successfully secured an amendment and extension (A&E) to our banking facility and private placement to the end of January 2025. The revised £340 million facilities are comprised of a £300 million Revolving Credit Facility (the 'RCF') with the continued support of all of our existing banks and with two new banks keen to join the syndicate, together with a restatement of our current £40 million private placement. The RCF replaces the Group's existing £280 million facility. As previously reported, £120 million of the facility is hedged.

Net debt, excluding IFRS 16 lease liabilities, was £1,204.1 million, a reduction of £12.1 million from last financial year (2022: £1,216.2 million). Total net debt of £1,586.5 million (2022: £1,594.0 million) includes IFRS 16 lease liabilities of £382.4 million (2022: £377.8 million). The reduction in debt would have been greater without the H1 phasing of capital expenditure.

Property Disposals

Following a strategic asset review, in FY2023 we expect to dispose of £50-60 million of non-core and unlicensed properties. In this period, £24.3 million proceeds have been generated from these disposals, which achieved a price 39% higher than the net book value; earnings related to these properties were expected to be c.£3 million in H2 FY2023 and c.£6 million in FY2024.

Dividend

The Board confirms that given the continued macroeconomic uncertainty, no dividends will be paid in respect of financial year 2023. The Board is cognisant of the importance of dividends to shareholders and intends to keep potential future dividends under review.

Current Trading and Outlook

Trading since the half year end is strong. Like-for-like sales in our managed and franchised pubs are +7.9%.

For the Easter weekend and first May bank holiday like-for-like sales were strong compared to last year, demonstrating that when weather conditions are right people want to go out to the pub. Over the Coronation weekend overall there was a sales uplift, with better performance on the days with good weather.

We remain mindful of the current macroeconomic environment, with the cost-of-living crisis and the resulting challenges this brings in respect of cost inflation and the potential impact on disposable income, as well as potential supply issues. However, our pubs have demonstrated their resilience time and time again and, to date, there is little in our trading performance to suggest that there has been a change to consumer behaviour; our guests still want to go out and have an affordable treat in a Marston's pub.

Similar to other operators in the hospitality business, our major cost lines within the business are food, drink, labour and energy. We continue with a relentless focus on managing costs to mitigate the inflationary impact on the business. We are working hard to mitigate as many of these cost pressures as possible and we expect to offset some of these higher levels of inflation through a combination of cost efficiencies and pricing strategies. The main changes since the previous update are as follows:

Energy: the Group's gas price is fixed until the end of March 2025 with no additional incremental spend anticipated. We have entered into a contract for the Group's electricity until the end of FY2024; the electricity for the six-month period from October 2023 to March 2024 is now secured. In keeping with our commitment to our ESG strategy, we continue to focus on making efforts to mitigate energy costs wherever possible, by adopting further energy efficient or saving schemes, such as our Going Green initiative which tracks energy consumption and rewards and incentivises responsible reduction.

Interest: the RCF facility cost is variable, to be determined by the level of leverage or drawings from time to time alongside changes in the SONIA rate, together with issue costs. £120 million of the RCF facility is hedged. The securitisation is fully hedged until 2035 and overall we are 93% hedged, providing protection against changes in interest rate movements that may occur during the year.

Looking ahead, whilst the short-term outlook is of course uncertain, we remain confident in the future prospects of the Group. The level of customer demand we are experiencing is encouraging and underpins our confidence that we have the right strategy in place and that it is delivering positive progress on our strategic goals.

STRATEGIC PRIORITIES

Market Dynamics

Despite the challenging macroeconomic climate, the Group's performance over the last six months once again demonstrates the resilience of the pub sector eating and drinking out market, with consumer demand remaining encouraging. Reassuringly the key market dynamics, which we have broadly set out previously, remain consistent, enabling us to meet those market demands and reinforcing our conviction that our strategy is the right one:

Our guests still want to socialise outside the home: despite the economic pressure facing all consumers, the post-pandemic trend to seek experiences outside home remains intact.

'Brand Pub' is in strong demand: the strategy to create a business of 'Pubs to be proud of' ensuring all of our pubs welcome drinkers and diners equally, remains intact. The British public's strong affinity with the British pub remains deep-rooted.

Lifestyle changes favour community pubs versus town centres: we are seeing the 'work from home' trend evolve into a hybrid model whereby many people still work from home at least one day per week. This structural change plays to our benefit with over 90% of our estate located in suburban areas. Our local/community geography which characterises our pub estate has also largely insulated Marston's from the impact of rail and tube strike challenges.

Experience replacing convenience as reason to visit: our customer research cites 'ambience and atmosphere' as one of the key drivers of choice in selecting a pub, with good quality drink and food taken as a given. Our objective remains to offer great experiences in our pubs in a quality environment, supported by high quality products and stand-out service. Importantly, as a consequence of the inflationary backdrop we have had to pass some price increases through to our guests, with minimal pushback, demonstrating the importance of experience over price.

'Al fresco' drinking and eating is here to stay: we are investing c.£4 million across the estate, further improving our gardens to deliver an enhanced outdoor experience, ready for key summer trading. In addition, we have further developed our order and pay platform to improve the outdoor guest journey.

'Red Letter' occasions are key drivers of success: these key trading occasions have historically been important to our industry. However, we are observing that when those natural spikes in footfall occur, guests are still willing to spend more money on these key trading occasions. We saw this over the Christmas period where the core days were especially strong, and over Mother's Day, Easter, the first May bank holiday and Coronation celebrations most recently. Our marketing and trading focus is to ensure we maximise opportunities; to both delight our guests and to deliver growth.

Strategic and Operational Review

Our Strategy - 'Pubs to be proud of'

Our strategy, 'Pubs to be proud of', remains unchanged and relevant with the purpose 'to bring people together to create happy, memorable, meaningful experiences'. This embodies our cultural DNA of being a pub operator, whilst focusing on consistently delivering high levels of guest satisfaction and standards through our great pub teams.

Underpinning the strategy is a focus on three core pub goals relating to Guest Satisfaction, Team Engagement and Pub Standards, which are embedded in our incentive schemes across the organisation from licensees and