Profits dip at Marston's
Operating profit at brewer and pub operator Marston's fell 5.7% to £147.4m for the year to 3 October, reflecting a weaker performance from its tenanted pubs.
Overall, sales were 1.4% below last year at £645.1m and profit before tax and exceptionals fell 13.5% to £70.3m in what chief executive Ralph Findlay described as a "creditable performance in a very challenging period".
Total revenue across its 1,688-strong Marston's Pub Company fell 3.9% to £175.8m, reflecting reduced volumes sold to tenants and lessees.
Operating profit fell 7% to £81.8m, which included a £3m investment in support of licensees. Average profit per pub reduced from £51,000 to £48,000.
"Well invested pubs in good locations, operated by dedicated licensees who have responded to their customers' needs, have continued to perform well — around 80% of pubs in the tenanted and leased estate achieved like-for-like profits in line with last year," it said.
"These are the better pubs in the estate and are let on substantive, medium to long-term agreements. However, the economic recession has had a polarising effect on the performances of pubs and has accelerated existing market trends, contributing to a sharp decline in profits in the weakest 20% of pubs in the estate.
"The weakest 20% of pubs require more intensive management. These pubs are currently operated under short-term agreements, such as tenancy-at-will, or by agencies. The lower profitability of these pubs results from low tenant stability, the costs of agency and a weak consumer proposition."
Tenant support
Marston's said it would invest £5m additional capital in struggling pubs in 2010; had introduced a Tracker lease agreement with an annual rent of up to £15,000, which around 100 licensees have taken up; and developed a new franchise-type agreement, where licensees earn a percentage of the profit but have less operational freedom. It expects 90 pubs will operate under this new agreement in 2010.
The average rent per pub is £25,500 a year and the average rents in 80% of the estate on substantive agreements increased by 2% in 2009. "Rents must be set on the basis of what is affordable and sustainable in any given pub operated by a good, capable licensee," it said.
In 2010, a similar support package of £3m in extra discounts and concessions will also be available while the number of pubs per BDM has reduced to around 30 to help with the "intensive management" needed at weaker pubs.
Marston's said that it believed that "significant progress" had been made since the Business, Innovation and Skills report of the summer and the Office of Fair Trading report.
"Marston's Pub Company continues to develop its relationship with tenants and lessees, and operates in a transparent manner with the objective of a fair division of risk and reward between the Group and its licensees.
"We are clear that the principles underlying existing agreements, including the tie, and fair, sustainable rents, confer real benefits to tenants. The industry has developed a new Code of Practice in response to the BISC report which we will implement."
Managed pubs
Revenue at the 496-strong managed Marston's Inns and Taverns fell 3.6% to £367.8m, principally reflecting the transfer of 47 smaller pubs to the leased division.
Underlying operating profit of £60.3m was down 6.5% on last year. The average profit per pub increased from £117,000 to £120,000.
In the last nine weeks to 3 October, like-for-like sales increased by 2.7%, including food sales up by 5.7% and drink sales up by 1%.
"This stronger performance was achieved despite the generally poor summer weather, and demonstrates the appeal of our value-for-money offers and our focus on the 'F-Plan' (food, families, females and forty-somethings)."
For the year, total like-for-like sales were down by 0.6% with like-for-like food sales up by 2.8% and like-for-like drink sales down 2.4%. Cask ale sales grew 20% in the year.
"Our overall good performance has been driven by strong trading in high quality food-led outlets, particularly those with a clear value-for-money offer, such as 'Two for One' (87 pubs).
"Similarly, the introduction of carvery meals from £3.99 and a range of promotional offers during specific trading hours have proved extremely popular and these, combined with interesting, refreshed menus and high quality ingredients, contributed to an increase in meals sold of 4% to around 23 million meals this year. Average spend per head on food was broadly similar to the previous year at approximately £6."
Brewery
Total revenue at Marston's Beerr Company increased 13.2% to £101.5m with underlying profit up 3.9% at £16m. Own brewed volumes were up 8%, premium ale up 26% — including 13% growth in the on-trade and 50% growth in the off-trade.
Recent improvement
For the eight weeks to 28 November, Marston's reported that like-for-like sales at managed pubs increased 3.1% and like-for-like profit at tenanted pubs down 5%, "representing an improvement in the rate of profit decline reported for the 2009 financial year".
Findlay said: "This was a creditable performance in a very challenging period. In addition, the improvement in trading we experienced over the second half-year has continued in recent weeks, and we have made an encouraging start to the new financial year.
"Although we are cautious about predicting recovery, we have good pubs and popular regional ales which are performing well. We have a strong platform to make further progress over the coming year."
