NewRiver intends to convert the portfolio to alternative uses, primarily into food convenience stores and restaurants.
The disposal comprises 158 community pubs from Marston’s Taverns estate and 44 Leased pubs. Under the terms of the transaction Marston’s will manage the pubs for five years in return for a management fee. For the first four years Marston’s has provided a minimum income guarantee.
Marston’s said the disposal is consistent with its strategy to “target growth through investment in higher turnover pub-restaurants, improve the quality of its estate and reduce its exposure to smaller wet-led pubs”.
Based on EBITDA of £11.8m (net of the management fee) and operating profit of £10.4m for the year to 5 October 2013 the transaction represents an exit multiple of around 7.6x EBITDA. The pubs have a book value of £119.5m of which £37.4m is represented by previous revaluation surpluses.
The company said the proceeds of this disposal will be used to redeem the £80m AB1 securitised note saving £6.7m of interest per annum and, on a pro-forma basis, reduce group leverage by 0.1 times EBITDA. Net debt to EBITDA (excluding lease financing) at 5 October 2013 was 5.3 times.
Ralph Findlay, chief executive, said: “This disposal will enable us to reduce the cost of servicing our securitised debt, is consistent with our strategy and improves the quality of our estate. It will also assist with financing the accelerating rollout of our new-build pub-restaurants which are achieving good returns.”
Premium & destination
The group also reported that total revenue across its premium & destination estate increased by 14.1% to £349.2m in the year to 5 October, which it said reflected the continued strong performance of its new-build pub-restaurants, growth in like-for-like sales and the benefit of the 53rd trading week. Underlying operating profit of £70.3m 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%.
The company said it continued 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%).
It achieved a 1.5% improvement in operating margin, which it said was through moderate price increases and tight cost control.
Total revenue across its Taverns operation increased by 3.8% to £250.8m, which it said reflected an increased revenue contribution from more pubs operating under the franchise model.
Underlying operating profit was £69.5m, 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 its tenanted pubs in line with market trends. Average profit per pub is in line with last year.
In its managed and franchised pubs like-for-like sales were in line with last year and operating profits were up 3.7%, which Marston’s said reflected 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. The company said this reflected 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. The group said that these agreements generate increased profit but the operating margin percentage is reduced as a consequence of accounting for sales at full retail value.
Total revenue decreased by 4.6% to £55.6m across it leased division, principally reflecting lower volumes in line with the market. Underlying operating profit of £26m was in line with last year. Average profit per pub increased by 2.1% to £67k, and licensee stability remained high at 92%.
The company said: “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.”
Total revenue increased by 12% to £127.3m. Underlying operating profit increased by 3.0% to £16.9m.
Overall ale volumes were up 6% on last year, with premium cask ale volumes up 4% and bottled ale volumes up 19%.
The group said: “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."
Total company revenue in the year grew 9% to £782.9m, with underlying pre-tax profit up 1% to £88.4m and underlying operating profit up 7% to £168.3m.
It reported a 3.1% rise in like-for-like sales across its premium and destination division for the 7 weeks to 23 November, with food sales up 4.6% and wet sales up 1%.
It said that like-for-like sales across its managed and franchised division climbed 2.1% during the period, while tenanted profits were in line with expectations.
The company said that like-for-like profits in across its leased pubs in the seven weeks were in line with last year.
The group reported that 130 pubs and other assets were sold or exchanged during the year for c£50m. It said it was targeting £60-70 million disposals per annum in 2014 and 2015 from its Taverns estate.
Findlay 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.”