REG - Marston's Plc - Interim Results <Origin Href="QuoteRef">MARS.L</Origin> - Part 2
18/05/2016 07:05
- Part 2: For the preceding part double click ID:nRSR5265Ya
section 498 (2) or (3) of the Companies Act 2006.
The interim financial information does not constitute statutory accounts
within the meaning of section 434 of the Companies Act 2006. The interim
financial information for the 26 weeks ended 2 April 2016 and the comparatives
to 4 April 2015 are unaudited, but have been reviewed by the Auditors.
The Group does not consider that any standards or interpretations issued by
the International Accounting Standards Board, but not yet applicable, will
have a significant impact on the financial statements for the 52 weeks ending
1 October 2016.
The Directors are satisfied that the Group has sufficient resources to
continue in operation for the foreseeable future, a period of not less than 12
months from the date of this report. Accordingly, they continue to adopt the
going concern basis in preparing this interim financial information.
2 SEGMENT REPORTING
2 April 2016 4 April 2015
Underlying revenue by segment £m £m
Destination and Premium 204.8 187.2
Taverns 107.1 104.4
Leased 24.2 25.1
Brewing 92.6 67.8
Group Services - -
Underlying revenue 428.7 384.5
Non-underlying items 15.6 16.0
Revenue 444.3 400.5
2 April 2016 4 April 2015
Underlying operating profit by segment £m £m
Destination and Premium 34.8 31.6
Taverns 24.2 24.1
Leased 12.7 12.4
Brewing 10.0 8.6
Group Services (11.2) (10.2)
Underlying operating profit 70.5 66.5
Non-underlying operating items (3.3) (48.5)
Operating profit 67.2 18.0
Net finance costs (44.4) (45.5)
Profit/(loss) before taxation 22.8 (27.5)
Underlying operating profit is a key measure of profitability used by the
chief operating decision maker.
3 NON-underlying items
In order to illustrate the underlying trading performance of the Group,
presentation has been made of performance measures excluding those items which
it is considered would distort the comparability of the Group's results.
These non-underlying items comprise exceptional items and other adjusting
items.
Exceptional items are defined as those items that, by virtue of their nature,
size or expected frequency, warrant separate additional disclosure in the
financial statements in order to fully understand the underlying performance
of the Group. As management of the freehold and leasehold property estate is
an essential and significant area of the business, the threshold for
classification of property related items as exceptional is higher than other
items.
Other adjusting items comprise the revenue and expenses in respect of the
ongoing management of the portfolio of pubs disposed of in the period ended 4
October 2014. Following their disposal these pubs no longer form part of the
Group's core activities and the Group does not have the ability to make
strategic decisions in respect of them. As such it is considered appropriate
to exclude the results of these pubs from the Group's underlying results.
2 April 2016 4 April 2015
£m £m
Exceptional operating items
Non-core estate disposal and reorganisation costs 0.7 1.6
Impact of change in rate assumptions used for onerous lease provisions 1.2 5.9
Relocation, reorganisation and integration costs 0.9 0.9
Impairment of freehold and leasehold properties - 39.0
Tax advisory fees 0.5 -
3.3 47.4
Other adjusting operating items
Results in respect of the ongoing management of pubs in the portfolio disposal - 1.1
- 1.1
Non-underlying operating items 3.3 48.5
Exceptional non-operating items
Movement in fair value of interest rate swaps 7.0 8.6
7.0 8.6
Total non-underlying items 10.3 57.1
Non-core estate disposal and reorganisation costs
During the period ended 5 October 2013 the Group commenced a restructuring of
its pub estate and its operating segments. Costs in respect of this
restructuring were incurred in both the current and prior period.
Impact of change in rate assumptions used for onerous lease provisions
The update of the discount and inflation rate assumptions used in the
calculation of the Group's onerous property lease provisions at the current
period end resulted in an increase of £1.2 million (2015: £5.9 million) in the
total provision.
Relocation, reorganisation and integration costs
During the current and prior period a redevelopment of the Group's head office
building in Wolverhampton was undertaken along with a reorganisation of
certain head office functions. Costs of £0.4 million (2015: £0.9 million)
were incurred in respect of temporarily relocating to alternative premises
nearby during the period of redevelopment and in undertaking the
reorganisation.
The Group also incurred reorganisation and integration costs of £0.5 million
(2015: £nil) as a result of the acquisition of the trading operations of
Daniel Thwaites PLC's beer division in the period ended 3 October 2015.
Portfolio disposal of pubs
During the period ended 4 October 2014 the Group disposed of a portfolio of
202 pubs and subsequently entered into a four year lease and five year
management agreement in respect thereof. The Group no longer has strategic
control of these pubs and they do not form part of its core activities. As
such the results in respect of the ongoing operation and management of these
pubs post disposal have been classified as a non-underlying item, comprised as
follows:
2 April 2016 4 April 2015
£m £m
Revenue 15.6 16.0
Operating expenses (15.6) (17.1)
- (1.1)
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 hedging 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
loss of £7.0 million (2015: £8.6 million) is shown as an exceptional item. In
addition to this, a loss of £16.5 million (2015: £50.4 million) has been
recognised in the hedging reserve, in relation to the effective portion of the
movement in fair value of interest rate swaps which are accounted for as
hedging instruments.
Impact of taxation
The current tax credit relating to the above non-underlying items amounts to
£0.5 million (2015: £1.5 million). The deferred tax credit relating to the
above non-underlying items amounts to £1.6 million (2015: £8.0 million). In
addition, there is a non-underlying deferred tax credit of £1.1 million (2015:
£nil) in relation to the change in corporation tax rate (note 5).
During the current period the Group agreed the tax treatment of certain items
with HM Revenue & Customs. The tax credit of £4.1 million in respect of the
additional tax relief claimed for previous periods has been classified as a
non-underlying item along with the associated advisory fees of £0.5 million.
Prior period non-underlying items
At 1 February 2015 the Group's freehold and leasehold properties were revalued
by independent chartered surveyors on an open market value basis. The
resulting revaluation adjustments were recognised in the revaluation reserve
or income statement as appropriate. The amount recognised in the income
statement comprised:
4 April 2015
£m
Impairment of other intangible assets 0.1
Reversal of impairment of other intangible assets (0.2)
Impairment of property, plant and equipment 60.1
Reversal of impairment of property, plant and equipment (26.3)
Impairment of assets held for sale 5.0
Reversal of impairment of assets held for sale (0.1)
Valuation fees 0.4
39.0
4 FINANCE COSTS AND INCOME
2 April 2016 4 April 2015
£m £m
Finance costs
Unsecured bank borrowings 6.1 5.7
Securitised debt 24.1 24.7
Finance leases 0.5 0.5
Other lease related borrowings 6.0 5.1
Net finance cost in respect of retirement benefits 0.2 -
Other interest payable 0.7 1.1
Total finance costs 37.6 37.1
Finance income
Deposit and other interest receivable (0.2) (0.2)
Total finance income (0.2) (0.2)
Movement in fair value of interest rate swaps
Loss on movement in fair value of interest rate swaps 7.0 8.6
7.0 8.6
Net finance costs 44.4 45.5
5 TAXATION
The underlying taxation charge for the 26 weeks ended 2 April 2016 has been
calculated by applying an estimate of the underlying effective tax rate for
the 52 weeks ending 1 October 2016 of approximately 18.7% (26 weeks ended 4
April 2015: approximately 19.6%).
2 April 2016 4 April 2015
£m £m
Current tax 0.6 3.9
Deferred tax (1.7) (7.6)
(1.1) (3.7)
The taxation credit includes a current tax credit of £0.5 million (2015: £1.5
million) and a deferred tax credit of £1.6 million (2015: £8.0 million)
relating to the tax on non-underlying items. In addition, there is a
non-underlying deferred tax credit of £1.1 million (2015: £nil) in relation to
the change in corporation tax rate. There is also a non-underlying current
tax credit of £3.7 million (2015: £nil) and a non-underlying deferred tax
credit of £0.4 million (2015: £nil) in relation to the additional tax relief
claimed by the Group for previous periods following the agreement of the tax
treatment of certain items with HM Revenue & Customs (note 3).
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 on
trust for employee share schemes.
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 and other adjusting items. The Directors consider that the
supplementary figures are a useful indicator of performance.
2 April 2016 4 April 2015
Earnings Per share amount Earnings Per share amount
£m p £m p
Basic earnings/(loss) per share 23.9 4.2 (23.8) (4.2)
Diluted earnings/(loss) per share* 23.9 4.1 (23.8) (4.2)
Underlying earnings per share figures
Basic underlying earnings per share 26.9 4.7 23.8 4.2
Diluted underlying earnings per share 26.9 4.6 23.8 4.1
* The 2015 diluted loss per share is the same as the basic loss 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'.
2 April 2016 4 April 2015
m m
Basic weighted average number of shares 574.4 572.0
Dilutive options 5.7 6.4
Diluted weighted average number of shares 580.1 578.4
7 PROPERTY, PLANT AND EQUIPMENT
£m
Net book amount at 4 October 2015 2,122.6
Additions 71.9
Net transfers to assets held for sale and disposals (22.4)
Depreciation, revaluation and other movements (17.9)
Net book amount at 2 April 2016 2,154.2
£m
Net book amount at 5 October 2014 1,990.0
Additions 71.4
Net transfers to assets held for sale and disposals (18.9)
Depreciation, revaluation and other movements 41.0
Net book amount at 4 April 2015 2,083.5
Revaluation/impairment
During the prior period independent chartered surveyors revalued the Group's
freehold and leasehold properties on an open market value basis. These
valuations were incorporated in the financial statements and the resulting
revaluation adjustments were recognised in the revaluation reserve or income
statement as appropriate.
During the current period various properties were reviewed for impairment
and/or material changes in value.
The impact of the revaluations/impairments described above is as follows:
2 April 2016 4 April 2015
£m £m
Income statement:
Revaluation loss charged as an impairment - (60.1)
Reversal of past impairment - 26.3
- (33.8)
Revaluation reserve:
Unrealised revaluation surplus 1.3 213.0
Reversal of past revaluation surplus - (120.6)
1.3 92.4
Net increase in shareholders' equity/property, plant and equipment 1.3 58.6
8 NET DEBT
2 April 2016 Cash flow Non-cash movements and deferred issue costs 3 October 2015
Analysis of net debt £m £m £m £m
Cash and cash equivalents
Cash at bank and in hand 231.9 38.8 - 193.1
Bank overdrafts (6.4) 2.3 - (8.7)
225.5 41.1 - 184.4
Debt due within one year
Unsecured bank borrowings (59.1) (30.0) (30.0) 0.9
Securitised debt (27.0) 13.1 (13.9) (26.2)
Finance leases (0.1) - - (0.1)
Other lease related borrowings 0.1 - - 0.1
Other borrowings (120.0) - - (120.0)
(206.1) (16.9) (43.9) (145.3)
Debt due after one year
Unsecured bank borrowings (248.7) (30.0) 29.5 (248.2)
Securitised debt (820.0) - 13.6 (833.6)
Finance leases (20.6) - - (20.6)
Other lease related borrowings (202.5) (22.1) 1.2 (181.6)
Preference shares (0.1) - - (0.1)
(1,291.9) (52.1) 44.3 (1,284.1)
Net debt (1,272.5) (27.9) 0.4 (1,245.0)
Other lease related borrowings represent amounts due under sale and leaseback
arrangements that do not fall within the scope of IAS 17 'Leases'.
Other borrowings represent amounts drawn down under the securitisation's
liquidity facility. During the period ended 4 October 2014 the facility's
provider, the Royal Bank of Scotland Group plc, had its short-term credit
rating downgraded below the minimum prescribed in the facility agreement and
as such the Group exercised its entitlement to draw the full amount of the
facility and hold it in a designated bank account. The corresponding balance
of £120.0 million (at 3 October 2015: £120.0 million) held in this bank
account is included within cash and cash equivalents. The amounts drawn down
can only be used for the purpose of meeting the securitisation's debt service
obligations should there ever be insufficient funds available from operations
to meet such payments. As such these amounts are considered to be restricted
cash.
Included within cash and cash equivalents is an amount of £1.0 million (at 3
October 2015: £1.6 million), which relates to a letter of credit with Royal
Sun Alliance Insurance, an amount of £1.4 million (at 3 October 2015: £1.0
million), which relates to a letter of credit with Aviva, and an amount of
£7.9 million (at 3 October 2015: £7.8 million), which relates to collateral
held in the form of cash deposits. These amounts are also considered to be
restricted cash.
In addition, any other cash held in connection with the securitised business
is governed by certain restrictions under the covenants associated with the
securitisation.
2 April 2016 4 April 2015
Reconciliation of net cash flow to movement in net debt £m £m
Increase in cash and cash equivalents in the period 41.1 8.7
Cash inflow from movement in debt (69.0) (57.6)
Change in debt resulting from cash flows (27.9) (48.9)
Non-cash movements and deferred issue costs 0.4 2.2
Movement in net debt in the period (27.5) (46.7)
Net debt at beginning of the period (1,245.0) (1,198.2)
Net debt at end of the period (1,272.5) (1,244.9)
2 April 2016 4 April 2015
Reconciliation of net debt before lease financing to net debt £m £m
Cash and cash equivalents 231.9 189.1
Unsecured bank borrowings (including bank overdrafts) (314.2) (239.2)
Securitised debt (847.0) (872.5)
Other borrowings (120.0) (120.0)
Preference shares (0.1) (0.1)
Net debt before lease financing (1,049.4) (1,042.7)
Finance leases (20.7) (20.8)
Other lease related borrowings (202.4) (181.4)
Net debt (1,272.5) (1,244.9)
9 FINANCIAL INSTRUMENTS
The only financial instruments which the Group holds at fair value are
derivative financial instruments, which are classified as at fair value
through profit or loss or derivatives used for hedging.
Fair value hierarchy
IFRS 13 'Fair Value Measurement' requires fair value measurements to be
recognised using a fair value hierarchy that reflects the significance of the
inputs used in the measurements, according to the following levels:
Level 1 - unadjusted quoted prices in active markets for identical assets or
liabilities.
Level 2 - inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.
Level 3 - inputs for the asset or liability that are not based on observable
market data.
The table below shows the level in the fair value hierarchy within which fair
value measurements have been categorised:
2 April 2016 3 October 2015
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Liabilities as per the balance sheet £m £m £m £m £m £m £m £m
Derivative financial instruments - 216.2 - 216.2 - 192.7 - 192.7
There were no transfers between Levels 1, 2 and 3 fair value measurements
during the current or prior period.
The Level 2 fair values of derivative financial instruments have been obtained
using a market approach and reflect the estimated amount the Group would
expect to pay on termination of the instruments. The Group obtains such
valuations from counterparties who use a variety of assumptions based on
market conditions existing at each balance sheet date.
The fair values of all non-derivative financial instruments are equal to their
book values, with the exception of borrowings. The carrying amount less
impairment provision of trade receivables, other receivables and trade loans,
and the carrying amount of trade payables and other payables, are assumed to
approximate their fair values. The carrying amount (excluding unamortised
issue costs) and the fair value of the Group's borrowings are as follows:
Carrying amount Fair value
2 April 2016 3 October 2015 2 April 2016 3 October 2015
£m £m £m £m
Unsecured bank borrowings 316.4 258.7 316.4 258.7
Securitised debt 853.1 866.2 853.1 892.2
Finance leases 20.7 20.7 20.7 20.7
Other lease related borrowings 217.2 195.1 217.2 195.1
Other borrowings 120.0 120.0 120.0 120.0
Preference shares 0.1 0.1 0.1 0.1
1,527.5 1,460.8 1,527.5 1,486.8
10 MATERIAL TRANSACTIONS
Additional contributions of £4.5 million (26 weeks ended 4 April 2015: £6.6
million) were made in the period to the Marston's PLC Pension and Life
Assurance Scheme.
There were no significant related party transactions during the period (26
weeks ended 4 April 2015: none).
11 CAPITAL COMMITMENTS
Capital expenditure authorised and committed at the period end but not
provided for in this interim financial information was £11.6 million
(at 3 October 2015: £11.4 million).
12 CONTINGENT LIABILITIES
There have been no material changes to contingent liabilities since 3 October
2015.
13 SEASONALITY OF INTERIM OPERATIONS
The Group's financial results and cash flows have, historically, been subject
to seasonal trends between the first and second half of the financial year.
Traditionally, the second half of the financial year sees higher revenue and
profitability, as a result of better weather conditions.
There is no assurance that this trend will continue in the future.
14 EVENTS AFTER THE BALANCE SHEET DATE
An interim dividend of £14.9 million, being 2.6p (2015: 2.5p) per ordinary
share, has been proposed and will be paid on 5 July 2016 to those shareholders
on the register at the close of business on 27 May 2016. This interim
financial information does not reflect this dividend payable.
15 PRINCIPAL RISKS AND UNCERTAINTIES
The Group set out on pages 22 and 23 of its 2015 Annual Report and Accounts
the principal risks and uncertainties that could impact its performance.
These remain unchanged since the Annual Report and Accounts was published and
are expected to remain unchanged for the second half of the financial year.
These risks and uncertainties are summarised as follows:
§ Economic uncertainty
§ Changes in regulation impacting upon the cost of business or obstructing
growth
§ Investment plans not meeting expectations
§ Network outage or denial of service
§ Loss, theft or corruption of data
§ Failure to attract or retain the best people
§ Incorrect reporting of financial results
§ Unauthorised transactions
§ Breach of financial covenants with lenders
16 INTERIM RESULTS
The interim results were approved by the Board on 18 May 2016.
17 COPIES
Copies of these results are available on the Marston's PLC website
(www.marstons.co.uk) and on request from the Group Secretary, Marston's PLC,
Marston's House, Brewery Road, Wolverhampton, WV1 4JT.
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