Marston’s business continued to tick along as full-year statutory revenue edged up by 2.89%. The company swung to a pre-tax loss of £20 million, compared with a profit of £54.3 million last year. The firm saw costs associated with interest rate swaps jump by over £48 million, and that is what pushed the firm into the red. It is worth noting that operating expenses rose by 5.9%, so the interest rate product can’t be blamed for everything. Stripping out one-off costs, profit dipped by 2.88% to £101 million. Group margin cooled a little to 15.2% from 16%, and this is a little concerning seeing as the group has a high level of debt – total non-current liabilities stand at £1.55 billion.
Marston’s PLC (LON:MARS) now plans to ramp up its asset disposals as it aims to sell-off a total of £150 million non-core assets by 2020-23. The company also plans to curtail its capital expenditure as it is targeting a £40 million decline by 2020, and an additional cut of £10-£15 million in 2021. Presumably, the cash raised from the sales will be used to pay down liabilities.
The group reiterated the that consumer confidence remains weak, which is a common complaint among firms these days, but pub group also said there has been no ‘marked change’ in consumer spending. It seems like companies these days like to put out a Brexit related warning just as a way to cover themselves, even if it is business as usual.
The British pub business is going through a tough time as a cooler consumer climate combined with higher expenses like wages and business rates is hurting the industry. Between 2002 and 2018, the number of small pubs operating in the UK fell by over 40%, according to Campaign for Real Ale (CAMRA).
The tougher trading conditions has brought about major changes in the industry. Mergers and acquisitions have been on the rise in recent years. In 2017, Heineken acquired Punch Taverns, and more recently Ei Group, formally called Enterprise Inns (LON:EIGE), was taken over by Stonegate Pub Company, and a Hong Kong investment firm took over Greene King (LON:GNK). For some players in the sector, the mentality has become, go big for go home, so bigger groups can keep a lid on costs through economies of scale.
That explains why Marston’s acquired the Charles Wells Beers group in 2017. Marston’s share price took a knock in May of this year when the company posted sales figures that failed to meet forecasts. That’s the problem with pricey takeovers, the markets are usually less forgiving after the fact as there can be the fear you have bitten off more than you can chew. Marston’s issued a year-end trading update, and the firm revealed plans to raise £70 million through pub disposals, which could be used to pay off debt.
Marston’s share price hit a two year high in September and the wider bullish trend is still in play. Traders will be keeping an eye on the company’s debt level because it is looking pretty lofty when compared with its underlying profit.
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