27 November 2014

MARSTON'S PLC

PRELIMINARY RESULTS FOR 52 WEEKS ENDED 4 OCTOBER 2014

Solid progress, transformation on track, continued dividend growth

·     Solid trading performance:

-  Underlying Group revenue up 1% to £787.6 million and underlying PBT down 3.6% to £83.0 million, reflecting disposals and shorter trading period.

-  Like-for-like profit growth in retained pub estate.

-  Brewing business continued to grow revenue and operating profits.

-  Return on capital remains strong at 10.5%.

·     Two year transformation of pub estate on track, average profit per pub up 10%:

-  Strong underlying revenue and profit growth in Destination and Premium driven by new-build investment, with 27 openings this year.

-  Our 100^th new-build pub opened in Dumfries in September.

-  Continued conversion of Taverns to franchise - 535 now converted.

-  High quality Leased business delivered like-for-like profit and rental growth.

-  Average profit per pub up 10% in our retained pub estate.

·      Final dividend up 4.9% to 4.3p per share reflecting progress and confidence in strategy

·     Encouraging start to new financial year:

-  Destination and Premium like-for-like sales up 2.1%.  Margins ahead of last year.

-  Taverns like-for-like sales up 2.0%.

-  Core Leased like-for-like profits up on last year.

-  Brewing ahead of last year, particularly strong performance from Hobgoblin over Halloween.

Commenting, Ralph Findlay, Chief Executive, said:

"This year we have made good progress in transforming the quality of our pub estate through the continuation of our new-build development plans and the disposal of weaker pubs. Our Brewing business is benefiting from our category leadership in premium ale and new product development.

There are some signs of modest economic improvement, with the emergence of real wage growth and resilience within the economic regions outside London.

Looking forward, we will continue with our expansion strategy to invest in at least 25 new-build pubs each year.  We also remain on track to dispose of the residual 200 pubs targeted for sale from our Taverns estate over the next 12 months to create the desired structure for our business for the future."

ENQUIRIES:

An audio webcast of the results presentation will be available at 
http://webcast.instinctif.tv/886-1178-14355  on 27^th November.

NOTES TO EDITORS

 GROUP OVERVIEW

These results demonstrate that our strategy is delivering value, achieved through investment in new-build pubs generating superior returns, the development of franchise-style pubs, and planned disposals.  The transformation of our pub estate is well underway and on plan, and we are pleased to report solid progress including growth in our retained pub business and in Brewing.

In looking at the performance for the Group as a whole, our year-on-year comparisons reflect significant disposal activity, in particular the portfolio disposal of 202 pubs in November 2013 (which generated annual revenue of £29.6 million and operating profit of £10.8 million), and the fact that 2013 included a 53^rd trading week.

Our plans to invest in pub-restaurants nationally and sell smaller wet-led pubs are on track.  We met our targets for the 2014 financial year, opening 27 new-build pub-restaurants including our 100^th new-build pub in Dumfries, Scotland. We continue to see good opportunities for future investment at attractive returns.

We also sold 388 smaller wet-led pubs and other assets, realising proceeds of £144 million for reinvestment.  As at the year end, the Group's estate comprised 1,689 pubs against 2,050 in 2013. 

The continuing successful implementation of our strategy is demonstrated by our financial performance:  we are seeing good growth in our Destination and Premium estate, increased exposure to the dining market, and growth in our retained Taverns and Leased estates reflected in a 19% increase in average profit per pub over the last two years.

Additionally, around 75% of profits from our pubs are now generated by managed or franchise-style pubs in which we have direct control over the retail offer. This will continue to increase as we implement our strategy, ensuring that we are better able to deliver consistency of service and standards, and to offer outstanding value to our customers in more pubs.

Our performance in pubs was underpinned by an excellent year in Brewing, where our focus on premium and regional beers reflects strong consumer interest in this segment of the market.

In spite of our disposal activity and a 53^rd trading week in 2013, total underlying revenue increased by 0.6% compared to 2013 reflecting the contribution from new pub-restaurants, solid like-for-like sales growth in our pubs, and growth in Brewing. Operating margin was 1.7% below last year as a consequence of the conversion of formerly tenanted pubs to franchise-style agreements, which generate higher profits but at a lower percentage operating margin.

Underlying operating profit was £156.1 million (2013: £168.2 million) including the impact of disposals referred to above and the non-recurrence of the 53^rd trading week. Allowing for these, underlying operating profit increased in each of our core business segments.

Underlying profit before tax was £83.0 million (2013: £86.1 million) with lower interest charges from debt repayments partially offsetting the impact of disposals. Basic underlying earnings per share for the period were 11.7 pence per share (2013: 12.0 pence per share).

Net debt at the period end was £1,198 million.  Net debt includes £1,043 million of long-term structured finance with a stable repayment profile, and no exposure to increases in interest rates.  Excluding property leases with freehold reversion entitlement, the ratio of net debt to underlying EBITDA was 5.4 times at the period end.  Net debt to EBITDA is expected to reduce over time as our long-term debt amortises, and it remains our intention to target a ratio of around 5 times in the medium term.  We have significant flexibility in our financing options, including the selective use of sale and leaseback where appropriate, without compromising our preference for an estate of which more than 90% is freehold.

Cash return on cash capital employed remains strong at 10.5%.  This is slightly behind last year reflecting the short-term effect of the portfolio disposal in November 2013.  We remain focused on improving returns and are confident that the implementation of our strategy will increase returns over time.

The proposed final dividend of 4.3 pence per share provides a total dividend for the year of 6.7 pence per share, and represents a 5% increase on 2013.  Dividend cover was 1.7 times (2013: 1.9 times) reflecting the portfolio disposal.  Our dividend policy remains to target consistent progressive increases in dividend at a cover of around 2 times over the medium term.

Board appointments

The Group further strengthened its Board in September of this year with the appointments of Carolyn Bradley and Catherine Glickman who join Marston's as Non-executive Directors with effect from 1 October and 1 December respectively.  Both are highly experienced retail professionals and have each held senior positions in Marketing and HR respectively.

Current trading

The year has started well, with like-for-like sales growth in Destination and Premium pubs of 2.1% for the 7 weeks to 22 November, including food sales growth of 2.1% and drinks sales growth of 2.0%.  Operating margins are up on last year.  In Taverns, like-for-like sales have grown by 2.0% and in Leased, profits are up on last year. In Brewing, trading is ahead of last year with another strong Halloween performance from Hobgoblin.

Strategy

Marston's strategy is based upon a clear returns-led focus.  Our Group strategic objectives remain sustainable growth, reduced leverage over time and maximising return on capital.  The potential for acquisitions is regularly assessed and reviewed against the consistently strong returns achieved through organic investment in the Group's programme of new-build pub-restaurants. 

The key components of our strategy are described below.

1.   Operating a high quality pub estate

Building new pub-restaurants.  Since 2009 we have opened over 100 pub-restaurants offering family dining at reasonable prices. These pubs generate high turnover, typically averaging £27,000 per week with a food sales mix in excess of 50%. Good site selection has generated consistent returns on investment, extended our trading geography to include southern England and Scotland and created significant value for shareholders.  We opened 27 pub-restaurants in 2014, creating 1,500 jobs and expect to open at least 25 in both 2015 and 2016, with sites also being acquired for longer-term development. The trading style of our new-build pub-restaurants is described in more detail within the 'Destination' section below.

Innovation and investment in community pubs. We pioneered franchise-style agreements in 2009 to improve customer experiences and enhance earnings in our community pubs.  In 2014, the success of pub franchising was demonstrated through the award of the British Franchise Association's "Young Franchisee of the Year" to a Marston's licensee. Franchise-style agreements now operate in 535 Taverns pubs with our aim being to convert most of the remainder by 2016.

Franchise-style agreements differ significantly from traditional tenanted and leased models.  The pub operating model is directed by Marston's, the agreements do not include rent or payments for beer, and risks to the licensee are reduced.  In our view, therefore, it is unlikely that the introduction of 'market rent only' options as recently proposed by Parliament will have a material impact on pubs in our Taverns estate.

Disposal of smaller wet-led pubs. We disposed of 388 pubs and other assets during the year generating proceeds of £144million, and anticipate generating a further c£70 million proceeds in 2015, mainly from disposals in Taverns.

2.   Operating a range of pub brands, formats and flexible business models

Destination. Our Destination pubs offer family dining at reasonable prices, with excellent service in a relaxed pub environment. We operate two principal brands - Marston's "Two for One", and "Milestone Rotisserie".  The food sales mix of this business is 57%.

Premium pubs and bars.  Our Pitcher & Piano bars and Revere pubs offer premium food and drink in attractive town centre and suburban locations. The food sales mix is 27%.  We converted three pubs to Revere in 2014, and expect three conversions in 2015, with the acquisition of new sites targeted for 2016.

Taverns.  Our community pubs include franchised pubs, managed pubs, and tenancies. Over the next 2-3 years we expect that most of our Taverns pubs will be operated under our franchise model. Typically, these are wet-led pubs although food sales are growing and represented 24% of sales in 2014.

Leased pubs. These distinctive pubs benefit from a greater degree of independence and committed licensees. The leased model, with longer-term assignable agreements, attracts skilled entrepreneurs who build value through developing their own businesses. We contribute through our expertise in attracting the right lessee, dealing in a fair manner, and providing business support.

Marston's Inns.  We offer high quality accommodation in 44 pubs within the Destination and Premium segment.  In total, we have around 700 rooms including those in four lodges operated directly by us, with three new lodges planned to be built in 2015.

3.   Offering value for money, good food and drink, and excellent service

Value. Our customers want great experiences at affordable prices. Good pubs offer outstanding value, and customers are using pubs on more occasions, including breakfast and 'coffee shop' visits.  In addition, the proportion of the total eating-out market represented by pub-restaurants is increasing and we expect this trend to continue to provide opportunities for growth.

Good food.  Our pubs offer a broad appeal to families, females, mature customers, and, increasingly, 'millennials'.  In 2014 the introduction of 'build your own' burgers and burritos proved popular with customers; pizza kitchens, ice-cream parlours and garden grills added theatre and broadened our menu offers, and interest in healthy menu options increased.

This year, in our managed and franchised pubs we served over 30 million meals, 67 million pints of beer, 3 million bottles of wine and 5 million cups of coffee.

A great drinks range.  In 2014 we introduced 25 new Marston's beers.  These included the Revisionist Craft Beer range, Shipyard IPA, 'collaboration' beers with Status Quo and Elbow, and Pedigree New World Ale.  We improved our wine offer through a new supply agreement with Rothschild Wines, and signed new spirit contracts in the period.

Our aim is to build on great experiences, and to remain at the forefront of innovation in pub retailing.  In 2014 we created a 'youth board' in partnership with The Sun newspaper to help create 'The Pub of The Future'.  We look forward to developing the ideas which arise from this forum over the coming year.

Excellent service.  The foundations for great service are our people; training and development continues to be important in maintaining our high quality service and standards.  

We are proud of our investment in training and development. In 2014 we created 400 apprenticeships and delivered around 20,000 training days.  Our "keyholder" training programme offers our pub employees a clear career development path, and our Brewing business offers comprehensive training to our sales, customer service and brewing teams.

This investment produces results. Our employee satisfaction score of 79% is very high compared to other retailers and, in our pubs, our customer satisfaction scores continue to improve and we are outperforming our competitors. 

In October 2014 we won the Best Pubs & Bars Employer (large group category) award in the Caterer.com's Best Employers in Hospitality Awards 2014, based on employee votes.  In our Brewing business our Customer Service team were awarded a Customer Service Excellence award, as well as Emma Gilleland receiving the industry accolade of All Parliamentary Beer Group 'Brewer of the Year'.  We were also delighted to receive the Publican's Morning Advertiser 'Best National Cask Ale Supplier' award.

Further customer service enhancements are expected following the introduction of a new EPOS system in 2015.

4.   Leadership in the beer market

Many beer drinkers have become bored by conventional 'big beer brands' and the market has fragmented with more interest in provenance, choice and taste. Growing demand for premium beers reflects this trend and the increasing importance of it when eating out in pubs.

We have benefited from these trends with our wide portfolio of beers from our five breweries, a national distribution network and 'local' approach to our beer brands. This strategy is successful: over 1 in 5 premium bottled ales and 1 in 6 premium cask ales in the UK are Marston's brands. Over the last five years volume has grown by 30% in premium bottled ale and by 9% in premium cask ale.

In 2014 we were awarded the Tesco 2014 "Category Supplier of the Year" ahead of larger, multinational suppliers in other grocery categories.  As category leaders, we work hard with our customers to improve the overall performance of the category and through both the Cask Ale Report and the Premium Bottled Ale Report provide valuable insight into current and future trends.

Our marketing activity reflects the inherent character of our brands. This year Marston's Pedigree renewed its sponsorship as 'The Official Beer of England Cricket'; by contrast, Hobgoblin is widely renowned as the 'Unofficial Beer of Halloween'. Regionally, we support local brands through sponsorships of events including the New Forest Show, the Henley Regatta and the Keswick Jazz Festival.

Our reputation as a leading brewer, packager and distributor resulted in us securing brewing contracts for both Tetley and Thwaites beers.  Furthermore, following the £7 million investment in the bottling line at Marston's Brewery in Burton upon Trent, we contract bottle and distribute for a significant number of other brewers nationwide.

PERFORMANCE AND FINANCIAL REVIEW

Destination and Premium

Total underlying revenue increased by 7.9% to £376.9 million reflecting the continued strong performance of our new-build pub-restaurants, growth in like-for-like sales and the non-recurrence of a 53^rd trading week.  Underlying operating profit of £76.0 million was up 8.1% (2013: £70.3 million).  Average profit per pub increased to £213,000, up 3%.

Total like-for-like sales were 3.1% above last year, with like-for-like food sales up by 3.3%, assisted by strong growth in sales of starters, desserts and coffee.  We achieved double digit growth in both our room income and machine income.  In Destination pubs, food now accounts for 57% of total sales (2013:56%) and in Premium pubs and bars food is 27% of sales (2013:25%).

Like-for-like wet sales increased by 2.0%, outperforming the UK on-trade drinks market.  We continue to see growth in more premium products, with premium cask ale volumes up 8% and premium lager up 16%. 

We achieved a 0.1% improvement in underlying operating margin through moderate price increases and tight cost control.

Taverns

Total underlying revenue decreased by 10.2% to £225.1 million, principally reflecting the impact of the significant disposal activity described above, and consequently underlying operating profit was £55.7 million.  The quality of the remaining pub estate has improved significantly with average profit per pub up 4%.

In our managed and franchised pubs like-for-like sales were up 2.1% on last year and operating profits were up 5.7%, reflecting the continued success of pubs operating under the franchise model.

Operating margin was 3.0% below last year at 24.7%, primarily due to the conversion of pubs from tenanted to franchised models.  These agreements generate increased profit but the operating margin percentage is reduced as a consequence of accounting for sales at full retail value.

Leased

Total underlying revenue decreased by 4.5% to £53.1 million, principally reflecting significant disposals and the non-recurrence of the 53^rd trading week.  Underlying operating profit of £23.5 million was down on last year.  The performance of the core estate was strong with like-for-like earnings growth of 3%.  Average profit per pub increased by 2% to £68,000, and licensee stability remained at over 90%.

As with tenanted pubs, underlying measures of lessee 'health', including rent alleviations, improved during the financial year.  Underlying operating margin of 44.3% was down 2.5%.

Brewing

Total underlying revenue increased by 4.1% to £132.5 million.  Underlying operating profit increased by 3.0% to £17.4 million.

Overall ale volumes were in line with last year, with premium ale volumes up 4% and bottled ale volumes up 6%.  Hobgoblin, our largest brand, continues to grow with sales up 4% on last year.  We have maintained our position as 'category market leader' in both the premium bottled ale and premium cask ale markets.

In the independent free trade, our account base increased to more than 4,150 customers, and premium ale sales to this sector increased by 14%.  In the take home market we continue to perform very strongly with volumes up 4%. 

Underlying operating margin was slightly down versus last year at 13.1%.

Capital expenditure and disposals

Capital expenditure was £142.6 million in 2014 (2013: £150.8 million), including the construction of 27 pub-restaurants.  We expect that capital expenditure will be around £150 million in 2015, including around £80 million for the construction of at least 25 pub- restaurants. 

During the year we generated £143.6 million of cash from the sale of 388 pubs and other assets.

Financing

At 4 October 2014 the Group had a £257.5 million bank facility to November 2018, and the amount drawn down at 4 October 2014 was £212 million.  This facility, together with a long-term securitisation of approximately £0.9 billion and the lease financing arrangements described below provides us with an appropriate level of financing headroom for the medium term. The Group has sufficient headroom on both the banking and securitisation covenants and also has flexibility to transfer pubs between the banking and securitisation groups. 

The Group has entered into a number of lease financing arrangements which have a total value of £158.1 million as at 4 October 2014.  This financing is a form of sale and leaseback agreement whereby the freehold reverts to the Group at the end of the term at nil cost, consistent with our preference for predominantly freehold asset tenure. The agreements range from 35 to 40 years and provide the Group with an extended debt maturity profile at attractive rates of interest. Unlike a traditional sale and leaseback, the associated liability is recognised as debt on the balance sheet due to the reversion of the freehold.

Net debt before lease financing of £1,040 million at 4 October 2014 is a decrease of £42 million compared to £1,082 million at 5 October 2013 partially reflecting the repurchase of the AB1 notes in the securitisation.  Operating cashflow of £127.8 million was below last year principally due to the impact of the disposal activity in the year and an adverse movement in working capital in the period, which is principally in relation to creditors.

For the period ended 4 October 2014 the ratio of net debt before lease financing to underlying EBITDA was 5.4 times (2013: 5.3 times).  It remains our intention to reduce this ratio to below 5.0 times, principally through EBITDA growth generated from our new-build investment programme.

Pensions

Our final salary pension scheme at the year end showed a surplus of £7.8 million before tax (2013: £5.1 million deficit).  This position reflects the consistent manner in which the Group has proactively managed its deficit over the last five years, and the closure of the final salary scheme to future accrual from 30 September 2014.  The triennial valuation of the scheme was due on 30 September 2014 and we expect to report on this at our 2015 Interim Results.

Taxation

The underlying rate of taxation of 19.6% in 2014 is below the standard rate of corporation tax of 22% due to a combination of: prior year adjustments, the benefit of indexation allowance in deferred tax on property and the lower deferred tax rate of 20%.

The underlying tax rate has decreased by 1.1% from 20.7% in 2013. 

Non-underlying items

There is a net non-underlying charge of £117.4 million after tax of which circa £100 million is non-cash.  The net charge includes a loss on disposal of £35.8 million in respect of the portfolio sale of 202 pubs together with a £1.9 million loss in respect of the ongoing management of these pubs.  £37.5 million of revaluation surpluses from the portfolio sale were transferred from the revaluation reserve to retained earnings upon disposal.  In addition there is a charge of £50.6 million relating to non-core estate disposal and reorganisation costs from the restructuring of our operations across the Group, a charge of £29.5 million relating to the recognition of onerous lease provisions and associated leasehold impairments, a charge of £27.2 million relating to the buyback of securitised debt and a loss of £8.2 million in respect of the mark-to-market movement in the fair value of certain interest rate swaps. These charges are offset by a credit of £10.8 million in respect of the closure of the defined benefit pension plan, a £0.2 million reduction in the interest accrued in respect of the Rank case and a credit of £24.8 million relating to the tax on non-underlying items.

As a consequence, there is a statutory loss for the year of £50.7 million, and loss of 8.9 pence per share.

 GROUP INCOME STATEMENT

For the 52 weeks ended 4 October 2014 

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the 52 weeks ended 4 October 2014

* During the current period 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 loss on disposal was £35.8 million and revaluation surpluses of £37.5 million were transferred from the revaluation reserve to retained earnings upon disposal, giving a net impact of £1.7 million.

GROUP CASH FLOW STATEMENT

For the 52 weeks ended 4 October 2014

GROUP BALANCE SHEET

As at 4 October 2014

* During the current period the provider of the securitisation's liquidity facility, 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 amount drawn down of £120.0 million is included within cash and cash equivalents and the corresponding liability is included within borrowings. 

GROUP STATEMENT OF CHANGES IN EQUITY

For the 52 weeks ended 4 October 2014

NOTES

1              Accounting policies

Basis of preparation

The financial information for the 52 weeks ended 4 October 2014 (2013: 53 weeks ended 5 October 2013) has been extracted from the audited financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) and Standing Interpretations Committee (SIC) interpretations adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.  The financial statements have been prepared under the historical cost convention as modified by the revaluation of certain items, principally land and buildings, derivative financial instruments, retirement benefits and share-based payments.

2              Segment reporting

3              NON-Underlying  items

Non-core estate disposal and reorganisation costs

During the prior period the Group restructured both its pub estate and its operating segments.  Costs in respect of this restructuring were incurred in both the current and prior period.  The exceptional charge of £50.6 million (2013: £10.8 million) includes an amount of £29.6 million (2013: £nil) in respect of the impairment of non-core properties.

Portfolio disposal of pubs

During the current period 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 loss on disposal was £35.8 million and revaluation surpluses of £37.5 million were transferred from the revaluation reserve to retained earnings upon disposal, giving a net impact of £1.7 million.

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 shown as a non-underlying item, which is comprised as follows:

Recognition of onerous lease provisions and associated leasehold impairments

A review of the Group's property leases in the current period identified that an additional provision of £28.0 million was required for leases which are considered to be onerous, along with an associated impairment of leasehold properties of £1.5 million.  This is primarily due to the reversion of a number of leases to the Group in the period and a deterioration in market conditions.

Defined benefit pension plan

During the current period the Marston's PLC Pension and Life Assurance Scheme was closed to future accrual.  The net credit of £10.8 million is comprised of the negative past service cost of £11.2 million less associated costs of £0.4 million.

Rank refunds

In previous periods the Group received refunds totalling £5.9 million from HM Revenue & Customs (HMRC).  This followed Tribunal/Court of Appeal hearings involving The Rank Group Plc ('Rank'), which concluded that there had been a breach of fiscal neutrality in the treatment of gaming machine income as liable to UK VAT.  HMRC issued protective assessments to recover the repayments pending the result of further Court hearings.  On 30 October 2013 the Court of Appeal found in favour of HMRC and the Group has now repaid the refunds of £5.9 million plus interest of £0.3 million thereon.  In the prior period the Group had recognised a provision for the £5.9 million repayment and interest of £0.5 million.  As such there was a reduction in the interest accrual of £0.2 million in the current period.

Buyback of securitised debt and associated costs

During the current period the Group repurchased all of its securitised AB1 notes at par.  The notes, with a nominal value of £80.0 million, were immediately cancelled and the associated floating-to-fixed interest rate swap held in respect of this tranche of securitised debt was terminated.  This swap had been designated as a cash flow hedge of the forecast floating rate interest payments arising in respect of the AB1 notes.  As these forecast transactions are no longer expected to occur the cumulative hedging loss of £24.7 million has been recognised in the income statement. 

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 hedge 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 £8.2 million (2013: gain of £3.5 million) is shown as an exceptional item. 

Impact of taxation

The current tax credit relating to the above non-underlying items amounts to £13.0 million (2013: £1.8 million).  The deferred tax credit relating to the above non-underlying items amounts to £11.8 million (2013: £2.3 million).  In addition, there is a non-underlying deferred tax credit of £nil (2013: £3.1 million) in relation to the change in corporation tax rate.

Prior period non-underlying items

As part of a review of its fixed asset register the Group identified various items of cellar equipment which it assessed were no longer in use by the business and which would not have been utilised in the prior period.  These assets were subsequently written off with the charge and depreciation for the period shown as an exceptional item.

4    Taxation

5    Ordinary dividends on equity shares

A final dividend for 2014 of 4.3p per share amounting to £24.6 million has been proposed for approval at the Annual General Meeting, but has not been reflected in the financial statements.

Subject to approval at the Annual General Meeting, this dividend will be paid on 2 February 2015 to those shareholders on the register at close of business on 19 December 2014.

6              Earnings per ordinary share

Basic earnings per share are calculated by dividing the (loss)/profit attributable to equity shareholders by the weighted average number of ordinary shares in issue during the period, excluding treasury shares and those held in the Executive Share Option Plan and the Long Term Incentive Plan.

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.

* The 2014 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'.

7              Net debt

Unsecured bank borrowings due within one year represent unamortised issue costs expected to be charged to the income statement within 12 months of the balance sheet date.  Unsecured bank borrowings due after one year represent amounts drawn down under the Group's revolving credit facility, net of unamortised issue costs expected to be charged to the income statement after 12 months from the balance sheet date.

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 current period 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 (2013: £nil) 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 at bank and in hand is an amount of £1.4 million (2013: £2.6 million) relating to a letter of credit with Royal Sun Alliance Insurance, an amount of £1.0 million (2013: £0.5 million) relating to a letter of credit with Aviva, and an amount of £8.2 million (2013: £8.5 million) relating 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.

Net debt does not include other financial liabilities such as trade and other payables.

8              CHANGE IN ACCOUNTING POLICY

Adoption of IAS 19 'Employee Benefits' (revised 2011)

The Group has retrospectively adopted IAS 19 'Employee Benefits' (revised 2011) in the current period.  The revised standard requires the Group to recognise a single net interest component in respect of its defined benefit pension plan, calculated by applying the discount rate to the net defined benefit asset/liability.  In addition to this, the interest on the service cost is now required to be included as part of the service cost itself rather than forming part of the interest cost. 

The impact of the retrospective application of this new standard on the Group income statement, Group statement of comprehensive income, Group cash flow statement and earnings per share for the 53 weeks ended 5 October 2013 is set out below.  There was no impact on the Group balance sheet.

Notes:

(a)           The contents of this preliminary announcement, which constitute summary financial statements as defined in Section 427 of the Companies Act 2006, have been extracted from the audited statutory accounts of the Group for the 52 weeks ended 4 October 2014, which will be filed with the Registrar of Companies in due course.  The statutory accounts for the 53 weeks ended 5 October 2013 have been delivered to the Registrar of Companies.  The independent auditors' report on these accounts is unqualified and does not contain any statements under section 498 (2) or (3) of the Companies Act 2006.

(b)           The Annual Report and Accounts for the 52 weeks ended 4 October 2014 will be posted to shareholders on 17 December 2014.  Copies will be obtainable from Instinctif Partners (020 7457 2020) or from The Company Secretary, Marston's PLC, Marston's House, Brewery Road, Wolverhampton, WV1 4JT.