You are on page 1of 80

LUBS3865 Financial Analysis

LUBS3865 Financial Analysis Investors Report Marstons PLC Student ID Word Count - 5490

LUBS3865 Financial Analysis

Contents Page
Introduction Strategic Analysis Analysis of UK Economy Analysis of the Pub Industry Analysis of Marstons PLC Financial Analysis Revenue and Profitability Liquidity Solvency Analysis of Cash Flow Pension Scheme Stock Market Analysis Share Price Performance Stock Market Indices Conclusion and Recommendations Appendices Appendix 1 Company History Appendix 2 PEST Analysis Appendix 3 Porters Five Forces Analysis Pub Industry Page 29 Page 30 Page 33 Page 21 Page 25 Page 27 Page 13 Page 16 Page 17 Page 18 Page 19 Page 6 Page 7 Page 9 Page 4

Appendix 4 Porters Five Forces Analysis Brewing Industry Page 36 Appendix 5 Accounting Policies and Comparison Issues Page 38

LUBS3865 Financial Analysis Appendix 6 Financial Statements Appendix 7 Revenue and Profitability Calculations Appendix 8 Liquidity Calculations Appendix 9 Solvency Calculations Appendix 10 Cash Flow Statements Appendix 11 Cash Flow Analysis Appendix 12 Stock Market Indices Appendix 13 SWOT Analysis Bibliography Page 39 Page 48 Page 56 Page 57 Page 61 Page 68 Page 71 Page 73 Page 77

LUBS3865 Financial Analysis

Introduction
Report Aim This report will provide a critical analysis of Marstons PLC strategic, financial and stock market performance for the period 20052009 compared to competitors within the industry, with a view to providing an investment recommendation on Marston's. Company Overview Marstons (formerly known as Wolverhampton & Dudley Breweries until 2007) is a UK based pub company. Its principle activities are operating managed and tenanted pubs and brewing. The company is listed on the London stock exchange as a member of the FTSE250 with shares currently trading at 115p compared to a high of 342p in 2007. The table below is taken from the Marstons 2009 report and highlights their geographic presence in the market:

The tablechart below summaries Marstons operating model and key acquisitions (Marstons 2009). A full break down of the company history can be found in appendix 1.

LUBS3865 Financial Analysis The Pub Industry The UK pub industry is highly competitive due to the effects of the recession, changing consumer demographics and increased regulation. Given these factors, companies within the industry are exposed to high levels of risk. The industry is saturated, there are currently 53,000 pubs operating within the UK (Mintel 2010). Competitors within the industry include Greene King PLC (GK), Enterprise Inns PLC (EI) and Mitchells & Butler PLC (M&B). In 2010 Marstons held a 3% share of the market (645m), with M&B holding the largest share of 9% (1,958m). The industry will be considered in more detail in the strategic section of this report. Comparators To evaluate Marstons performance, comparisons will be drawn with GK, and EI and M&B throughout the report. GK has a similar range of core activities (managed and tenanted pubs and a brewery) and will be used as the main benchmark to assess Marstons overall performance. and EI focuses solely on tenanted pubs whilst M&B is a managed pub company. These will be used to benchmark Marstons tenanted and managed pub divisions respectively.

LUBS3865 Financial Analysis

Strategic Analysis The UK Economy


This section will set out the broad factors affecting the pub industry and Marstons strategies for the period 2005-2009. The accompanying PEST analysis can be found in Appendix 2. Political The smoking ban of 2007 created uneven competition within the pub industry and impacted on their decline as many pubs failed to adapt. The ban alienated a core customer base but offered companies the opportunity to reposition and serve a different demographic as can be seen with Marstons F Plan, which concentrates on food, families, females and forty/fifty somethings. Supermarket dominance has also impacted upon price competition in the market, with pub companies struggling to compete with the lower prices due to the higher levels of duty and regulations they face. Possible regulation in 2011 will prevent outlets from selling below cost alcohol, which may balance the price differential. Economic The recession of 2007 has created tough trading conditions. The volatility within the market has resulted in uncertainty amongst businesses and consumers. Whilst the recession has ended, the economy will take a number of years to recover and grow. The future performance of the property market will be of significance to Marstons given they revalue their property portfolio on an annual basis. The reduction in property prices between 2007 and 2009 has resulted in a number of exceptional items, impacting significantly upon profit levels. Levels of unemployment have increased and the pub industry, which is part of the leisure sector, has suffered significantly as disposable incomes have reduced. Turnover within the industry has reduced from 25 billion in 2005 to 21.5 billion in 2009 (Mintel 2010). Consumer spending is unlikely to increase in the near future as customers continue to be cautious. The increase of VAT in January 2011, adding 6p to the price of a pint in a pub (Mintel 2010), will further impact upon consumer spend.

LUBS3865 Financial Analysis Social and Technological The UK consumer is more aware of health concerns, actively socialise at home and conscious about their spend. The population is ageing and companies must respond to this. Marstons 2007 report highlights more people are visiting pubs but usage is less frequent. The recession has created a canny consumer, aware of value for money and relying on discounting when eating out (Mintel 2010). The growth of the Internet blogging in the UK has made consumers more aware of where to eat out.

The Pub Industry


A detailed Porters Five Forces Analysis can be found in Appendix 3. This section will set out the most important factors affecting the industry. Industry Overview Marstons competitors in the industry are listed below with a break down of their operating model and revenue for the period 2009-2010 (Mintel 2010):

The table highlights that the industry is diverse with companies varying greatly in size and operational model. Recently, the principle activity throughout the industry has been to reduce exposure to the drinks-led pub market. The emergence of food-led pubs is an outcome of this activity. Market leaders have been able to use their size and knowledge to their advantage.

LUBS3865 Financial Analysis Competitive Rivalry Marstons 2008 report described the industry as being dominated by a small number of large, specialist operators. The market is becoming polarised and some companies have adapted to the new trading environment better than others. Companies offer a similar experience meaning competition is intense and price driven. Demand is low due to the recession. An outcome of lower disposable income levels is consumer awareness of price. Given pub visiting is a non-essential good, there has been a common strategy within the market to offer discounted prices. These include 2 meals for 9.95 at GK and two for one at Marstons. However, long-term discounting may not be sustainable for pub companies. Marstons can benefit when consumer confidence is low, as consumers very often turn to brands that they know and trust (Mintel 2010). However, the overall cost of switching remains low for a consumer and this creates problems for the company. Threat of New Entrants New entrants are likely to be independent pubs due to relatively low start-up costs. It is unlikely that a new specialised pub company will establish itself. During 2005-2006 the market was successful and diverse; independent pubs were able to differentiate their business and be profitable. However, this has become increasingly difficult, as independents have been most affected by the recession. Large companies within the industry have benefitted from their established brand names, experience of the industry and their ability to benefit from economies of scale, thus deterring new entrants. Threat of Substitutes The threat of substitution is high. Many consumers are opting to eat and socialise at home due to supermarket pricing, better in-home entertainment and a decrease in levels of disposable income. Eating out, however, is considered a habit that is rooted in UK consumers; the predicted dramatic reduction in eating out did not happen (Mintel 2010). This is positive for the industry; it highlights consumers will not stop visiting pubs altogether. Consequently, Marstons has focused its efforts on providing value for money and creating friendly environments to entice customers into their pubs.

LUBS3865 Financial Analysis Summary The combined impact of these factors means profitability is likely to be affected. Marstons strategic priorities, which include cost efficiency, disposing of non-value adding pubs and diversification are outcomes of the factors mentioned above.

Marstons PLC
The 2009 report summarised the companys strategic objectives as being differentiated and appropriate for current market conditions and trends. Marstons six objectives incorporate the three trading divisions; these have remained constant during the five-year period. The strategy is analysed and compared to the industry benchmarks below, taking into consideration the economic and industry conditions. 1.Target Growth Through the Development of a National, High Quality Pub Estate This objective has been met in three ways: 1. Acquisition of value adding pubs and breweries 2. Investment in pub development and; 3. Disposals of non-viable pubs During 2005 Marstons undertook three key acquisitions comprising of Burtonwood, Jennings and English Country Inns, totalling 254.1m and gaining 602 pubs and 2 breweries. The 2005 report stated that the acquisitions resulted in considerable scope for development, increased financial performance and growth potential. For the beer company, it resulted in a greater presence in the market. For the pub divisions, it widened the trading area, increasing the exposure to different demographics and geographic areas. In 2006 the company noted that the opportunity for creating value for our shareholders through acquisition is limited. There was a shift towards organic growth in order to meet the companys strategic objective. This was a clever lower risk strategy and one that has protected the business from the excessive losses. This strategy was similar to GK and EI. Both competitors highlighted the importance of sustainable, organic growth. In the period 2008-2009, the number of acquistions reduced greatly throughout the industry. Given the economic environment, there was not an expectation for companies to be undertaking

LUBS3865 Financial Analysis large acquisitions. Therefore, an investor should not be concerned by this reduction given the trading conditions and Marstons comments in 2006. Currently, there is a focus on improving quality of the pub estate to enable growth in the future; this makes good business sense. Throughout the period 2005-2009, 400 non-viable pubs have been disposed, highlighting an effort to improve the quality of the estate and reduce exposure to risky outlets given the factors mentioned in the PEST analysis. The investment of 140m in 60 new managed pubs during 2009-2011 is a positive move by Marstons to position the pubs in residential areas, away from the competitive environment of the high street. Past successes of integrating new pubs into the business model indicate that this plan could allow Marstons to become a clear leader for large family pubs, providing a sustainable future growth plan for the company. 2.Develop Greater Food Skills and Extend Our Appeal to New Customer Groups This objective has a clear direction due to the F-Plan. It was implemented in 2005 in anticipation of changing consumer trends and growth in the food-led market. It has given the managed pub division a clear strategic focus within a volatile sector, resulting in 38% of sales in 2009 coming from food, compared to 30% in 2005. This intention to move towards the eating out market can be seen throughout the industry with GK repositioning its managed pub division towards food, wine and coffee and M&B also focusing on food outlets. Given the number of companies that have the same repositioning strategy, this may not be a competitive advantage for Marstons but a requirement to continue to operate. 3.Recruit the Most Skilled Tenants and Lessees Pubs within the tenanted pub market have been most affected by the recession and price competition, resulting in the average profit per pub decreasing from 51,000 in 2008 to 48,000 in 2009. This contributed to Marstons reporting a weaker performance in 2009. EI has also noted severe effects on revenue. Marstons has highlighted 20% of tenanted pubs require intensive management; this should be of concern to investors. Marstons has actively attempted to recruit and support tenants. Following the recession, Retail Agreements were implemented and, in 2009, 3m was invested in supporting tenants. Marstons is noted as having the most aggressive retail support plan in the industry (Financial Times

10

LUBS3865 Financial Analysis 2010), suggesting that the tenanted pubs will be better supported than rival pubs. This strategy looks to be working given Marstons has not seen the same losses as, for example, EI. 4.Focus on Regional Ale Brands with Genuine Provenance The brewing company has seen consistent revenue growth in a weak market throughout the period. GK has seen similar positive growth. However, many companies within the industry operate effectively without breweries. Marstons could be exposing the business to an uncertain market but the ale produced looks to be strengthening its brand image. There has been a growth in popularity of local cask ales (Mintel 2010) and Marstons is in a position to take advantage of this growth. Given the geographic presence of their breweries, they have the resources to exploit this trend on a national scale. This may be a strong competitive advantage for the company. 5.Create Greater Value for Shareholders Through Vertical Integration Marstons diversified nature has reduced its risk exposure to any one of the divisions, a positive factor for investors. It has not seen the same volatility in profits compared to EI and M&B who are solely reliant on tenanted or managed pubs respectively. Additionally, the company has the ability to share overheads between divisions. This could result in higher profit margins as discussed in the financial performance analysis. 6.Match Freehold Assets with Long-Term Fixed Rate Financing Marstons has actively re-financed its long-term debt to better reflect its asset base. An analysis of this objective will be carried out in the financial section of the report. Pricing Strategy Marstons set a number of key priorities from 2009, including optimising pricing and promotion and creating value for money in all divisions. The control of costs has allowed offers to be in place - 90% of its outlets had a promotion in 2008. Its questionable whether promotions are sustainable as a long-term strategy. Marstons highlights that it intends to grow by managing its costs, yet factors such as inflation will clearly put more pressure on the company. There is potential that increased costs will have to be passed on to consumers.

11

LUBS3865 Financial Analysis If such an increase was imposed, consideration must be given to how their brand image, which is based on value for money, will be affected. M&B has opted for a different strategy, reducing its reliance on value-for-money outlets. Summary The 2010 preliminary report for Marstons provides investors with a number of innovative changes to its operational model, these are summarised below:

These changes have the potential to improve the operational efficiency of the group, produce sustainable growth and profitability in the future. The stability of the strategy over the five-year period has allowed for the strategy to be properly implemented, resulting in resilient operations, which have outperformed other competitors within the industry. The financial statements will provide further insight into whether this strategy has resulted in a positive financial position.

12

LUBS3865 Financial Analysis

Financial Statement Analysis


The financial statements of Marstons are key to evaluating its performance over the period 20052009. This report analyses Marstons financial performance against comparators using ratios, trend and segmental analysis and common size statements. Workings can be found in appendices 6-11. Comparison issues and accounting policies are discussed in appendix 5. Revenue and Profitability (Appendix 7) The graph below shows Marstons revenue being outperformed by two of the three comparators for the period 2005-2009. Revenue growth has decreased due to the effects of the smoking ban and the recession an industry wide change, with the pattern likely to continue given the problems in the UK market.

Revenue Index (RPI Adjusted)


130 120 110 Index 100 90 80 70 60 2005 2006 2007 Year 2008 2009 Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC

The structure of revenue contribution and growth at Marstons has remained stable during the period as shown by the graph overleaf. A large proportion of revenue comes from the pub estate and the managed pub division. The operational model has meant Marstons has not seen the same declines as EI. It is enabling the company to maintain a fairly strong position given the trading conditions. The 2010 preliminary report provides investors with an indication that revenue could increase following the operational model changes.

13

LUBS3865 Financial Analysis

Revenue Segmental Analysis


Percentage of total revenue 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2005 2006 2007 Year 2008 2009

Marstons Inns & Taverns Marstons Pub Company Marstons Beer Company

The companys return on capital employed (ROCE) in 2009 (5.02%) was 48.2% lower than in 2006 (9.7%). This 2009 figure is lower than GK (6.87%) and similar to EI (4.9%) and M&B (4.29%). Given the low level, managements ability to efficiently utilize assets should be considered. The improvements to management structure and operational model may, however, improve efficiency levels. The industry average ROCE is low at 5.86%. An investor, therefore, should not place too much concern on Marstons ROCE level. There is a general trend within the industry to depend on long-term finance and ROCE, including short-term debt, does not create any significant changes. Return on equity has been volatile during the period, an industry trend; with there being a 35.7% increase in the return on equity industry average from 2005 to 2009. In 2009, the ratio for Marstons (2.09%) was significantly lower than GK (6.14%). This dramatic decrease from the previous year (8.74%) and compared to GK is in part due to the companys accounting policy to re-value its property portfolio. This meant that in 2009, Marstons had an impairment charge of 68m. It is likely that the return on equity for the company will improve in 2010 onwards as the size of re-valuations on the property portfolio begins to decrease.

14

LUBS3865 Financial Analysis The below table below shows a breakdown of the profit margins for Marstons and its

comparators: Marstons profit margins are relatively healthy. Increased costs, including utilities and alcohol duties, have been felt across the industry and impacted on margins. The cost efficiencies highlighted in the 2009 report, which include building pubs that are cost efficient in the long-term and the sharing of overheads from vertical integration, look to be working given that Marstons has not seen the same reduction in net profit margin as M&B and EI. This indicates that the company is meeting its strategic objective to create wealth for shareholders through vertical integration. The table below shows a breakdown of the segmental profit margins for Marstons and GK:

Profit margins in the Marstons tenanted pub division are slightly higher than GKs. This may be due cost savings exercises through vertical integrations. It should be noted that the implementation of more retail agreements with tenants could see this margin decrease as Marstons share a greater proportion of the running costs of pubs. The profit margin associated

15

LUBS3865 Financial Analysis with the managed pub division has been hit due to increasing costs, which has meant a decrease of 17.6%. This can also be seen at GK. GKs brewing division profit margin is significantly higher than Marstons. However, the change in the sales mix at Marstons, which now focuses on the off-trade, which is a lower profit margin than the on-trade, may have contributed to this difference. Sales in the on-trade are tough due to less drinking in pubs. Therefore, this strategy is an attempt to sustain revenue in this division. The companys profit compared to GK, EI and M&B is summarised in the graph below and shows Marstons is performing relatively well in comparison to its competitors. Given the exceptional nature of the property re-valuations, these have not been included in the graph in an attempt to provide a fairer comparison with the industry. Significant problems can be seen throughout the industry, with M&Bs profit being very volatile.

PBIT Index (RPI Adjusted)


180 160 140 120 100 80 60 40 20 0 -20

Index

Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC

2005

2006

2007 Year

2008

2009

Liquidity (Appendix 8) The working capital of Marstons (1.21:1) in 2009 was significantly higher than GK (0.73:1), EI (0.48:1) and M&B (0.49:1). This means that Marstons is currently operating with a level of liquidity higher than the rest of the industry with the comparators being unable to meet their current liabilities. This higher rate may be more preferable during the uncertain and volatile trading environment as it offers investors with a level of assurance about the companys liquidity position. The companys ratio has significantly increased from 2007 when the ratio was at 0.58. This was due

16

LUBS3865 Financial Analysis to a sharp increase in short term debt. Since 2007, the company has attempted to meet its strategy to improve the working capital position; this looks to be working. Solvency (Appendix 9) Between 2005-2009, the company has actively attempted to meet its objective of matching freehold assets with long-term fixed rate financing. Marstons explain this intention as a way to strengthen the debt structure and create manageable finance costs. A number of refinancing exercises have occurred during the period. Marstons has been successful in creating a structure that is less dependent on short-term debt. In 2009 the common size statement figure for short-term debt was 0.9%, considerably lower than 2007 (4.21%). The amount of long-term debt has increased by 31% during the period an outcome of the growth and development strategies. High levels of long-term debt can be seen throughout the industry with the average industrygearing ratio being 68.98% in 2009. Comments on the industry debt levels include: Debt is a non-issue they could pay it down quickly if they wanted to given their earnings but theyre concentrating on getting higher returns on expansion instead (The Financial Times). Therefore, an investor should not place great concern on Marstons 2009 gearing of 59.97%, which is well below the industry average and compares favourably to EI (72.39%), GK (71.84%) and M&B (72.74%) During the period 2005-2008 the gearing ratio increased by 20% to 64.75% at Marstons, which was relatively higher than any of the comparators. This was due to the companys acquisition plan and the share buy-back scheme. Both were carried out to strengthen and grow the business. A lower gearing level became a priority at Marstons because of the recession. The reduction of gearing by 7% to 59.97% suggests this priority is being met. This should improve investor confidence given Marstons is less reliant on debt and has a better solvency position. In 2009, the company raised 165.6 million through a rights issue to its shareholders. This has diluted the value to shareholders but kept the companys gearing level low. The funds from the share issue are being invested in growing the business and, in the long term, it is likely that increased value in the company due to expansion will be returned to shareholders.

17

LUBS3865 Financial Analysis Marstons interest cover has reduced from 2.07 in 2005 to 1.28 in 2009. This is still above the industry average of 1.15 but does not meet Marstons interest cover target of between 2.25 and 2.75. The reduction is due to the increased finance costs as a result of increasing the level of longterm borrowings. The level of debt to equity has increased by 27% during the period 2005 - 2009. However, the 2009 figure of 149.8% is significantly lower than the industry average (229.35%). The whole industry has seen significant changes in the trading environment, which has resulted in adverse effects on companies levels of equity. Marstons is currently benefitting from not rapidly growing the company through borrowing prior to the recession, indicating that it is in a stronger position than its competitors. Cash Flow Statement (Appendices 10-11) Cash Flow from Operating Activities

Rebased Cash Inflow from Operating Activities


300.00 250.00 200.00 Index 150.00 100.00 50.00 0.00 2005 2006 2007 Year 2008 2009 Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC

The graph above highlights the large movements in Marstons cash inflows from operating activities during 2005-2009. The significant increase between 2005 and 2006 was because of the three key acquisitions undertaken by the management. These acquisitions met the companys strategy to increase financial performance. The decrease between 2006 and 2007 was due to a negative change in the working capital and non-cash movement position. However, from 2007 onwards, Marstons significantly outperformed its competitors with consistent funds from operations. This suggests the company is currently a healthy going concern and has improved its working capital position.

18

LUBS3865 Financial Analysis Cash Flow from Investing Activities Marstons net cash flow from investing activities has decreased dramatically. In 2009 (32.6m) it was 85% lower than 2005 (217.6). This reduction can be seen throughout the industry and is due to the recession. The change in capital expenditure reflects the move to an organic growth strategy. The 2008 report noted a significant decrease of 60m in capital expenditure, which assisted in reducing debt levels. This puts Marstons in a stronger position and is a positive factor to an investor. An outcome of this decrease is a reduction in net assets from acquisitions similar to M&B, GK and EI. Cash Flow from Financing Activities As previously discussed, Marstons has actively re-structured its long-term debt and attempted to reduce the debt levels in recent years. This is reflected in the cash flow statement. During 2007 and 2008 the company undertook a share re-purchase plan totalling 150m in an attempt to meet their objective of operating an effective balance sheet and delivering shareholder value. This was financed by debt but returned wealth to shareholders, which is a positive factor. The graph below highlights the movements in the cash and cash equivalents during the period:

Net Increase/(Decrease) in Cash & Cash Equivalents in the Period


70 60 50 40 30 20 10 0 -10 -20 -30 -40

2005

2006

2007 Year

2008

2009

During 2005-2006 there was a significant decrease in cash and cash equivalents due to a one-off cash outflow relating to pensions and the refinancing plan (Marstons 2006). The company has since attempted to increase the level of cash. Pension Scheme Marstons has an open defined pension benefit scheme. In 2009 the scheme had a deficit of 35.3m. This has reduced since 2005 (66.2m). The company has actively contributed to the

19

LUBS3865 Financial Analysis scheme. It is an uncapped liability for Marstons and no absolute figure can be placed on it. Therefore, the scheme will become a concern to investors if the deficit increases and management have to divert funds away from profits to reduce the deficit.

Are you able to put in operating profit comparison figures for the other two here? COMMENT ON COMMON SIZE BALANCE SHEET

Formatted: Highlight

Formatted: Highlight

20

LUBS3865 Financial Analysis

Stock Market Analysis Share Price Performance


To make a complete assessment of the companys investment potential the share price performance and stock market indices must be considered. The performance of the company will be compared to the FTSE All Share, the Leisure and Tourism Index and a number of competitors for the period 2005-2010. Note: all information has been obtained from www.hemscott.com accessed on 10 December 2010 The graph below displays Marstons share price for the period 2005-2010, compared to the FTSE All Share and Travel and Leisure index: Graph 1

2005-2006 Throughout 2005 and 2006, graph 1 shows Marstons share price of around 210p matched the growth of the FTSE All Share. In November 2006 there was a significant movement in share price. This was due to possible takeover speculation of the company by GK or Punch Taverns

21

LUBS3865 Financial Analysis PLC (PT). The market reacted positively to this and share prices increased to a year high of 330p. However, this anticipation of a takeover was unfounded and no bid was made.

20072008 Graph 2 shows Marstons share price being in a state of decline from August 2007 onwards; this was around the time the smoking ban came into effect. As a result, the company was underperforming against the FTSE. Competitors within the industry also felt the effects of the new regulation. Graph 2

The global recession of 2007-2008 saw the FTSE dramatically decline (see Graph 2) by 50% in the period. This particularly hit the leisure sector. The recession created a bear economy in which market confidence was lost. This is shown in the dramatic decrease in share prices from 2007 to 2009 throughout the market with Marstons shares falling significantly by around 70% to 84p per share. During the period lower revenue and profit levels were reported. The company is solely reliant on consumer spending and this decreased dramatically during the economic downturn. These factors created concern for investors, leading to a decrease in share price. The share price of Marstons followed the same trend as the rest of the industry as shown by Graph 3. However, it did not, for example, decline as badly as EI and M&B.

22

LUBS3865 Financial Analysis Graph 3

Graph 4

2009 Since the economic downturn, the companys share price has failed to recover from a high of 342p in February 2007; this can be seen throughout the industry. There was a period of transition in 2009 as companies attempted to reposition their business activities and dispose of non-viable pubs to increase investor confidence. However, the level of certainty remained low towards the industry. The company did have a period of promising performance from March to June 2009 (Graph 4) when it significantly outperformed the rest of the FTSE All Share as well as Travel and Leisure.

23

LUBS3865 Financial Analysis This was due to a period of increased confidence within the market. However, a sharp decline can be seen from June 2009 when the company reported that it would be completing a rights issue to raise 165.5m from its shareholders. The market did not react well to this news. 2010 The share price throughout 2010 has remained stable at around 100p in comparison to the industry. As Graph 5 shows, it has outperformed the likes of EI and PT who are both under increasing pressures due to poor financial performance. Graph 5

The company has not seen the same increases as JD Wetherspoon PLC (JDW). However, their increase in share price can be seen as exceptional due its rapid growth strategy. Marstons underperformance, compared to JDW, should not be of great concern to an investor. Graph 6

24

LUBS3865 Financial Analysis December 2010 The share price in December 2010 saw a dramatic increase to 116p following the release of the preliminary report (see Graph 6). Market confidence towards the company clearly changed following operational model changes and reporting stronger financial performance. This increase indicates investor confidence is growing towards Marstons and their ability to perform well in the future.

Stock Market Indices (Appendix 12)


Marstons Earnings Per Share (EPS) currently stands at 7.61, which is a higher level than 2005 at 3.74. The graph below charts the significant fluctuations throughout the period. This may be a combination of sizeable changes in profit level in 2008 (61.8m) and 2009 (16.4m) and the varying levels of shares in issue.
Formatted: Justified, Line spacing: 1.5 lines

EPS for Marston's PLC


18 16 14 12 10 8 6 4 2 0

EPS

The company undertook a share re-purchase scheme totalling 150m, which meant that during the period 2007-2008 there were less shares within the market. This was an attempt to return wealth to shareholders and resulted in an increase in EPS. The rights issue totalling 165.6m was a contributory factor to a decrease in EPS in 2009. The price earnings ratio (PE ratio) has also fluctuated greatly. This can be seen throughout the industry (see table below).

Formatted: Justified, Line spacing: 1.5 lines

25

LUBS3865 Financial Analysis The reduction in 2008 is due to lower investor confidence in the industrys ability to operate during the recession. 2009 saw a slight recovery suggesting increased confidence. Currently, Marstons PE ratio (13.76) is higher than its competitors. This suggests that investors believe the proposed changes will strengthen the business. EI, for example, has a low PE ratio of 4.43 indicating low investor confidence. This is because it is highly geared and currently experiencing problems. Presently, Marstons dividend yield is substantially higher than GK (4.7); the yield has seen significant growth of 166% since 2005. M&B confirmed that they would not pay a dividend in 2009 in order to re-invest the funds in reducing medium-term debt levels. Marstons decision to continue to pay dividends whilst others stop or reduce payments may be due to a strategy to increase investment in the company and attempt to build confidence in the company. The dividend cover in 2009 was 58.5. This means that the company does have the funds to pay a dividend. Therefore, the dividend payment links to their aim to increase shareholder wealth.
Formatted: Justified, Line spacing: 1.5 lines

26

LUBS3865 Financial Analysis

Conclusion and Recommendations


The overall performance of Marstons during the period is strong, the SWOT analysis below summarises this performance. Please refer to appendix 13 for the full version.

Strengths Marstons has built a strong brand image with a clear market position. The strategic direction of the company is focused and this has meant the various divisions have been managed effectively during difficult trading conditions. The strategic objectives have resulted in strong retail agreements strengthening the tenanted division; a resilient F-Plan has supported the managed division through difficult trading conditions; and the beer company continues to provide consistent profit levels in a weak market. The financial performance is healthy given the market conditions. Marstons has a strong liquidity position and a relatively low gearing level. The reduction in capital expenditure has improved the balance sheet position and expenditure is likely to increase in line with the newbuild strategy.

27

LUBS3865 Financial Analysis The change in the operational model is of significance. The markets reacted positively to these proposed changes with the share price increasing to 117p in December 2010. Changes to the board structure are positive given that the current board has been the same during the period. Weaknesses Marstons is still exposed to the declining drinks-led market it is unlikely that this exposure can be completely eliminated. The tenanted divisions performance is improving but it will take a number of years for a full recovery. Marstons value-for-money strategy means managed pubs are reliant on discounting; this may become a problem in the future. Opportunities The food-led market within the industry continues to be profitable. Marstons has the capabilities to take advantage of this; their strategic direction and financial resources match the opportunity. Given Marstons financial position they have the means to acquire outlets from the likes of PT in the future. This would support their sensible growth strategy. Threats The principle threat to Marstons is the level of competition in the price driven market. Currently, Marstons has the resources to compete. The change in operational model will provide further support. Should an investment be made Marstons ability to compete effectively ought be monitored. A continuing risk to the company is the decline in the pub industry and poor trading conditions. Recommendation Based on the analysis contained in this report Marstons is considered to be a strong long-term investment due to the new operational model, the sustainable growth model and healthy financial position at the company. Marstons is likely to prosper in the future as the economy and the industry recover providing an investor with a sound investment.

28

LUBS3865 Financial Analysis

Appendix 1 Marstons PLC Company History


The following extract was taken from Marstons PLCs company website on 8 December 2010 using the below link and clearly sets out Marstons history:

http://www.marstons.co.uk/about/our_history.asp
1890 - The Wolverhampton & Dudley Breweries, PLC was formed as a public company in 1890 by an amalgamation of three local businesses, Banks and Company (who had been brewing at Park Brewery, Wolverhampton since 1875), George Thompson and Sons of The Dudley and Victoria Breweries, Dudley, and Charles Colonel Smith's brewery at the Fox Brewery, Wolverhampton. 2001 - Brewing of Mansfield Beers was transferred to Park Brewery, Wolverhampton. 2002- In April, W & DB sold the Camerons brewery site to Castle Eden Brewery. 2004 - In June, W & DB acquired Wizard Inns Limited - an estate of 63 high quality managed outlets, located mainly in the south of England. 2005- in January, the acquisition of Burtonwood plc increased W&DB's pub estate to over 2,100 pubs - the third largest by number in the country. In May, the acquisition of Jennings Brothers plc increased W&DB's pub estate to over 2,250 pubs. In addition W&DB acquired the Jennings Brewery producing a portfolio of quality ale brands. In October, W&DB acquired English Country Inns plc - an estate of 14 pubs. 2007 - On January 8th The Wolverhampton and Dudley Breweries PLC changed its name to Marston's PLC. This change was to reflect the fact that in recent years the company had become a national business, as demonstrated by the growth of the Marston's brands and the acquisition and development of the pub estate across the country. The change of name also represented an opportunity to emphasise the company's tradition, heritage and values, and to better promote our pubs across the country. In January, Marston's acquired Eldridge Pope (Nouveaustar Limited) - an estate of over 100 pubs based mainly in the South of England. In July, Marston's acquired Ringwood Brewery Limited - its brands include award-winning beers such as Ringwood Best Bitter, Old Thumper and Fortyniner. The business supplies approximately 700 customers, predominantly in the South of England and seven high quality, freehold, traditional pubs. 2008 - In April, Marston's acquired Ryland Thompson Limited and its subsidiaries, of which Refresh UK plc ('Refresh') is the trading arm. Refresh was established in 2000. Its Wychwood Brewery in Witney, Oxfordshire brews 50,000 barrels of beer per annum, including award-winning brands such as Hobgoblin and Brakspear.

29

LUBS3865 Financial Analysis

Appendix 2 - PEST Analysis


POLITICAL VAT increase to 20% on 4 January 2011: This will add 6p to the price of a pint in a pub (Alcohol Purchasing in Supermarkets, Mintel, 2010). This will further impact on pubs ability to compete with supermarket pricing. Comprehensive Spending Review released on 20 October 2010: This will have an impact on social welfare and employment levels over the coming years. Reductions in consumer spending will have a negative impact on pub companies. Drink drive limit to be reduced: A reduction may mean consumers will opt to stay at home instead of going to the pub due to the increased cost of finding alternative travel home. Smoking Ban: This was implemented in 2007 and has had a dramatic impact on the pub industry including pub closures, high investment requirements and changes to company strategies. Alcohol duty escalator: Alcohol duty will rise by 2% each year above inflation until 2015. This has further increased costs for pubs, which ultimately are passed on to the consumer resulting in pubs being unable to compete on price. Late Night Levy: Introduction of such a regulation would impact on the pub industry; this would require part funding by pubs, which will result in decreased profit levels. Licensing Laws: Regulation introduced in 2005 allowed pubs to have greater flexibility of their opening hours however future regulation may restrict pubs and damage their ability to compete. Responsible Retailing of Alcohol: Policies such as Think 21 and Think 25 have meant increased costs through training and implementation of the regulation. Ban the Sale of Below Cost Alcohol: This is intended to stop binge drinking in the UK. It may allow pubs to be able to compete with the current Supermarket dominance that is occurring. ECONOMIC UK recession of 2007-2009: Customers will cut back on non-essential goods. The pub industry is part of the leisure sector and this is a sector of the UK economy that has felt the effects of the recession most greatly. Those that continue to socialise outside of the home will opt for cheaper alternatives.

30

LUBS3865 Financial Analysis 2010 - Slow Recovery of the UK Economy: Companies and consumers will continue to be cautious of the future economy this will impact on levels of investment and spending. Increasing Levels of Unemployment: This has been due to the economic downturn. Lower Levels of Disposable Income: Pub companies are dependent on consumer spending; lower levels of disposable income create difficult trading conditions for pubs. Interest rates at 0.5%: Interest rates are at their lowest however; they will rise at some point in the future and this will impact on consumers mortgage payments which will result in lower levels of discretionary spending. Rising Inflation Levels: This means increasing costs for pub companies, which result in higher prices for consumers. 52 Pub Closures a Week in 2007: This highlights the pressures that the industry faced due to the recession and increased regulation. SOCIAL UK Binge Drinking Culture: This has created a bad name for the pub industry and consumers now have an expectation for cheap alcohol which pubs are unable to meet. Increased Awareness of Health Issues: Consumers are more aware of their health; this has resulted in food-led pub providing healthy meal options and the general level of drinking within the UK declining. Increased Interest in Local Produce: This has forced breweries and pubs to source their produce from local businesses. An Ageing Population: This means a large proportion of the UK population are classed as non-pub goers this means there are less potential customers for pubs. General Societal Changes: This has meant pubs are re-investing in families, women and casual dining (Consumer Attitudes to Drinking, Mintel, 2010) Change in Consumer Tastes: Drinkers expect a wider range of products in pubs, for example, there is a growing interest in wine and local cask ales (Consumer Attitudes to Drinking, Mintel, 2010) Seasonal Factors and Weather Conditions: These have a large impact on consumers desire to socialise outside of the home. This is a risk factor, which is outside of a pub companies control and can have a large impact on profit levels. Changing Attitudes Towards Pub Visiting: There has been a general move away from wet-led pubs to food-led outlets due changing consumer demands.

31

LUBS3865 Financial Analysis Increasing Levels of In-Home Drinking: This has increased greatly and a large impact on pub profit levels. Pubs must now come up with new ways of attracting consumers to leave their home to drink and eat. TECHNOLOGICAL Blogging: This has increased in the UK and has made consumers more aware of where to eat out (Pub Catering, Mintel, 2010). This means blogs have the potential to impact on a pub companys reputation as one bad review can result in people not visiting the pub. The Internet: This gives pub companies the opportunity to target potential customers through market segments. It also allows them to find out more about their current customers, which can lead to them providing more products that customers want. Innovation in the Brewery Industry: This has allowed for better tasting beers and ales, which allows breweries to meet the needs of their customers. This technology requires high levels of investment, which could result in lower short-term profits.

32

LUBS3865 Financial Analysis

Appendix 3 - Porters Five Forces Analysis The Pub Industry


THREAT OF ENTRANTS Large Chains with Strong Brands: The industry has a number of large key competitors but there is still a proportion of independent single-owned pubs within cities and local communities Experience: A large number of pub companies with greater experience and knowledge of the industry is likely to deter new entrants. Low Start-up Costs: Initial costs are fairly low; however,; new investors may find it hard to raise the necessary finance in the current economic climate. Economies of Scale and Learning Effects: Large chains are able to benefit from such factors within the industry and therefore increase the barriers of entry for new businesses. Highly Saturated Market: This has decreased due to the economic downturn; however,; the market continues to be crowded. Independent Pubs: Are able to set up within the industry as they benefit from flexibility and greater control over their core costs. They also are able to find a point of differentiation (Independent Pubs, Mintel, 2009). This means businesses still want to enter the industry. Price Wars: The market is driven by price because pubs are attempting to sell similar experiences and products. This may deter businesses from entering the industry. THREAT OF SUBSTITUTES Substitution of Need: Competition from better TV entertainment and cheaper access, for example, SKY sports, is making people stay at home (Pub Visiting, Mintel, 2010). Product Substitution: There has been a general shift away from quality products in favour of cheaper, value for money options (Pub Catering, Mintel, 2010) Generic Substitution: Consumers are doing without as their disposable income levels decrease; they are opting to stay at home instead of socialising at the pub. BUYER POWER Low Bargaining Power of Consumers: There are a large number of consumers within the market; therefore consumers do not have much power.

33

LUBS3865 Financial Analysis The Product: Given that visiting the pub is a non-essential item, consumers are opting to stay at home due to disposable income levels, the smoking ban and supermarket pricing (Pub Visiting, Mintel, 2010). Low Switching Costs: This cost is very low for consumers that live in areas where there are a high number of pubs that are easily reached. Brand Loyalty: Consumers turn to brands they trust in an economic downturn (Independent Pubs, Mintel, 2009). However, consumers are not overly loyal to any one product. Price Sensitive Individuals: Consumers are driven by price and pubs have had to factor this into their pricing strategies (Pub Catering, Mintel, 2010). Alternate Source of Supply: Discount pricing of alcohol from supermarkets has been an attractive offer to a price sensitive individual. Health Awareness: Consumers expect pubs to create healthy products, those that fail to provide such products may not be visited (Pub Catering, Mintel, 2010) SUPPLIER POWER Cutting out Stages in the Supply Chain: Companies within the industry, such as Marstons PLC, are less dependent on suppliers as they brew their own beer; therefore reducing the power of suppliers. Low Bargaining Power of Suppliers: This is relatively low given a large number of products that pub companies require are generic and therefore can be purchased from a large number of suppliers. Size of the Pub Company: This factor will have some influence over the suppliers power, as they may not want to lose business from such a key customer. Companies such as Marstons will be able to negotiate good prices because of this factor. Larger pub companies have a greater power over suppliers than independent pubs. Powerful Supplier Brands: Recognised suppliers of key brands have some power over pubs as consumers expect products to be available. These types of product may only be available with one supplier if this is the case then the cost of switching will be high. COMPETITIVE RIVALRY The Market is Price Led: This has resulted in high levels of competition that some companies will be unable to compete with.

34

LUBS3865 Financial Analysis Shift in Market Focus: The market is now focused on food-led pubs; this change has been felt throughout the industry meaning competition is high in this area. 52 Pubs Closing a Week in 2007:This highlights that failure to adapt within the industry will result in closures for large companies or failure for smaller businesses. Leading Competitors: within the industry, for example, Greene King, Punch Tavern and Enterprise Inns. These companies have a large force within the industry. Market Size: The market has decreased over the last 5 years and is expected to drop further most companies are disposing of non-value adding pubs and attempting to protect their core business.

35

LUBS3865 Financial Analysis

Appendix 4 - Porters Five Forces Analysis The Brewing Industry


THREAT OF ENTRANTS Large Brewers with Strong Brand Image: There are a number of large brewers within the industry they have strong reputations within the industry and this is likely to deter new entrants because of the competition they would face. Smaller Producers: These businesses do exist and they create local, niche ales and beers. Smaller producers are able to differentiate their products; however,; they may struggle to establish economies of scale. High Start Up Costs: Investment is required to set up a cost efficient brewery and to create high quality ales and beers that consumers expect. Given the economic conditions, it is unlikely that a new large brewer will set up within the industry. Lack of Experience: New businesses within the industry will have to build up experience in order to create cost efficient processes. Economies of Scale: Large breweries can benefit from economies of scale and greater cost efficiencies this is likely to deter new entrants. THREAT OF SUBSTITUTES Product Substitution: Consumer tastes are moving towards wines and spirits instead of beers and ales (Consumer Attitudes to Drinking, Mintel, 2010). Product Substitution: This demographic prefers to purchase lager instead of beers and ales (Ales & Stouts, Mintel, 2010). Generic Substitution: There has been a general decline in drinking alcohol (Pub Visiting, Mintel, 2010) BUYER POWER Trade Buyers: Breweries create products for pubs, restaurants and bars. These outlets are price sensitive and therefore brewers must have cost efficient process to meet this price demand. These buyers have a higher buyer power than off trade buyers. Supermarkets: If breweries supply to the supermarket chains, the buyer is likely to have a strong bargaining power given their size and geographic presence. Brand Loyalty: Consumers do become loyal to brand and in this instance the switching cost for consumers becomes higher.

36

LUBS3865 Financial Analysis SUPPLIER POWER Local Suppliers: Breweries that create local beers must create good working relationships with local producers of raw materials in order to create such products. Low Bargaining Power of Suppliers: This is low as brewing companies have a large amount of power over the suppliers they source their raw materials from. In particular, local communities that are reliant on large pub companies business will have very little power. Size of Brewing Company: Larger breweries have a greater power over suppliers than smaller breweries. COMPETITIVE RIVALRY Large Producers: The industry is dominated by a number of key competitors including Greene King PLC and Marstons PLC (Ales & Stouts, Mintel 2010). Competitive Advantages: Breweries that are part of pub companies are guaranteed to have some level of distribution in the market (Ales & Stouts, Mintel, 2010) Increasing Costs: Rising material and utility prices have meant brewers must become cost efficient to compete in a declining market. Consumer Awareness: Buyers are increasingly aware of where products are sourced making producers create beers and ales with local provenance. They are also aware of food-miles (Ales & Stouts, Mintel, 2010). Brewers must respond to this demand. Consumer Tastes & Awareness: Consumers are changing to different products such as wine and lager making breweries invest in new products (Pub Visiting, Mintel, 2010). They are also willing to pay more for quality products and therefore breweries are becoming innovative to create products to match this taste (Consumer Attitudes to Drinking, Mintel, 2010).

37

LUBS3865 Financial Analysis

Appendix 5 - Accounting Policies and Comparison Issues


2005 Annual Reports During 2005 there was an accounting transition to International Financial Reporting Standards (IFRS). This move occurred at Marstons, Greene King, Mitchells and Butler and Enterprise Inns. Due to this transition there was a slight change in the 2005 figures. There were no significant changes and therefore there are no areas of concern for an investor. Please note all 2005 figures within this report use the re-stated figures based on IFRS. Revaluation of Plant, Property and Equipment (PPE) Throughout the five-year period, Marstons has listed the fair value of PPE under IAS16. This means the company lists the fair value of its property portfolio in the balance sheet. This is the amount the assets could be exchanged for in the market at that time. Due to the volatility of the property market, Marstons has had a number of large exceptional items. In 2005, a revaluation gain of 58.5m was noted and again, in 2007, a gain of 162m was accounted for. When the recession occurred, property prices were severely affected. Tthis has directly impacted on Marstons. In 2009. a total property impairment of 68m was noted. This meant 24.1m of exceptional items was listed on the income statement and 42.9m was recognised in the revaluation reserve. An outcome of this revaluation method is the impact on profitability levels. Given the exceptional nature and size of the revaluation this report considers this item to be a true one off occurrence. It is unlikely that another revaluation of this size will occur given the potential recovery in the UK market. Enterprise Inns and Mitchells and Butler both operate under IAS16. In particular, Mitchells and Butler have also reported large exceptional items relating to property in 2009. Greene King has opted to list property under IAS36. Tthis is known as the cost model. This means the amount listed on the balance sheet is the initial cost of the asset less depreciation and any impairment losses. Given the different treatments of PPE, some caution should be given when making direct comparisons between Marstons and its competitors., Iin particular, when comparing gearing and ROCE ratios.

38

LUBS3865 Financial Analysis

Appendix 6 Financial Statements


All information has been taken from Thompson One Banker on 6 December 2010.

Thomson Financial 5 Yr. Balance Sheet Report Marston's PLC


http://www.marstons.co.uk Exchange: Country: DJ Sector: DJ Industry: Company Status: LON GBR Consumer,Cyclical Restaurants Active Source: ThomsonFinancial Scaling Factor : 1000000 GBP ASSETS 09/30/09 09/30/08 09/30/07 09/30/06 Currency: GBP 09/30/05 CUSIP: DCN: ISIN: M208372500 GB00B1JQDM80 PE Ratio 13.61 Tot Ret 1Yr 19.74 Beta 1.53 Price 12/20/2010 111.60

Symbol:

(C000015446)
Mkt Cap (th) 644,838

Shrs Out (th) 570,653

Cash And ST Investments Receivables (Net) Total Inventories Other Current Assets Current Assets - Total Property Plant & Equipment - Net Total Investments Other Assets Total Assets

91.30 60.40 17.30 38.40 207.40 1894.4 #N/A 248.10 2,371.90

60.10 59.10 19.00 31.80 170.00 1975.9 #N/A 247.60 2,418.20

44.80 51.00 16.70 25.60 138.10 1934.3 #N/A 227.50 2,324.70

71.60 38.60 12.80 38.20 161.20 1584 #N/A 153.80 1,922.10

76.10 48.20 13.60 12.40 150.30 1553.1 #N/A 139.30 1,863.80

LIABILITIES & SHAREHOLDERS' EQUITY

09/30/09

09/30/08

09/30/07

09/30/06

09/30/05

Accounts Payable ST Debt & Current Portion of LT Debt

42.40 21.40

51.00 29.20

47.10 97.90

42.60 38.60

26.40 53.80

39

LUBS3865 Financial Analysis


Income Taxes Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Other Liabilities Total Liabilities 24.00 83.30 171.10 1,173.40 77.40 1,588.60 21.50 86.70 188.40 1,298.90 38.20 1,711.20 21.50 72.20 238.70 1,133.50 2.00 1,576.10 11.20 66.00 158.40 926.60 15.00 1,268.80 #N/A 69.50 169.50 894.00 1.40 1,099.90

Shareholders' Equity Minority Interest Preferred Stock Common Equity Retained Earnings Total Liabilities & Shareholders' Equity 0.00 0.10 783.20 189.70 2,371.90 0.00 0.10 706.90 214.20 2,418.20 0.00 0.10 748.50 227.30 2,324.70 0.00 0.10 653.20 157.40 1,922.10 2.00 0.10 756.40 162.60 1,863.80

Thomson Financial 5 Yr. Balance Sheet Report Greene King PLC


http://www.greeneking.co.uk Exchange: Country: DJ Sector: DJ Industry: Company Status: LON GBR Consumer,Cyclical Restaurants Active Source: ThomsonFinancial Scaling Factor : 1000000 GBP ASSETS 04/30/09 04/30/08 04/30/07 04/30/06 Currency: GBP 04/30/05 CUSIP: DCN: ISIN: G801340000 GB00B0HZP136 PE Ratio 11.22 Tot Ret 1Yr 24.46 Beta 1.03 Price 12/20/2010 482.50

Symbol:

(C000015555)
Mkt Cap (th) 1,063,969

Shrs Out (th) 216,518

Cash And ST Investments Receivables (Net)

120.90 62.00

92.30 51.70

94.10 48.90

31.60 38.00

34.40 27.90

40

LUBS3865 Financial Analysis


Total Inventories Other Current Assets Current Assets - Total Property Plant & Equipment - Net Total Investments Other Assets Total Assets 21.90 0.00 211.70 1997.3 #N/A 678.00 2,927.50 17.90 0.00 174.90 2057.9 #N/A 679.00 2,949.50 18.20 0.00 167.60 1985.8 #N/A 613.90 2,809.60 20.10 0.00 98.30 1771.8 #N/A 512.40 2,418.90 14.20 2.80 79.30 1581.5 #N/A 259.30 1,935.60

LIABILITIES & SHAREHOLDERS' EQUITY

04/30/09

04/30/08

04/30/07

04/30/06

04/30/05

Accounts Payable ST Debt & Current Portion of LT Debt Income Taxes Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Other Liabilities Total Liabilities

93.30 38.40 43.30 114.80 289.80 1,641.10 131.80 2,284.10

83.70 60.60 39.50 116.00 299.80 1,636.50 7.90 2,200.80

60.50 136.40 31.60 107.90 336.40 1,391.20 4.40 1,975.40

49.30 279.20 17.10 86.30 431.90 998.10 17.00 1,657.40

44.10 26.00 18.50 70.20 177.50 1,028.60 0.00 1,251.90

Shareholders' Equity Minority Interest Preferred Stock Common Equity Retained Earnings Total Liabilities & Shareholders' Equity 0.00 0.00 643.40 488.00 2,927.50 0.00 0.00 748.70 502.00 2,949.50 0.00 0.00 834.20 584.90 2,809.60 0.00 0.00 761.50 523.80 2,418.90 0.00 0.00 683.70 204.90 1,935.60

Thomson Financial 5 Yr. Balance Sheet Report Enterprise Inns PLC


Symbol: (C000017106)

41

LUBS3865 Financial Analysis


http://www.enterpriseinns.com Exchange: Country: DJ Sector: DJ Industry: Company Status: LON GBR Consumer,Cyclical Restaurants Active Source: ThomsonFinancial Scaling Factor : 1000000 GBP ASSETS 09/30/09 09/30/08 09/30/07 09/30/06 Currency: GBP 09/30/05 CUSIP: DCN: ISIN: E707627500 GB00B1L8B624 PE Ratio 22.62 Tot Ret 1Yr 9.55 Beta 2.92 Price 12/20/2010 116.70 Shrs Out (th) 505,977 Mkt Cap (th) 595,029

Cash And ST Investments Receivables (Net) Total Inventories Other Current Assets Current Assets - Total Property Plant & Equipment - Net Total Investments Other Assets Total Assets

101.00 65.00 0.00 10.00 176.00 5336 #N/A 467.00 5,979.00

99.00 72.00 0.00 16.00 187.00 5859 #N/A 446.00 6,494.00

94.00 80.00 0.00 19.00 193.00 5710 #N/A 449.00 6,356.00

112.00 78.00 0.00 22.00 212.00 5343 #N/A 451.00 6,009.00

95.50 55.70 0.00 32.10 183.30 5217.2 #N/A 75.30 5,476.50

LIABILITIES & SHAREHOLDERS' EQUITY

09/30/09

09/30/08

09/30/07

09/30/06

09/30/05

Accounts Payable ST Debt & Current Portion of LT Debt Income Taxes Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Other Liabilities Total Liabilities

67.00 100.00 #N/A 201.00 368.00 3,605.00 34.00 4,604.00

71.00 36.00 41.00 138.00 286.00 3,816.00 16.00 4,816.00

17.00 35.00 59.00 225.00 336.00 3,819.00 0.00 4,873.00

17.00 13.00 52.00 235.00 317.00 3,316.00 0.00 4,333.00

10.20 25.70 46.00 207.00 331.10 3,299.50 5.00 3,735.60

42

LUBS3865 Financial Analysis

Shareholders' Equity Minority Interest Preferred Stock Common Equity Retained Earnings Total Liabilities & Shareholders' Equity 0.00 0.00 1,375.00 173.00 5,979.00 0.00 0.00 1,678.00 227.00 6,494.00 0.00 0.00 1,483.00 130.00 6,356.00 0.00 0.00 1,676.00 589.00 6,009.00 0.00 0.00 1,740.90 475.90 5,476.50

Thomson Financial 5 Yr. Balance Sheet Report Mitchells & Butlers PLC
http://www.mbplc.com Exchange: Country: DJ Sector: DJ Industry: Company Status: LON GBR Consumer,Cyclical Restaurants Active Source: ThomsonFinancial Scaling Factor : 1000000 GBP ASSETS 09/30/09 09/30/08 09/30/07 09/30/06 Currency: GBP 09/30/05 CUSIP: DCN: ISIN: M689511875 GB00B1FP6H53 PE Ratio -17.23 Tot Ret 1Yr 35.50 Beta 0.92 Price 12/20/2010 350.40

Symbol:

(C000086501)
Mkt Cap (th) 1,451,658

Shrs Out (th) 409,033

Cash And ST Investments Receivables (Net) Total Inventories Other Current Assets Current Assets - Total Property Plant & Equipment - Net

107.00 16.00 38.00 0.00 185.00 4461

131.00 61.00 39.00 0.00 253.00 4545

196.00 40.00 38.00 0.00 303.00 5030

375.00 55.00 42.00 0.00 498.00 3867

200.00 40.00 39.00 0.00 315.00 3516

43

LUBS3865 Financial Analysis


Total Investments Other Assets Total Assets #N/A 30.00 4,682.00 #N/A 127.00 4,926.00 #N/A 34.00 5,397.00 #N/A 123.00 4,488.00 #N/A 10.00 3,841.00

LIABILITIES & SHAREHOLDERS' EQUITY

09/30/09

09/30/08

09/30/07

09/30/06

09/30/05

Accounts Payable ST Debt & Current Portion of LT Debt Income Taxes Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Other Liabilities Total Liabilities

96.00 59.00 1.00 224.00 380.00 2,660.00 60.00 3,685.00

103.00 89.00 #N/A 221.00 413.00 2,755.00 33.00 3,751.00

80.00 234.00 18.00 458.00 790.00 2,317.00 47.00 3,821.00

70.00 41.00 22.00 188.00 321.00 2,375.00 55.00 3,203.00

67.00 39.00 60.00 147.00 350.00 1,786.00 0.00 2,424.00

Shareholders' Equity Minority Interest Preferred Stock Common Equity Retained Earnings Total Liabilities & Shareholders' Equity 0.00 0.00 997.00 315.00 4,682.00 0.00 0.00 1,175.00 434.00 4,926.00 0.00 0.00 1,576.00 683.00 5,397.00 0.00 0.00 1,285.00 1,270.00 4,488.00 0.00 0.00 1,417.00 1,043.00 3,841.00

Thomson Financial 5 Yr. Balance Sheet Report Wetherspoon (JD) PLC


http://www.jdwetherspoon.co.uk Exchange: Country: LON GBR CUSIP: DCN: ISIN: J062080000 GB0001638955 Price 12/20/2010 429.70

Symbol:

(C000017060)
Mkt Cap (th) 613,713

Shrs Out (th) 138,943

44

LUBS3865 Financial Analysis


DJ Sector: DJ Industry: Company Status: Consumer,Cyclical Restaurants Active Source: ThomsonFinancial Scaling Factor : 1000000 GBP ASSETS 07/31/09 07/31/08 07/31/07 07/31/06 Currency: GBP 07/31/05 PE Ratio 15.08 Tot Ret 1Yr -4.55 Beta 0.66

Cash And ST Investments Receivables (Net) Total Inventories Other Current Assets Current Assets - Total Property Plant & Equipment - Net Total Investments Other Assets Total Assets

23.60 3.01 17.95 14.46 59.02 773.903 #N/A 12.83 845.75

16.45 5.12 15.90 8.46 45.93 792.741 #N/A 11.69 850.36

19.05 3.95 19.03 8.66 50.69 782.269 #N/A 10.25 843.21

21.09 3.33 13.69 9.13 47.24 743.826 #N/A 9.83 800.90

18.07 2.67 12.78 1.69 44.74 762.739 #N/A 0.00 807.48

LIABILITIES & SHAREHOLDERS' EQUITY

07/31/09

07/31/08

07/31/07

07/31/06

07/31/05

Accounts Payable ST Debt & Current Portion of LT Debt Income Taxes Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Other Liabilities Total Liabilities

73.77 102.81 11.41 70.50 258.49 310.34 42.36 678.06

50.36 0.90 10.46 65.02 126.74 458.73 5.70 669.82

58.08 0.56 9.68 61.10 129.42 456.57 6.19 670.60

57.64 0.00 10.81 60.49 128.94 368.72 21.74 599.32

54.03 25.00 7.56 59.47 150.93 327.22 1.95 547.59

Shareholders' Equity Minority Interest Preferred Stock 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

45

LUBS3865 Financial Analysis


Common Equity Retained Earnings Total Liabilities & Shareholders' Equity 167.69 47.10 845.75 180.55 34.25 850.36 172.61 26.77 843.21 201.58 61.66 800.90 259.88 104.39 807.48

Thomson Financial 5 Yr. Balance Sheet Report Punch Taverns PLC


http://www.punchtaverns.com Exchange: Country: DJ Sector: DJ Industry: Company Status: LON GBR Consumer,Cyclical Restaurants Active Source: ThomsonFinancial Scaling Factor : 1000000 GBP ASSETS 08/31/09 08/31/08 08/31/07 08/31/06 Currency: GBP 08/31/05 CUSIP: DCN: ISIN: P899569062 GB0031552861 PE Ratio -2.99 Tot Ret 1Yr -22.47 Beta 2.99 Price 12/20/2010 74.05

Symbol:

(C000082166)
Mkt Cap (th) 478,615

Shrs Out (th) 642,868

Cash And ST Investments Receivables (Net) Total Inventories Other Current Assets Current Assets - Total Property Plant & Equipment - Net Total Investments Other Assets Total Assets

678.60 67.50 7.50 24.50 778.10 5124.3 #N/A 748.30 6,696.90

335.60 56.90 8.50 25.90 426.90 6274.7 #N/A 718.90 7,463.10

282.40 110.70 7.90 28.60 429.60 6495.5 #N/A 732.10 7,714.90

578.20 71.10 12.20 36.30 697.80 6506 #N/A 695.20 7,906.20

448.50 50.40 0.00 28.10 527.00 4231.4 #N/A 168.70 4,927.10

46

LUBS3865 Financial Analysis


LIABILITIES & SHAREHOLDERS' EQUITY 08/31/09 08/31/08 08/31/07 08/31/06 08/31/05

Accounts Payable ST Debt & Current Portion of LT Debt Income Taxes Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Other Liabilities Total Liabilities

83.50 50.20 #N/A 323.20 456.90 4,237.20 232.70 5,049.20

96.80 62.70 5.00 268.00 432.50 4,976.50 182.80 5,900.20

103.40 62.20 #N/A 279.20 444.80 5,054.20 119.60 6,008.00

123.10 85.10 15.80 344.30 568.30 5,392.00 201.60 6,500.60

66.00 247.50 38.30 140.20 511.30 3,203.30 11.30 3,847.60

Shareholders' Equity Minority Interest Preferred Stock Common Equity Retained Earnings Total Liabilities & Shareholders' Equity 0.00 0.00 1,647.70 1,288.80 6,696.90 0.00 0.00 1,562.90 1,156.50 7,463.10 0.00 0.00 1,706.90 1,261.00 7,714.90 0.00 0.00 1,405.60 986.40 7,906.20 0.00 0.00 1,053.00 368.10 4,927.10

47

LUBS3865 Financial Analysis

Appendix 7 Revenue and Profitability Calculations


Revenue Trend Analysis (RPI Adjusted) Revenue figures taken from Thompson One Banker 6 December 2010. RPI figures accessed fromhttp://www.statistics.gov.uk/statbase/TSDdownload2.asp on 7 December 2010. RPI Index Year 2005 2006 2007 2008 2009 RPI 179.4 184.8 190.8 199.2 204.8 RPI Base Rate 100 103 106.4 111 114.2

Marstons Revenue Index Workings Marston's Revenue RPI Adjusted RPI Base Rate Revenue 100 103 106.4 111 114.2 597.3 578.2 613.5 600.1 564.9 Index 100 96.8 102.7 100.4 94.6

2005 597.3 2006 595.5 2007 652.8 2008 666.1 2009 645.1 Greene King Revenue Index Workings Greene King 2005 2006 2007 2008 2009 Revenue 732.6 818.5 917.5 960.5 954.6

RPI Adjusted RPI Base Rate Revenue 100 103 106.4 111 114.2 732.6 794.7 862.3 865.3 835.9

Index 100 108.5 117.7 118.1 114.1

Enterprise Inns Revenue Index Workings

48

LUBS3865 Financial Analysis Enterprise Inns 2005 2006 2007 2008 2009 RPI Adjusted RPI Base Rate Revenue 919.9 970 921 880 811 100 103 106.4 111 114.2 919.0 941.7 865.6 792.8 710.2

Revenue

Index 100 102.5 94.2 86.3 77.3

Mitchells & Butler PLC Revenue Index Workings Mitchells & Butler 2005 2006 2007 2008 2009 Revenue 1662 1720 1894 1908 1958 RPI Adjusted RPI Base Rate Revenue 100 103 106.4 111 114.2 1662.0 1669.9 1780.1 1718.9 1714.5 Index 100 100.5 107.1 103.4 103.2

Overall Revenue Index Table 2005 Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC 100 100 100 100 2006 96.8 108.5 102.5 100.5 2007 102.7 117.7 94.2 107.1 2008 100.4 118.1 86.3 103.4 2009 94.6 114.1 77.3 103.2

Marstons Revenue Segmental Analysis Figures taken from the Marstons 2005-2009 annual reports: Revenue figures for each division: Division 2009 (m) 2008 (m) 2007 (m) 2006 (m) 2005 (m)

49

LUBS3865 Financial Analysis Marstons Inns & Taverns Marstons Pub Company Marstons Beer Company Total Revenue 367.8 388.3 367.8 330.7 317.4

175.8 101.5

186.4 91.4

200.9 84.1

178.8 86

153.3 85.4

645.1

666.1

652.8

595.5

556.1

Revenue contribution as a percentage of total revenue:


2009 2008 2007 2006 2005

Marstons Inns & Taverns Marstons Pub Company Marstons Beer Company Total Profitability Ratios: Ratio Formulas Ratio ROCE (Long-Term Borrowings Only)

57.0%

58.3%

56.3%

55.5%

57.1%

27.3%

28.0%

30.8%

30.0%

27.6%

15.7% 100.0%

13.7% 100.0%

12.9% 100.0%

14.4% 100.0%

15.4% 100.0%

Ratio Formula EBIT/Capital Employed*100

ROCE (Including Long & Short-Term Borrowings Debt)

EBIT/Capital Employed*100

Return on Equity Net Profit Margin Gross Profit Margin

Profit after Tax/Shareholder's Fund*100 EBIT/Revenue*100 Gross Profit/Revenue*100

Formula Notes Capital Employed = Shareholders Fund+ LongTerm Borrowings Capital Employed = Shareholders Fund + ShortTerm Borrowings +LongTerm Borrowings n/a n/a n/a

50

LUBS3865 Financial Analysis All figures calculated in excel using data from Thompson One Banker: Profitability Ratios 2005 2006 2007 2008 2009

ROCE (LT) Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC JD Wetherspoon PLC Punch Taverns PLC AVERAGE 5.66% 7.85% 10.46% 9.62% 10.77% 9.10% 8.91% 9.70% 10.95% 12.92% 9.23% 14.68% 9.00% 11.08% 8.50% 10.29% 10.66% 2.70% 14.51% 9.64% 9.38% 7.82% 10.90% 8.32% -1.63% 13.57% 3.59% 7.09% 5.02% 6.87% 4.90% 4.29% 15.94% -1.86% 5.86%

ROCE (LT & ST) Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC JD Wetherspoon PLC Punch Taverns PLC AVERAGE 5.53% 7.74% 10.41% 9.50% 10.33% 14.09% 9.60% 9.47% 9.45% 12.89% 9.13% 14.68% 8.89% 10.75% 8.08% 9.69% 10.59% 2.54% 14.50% 9.55% 9.16% 7.70% 10.63% 8.26% -1.59% 13.55% 3.55% 7.02% 4.97% 6.75% 4.80% 4.22% 13.12% -1.85% 5.34%

Return on Equity Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC 4.42% 7.91% 12.17% 9.39% 11.22% 11.81% 19.39% 15.18% 10.99% 13.02% 19.62% -0.63% 8.74% 16.60% 11.26% -14.98% 2.09% 6.14% 0.44% 0.40%

51

LUBS3865 Financial Analysis JD Wetherspoon PLC Punch Taverns PLC AVERAGE 9.35% 13.92% 9.53% 19.79% 17.56% 15.82% 27.13% 16.31% 14.41% 19.68% -4.14% 6.20% 15.09% -10.71% 2.24%

Net Profit Margin Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC JD Wetherspoon PLC Punch Taverns PLC AVERAGE 15.79% 18.36% 57.33% 18.53% 7.81% 50.29% 28.02% 25.73% 23.53% 66.49% 19.65% 9.88% 39.59% 30.81% 24.51% 24.95% 61.35% 5.54% 10.28% 38.23% 27.48% 23.54% 27.06% 51.93% -3.35% 9.56% 15.03% 20.63% 15.24% 16.44% 30.09% 8.02% 7.98% -7.61% 11.69%

Gross Profit Margin Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC JD Wetherspoon PLC Punch Taverns PLC AVERAGE 32.50% 37.25% 36.68% 36.51% 35.10% 34.00% 39.89% 57.90% 17.87% 12.86% 38.62% 39.43% 59.28% 35.17% 13.74% 38.53% 35.46% 60.26% 35.01% 14.17% 37.98% 35.11% 60.91% 34.49% 14.08% 36.85% 33.32% 58.45% 32.89% 14.00%

Profit Before Interest & Tax (PBIT) Trend Analysis (RPI Adjusted) PBIT figures taken from Thompson One Banker. RPI figures accessed fromhttp://www.statistics.gov.uk/statbase/TSDdownload2.asp on 7 December 2010.

52

LUBS3865 Financial Analysis Year 2005 2006 2007 2008 2009 Marstons PLC Marston's PLC 2005 2006 2007 2008 2009 Greene King PLC Greene King PLC 2005 2006 2007 2008 2009 Enterprise Inns PLC Enterprise Inns PLC 2005 2006 2007 2008 PBIT 527.4 645 565 457 RPI Adjusted RPI Base Rate Revenue 100 103 106.4 111 527.4 626.2 531 411.7 Index 100 118.7 100.7 78.1 PBIT 134.5 192.6 228.9 259.9 156.9 RPI Adjusted RPI Base Rate Revenue 100 103 106.4 111 114.2 134.5 187 215.1 234.1 137.4 Index 100 139 159.9 174.1 102.2 PBIT 93.4 153.2 160 156.8 98.3 RPI Adjusted RPI Base Rate Revenue 100 103 106.4 111 114.2 93.4 148.7 150.4 141.3 86.1 Index 100 159.2 160.6 151.3 92.2 RPI 179.4 184.8 190.8 199.2 204.8 RPI Base Rate 100 103 106.4 111 114.2

53

LUBS3865 Financial Analysis 2009 Mitchells & Butler PLC Mitchells & Butler PLC 2005 2006 2007 2008 2009 PBIT 308 338 105 -64 157 RPI Adjusted RPI Base Rate Revenue 100 103 106.4 111 114.2 308 328.2 98.7 -57.7 137.5 Index 100 106.6 32 -18.7 44.6 244 114.2 213.7 40.5

Overall PBIT Index Table 2005 Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC 100 100 100 100 2006 159.2 139 118.7 106.6 2007 160.6 159.9 100.7 32 2008 151.3 174.1 78.1 -18.7 2009 92.2 102.2 40.5 44.6

Marstons Revenue v PBIT (RPI Adjusted) 2005 Revenue PBIT 100 100 2006 96.8 159.2 2007 102.7 160.6 2008 100.4 151.3 2009 94.6 92.2

54

LUBS3865 Financial Analysis

Marston's PLC Revenue v PBIT (RPI Adjusted)


170 160 150 140 130 120 110 100 90 80 70 2005 2006 2007 Year 2008 2009 Revenue PBIT

55

LUBS3865 Financial Analysis

Appendix 8 Liquidity Calculations


Ratio Formulas Ratio Working Capital Acid Test
Ratio Formula Current Assets/Current Liabilities (Current Assets - Inventory)/Current Liabilities

All figures calculated in excel using data from Thompson One Banker: Liquidity Ratios 2005 2006 2007 2008 2009

Working Capital Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC JD Wetherspoon PLC Punch Taverns PLC AVERAGE 0.89 0.45 0.55 0.90 0.30 1.03 0.69 1.02 0.23 0.67 1.55 0.37 1.23 0.84 0.58 0.50 0.57 0.38 0.39 0.97 0.57 0.90 0.58 0.65 0.61 0.36 0.99 0.68 1.21 0.73 0.48 0.49 0.23 1.70 0.81

Acid test Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC JD Wetherspoon PLC Punch Taverns PLC AVERAGE 0.81 0.37 0.55 0.79 0.21 1.03 0.63 0.94 0.18 0.67 1.42 0.26 1.21 0.78 0.51 0.44 0.57 0.34 0.24 0.95 0.51 0.80 0.52 0.65 0.52 0.24 0.97 0.62 1.11 0.65 0.48 0.39 0.16 1.69 0.75

56

LUBS3865 Financial Analysis

Appendix 9 Solvency Calculations


Common Size Balance Sheet taken from Thompson One Banker on 6 December 2010.

Thomson Financial 5 Yr. Common Size Balance Sheet


Industrial Template

Marston's PLC
Scaling Factor : 1000000 GBP ASSETS 09/30/09 09/30/08 09/30/07

Symbol:

(C000015446)

Source: ThomsonFinancial Currency: GBP 09/30/06 09/30/05

Cash And ST Investments Receivables (Net) Total Inventories Other Current Assets Current Assets - Total Total Investments Property Plant & Equipment - Net Other Assets Total Assets

3.85% 2.55% 0.73% 1.62% 8.74%

2.49% 2.44% 0.79% 1.32% 7.03%

1.93% 2.19% 0.72% 1.10% 5.94%

3.73% 2.01% 0.67% 1.99% 8.39%

4.08% 2.59% 0.73% 0.67% 8.06%

79.87% 10.46% 100.00%

81.71% 10.24% 100.00%

83.21% 9.79% 100.00%

82.41% 8.00% 100.00%

83.33% 7.47% 100.00%

LIABILITIES & SHAREHOLDERS' EQUITY

09/30/09

09/30/08

09/30/07

09/30/06

09/30/05

Accounts Payable ST Debt & Current Portion of LT Debt Income Taxes Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Other Liabilities Total Liabilities

1.79% 0.90% 1.01% 3.51% 7.21% 49.47% 3.26% 66.98%

2.11% 1.21% 0.89% 3.59% 7.79% 53.71% 1.58% 70.76%

2.03% 4.21% 0.92% 3.11% 10.27% 48.76% 0.09% 67.80%

2.22% 2.01% 0.58% 3.43% 8.24% 48.21% 0.78% 66.01%

1.42% 2.89%

3.73% 9.09% 47.97% 0.08% 59.01%

57

LUBS3865 Financial Analysis


Shareholders' Equity Minority Interest Preferred Stock - Total Common Equity - Total Total Liabilities & Shareholders' Equity 0.00% 0.00% 33.02% 100.00% 0.00% 0.00% 29.23% 100.00% 0.00% 0.00% 32.20% 100.00% 0.00% 0.01% 33.98% 100.00% 0.11% 0.01% 40.58% 100.00%

Ratio Formulas
Ratio Debt Ratio (Long-Term Debt Only) Debt Ratio (including Short and Long-Term Debt) Debt:Equity Ratio (LongTerm Debt Only) Debt:Equity Ratio (including Short and Long-Term Debt) Interest Cover Ratio Formula Long-Term Borrowings/Capital Employed Short & Long-Term Borrowings/Capital Employed Long-Term Borrowings/Shareholders Fund Short & Long-Term Borrowings/Shareholders Fund EBIT/Interest Formula Notes Capital Employed = Shareholders Fund + Long Term Borrowings Capital Employed = Shareholders Fund + Long Term Borrowings + Short Term Borrowings n/a

n/a

n/a

All figures calculated in excel using data from Thompson One Banker: Solvency Ratios 2005 2006 2007 2008 2009

Debt Ratio (LT) Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC JD Wetherspoon PLC Punch Taverns PLC AVERAGE 54.17% 60.07% 65.46% 55.76% 55.73% 75.26% 61.08% 58.69% 56.72% 66.43% 64.89% 64.65% 79.32% 65.12% 60.23% 62.51% 72.03% 59.52% 72.57% 74.75% 66.93% 64.75% 68.61% 69.46% 70.10% 71.76% 76.10% 70.13% 59.97% 71.84% 72.39% 72.74% 64.92% 72.00% 68.98%

58

LUBS3865 Financial Analysis


Debt Ratio (ST & LT) Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC JD Wetherspoon PLC Punch Taverns PLC AVERAGE 55.61% 60.67% 65.64% 56.29% 57.54% 76.62% 62.06% 59.67% 62.65% 66.51% 65.28% 64.65% 79.58% 66.39% 62.19% 64.68% 72.21% 61.81% 72.59% 74.98% 68.08% 65.26% 69.39% 69.66% 70.76% 71.80% 76.33% 70.53% 60.40% 72.30% 72.93% 73.17% 71.13% 72.24% 70.36%

Debt:Equity (LT) Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC JD Wetherspoon PLC Punch Taverns PLC AVERAGE 118.18% 150.45% 189.53% 126.04% 125.91% 304.21% 169.05% 141.83% 131.07% 197.85% 184.82% 182.91% 383.61% 203.68% 151.42% 166.77% 257.52% 147.02% 264.51% 296.10% 213.89% 183.72% 218.58% 227.41% 234.47% 254.07% 318.41% 239.44% 149.80% 255.07% 262.18% 266.80% 185.07% 257.16% 229.35%

Debt:Equity (LT & ST) Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC JD Wetherspoon PLC Punch Taverns PLC AVERAGE 125.29% 154.25% 191.00% 128.79% 135.53% 327.68% 177.09% 147.74% 167.73% 198.63% 188.02% 182.91% 389.66% 212.45% 164.49% 183.12% 259.88% 161.87% 264.83% 299.75% 222.32% 187.85% 226.67% 229.56% 242.04% 254.57% 322.43% 243.85% 152.53% 261.04% 269.45% 272.72% 246.38% 260.21% 243.72%

59

LUBS3865 Financial Analysis

Interest Cover Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC JD Wetherspoon PLC Punch Taverns PLC AVERAGE 2.07 2.18 2.36 2.66 2.60 1.91 2.29 2.96 2.69 2.80 2.86 3.30 1.85 2.75 2.45 2.76 2.48 0.69 3.12 1.87 2.23 1.95 2.32 1.84 -0.37 2.66 0.74 1.52 1.28 1.53 1.05 0.94 2.44 -0.37 1.15

60

LUBS3865 Financial Analysis

Appendix 10 Cash Flow Statements


All information has been taken from Thompson One Banker on 21 December 2010.

Thomson Financial 5 Yr. CashFlow Statement


Industrial Template

Marston's PLC
http://www.marstons.co.uk Exchange: Country: DJ Sector: DJ Industry: Company Status: LON GBR CUSIP: DCN: ISIN: M208372500 GB00B1JQDM80

Symbol:
Price 12/20/2010 111.60

(C000015446)
Mkt Cap (th) 644,838

Shrs Out (th) 570,653

Consumer,Cyclical Restaurants Active

PE Ratio 13.61

Tot Ret 1Yr 19.74

Beta 1.53

Source: ThomsonFinancial Scaling Factor : 1000000 GBP 5 YR CASH FLOWS STATEMENT Operating Activities Income Bef Extraordinary Items Depreciation, Depletion & Amortn Deferred Taxes Other Cash Flow Funds From Operations Extraordinary Items Funds From/For Other Oper Activities Net Cash Flow From Operating Activities 147.40 44.40 #N/A #N/A 95.00 0.00 -20.00 75.00 156.90 43.00 #N/A #N/A 93.50 0.00 2.60 96.10 160.70 42.70 #N/A #N/A 129.30 0.00 -29.10 100.20 152.30 39.10 #N/A #N/A 129.30 0.00 14.80 144.10 121.90 45.40 #N/A #N/A 68.90 0.00 -19.40 49.50 09/30/09 09/30/08 09/30/07 Currency: GBP 09/30/06 09/30/05

Investing Activities Capital Expenditures Net Assets From Acquisitions Decrease In Investments Disposal of Fixed Assets 56.10 5.30 0.00 26.00 117.20 9.00 0.00 21.50 146.30 113.90 0.00 102.00 99.10 22.40 0.00 36.80 98.10 140.10 5.80 14.80

61

LUBS3865 Financial Analysis


Other Use/(Source) - Investing Net Cash Flow From Investing Activities 2.80 32.60 0.10 104.60 91.40 186.00 47.50 132.20 0.00 217.60

Financing Activities Com/Prf Purchased,Retired,Converted,Redeemed Long Term Borrowings Inc(Dec) In ST Borrowings Reduction In Long Term Debt Cash Dividends Paid - Total Other Source/(Use) - Financing Net Cash Flow From Financing Activities 0.00 29.20 121.40 21.40 0.00

-5.00 -8.60 127.30 35.90 0.00 -11.20

322.10 -1.50 229.80 35.80 0.00 26.20

442.50 -12.10 187.60 34.10 0.00 88.40

42.30 -16.40 25.20 31.00 0.00 -48.20

794.90 41.50 569.20 27.80 14.30 228.00

Exchange Rate Effect Cash & Cash Equivalents - Inc(Dec)

#N/A 31.20

#N/A 17.70

#N/A 2.60

#N/A -36.30

#N/A 59.90

Com/Pfd Purchased,Retired,Converted,Redeemed Long Term Borrowings Inc./Dec. In S.T. Borrowings Reduction In L.T. Debt Cash Dividends Paid - Total Other Source/(Use) - Financing Net Cash Flow - Financing Activities Exchange Rate Effect Cash & Cash Equivalents - IncDec

0.00 -5.00 -8.60 127.30 35.90 0.00 -11.20 #N/A 31.20

29.20 322.10 -1.50 229.80 35.80 0.00 26.20 #N/A 17.70

121.40 442.50 -12.10 187.60 34.10 0.00 88.40 #N/A 2.60

21.40 42.30 -16.40 25.20 31.00 0.00 -48.20 #N/A -36.30

0.00 794.90 41.50 569.20 27.80 14.30 228.00 #N/A 59.90

Thomson Financial 5 Yr. CashFlow Statement


Industrial Template

Greene King PLC


http://www.greeneking.co.uk Exchange: LON CUSIP: DCN: G801340000

Symbol:
Price 12/20/2010 482.50

(C000015555)
Mkt Cap (th) 1,063,969

Shrs Out (th) 216,518

62

LUBS3865 Financial Analysis


Country: DJ Sector: DJ Industry: Company Status: GBR ISIN: GB00B0HZP136 PE Ratio 11.22 Tot Ret 1Yr 24.46 Beta 1.03

Consumer,Cyclical Restaurants Active

Source: ThomsonFinancial Scaling Factor : 1000000 GBP 5 YR CASH FLOWS STATEMENT Operating Activities Income Bef Extraordinary Items Depreciation, Depletion & Amortn Deferred Taxes Other Cash Flow Funds From Operations Extraordinary Items Funds From/For Other Oper Activities Net Cash Flow From Operating Activities 164.10 51.10 #N/A #N/A 140.60 0.00 0.90 141.50 241.10 47.10 #N/A #N/A 168.90 0.00 -5.10 163.80 234.30 42.70 #N/A #N/A 155.70 0.00 16.50 172.20 192.20 38.30 #N/A #N/A 130.10 0.00 -9.60 120.50 135.30 47.10 #N/A #N/A 98.10 0.00 30.10 128.20 04/30/09 04/30/08 04/30/07 Currency: GBP 04/30/06 04/30/05

Investing Activities Capital Expenditures Net Assets From Acquisitions Decrease In Investments Disposal of Fixed Assets Other Use/(Source) - Investing Net Cash Flow From Investing Activities 95.50 0.00 0.00 44.20 0.00 57.60 98.30 82.60 0.00 41.40 0.00 140.10 90.90 172.50 0.90 70.30 0.00 192.20 77.90 232.70 4.10 17.90 0.00 288.60 48.90 199.60 0.00 45.60 0.00 203.30

Financing Activities Com/Prf Purchased,Retired,Converted,Redeemed Long Term Borrowings Inc(Dec) In ST Borrowings Reduction In Long Term Debt Cash Dividends Paid - Total 0.40 150.60 44.20 4.80 0.00

349.80 -0.50 361.30 34.90

265.00 -8.50 101.80 33.50

965.00 6.00 802.90 31.50

239.70 4.60 99.00 27.70

719.10 6.30 600.00 24.30

63

LUBS3865 Financial Analysis


Other Source/(Use) - Financing Net Cash Flow From Financing Activities 7.70 -54.60 0.10 -24.20 4.30 93.50 0.10 164.30 3.80 102.00

Exchange Rate Effect Cash & Cash Equivalents - Inc(Dec)

#N/A 29.30

#N/A -0.50

#N/A 73.50

#N/A -3.80

#N/A 26.90

Com/Pfd Purchased,Retired,Converted,Redeemed Long Term Borrowings Inc./Dec. In S.T. Borrowings Reduction In L.T. Debt Cash Dividends Paid - Total Other Source/(Use) - Financing Net Cash Flow - Financing Activities Exchange Rate Effect Cash & Cash Equivalents - IncDec

0.40 349.80 -0.50 361.30 34.90 7.70 -54.60 #N/A 29.30

150.60 265.00 -8.50 101.80 33.50 0.10 -24.20 #N/A -0.50

44.20 965.00 6.00 802.90 31.50 4.30 93.50 #N/A 73.50

4.80 239.70 4.60 99.00 27.70 0.10 164.30 #N/A -3.80

0.00 719.10 6.30 600.00 24.30 3.80 102.00 #N/A 26.90

Thomson Financial 5 Yr. CashFlow Statement


Industrial Template

Enterprise Inns PLC


http://www.enterpriseinns.com Exchange: Country: DJ Sector: DJ Industry: Company Status: LON GBR CUSIP: DCN: ISIN: E707627500 GB00B1L8B624

Symbol:
Price 12/20/2010 116.70

(C000017106)
Mkt Cap (th) 595,029

Shrs Out (th) 505,977

Consumer,Cyclical Restaurants Active

PE Ratio 22.62

Tot Ret 1Yr 9.55

Beta 2.92

Source: ThomsonFinancial Scaling Factor : 1000000 GBP 5 YR CASH FLOWS STATEMENT Operating Activities 09/30/09 09/30/08 09/30/07 Currency: GBP 09/30/06 09/30/05

64

LUBS3865 Financial Analysis


Income Bef Extraordinary Items Depreciation, Depletion & Amortn Deferred Taxes Other Cash Flow Funds From Operations Extraordinary Items Funds From/For Other Oper Activities Net Cash Flow From Operating Activities 433.00 12.00 #N/A #N/A 153.00 0.00 -4.00 149.00 502.00 8.00 #N/A #N/A 189.00 0.00 24.00 213.00 521.00 7.00 #N/A #N/A 238.00 0.00 -6.00 232.00 537.00 8.00 #N/A #N/A 249.00 0.00 -11.00 238.00 520.20 7.90 #N/A #N/A 244.20 0.00 -9.20 235.00

Investing Activities Capital Expenditures Net Assets From Acquisitions Decrease In Investments Disposal of Fixed Assets Other Use/(Source) - Investing Net Cash Flow From Investing Activities 58.00 0.00 0.00 103.00 0.00 -45.00 118.00 0.00 0.00 30.00 0.00 88.00 169.00 0.00 1.00 128.00 0.00 40.00 141.00 0.00 0.00 362.00 0.00 -221.00 63.90 0.00 0.00 47.00 25.90 36.20

Financing Activities Com/Prf Purchased,Retired,Converted,Redeemed Long Term Borrowings Inc(Dec) In ST Borrowings Reduction In Long Term Debt Cash Dividends Paid - Total Other Source/(Use) - Financing Net Cash Flow From Financing Activities 0.00 33.00 667.00 388.00 0.00

581.00 69.00 789.00 52.00 0.00 -191.00

447.00 -35.00 417.00 81.00 0.00 -117.00

685.00 35.00 191.00 79.00 1.00 -213.00

598.00 #N/A 542.00 70.00 52.00 -444.00

770.90 #N/A 971.10 47.90 1.90 -250.00

Exchange Rate Effect Cash & Cash Equivalents - Inc(Dec)

#N/A 3.00

#N/A 8.00

#N/A -21.00

#N/A 15.00

#N/A -51.20

Com/Pfd Purchased,Retired,Converted,Redeemed Long Term Borrowings Inc./Dec. In S.T. Borrowings

0.00 581.00 69.00

33.00 447.00 -35.00

667.00 685.00 35.00

388.00 598.00 #N/A

0.00 770.90 #N/A

65

LUBS3865 Financial Analysis


Reduction In L.T. Debt Cash Dividends Paid - Total Other Source/(Use) - Financing Net Cash Flow - Financing Activities Exchange Rate Effect Cash & Cash Equivalents - IncDec 789.00 52.00 0.00 -191.00 #N/A 3.00 417.00 81.00 0.00 -117.00 #N/A 8.00 191.00 79.00 1.00 -213.00 #N/A -21.00 542.00 70.00 52.00 -444.00 #N/A 15.00 971.10 47.90 1.90 -250.00 #N/A -51.20

Thomson Financial 5 Yr. CashFlow Statement


Industrial Template

Mitchells & Butlers PLC


http://www.mbplc.com Exchange: Country: DJ Sector: DJ Industry: Company Status: LON GBR CUSIP: DCN: ISIN: M689511875 GB00B1FP6H53

Symbol:
Price 12/20/2010 350.40

(C000086501)
Mkt Cap (th) 1,451,658

Shrs Out (th) 409,033

Consumer,Cyclical Restaurants Active

PE Ratio -17.23

Tot Ret 1Yr 35.50

Beta 0.92

Source: ThomsonFinancial Scaling Factor : 1000000 GBP 5 YR CASH FLOWS STATEMENT Operating Activities Income Bef Extraordinary Items Depreciation, Depletion & Amortn Deferred Taxes Other Cash Flow Funds From Operations Extraordinary Items Funds From/For Other Oper Activities Net Cash Flow From Operating Activities 213.00 128.00 #N/A #N/A 266.00 0.00 25.00 291.00 131.00 133.00 #N/A #N/A 275.00 0.00 31.00 306.00 309.00 128.00 #N/A #N/A 261.00 0.00 8.00 269.00 325.00 121.00 #N/A #N/A 286.00 0.00 -11.00 275.00 297.00 116.00 #N/A #N/A 241.00 0.00 14.00 255.00 09/30/09 09/30/08 09/30/07 Currency: GBP 09/30/06 09/30/05

66

LUBS3865 Financial Analysis


Investing Activities Capital Expenditures Net Assets From Acquisitions Decrease In Investments Disposal of Fixed Assets Other Use/(Source) - Investing Net Cash Flow From Investing Activities 128.00 0.00 0.00 31.00 41.00 57.00 192.00 0.00 0.00 82.00 5.00 116.00 252.00 8.00 0.00 162.00 4.00 103.00 179.00 489.00 0.00 88.00 5.00 586.00 167.00 0.00 0.00 57.00 0.00 110.00

Financing Activities Com/Prf Purchased,Retired,Converted,Redeemed Long Term Borrowings Inc(Dec) In ST Borrowings Reduction In Long Term Debt Cash Dividends Paid - Total Other Source/(Use) - Financing Net Cash Flow From Financing Activities 0.00 5.00 46.00 76.00 101.00

0.00 #N/A 165.00 0.00 97.00 -258.00

309.00 #N/A 41.00 58.00 386.00 -178.00

188.00 #N/A 39.00 538.00 0.00 -424.00

1,078.00 #N/A 461.00 56.00 10.00 487.00

0.00 #N/A 35.00 50.00 0.00 -170.00

Exchange Rate Effect Cash & Cash Equivalents - Inc(Dec)

#N/A -24.00

#N/A 12.00

#N/A -258.00

#N/A 176.00

#N/A -25.00

Com/Pfd Purchased,Retired,Converted,Redeemed Long Term Borrowings Inc./Dec. In S.T. Borrowings Reduction In L.T. Debt Cash Dividends Paid - Total Other Source/(Use) - Financing Net Cash Flow - Financing Activities Exchange Rate Effect Cash & Cash Equivalents - IncDec

0.00 0.00 #N/A 165.00 0.00 97.00 -258.00 #N/A -24.00

5.00 309.00 #N/A 41.00 58.00 386.00 -178.00 #N/A 12.00

46.00 188.00 #N/A 39.00 538.00 0.00 -424.00 #N/A -258.00

76.00 1,078.00 #N/A 461.00 56.00 10.00 487.00 #N/A 176.00

101.00 0.00 #N/A 35.00 50.00 0.00 -170.00 #N/A -25.00

67

LUBS3865 Financial Analysis

Appendix 11: Cash flow Calculations


Figures calculated in excel using data from Thompson One Banker. Rebased Cash Inflows from Operating Activities Net Cash From Operating Activities Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC 30/09/2005 (m) 49.5 128.2 235 255 30/09/2006 (m) 144.1 120.5 238 275 30/09/2007 (m) 100.2 172.2 232 269 30/09/2008 (m) 96.1 163.8 213 306 30/09/2009 (m) 75 141.5 149 291

30/09/2005 Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC 100.00 100.00 100.00 100.00

30/09/2006 291.11 93.99 101.28 107.84

30/09/2007 202.42 134.32 98.72 105.49

30/09/2008 194.14 127.77 90.64 120.00

30/09/2009 151.52 110.37 63.40 114.12

Rebased Cash Inflow from Operating Activities


300 250 200 150 100 50 30/09/05 30/09/06 30/09/07 30/09/08 Year End 30/09/09 Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC

Cash Flow Analysis Marstons 30/09/2005 (m) 30/09/2006 30/09/2007 (m) (m) 30/09/2008 (m) 30/09/2009 (m)

68

LUBS3865 Financial Analysis Net Cash Flow From Operating Activities Net Cash Flow From Investing Activities Net Cash Flow From Financing Activities

49.5 217.6 228

144.1 132.2 -48.2

100.2 186 88.4

96.1 104.6 26.2

75 32.6 -11.2

Marston's Cash Flow Analysis


250 200 150 100 50 0 30/09/2005 30/09/2006 30/09/2007 30/09/2008 30/09/2009 -50 -100 Year End Net Cash Flow From Operating Activities Net Cash Flow From Investing Activities Net Cash Flow From Financing Activities

Cash Flow Quality 30/09/2005 30/09/2006 30/09/2007 30/09/2008 30/09/2009 (m) (m) (m) (m) (m) Net Cash From Operating Activities Profit before Tax 49.5 47.9 144.1 101.5 100.2 94.7 96.1 76.2 75 21.4

30/09/2005 30/09/2006 30/09/2007 30/09/2008 30/09/2009 Net Cash From Operating Activities Profit before Tax 100.00 100.00 291.11 211.90 202.42 197.70 194.14 159.08 151.52 44.68

69

LUBS3865 Financial Analysis

Quality of Marston's Profit


350.00 300.00 250.00 200.00 150.00 100.00 50.00 0.00 30/09/2005 30/09/2006 30/09/2007 30/09/2008 30/09/2009 Year End Net Cash From Opertating Activities Profit before Tax

70

LUBS3865 Financial Analysis

Appendix 12 Stock Market Indices


All data taken from Thompson One Banker accessed on 11 December 2010:
Current Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC J D Wetherspoon PLC Punch Taverns PLC 13.76 11 4.43 -17.65 15.73 4.61 30/10/2010 12.01 18.98 -3.1 30/09/2009 23.92 20.71 103.83 310.6 26.37 -1.84 30/09/2008 5.86 5.8 4.7 -15.79 24.13 -11.67 30/09/2007 12.13 14.97 11.1 -363.6 24.29 9.44 30/09/2006 15.13 12.02 10.47 15.06 18.63 9.6 30/09/2005 26.73 15.83 13.62 15.04 22.14 13.1

Dividend Yield Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC J D Wetherspoon PLC Punch Taverns PLC

Current 8.74 4.7 0 0 2.76 0

30/10/2010 4.74 n/a 0

30/09/2009 n/a 4.27 0 0 0 0

30/09/2008 9.98 4.99 9.06 1.96 5.18 1.94

30/09/2007 3.79 2.13 2.63 2.33 2.09 1.55

30/09/2006 2.97 2.77 2.56 1.83 1.05 1.47

30/09/2005 3.28 3.03 2.14 2.94 1.55 1.48

EPS Marston's PLC Greene King PLC Enterprise Inns PLC Mitchells & Butler PLC J D Wetherspoon PLC Punch Taverns PLC

Current 7.61 9.4 4.61 -5.84 6.74 -38.34

30/10/2010 8.33 6.84 -32.25

30/09/2009 4.18 4.83 0.96 0.38 4.05 -54.26

30/09/2008 17.07 17.26 21.23 -18.84 10.89 -8.57

30/09/2007 8.24 6.68 9.01 -0.41 5.53 10.6

30/09/2006 6.61 8.32 9.55 6.74 5.41 10.42

30/09/2005 3.74 6.32 7.34 7.1 4.74 7.64

71

LUBS3865 Financial Analysis

Dividend Cover Marston's PLC

30/09/2009 58.5

30/09/2008 179.9

30/09/2007 64.2

30/09/2006 61.83

30/09/2005 9.62

Dividend Cover calculated using EPS figures taken from Thompson One Banker and Dividend per Share taken from Marstons PLC website.

72

LUBS3865 Financial Analysis

Appendix 13 SWOT Analysis


STRENGTHS Strong Brand Name: Marstons has a strong brand name., Iits established reputation is known amongst customers and competitors in the market. Whilst it is not the biggest company in terms of revenue, or number of pubs, it has managed to build up a loyal customer base and has a number of high profile products.

Clear Market Position: The company now has a clear position in the market for family pub outlets across England and Wales. The movement from drinks-led to food focused outlets has been implemented well and matches their family orientated strategy. The F Plan has provided a clear concept in achieving this market position. The Board of Directors has taken advantage of their understanding and experience of the market to reinforce this position.

Clear Strategic Direction: The company has a clear strategic direction that has remained stable throughout the 5-year period. The strategy was built on a firm understanding of the problems that the market would face in the future and how the business must adapt to meet these changes; these predictions were right. The consistency in the strategy has meant that management have had the time to properly implement the strategies and this has resulted in a business with a clear focus. This clear direction has aided the businesses during volatile trading conditions and an economic downturn.

New-Build Scheme in Managed Pub Division: The new build scheme currently being undertaken at the company is a positive factor. The company is attempting to grow the business in line with its strategy of sustainable growth. The pubs are being built in sensible locations that have potentially high profit levels and lower competition levels. The plan shows that the company has an understanding of sensible growth given the economic environment and industry conditions.

Retail Agreements in the Tenanted Pub Division: The retail agreements have the potential to support struggling tenanted pubs. Whilst this will incur costs for Marstons, it will protect the division.

73

LUBS3865 Financial Analysis Strong Financial Position: The financial performance section set out an in-depth analysis of the financial position of the company. Whilst the revenue and profit levels for the company have decreased over the 5-year period, this is reflective of the industry. Trend analysis and ratios have highlighted that the company is in a relatively healthy position. In particular, its low gearing levels and profit margins are attractive to an investor. The cash flow position is also improving.

Change in Operation Model: The preliminary report for 2010 has presented shareholders and investors with a clearly focused, streamlined operational model. This new format makes better business sense given the economic conditions and the trading conditions managed and tenanted pubs face. If the operational model is implemented properly, this is likely to result in a stronger market position and better financial performance.

Board of Directors: The movements on the Board of Directors are a positive factor. The current board has been in place for a number of years and the movements are likely to result in better management.

Recent Improvements in Stock Market Performance: The recent announcements regarding the operational model and change in Board of Directors has resulted in a dramatic improvement in the share price compared to competitors and the FTSE. Given the problems in the industry, Marstons has done well to gain market confidence for their new business plans. The Brewing Division: Marstons is one of the few pub companies left to have a brewery. It has continually provided good profit levels and plays an important role in the companys brand image and market position. WEAKNESSES Exposed to the Drinks Led Market: The company is still exposed to the drinks led market despite the new focus on food outlets. It is unlikely that the company will be able to completely eliminate this exposure. Therefore Tthe management, therefore, must focus on preventing this weakness from severely impacting on the business in the future.

74

LUBS3865 Financial Analysis Growth rate of Revenue & Profit: The growth rate of revenue and profit is a possible weakness for the company. Whilst it can be seen throughout the industry, it is unlikely that the company can report healthier profits without revenue improving. Therefore, the management should be focusing more on this in the future.

Dependency on Discounting to attract Customers: The company is fairly dependent on discounting to attract customers to visit their pubs. Given the increasing costs that the company is likely to face, it is doubtful whether the company will be able to continue to offer these prices without effecting profit margins. Throughout the annual reports, no information has been given on alternative pricing strategies. Whilst the company does have a number of higher quality outlets, it does not seem feasible that the company would change direction to focus on these.

Exposed to the Tenanted Pub Market: The company is exposed to the problems that tenanted pubs are facing due to increasing costs and an inability to compete in some areas. Despite this exposure, the company is still managing to compete and offer strong retail agreements to lessees.

Future Reliance on Food-Led Outlets: The change in operational model will mean that the pub division is almost solely reliant on food-led outlets. The market is currently growing, however, it is hard to predict how long this growth will last given that consumers often change their demands. OPPORTUNITIES Growth in the Food-Led Market: The pub industry has focused its efforts on food outlets following the recession and the change in consumer habits. Marstons is in a good position to take advantage of this change and has been focusing its efforts on such activities for around 3 years. Given the company is building up knowledge of the food market, it is likely that it will benefit from this change in direction. Additionally, the type of customer that Marstons aim to attract is more likely to go to a pub to eat instead of drink.

Growing Popularity of Cask Ale: The cask ale market is growing in popularity due to a newfound interest by younger drinkers. Marstons is in an ideal position to take

75

LUBS3865 Financial Analysis advantage of this trend given they are already producing similar products. Taking advantage of this could increase revenue and profit levels, offering support to the pub divisions during future difficult trading periods.

Acquire Outlets from Pub Companies that are Performing Poorly: Given the companys relatively healthy financial position and its growth strategy for the future, the company could take advantage of acquiring outlets from problem companies such as Punch Taverns. This may provide the company with the opportunity to reduce costs given that they are currently building new outlets. THREATS Pub Industry is Declining: As previously discussed, the pub industry is declining., Tthis is likely to continue until 2015. This creates a large risk for the company. Marstons is attempting to grow and develop in an industry that is shrinking and where competition is very high. The change in operational model is a clear attempt by the management to create a business that will survive in a competitive industry.

Economic Conditions: The recession has ended but the outcome of this is an uncertain economy. The company is dependent on consumers discretionary spend and the recession has meant consumers are very cautious when spending. The current unemployment levels and the likely increases are not going to create better trading conditions for Marstons.

Increasing Competition: Competition in the pub industry is high and is driven by price. Marstons are currently in a good position and managing to compete due to their healthy profit margins. However, this must be monitored, as competition will probably increase further.

Societal Changes: Consumers are changing and their demands are also altering. Marstons is reliant on consumers and therefore a failure to meet consumer demands would damage the companys ability to compete.

76

LUBS3865 Financial Analysis

Bibliography
BBC News FTSE 100 index has its worst year, 31 December 2008, BBC News Online. http://news.bbc.co.uk/1/hi/business/7805008.stm accessed on 7 December 2010. Books ELLIOT, B and J. ELLIOT. 2008. Financial Accounting and Reporting. 12 th Edition. Essex: Pearson Education Limited JOHNSON, G and K. SCHOLES and R.WHITTINGTON. 2008. Exploring Corporate Strategy. 8th Edition. Harlow: Financial Times Prentice Hall. Datamonitor Datamonitor Marstons PLC Company Profile. Publication Date: 11 November 2009. Downloaded on 15 October 2010 through Business Source Premier. Datamonitor Greene King PLC Company Profile. Publication Date: 12 July 2010. Downloaded on 20 October 2010 through Business Source Premier. Enterprise Inns PLC 2005 Annual Report downloaded on 20 October 2010 from: http://miranda.hemscott.com/ir/eti/ar_2005/ar.jsp 2006 Annual Report downloaded on 20 October 2010 from: http://www.hemscott.com/ir/eti/ar_2006/ar.jsp 2007 Annual Report downloaded on 20 October 2010 from: http://edition.pagesuiteprofessional.co.uk/Launch.aspx?referral=other&refresh=A1t20c5MqN16&PBID=0124057b95c6-4876-a461-a0c3cafb8a8f&skip= 2008 Annual Report downloaded on 20 October 2010 from: http://87.106.141.214/eti2008/ETI-2008-AnnualReport.asp 2009 Annual Report downloaded on 20 October 2010 from: http://87.106.141.214/eti-2009/

77

LUBS3865 Financial Analysis Financial Times Marstons food focus lifts profits, Christopher Thompson, Financial Times Online, 2 December 2010 http://www.ft.com/cms/s/0/163c1254-fe3f-11df-abac-00144feab49a.html#axzz1AcrpNNj7 accessed on 3 December 2010 Diners behind revenue growth at Marstons, Rose Jacobs, Financial Times Online, 6 October 2010 http://www.ft.com/cms/s/0/7685811c-d15e-11df-96d1-00144feabdc0.html#axzz1AcrpNNj7 accessed on 3 December 2010 OFT says beer ties not anti-competitive, Louise Lucas and Rose Jacobs, Financial Times Online, 15 October 2010 http://www.ft.com/cms/s/0/07bfe7d8-d76a-11df-858200144feabdc0.html#axzz1AcrpNNj7 accessed on 3 December 2010 Greene King PLC 2005 Annual Report downloaded on 20 October 2010 from: http://ww7.investorrelations.co.uk/greeneking/reports/index.jsp?year=2005&cat=3 2006 Annual Report downloaded on 20 October 2010 from: http://ww7.investorrelations.co.uk/greeneking/ar2006/home.jsp 2007 Annual Report downloaded on 20 October 2010 from: http://ww7.investorrelations.co.uk/greeneking/ar2007/home.jsp 2008 Annual Report downloaded on 20 October 2010 from: http://www.85four.com/greeneking0708/files/download/GreeneKingAR08.pdf 2009 Annual Report downloaded on 20 October 2010 from: http://www.85four.com/greeneking0809/includes/pdf/GreeneKing_AR2008-09.pdf Hemscott Website All share price graphs taken from www.hemscott.com accessed on 10 December 2010 ICC Mitchells & Butler PLC Annual Reports 2005-2009 downloaded from ICC on 20 October 2010 Lecture Notes

78

LUBS3865 Financial Analysis SHORT, H. 2010. LUBS3865 Financial Analysis Lectures 1-6 and 8-10. University of Leeds CLACHER, I. 2010. LUBS3865 Financial Analysis Lecture 7. Pension Accounting 2010. University of Leeds. Marstons PLC Company History downloaded on 15 October 2010 from: http://www.marstons.co.uk/about/our_history.asp 2005 Annual Report downloaded on 15 October 2010 from: http://www.marstons.co.uk/docs/wdb_ar05.pdf 2006 Annual Report downloaded on 15 October 2010 from: http://www.marstons.co.uk/docs/financials/annualreport.pdf 2007 Annual Report downloaded on 15 October 2010 from: http://www.marstons.co.uk/docs/financials/annual_report_2007.pdf 2008 Annual Report downloaded on 15 October 2010 from: http://annualreport2008.marstons.co.uk/Doc/pdf/AnnualReport2008.pdf 2009 Annual Report downloaded on 15 October 2010 from: http://www.marstons.co.uk/docs/annualreport2009.pdf 2010 Preliminary Report downloaded on 10 December 2010 from: http://www.marstons.co.uk/docs/financials/mars_preliminary_results_021210.pdf Mintel Reports MINTEL. 2010. Pub Visiting - UK. London: Mintel International Group. MINTEL. 2010. Consumer Attitudes to Drinking UK. London: Mintel International Group MINTEL. 2010. Ales and Stouts UK. London: Mintel International Group MINTEL. 2010. Pub Catering UK. London: Mintel International Group MINTEL. 2009. Eating Out Review UK. London: Mintel International Group MINTEL. 2010. Alcohol Purchasing in Supermarkets UK. London: Mintel International Group

79

LUBS3865 Financial Analysis MINTEL. 2009. Independent Pubs UK. London: Mintel International Group MINTEL. 2010. Impact of the Recession on Eating Out Habits UK. London: Mintel International Group MINTEL. 2009. British Lifestyles UK. London: Mintel International Group MINTEL. 2007. The Smoking Ban UK. London: Mintel International Group Office for National Statistics RPI figures accessed from http://www.statistics.gov.uk/statbase/TSDdownload2.asp on 7 December 2010. Thompson One Banker All financial information accessed 6 December 2010, 11 December 2010 and 21 December 2010.

80