'I'm not sure if politicians understand what burning money looks like'

The Wolverhampton-based operator of approximately 1,400 pubs began the year off the back of a £3m dip in profits​ in 2019, the sale of 137 pubs​ to Admiral Taverns and with plans to reduce net debt of around £1.4bn by £200m by 2023 its principal focus​.  

Though it kicked off 2020 with further disposals – offloading 29 pubs to Hawthorn Leisure​ in January – a pair of landmark deals amid the ongoing Covid-19 pandemic have sealed what Findlay told The Morning Advertiser (MA)​, the past 12 months have been a “transformative” year for the nearly 200 year-old company. 

Marston’s £780m joint venture with Carlsberg to create the Carlsberg Marston’s Brewing Company – announced in March and concluded in October​ with an initial cash windfall of more than £200m – saw the maker of Hobgoblin, Wainwright and Pedigree hand over the keys to its breweries and become a “focused pub operator”​ for the first time in its history. 

What’s more, a deal to operate SA Brain’s portfolio of 156 pubs​ in Wales on a combination of leased and management contract arrangements was announced during the final throes of a tumultuous year, which saw Marston’s register a total loss of £397.1m​ during the year to 3 October 2020 and warn that almost one-in-four jobs​ at the company were at risk amid the Government's pandemic policies. 

"It's been a hell of a year – it's definitely been transformative,” Marston’s chief executive Ralph Findlay tells The MA​. “It feels like it's been a long year, a lot's happened in it.” 

Throughout 2020, Findlay says that he has been involved in weekly calls between the Government and key figures from the hospitality sector. “We're definitely giving the views of the sector, what's not happening is the Prime Minister, the Health Secretary and the Home Secretary are not listening to the woes of the industry,” he explains.

“The biggest thing has obviously been the pandemic and dealing with that, that's created a million and one very difficult challenges to overcome,” he continues. “But despite that, as we come to the end of it, I look at what we've achieved with the setting up of the joint venture with Carlsberg and now the announcement of the deal with Brains and I genuinely think that we come out of it in a stronger position than when we went into it."

As a consequence, Findlay – who is also non-executive chairman of the newly formed Carlsberg Marston’s Brewing Company – believes Marston’s priorities exiting 2020 differ significantly from those held upon entry.

"They differ massively,” he says. “Going into 2020 a key priority for us was to conclude the deal with Carlsberg, which we've done and we were beginning to look at how we start to make a step-change in prioritising guests and improving the quality of our offer and service standards. Covid overtook all of that and we've been closed for most of the year.  

“Going into 2021 what we are looking at is really how do we take that principal of improving our quality of food, drink and service standards to another level and really make a difference to the experience that our guests have when they come to visit a Marston's pub.” 

‘Capital light’ deal

Findlay adds the December deal struck with SA Brain to operate 141 of its freehold pubs under the Brains brand and a further 15 leasehold sites under management contract – safeguarding 1,300 jobs in the process – won’t be the last example of merger and acquisition activity, consolidation and collaboration to come off the back of the coronavirus pandemic. 

"The simple fact is that businesses are running desperately hard to keep up with events and support from the Government isn't enough to enable many of them to do it,” he says.

“That's exactly what we saw with Brains, the simple fact for businesses in this sector at the moment is that pretty much everybody is burning money and I'm not sure if the legislators and politicians understand what burning money looks like, but it isn't comfortable. That's where a lot of businesses are and it has a finite point. It seems to be inevitable that there will be more of this kind of stuff that goes on in 2021.”

On top of this, Findlay forecasts that its possible the arrangement between Marston’s and SA Brain to provide a blueprint for some of this future activity.  

"The big difference is probably that we've been able to take over the operation of these pubs without increasing our debt – that's actually quite unusual,” he tells The MA​. “We will be paying rent and SA Brain will become a commercial property investor, effectively. 

“But we've been able to do this without incurring any increase in our borrowing, so it's an incredibly capital light way of developing the business and I can see that having further applications across the sector. 

“It's the second time we've done it – we did it a couple of years ago when we took on 22 former M&B pubs through a company called Aprirose, and we did those on this kind of basis.

“We saw that it worked very well there, we've applied it here. That is probably the single biggest difference. Although we've effectively taken on this estate at a time when the sector is closed, we've been able to do it in a low-risk way.”