Marston's PLC (MARS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Marston's PLC Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all of the questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Meet Company dashboard, and we will notify you by e-mail when these are ready for your review. Before we begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand over to CEO, Andrew Andrea. Good morning, sir.

Good morning. Thank you very much, and thank you all for attending the presentation today of our interim results that we presented to the market last week. And by way of introduction, Marston's is a pub operator, principally in England and Wales, but we've also got 20 pubs in Scotland, around 1,500 pubs overall. And we also have a 40% minority stake in the Carlsberg Marston's beer company, having disposed of Marston's beer company into that venture during the pandemic. So first of all, I'd like to start with sort of an overview of how we've seen the last 6 months and the things we've been up to. And the first thing I would say is that trading has been pretty resilient throughout the 6-month period despite the clear disruption of Omicron impacting the very profitable and critical December trading period and coming out of the other side of the half year, we are seeing trends continuing to improve from both a footfall and like-for-like perspective. From a cash perspective, excluding some one-offs that we previously guided the market on, underlying cash flows were an inflow. Typically, our business is a cash outflow in H1. Most of our profit is earned in the second half year. And from an inputs perspective, we made encouraging progress on guests, standard, engagement scores, which I'll touch on a little bit later. And during the 6-month period, despite the impact of Omicron and that disruption, we've undertaken some significant change activity in the period, underpinning the new strategy, which I will set out to you a little bit later on. And our key focus is on simplifying our business from a segmental perspective, so what segments do our pubs sit in; and from a category management perspective, menus, drinks ranging and so on and so forth. And very importantly, it's worth noting that pubs historically have been incredibly resilient and are well placed to meet those macro challenges going forwards. So looking at the market dynamics as we see them, there are 3 key elements. First of all, there is clearly some concern about the resilience and stability of the consumer in the current macro backdrop. Overall footfall is still in decline in the sector. We're down around 15% or so, but those trends are slowly improving and importantly, our older customers, who understandably were most reticent to return to pub, are starting to come back. Whether that be the groups of elderly customers who come and have the midweek lunch or the old chaps that come and have 5 pints of cask ale a day, 11:00, 7 days a week. The sales trends overall are pretty stable and the monthly sales cycle is also starting to become more predictable. And what I mean by that is the pay data payday dynamic of spending most when you've just been paid and that easing off ahead of being the next payday is coming back with more certainty. We are seeing some discounting by some of the marketplace. We're seeing a return of the 50% offer. It's not something we necessarily are called with. That doesn't mean discounting is not relevant, but 50% is a pretty high level of discount. We believe the relationship with the guest is simply the deal rather than bringing them into, come in and experience our pubs. And overall, the insight tells us one very clear thing, do not shortchange your customers, don't compromise the experience from a service, product and standard perspective. From a cost and labor dynamic perspective, every company is talking about a very challenging inflationary position, and that has been putting pressure on our food supply chain. We have long-standing relationships with our food suppliers. We've got through a pandemic, and we will get through this together, and we'll touch on that a little bit later. From a labor market perspective, it's fiercely competitive. Supermarkets are paying 16-year-olds outside London GBP 10 an hour to stack shelves, and that's putting pressure on overall supply and, indeed, cost pressures, and I'll touch on how we've addressed that a little bit later on. And from our perspective, you need 3 things in your back pocket to address and meet these challenges. The first of those is unique pricing and the ability to take price, the ability to innovate and demonstrate agility and nimbleness. And finally, just reinforcing this point about the historical resilience of pubs. Whilst it's clear that consumer confidence is falling, our insight is similarly showing that people still want to socialize. That demand to socialize is staying incredibly steady, not understandably post coming out of the pandemic. And from our perspective, pubs are an affordable place to socialize. And importantly, from a Marston's perspective, only 3% of our business is in city centers. We're majority community pubs. And from that perspective, community pubs are far more resilient than city centers as city centers start to grapple with the unwinding of the work from home dynamic and it does appear that the 3-day week is increasingly becoming the norm. But overall, pubs are very well placed to weather these economic challenges ahead. Looking at the financials in the first instance, overall revenues were up on 2021. That simply reflects the fact that in '21, we had much more COVID impact, less so in '22, although we did lose December. Importantly, at a pub operating level, we have returned to pub profitability at an operating level. I have mentioned our 40% stake in Carlsberg Marston's. They've had a challenging half year. They are exposed to the on-trade Marston's Beer Company had around 20-odd percent of the cask ale market, which has been a poorer performing category. And as a consequence, we guided the market last week that the cash dividend that we were expecting from CMBC is not likely to be made this year, and we expect a gradual rebuild back to a normalized level of around GBP 20 million per annum over the next 2 to 3 years or so. So at pub level, the key point to note is we're back in the black, an improvement in 2022 despite the impact of Omicron. And looking at trading over the last 6 months. In the first few weeks of the year, as you can see, like-for-like sales were up about 1%. That Christmas trading period significantly hit the 8 weeks after that, Omicron driving a 9% decline as we reported in our January trading update. Subsequent to that, that period up to the half year, we were down 1%, but it's worth noting that in the 2 weeks of the February storms, which coincided with the critical half term weeks, we were down 8% in those 2 weeks. And in the -- and since the half year, despite the fact that the VAT on food and soft drinks has reverted back to 20% from 12.5%, we are in positive like-for-like territory. It's worth noting that VAT was about a 4% contributor to like-for-like sales. But importantly, what we're seeing is, slowly but surely, those trends improving. Turning now to cash flow. Our operating cash flow was up in the year -- in the half year. And importantly, before one-offs, as I mentioned earlier, we achieved an underlying cash flow of GBP 13 million in the period versus a significant outflow last year, albeit that was Omicron driven. We previously advised the market that there were two one-offs due to be paid. Deferral of duty and VAT from the pandemic was paid during the period of GBP 50 million, and we received some deferred consideration for the brewing disposal of GBP 28 million. So a net outflow of GBP 22 million. It's worth noting that we have no residual hangovers now of payables as a consequence of the pandemic. We're fully up to date with the VAT and tax man. So underlying cash flows were positive in the period. And it's worth noting that typically, we earn about 2/3 of our profit in the second half year. And as such, one should expect an improvement in cash flow during H2. With regards to our debt structure, the majority of our debt is long term. As you can see on this chart, we have bank facilities out to 2024. So there's no immediate refinancing facility. One would expect that to be refinanced perhaps Q1 calendar of next year and with GBP 50 million of headroom on that facility. On a long-term perspective, we have a securitization in about 2/3 of our estate. It has a very smooth amortization profile out to 2035 and is fully hedged, so not sensitive to any changes in interest rates. Importantly, that securitization, we didn't require any concessions from bondholders in the 6-month period despite Omicron. We also have 35- to 40-year property leases. So in essence, these are sale and leaseback transactions, where the freehold reverts back to us at the end of the term and because of that reversion, it is classified as borrowings on the balance sheet. That is linked to inflation. But importantly, we have an RPI cap and collar of 1% and 4% on those leases. As such, this high inflationary environment, we're pretty well protected against. So overall, our borrowings are GBP 1.25 billion. We have a very clear plan to reduce borrowings to below GBP 1 billion by financial year 2025. Turning now to property, pensions and NAV. From a property perspective, it's worth noting that we impaired our property portfolio by around GBP 380 million as a consequence of the pandemic. And we are moving to a new valuation methodology, whereby rather than having a 3-yearly external valuation, we are having an annual valuation of about 1/3 of the estate on a rotational basis. And that first tranche will be valued in the second half year, and we are cautiously optimistic that, that will drive an NAV upside overall. And it's worth noting, disposals were 35% higher than book value in H1. Recently, C&C exited their stakeholding in Admiral Taverns at an 11x multiple. That gives us confidence that there is still underlying strong value in pub assets as we come out of the pandemic. From a pension perspective, we currently got an accounting surplus, and we contribute GBP 6 million a year of cash flow into the pension. The next triennial valuation is in 2023. Clearly, we have, again, cautious optimism. We're on track to clear the technical provision deficit in the pension scheme. And as such, that GBP 6 million call on our cash flow would fall away from 2024 onwards. And during the period, we saw a 7p increase in net asset value per share. Now not surprisingly, a lot of the noise and a lot of the talk on my road show over the last week or so has been about inflation and input cost inflation. And I box these into 3 tranches: product, labor and utilities. On food and drink, I'm pleased to say that we now have a handle at a degree of stability in our food inflation at around 7%. That was certainly far more volatile in February and March as Ukraine emerged. And then on our drinks contracts, we've got contracts out to 2024 which are CPI-linked with that increase due in October. What we have done to mitigate that is we've taken food and drink price increases in March, on menus. I'll come back to it on drink. We were -- we recognize we were slightly behind our competition. So customers have accepted that drink price increase. It was, to some extent, expected. We've also simplified our menus significantly, driving an overall lower cost of our food. And as you can see, a fair proportion of our contracts are still fixed into the medium and longer term overall. From a labor perspective, we took the bold decision to increase the hourly wage rates of our younger workers to well ahead of the minimum wage. So for example, 16-year-olds, rather than GBP 4.63 minimum wage, we're paying GBP 5.50. Now that in aggregate costs, annualized cost is GBP 3.5 million, GBP 1.8 million additional costs in H2 versus our previous guidance. And overall, whilst one may look on this as a cost, I do see it as an investment. This should drive reduced level of staff turnover, lower recruitment fees, lower training fees. And instinctively, if we are more competitive in the marketplace, we should attract better people, which should feed through to the sales line. And finally, on energy, we are hedged on gas until April of next year, but we came out of our electricity hedge in March of this year. And the energy markets, as you are all probably aware, are incredibly volatile. And as a consequence, we'd issued guidance that we expect an incremental on cost of energy versus our previous expectation of around GBP 5 million for the second half year, GBP 10 million annualized. And gas, we will make a call next year. Notwithstanding that, although we've made great strides in becoming more energy-efficient in recent years, we've introduced an energy-saving initiative, going green, into our pub estate. And we know what good lights in a pub, and we can see like-for-like diversity in energy usage in our pubs. And we've an incentive scheme in place, which as one would imagine, is very high returning. So overall, we've got a grip on our food inflation. We're taking a very conscious decision on labor cost increases, and we are mitigating that through price. On energy, we're guiding that, at this stage, we're not using price to mitigate that, and that will flow through to the bottom line. And one thing we just set out for the analysts, and I won't go into this in much detail, is that since 2019, there have been quite a few moving parts with Marston's, most notably on the right-hand side. We disposed of Marston's Beer Company into CMBC. In 2019, that drove quite significant earnings and cash flows. As I guided earlier, we're not expecting a cash dividend from CMBC in financial year 2022. Just worth noting the original business plan had a cash dividend equivalent to our net cash flows overall. And from a Marston's pub perspective, we disposed -- we made disposals in 2019 to the tune of around GBP 8 million of EBITDA. In December of 2020, we acquired the operations of the Brains pub estate in Wales on a CapEx-light basis, equivalent to a GBP 10 million EBITDA uplift. Our IT strategy has changed. We're moving to a cloud-based strategy. And as a consequence, we're redirecting GBP 6 million of cash that was sitting in CapEx across to the OpEx line, and we've given that H2 energy cost guidance. And at the bottom there, on the left-hand side, the nemesis to, I think, accountants and analysts alike, the impact of IFRS 16. So what we are now is very much a focused pub business with that minority stake in CMBC. So moving on now to the strategy, and we launched this to the market. We have a very clear and quite simple vision, pubs to be proud of. And the two key elements of that are pub, that means we are not restaurants, we are not casual dining, and you should feel comfortable coming into any of our establishments to come -- to have a drink; and to be proud of, whilst underpinned by some objective goals at an emotional level, is this a place where you would recommend to eat or recommend to work. And if the answer to know is that -- is no in any of our pubs, we need to do something about that. Underpinning that vision are some core pub goals. Everything starts at pub level. Are we loved by guests? I'll touch on our reputation Insight platform in a moment. But reputation, basically, say the gold standard is a score of 800 or more. Are we trusted? Are our standards right? Defined as a 5-star EHO. And are we seen as a great place to work? We have an engagement called Peakon that is used globally in many organizations. And again, their benchmark of good is a score of 8 or more. And underpinning that is driving a harder sales culture in our business, defined as maximizing footfall and sales per guest visit. Importantly, it's worth noting that managers are bonused on those first 3, and that rolls up to my own personal bonus. That -- those core pub goals, therefore, are relevant, top to bottom in the organization in a consistent manner. And I think that one voice, one focus approach is incredibly important. And as you can see underneath that, we've made good progress in H1. Our reputation score, EHO scores have improved. And although Peakon retained what might look like progress, Omicron significantly reduced our employee engagement on the Peakon universe or it generally speaking. So I'm really pleased we've got back to those pre-Omicron levels of engagement as we came out at the half year. At corporate level, there are 3 quite simple goals. The first of those is better than the rest. And that's a consistent market outperformance in both our food-led and wet-led businesses. Just to be clear, I am focused on driving long-term like-for-like sales growth. I'm not bothered about chasing the last 5 weeks. There's got to be a consistent level of growth year in, year out. Back to GBP 1 billion is a dual faceted target of getting our borrowings down below GBP 1 billion by 2025 and improving the sales of the organization to back above GBP 1 billion. And the reason for that is having disposed of the beer company on a run rate pro forma basis, sales ran at around GBP 800 million. So there's a GBP 200 million sales growth challenge there. And finally, we are committed to doing business the right way, committed to being a responsible, sustainable business underpinned by a strong ESG agenda. And there are 3 core pillars underpinning that strategy, guest obsession, raise the bar, and we will grow, and I'll touch on some elements of that in a moment. But in achieving these goals, what we're doing is giving it -- creating a business that is growing earnings, reducing debt, improving returns, improving cash flow that enables us to consider the reintroduction of dividends or reducing debt, increasing returns, we're clearly creating shareholder value into the future. So quite a simple strategy. The key -- some of the key pillars underpinning that guest obsession is all about asking the question, does it matter to guest? Everything we do has to start with a customer relevance. And if it's not relevant to customer, why are we doing it? I'm going to touch on the segmentation of the estate shortly. It's a key element of our strategy and similarly, the category overhaul. And finally, from a guest perspective, we've introduced a new booking system in the 6-month period. And we're trialing various call handling tools to find an efficient and cost-effective way of capturing customers that are trying to contact us the phone at a time when the pub is busy and unable to capture that call. So if I start with category management and the menu overhaul, it won't surprise you that food quality is the #1 driver of guest satisfaction; conversely, dissatisfaction, however you want to cut that cookie. And we had quite simply too many menus, too many dishes, too many ingredients. No real alignment to our formats and segments. And internal advocacy was low. Our chefs were saying these venues are quite difficult to cook. Now we brought in as one of several new recruits, and I'll touch on this in a moment, a new Director of Category Management, and he oversaw a menu relaunch project. And before I get into the results, the behavioral facets of this were absolutely critical. And the third of those is that from meeting one to launch was a 3-month turnaround. We launched these menus at the end of March. Importantly, commercial operations and finance had equal voice in coming to the conclusions on what dishes went on which menus and so on and so forth. Underpinning all of that project, though, was no compromise on quality. I mentioned earlier, if you shortchange customers, they will notice. So the team had permission to remove things on our menus that weren't important to guests. An example would be, we had tomato salsa on our curry dishes. Funnily enough, we had a lot of returned tomato salsa. It had no place on the dish. It wasn't important. We just whipped it off. That was worth several pence per dish. But similarly reinvest where appropriate. So that chicken burger on the top right-hand corner, the hash browns were in addition to that burger, it is going gangbusters at the moment. And underpinning all of that is a comprehensive training and digital spec book program. We closed for half a day with the [ chefs could all cook-off ]. All teams were in to taste the menu. And that enable us to launch the menus in a more positive manner than I've seen probably in my time at Marston's. The outcome of that, as you can see, was a very focused and efficient category outcome, halving the number of menus, significantly reducing the number of dishes and SKUs. And because we were serving better quality food to a better specification, that enabled us to take price over and above the VAT reversion. And in net cost terms, we saved GBP 1 million, but at gross level, that number was GBP 2.5 million. We reinvested GBP 1.5 million back into enhancing the dishes and indeed the crockery. And the feedback has been pretty positive. Guest scores are improving. Importantly, very minimal comment on price. And internally, our chefs love it, our front of house teams love the menu and our support teams are shouting about our menus from the rooftop. So a really successful exercise. And the great news is there's more to go at. I think we've only achieved perhaps 70% of what we initially intended. With regards to the raise the bar platform, this is all about people. Our -- we employ over 12,000 people. Our team members ultimately drive our success. And in this challenging labor market, there are 3 facets to our HR agenda: recruit, reward and retain. From a recruitment perspective, during the period, we have recruited 5 external hires, Directors of Recruitment and Resourcing from Greene King, Director of Category Management, ex Whitbread, Pizza Hut, Director of Digital. She's joining us in July from a national competitor. And we brought two senior directors of operations into our food-led business, both with ex Whitbread and M&B experience. And underpinning my Executive Committee, there is a leadership group that is 30 strong. We've changed 1/3 of that group. So 5 of those were those external hires by promoting some of the bright young things within our organization. And at pub level, there are two key drivers in addition to all of the other app-based work we're doing to get -- to recruit team members that are starting to pay dividends. So our apprenticeship program is key to our future talent pipeline with just under 300 apprenticeships. We're extending it to a broader chef program. And importantly, we've retained about 80% of those that come through our program. So great pipeline to future talent. And secondly, we've launched something that we internally call Latitude. We're working alongside Novus and Only a Pavement Away, whereby Novus are training offenders about to come back into society. They've got quite a big pipeline of trained kitchen staff. We're dealing with that with kid gloves, and we expect to appoint our first person into pub in the course of the next month or so. From a reward perspective, I've mentioned the hourly rate investment, but we've addressed reward right through the organization. The 800 Club, and I mentioned the reputation platform earlier, is an incentive whereby on a quarterly basis, if you have a reputation score of 800 and an EHO score of 5 star, the licensee gets a bonus of GBP 500. It's gone down incredibly well. People can see it. They are motivated by money. Importantly, it is a use it or lose it incentive, though. If you fall below either of those two measures, you lose the incentive. So it ensures sustainability of that top level performance that we're after. And I do believe more work on that variable pay element for our licensees is the way forward to ensure we are getting great success from great managers. And from an equity perspective, we've reintroduced the Sharesave scheme. We removed it in 2019. So any employee can save from GBP 10 up to GBP 500 a month at a discounted share value based on the share price at the end of this week. And we've extended the LTIP to that 30-strong leadership group. So they've now got equity skin in the game. And from a retention perspective, I mentioned the Peakon engagement platform. This ensures we have monthly communications with our teams. We're constantly listening. It enables us to respond quickly. We've simplified the online -- the monthly and quarterly review system into an online system. Gone are the days of the big showpiece and set piece annual review. We want continuous conversations on performance and development. We've introduced two online training platforms. Attensi is a gamified sales platform. I play it myself occasionally. And Campus is very much intended for those more governance and solid static training programs overall. And well-being is incredibly important to us. They are -- it isn't just a word. It is incredibly important. We've signed up to The Burnt Chef Project, the menopause pledge. We have a very comprehensive well-being program to ensure that our teams have access to support in the event that they require it. So a very clear agenda on the people front. From a growth perspective, I mentioned segmentation of our pub estate a little bit earlier. And what we did last -- at the back end of our last financial year was concluded on a much simpler segmentation of the business into 3 tranches: Community, good value pubs at the heart of the community, and I'll touch on these with pictures in a moment; Signature, an elevated experience, what I would call premium mainstream, a timeless country pub atmosphere; and Revere, our most aspirational offer, in many cases, for a special occasion. And what does the clear blue water like? Typically, a food dish will be GBP 2 more expensive from community to signature and ditto up to Revere and drink will be between GBP 50 and GBP 1 a pint, for example, as a gap between the 3 segments. We completed a food-led review in September. We presented that in our preliminary results, the headline of which was to shift from 80% value food to about 1/3 into those Signature and Revere formats, but also into Community wet, which I will touch on in a moment. We're targeting conversion returns of around 30% on a blended basis. We completed 10 in H1, 8 in the second half year. We're ramping that up to 50 per annum as of next year. In addition, we have a 2-for-1 format in around 75 of our pubs. And interestingly, that, despite being our deepest value format, was our weakest performer coming out of the pandemic. So back in the autumn, we trialed 6 pubs, 3 with single price point menus and just removing the 2-for-1 signage, 3 with a bit of very low level CapEx overall. But in all 6, we've seen an uplift. 2-for-1 continues to lag our food-led estate by around 10% in LFL sales terms. And as a consequence, in spite of the strategic shift over the next few years, we are exiting 2-for-1 by the end of September of this year. We simply can't sit on our hands and watch that lag continue for another year or two. We've extended that segmentation to our wet-led pubs, management franchise pubs and around 10% of those will convert to Signature. At the moment, we really only directly retail to the value part of the market. With some beautiful pubs in affluent villages, the right thing to do is elevate the overall experience. And we're targeting 1 to 2 by the end of this year, ramping that up to 5 to 10 next year and even further the year after that. These require slightly less CapEx than our food-led because we're using the building. The building is effectively something that just needs enhancing at a similar level of return. And we're in the process of extending that review to our 3000strong tenants in leased pub estate. So a very clear segmental plan to evolve the pub estate in a much simpler manner overall. And what does that look like? This is community wet. So this is The King's Arms at Killingworth, a pub previously that was a carvery called the Shire Horse. As you can see, pre-CapEx, it was taking GBP 17,000 a week. We spent just under GBP 300,000 and. Even despite it being H1 and the impact of the pandemic, the average weekly take of this pub has significantly increased. And what is important to note here, that of that GBP 7,000 increase, about GBP 5,000 is drink. And the reason we are seeing this in our conversions is in many of our pub restaurants, I think we lost the drinker. They didn't feel comfortable coming in to drink. Hence, the focus on pub, in our vision and our strategy. And as you can see, the returns are quite significant. Important point to note on our CapEx program and returns and driving outperformance. Number one, our managers have uncapped bonuses. So this manager will be rewarded very well for achieving this level of performance. And secondly, in appraising our CapEx, although there is a hurdle rate for the money we are spending, in that CapEx appraisal, we are also setting out what we expect that pub to do from a fair, maintainable trade perspective? What should this pub be capable of getting to? So the -- in the event -- the example of The King's Arms, this should be a GBP 30,000 a week pub. And what we're trying to drive is a desire and passion to exceed the appraisal, take the pub to a level well over and above that CapEx return and that, in turn, will ensure that we don't drift back to the original GBP 17,000 and then reinvest and start that cycle all over again. The next pub is a Signature pub. This used to be the Poppy Fields rotisserie pub on the outskirts of Maidstone. It's now been converted called The Fields of Aylesford to Signature. And as you can see, a far more enhanced spend. You can see that there's a very clear place to drink. There are bar stools, there's a wood burner at one end, go and drink there, you can eat to the right. The garden and the outside area has been enhanced. And we've seen a change of customer, it's -- increasing number of drinkers, increasing number of females, both drinking and eating. And this pub at the moment actually is throwing out over GBP 35,000 a week. And importantly, on a warm day, we'll do 50-50 food and drink. Again, the drinkers are coming back to this pub. And then finally, from a Revere perspective, as our Director of Proposition and Formats calls it, these are more waggy. These pubs are more blingy, attracting a more affluent customer. This is The Curious Cow in Harrogate, used to be a rotisserie called The Old Spring Well. And again, we're very pleased with the initial performance of this pub overall. In addition to that, another key element of our growth plan is franchise. It's a model we introduced back in 2009. And for those of you not familiar with the franchise model, in essence, what we do is we supply all the products, pay all the bills, do all of the marketing for a pub, and the franchisee simply needs to sell. And in return, they get a percentage of the turnover to pay for themselves and their staff. That model operates in over 600 of our pubs now. You get that owner driver mentality, driving sales and earnings growth with very, very minimal failures in that regard. We introduced an evolution of that model called the Pillar agreement, which enabled the franchisee to own their own food agenda but put that onto our EPOS system. We're going to take that to 60 sites by the end of this year and then evaluate how we can improve that further. And importantly, we now -- we are now trialing franchise in 4 of our newbuild pubs that are due to become community wet over time. But we put the community wet menu in there with a franchisee, and the early signs are encouraging with double-digit sales growth. So the continued evolution of franchise, in our view, is a core driver of future growth. And from an inorganic perspective, I mentioned the Brains transaction. To set out what we did there, Brains operated 150-or-so pubs. We did a desktop exercise. Wells were shut at that time. And we said we would run 100 or so of those pubs on a long-term lease. And a proportion of those pubs we would run for Brains on their behalf for a couple of years. So a CapEx-light acquisition, and it's performing well. Brains has outperformed the Marston's well. The Marston's core Welsh state, we're converting to franchise and seeing growth. And one of the big challenges was kitchens. They had different kitchen equipment. We're in the process of rolling out the Marston's menu, which represents further margin opportunity. We've converted a couple of the sites in the first half of this year, 4 for next year, and we've identified further opportunities looking forward. And a couple of the sites that were going to be -- which we were going to stop managing in a couple of years' time, we've actually decided to take them on board. They will come across the Marston's in the course of the next couple of months or so. And as a framework for future M&A, therefore, we've got a platform whereby we've got property partners who want to own the freehold and will simply be the pub operator driving EBITDA growth in that regard. Now we -- sorry. Now we were challenged at the last results about the road map to getting to GBP 200 million of sales growth and rightly so. And what this chart sets out is, in essence, about half of that growth will come from the repositioning of the pub estate. About 1/4 will come from opportunities within franchise expansion and Brains. And out with those direct interventions, what's left is a sales task, which requires around 2% like-for-like sales growth. And whilst I accept the consumer environment is challenging, as we came out of the financial crisis, pubs typically grew like-for-like sales by 3% to 5%. So I don't think it's an over-demanding LFL target over and above that GBP 140 million. From an ESG perspective, in the preliminary results, we set out our net zero plans in some detail. In the appendices to this presentation, that road map is clearly set out. I mentioned though that the going green campaign has been introduced. I think there's an immediate quicker win to drive further reductions in energy usage. A second environmental consideration, which we are evaluating and finalizing at the moment, is a reduction in food wastage. It is important to me that in any environmental challenge, we're clear about the targets we want to achieve and when buying, and we will set those out at the preliminary results at the end of November. From a social perspective, we are all about being local. Pubs -- the affinity with the pub and relationship with the pub is the dog and duck down the road. It's not necessarily with national brands. And we're in the process of [ finding ] local and national charity commitments. I mentioned well-being programs earlier. And importantly, we are a very important local employer, and I mentioned apprenticeships and ex-offenders earlier. And from a governance perspective, we have a strong governance framework embedded throughout the organization. And from an agenda perspective, over half of our Board and Exec is female and around 40% of the leadership group. So this is a very strong, clear ESG focus. ESG are not simply 3 letters. We live, eat and breathe this day in, day out. So to summarize, from an outlook perspective, trading has been positive. The guest, standard and engagement scores are encouraging. We have been able to use price to mitigate the majority of inflation without compromising our guest experience. And just to remind you, we are confident that pubs remain the resilient, affordable place to socialize overall. Our strategy is focused on creating a simpler, more efficient business. And we are focused on creating a high-quality business that is sustainable for the long term, don't just chase the sales for the next 4 to 5 weeks. And in achieving this, delivering that strategy, we have some very clear financial targets underpinned by a strong ESG agenda. So we're a very resilient business with a very clear plan to create sustainable growth and shareholder value going forward. That is the end of the presentation. So I will now open this up to questions.

Andrew, thank you very much indeed for your presentation this morning. If I may, I will just bring back up your camera. [Operator Instructions] But just while Andrew takes a few moments to review those questions submitted already, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. Andrew, as you can see, we've received a number of questions throughout today's presentation. And may I take the opportunity to thank all the investors for submitting their questions? If I could please just hand back to you to run through that Q&A tab and where appropriate to do so, if you could just read out the questions and give your response, and then I'll pick up from the end.

Sure, sure. Okay. There are a couple of questions loosely linked. So one is, can you give a clear idea of the plan on how the company maintains margins in the face of high inflation in raw materials, labor and transport? And then one is, how are you managing inflationary pressure? And what trends are you seeing from discretionary spend? So if I start with the plan to maintain margins in the face of high inflation, this has to be about sales generation. And I think the important thing is in driving that GBP 200 million sales growth, that will start reinstating and ensuring we get margins back to those pre-pandemic levels. In the short term, however, whilst we have taken price, I still believe there is further price we can take. So if I give an example, in many of our pubs, we moved from a GBP 2.80 entry point pint up to GBP 3. The insight tells us the psyche of the customer is, I want to buy 3 pints for GBP 10. What that tells us therefore is we probably got the ability to move up to GBP 3.30. You certainly wouldn't do that in one go, but you wouldn't be breaching that psychological KVI point. And we adopt similar mindsets to things like fish and chips and burger and chips, for example. So I think we've got scope to continue to mitigate in the next couple of years. But ultimately, the margin builds will be borne out of the fact that we've got conversions that are high returning, driving sales, feeding through to a higher EBITDA percentage overall. And then with regards the managing of inflationary pressure. I think the food is stabilizing at around 7%. The drink, we got visibility out to 2024. I can't really talk about beyond 2024. On food, we're working with suppliers. As I said, it looks to have stabilized. And from energy at the moment, in the short term, it's about using less energy overall. With regards to trends, unlike the financial crisis, we have much more visibility to customer data than we've ever had. Back then, all we did was look at the like-for-like sales, and we got a little bit of customer feedback. Now we have a database. We have social media platforms. We are able to listen to our customers from many, many angles, and that's what reputation does for us. As it stands at the moment, the trends are that footfall is slowly improving, sales are stable. There isn't a step change up, but similarly, there isn't a step change down. So that -- where would that be in 3 months' time? Clearly, I'm not a -- I've not got a crystal ball. The bears would say the consumer is going to fall off a cliff. The bulls would say, well, actually, it's holding up okay because the saving ratio is high. But we'll adopt the modus operandi back in the financial crisis. Every 3 months, we'll report on the market and tell you as we see it. But as things stand from what customers are saying, we're not seeing any significant easing off of spend. Another question was, would we consider sale and leasebacks from the freehold estate? I think it's a really good question. Clearly, one of the questions is, does the equity market value us being a freeholder or not? And if the answer is no, then sale and leasebacks from a cost of capital perspective might be an option. So it's certainly not a door slammed shut and something that we keep on the table. But clearly, 83% freehold, our desire would be to be predominantly freehold in any regard. So why do you think the market has not responded to the development of the business? The share price doesn't reflect the operational improvements. I think if I look at the market generally, consumer stocks are being hit pretty hard. And although I'm really pleased with the internal progress we've made, if we're going to be honest with ourselves, the half year did have Omicron. I think the market needs to see normalized uninterrupted trading. So in that regard, I think H2 is absolutely critical. If we're delivering that like-for-like sales momentum, even if it's only slightly ahead, given the concerns about the consumer, in my view, that will reflect -- that will start coming through in the price. But at the moment, my observation from my road show so far is that there's a lot of concern about what is going to happen to the consumer, especially in the autumn given the news of the increase in the energy cap to GBP 2,800. What have you learned about the business over the last couple of years, which must have been very testing? First of all, that we have a brilliant team. We lost very few. We quickly acted. We hunkered down where we needed to. And importantly, we were self-help. We sold the beer company, which means we didn't have to tap the equity market. But the one thing that we've learnt is that -- sorry, there are two things we've learnt. One is simplifying your business and making it more efficient is the right way to go. I think we're demonstrating that through our strategy. Secondly, I think there's been a lot of talk about the emergence of tech, so order and pay apps. We are looking at tech very closely, but we will only use tech where it's very relevant to customer and improves the customer journey. So if I use order and pay as an example, we actually removed it from inside our community pubs in the winter because we had a scenario where a customer would come in on a busy Friday night, sit down, order at the table, the bar's queuing up, people ordering drinks. The person who's ordered at the table wants to drink now. Who do you serve first? So actually, that proved quite challenging. However, we do see big opportunity for order and pay in outside spaces and virtually all of our pubs have got outside spaces. And in the last couple of weeks, where we've had sunny days, we've seen sales and garden sales improve quite materially. The next one is how does increasing prices compact the fact that the customers have less money due to inflation? Is discouraging customers a good plan? I think this is about balance. I think the insight tells us customers want to go out. They want to socialize. That's what we saw in the last financial crisis. At the same time, I'm not prepared to compromise quality. So we could sell a cheap place of food, but I don't think customers will come back. So encouraging customers to come and have a good experience means that price falls down the ladder. And just to be clear, when we're taking price, we're taking 50p to a GBP 1. We're not taking GBP 2, GBP 3 a dish. Our fish and chips in our community pubs is still around GBP 9. It goes up to GBP 12 or so in Signature, up to GBP 14 in Revere, similar sort of price points for burgers. So I think keeping an eye on the KVIs is how you ensure that you're generating value overall. And then finally, I've got -- a final question I've got is where is the shareholder value? A very poor share price, no dividend expected, privilege card removes their discount for accommodation. Well, we have a -- privilege cards has been replaced by vouchers, which is similar to most of our competitors. The share price, we have a plan to drive shareholder value. And with regards to dividends, we have made it clear that it's our intention to reintroduce the dividend at some point in the future when we got normalized trading and more predictable cash flows. What is -- what I have made clear to the market, though, is that the connection between the GBP 1 billion borrowings target and the dividend are separate. If we've got predictable cash flows, we will reintroduce the dividend, and we recognize that is important to many of our shareholders. And that concludes the Q&A overall.

Andrew, thank you very much indeed for taking the time to address all of those questions that came in from investors this morning. And of course, if there are any further questions submitted today, we'll make these available to you immediately after the presentation has ended for your review. And ladies and gentlemen, we'll publish all those responses where it's appropriate to do so on the Investor Meet Company platform. Andrew, perhaps we'll redirect in the investor in the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great.

Yes. Thank you. Look, I hope we've set out here that we have a very clear plan, a very clear strategy. We are cognizant of the challenges to the consumer, but we are back in the black. We're making profits again despite Omicron. We expect to make profits in H2. And as long as we stick to that plan and pursue that conversion overall, I'm very confident we will create long-term shareholder value overall.

That's great. Andrew, thank you very much indeed for taking the time to update investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Marston's PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.

Thank you.