UK: Marston’s steps in to rescue one of the biggest names in Welsh brewing

Marston’s has stepped in to rescue one of the biggest names in Welsh brewing with a deal to operate SA Brains’ 156 pubs in Wales as the beer industry reels from the impact of tough coronavirus restrictions across the UK, the Financial Times reported on December 23.

The deal will secure 1,300 jobs at the largest Welsh brewer, which makes an eponymous beer brand and has been owned by the same family since it was founded in 1882. The group has, however, come under “significant financial pressure” as a result of the coronavirus crisis.

This is “a mutually beneficial transaction that safeguards the future of Wales’ leading pub company, enabling these great pubs to have a stable and successful future, and securing 1,300 hospitality jobs in Wales”, Ralph Findlay, chief executive of Marston’s, said in a statement on Wednesday.

Under the terms of the deal, UK pub group Marston’s will operate 141 Brains pubs on lease agreements, most for 25 years, and a further 15 on management contracts for two years.

The move comes at a time when many pubs are teetering on the brink of collapse. Along with other hospitality venues, pubs shut their doors for most of November during England’s second lockdown and wound back on reopening in large parts of the country amid tighter restrictions because of a new, highly infectious strain of coronavirus.

Bringing Brains’ pubs under its wing more than doubles Marston’s footprint in Wales to 262 pubs. Marston’s pointed to £14m of pre-pandemic earnings before interest, tax, depreciation and amortisation at the Welsh pub group against the £5.5m it will have to pay in annual rent from April 2021, two months after it starts operating those pubs.

Operating the additional pubs will initially cost up to £2m, but Marston’s expects it will help increase its earnings in the first year after completion and to have no impact on its target to reduce borrowings to less than £1bn by financial year 2024.

“This seems a sensible bolt-on transaction and will add about 8-10 per cent to financial year 2022 and 2023 profit before tax,” said Paul Ruddy, an analyst at Goodbody.

Shares in Marston’s rose 3.5 per cent on December 23, but remained down 44 per cent in 2020.

John Rhys, chairman of Brains said the deal with Marston’s “enables Brains to recapitalise its balance sheet and continue its long heritage as an independent entity”. The arrangement, in effect, transforms it into a commercial property investor. Mr Findlay said “the other alternatives [for Brains ] were very unpalatable”.

He added that the new strain of coronavirus was unlikely to affect a recovery in pub drinking from March, since he expected a vaccine to pave the way for reopening and urged the need to look beyond the pandemic.

“We can’t all just wallow around and say ‘this is a crisis and we can’t do anything’,” he said.

The pub industry has criticised the UK government for what it says has been a dwindling amount of financial support to cope with the closures and limited business.

In October, Marston’s said it would axe 2,150 furloughed jobs, almost a fifth of its workforce, owing to the impact of pandemic lockdowns on business.

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