Pubs group and brewer Marston’s (MARS) is facing an extra profits hit of up to £3m in the second half after a larger than expected hike in living wage costs.

The National Minimum Wage is set to rise 6.2% from April, which will ‘increase second half costs by a further circa £2m to £3m’, the company admitted on Friday.

SALES STRONGER OVER CHRISTMAS

The news came in a trading update for the 16 weeks to 18 January that showed a modest 1% like-for-like sales rise from the pubs estate. The increase was again led by drinks, while food lagged, continuing the trend seen over the last year.

Trading was firmer during Christmas, with like-for-likes up 4.5% over the two week period.

The scale of the hit to profits clearly took investors by surprise, sparking a substantial sell-off in the share price. Plunging more than 7% to 108.6p, that's tales the stock to its lowest since August 2019.

FORECASTS CUT

The company expects to mitigate the extra costs over the full year, but broker Shore Capital has cut its pre-tax profit forecast for the year to end September 2020 by 4.5%, now pitched at £96.2m.

‘Overall the economic environment for the consumer looks encouraging with low unemployment and healthy wage growth providing us with increasing confidence that the market will grow in 2020’, said chief executive Ralph Findlay.

CUTTING DEBT

The company seems in a hurry to cut £200m off its debt pile by 2023, and has again accelerated its disposal target, from £70m in November, to the current £85m to £90m.

The goal is to get to a position where the business is throwing-off at least £50m a year of free cash after paying the dividend, which will ‘unlock value’ and lead to a re-rating of the company.

Meanwhile, the often-forgotten about beer business continued to take market share in both on and off-trade.

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Issue Date: 24 Jan 2020