mitchells & butlers - preliminary results 2006 · 4 presentational points to note zresults...

Roger CarrRoger Carr

Chairman

Preliminary Results – 29 November 2006

Karim NaffahKarim Naffah

Finance Director

Preliminary Results – 29 November 2006

3

Financial HighlightsFinancial Highlights

*Before exceptional itemsNB. Comparatives are for 52 weeks and are restated for IFRS

52 weeks ended 30 September 2006 % Growth

Revenue £1720m 5.5%

EBITDA* £430m 6.7%

Operating profit* £309m 6.9%

Profit before tax* £208m 10.1%

EPS (before exceptional items) 29.3p 15.4%

EPS (including exceptional items) 39.7p 59.4%

Total dividend 12.25p 14.0%

4

Presentational Points to NotePresentational Points to Note

Results include 9 weeks of former Whitbread pubs (“Acquired Sites”)

Revenue £34m

Operating profit £6m

FY 2006/7 events

Disposal of 102 pubs to Trust Inns for £101m

Special Dividend of £1/share (£486m) and share consolidation

First full year results under IFRS

FY 2004/5 comparatives restated

IFRS (No change in EPS*; Net Assets reduced by £234m)

52 weeks

Reporting to debt investors

* Before Exceptional Items

5

FY 2006 Results FY 2006 Results -- SummarySummary

* Before exceptional items**2005 comparatives are for 52 weeks and are restated for IFRS

FY 06 FY 05**£m £m

Operating Profit* 309 289 6.9%

Interest (101) (100)

PBT* 208 189 10.1%

Tax (64) (59)

Earnings* 144 130 10.8%

EPS* 29.3p 25.4p 15.4%

Average no. of shares 491m 511m

6

FY 2006 Results FY 2006 Results –– Exceptional ItemsExceptional Items

£m Gross Net

Operating ProfitProperty disposals 23 20Defence costs (4) (4) Refinancing (3) (2)

Interest Refinancing (4) (3)

TaxRelease in respect of prior years 40

Total Exceptional Items after Tax 51

7

Operating PerformanceOperating Performance

FY 06 FY 05**£m £m

Revenue Pubs & Bars 958 939 2.0%Restaurants 762 684 11.4%SCPD - 8 -

1720 1631 5.5%Operating Profit*

Pubs & Bars 179 175 2.3%Restaurants 130 113 15.0% SCPD - 1

309 289 6.9%

Retail+6.0%

Retail+7.3%

*Before exceptional items**2005 comparatives are for 52 weeks and are restated for IFRS

8

LikeLike--forfor--Like Sales: DivisionalLike Sales: Divisional

FY 06 H1 06*

Same Outlet (Invested + Uninvested)

Pubs & Bars 3.5% 3.4%

Restaurants 5.0% 5.3%

Total 4.1% 4.2%

Uninvested

Pubs & Bars 2.4% 2.3%

Restaurants 2.9% 3.0%

Total 2.6% 2.6%

*32 weeks to include the entire Easter period** Excludes “Acquired Sites”

9

LikeLike--forfor--Like Sales: SegmentLike Sales: Segment

FY 06 H1 06*

Same Outlet (Invested + Uninvested)

Residential 5.1% 5.1%

High Street 2.3% 2.3%

Total 4.1% 4.2%

Uninvested

Residential 3.1% 3.0%

High Street 1.8% 1.8%

Total 2.6% 2.6%

*32 weeks to include the entire Easter period**Excludes “acquired sites”

10

Balancing Sales Growth & MarginBalancing Sales Growth & Margin

FY 06 H1 06*

Uninvested LFL Sales +2.6% +2.6%

Average Selling Price** up 2% up 1%

Movement in Gross Margin (%) flat flat

Movement in LFL Gross Profit (£) +ve +ve

Sustaining LFL cash contribution from sales* like-for-like sales 32 weeks to include the entire Easter weekend in both periods** Drink & FoodNote: Excludes “Acquired Sites”

11

Retail Operating Statistics*Retail Operating Statistics*

Net operating margin up 0.3% points

Drink sales : up 2.1%

Food sales : up 7.8%

Outlet staff costs : 24% of sales

Tight cost controls

* Excludes “Acquired Sites”

12

Operating Profit Movement Operating Profit Movement

* For 52 weeks before exceptional items and restated for IFRS** Before exceptional items

+39

(24)

Regulatory & Energy costs

2005

+£20m

Acquired Sites

2006

£289m*

£309m**

+6

Trading SCPD

(1)

13

FY 2006 Expansionary Capital FY 2006 Expansionary Capital

Note: Excludes non trading property: £1m

High Street

Pub Restaurants

Restaurants

Locals

City Centre

Foodled

Drinksled

Residential

£17m £47m

£8m £0m

14

High Street

Pub Restaurants

Restaurants

Locals

City Centre

Foodled

Drinksled

Residential

Inc. ROI 18% Inc. ROI 19%

Inc. ROI 9%Inc. ROI 15%

Returns by Segment*Returns by Segment*

Notes: Incremental ROI is calculated before tax and after depreciation* Cumulative £1bn UK expansionary investment over the last 15 years (excl. Hollywood Bowl)

17% overall incremental ROI

15

Cash Flow (a)Cash Flow (a)

FY 06 £m

EBIT 309Depreciation & amortisation 121

EBITDA 430Working capital / non-cash items 20

Maintenance capex (109)

Expansionary capex (73)

Expenditure on “Acquired Sites” (489)

Disposals 88

Additional pension contributions (20)Operating Cash Flow after Net Capex (153)

(583)

16

Cash Flow (b)Cash Flow (b)

FY 06£m

Operating Cash Flow after Net Capex (153)

Net Interest paid (107)

Tax paid (48)

Normal dividends paid (56)

Shares repurchased (76)

Exercise of share options 12

Expenditure on refinancing/defence (14)

Net Cash Flow* (442)

* Before £37m bond repayments

17

Free Cash Flow Free Cash Flow

£186m

Free Cashfow*EBITDA

£430m

Net Cashflow

£(442)m

* Free cashflow = EBITDA + working capital – maintenance capital – interest - tax

18* Unleveraged tax rate

Strong Cash ReturnsStrong Cash Returns

£m

309

309

(84)

225

3479

(711)

50

2818

11.0%11.0%

12 months to 30 September 2006 £m

EBIT 309

Depreciation/Amortisation 121

EBITDA 430

Cash Tax (at 27% of EBIT)* (84)

Cash Return 346

Average Net Operating Assets 3479

Accumulated Depreciation 332

Revaluations (711)

Goodwill written off 50

Cash Capital Employed 3150

CROCCE

8.0%8.0%

NOPAT

19

Higher Property ValuesHigher Property Values

Group property value estimated at £5.5bn+, as at August 2006

1704 Securitised pubs: £4.8bn (independent portfolio valuation)

Avg. value per securitised pub up 40% in 3 years (from £2m to £2.8m)

Trading success capitalised in market value of estate

Operating performance: LFL EBITDA growth

Estate management: higher quality pubs with superior growth prospects

Realise benefits of property appreciation

Selective disposals where price exceeds trading value

Additional leverage securitised on higher asset values

Capturing asset appreciation for shareholders is integral part of strategy

20

REIT’sREIT’s

Tax efficient structure for property assets

Available from 1 January 2007

Would require split into two independent companies

REIT and OpCo

Cost / benefit equation

Tax advantages; conversion charge; other transition costs

Stability of new legislation; market ratings of separate entities

Fundamental strategic question

Direct link between pub performance and property value

Possible to align economic incentives through contractual framework?

Testing compatibility of REIT with long-term trading success

21

Securitised Bond IssueSecuritised Bond Issue

Increased securitised debt from £1.8bn to £2.45bn

Consistent loan-to-value – c.50%

Similar covenant package

£1.1bn bond issue

£450m to refinance existing notes; £655m incremental debt

Cash interest rate of 5.4%

Overall interest rate on securitised debt down to 5.7%

Over £2.4bn of debt, costing less than 4% after tax

Maintaining balance sheet efficiency

22

FinancingFinancing

* Excluding net finance income from pensions

Financing continues to support business strategy for growth

Year end net debt: £2.1bn

Interest cover* 2.8x

Before special dividend, pension contribution and package disposal

Net debt now: c. £2.5bn

Interest cover* c.2.3x

Net debt/EBITDA c.5.8x

23

DividendsDividends

Dividend

Final dividend 8.6p, up 14%

Total dividend 12.25p, up 14%

Progressive policy

Special Dividend of £1 per share post year end

Interim dividend for FY 2006/7

Over £1.1bn returned to shareholders since listing*

* In addition to ordinary dividends

24

SummarySummary

Strong operating performance

Growing sales; improving margin

Generating high returns on investment

Property appreciation benefits

Value-creative disposals

Refinancing on attractive terms

Using cash resources profitably

Acquired Sites provide additional platform for growth

Special Dividend and share buyback

Generating value for shareholders

Tim ClarkeTim Clarke

Chief Executive

Preliminary Results – 29 November 2006

26

Strategy is DeliveringStrategy is Delivering

Powerful momentum of sales driven growth

Customer focused, value and volume strategy

Sustained like for like sales growth

Market share gains

Productivity and purchasing gains

Acquisition gives eating out market leadership

High returns from conversions

Further repositioning of core estate to food

27

Key Levers of Profits GrowthKey Levers of Profits Growth

Strong growth prospects

Leading the growth of eating outLarge pubs, uniquely positioned to capture neighbourhood dining growthHigh volume, capacity management skillsMenu development

Accelerating drinks market share gainsExtended range, own label, glycol coolingWidening the competitive value gap

Format innovation and evolutionTargeting the high growth segmentsWidening the competitive amenity gap

Extracting the profit benefits of scaleHigh productivity gains in high take pubsRising volumes generate purchasing gains

28

Strong LikeStrong Like--forfor--Like Sales GrowthLike Sales Growth

* 32 weeks to include Easter in both years

UninvestedUninvested Same OutletSame Outlet

H1* 06 H2 06 H1* 06 H2 06

4.0%4.2%

2.6%2.6%

0%

1%

2%

3%

4%

5%

6%

Wks 1-7

2.9%

4.5%

Wks 1-7

29

Profitable Market Share GainsProfitable Market Share Gains

(1) Same outlet like for like for 52 weeks vs. equivalent 52 calendar weeks of FY2005 (incl. pubs disposed to Trust Inns in Oct 2006 but exc. Acquired sites)(2) MAB estimates based on BBPA/ AC Neilsen/ ONS for Pub Market

MAB EstimatedVolume Growth (1) Market Vol Growth (2)

Food + 6% + 4%

Wines & Soft Drinks + 6% + 1%

Spirits - 4% - 5%

Beer & Cider + 1% - 3%

30

Repositioned to Growth Repositioned to Growth -- Product Mix*Product Mix*

*Pro-forma including the Acquired Sites and excluding sites disposed in FY06 and to Trust Inns Ltd in Oct 06

Food 35%

Beer & Cider 31%

Wine& Soft Drinks 13%

Spirits 11%

Accommodation & Other 6%

Machines4%

31

Rising pub usage by less frequent Rising pub usage by less frequent customerscustomers

44% visit a pub to eat at least once a monthSource: TNS Drinks Market Survey & Alcovision 2006

Monthly

Weekly

> 3x per week

0

10

20

30

40

50

60

70

80

1980 1990 2000 2006

% Of Adults Visiting

32

Capturing a disproportionate share of Capturing a disproportionate share of the growth in eating outthe growth in eating out

* Mintel Pub Catering August 2006** excludes the Acquired Sites

Compound Annual Growth In Value 2000-2006

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Eating Out Market* Pub Food Market* MAB**

33

High food volumes at pub High food volumes at pub and company leveland company level

Average food sales per week Average meals per week

96 million meals per annum*

* including the Acquired Sites

£14,700

£6,100

Pub Restaurants Total Company

1950

930

Pub Restaurants Total Company

34

Food PrioritiesFood Priorities

Create offers that are hard to replicate at home

Quality on the plate

Value for money

Freshly cooked & healthy

Responding to changing tastes

Catering for all occasions

Build kitchen capability

Prompt and attentive service

35

£0

£2

£4

£6

£8

£10

£12

£14 EagleFarringdon

FreemasonsArms

(Hampstead)

Rose & Crown(Warwick)

Saxon Mill(Warwick)

Beefeater

Harvesterfull price

Chef & Brewer

TwoForOne

BrewersFayre

VintageInns

HungryHorse

EmberInns

PizzaExpress

TobyCarvery

HarvesterEarlyBird

JDW

SizzlingPubCo

PubCarvery

McDonalds

Average Price of a Main Meal (£s)

Value for money in all market segmentsValue for money in all market segments

PREMIUM MID-MARKET MASS MARKET

Source: Menurama

Mitchells & Butlers’ Formats

36

Integrated Food and Drinks EconomicsIntegrated Food and Drinks Economics

Combining higher margins of drinks with faster growth of food

Informality and accessibility key to wide social appeal

Strong bar trade is central to profitability

Maximising ancillary drinks sales at the table

Drinks’ higher gross margins and lower employment costs underpin food value proposition

37

Drinks PrioritiesDrinks Priorities

Focus on points of differentiation to “canned beer”

Widening range

Introduce new and innovative speciality beers

Wine, soft drinks and cider

Focus on presentation

Glassware and serve style

Improve serve quality

Glycol cooling systems now in 700 pubs

Develop non-beer drinks

Wine, soft drinks

38

Widening the drinks rangeWidening the drinks range

Own Label 0 13Red 32 64White 66 111Rose 4 22Sparkling 12 22Total Wine 114 232 +118

Own Label 0 13Red 32 64White 66 111Rose 4 22Sparkling 12 22Total Wine 114 232 +118

Number of Products

2001 2006 +/-Standard Lager 3 7Premium Lager 4 18Speciality beer 0 18Cider 10 18Total Beer 17 61 +44

2001 2006 +/-Standard Lager 3 7Premium Lager 4 18Speciality beer 0 18Cider 10 18Total Beer 17 61 +44

39

Product Innovation Product Innovation –– Draught WineDraught Wine

40

Gaining share in the declining onGaining share in the declining on--trade trade beer marketbeer market

Sustainable profitability from market share gainsSource: BBPA

0.9

0.95

1

1.05

1.1

2003 2004 2005 2006

Off-trade volume

On-trade volume

MAB volume

Volume index

41

MAB Managed Tenancies Supermarkets

£0.00

£0.50

£1.00

£1.50

£2.00

£2.50

£3.00

2004 2005 2006

Widening value gap Widening value gap

Average price of a pint of standard lager

MAB now 18p cheaper than managed competitionand 35p cheaper than tenancies

Source: AC Neilsen

42

Driving productivity through capacity Driving productivity through capacity managementmanagement

Productivity gains key to overcoming £24m last year of regulatory and energy cost increases

Staff contribution per hour: +4%*

Increasing volumes enable

More productive deployment of staff

More accurate forecasting and scheduling

Increased earnings for staff

Higher capacity utilisation

Since FY 2003: Sales volumes up 13%, Staff hours up 4%

* Sales less hourly paid wages divided by number of hours worked

43

Purchasing gainsPurchasing gains

Improved purchasing terms enabled reinvestment in higher food specification and gross margins maintained

Unit COGS held flat off-setting:

• duty

• contractual increases

• inflation

Gains from first year of freedom from beer tie

Logistics and technical service costs reduced

Upward pressure on commodity food prices contained

44

MAB locations positioned in higher MAB locations positioned in higher growth marketsgrowth markets

* Includes Acquired Sites and after disposal to Trust Inns Ltd in October 2006

In 1990, c70% of the estate was in inner cities and industrial areas

Affluent Commuter Beltsand Urban Areas

24% of sales

City Centres/Town Centres25% of sales

Mid-Market Suburbia33% of sales

Disadvantaged InnerCities/Ex Industrial Areas

4% of sales

Mass Market Housing Estatesand Students14% of sales

45

Acquired sites Acquired sites –– pre conversionpre conversion

Progress in 16 weeks encouraging, improvement in margins

Focus on maximising pre-conversion profit contribution

Introduction of MAB operating skills: productivity

Removal of discount schemes

Like for like sales decline slightly faster than pre acquisition trend

Emphasis on customer service

Systems integration complete by end of February

Ability to introduce MAB ordering/ suppliers, stock control and scheduling systems

MAB pricing policy and marketing

46

Acquired Sites Acquired Sites –– Conversion Progress in Conversion Progress in line with expectationsline with expectations

Intensive pre-acquisition preparations

Rapid implementation of site appraisals and conversions

25 sites reopened: 10% of estate

50 sites to have reopened by Christmas: 21% of estate

c.100 sites to have reopened by Easter: 40% of estate

47

Growth in Pub RestaurantsGrowth in Pub Restaurants

Same outlet like for like sales +5.4%Bulls Head, Bistro, Meriden

c.180 sites from Acquired SitesNeighbourhood, casual dining growth in mid market suburbs

Market leading food volumes:

Harvester: 2,200 meals / pub / week

Toby: 2,500 meals / pub / week

Pub Carvery: 2,550 meals / pub / week

Segmenting the country pub dining marketPremium Country Dining

Bistro

Vintage Inns

Harvester, Windsor

48

Residential PubsResidential Pubs

Same outlet like for like sales +4.7%

Major drinks market share gains

Repositioning to food: 20% sales mix

2nd half like for like food sales up 13%

50 conversions to Sizzling Pub Co and Ember in 06/07

Disposed smaller pubs with limited food prospects

The Fieldhouse, Ember - Solihull

The Barley Mow, Sizzling Pub Co - Banbury

49

High Street / City Centre MarketsHigh Street / City Centre Markets

Same outlet like for like sales up 2.3%Blackfriar, Nicholson’s – Central London

25% of total sales

Central London: buoyant trading

Town Pubs: strong growth

Circuit venues: competition from later hours in local pubs

Maximise food opportunity

50

Smoking Ban and Licensing ReformSmoking Ban and Licensing Reform

Repositioning the offers to overcome regulatory change

SmokingScottish experience weeks 1-7*

Food sales +7%Drinks sales -2%

80% of the England & Wales estate has external areas

Attracting new food customers to smoke free pubs

Licensing

Marginally positive for sales in FY06

Helping reduction in alcohol related disorder across the country

* To 18 November 2006

51

OutlookOutlook

Widening consumer appeal of quality food pubs

Good start to new financial year

Consumer demand above expectations in 2006

Further polarisation in demand trends

Strong food and ancillary drinks growth

Beer decline intensifying

Priority of successfully converting acquired sites

Pipeline of c.400 investment opportunities in core estate

52

SummarySummary

Focus on long term, sustainable, real growth

Eating out market leadership

Widening drinks market share gains

Scale productivity and purchasing gains

Powerful consumer formats generating high returns

Conversion pipeline

Generating and capturing asset appreciation