preliminary results 2008 presentation to investors4 financial highlights 52 weeks ended 27 september...

Drummond HallDrummond Hall

Chairman

Preliminary Results – 26 November 2008

Jeremy TownsendJeremy Townsend

Finance Director


3

Key MessagesKey Messages

Resilient sales growth

Robust operating profit performance in a challenging environment

Capital investment has continued to earn good returns

Strong cashflows from operations

Significant debt reduction

Non-core asset disposal program impacted by credit conditions

To accelerate reduction in unsecured facility dividend payments have been suspended

Reducing debt to give strong platform for market out-performance

4

Financial HighlightsFinancial Highlights

52 weeks ended 27 September 2008 Growth

Revenue £1,908m 0.7%

EBITDA* £477m 1.1%

Operating profit* £343m -

Net Interest* £164m (20.6)%

Profit before tax* £179m (13.5)%

EPS* 31.5p (11.3)%

* Before exceptional items and IAS 39 movements

Resilient sales growth and robust operating performance

5

£m Gross Net

Operating ProfitLoss on swap closure (182) (129)

Strategic review (12) (9)

Impairment revaluation (160) (136)

Fair value adjustments (46) (42)

Property disposals 6 4

Tax credit 26Total Exceptional Items (394) (286)

IAS 39 movements (23) (17)

Exceptional Items and IAS 39 MovementsExceptional Items and IAS 39 Movements

(206)

6

LikeLike--forfor--Like Sales GrowthLike Sales Growth

H1 07/08 H2 07/08 1st 8 weeks 08/09

1.4%

0.8%

1.0%

Consistent like-for-like sales trend

7

Divisional Operating PerformanceDivisional Operating Performance

FY 08 FY 07£m £m

Revenue Pubs & Bars 954 968 (1.4)%Restaurants 939 908 3.4%SCPD 15 18

1,908 1,894 0.7%Operating Profit*

Pubs & Bars 176 191 (7.9)%Restaurants 156 145 7.6% SCPD 11 7

343 343 -

Retail0.9%

Retail(1.2)%


Strong growth in Restaurants; Pubs & Bars impacted by smoking ban

8

Underlying Profit GrowthUnderlying Profit Growth

(2.3)%12630156Operating Profit

1.7%761178939Revenue

Restaurants

(7.0)%1724176Operating Profit

flat93123954Revenue

Pubs & Bars

%£m£m£m

Underlying Growth*

Core Estate

Acquired Sites

Division Total

FY 08

* Year on year movement for the core estate excluding disposals

Smoking ban and cost pressures reduce net margins

9

Key Operating StatisticsKey Operating Statistics

Same outlet food sales: up 4.9%

Same outlet drink sales: down 0.8%

Gross margin down 1.4% points

Outlet staff costs: 24.2% of sales

Tight cost control

Increased inflationary cost pressures

Note: all figures relate to Retail

Overall net operating margin 17.5%

10

Operating Profit Movement Operating Profit Movement


External Costs

SCPD

+4

FY08

£343m*

FY07

£343m*

+15

(30)

Original Acquired

Sites

Disposals

(2)

+13

Trading

Strong trading performance offset by external costs

11

Outlook for FY09 CostsOutlook for FY09 Costs

Volatile energy and food costs

Estimated £30m of inflationary cost pressure in food and energy

Forward markets indicating sharp declines in second half food and energy costs

£20m of additional regulatory cost increases

Productivity, food margin management and other cost savings estimated at £20m

Require c.3% like-for-like sales to hold operating profits flat

Further inflationary cost pressures but mainly in first half

12

FY08 Expansionary Capital FY08 Expansionary Capital

High Street

Pub Restaurants

Restaurants

Locals

City Centre

Foodled

Drinksled

Residential

Core £23m

Original Acquired Sites £1m

Core £21m

Original Acquired Sites £30m

Core £7m

16% investment return on expansionary capex

13

Capex InvestmentsCapex Investments

FY08 Returns

CROCCE return 10.6%

NOPAT return 8.0%

FY09 projected capex

Reduction in organic expansionary capex while debt reduction prioritised

£18m allocated to 44 new site conversions

Bulk of capex focused on maintenance of amenity

Total capex for year projected at £120m

Well invested estate with high amenity standards

14

Group Debt and Outstanding FacilitiesGroup Debt and Outstanding Facilities

Sept 08 Feb 08£m £m

Securitisation gross debt (2,361) (2,391)

Cash / other 140 76

Unsecured facility (514) (595)

Net debt (2,735) (2,910)

Unsecured facility 600m 700mHeadroom +86m +105m

Net debt reduction of £175m in 8 months

15

FY 08 FY 07 £m £m

EBIT 343 343

Depreciation & amortisation 134 129

EBITDA 477 472

Working capital / non cash items 33 19

Maintenance capex (111) (122)

Expansionary capex (82) (139)

Total capex (193) (261)

Disposals 82 162

Net capital expenditure (111) (99)

Additional pension contributions (24) (40)

Operating Cash Flow after Net Capex* 375 352

Cash Flow (1)Cash Flow (1)

* Before expenditure on exceptional items

16

Cash Flow (2)Cash Flow (2)

FY 08 FY 07£m £m

Operating Cash Flow after Net Capex 375 352

Net Interest paid (164) (145)

Tax paid (4) (33)

Normal dividends paid (58) (52)

Special dividend paid - (486)

Issue of share capital 3 11

Shares repurchased (5) (46)

Net Cash Flow 147 (399)

Exceptional Cash Flow Items £(412)m £12m

Significant operational and other cash flow potential to reduce facility

17

Focus on Reducing DebtFocus on Reducing Debt

Facility Unsecured Secured Total

FY08 Current £600m

FY09 December 2008 £550m 50 43 93

FY10 December 2009 £400m 150

FY10 June 2010 £350m 50 46 246

FY11 December 2010 £300m 50 49 99

Amortisation

£339m of scheduled amortisation over next 2 years

18

Balance SheetBalance Sheet

* Net Debt / (Net Assets + Net Debt)** Incorporates fixed assets and assets held for resale

Net Debt : EBITDA 5.7x

Book Gearing* 69%

IAS 19 Pension deficit £23m

Property Value** £4.7bn

Strong balance sheet and strengthening financial platform

19

SummarySummary

Well positioned to further accelerate market share gains

Opportunity for leverage from Original Acquired Sites

Strong operational performance driving productivity gains

Easing pressure from inflation

Cash conservation is key priority

Capital investment programme focussed on maintaining amenity

Dividend payments to resume once unsecured debt is reduced

Well positioned to deliver continuing out performance

Tim ClarkeTim Clarke

Chief Executive

21

Strategy for a RecessionStrategy for a Recession

Generating resilient like-for-like sales performance

Profitable optimisation of volume, price and mix

Productivity and purchasing efficiency gains

Delivering strong uplifts on Original Acquired Sites

Prioritising debt reduction

Reduced capex focus on maintaining amenity levels

Dividend suspended to pre-empt facility step-down

Market share gains, cost efficiencies and cash conservation to withstand recessionary pressures

22

Key Trading PrioritiesKey Trading Priorities

Caution on FY09 market prospects

Top line sales focus crucial to operationally geared model

Protecting amenity, quality, price, service

Value and volume strategy responsive to consumer trends

Deploy purchasing scale to deliver customer needs

Drive marketing scale economies of format portfolio

Accelerating market share gains from widening value gap

Competitive out-performance opportunity enhanced by recession

23

LikeLike--forfor--Like Sales (%)Like Sales (%)

FY 09 FY 08 FY 088wks H2 H1*

Divisional

Pubs & Bars (0.2) (0.3) (0.5)

Restaurants 2.3 3.3 2.2

Segmental

Residential 1.9 2.4 0.8

High Street (0.7) Flat 0.3

Total** 1.0 1.4 0.8

* 32 weeks to include the entire Easter period** Includes Hollywood Bowl

FY08 like-for-like sales growth of 1.0%

24

Profitable Market Share GainsProfitable Market Share Gains

(1) Same outlet like-for-like growth (2) MAB estimates based on BBPA/AC Neilsen / ONS

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

Food 8% 2%

Wine & Soft Drinks 2% -6%

Spirits -6% -7%

Beer & Cider -2% -8%

Acceleration in market share gains

25

UK Food Growth UK Food Growth –– FY08FY08

Food sales mix 39%

Like-for-like food sales up 4.9%

Total food sales up 7.7%

Average weekly food sales per pub up 7.2% to £7,800

Average number of meals per pub per week up 10.2% to 1,220

Serving over 110 million meals per annum

Enhanced purchasing scale

Food volumes up 72% in 5 years

26

Beer Market Volume OutBeer Market Volume Out--performance*performance*

• Rolling MAT volume out-performance by MAB of on-trade beer market (% points)Source:BBPA

Strategy is driving increasing market share gains

2%

3%

4%

5%

6%

Sep-06

Oct-06

Nov-06

Dec-06

Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Volu

me

out-p

erfo

rman

ce (%

poi

nts)

27

Retail PriceRetail Price

Value positioning to drive market share gains

Drinks Food

LFL Price

-3.7%

2

3

1

4

+0.3%

-2.8%

+2.5%

+2.8%

1

+0.9%LFL Price

LFL Price

Aver

age

Ret

ail P

rice

(%)

2

3

28

Margin ManagementMargin Management

Maximising cash contribution at net operating margin level

Challenges of input cost inflation and shift to lower margin food

Maximise volume, purchasing and productivity gains

Sales growth, offsetting gross margin reinvestment from value strategy

Accelerating market share gains and efficiency improvement reduced 1.4% gross margin decline to 0.4% net margin decline

Sustaining top line in recessionary conditions

Eventual benefit from easing of commodity prices in 2nd half FY09

Customer focused strategy delivering sustainable volume driven profitability

29

Quick Service Restaurants

Eating Out Market Average Spend & Eating Out Market Average Spend & Volume Volume

£0

£2

£4

£6

£8

£10

10 20 30 40 50 60 70 80 90 100Volume Share (%)

£3.22 Pubs

£7.92MAB£6.05

Full Service Restaurants

£9.45

Transport &Leisure

£6.07

Source: NPD Crest Sep 2008NB.Transport and Leisure, includes hotels, motorway and railway service stations, cinemas, garden centres, department stores etc.

Spend per Meal

MAB out-performing eating out market by 6%

30

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£4.00

£6.00

£8.00

£10.00

£12.00

£14.00

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The Market The Market ––Value for Money in All Market SegmentsValue for Money in All Market Segments

PREMIUM MID MARKET VALUE

Average price of a main meal (£)

Source: Menurama

31

Key Menu PrioritiesKey Menu Priorities

Menus tailored to different timeslot needs

Different dynamics of value, mid-market and premium segments

Widen range of choice and price points on menus

Menu management to mitigate margin impact of products with highest cost inflation

Emphasis on fish and chicken versus red meat and turkey

Rapid response to changing consumer demand patterns

32

Menu DevelopmentMenu Development

Day time value sessions

Protect KVI* entry point dishes to attract customers trading down

Introduction of complementary value packages alongside main menus in mid-market and premium offers

Evening and weekend premium sessions

Enhance quality of dishes to respond to demand for “more for same”

Extend range of premium dishes and “special boards”

Attracting customers from full service restaurants to pub restaurants

Passing on VAT reductions on food to customers

Optimising volume, price and mix*Key Value Indicator

33

Sizzling Pub Co.Sizzling Pub Co.

www.sizzlingpubs.co.ukwww.sizzlingpubs.co.uk

34

Crown CarveriesCrown Carveries

www.crowncarveries.co.ukwww.crowncarveries.co.uk

35

Town PubsTown Pubs

36

Vintage InnsVintage Inns

www.vintageinn.co.ukwww.vintageinn.co.uk

37

Ember InnsEmber Inns

www.emberinns.co.ukwww.emberinns.co.uk

38

TobyToby

www.tobywww.toby--carvery.co.ukcarvery.co.uk

39

Premium Country Dining Premium Country Dining

www.thetroutoxford.co.ukwww.thetroutoxford.co.uk

The SeahorseThursday 20th November

Chris Goodchild our Head Chef is Proud To Recommend:

Soup:Roast Tomato + Bombay Sapphire Gin 4.45

Scallops:Seared Scallops + Black Pudding + Pea & Mint Puree

+ Rocket 7.95Risotto:

Smoked Haddock + Mixed Peppers+ Spring Onion 10.95

Fish:Prosciutto Wrapped Fillet of Halibut + Asparagus + Dill Veloute

+ Herb Cous Cous 13.45Pan-Fried Medallions of Monkfish + Fennel Mash + Broccoli

+ Cherry Tomato + Pesto Cream 14.45Meat:

Fillet Steak + Wild Mushroom Gratin Tart+ Horseradish Mash 19.95

The SeahorseThursday 20th November

Chris Goodchild our Head Chef is Proud To Recommend:

Soup:Roast Tomato + Bombay Sapphire Gin 4.45

Scallops:Seared Scallops + Black Pudding + Pea & Mint Puree

+ Rocket 7.95Risotto:

Smoked Haddock + Mixed Peppers+ Spring Onion 10.95

Fish:Prosciutto Wrapped Fillet of Halibut + Asparagus + Dill Veloute

+ Herb Cous Cous 13.45Pan-Fried Medallions of Monkfish + Fennel Mash + Broccoli

+ Cherry Tomato + Pesto Cream 14.45Meat:

Fillet Steak + Wild Mushroom Gratin Tart+ Horseradish Mash 19.95

40

Key Drinks PrioritiesKey Drinks Priorities

Beer & CiderExtending range of premium imported lagers: volumes up 33%

Wider distribution of cask ales: volumes up 9%

Growth of cider from new product lines: volumes up 12%

Cellar training: 700 cask marque accreditations

Taking share in declining UK-brewed lager sector

Wine and soft drinksSoft drinks volumes up 2% and hot drinks volumes up 8%

Focus on draught wine: volumes up 59%

SpiritsLong drinks and cocktails to revitalise category

Extending range in growth categories, taking share in declining lager market

NB. All volumes quoted are same outlet like-for-like

41

World Beers, Cask Ale & CiderWorld Beers, Cask Ale & Cider

42

Wine, Soft and Hot DrinksWine, Soft and Hot Drinks

43

£0.00

£0.50

£1.00

£1.50

£2.00

£2.50

£3.00

MAB Managed Pubs Total Tenancy /Leased

Total GroceryMultiples

+6p+10p

+14p

Drinks Price GapDrinks Price Gap

Source: AC Nielsen

Average Price per Pint of Standard Lager – Sept 08 vs Sept 07

FY07 FY08

MAB over 40p less per pint than leased

+4p

44

Efficiency GainsEfficiency Gains

Productivity

Rapid growth in staff contribution per hour +5.4%

Training, deployment, scheduling systems

Purchasing

Food inflation held to 3%

Volume growth mitigating commodity pricing pressures

Infrastructure efficiencies

Rationalisation implemented

Overall fixed and variable costs reduction of £20m

Operating skills and scale efficiencies underpinning margins

45

Residential Pub RestaurantsResidential Pub Restaurants

Returns from margin reinvestment

Menu quality

Value

Service training

Successful turnaround of Vintage Inns

Harvester

Enhancing evening menus

Evolving day time offer

Strong performance in Crown Carveries and Toby

The Swan, Vintage Inn, Horning

Same outlet like-for-likes up 2.4%

Toby Carvery Bolton

46

Residential Pubs Residential Pubs –– Original Acquired Original Acquired SitesSites

Fourth quarter EBITDA run rate uplift of over 50%

Sales uplifts of 20%

Average food volumes up 32%

Productivity gains

Employment ratio fallen from 32% to 27%

Purchasing gains of £8m

Profit targets achieved

Riverside Inn, Harvester, Bournemouth

Scotsbridge Mill, Premium Country Dining Group, Rickmansworth

47

Residential PubsResidential Pubs

Repositioning to food: 24% sales mix

Food sales up 12%

Sharp acceleration in drinks market share gains

Expansion of Sizzling Pub Co., Cornerstone and Metro Professionals

Fighting Cocks, Metro Professionals, Moseley

Man On The Moon, Cornerstone, Kings Norton

Same outlet like-for-likes +0.2%

48

High Street and City Centre MarketsHigh Street and City Centre Markets

24% of sales

Central London growth

All Bar One, Browns, Nicholson’s

Repositioning of O’Neill’s, Scream, Town Pubs

Pressure on Late Evening Venues

Food growth +11%

Rapid growth in breakfast +30% and coffee +10%

Argyll Arms, Nicholson’s, Oxford Circus

Same outlet like-for-like sales growth +0.1%

49

Repositioned EstateRepositioned Estate

Food ledDrinks led

City Centre

Residential

Note: 1. Pie charts equate to total sales in each quadrant split food and drinks/ other2. Excludes Hollywood Bowl (24 outlets) and Alex (42 outlets)3. Percentages and growth equate to UK managed sales in FY 2008

Pub Restaurants46% of sales

Residential Pubs30% of sales

High Street20% of sales

City Centre4% of sales

Food:24% of mix+12% growth




50

Current TradingCurrent Trading

Strong food growth: like-for-likes +3.5% Drinks like-for-likes now positive +0.5%Pub Restaurants

Resilient performance

Actions to improve Harvester

Residential PubsRapid food growth

Further drinks share gains

High StreetImpacted by absence of Rugby World Cup

Late evening venues remain challenging

Same outlet like-for-likes up 1.0% in last 8 weeks

51

OutlookOutlook

Weakening consumer spending in 2009

Value and volume strategy to ensure defensive position in recession

Intense supermarket drinks competition

Widening value gap with rest of on-trade

Rising consumer price elasticities

Customer focus on value in slowing eating out market

First half input cost pressures, reversing in second half

Competitive pub closures and capacity withdrawal

Exploiting scale cost advantage to drive profitable market share

Widening profitability premium to sector: Average EBITDA per pub over £240K p.a.

52

SummarySummary

Radical action to defend business from recessionary pressures

Priorities of debt reduction and operational out-performance

Dividend temporarily suspended to pre-empt facility step downs

Uncertainty over value realisation from disposals

Issue of cash flow, not fundamental long term prospects

Aggressively managing the cost challenges

Accelerating market share gains to offset weakening demand

Profits delivery on Original Acquired Sites demonstrates value from MAB-led consolidation

Resilient business performance, prioritising cash conservation

Questions & AnswersQuestions & Answers


preliminary results 2008 presentation to investors4 financial highlights 52 weeks ended 27 september...

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