Mitchells & Butlers plc · LSE:MAB
Mitchells & Butlers — FY2007 Earnings Presentation
54 slides from Mitchells & Butlers's earnings presentation, Nov 29, 2007
Slide 1: Roger Carr, Chairman – Preliminary Results
Roger Carr Chairman Preliminary Results – 29 November 2007 1
Slide 2: Karim Naffah, Finance Director
Karim Naffah Finance Director Preliminary Results – 29 November 2007 2
Slide 3: Financial Highlights
Financial Highlights 52 weeks ended 29 September 2007 % Growth Revenue £1,894m 10.1 % EBITDA* £472m 9.8 % Operating profit* £343m 11.0 % Profit before tax* £207m (0.5) % EPS* 35.5p 21.2 % Total dividend 14.25p 16.3 % *Before exceptional items 3
Slide 4: Presentational Points to Note – FY 2007
Presentational Points to Note – FY 2007 FY 2007 events Special Dividend of £486m and share consolidation in Oct 2006 Disposal of 102 pubs to Trust Inns for £101m in Oct 2006 Results include a full year of the Acquired Sites Revenue £176m; operating profit* £33m Pre-opening and closure costs of £14m
Slide 5: FY 2007 Results - Summary
FY 2007 Results - Summary FY 07 FY 06 £m £m Operating Profit* 343 309 11.0% Net Interest (136) (101) PBT* 207 208 (0.5)% Tax (62) (64) Earnings* 145 144 0.7% EPS* 35.5p 29.3p 21.2% Average no. of shares 408m 491m * Before exceptional items 5
Slide 6: Hedging
Hedging Put in place to support delivery of JV transaction Interest rate and inflation swaps Post tax deficit of £155m at year-end date Falling long term interest rates Rising long term inflation expectations Reduced liquidity Exceptional accounting item – not cash Utilise hedges in a future propert
Slide 7: FY 2007 Results – Exceptional Items
FY 2007 Results – Exceptional Items £m Gross Net Operating Profit - Financial hedges (221) (155) - Property disposals 22 15 - Impairment from revaluation (45) (32) - Integration of Acquired Sites (4) (3) - Property JV transaction (7) (7) - Tax adjustments 27 Total Exceptional Items (255) (155) 7
Slide 8: Operating Performance
Operating Performance FY 07 FY 06 £m £m Revenue Pubs & Bars 968 958 1.0% Retail Restaurants 908 762 19.2% +9.1% SCPD 18 - 1894 1720 10.1% Operating Profit* Pubs & Bars 191 179 6.7% Retail Restaurants 145 130 11.5% +8.7% SCPD 7 - 343 309 11.0% *Before exceptional items 8
Slide 9: Underlying Profit Growth
Underlying Profit Growth FY 2007 Division Acquired Core Core Adjusted Total Sites Estate Growth Growth vs LY vs LY* £m £m £m % % Pubs & Bars Revenue 968 16 952 - 0.6% + 3.5% Operating Profit 191 3 188 + 5.0% + 11.9% Restaurants Revenue 908 160 748 + 2.7% Operating Profit 145 16 129 + 4.0% Strong und
Slide 10: Like-for-Like Sales: Divisional
Like-for-Like Sales: Divisional* FY 07 H1 07** Same Outlet (Invested and uninvested pubs) Pubs & Bars 4.7% 5.1% Restaurants 1.0% 1.6% Total*** 3.0% 3.6% Uninvested Pubs & Bars 3.0% 3.4% Restaurants 0.1% 0.4% Total*** 1.7% 2.1% * Excludes Acquired Sites ** 32 weeks to include the entire Easter Period
Slide 11: Like-for-Like Sales: Segment
Like-for-Like Sales: Segment* FY 07 H1 07** Same Outlet (Invested and uninvested pubs) Residential 3.1% 4.1% High Street 3.0% 2.9% Total 3.0% 3.6% Uninvested Residential 1.5% 2.3% High Street 2.3% 2.2% Total 1.7% 2.1% * Excludes Acquired Sites ** 32 weeks to include the entire Easter period 11
Slide 12: Balancing Sales Growth & Margin
Balancing Sales Growth & Margin FY 07 H1 07 Uninvested LFL Sales* +1.7% +2.1% Average Selling Price** up < 2% up 2% Movement in Gross Margin (%) Slightly down flat Movement in LFL Gross Profit (£) +ve +ve Sustaining LFL cash contribution from sales * like-for-like sales to 32 weeks to include the en
Slide 13: Retail Operating Statistics
Retail Operating Statistics* Same outlet drink sales: up 2.2% Same outlet food sales: up 5.1% Outlet staff costs: 23.6% of sales Tight cost controls Strong margin performance * Excludes Acquired Sites 13
Slide 14: Operating Profit Movement
Operating Profit Movement +27 +7 £343m* (14) +33 (8) 2005 + £34m £309m* 2006 2007 (11) Closure and Disposals Trading Acquired Pre-opening Regulatory SCPD Sites Costs Costs * Before exceptional items 14
Slide 15: FY 2007 Expansionary Capital
FY 2007 Expansionary Capital Locals Residential Pub Restaurants Core £25m Core £20m Acquired Sites £12m Acquired Sites £68m Drinks Food led led Core £5m Core £0m High Street Restaurants City Centre Note: Excludes non trading property (£1m) 15
Slide 16: Returns by Segment
Returns by Segment Locals Residential Pub Restaurants Inc. ROI 22% Inc. ROI 18% Drinks Food led led Inc. ROI 18% Inc. ROI 11% High Street Restaurants City Centre 18% overall incremental ROI Notes: Incremental ROI is calculated before tax and after depreciation Cumulative £1.1bn UK expansionary inves
Slide 17: Strong Cash Returns
Strong Cash Returns 12 months to 29 September 2007 CROCCE £m NOPAT £m 343 EBIT 343 Depreciation/Amortisation 129 EBITDA 472 (89) Cash Tax (at 26% of EBIT)* (89) 254 Cash Return 383 3,820 10.8% 8.0% Average Net Operating Assets** (685) 3,820 50 Accumulated Depreciation 347 Revaluations** (685) 3,185
Slide 18: Cash Flow (a)
Cash Flow (a) FY 07 £m EBIT 343 Depreciation & amortisation 129 EBITDA 472 Working capital / non cash items 19 Maintenance capex (122) Expansionary capex (131) £(99)m Purchase of Acquired Sites (8) Disposals 162 Additional pension contributions (40) Operating Cash Flow after Net Capex* 352 * Before
Slide 19: Cash Flow (b)
Cash Flow (b) FY 07 £m Operating Cash Flow after Net Capex 352 Net Interest paid (145) Tax paid (33) Normal dividends paid (52) Special Dividend paid (486) Exercise of share options 11 Shares repurchased (46) Net Cash Flow* (399) Closing Net Debt : £2,479m * Before total expenditure on exceptional i
Slide 20: Free Cash Flow
Free Cash Flow £472m £191m £(399)m EBITDA Free Cashflow* Net Cashflow * Free cashflow = EBITDA + working capital – maintenance capital – interest - tax 20
Slide 21: Financing
Financing Net Debt : EBITDA 5.25x Book Gearing* 61% Interest Cover** 2.3x Lower net finance income from pensions in FY08 * Net Debt / (Net Assets + Net Debt) ** Excluding net finance income from pensions 21
Slide 22: Pensions
Pensions IAS 19 deficit of £18m, as at 29 September 2007 Updated mortality assumptions Full Actuarial Valuation as at 31 March 2007 Gilts-based deficit of c.£250m Recovery plan to close past service deficit Schedule of future contributions being finalised Special contribution of £4m in FY08, plus £2
Slide 23: Property Update
Property Update Rigorous review of different ways to release additional value from property Preferred option was JV transaction and R20 was most competitive bidder Debt market crisis in July prevented implementation Valuation gap still exists Actively looking at options to realise objective as soon
Slide 24: Property Valuation
Property Valuation Property value of £5bn in year end accounts Revaluation of freehold / long leasehold properties up £1.1bn Aggregate value of individual pubs – not portfolio Plan to revalue each year on a rolling basis Alternative valuation based on PropCo structure Freehold / long leasehold prope
Slide 25: Dividends
Dividends Ordinary Dividend Final: 10.0p, up 16.3% Total: 14.25p, up 16.3% Special Dividend £1 per share in Oct 2006 Maintain progressive policy for dividends 25
Slide 26: Summary
Summary Good sales growth and operating margin result On track for full uplifts from Acquired Sites in 2008/9 Achieving high returns on investment Strong cash flows from trading and from disposals Aim to release additional value from property Dividend increase of 16.3% Generating further value for s
Slide 27: Tim Clarke, Chief Executive
Tim Clarke Chief Executive Preliminary Results – 29 November 2007 27
Slide 28: Year of Strong Growth
Year of Strong Growth Fourth year of strong growth: EPS 2003-07 up 105% Value and volume strategy driving market share gains Format innovation delivering high returns Productivity, purchasing and efficiency gains Rapid conversion of Acquired Sites Strengthened competitive position 28
Slide 29: Operational Strategy
Operational Strategy Tightening consumer environment Rapid response to changing market conditions Reinforcing value and volume strategy Gearing up roll-out of category killer formats Pubs & Bars Sustained volume driven growth Rapid food growth and drinks share gains Restaurants Enhancing value and q
Slide 30: Profitable Market Share Gains
Profitable Market Share Gains MAB Estimated Volume Growth (1) Market Volume Growth (2) Food 6% 3% Wine & Soft Drinks 1% -2% Spirits -1% -4% Beer & Cider 0% -4% (1) Same outlet like-for-like growth (2) MAB estimates based on BBPA/AC Neilsen/ONS 30
Slide 31: Sales Mix
Sales Mix Machines Accom & Other 5% 3% 11% Spirits 37% Food 13% Wines & Soft Drinks Beer & Cider 31% Increasing exposure to growth categories Note: Managed Sales 31
Slide 32: Divergent Disposable Income Trends
Divergent Disposable Income Trends % of UK 17% 38% 31% 13% Households MAB estate 27% 44% 25% 4% segmentation Socio/ Professionals/ Mainstream Skilled Low paid/ Economic grp managerial suburban blue collar unemployed Economic Strong earnings Interest rates/ Full Tax credits/ position growth stealth t
Slide 33: Profitable Food Sales Growth
Profitable Food Sales Growth High sales sensitivity to customer value perceptions High price elasticity in mid/lower affluence segments Rising menu quality expectations in higher affluence segments Customer buying behaviours different by occasion Daytime / early evenings – value and speed Later even
Slide 34: Average Retail Price
Retail Price Drinks Food 4 Average Retail Price (%) +0.8% 3 +2.6% Mix/Range 2 +3.4% +1.6% LFLPrice LFL Price 1 LFL Price Mix/Range -0.8% 1 -2.4% Value positioning to drive market share gains Note: Includes the Acquired sites 34
Slide 35: High Food Volumes at Pub & Company Level
High Food Volumes at Pub & Company Level Like-for-like food sales up 5.1%* Average weekly food sales £6,800: +12% Average number of meals served per week: 1070: +15% Total food sales £684m: +22% 107 million meals per annum * Excludes the Acquired Sites 35
Slide 36: Value for money in all market segments
Value for money in all market segments Average Price of a Main Meal (£s) PREMIUM MID-MARKET VALUE Source: Menurama 36
Slide 37: The Value and Volume Model
The Value and Volume Model Pub & Carvery example 2004 2007 Average spend per head £4.71 £4.01 -15% Average meal volumes per pub per week 1,800 2,950 +64% Price elasticity >4 times 42% drinks sales mix Ave profit per pub +29% Very attractive profitable volume growth 37
Slide 38: Gaining share in declining on-trade beer market
Gaining share in declining on-trade beer market MAT Beer Volume Off-trade volume 1.1 1.05 1 MAB volume** 0.95 0.9 On-trade volume* 0.85 0.8 3 03 4 3 04 5 4 05 6 7 8 5 06 6 07 7 03 04 05 06 07 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 p- p- p- p- p- n- n- n- n- n- ec ec ec ec ec ar ar ar ar ar ar Se Se Se Se
Slide 39: Drinks Price Gap
Drinks Price Gap Average Price per Pint of Standard Lager - FY07 £3.00 £2.48 £2.50 £2.12 £2.27 £2.00 £1.50 £1.00 £0.73 £0.50 £0.00 MAB Managed Leased Supermarkets Price change: FY03 to FY07 +8% +8% +14% -1% Balancing short profitability with long term share gains Source: AC Neilsen 39
Slide 40: Wine, Soft Drinks and Coffee
Wine, Soft Drinks and Coffee Wine Sales volumes +3% Draught dispense in 600 pubs Own label Soft Drinks Sales volumes flat Fresh juices +4% Draught carbonates +1% Packaged carbonates & mixers -5% Coffee Sales volumes +23% c.1,200 coffee machines installed 40
Slide 41: Efficiency Gains
Efficiency Gains Productivity Rapid growth in staff contribution per hour: +3.9%* Enhancement of scheduling system Purchasing COGS index increases held to under 1% £7m of purchasing synergies from acquisition Infrastructure efficiencies Current year rationalisation process underway £7m of annualised
Slide 42: Residential Pub Restaurants
Residential Pub Restaurants Suburban Pub Restaurants Good growth in Harvester, Toby, Pub & Carvery Commuter Belt Pub Restaurants Toby Carvery, Banbury Decline in Vintage Inns New competitive capacity Mid market slow-down in disposable incomes The Hedgehog, Vintage Inns, Lichfield Same outlet like-fo
Slide 43: Pub Restaurants Margin Reinvestment
Pub Restaurants Margin Reinvestment Plan to reinvest c.2% of food margin in quality and value Concentrated in: Vintage Inns menu quality Harvester and Toby value and quality Pub Carvery value Introduced at end October: Dark Nights menus Strong growth upswing in November In all cases generating: High
Slide 44: Pub Restaurants – Acquired Sites
Pub Restaurants – Acquired Sites Rapid integration process 172 sites converted to date 9 Franchised 15 disposed on premium multiples Remaining conversions to be completed in first half The Scotsbridge Mill, Premium Country Dining, Rickmansworth Outstanding site quality Speed of integration delivers
Slide 45: Pub Restaurants – Acquired Sites
Pub Restaurants – Acquired Sites Initial sales uplifts of c.20% Residential sites strongly ahead Poor Summer impacted destination sites Post conversion sales build up Strongest uplifts: Limited change in customer profile Overtness of branding Strong value offer Post conversion focus: Productivity Op
Slide 46: Residential Pubs
Residential Pubs Widening drinks market share gains Repositioning to food: 21% sales mix Food sales up 16% The Travellers Rest, Sizzling Pub Co, Reading High returns from c.70 conversions Rapid expansion in Sizzling Pub Co, Cornerstone and Metro Professional Exited pubs with limited food potential M
Slide 47: High Street & City Centre Markets
High Street & City Centre Markets 25% of sales Strong format portfolio Clachan, Nicholson’s, London Successful evolution of O’Neill’s, Scream & Town Pubs Central London buoyant: All Bar One, Nicholson’s Rapid food growth Breakfast and coffee opportunity The Queen of Hearts, Scream, Manchester Same o
Slide 48: Estate Development
Estate Development c.100 conversions including remaining Acquired Sites 6 to 8 new build, high take, super-pubs Increasing focus on category killer, value formats Rapid expansion of Sizzling Pub Co, Pub Carvery, Cornerstone Over 50 to be opened this year c.300 pubs, over 15% of the total estate by e
Slide 49: Smoking Ban
Smoking Ban Scottish like-for-like sales since ban 6.7% 7.0% 6.0% 5.0% 4.0% 4.0% 3.2% 2.2% 3.0% 2.0% 1.0% 0.4% 0.0% Ban to FY 07 wks FY 07 wks FY 07 wks FY08 1- end FY06 1-16 17-32 33-52 7wks 2nd year strong growth in Scotland Initial post ban slowdown in England 49
Slide 50: Current Trading
Current Trading Same outlet like-for-likes up 1.4% in first seven weeks Same outlet like-for-likes up 2.4% in November Positive impact of new menus and pricing actions in Restaurants Pubs & Bars accelerating drinks share gains & food sales growth Remaining Acquired Sites to close for conversion Out-
Slide 51: Outlook
Outlook Uncertain consumer outlook First winter of smoking ban impact Resilience against on-trade declines Positive consumer response to Restaurants’ sales actions Power of MAB format portfolio Focus on top line growth from managed super-pubs Intensifying value and volume model Attractive strategy f
Slide 52: Property and Strategy
Property and Strategy Overriding commitment to shareholder value Unlocking the embedded value of the estate Higher valuations placed by dedicated property investors Best sites, formats and operational skills Key is mutual incentives for property and operations in lease arrangement Equity growth case
Slide 53: Summary
Summary Out-performing amidst tougher conditions Formats positioned to growth segments Scale advantages in value driven markets Operational excellence, cost efficiency Consolidation opportunities Property: reviewing options for unlocking value Focus on sustainable shareholder value 53
Slide 54: Questions & Answers
Questions & Answers Preliminary Results – 29 November 2007