Mitchells & Butlers plc · LSE:MAB
Mitchells & Butlers — FY2003 Earnings Presentation
45 slides from Mitchells & Butlers's earnings presentation, Dec 4, 2003
Slide 1: Roger Carr, Chairman
Roger Carr Chairman 4th December 2003
Slide 2: Responsibility statement and forward-looking statements
Responsibility statement The directors of Mitchells & Butlers plc accept responsibility for the information contained in this announcement. To the best of the knowledge and belief of the directors of Mitchells & Butlers plc (who have taken all reasonable care to ensure that such is the case), the in
Slide 3: Agenda
Agenda Introduction Roger Carr (Chairman) Financial Results Karim Naffah (Finance Director) Actions and Priorities Tim Clarke (Chief Executive) Questions & Answers 3
Slide 4: Highlights
Highlights Unlocking Value ¦ Demerger and benefit of focus ¦ Efficient balance sheet restructuring ¦ Prudent use of capital Ongoing Priorities ¦ Stimulation of organic growth ¦ Strengthening of profitability ¦ Maximise cash generation and return on capital ¦ Reward shareholders 4
Slide 5: Karim Naffah, Finance Director
Karim Naffah Finance Director 4th December 2003
Slide 6: Financial Highlights
Financial Highlights z Turnover £1,513m up 2% z EBITDA £374m flat z Operating profit £275m down 5% z Profit before tax £199m* down 1% z Net Operating Cashflow £241m** up £106m z EPS 18.4p* down 0.1p z Final dividend per share 5.65p *On a proforma basis ** Before interest, tax and dividends 6
Slide 7: Pro forma - Key Assumptions
Pro forma - Key Assumptions A Reminder z As if separation had occurred on 1st October 2001 z No adjustments to operating profit z Debt position worked backwards to reflect cashflow z Interest based on separation bank facilities z Taxation reflects increased interest charge z All one-off items relati
Slide 8: Pro forma Results
Pro forma Results FY 03 FY 02 £m £m EBITDA 374 375 - 0.3% Operating Profit 275 289 - 4.8% Interest (76) (86) PBT 199 201 - 1.0% Tax (64) (65) Earnings 135 136 - 0.7% EPS 18.4p 18.5p 8
Slide 9: Operating Performance
Operating Performance FY 03 FY 02 £m £m Turnover Pubs & Bars 877 866 + 1.3% Restaurants 619 609 + 1.6% Other 17 6 1513 1481 + 2.2% Operating Profit Pubs & Bars 177 190 - 6.8% Restaurants 96 98 - 2.0% Other 2 1 275 289 - 4.8% 9
Slide 10: Key Operating Statistics
Key Operating Statistics z Food sales : up 3% z Food mix 29.5% sales : up 0.5% points z Outlet staff costs : 24% of sales z Retail staff productivity : up +4.5% z Support cost savings of £5m in second half Net retail operating margin 18.2% 10
Slide 11: Margin Movements
Margin Movements A year of two halves H1 H2 FY Sales Growth + 0.4% + 2.6% + 1.4% Ave. Selling Price* c.+ 2% c.- 2% Flat Movement in % Gross Margins + ve - ve Flat Movement in Net Margins - 1.3% pts - 1.1% pts - 1.2% pts Adjusted for Easter - 0.8% pts - 1.6% pts - 1.2 % pts z Additional regulatory co
Slide 12: Retail Sales Growth
Retail Sales Growth 3% FY - 2.4% FY - 0.4% FY + 1.4% 2% H2 1% H2 H1 H2 0% Total -1% H1 -2% H1 Same Outlet* -3% -4% Uninvested* -5% 76% of pubs +18% = 94% of pubs +6% = 100% of pubs NB. Same outlet = uninvested + invested *Adjusted to include Easter in H1 12
Slide 13: Like-for-Like Sales
Like-for-Like Sales FY 03 H2 03* Same Outlet (i.e. Invested + Uninvested) Residential +0.9% +3.3% High Street - 3.2% - 0.6% Total - 0.4% + 1.8% Uninvested Residential - 1.5% + 0.8% High Street - 5.2% - 3.0% Total - 2.4% - 0.1% * Adjusted to exclude Easter 13
Slide 14: 2003 Expansionary Capital
2003 Expansionary Capital Residential Locals Pub Restaurants £22m £32m Drinks Food led led £13m £2m High Street Restaurants City Centre Note: UK only - excludes Hollywood Bowl 14
Slide 15: Performance by Segment
Performance by Segment Residential Locals Pub Restaurants Inc. ROI 15% Inc. ROI 14% Drinks Food led led Inc. ROI 13% Inc. ROI 11% High Street Restaurants City Centre Note: UK only - Excludes Hollywood Bowl *Cumulative £1bn expansionary investment over the last 10 years 15
Slide 16: Strong Cash Returns
Strong Cash Returns 12 months to 30 September 2003 £m CROCCE £m NOPAT EBIT 275 275 Depreciation/Amortisation 99 EBITDA 374 Cash Tax (at 21% of EBIT)* (58) (58) Cash Return 316 217 Average Net Operating Assets 3484 3484 Accumulated Depreciation 225 10% 8% Revaluations (741) (741) Goodwill written off
Slide 17: Net Cashflow
Net Cashflow FY 03 FY 02 £m £m EBITDA 374 375 Working capital movement (3) (4) Capital Expenditure (151) (256) Disposal proceeds 48 30 Net Operating Cashflow 268 145 + 123 Additional Pension Contributions (27) (10) Net Operating Cashflow inc. pensions 241 135 + 106 Year end net debt was £1,228m 17
Slide 18: Exceptional items - P & L
Exceptional items - P & L Memo FY 03 FY 04 £m £m De-merger costs 32 Bid defence costs 10 Syndicated loan to support demerger 8 2 Refinancing fees 4 1 SNR abortive fees 1 55 3 Tax credit* (31) Earnings Impact 24 * Including benefit of group relief from SXC of £75m 18
Slide 19: Securitisation - Headlines
Securitisation - Headlines z Largest corporate securitisation to date £1.9bn raised z Cost effective long term fixed rate finance Cash Interest cost : 6% £24m costs amortised Enables £500m return to shareholders 12 for 17 share consolidation 520m issued shares post consolidation Funds
Slide 20: Securitisation - Key Terms
Securitisation - Key Terms Flexibility to: z Maintain progressive dividend policy Free cashflow to debt service covenant ≥1.3x’s z Continue to churn the estate Disposals 25% EBITDA + ability to re-set unlimited with repayment of allocated debt z Maintain asset quality Minimum maintenance exp
Slide 21: Categories of Expenditure
Categories of Expenditure FY 03 Revenue Repairs Annual day-to-day repairs £35m P&L Expensed through Profit & Loss Maintenance Capital Minor maintenance spend Repairs / maintenance work £78m Refresh spend Updates existing offer in line with refresh cycle Expansionary Capital Capital Development
Slide 22: Appropriate financial structure
Appropriate financial structure z Net debt (post return of funds) c.£1.8bn z Market cap gearing 150%* z Net debt : EBITDA < 5x’s z Interest cover >2x’s z Dividend cover >2x’s** NB. All ratios based on Mitchells & Butlers plc results for y/e 2003 and net debt of £1.8bn * Based on share price on 4 Dec
Slide 23: Dividend Policy
Dividend Policy Important Part of Shareholder Returns 2003 Final: 5.65p 2004 Interim - 2.85p 9.5p Final - 6.65p Underpinned by strong cash flow Positive top line growth Real growth in underlying earnings Confidence in medium term prospects Progressive policy to deliver real dividend growth
Slide 24: Summary
Summary z Solid set of results in an eventful year z Optimal financing structure now in place z £500m returned to shareholders z Continued focus on cash control and returns z Emphasis on driving profitable sales growth z Commitment to growth in dividends 24
Slide 25: Tim Clarke, Chief Executive
Tim Clarke Chief Executive 4th December 2003
Slide 26: Value Creating Operating Actions
Value Creating Operating Actions z Driving profitable sales growth z Raising productivity and reducing costs z Raising asset productivity through brand and format evolution z Proactive asset management Driving strong cash returns, earnings growth and freehold property appreciation 26
Slide 27: Delivering Customer Value to Enhance Asset Productivity and Returns
Delivering Customer Value to Enhance Asset Productivity and Returns Sales Generating Growing Sales Driving Actions Volumes Returns z Control trials z Range z Enhancing asset z Growing cash productivity z Price gross profits z Mitigating external z Promotions z Mix enhancement costs z Service z Produ
Slide 28: Raising Productivity and Reducing Costs
Raising Productivity and Reducing Costs Action z Offsetting external costs: £17m in 03/04 z Staff cost flexibility: scheduling and training z Negotiate lower purchasing costs z Rationalise central processes z Enhance IT systems 2003 Progress z Staff productivity + 4.5% z Pub staff costs maintained a
Slide 29: Driving Sales Growth
Driving Sales Growth Focus on improving consumer choice: z Progressive extension of drinks range z Enhancing food menus z Competitive pricing z Targeted marketing and promotions In a high quality environment: z Increased staff service, sales training and incentives z High amenity levels to compete w
Slide 30: Improving Like for Like Trend
Improving Like for Like Trend 5 4 Same outlet (i.e. invested 3 & uninvested) 2 1 % 0 Q1 '03 Q2 '03 Q3 '03 Q4 '03 WKS 1-8 '04 -1 -2 Un-invested -3 -4 -5 Adjusted for the movement in Easter 30
Slide 31: Like for Like Sales First 8 Weeks of 03/04
Like for Like Sales First 8 Weeks of 03/04 Same outlet (i.e. invested + uninvested) Residential + 5.7% High St + 2.3% TOTAL + 4.5% Uninvested Residential + 3.8% High St + 0.6% TOTAL + 2.6% 31
Slide 32: Driving Sales: Drinks and Food Range
Driving Sales Drinks and Food Range z Increasing freedom from tied supply contracts 40% of beer now free of tie 45% of soft drinks now free of tie z Customers value range and choice on bar z Now stocking three leading beer brands in each major draught category z Wider spread of price points At
Slide 33: Driving Sales Growth: Drinks and Food Range
Driving Sales Growth Drinks and Food Range Draught Beer Range extended in around 1400 outlets Dual stocking of Coors and Carlsberg-Tetley products Stella now in c.1200 outlets, 5% of drinks sales Trial of Scottish Courage products Extensive range of regional cask ales Wine Over 10% of dr
Slide 34: Enhancing the GP Mix Through Category Growth
Enhancing the GP Mix Through Category Growth Mix Growth Volume 1st 8 weeks Other + 2% compared to last year Packaged Beer - 2% Packaged Spirits - 6% Total drinks sales up 3.5% Wine + 10% Ale/Stout - 6% Average price down 3.7% Total Volume up 7.5% Soft Drinks + 10% Positive growth in cash gross p
Slide 35: Driving Sales Growth: Combined food and drink promotions
Driving Sales Growth Combined food and drink promotions 35
Slide 36: Driving Differentiation Through Advertising
Driving Differentiation Through Advertising 36
Slide 37: Driving Sales Growth: Sales training and incentives
Driving Sales Growth Sales training and incentives 37
Slide 38: Gaining Share Among Managed Pubs
Gaining Share Among Managed Pubs MAB % SHARE OF MANAGED PUB MARKET * 21 MAB VALUE share rolling 4 weeks 20 % 19 MAB VOLUME share rolling 4 weeks 18 17 January 03 November 03 *Beer/ Cider/ FABs/ Soft Drinks (Draught & Packaged) Source: AC Neilsen, Pub Track 38
Slide 39: Brand and Format Evolution to Raise Asset Productivity
Brand and Format Evolution to Raise Asset Productivity z Profitable evolution to meet changing customer demand z Strong pay-backs: value engineering template costs z Spectrum of hard brands, operating formats, individual classics z Segmentation and differentiation to add value to licensed sites z Ov
Slide 40: Developing and evolving the brands and formats: City Centre/High Street
Developing and evolving the brands and formats City Centre/High Street Strategy of differentiation or value Differentiation Value All Bar One Goose Flares/Reflex Town Bars Nicholson’s/Classics O’Neill’s Coal Hole, Nicholson’s, WC2 All Bar One, Canary Wharf Goose, Doncaster 40
Slide 41: Developing and evolving the brands and formats: Residential
Developing and evolving the brands and formats Residential Strategy z Consumer demand for informal, integrated food and drinks offer z Driving food, wine and soft drinks in local pubs Ember; Metro Professionals; Scream; Sizzling Pub Co. z Increasing drinks sales in pub restaurants: Harvester, To
Slide 42: Pro-active Asset Management Plans for 2004
Pro-active Asset Management Plans for 2004 z Good sales uplifts and high incremental ROIs 140 conversions and 15 new site acquisitions z Maintaining site quality and customer offers z Gross capital expenditure of £160m z Encouraging results from Business Franchise / SAT 18 in operation z Disposa
Slide 43: Market Conditions
Market Conditions z Supply High Street - growth of new capacity significantly slowed Residential areas – low net new investment Licensing reform z Demand Cautious as to impact of rising interest rates Positive demographic and social trends Growing 18 – 25 and 45+ age groups Growth cont
Slide 44: Outlook
Outlook z Focused pub business, appropriately financed Quality estate, proven formats, scale efficiencies z Growing sales momentum through customer value Reinvesting margin to drive cash profits Uplifts from estate development z Volume, mix, productivity and purchasing gains To overcome regu
Slide 45: Q & A
Mitchells & Butlers 4th December 2003