Mitchells & Butlers plc · LSE:MAB
Mitchells & Butlers — Debt Investor Presentation (November 2010)
46 slides from Mitchells & Butlers's debt investor presentation, Nov 24, 2010
Slide 1: Bond Investor Update – 24 November 2010
Tim Jones Finance Director Bond Investor Update – 24 November 2010
Slide 2: Income statement
Income statement 52 weeks ended 25 September 2010 FY09 FY10 £m £m Revenue 1,958 1,980 +1.1% Operating costs (1,530) (1,531) EBITDA 428 449 +4.9% Dep’n & amort. (128) (127) Operating profit 300 322 +7.3% Interest (166) (153) PBT pre exceptionals 134 169 +26.1% Exceptional Items (144) (302) EPS (pre e
Slide 3: Operating profit movement
Operating profit movement +34 £322m* FY10 £300m* (16) FY09 +13 (5) (4) Regulatory Disposals, pre- Inflationary Energy Costs Trading Costs opening costs Costs and other Good trading offsets VAT & regulatory cost increases * Excluding exceptional items and other adjustments 3
Slide 4: Major transactions
Major transactions # of sites Date £m Completed FY10 Lodge sale 52 lodges & 8 pubs Aug +91 Hollywood Bowl sale 24 bowls Aug +39 Completed FY11 Bar Ha Ha purchase 22 pubs Oct (20) Stonegate sale 333 pubs Nov +363 Significant estate repositioning 4
Slide 5: Proforma Retained Estate
Proforma Retained Estate Year ended 25 September 2010 Reported Growth Retained* Growth Revenue £1,980m 1.1% £1,680m 1.8% EBITDA £449m 4.9% £391m 9.8% EBIT £322m 7.3% £285m 14.5% EBIT margin 16.3% 1.0 ppts 17.0% 1.9 ppts 14% growth in Retained Estate operating profits * MAB excluding SCPD, major disp
Slide 6: Like-for-like sales growth
Like-for-like sales growth 2.8% 2.6% 2.0% 1.8% 1.6% 1.0% FY 08 FY 09 FY 10 Mitchells & Butlers Retained Estate Increasing sales growth 6
Slide 7: Retained Estate like-for-like sales
Retained Estate like-for-like sales FY10 FY10 FY10 FY11 H1* H2** Total 8 weeks Food 4.5% 5.0% 4.7% 6.9% Drinks 1.4% 1.5% 1.4% 1.4% Total 2.7% 3.0% 2.8% 3.7% Growth focused on the informal eating-out market • 33 weeks to include the entire Easter period ** Week 34-52 7
Slide 8: Key operating statistics
Key operating statistics Year ended 25 September 2010 Reported Growth Retained Growth Gross margin 1.0 ppts 1.2 ppts Food cash gross margin 8.9% 9.1% Total cash gross margin 2.4% 3.8% Outlet staff costs 24.5% 0.2 ppts 24.7% 0.1 ppts EBIT margin 16.3% 1.0 ppts 17.0% 1.9 ppts Improving gross and net m
Slide 9: Capital expenditure
Capital expenditure EBITDA return > 30% on last 2 years’ investments Total capex in FY10 of £138m - £28m of expansionary capex - £102m spent on maintenance capex - £8m of IT systems and energy efficiency projects Total capex in FY11 estimated at £185m - £90m expansionary capex - £80m maintenance cap
Slide 10: Cash flow
Cash flow FY09 FY10 £m £m EBITDA 428 449 Working capital / non cash items 22 40 Maintenance capex (86) (110) Net interest paid (160) (147) Tax 21 (8) Additional pension contributions (24) (32) Operating Cash Flow * 201 192 Expansionary capex (43) (28) Disposals 72 130 Share capital 4 (3) Net Cash Fl
Slide 11: Group net debt
Group net debt Sept 09 Sept 10 £m £m Securitisation debt (2,319) (2,274) Cash / other 92 215 Securitised net debt (2,227) (2,059) Unsecured net debt (373) (243) Group net debt (2,600) (2,302) Net Debt : EBITDA 6.1x 5.1x Current Group net debt (1,960) 11
Slide 12: Property accounting valuation
Property accounting valuation “Red Book” valuation of freehold and long leasehold properties based on site level EBITDA Short leaseholds held at cost less impairment Total movements across estate: - Exceptional revaluation reductions £304m - Increases to revaluation reserve £69m Excluding Stonegate,
Slide 13: Internal rent structure
Internal rent structure Key components: Total internal rent set at £190m, equivalent to 40% of freehold and long leasehold pub level EBITDA Site level charge reflects historical capital invested Annual escalator: average of RPI and retail rents Incremental rent charged on expansionary capex No inten
Slide 14: Illustrative split: Retained Estate
Illustrative split: Retained Estate FY10 Operations Property Total £m £m £m Revenue 1,680 - 1,680 EBITDAR 425 - 425 External rent (34) - (34) Internal rent (190) 190 - EBITDA 201 190 391 14
Slide 15: Implied enterprise value
Implied enterprise value Enterprise Value Property Yield (£m) 6.0% 6.25% 6.5% 5.5x 4,272 4,146 4,029 Operating 6.0x 4,373 4,246 4,129 EBITDA 6.5x 4,473 4,347 4,230 Multiple 7.0x 4,574 4,447 4,330 7.5x 4,674 4,548 4,431 Significant increase over current valuation 15
Slide 16: Key messages
Key messages Strong operating profit performance Increased gross and net margins Substantially reduced net debt Strong balance sheet Well positioned to deliver growth strategy 16
Slide 17: Andrew Vaughan, Group Treasurer
Andrew Vaughan Group Treasurer Bond Investor Update – 24 November 2010
Slide 18: Highlights
Highlights Gross debt outstanding at year end £2,284m EBITDA £367m Free cashflow £294m EBITDA DSCR 2.0x FCF DSCR 1.6x 18
Slide 19: Free Cash Flow
Free Cash Flow £m EBITDA 367 Tax (16) Required maintenance capital (57) Free cashflow 294 Interest (133) 1.6x Principal repayment (46) Debt Service (179) 19
Slide 20: Securitisation Covenants
Securitisation Covenants FY 10 H1 H2 Year Free Cashflow: Debt Service 1.6x 1.7x 1.6x EBITDA: Debt Service 1.9x 2.2x 2.0x Net Worth £1. 44bn Well within required covenants Note: Default Covenants. FCF/Debt Service 1.1x, Net Worth of £0.5bn Restricted Payment Test. FCF/Debt Service 1.3x, EBITDA/Debt S
Slide 21: Maintenance & Capital enhancement
Maintenance & Capital enhancement Securitisation Estate £m Repairs* 37 133 (vs. required amount of £93m) Maintenance 96 Enhancement 16 149 Substantial investment to maintain and enhance estate quality *Charged through Profit & Loss account 21
Slide 22: Cashflow - uses
Cashflow - uses £m FCF 294 Debt Service (179) Maintenance Capital (over required amount) (40) Net Capital Enhancement Expenditure* (4) Excess Cash 71 Restricted Payments made (108) Restricted Payment Maximum decrease (37) Restricted Payment Maximum at start of year 57 Restricted Payment Maximum at e
Slide 23: Disposal Activity
Disposal Activity • Lodges • Hollywood Bowl • Non-Core Pubs (post year end) • Trustee consent obtained for package disposal to Stonegate Pub Company • Over £500m of Disposal Proceeds 23
Slide 24: Use of Proceeds
Use of Proceeds • Permitted Acquisition of currently unsecured pubs • £450-500m planned • Well invested food-led pubs (ex Whitbread) • Trustee / Rating Agency process commenced • Conversion programme for existing securitised pubs 24
Slide 25: MAB PLC vs. MAB Retail Limited
MAB PLC vs. MAB Retail Limited PLC Securitisation £m Estate £m Number of pubs* 1,909 1,618 Turnover 1,980 1,633 EBITDA 449 367 EBIT 322 265 Difference driven by 291 pubs and head office infrastructure outside the Securitisation *As at 25 September 2010 25
Slide 26: Strategic review progress
Strategic review progress Targeted area On track Reshape to food-led business 9 Price sensitive drinks-led pubs withdrawal Complete Improve operating margins 9 Improve returns on capex 9 Address pension funding & reduce net debt Complete Operations and property disclosure Complete Address incentive
Slide 27: Reshape to food-led business
Reshape to food-led business Drinks-led Food-led All Bar One Premium Higher (36) Browns (14) Higher Country Metro Dining (69) Miller & Professionals (100) Carter (17) Vintage O’Neill’s Nicholson’s Inns (221) (52) Price (76) Toby Price Carvery per (134) per Harvester drink Ember Inns meal (172) (143)
Slide 28: Improving operating margin percentage
Improving operating margin percentage FY09 FY10 Like-for-like sales +2.6% +2.8% Food gross margin % (1.0) ppts +2.6 ppts Labour cost % (0.1) ppts (0.1) ppts Sales and gross margin increases; labour broadly flat Retained Estate 28
Slide 29: Operating margin progression
Operating margin progression FY09 FY10 Total Company 15.3% 16.3% Retained Estate 15.1% 17.0% Margin progression from base in FY09 on track 29
Slide 30: Returns on expansionary capital
Returns on expansionary capital EBITDA returns increasing*: FY08: 18% FY09: 23% FY10: > 30% Drivers have been Lower capital intensity Trading performance Improving returns on expansionary capital * Retained Estate, expansionary investments made over 2 years Expansionary capital excluding Whitbread a
Slide 31: Strategic progress
Strategic progress Pension funding Operations and property disclosure Incentives Culture Two key areas of activity remain: Retained Estate profit progression Pipeline expansion for brand expansion 31
Slide 32: Retained Estate historical performance
Retained Estate historical performance FY07 FY08 FY09 FY10 AWT per managed pub £18.7k £19.7k £20.8k £21.3k Like-for-like growth 3.2% 1.8% 2.6% 2.8% Operating margin 16.8% 16.8% 15.1% 17.0% Operating profit per pub £158k £165k £156k £181k A solid platform for future growth 32
Slide 33: Like-for-like sales
Like-for-like sales 6% 5% 4% 3% 2% 1% 0% FY06 FY07 FY08 FY09 FY10 Resilient sales performance through economic cycle Notes: Retained Estate Chart reflects like-for-like trend line 33
Slide 34: Food sales - market outperformance
Food sales - market outperformance 8.0% 7.0% 6.0% 5.0% 4.0% 7% outperformance 3.0% 2.0% 1.0% 0.0% Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Food driving continued outperformance 12 month moving average total Retained Estate Source: Crest data, the NPD Group 34
Slide 35: Food spend per head and volume
Food spend per head and volume 8.0% +6.8% 6.0% +5.7% +4.2% 4.0% 2.0% 0.0% Q1 Q2 Q3 Q4 -2.0% -4.0% (2.4)% Ex VAT Inc VAT Volume Increasing food spend per head and Retained Estate Like-for-like pubs only underlying volume growth Q1=weeks 1-16; Q2=weeks 17-28; Q3=weeks 29-40; Q4=weeks 41-52 35
Slide 36: Food cash gross margin
Food cash gross margin +3.8% (0.5)% +1.7% +2.2% +9.1% +2.1% (0.2)% Volumes Same Product Menu Same Product Spend Disposals Price Engineering Cost Deflation increases Movements Significant uplifts in gross margins with flat prices Retained Estate 36
Slide 37: Drink cash gross margin
Drink cash gross margin +1.9% (3.2)% +3.7% (0.9)% (1.3)% +0.2% Same Product Mix Volumes COGS/Duty Disposals Price Movements Price and mix gains offset volume declines Retained Estate 37
Slide 38: Operational delivery
Operational delivery Guest satisfaction +2% pts Food & drink waste reduction of £5m NVQs 3,100 complete or in progress Management turnover reduced by 4% Productivity: contribution per staff hour up 2% Continuing focus on service, productivity & efficiency Retained Estate 38
Slide 39: Building brands – reducing discounting
Building brands – reducing discounting Promotional meals account for 8% of total Cash cost of discounts reduced Media expenditure more than doubled Net promotional and marketing investment flat A balanced approach to brand building and optimising trading opportunities 39
Slide 40: Advertising to grow awareness
Advertising to grow awareness 5 week TV campaign in each brand Significant sales and volume uplifts Average pay-back within 6 weeks Broadcast advertising only viable for strong national brands 40
Slide 41: Digital communication platform
Digital communication platform FY09 FY10 Emails sent 6.2m 16.8m Facebook fans 28k 266k Mobile subscribers 77k 530k Online bookings - 30k Cost effective and immediate sales generation Retained Estate 41
Slide 42: Expansion pipeline
Expansion pipeline 54 conversions, 1 new opening in FY10 70 conversions, 50 new openings in FY11 FY11 openings enabled by site redesign Retail & leisure locations enable faster build of pipeline 42
Slide 43: Recent trading
Recent trading FY10 FY11 Total 8 weeks Food 4.7% 6.9% Drinks 1.4% 1.4% Total 2.8% 3.7% Like-for-like sales over the last 18 weeks of 4.1% Retained Estate 43
Slide 44: Outlook
Outlook VAT increase Jan 2011 Fragile consumer outlook: taxation & unemployment Eating-out market: continued low growth Cost pressures balanced Confident in market share gains 44
Slide 45: Conclusion
Conclusion Excellent progress against strategy New management team established Strong balance sheet: net debt/EBITDA of 5x Business performing well in challenging conditions Strong returns on expansionary capital Well positioned for future growth 45
Slide 46: Questions & Answers
Questions & Answers Bond Investor Update – 24 November 2010
Mitchells & Butlers — Debt Investor Presentation (November 2010) on 6ix