Mitchells & Butlers plc · LSE:MAB
Mitchells & Butlers — FY2006 Earnings Presentation
52 slides from Mitchells & Butlers's earnings presentation, Nov 29, 2006
Slide 1: Roger Carr, Chairman
Roger Carr Chairman Preliminary Results – 29 November 2006
Slide 2: Karim Naffah, Finance Director
Karim Naffah Finance Director Preliminary Results – 29 November 2006
Slide 3: Financial Highlights
Financial Highlights 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% *Before exceptional i
Slide 4: Presentational Points to Note
Presentational Points to Note z Results include 9 weeks of former Whitbread pubs (“Acquired Sites”) Revenue £34m Operating profit £6m z FY 2006/7 events Disposal of 102 pubs to Trust Inns for £101m Special Dividend of £1/share (£486m) and share consolidation z First full year results under I
Slide 5: FY 2006 Results - Summary
FY 2006 Results - Summary 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 * Before exceptional items **2005 comparatives are for 52 weeks and are restated for IFRS
Slide 6: FY 2006 Results – Exceptional Items
FY 2006 Results – Exceptional Items £m Gross Net Operating Profit Property disposals 23 20 Defence costs (4) (4) Refinancing (3) (2) Interest Refinancing (4) (3) Tax Release in respect of prior years 40 Total Exceptional Items after Tax 51 6
Slide 7: Operating Performance
Operating Performance FY 06 FY 05** £m £m Revenue Pubs & Bars 958 939 2.0% Retail Restaurants 762 684 11.4% +6.0% SCPD - 8 - 1720 1631 5.5% Operating Profit* Pubs & Bars 179 175 2.3% Retail Restaurants 130 113 15.0% +7.3% SCPD - 1 309 289 6.9% *Before exceptional items **2005 comparatives are for 52
Slide 8: Like-for-Like Sales: Divisional
Like-for-Like 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” 8
Slide 9: Like-for-Like Sales: Segment
Like-for-Like 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” 9
Slide 10: Balancing Sales Growth & Margin
Balancing 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 we
Slide 11: Retail Operating Statistics
Retail Operating Statistics* z Drink sales : up 2.1% z Food sales : up 7.8% z Outlet staff costs : 24% of sales z Tight cost controls Net operating margin up 0.3% points * Excludes “Acquired Sites” 11
Slide 12: Operating Profit Movement
Operating Profit Movement +39 £309m** +£20m £289m* (24) +6 (1) 2005 Trading Regulatory & Acquired SCPD 2006 Energy costs Sites * For 52 weeks before exceptional items and restated for IFRS ** Before exceptional items 12
Slide 13: FY 2006 Expansionary Capital
FY 2006 Expansionary Capital Residential Locals Pub Restaurants £17m £47m Drinks Food led led £8m £0m High Street Restaurants City Centre Note: Excludes non trading property: £1m 13
Slide 14: Returns by Segment
Returns by Segment* Residential Locals Pub Restaurants Inc. ROI 18% Inc. ROI 19% Drinks Food led led Inc. ROI 15% Inc. ROI 9% High Street Restaurants City Centre 17% overall incremental ROI Notes: Incremental ROI is calculated before tax and after depreciation * Cumulative £1bn UK expansionary inves
Slide 15: Cash Flow (a)
Cash Flow (a) FY 06 £m EBIT 309 Depreciation & amortisation 121 EBITDA 430 Working capital / non-cash items 20 Maintenance capex (109) Expansionary capex (73) (583) Expenditure on “Acquired Sites” (489) Disposals 88 Additional pension contributions (20) Operating Cash Flow after Net Capex (153) 15
Slide 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 16
Slide 17: Free Cash Flow
Free Cash Flow £430m £186m £(442)m EBITDA Free Cashfow* Net Cashflow * Free cashflow = EBITDA + working capital – maintenance capital – interest - tax 17
Slide 18: Strong Cash Returns
Strong Cash Returns 12 months to 30 September 2006 £m CROCCE £m NOPAT EBIT 309 309 Depreciation/Amortisation 121 EBITDA 430 309 Cash Tax (at 27% of EBIT)* (84) (84) Cash Return 346 225 Average Net Operating Assets 3479 3479 Accumulated Depreciation 332 11.0% 8.0% Revaluations (711) (711) Goodwill wr
Slide 19: Higher Property Values
Higher Property Values z 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) z Trading success capitalised in market value of estate Operating performan
Slide 20: REIT's
REIT’s z Tax efficient structure for property assets Available from 1 January 2007 z Would require split into two independent companies REIT and OpCo z Cost / benefit equation Tax advantages; conversion charge; other transition costs Stability of new legislation; market ratings of separate e
Slide 21: Securitised Bond Issue
Securitised Bond Issue z Increased securitised debt from £1.8bn to £2.45bn Consistent loan-to-value – c.50% Similar covenant package z £1.1bn bond issue £450m to refinance existing notes; £655m incremental debt Cash interest rate of 5.4% z Overall interest rate on securitised debt down to 5.
Slide 22: Financing
Financing z Year end net debt: £2.1bn Interest cover* 2.8x Before special dividend, pension contribution and package disposal z Net debt now: c. £2.5bn Interest cover* c.2.3x Net debt/EBITDA c.5.8x Financing continues to support business strategy for growth * Excluding net finance income fro
Slide 23: Dividends
Dividends z Dividend Final dividend 8.6p, up 14% Total dividend 12.25p, up 14% Progressive policy z 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 23
Slide 24: Summary
Summary z Strong operating performance Growing sales; improving margin Generating high returns on investment z Property appreciation benefits Value-creative disposals Refinancing on attractive terms z Using cash resources profitably Acquired Sites provide additional platform for growth S
Slide 25: Tim Clarke, Chief Executive
Tim Clarke Chief Executive Preliminary Results – 29 November 2006
Slide 26: Strategy is Delivering
Strategy is Delivering z Customer focused, value and volume strategy z Sustained like for like sales growth z Market share gains z Productivity and purchasing gains z Acquisition gives eating out market leadership z High returns from conversions z Further repositioning of core estate to food Powerfu
Slide 27: Key Levers of Profits Growth
Key Levers of Profits Growth z Leading the growth of eating out Large pubs, uniquely positioned to capture neighbourhood dining growth High volume, capacity management skills Menu development z Accelerating drinks market share gains Extended range, own label, glycol cooling Widening the co
Slide 28: Strong Like-for-Like Sales Growth
Strong Like-for-Like Sales Growth 6% 5% 4.5% 4.2% 4% 4.0% 2.9% 3% 2.6% 2.6% 2% 1% 0% H1* 06 H2 06 Wks 1-7 H1* 06 H2 06 Wks 1-7 Uninvested Same Outlet * 32 weeks to include Easter in both years 28
Slide 29: Profitable Market Share Gains
Profitable Market Share Gains MAB Estimated Volume Growth (1) Market Vol Growth (2) Food + 6% + 4% Wines & Soft Drinks + 6% + 1% Spirits - 4% - 5% Beer & Cider + 1% - 3% (1) Same outlet like for like for 52 weeks vs. equivalent 52 calendar weeks of FY2005 (incl. pubs disposed to Trust Inns in Oct 20
Slide 30: Repositioned to Growth - Product Mix
Repositioned to Growth - Product Mix* Machines 4% Accommodation & Other 6% Spirits 11% Food 35% Wine & Soft Drinks 13% Beer & Cider 31% *Pro-forma including the Acquired Sites and excluding sites disposed in FY06 and to Trust Inns Ltd in Oct 06 30
Slide 31: Rising pub usage by less frequent customers
Rising pub usage by less frequent customers 80 % Of Adults Visiting 70 Monthly 60 50 Weekly 40 30 20 > 3x per week 10 0 1980 1990 2000 2006 44% visit a pub to eat at least once a month Source: TNS Drinks Market Survey & Alcovision 2006 31
Slide 32: Capturing a disproportionate share of the growth in eating out
Capturing a disproportionate share of the growth in eating out Compound Annual Growth 8.0% In Value 2000-2006 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Eating Out Market* Pub Food Market* MAB** * Mintel Pub Catering August 2006 ** excludes the Acquired Sites 32
Slide 33: High food volumes at pub and company level
High food volumes at pub and company level Average food sales per week Average meals per week £14,700 1950 £6,100 930 Pub Restaurants Total Company Pub Restaurants Total Company 96 million meals per annum* * including the Acquired Sites 33
Slide 34: Food Priorities
Food Priorities z Quality on the plate z Value for money z Freshly cooked & healthy z Responding to changing tastes z Catering for all occasions z Build kitchen capability z Prompt and attentive service Create offers that are hard to replicate at home 34
Slide 35: Value for money in all market segments
Value for money in all market segments Average Price of a Main Meal (£s) PREMIUM MID-MARKET MASS MARKET £14 Eagle Rose & Crown Farringdon (Warwick) £12 Beefeater £10 Two Chef & For Brewer One Brewers £8 Fayre Hungry Pizza Horse Express £6 JDW £4 McDonalds £2 £0 Freemasons Saxon Mill Harvester Vintag
Slide 36: Integrated Food and Drinks Economics
Integrated Food and Drinks Economics z Informality and accessibility key to wide social appeal z Strong bar trade is central to profitability z Maximising ancillary drinks sales at the table z Drinks’ higher gross margins and lower employment costs underpin food value proposition Combining higher ma
Slide 37: Drinks Priorities
Drinks Priorities z Widening range Introduce new and innovative speciality beers Wine, soft drinks and cider z Focus on presentation Glassware and serve style z Improve serve quality Glycol cooling systems now in 700 pubs z Develop non-beer drinks Wine, soft drinks Focus on points of differenti
Slide 38: Widening the drinks range
Widening the drinks range Number of Products 2001 2006 +/- Standard Lager 3 7 Premium Lager 4 18 Speciality beer 0 18 Cider 10 18 Total Beer 17 61 +44 Own Label 0 13 Red 32 64 White 66 111 Rose 4 22 Sparkling 12 22 Total Wine 114 232 +118 38
Slide 39: Product Innovation – Draught Wine
Product Innovation – Draught Wine 39
Slide 40: Gaining share in the declining on-trade beer market
Gaining share in the declining on-trade beer market Volume index 1.1 Off-trade volume 1.05 MAB volume 1 On-trade volume 0.95 0.9 2003 2004 2005 2006 Sustainable profitability from market share gains Source: BBPA 40
Slide 41: Widening value gap
Widening value gap Average price of a pint of standard lager £3.00 £2.50 £2.00 £1.50 £1.00 £0.50 £0.00 2004 2005 2006 MAB Managed Tenancies Supermarkets MAB now 18p cheaper than managed competition and 35p cheaper than tenancies Source: AC Neilsen 41
Slide 42: Driving productivity through capacity management
Driving productivity through capacity management z Staff contribution per hour: +4%* z Increasing volumes enable More productive deployment of staff More accurate forecasting and scheduling Increased earnings for staff z Higher capacity utilisation z Since FY 2003: Sales volumes up 13%, Staff
Slide 43: Purchasing gains
Purchasing gains z Unit COGS held flat off-setting: • duty • contractual increases • inflation z Gains from first year of freedom from beer tie z Logistics and technical service costs reduced z Upward pressure on commodity food prices contained Improved purchasing terms enabled reinvestment in highe
Slide 44: MAB locations positioned in higher growth markets
MAB locations positioned in higher growth markets Affluent Commuter Belts City Centres/Town Centres and Urban Areas 25% of sales 24% of sales Disadvantaged Inner Cities/Ex Industrial Areas 4% of sales Mass Market Housing Estates and Students Mid-Market Suburbia 14% of sales 33% of sales In 1990, c70
Slide 45: Acquired sites – pre conversion
Acquired sites – pre conversion z Focus on maximising pre-conversion profit contribution Introduction of MAB operating skills: productivity Removal of discount schemes z Like for like sales decline slightly faster than pre acquisition trend Emphasis on customer service z Systems integration co
Slide 46: Acquired Sites – Conversion Progress in line with expectations
Acquired Sites – Conversion Progress in line with expectations z Intensive pre-acquisition preparations z Rapid implementation of site appraisals and conversions z 25 sites reopened: 10% of estate z 50 sites to have reopened by Christmas: 21% of estate z c.100 sites to have reopened by Easter: 40% o
Slide 47: Growth in Pub Restaurants
Growth in Pub Restaurants z c.180 sites from Acquired Sites z Neighbourhood, casual dining growth in mid market suburbs Market leading food volumes: Harvester: 2,200 meals / pub / week Toby: 2,500 meals / pub / week Harvester, Windsor Pub Carvery: 2,550 meals / pub / week z Segmenting the co
Slide 48: Residential Pubs
Residential Pubs z Major drinks market share gains z Repositioning to food: 20% sales mix z 2nd half like for like food sales up 13% z 50 conversions to Sizzling Pub Co and Ember in 06/07 The Fieldhouse, Ember - Solihull z Disposed smaller pubs with limited food prospects The Barley Mow, Sizzling Pu
Slide 49: High Street / City Centre Markets
High Street / City Centre Markets z 25% of total sales z Central London: buoyant trading z Town Pubs: strong growth z Circuit venues: competition from later hours in local pubs z Maximise food opportunity Blackfriar, Nicholson’s – Central London Same outlet like for like sales up 2.3% 49
Slide 50: Smoking Ban and Licensing Reform
Smoking Ban and Licensing Reform Smoking z Scottish experience weeks 1-7* Food sales +7% Drinks sales -2% z 80% of the England & Wales estate has external areas z Attracting new food customers to smoke free pubs Licensing z Marginally positive for sales in FY06 z Helping reduction in alcohol related
Slide 51: Outlook
Outlook z Good start to new financial year z Consumer demand above expectations in 2006 z Further polarisation in demand trends Strong food and ancillary drinks growth Beer decline intensifying z Priority of successfully converting acquired sites z Pipeline of c.400 investment opportunities in c
Slide 52: Summary
Summary z Eating out market leadership z Widening drinks market share gains z Scale productivity and purchasing gains z Powerful consumer formats generating high returns z Conversion pipeline z Generating and capturing asset appreciation Focus on long term, sustainable, real growth 52