Mitchells & Butlers plc · LSE:MAB
Mitchells & Butlers — H1 2006 Earnings Presentation
54 slides from Mitchells & Butlers's earnings presentation, May 25, 2006
Slide 1: Roger Carr, Chairman
Roger Carr Chairman Interim Results – 25 May 2006
Slide 2: Karim Naffah, Finance Director
Karim Naffah Finance Director Interim Results – 25 May 2006
Slide 3: Financial Highlights
Financial Highlights 28 weeks ended 15 April 2006 Growth z Revenue £887m 2.7% z EBITDA* £207m 4.0% z Operating profit* £143m 4.4% z Profit before tax* £91m 9.6% z EPS* 12.8p 18.5% z Interim dividend 3.65p 14.1% *Before exceptional items NB. Comparatives restated for IFRS 3
Slide 4: Presentational Points to Note
Presentational Points to Note z First results under IFRS z 2004/5 Comparatives restated Changes vs UK GAAP H1 FY Operating Profit* (£m) (3) (2) EPS* (p) (0.4) 0 Net Assets (£m) (256) (234) z Financials: 28 weeks. LFL sales: 32 weeks. z Reporting to debt investors * Before Exceptional Items 4
Slide 5: H1 2006 Results - Summary
H1 2006 Results - Summary H1 06 H1 05** 28 wks 28 wks £m £m Operating Profit* 143 137 4.4% Interest (52) (54) PBT* 91 83 9.6% Tax (28) (27) Earnings* 63 56 12.5% EPS* 12.8p 10.8p 18.5% Average no. of shares 494m 517m * Before exceptional items **2005 comparatives restated for IFRS 5
Slide 6: H1 2006 Results – Exceptional Items
H1 2006 Results – Exceptional Items Profit on disposal of properties £2m Tax credit relating to disposals £2m Total exceptional items after tax £4m 6
Slide 7: Operating Performance
Operating Performance H1 06 H1 05 28 wks 28 wks £m £m Revenue Pubs & Bars 508 500 1.6% Retail Restaurants 379 356 6.5% +3.6% SCPD - 8 - 887 864 2.7% Operating Profit* Pubs & Bars 86 84 2.4% Retail Restaurants 57 52 9.6% +5.1% SCPD - 1 - 143 137 4.4% * Before exceptional items 7
Slide 8: Like-for-Like Sales: Divisional
Like-for-Like Sales: Divisional H1 06* Same Outlet (Invested + Uninvested) Pubs & Bars 3.4% Restaurants 5.3% Total 4.2% Uninvested Pubs & Bars 2.3% Restaurants 3.0% Total 2.6% * 32 weeks to include the entire Easter period 8
Slide 9: Like-for-Like Sales: Segment
Like-for-Like Sales: Segment H1 06* Q1 06** Same Outlet (Invested + Uninvested) Residential 5.1% 4.7% High Street 2.3% 2.8% Total 4.2% 4.0% Uninvested Residential 3.0% 2.5% High Street 1.8% 2.2% Total 2.6% 2.3% * 32 weeks to include the entire Easter period ** 16 weeks 9
Slide 10: Balancing Sales Growth & Margin
Balancing Sales Growth & Margin HY 06* FY 05 Uninvested LFL Sales +2.6% +3.0% Average Selling Price** up 1% flat Movement in Gross Margin (%) flat flat Movement in LFL Gross Profit (£) +ve +ve Growing LFL cash contribution from sales * Like for like sales 32 weeks to include the entire Easter weeken
Slide 11: Key Operating Statistics
Key Operating Statistics* z Drink sales : up 2% z Food sales : up 7% Food mix 32% of sales z Outlet staff costs : 24% of sales z Tight cost controls Net operating margin up 0.2% points * All figures relate to Retail 11
Slide 12: Operating Profit Movement
Operating Profit Movement +22 £143m* 2005 £137m* (14) (1) (1) +£6m 2005 Trading Regulatory Easter SCPD 2006 & Energy costs * Before exceptional items 12
Slide 13: HY 2006 Expansionary Capital
HY 2006 Expansionary Capital Residential Locals Pub Restaurants £7m £22m Drinks Food led led £5m £0m High Street Restaurants City Centre Note: Excludes Hollywood Bowl / Other : £1m 13
Slide 14: Returns by Segment
Returns by Segment Residential Locals Pub Restaurants Inc. ROI 16% Inc. ROI 18% Drinks Food led led Inc. ROI 15% Inc. ROI 8% High Street Restaurants City Centre 16% overall incremental ROI Notes: Incremental ROI is calculated before tax and after depreciation Cumulative £1bn UK expansionary investme
Slide 15: Strong Cash Returns
Strong Cash Returns 12 months to 15 April 2006 £m CROCCE £m NOPAT EBIT 295 295 Depreciation/Amortisation 116 EBITDA 411 Cash Tax (at 26% of EBIT)* (77) (77) Cash Return 334 218 Average Net Operating Assets 3382 3382 Accumulated Depreciation 410 10.7% 8.0% Revaluations (715) (715) Goodwill written of
Slide 16: Cash Flow (a)
Cash Flow (a) HY 06 £m EBIT 143 Depreciation & amortisation 64 EBITDA 207 Working capital / non cash items 15 Maintenance capex (61) Expansionary capex (35) Disposals 17 Additional pension contributions (20) Operating Cash Flow after Net Capex 123 16
Slide 17: Cash Flow (b)
Cash Flow (b) HY 06 £m Operating Cash Flow after Net Capex 123 Net Interest paid (51) Tax paid (35) Normal dividends paid (38) Exercise of share options 6 Shares repurchased (41) Net Cash Flow* (36) Closing Net Debt £1,666m * Before £18m bond repayments 17
Slide 18: Financing
Financing z Net Debt : EBITDA* 4.1x z Book Gearing** 57% z Interest Cover*** 2.6x Well within all securitisation covenants * MAT ** Net Debt / (Net Assets + Net Debt) *** Excluding net finance income from pensions 18
Slide 19: Dividends and Share Repurchase
Dividends and Share Repurchase z Dividend Interim dividend 3.65p, up 14.1% Progressive policy z Share buy-back programme £41m to date Resume to complete £100m by year end Cash returns to shareholders 19
Slide 20: Refinancing
Refinancing z Strong business performance since 2003 z Generated capacity to take on more debt z Plan to complete refinancing in H2 2006 z Updating property portfolio valuation z Return at least £500m, including H2 buyback - less any funds invested in acquisition Committed to maintaining an efficien
Slide 21: Summary
Summary z Strong operating performance good sales growth net margin ahead z Profitable estate development capital investment earning high returns cash from on-going disposals z Capitalising on business success dividend growth and share buyback refinancing to access surplus funds pursui
Slide 22: Tim Clarke, Chief Executive
Tim Clarke Chief Executive Interim Results – 25 May 2006
Slide 23: Strategy is Delivering
Strategy is Delivering z Profitable sales growth z Leadership in pub eating out z Accelerated drinks share gains z Estate development: AWTs +7% to £17k z Operating margins increased z Strong investment returns and cash flows EPS up 18.5% 23
Slide 24: Key levers of profits growth
Key levers of profits growth z Attractive market dynamics Growth in food, wine, soft drinks Widening consumer appeal of quality pubs z Capturing disproportionate share of the growth Format innovation and evolution Superior amenity, service and range z Converting sales growth into faster prof
Slide 25: Strong like for like sales growth
Strong like for like sales growth 4.4% 4.0% 4.2% 16 wks to 16 wks to 32 wks to 21/01/06 13/05/06 13/05/06 Continuing to deliver the fastest LFL sales growth in the Pub Sector * Same outlet like for like sales growth 25
Slide 26: Profitable Market Share Gains
Profitable Market Share Gains MAB Estimated Volume Growth (1) Market Growth (2) Food + 7% + 5% Wines & Soft Drinks + 7% + 3% Spirits - 3% - 10% Beer & cider + 1% - 3% (1) 32 weeks same outlet like for like volume, to include the entire Easter period in both years (2) MAB estimates based on BBPA/ AC
Slide 27: Sales Strategy
Sales Strategy z Widening consumer base More female, more affluent and older z Focus is one of profitable volume growth Recruitment of new customers and market share gains Profit growth best supported by cash generative volume growth z Volume growth is delivered through a number of levers Ra
Slide 28: Growth in Average Weekly Takes
Growth in Average Weekly Takes £17.0k Growth Other + 21% £14.1k Spirits Other Wine & Soft Drinks Spirits Wine & Soft Drinks Beer & Cider Beer & Cider Food Food 2003 MAT to H1 2006 Profitability from growing food & drink Other includes AWP, accommodation, door and bowling 28
Slide 29: Demand Trends – Overall Market
Demand Trends – Overall Market Consumer Expenditure £m CAGR Actual 80000 1982 to 2005 70000 Total Total (Nominal) (Real) 60000 7.1% 1.9% 50000 40000 9.1% 3.6% 30000 20000 10000 5.5% 0.3% 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2
Slide 30: Eating Out as a Percentage of Total Food Expenditure (UK vs US)
Eating Out as a Percentage of Total Food Expenditure (UK vs US) Percentage of total household expenditure on food 60 50 US 40 UK 30 20 10 0 1970 1975 1980 1985 1990 1995 2000 2004 Eating out has shown long term growth, UK is 30 years behind the US Source: US: US Dept of Agriculture, Economic Researc
Slide 31: Social and Labour Market Changes
Social and Labour Market Changes z Rising female employment levels 13m working women, up 2.5m since 1983 z Rise in single households 29% of all households, up 2.5m since 1981 z Rise in pensioner numbers and spending power 9.5m pensioners, up over 600k since 1991 z Changing lifestyles Lowest
Slide 32: Average Weekly Meals Growth
Average Weekly Meals Growth Average weekly number of main meals per outlet - Pub Restaurants 1925 Growth 1500 +28% 2003 MAT to H1 2006 Total Company - 80 million main meals served p.a. 32
Slide 33: Growth of Wine and Soft Drinks
Growth of Wine and Soft Drinks Market MAB Share of Value Volume Growth Volume Growth Wine +6% +10% Mineral Water +7% Fruit Juice +9% Mixer +4% Squash +4% +1% +5% Carbonates -1% Source: AC Neilsen, Ontrade Survey. MAT to Jan 2006. 33
Slide 34: Market share gains in declining beer market
Market share gains in declining beer market Price per pint Volume 240 12 0 Market average price 11 5 230 11 0 MAB volumes 10 5 220 MAB average price 10 0 95 210 90 On-trade market volumes 85 200 80 2003 2004 2005 2006 2003 2004 2005 2006 Source: BBPA, AC Neilsen. 12 months to March. (2003 market pri
Slide 35: Value and Volume
Value and Volume Staff training, Reinvest margin in quality/value Increase scheduling, VALUE incentives Value and Reduce Increase COSTS Volume VOLUME Cycle Increase BUYING POWER Capacity Supply chain management of efficiency productivity 35
Slide 36: Combining high volume food with high margin drinks to drive profit
Combining high volume food with high margin drinks to drive profit Sales Sales Gross Variable (inc. VAT) (ex. VAT) Margin Contribution £11.73 £9.98 Glass Blossom Hill @ £1.75 Pint Carling @ £2 £5.59 £4.59 Rump steak x 2 @ £3.99 each Value for money food as the driver of footfall and growth in cash p
Slide 37: Value and volume strategy increases purchasing power
Value and volume strategy increases purchasing power z COGs held flat on LFL products offsetting; Inflation Duty increases Impact of oil price z Focused menus maximising purchasing power z Re-invest in improving quality to customer Gross margins constant despite mix changes to food and wine 37
Slide 38: Volume gains drive efficiency benefits
Volume gains drive efficiency benefits Spit-roast Chicken Harvester Salad Cart Harvester NOMS +25% since 2003 38
Slide 39: Purchasing freedom provides flexibility - Beer
Purchasing freedom provides flexibility - Beer z Approaching full freedom of purchasing on beer 85% of volume free from tie 16% of draught beer volume from products introduced in last 3 years z Enabled stocking of products at wider spread of price points Restrained pricing on standard products
Slide 40: Raising Wine Profitability
Raising Wine Profitability z Wine now accounts for 12% of drink sales z Own label now c.30% of volume z Large volumes with few suppliers z Reduced complexity and logistics of supply chain z Increased bargaining power with branded suppliers Own label – high volumes and reduced complexity drive lower
Slide 41: Focus on Choice and Value for Money - Wine
Focus on Choice and Value for Money - Wine Ember Inns wine pricing Own label / glass Branded / glass GOOD £1.95 £2.25 Santa Lucia Blossom Hill BETTER £2.55 £2.95 Long Shadow Jacobs Creek BEST - £3.20 Montana 41
Slide 42: Staff Productivity and Capacity Management
Staff Productivity and Capacity Management z Key measure of staff contribution per hour up 3%* z Key initiatives Service training and staff scheduling Kitchen efficiency: preparation and cooking processes Floor service, incentives and tips Order wait and bill payment times z Reinvesting prod
Slide 43: Pub Restaurants
Pub Restaurants Premium Country Dining Barnt Green Inn, Birmingham Toby Carvery, Harlow Pub & Carvery, The Newbridge, Wolverhampton Harvester, Horwich Park, Bolton Same outlet like for likes up 6.0%* *32 weeks to include the entire Easter period in both years 43
Slide 44: Residential Pubs
Residential Pubs Sizzling Pub Company, Man in Space, Trentham Ember, Fieldhouse, Solihull Metro Professionals, Jericho, Oxford Same outlet like for likes up 4.2%* *32 weeks to include the entire Easter period in both years 44
Slide 45: High St/City Centre Markets
High St/City Centre Markets Town Pub Circuit Venue Daytime/Early Evening Central London Late Evening Horseshoe, Glasgow The Argyll Arms, West End Flares/ Reflex, Doncaster Same outlet like for likes up 2.3%* *32 weeks to include the entire Easter period in both years 45
Slide 46: MAB Estate Profile
MAB Estate Profile Locations City Inner City Commuter Suburbs Centres Residential Belt All Bar One Premium Metro Premium Browns Country Professional Nicholson’s Dining Demographics Town Pubs Ember Inns Mid Scream Vintage Inns Harvester Market Toby Carvery O'Neill’s Flares Mass Pub Carvery Goose Mark
Slide 47: Three Year Estate Development
Three Year Estate Development Number of identified expansionary projects Locals Residential Pub Restaurants c. 190 c. 135 Drinks Food led led c. 75 High Street Restaurants City Centre Pipeline of c.400 investment opportunities 47
Slide 48: Estate Development: Sizzling Pub Co
Estate Development Sizzling Pub Co Average Weekly Takes £20.4k £13.3k £9k Sizzling Pub Company, The Wildwood, Stafford Pre Investment 2002 2006 Drink Food Other Improving food offers within local Pubs 48
Slide 49: Estate Development: Pub Carvery
Estate Development Pub Carvery Average Weekly Takes £20.7k >2x’s £8.4k Pub & Carvery, Lord Kitchener, Welling Pre Investment Post Investment Drink Food Other Good quality, high volume, value for money food 49
Slide 50: Licensing and Smoking
Licensing and Smoking z Licensing Extra hours have added over 0.5% to sales Gains in residential pubs, reductions in Bars & Venues Incremental operating costs well controlled Improved atmosphere at closing time z Smoking Scottish experience benign so far In 7 weeks since ban, same outlet
Slide 51: Current Trading and Outlook
Current Trading and Outlook z 2nd quarter acceleration in like for like sales growth z Signs of stabilisation in consumer confidence in our markets Strong food, wine, soft drinks growth London and S.E. stronger Weak on-trade beer market z Widening consumer appeal of quality food pubs z Intense
Slide 52: Summary
Summary z Leadership of long term growth market in eating out z Accelerating drinks market share gains z Scale productivity and purchasing benefits z Substantial estate development opportunities z Powerful consumer formats generating high returns z Asset appreciation and refinancing z Acquisition op
Slide 53: Questions & Answers
Questions & Answers Interim Results – 25 May 2006
Slide 54: Cautionary Note Regarding Forward-Looking Statements
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This announcement contains certain forward-looking statements as defined under US legislation (section 21E of the Securities Exchange Act of 1934) with respect to the financial condition, results of operations and business of Mitchells & Butlers a