Mitchells & Butlers plc · LSE:MAB
Mitchells & Butlers — H1 2003 Earnings Presentation
42 slides from Mitchells & Butlers's earnings presentation, May 2003
Slide 1: Roger Carr, Chairman
Roger Carr Chairman March 2003 1
Slide 2: Agenda
Agenda Introduction Roger Carr (Chairman) Financial Results Karim Naffah (FD) Actions and Priorities Tim Clarke (CEO) Q&A 2
Slide 3: Business Highlights
Business Highlights z Independent future with twin goals… Improved capital efficiency Accelerated profitable growth z Rebalance business culture From margin emphasis to driving growth 3
Slide 4: Karim Naffah, Finance Director
Karim Naffah Finance Director 4
Slide 5: Financial Highlights
Financial Highlights z Turnover £793m - up 1% z EBITDA £191m - flat z Operating Profit £137m - down 6% z EPS 8.6p - down 0.7p* z Net Operating Cashflow £152m** - up £80m *On a proforma basis **Before interest, tax and dividends 5
Slide 6: Operating Performance
Operating Performance H1 03 H1 02 £m £m Turnover Pubs & Bars 466 465 + 0.2% Restaurants 323 321 + 0.6% Other 4 0 793 786 + 0.9% Operating Profit Pubs & Bars 91 101 - 9.9% Restaurants 45 45 - Other 1 0 137 146 - 6.2% 6
Slide 7: Proforma – Key Assumptions
Proforma – Key Assumptions z As if separation had occurred on 1st October 2001 z No adjustments to operating profit z Debt position worked backwards from cashflow z Interest based on terms of current facilities z Taxation reflects increased interest charge z All one-off items relating to separation
Slide 8: Proforma P&L
Proforma P&L H1 03 H1 02 FY 02 £m £m £m Operating Profit 137 146 287* Interest (44) (46) (86) PBT 93 100 201 Tax (30) (32) (65) 63 68 136 EPS 8.6p 9.3p 18.5p * After £2m exceptional costs on disposal of fixed assets 8
Slide 9: Key Operating Statistics
Key Operating Statistics z Food sales up 2.7% z Food mix 29.4% - up 0.6% points z Outlet staff costs - 23.5% of sales z Year to date employee productivity up 5% z Food and drink prices up 2% in first half expected to be flat for the year as a whole z Cost savings of £5m in second half 9
Slide 10: Managed Estate Segmentation
Managed Estate Segmentation Residential Local Pub Pub Local Pubs Pubs Other Pub Restaurants Ember Inns Restaurants Restaurants Vintage Inns 146 200 96 Other Locals Scream 401 91 Metropolitan Toby Harvester 32 Professionals 71 24 148 Arena Innkeepers Fayre 59 Sizzling 24 Express by Holiday Inn 114 Dr
Slide 11: Uninvested Like-for-Like Sales
Uninvested Like-for-Like Sales 32 weeks to 10 May Total company - 3.7% Pubs & Bars - 4.3% Restaurants - 2.8% 11
Slide 12: Performance by Segment
Performance by Segment Residential Locals Pub Restaurants Inc. ROI* - 15% Inc. ROI* - 13% Total sales + 0.7% Total sales + 1.7% AWT £10.6k AWT £17.8k Drinks Food led led Inc. ROI* - 13% Inc. ROI* - 10% Total sales - 0.6% Total sales - 2.8% AWT £12.8k AWT £22.9k High Street Restaurants City Centre No
Slide 13: Expansionary Capital - First Half
Expansionary Capital - First Half Residential Locals Pub Restaurants £13m £16m Drinks Food led led £6m £0m High Street Restaurants City Centre Note: Excludes Hollywood Bowl and Alex 13
Slide 14: Strong Cash Returns
Strong Cash Returns 12 months to 12 April 2003 £m CROCCE £m NOPAT EBIT 280 280 Depreciation/Amortisation 95 EBITDA 375 Cash Tax (at 23% of EBIT)* (65) (65) Cash Return 310 215 Average Net Operating Assets 3449 3449 Accumulated Depreciation 250 10% 8% Revaluations (746) (746) Goodwill written off 50
Slide 15: Net Cashflow
Net Cashflow H1 03 H1 02 £m £m EBITDA 191 192 Working capital movement 22 5 Capital Expenditure (80) (146) Disposal proceeds 19 21 Net Operating Cashflow 152 72 + 80 15
Slide 16: Proforma Balance Sheet
Proforma Balance Sheet* At H1 03 £m Net Operating Assets £3.5bn Net Debt* £1.3bn Market Cap Gearing** 82% Debt / EBITDA*** 3.5x * Post de-merger and £0.7bn return of capital ** Share price 219.5 pence as of close 21 May 2003 *** Last 12 months 16
Slide 17: Re-Financing Update
Re-Financing Update z Securitisation of UK pubs and restaurants z Further enhance efficiency of balance sheet z Release surplus funds for shareholders z Reduce weighted average cost of capital 17
Slide 18: Securitisation Plan
Securitisation Plan z Major transaction in its own right z Significant work now underway Final due diligence Documentation Legal structuring z Expect to execute during the Autumn z Raise sufficient proceeds to refinance existing debt and return at least £400m to shareholders Subject to capital
Slide 19: Criteria on Terms
Criteria on Terms Equity-based Equity-basedStrategy Strategy EPS EPSgrowth growth Sufficient Sufficientcapex capex Further Furthervalue valuecreation creation Flexibility Flexibilityto tochurn churn Asset Assetappreciation appreciation Ability Abilityto torelease release capital ca
Slide 20: Summary
Summary z Solid performance z Defending high returns z Driving strong cash generation z Refinancing plan in place to release surplus funds for shareholders 20
Slide 21: Tim Clarke, Chief Executive
Tim Clarke Chief Executive 21
Slide 22: Value Creating Operating Actions
Value Creating Operating Actions z Driving profitable sales growth z Developing and evolving the brands and formats z Disciplined capital allocation programme z Raising productivity and reducing costs Driving strong cash returns, earnings growth and freehold property appreciation 22
Slide 23: Driving Profitable Sales Growth
Driving Profitable Sales Growth Trading conditions changed in the second half of calendar year 2002: z Shift in business priorities and culture Combining brand and asset development with organic sales growth From margin defence to sales generation z Optimal balance of volumes, mix and margins
Slide 24: Competitive Pricing Dynamics
Competitive Pricing Dynamics z High Street overcapacity/central London weak demand Defending profit through tactical activity Recent price stabilisation z Overall industry real price increases vs. off-trade On-trade beer + 3% p.a. Off-trade beer - 2% p.a. Restaurants + 4% p.a. Food (shop
Slide 25: Driving Sales Growth
Driving Sales Growth z 1st half: controlled promotional trials and evaluation Initially in c.100 outlets z Increased consumer price sensitivity to brand premium pricing Indiscriminate discounting unviable Variations across product categories and time slots z Extended activity now in implementa
Slide 26: Driving Sales Growth
Driving Sales Growth Key Areas of Promotional Activity z Brands and channels selected by competitive dynamics Central London High Street Community drinks Family dining 26
Slide 27: Pricing, Volume and Margins
Pricing, Volume and Margins z Average retail price change of combined food and drink basket: Oct 02 vs Oct 01 + 4.7% April 03 vs April 02 + 0.4% Est. Sept 03 vs Sept 02 - 1% to - 2% z Positive impact on cash gross profit trend z Gross margin impact mitigated by: Shift to higher margin lagers
Slide 28: Improving Like-for-Like Sales Trends
Improving Like-for-Like Sales Trends Uninvested Like for Likes 8 weeks to 23 Nov - 4.5% 8 weeks to 18 Jan - 3.3% 8 weeks to 15 March - 3.9% 8 Weeks to 10 May - 3.1% 28
Slide 29: 6 of the Best (London)
6 of the Best (London) z Successful promotion in Town Bars adapted for London z Carling / Carlsberg, Smirnoff Double and Mixer, Stella, Reef, Becks, Wine z All at £1.99 z Trial results… Volume Volume up up Positive Positive gross gross profits profits 29
Slide 30: Harvester Early Bird
Harvester Early Bird Re-launched in February… From opening time to 6.30pm, Monday to Friday, 5.00pm Saturday 1/3 off almost the entire menu Accompanied by radio advertising Results to-date encouraging… Food volume up by 9.5% Drink volume up by 9.2% 30
Slide 31: Service, Sales Training and Incentives
Service, Sales Training and Incentives Service – “Quality is” programme Product knowledge Serve standards Partnership with key suppliers Selling Bar floor service Table service up-selling and techniques to add extra sales (e.g. Coffees, puddings) Motivation and Incentives Mystery Custome
Slide 32: Evolution & Development – City Centre & London
Evolution & Development – City Centre & London Strategy of Differentiation or Value z Specialist Continental lagers & ales z Enhanced wine offer z Fast Lunch menu z Evolution of light bites offer z Music & lighting zoning z Young professionals in affluent suburbs of larger cities z Individual, re-br
Slide 33: Evolution and Development – Residential
Evolution and Development – Residential Strategy Strategyto toGrow GrowSales Sales&&Distribution Distribution z Now 146 outlets z Average sales uplifts of 61% z Growing appeal to sociable regulars z Cask ales & premium lagers z Widening appeal to females z Design and menu enhancement 33
Slide 34: Evolution and Development – Residential
Evolution and Development – Residential Strategy Strategyto toGrow GrowSales Sales&&Distribution Distribution REDUCING CAPITAL INTENSITY Ember & Toby Evolution of template: 40%+ reductions in capital costs Identify customer key points of value Maximise ratio of trading to back of house space
Slide 35: Evolution and Development – Residential
Evolution and Development – Residential Strategy Strategyto toGrow GrowSales Sales&&Distribution Distribution z Development and roll-out of a scale community pub food brand z Introduction of three plate sizes & healthier menu options z 114 sites open: potential for over 200 35
Slide 36: Disciplined Capital Allocation – H1 Development
Disciplined Capital Allocation – H1 Development Conversions Acquisitions Number of projects opened 70 8 Average investment £234k £2.0m Incremental ROI 16% 11% 36
Slide 37: Disciplined Capital Allocation Future Development
Disciplined Capital Allocation Future Development FY 2003 Pipeline of 500 conversions at start of year 135 conversions 14 acquisitions £19m disposal proceeds in H1, similar level in H2 FY 2004 – FY 2006 Balance of pipeline developed Average conversion capex £250k 15-20 acquisitions p.a
Slide 38: Aggressive Management of Cost Base
Aggressive Management of Cost Base Continued improvement in staff productivity: + 6% in Q2 Ongoing renegotiation of non-tied supply contracts 6% reduction achieved on 24% of COGS renegotiated in H1 Support cost rationalisation Delivered £10m annualised savings, £5m this year 38
Slide 39: Near Term Outlook
Near Term Outlook z Improvement in trading seen in Q2 continued into May z Residential segments with food most resilient z High Street over-capacity z Uncertainty as to prospects for London recovery z Regulatory cost pressures z Impact of marketing, range, pricing, promotional actions Cautious on UK
Slide 40: Medium Term Outlook
Medium Term Outlook z Integrated economics of food and drink z Take share in eating out/drinking out market versus Low amenity, small, beer dependent pubs Restaurants lacking drinks’ profitability z Licensing Reform positives z Proven systems, purchasing and overhead scale z Well placed to add v
Slide 41: Summary: Key strategic priorities
Summary Key strategic priorities z Driving sales growth z Efficiency on capital and costs z Implementing optimal financial structure 41
Slide 42: Mitchells & Butlers
Mitchells & Butlers