Mitchells & Butlers plc · LSE:MAB
Mitchells & Butlers — FY2005 Earnings Presentation
58 slides from Mitchells & Butlers's earnings presentation, Nov 30, 2005
Slide 1: Roger Carr, Chairman
Roger Carr Chairman Preliminary Results 2005 – 30 November
Slide 2: Karim Naffah, Finance Director
Karim Naffah Finance Director Preliminary Results – 30 November 2005
Slide 3: Financial Highlights
Financial Highlights 53 Weeks ending 1 October 2005 Growth (52 Weeks)** z Turnover - £1662m (£1631m) +4.6% z EBITDA* - £413m (£405m) +6.3% z Operating profit* - £297m (£291m) +6.6% z Profit before tax* - £195m (£191m) +10.4% z EPS* - 26.0p (25.4p) +21.5% z Final dividend - 7.55p +13.5% Note: Figures
Slide 4: Presentational Points to Note
Presentational Points to Note z 53 week year Focus on 52 weeks for comparison with FY04 z FRS 17 adopted for pensions accounting FY04 comparatives restated z Reporting to Debt Investors Covers the securitised estate 4
Slide 5: FY 2005 Results - Summary
FY 2005 Results - Summary FY 05 FY 05 FY 04** 53 wks 52 wks 52 wks £m £m £m Operating Profit* 297 291 273 +6.6% Interest (102) (100) (100) PBT* 195 191 173 +10.4% Tax (62) (61) (56) Earnings* 133 130 117 +11.1% EPS* 26.0p 25.4p 20.9p +21.5% Average no. of shares 511m 511m 559m (8.6) * Before excepti
Slide 6: Operating Performance
Operating Performance FY 05 FY 05 FY 04 53 wks 52 wks 52 wks £m £m £m Turnover Pubs & Bars 957 939 913 +2.8% Retail Restaurants 697 684 641 +6.7% +4.4% SCPD 8 8 6 1662 1631 1560 +4.6% Operating Profit* Pubs & Bars 180 176 173 +1.7% Retail Restaurants 116 114 99 +15.2% +6.6% SCPD 1 1 1 297 291 273 +6
Slide 7: Like-for-Like Sales: Divisional
Like-for-Like Sales: Divisional FY 05* H1 05** Same Outlet (Invested + Uninvested) Pubs & Bars +3.4% +3.1% Restaurants +6.9% +7.4% Total +4.8% +4.8% Uninvested Pubs & Bars +2.1% +1.9% Restaurants +4.4% +5.3% Total +3.0% +3.2% * 52 weeks ** 32 weeks 7
Slide 8: Like-for-Like Sales: Segment
Like-for-Like Sales: Segment FY 05* H1 05** Same Outlet (Invested + Uninvested) Residential + 5.7% +5.7% High Street + 3.3% +3.5% Total + 4.8% +4.8% Uninvested Residential + 3.6% +3.8% High Street + 2.3% +2.5% Total + 3.0% +3.2% * 52 weeks ** 32 weeks 8
Slide 9: Balancing Sales Growth & Margin
Balancing Sales Growth & Margin FY 05* H1 05** Uninvested LFL Sales + 3.0% + 3.2% Average Selling Price*** flat flat Movement in Gross Margin (%) flat flat Movement in LFL Gross Profit (£) + ve + ve Focus on growing like-for-like gross profit * 52 weeks ** 32 weeks *** Drink & Food 9
Slide 10: Key Operating Statistics
Key Operating Statistics* z Drink sales : up 2% z Food sales : up 8% Food mix 31% of sales z Outlet staff costs : 24% of sales z Support cost savings : £2m Net operating margin up 0.4% points *All figures relate to Retail 10
Slide 11: Operating Profit Movement
Operating Profit Movement +6 £297m* +35 53rd week +£24m 2005 (17) £273m* 2004 2005 Regulatory Trading & Energy costs * Before exceptional items 11
Slide 12: FY 2005 Expansionary Capital
FY 2005 Expansionary Capital Residential Locals Pub Restaurants £10m £44m Drinks Food led led £3m £1m High Street Restaurants City Centre Note: Excludes Hollywood Bowl / Other: £3m 12
Slide 13: 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 – up 1% on last year Notes: Incremental ROI is an EBIT return Cumulative £1bn expansionary investment over the
Slide 14: Strong Cash Returns
Strong Cash Returns 52 weeks £m CROCCE £m NOPAT EBIT 291 291 Depreciation/Amortisation 114 EBITDA 405 Cash Tax (at 25% of EBIT)* (73) (73) Cash Return 332 218 Average Net Operating Assets 3,434 3,434 Accumulated Depreciation 358 10.6% 7.9% Revaluations (721) (721) Goodwill written off 50 50 Cash Cap
Slide 15: Cash Flow (a)
Cash Flow (a) FY 05 53 weeks £m EBIT 297 Depreciation & amortisation 116 EBITDA 413 Working capital / non cash items 21 Maintenance capex (106) Expansionary capex (61) Disposals 57 Additional pension contributions (30) Operating Cash Flow after Net Capex 294 15
Slide 16: Cash Flow (b)
Cash Flow (b) FY 05 53 weeks £m Operating Cash Flow after Net Capex 294 Net Interest paid (102) Tax paid (43) Normal dividends paid (50) Licensing costs (4) Exercise of share options 16 Shares repurchased (101) Net Cash Flow* 10 Closing Net Debt £1.625bn * Before £35m bond repayments 16
Slide 17: Financing
Financing z Net Debt : EBITDA* 4.0x z Book Gearing** 53% z Interest Cover*** 2.8x Well within all securitisation covenants * 52 weeks ** Net Debt / (Net Assets + Net Debt) *** Excluding net finance income from pensions 17
Slide 18: Financing Strategy
Financing Strategy Last 2 years z £1.9Bn securitisation in November 2003 - Returned £0.5Bn to shareholders z Organic growth strategy delivering strong cash-flows - £40m increase in annual EBITDA* z Deploying cash resources to maximise value - Invested £118m expansionary capital for high returns - Re
Slide 19: Share Repurchase and Dividends
Share Repurchase and Dividends z Share buy-back programme £100m in FY06 z Dividend Final dividend 7.55p, up 13.5% Annual dividend 10.75p, up 13.2% Progressive policy Cash returns to shareholders 19
Slide 20: IFRS Update
IFRS Update z Will report H1 06 under IFRS z Impact on FY05 results* Earnings broadly unchanged Net Assets reduced by up to £250m z No impact on cash flows or debt covenants z More volatility in reported figures Full IFRS disclosure to be made in December * Subject to audit 20
Slide 21: Summary
Summary z Business strategy has delivered - good sales growth - higher net margins and returns z Strong cash-flow put to good use - capital investment earning high returns - cash back to shareholders z Maintain efficient balance sheet - preserving appropriate flexibility Delivering value to sharehol
Slide 22: Tim Clarke, Chief Executive
Tim Clarke Chief Executive Preliminary Results 2005 – 30 November
Slide 23: Strategy is Delivering
Strategy is Delivering z Profitable sales growth z Leading the informal, value, eating out market z Strong drinks volume growth z Estate development: AWTs +8% to £16.4k z High takes and corporate scale defending margins z Increasing returns and strong cash flow Profitably gaining market share 23
Slide 24: Customer Driven Strategy
Customer Driven Strategy z Widening the inclusive appeal of the pub z Estate repositioning to growth markets z Format innovation and evolution z High quality amenity z Product marketing: range, quality and value z Capacity management of high volume, service delivery z Productivity and purchasing gai
Slide 25: Strong Like-for-Like Sales Growth
Strong Like-for-Like Sales Growth 6% 5% 4.8% 4.7% 4% 3.2% 3% 2.7% 2% 1% 0% H1* 05 H2 05 H1* 05 H2 05 Uninvested Same Outlet * Includes Easter in both years 25
Slide 26: Profitable Market Share Gains
Profitable Market Share Gains MAB Estimated Volume Growth (1) Market Growth (2) Food + 9% + 4% Wines & Soft Drinks + 8% + 2% Spirits + 4% -1% Beer & Cider +2% - 3% (1) FY 05 same outlet volume growth (2) MAB estimates based on BBPA/ AC Neilsen/ ONS for Pub Market 26
Slide 27: Demand Trends – Overall Market
Demand Trends – Overall Market CAGR (Actual) Consumer Expenditure £m 1982 to 2004 70000 Total Total (Nominal) (Real) 7.2% 1.8% 60000 50000 9.1% 3.6% 40000 Eating Out (1) 30000 20000 Wine & Cider Spirits 5.6% 0.4% Drinking 10000 Out Beer 0 Source:Office for National Statistics (1) Eating out market i
Slide 28: Increasing New Users to the Pub
Increasing New Users to the Pub % of Adults visiting the Pub 80 at least monthly 70 60 50 at least weekly 40 30 20 3+ week 10 0 1980 1985 1990 1995 2000 2005 Source: TNS Alcovision 28
Slide 29: Growth of Pubs’ Share of Eating Out
Growth of Pubs’ Share of Eating Out Eating Out Market Eating Out £27.6bn* Market Growth +25% Eating Out Market £22.0bn* Pub Food Pub Food £6.4bn* Growth £4.9bn* +31% Market 2000 2005 Source: Mintel (excluding institutional catering and other expenditures on food outside the home) * Includes VAT 29
Slide 30: MAB Growing Share of Managed Pub Food
MAB Growing Share of Managed Pub Food Growth In Number Of Main Meals Sold (1) 12.0% 10.0% MAB Growth 8.0% Managed Pubs 6.0% Growth 4.0% 2.0% 0.0% Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Source: A.C. Neilsen’s Pub Track Survey – Number of main meals served
Slide 31: Growth of Food Spend on Eating Out
Growth of Food Spend on Eating Out % Of Total Food Spend Out Of Home US c.50% UK 33% 21% 1989 2004 Current Source: ONS (Family spending survey) / US Food & Drug Administration 31
Slide 32: Growth of Eating Out Demand by Income Level
Growth of Eating Out Demand by Income Level % Of Total Food Spend Out Of Home Increase 23% 3rd Income Decile 10% 2.3x (Just above min wage) 32% 20% 1.6x 6th Income Decile (Average – C1) 35% 27% 1.3x 9th Income Decile (Affluent – B) 1989 2004 Source: ONS (Family Spending Survey) 32
Slide 33: Volume and Value Virtuous Circle
Volume and Value Virtuous Circle Staff training, Reinvest margin scheduling, in quality/value Increase incentives VALUE Reduce Increase COSTS VOLUME Increase BUYING POWER Capacity Supply chain management of efficiency productivity 33
Slide 34: Growth in Average Weekly Takes
Growth in Average Weekly Takes Sales Mix 2003-2005 £16.4k Growth 16 £15.2k + 16% Other £14.1k Other 14 Spirits Other Spirits 12 Spirits Average Weekly Take Wine & Soft Drinks Wine & Soft Drinks 10 Wine & Soft Drinks 8 Food Food Food 6 4 Beer & Cider Beer & Cider Beer & Cider 2 0 2003 2004 2005 Profi
Slide 35: Average Weekly Meals Growth
Average Weekly Meals Growth Average Weekly Number of Main Meals per Outlet - Pub Restaurants 2000 Growth +23% 1500 1000 500 0 2003 2004 2005 Total Company - over 75 million main meals served FY05 35
Slide 36: Capacity Utilisation – Pub Restaurants
Capacity Utilisation – Pub Restaurants Harvester - Number of Meals Sold (NOMS) 7000 6000 5000 4000 3000 2000 1000 0 Average NOMS per week Average of all record NOMS per week within brand Highest individual NOMS per week Record best week 36
Slide 37: Capacity Utilisation – Pub Restaurants
Capacity Utilisation – Pub Restaurants Number of Meals Sold (NOMS) 7000 6000 5000 4000 3000 2000 1000 0 Harvester Pub Carvery Toby Vintage Inns Average NOMS per week Average of all record NOMS per week within brand Highest individual NOMS per week Record best week 37
Slide 38: Comparison of Off-Trade Price of Food to On-Trade Meal
Comparison of Off-Trade Price of Food to On-Trade Meal £5.00 £2.52* £4.65 £4.00 £3.99 £3.00 £2.13 £2.00 Labour cost £1.00 £0.00 Rump Steak, ‘Real Value’ SPCo Price Chips, Toms Price Compelling value proposition versus eating at home *30mins of time at minimum wage of £5.05 38
Slide 39: Wine/Soft Drinks/Spirits Range Extension
Wine/Soft Drinks/Spirits Range Extension Wines Soft Drinks Premium Spirits 39
Slide 40: Beer Volumes: On-Trade Market
Beer Volumes : On-Trade Market Year on Year Rolling Bi-monthly Beer Volume Change 4.0% 3.0% 2.0% MAB 1.0% Growth 0.0% -1.0% -2.0% -3.0% -4.0% Market -5.0% Decline -6.0% Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 MAB continues to significantly outperfor
Slide 41: Range, Dispense Quality and Supply Freedom
Range, Dispense Quality and Supply Freedom All Bar One Nicholsons O’Neill’s Toby 41
Slide 42: Off-Trade Price Competition
Off-Trade Price Competition Price per pint 80 VAT 70 64.5p 60 9.6 Duty 50 Retailer's 40 Income 38.2 30 27.2p 20.5p 20 3.1 10 16.7 27.2 17.4 0 Stella Milk Evian Source : Major supermarket internet price on largest pack size sold in November 42
Slide 43: MAB Beer Prices vs On-Trade Prices
MAB Beer Prices vs On-Trade Prices Average Price of Pint of Beer £2.30 On- On- £2.25 trade £2.20 MAB £2.15 £2.10 £2.05 £2.00 3 4 5 03 04 05 03 04 05 02 2 03 03 3 04 04 4 05 l-0 l-0 l-0 -0 -0 -0 p- p- p- n- - n- - n- - - - - ov ov ov ay ay ay ar ar ar Ju Ju Ju Ja Ja Ja Se Se Se M M M N N N M M M Sour
Slide 44: Purchasing and Productivity Gains
Purchasing and Productivity Gains Impact of volume increases z Purchasing: COGS held flat on like-for-like products z Productivity: staff contribution per hour up 3% z Overheads: further reduction of £2m Unit and corporate scale drives cost efficiency 44
Slide 45: Capacity Management, Service and Productivity
Capacity Management, Service and Productivity The science of high volume management z Car park capacity z Prep and cooking processes z Staff availability at peak times z Ticket management z Guests seated promptly z Order wait times z Table configuration z Bar layout and dispense speed z Wait staff s
Slide 46: Pub Restaurants
Pub Restaurants Bells of Ouzeley, Old Windsor (Harvester – 128 pubs) Toby Carvery, Carlisle Toby Carvery, Harlow (Toby – 95 pubs) The Golden Retriever, Bracknell (Vintage Inns – 198 pubs) Same outlet like-for-likes up 7.5% 46
Slide 47: Pub Restaurants Innovation
Pub Restaurants Innovation Premium Country Dining – 17 pubs Pub Carvery – 39 pubs Saxon Mill, Warwick Pretty Pigs, Tamworth Barnt Green Inn, Nr Bromsgrove Salt Dean Tavern, Brighton 47
Slide 48: Residential Pubs
Residential Pubs The Court Oak, Harborne Crown & Sceptre, London Ember & Taverns – 228 pubs Metro-Professionals – 71 pubs The Vesper Gate, Leeds The Man on the Moon, Kings Norton Sizzling Pub Company/unbranded food locals – 211 pubs Arena/ unbranded Locals – 144 pubs Same outlet like-for-likes up 3.
Slide 49: Residential Pubs Innovation
Residential Pubs Innovation Barley Mow, Sizzling PubCo, Banbury The Merry Hill, Locals Pubs, Wolverhampton The Ropewalk, Metropolitan Professionals, Nottingham 49
Slide 50: High Street/City Centre Market
High Street/City Centre Market All Bar One, Leicester Square Old Wellington, Manchester Flares, Warrington Central London Town pubs Circuit venues Daytime/early Late evening evening Same outlet like-for-likes up 3.3% 50
Slide 51: Maintaining Amenity and Offer Evolution
Maintaining Amenity and Offer Evolution The Bowling Green, Ember, Lichfield Holyhead, Ember, Coventry Toby Carvery, Cardiff 51
Slide 52: Proactive Asset Management
Proactive Asset Management z High returns from continued estate repositioning New sites £15m Conversions / growth projects £46m £61m z Continued success of Franchise with 115 pubs z Disposals raising £57m Completed 80 conversions and opened 6 new sites 52
Slide 53: Regulation: Smoking
Regulation: Smoking z Health Bill: uncertainty over Parliamentary amendments z Preparing for range of potential ban outcomes z Small scale trials to measure impacts z Contingency planning for “food based” ban Unclear as yet what exemptions to be permitted Unclear food definition Moving great m
Slide 54: Regulation: Licensing
Regulation : Licensing z 90% of applications for variation granted z Average of just over one hour extra in the evening z Operational preparations z Earlier day time opening opportunities 54
Slide 55: Current Trading
Current Trading First 7 weeks sales trend Same Outlet like for like sales +3.8% Uninvested like for like sales +2.0% z General consumer confidence z Weak beer market Some reduction in growth rate but robust performance in current market 55
Slide 56: Outlook
Outlook z Continued weakness in consumer spending z Pub market Attracting new, lighter consumers Food and other drinks more resilient than beer Extended hours and limited new supply z Need to overcome c.£25m of external cost pressures z Growth opportunities Orientated towards growth segments
Slide 57: Questions & Answers
Questions & Answers Preliminary Results 2005 – 30 November
Slide 58: 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