Mitchells & Butlers plc · LSE:MAB
Mitchells & Butlers — H1 2007 Earnings Presentation
48 slides from Mitchells & Butlers's earnings presentation, May 22, 2007
Slide 1: Roger Carr, Chairman – Interim Results 22 May 2007
Roger Carr Chairman Interim Results – 22 May 2007
Slide 2: Karim Naffah, Finance Director
Karim Naffah Finance Director Interim Results – 22 May 2007
Slide 3: Financial Highlights
Financial Highlights 28 weeks ended 14 April 2007 Growth z Revenue £995m 12.2% z EBITDA* £230m 11.1% z Operating profit* £161m 12.6% z Profit before tax* £89m (2.2)% z EPS* 14.8p 15.6% z Interim dividend 4.25p 16.4% *Before exceptional items 3
Slide 4: Presentational Points to Note
Presentational Points to Note z FY 2006/7 events Special dividend of £1/share (£486m) and 34:41 share consolidation Disposal of 102 pubs to Trust Inns for £101m z Financials: 28 weeks. LFL sales: 32 weeks z Acquired Sites: Unconverted sites included in Restaurants Converted sites included in
Slide 5: H1 2007 Results - Summary
H1 2007 Results - Summary H1 07 H1 06 28 wks 28 wks £m £m Operating Profit* 161 143 12.6% Net Interest (72) (52) PBT* 89 91 (2.2)% Tax (28) (28) Earnings* 61 63 (3.2)% EPS* 14.8p 12.8p 15.6% Average no. of shares 413m 494m * Before exceptional items 5
Slide 6: H1 2007 Results – Exceptional Items
H1 2007 Results – Exceptional Items £m Gross Net Operating Profit - Property disposals 20 14 - Integration of Acquired Sites (4) (3) Total Exceptional Items 16 11 6
Slide 7: Operating Performance
Operating Performance H1 07 H1 06 28 wks 28 wks £m £m Revenue Pubs & Bars 515 508 1.4% Retail Restaurants 478 379 26.1% +12% SCPD 2 - - 995 887 12.2% Operating Profit* Pubs & Bars 92 86 7.0% Retail Restaurants 68 57 19.3% +12% SCPD 1 - - 161 143 12.6% * Before exceptional items 7
Slide 8: Underlying Profit Growth
Underlying Profit Growth H1 2007 Division Acquired Core Core Adjusted Total Sites Estate Growth Growth vs LY vs LY* £m £m £m % % Pubs & Bars Revenue 515 4 511 + 0.1% + 5.4% Operating Profit 92 0 92 + 7.0% +15.0% Restaurants Revenue 478 83 395 + 4.2% Operating Profit 68 4 64 +12.3% Strong underlying
Slide 9: Like-for-Like Sales: Divisional
Like-for-Like Sales: Divisional H1 07* Same Outlet (Invested + Uninvested) Pubs & Bars 5.1% Restaurants 1.6% Total** 3.6% Uninvested Pubs & Bars 3.4% Restaurants 0.4% Total** 2.1% * Excludes the Acquired Sites. 32 weeks to include the entire Easter period in both years being compared ** Includes Hol
Slide 10: Like-for-Like Sales: Segment
Like-for-Like Sales: Segment H1 07* Q1 07* Same Outlet (Invested + Uninvested) Residential 4.1% 4.6% High Street 2.9% 2.7% Total** 3.6% 4.0% Uninvested Residential 2.3% 2.5% High Street 2.2% 2.1% Total** 2.1% 2.4% * Excludes the Acquired Sites. H1 07 represents 32 weeks to include the entire Easter
Slide 11: Balancing Sales Growth & Margin
Balancing Sales Growth & Margin HY 07* FY 06 Uninvested LFL Sales +2.1% +2.6% Average Selling Price** up 2% up 2% Movement in Gross Margin (%) flat flat Movement in LFL Gross Profit (£) +ve +ve Growing LFL cash contribution from sales * Excludes Acquired Sites. Like for like sales 32 weeks to includ
Slide 12: Key Operating Statistics (Excl. Acquired Sites)
Key Operating Statistics (Excl. Acquired Sites) z Same outlet drink sales : up 3.2%* z Same outlet food sales : up 5.5%* z Outlet staff costs : 23.7% of sales z Tight cost controls Net operating margin up 1.1% points * 32 weeks All figures relate to Retail 12
Slide 13: Operating Profit Movement
Operating Profit Movement +4 +22 £161m* +1 +1 (4) 2005 + £18m £143m* 2006 2007 (6) Disposals Trading Acquired External Easter SCPD Sites Costs * Before exceptional items 13
Slide 14: H1 2007 Expansionary Capital
H1 2007 Expansionary Capital Residential Locals Pub Restaurants Core £13m Core £10m Acquired Sites £9m Acquired Sites £40m Drinks Food led led Core £3m Core £0m High Street Restaurants City Centre 14
Slide 15: Returns by Segment
Returns by Segment Residential Locals Pub Restaurants Inc. ROI 20% Inc. ROI 19% Drinks Food led led Inc. ROI 17% Inc. ROI 10% High Street Restaurants City Centre 18% overall incremental ROI Notes: Incremental ROI is calculated before tax and after depreciation Cumulative £1.1bn UK expansionary inves
Slide 16: Strong Cash Returns
Strong Cash Returns 12 months to 14 April 2006 £m CROCCE £m NOPAT EBIT 327 327 Depreciation/Amortisation 126 EBITDA 453 Cash Tax (at 26% of EBIT)* (85) (85) Cash Return 368 242 Average Net Operating Assets 3791 3791 Accumulated Depreciation 359 10.5% 7.7% Revaluations (693) (693) Goodwill written of
Slide 17: Cash Flow (a)
Cash Flow (a) H1 07 £m EBIT 161 Depreciation & amortisation 69 EBITDA 230 Working capital / non cash items 10 Maintenance capex (60) £(135)m Expansionary capex (75) Purchase of Acquired Sites (7) Disposals 131 Additional pension contributions (40) Operating Cash Flow after Net Capex* 189 * Before ex
Slide 18: Cash Flow (b)
Cash Flow (b) H1 07 £m Operating Cash Flow after Net Capex 189 Net Interest paid (71) Tax paid (13) Normal dividends paid (35) Special Dividend paid (486) Exercise of share options 10 Shares repurchased (46) Net Cash Flow* (452) Closing Net Debt : £2,533m * Before total expenditure on exceptional it
Slide 19: Financing
Financing z Net Debt : EBITDA* 5.6x z Book Gearing** 73% z Interest Cover*** 2.0x Well within all securitisation covenants * MAT ** Net Debt / (Net Assets + Net Debt) *** Excluding net finance income from pensions 19
Slide 20: Property Update (1)
Property Update (1) z Comprehensive review of all options Maximise value for shareholders: short term and longer term z Market valuation of property assets Freehold/Long Leasehold properties can support rent of c.£270m No precedents yet for quoted pub REITs Achievable rental yields materiall
Slide 21: Property Update (2)
Property Update (2) z Tested full spectrum of options against three criteria Quantum of short term upside over current share price Certainty of achieving short term value Sustainability and potential for future value creation z Full separation of property changes the business model, with futur
Slide 22: Summary
Summary z Continuing strong operating performance z Successful integration Acquired Sites and rapid progress to convert with high uplifts z Capital investment earning good returns z Good cashflows from trading and disposals z Intent on realising property value within sustainable operating model z In
Slide 23: Tim Clarke, Chief Executive
Tim Clarke Chief Executive Interim Results – 22 May 2007
Slide 24: Sustainable Value Creation
Sustainable Value Creation z Actively exploring property partnership Crystallise property value for shareholders Retain operator incentivisation from future property appreciation z Operational strategy unchanged Adding operating value to large pubs in growth segments Creating value from mana
Slide 25: Strategy is delivering
Strategy is delivering z Customer focused value and volume strategy Extending leadership of eating-out market Consistently gaining drinks market share z Investing in prime sites for high returns Format innovation and evolution Rapid conversion of acquired sites - strong sales uplifts z Captu
Slide 26: Like-for-like sales growth
Like-for-like sales growth 4.0% 3.5% 3.0% 2.5% 2.0% 4.0% 3.6% 1.5% 1.0% 0.5% 0.0% wks 33-52 FY06 wks 1-32 FY07 Sustained like-for-like growth 26
Slide 27: Profitable Market Share Gains
Profitable Market Share Gains MAB Estimated Volume Growth (1) Market Volume Growth (2) Food 6% 4% Wine & Soft Drinks 2% -1% Spirits -2% -4% Beer & Cider 1% -3% (1) Same outlet like-for-like growth for 32 weeks, excludes the Acquired Sites (2) MAB estimates based on BBPA/AC Neilsen/ONS 27
Slide 28: Average Retail Price (%)
Retail Price Drinks Food 4 +3.5% Average Retail Price (%) Mix/Range 3 2 LFL Price LFL Price 1 LFL Price Mix/Range -1 (0.4)% Average retail price of food and drinks +2.0% 28
Slide 29: Rising Average Takes
Rising Average Takes Growth £18.3K Total +30% £14.1K Food +53% Wines/ Soft Drinks +40% Draught Beer & +15% Cider Spirits +5% Machines +3% Other* +62% FY 2003 MAT to H1 2007 Incremental sales of food, wine and soft drinks to grow cash gross profits * Accommodation and Other 29
Slide 30: Dynamics of the Eating Out Market
Dynamics of the Eating Out Market z Strong real growth 4% average real value growth for last 10 years* 4% growth maintained in last 2 years* z Driven by life-style changes z Strongest growth in neighbourhood casual dining Convenience of large pubs in residential areas Recruitment to casual d
Slide 31: Food Priorities
Food Priorities z Fresh food, freshly cooked z Cooking methods that differentiate from convenience meals Grilled, roasted, steamed versus microwaves z Growing kitchen skills z Capacity management and speed for peak sessions z High taste profile Both traditional dishes and new international flavo
Slide 32: Increase in Average Number of Meals
Increase in Average Number of Meals Meals served per pub per week 1,200 +15% 974 1,000 847 800 600 400 200 0 MAT to H1 2006 MAT to H1 2007 Rapid increase in meal volumes NB. Includes the Acquired Sites 32
Slide 33: Drinking-Out Market Dynamics – On-trade beer
Drinking-Out Market Dynamics – On-trade beer Price per Pint of Standard Lager 235 230 225 Price Competitiveness 220 On-trade Average Price 215 z MAB standard lager £2.06 210 z Managed competition £2.23 205 MAB Average Price 200 z Tenancies £2.43 195 190 2003 2004 2005 2006 2007 On-going volume decli
Slide 34: Drinks Priorities – Drive innovation in draught beers
Drinks Priorities – Drive innovation in draught beers z Focus on the ‘perfect serve’ Glycol installed in over 1,000 pubs Branded glassware Cask ale cellar training z Point of sale communication Condensing taps Price marking & innovative promotion z Range extension on favourable terms Per
Slide 35: Drinks Priorities - Wine, soft drinks and coffee
Drinks Priorities - Wine, soft drinks and coffee Wine: Range and serve quality New premium ranges Growth of own label Draught wine in c.500 pubs Soft drinks: Extending fresh juice ranges Premium cordials, smoothies and mineral waters Dispense quality Coffee: Installing branded coffee i
Slide 36: Capturing volume driven efficiency gains
Capturing volume driven efficiency gains z Productivity Rapid growth in staff contribution per hour +4.6% Training, deployment, scheduling z Purchasing COGS index increases held to 1% £5m of purchasing synergies from acquisition this year z Infrastructure process efficiencies Acquisition i
Slide 37: Format and estate development
Format and estate development z Estate development Format conversions to date 126 Acquired Sites 43 core sites Projected conversions to year end 170 Acquired Sites 70 core sites z Prospects for strong AWT growth z Differentiated formats targeted at growth sectors Innovation to attract new cust
Slide 38: Divergent disposable income trends
Divergent disposable income trends % of UK 17% 38% 31% 13% Households MAB estate 27% 44% 25% 4% segmentation Socio/ Professionals/ Mainstream Skilled Low paid/ Economic grp managerial suburban blue collar unemployed Economic Strong earnings Interest rates/ Full Tax credits/ position growth stealth t
Slide 39: Pub Restaurants – Core Business
Pub Restaurants – Core Business z Mid-market slow down in disposable incomes z Pub food competition z Suburban Pub Restaurants Good growth in Harvester and Toby Harvester, Windsor z Commuter Belt Pub Restaurants Successful new premium format Format evolution in Vintage Inns Black Horse, Vintag
Slide 40: Pub Restaurants – Integration of Acquired Sites
Pub Restaurants – Integration of Acquired Sites z 126 sites re-opened post conversion 103 pub restaurants 23 residential pubs z 23 sites in progress z Outstanding site quality z Intensive preparations enabled rapid conversions White Webbs, Toby Carvery, Enfield z Pre-conversion declines intensif
Slide 41: Pub Restaurants – Acquired Sites Conversions
Pub Restaurants – Acquired Sites Conversions z Initial sales uplifts above 25% Better than initial expectations Continuing to build z Different initial uplifts according to: Extent of change in customer profile Overtness of branding Saracen's Head, Premium Country Dining, Beaconsfield Resi
Slide 42: Residential Pubs
Residential Pubs z Major drinks market share gains z Repositioning to food: 21% sales mix z 1st Half food sales up +15% The Crown, Ember, Sutton Coldfield z 70 conversions in 06/07 z Success of new Community Pub format trials z Disposed smaller pubs with limited food prospects Same outlet like-for-l
Slide 43: High Street & City Centre Markets
High Street & City Centre Markets z 25% of total sales z Central London: buoyant trading z Strong performance from Town Pubs, O’Neill’s & Scream z Recovery in performance from circuit venues z Rapid food growth z Coffee opportunity O’Neills, Muswell Hill, London Same outlet like-for-like sales up 2.
Slide 44: Smoking Ban Preparations
Smoking Ban Preparations Scottish Like-for-Like Sales since ban 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Ban to end FY06 FY07 wks 1-16 FY 07 wks 17-32 44
Slide 45: External Cost Outlook
External Cost Outlook z External cost increases in previous five years of £90m z Minimum wage increase in October ‘07 of 3.2% z Energy prices below recent highs z Property rates stability Best outlook on external cost pressures for five years 45
Slide 46: Outlook
Outlook z Leadership of growing eating-out market z Accelerating drinks market share gains z Impact of rising interest rates z Strength from breadth of formats and sites z Well on track to deliver Acquired Sites uplift targets z Pipeline of c.350 investment opportunities in core estate z Improving e
Slide 47: Summary
Summary z Growth prospects of quality pubs z Formats positioned to capture high growth segments z Operational excellence and scale efficiency gains z Property review Realise embedded value for shareholders Preserve synergies from integrated business model Delivering sustainable shareholder value
Slide 48: Questions & Answers
Questions & Answers Interim Results – 22 May 2007