showfile final interims 06 the groupkarim naffah finance director interim results – 25 may 2006 3...

Roger CarrRoger Carr

Chairman

Interim Results – 25 May 2006

Karim NaffahKarim Naffah

Finance Director


3

Financial HighlightsFinancial Highlights

28 weeks ended 15 April 2006 Growth

Revenue £887m 2.7%

EBITDA* £207m 4.0%

Operating profit* £143m 4.4%

Profit before tax* £91m 9.6%

EPS* 12.8p 18.5%

Interim dividend 3.65p 14.1%

*Before exceptional itemsNB. Comparatives restated for IFRS

4

Presentational Points to NotePresentational Points to Note

First results under IFRS

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)

Financials: 28 weeks. LFL sales: 32 weeks.

Reporting to debt investors

* Before Exceptional Items

5

H1 2006 Results H1 2006 Results -- SummarySummary

* Before exceptional items**2005 comparatives restated for IFRS

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

6

Profit on disposal of properties £2m

Tax credit relating to disposals £2m

Total exceptional items after tax £4m

H1 2006 Results H1 2006 Results –– Exceptional ItemsExceptional Items

7

Operating PerformanceOperating Performance

H1 06 H1 0528 wks 28 wks

£m £mRevenue

Pubs & Bars 508 500 1.6%Restaurants 379 356 6.5%SCPD - 8 -

887 864 2.7%Operating Profit*

Pubs & Bars 86 84 2.4%Restaurants 57 52 9.6% SCPD - 1 -

143 137 4.4%

Retail+3.6%

Retail+5.1%

* Before exceptional items

8

LikeLike--forfor--Like Sales: DivisionalLike 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

9

LikeLike--forfor--Like Sales: SegmentLike 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

10

Balancing Sales Growth & MarginBalancing 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 weekend in both periods** Drink & Food

11

Key Operating Statistics*Key Operating Statistics*

Net operating margin up 0.2% points

Drink sales : up 2%

Food sales : up 7%

Food mix 32% of sales

Outlet staff costs : 24% of sales

Tight cost controls

* All figures relate to Retail

12

Operating Profit Movement Operating Profit Movement

2005(14)

Regulatory & Energy

costs

2005

+£6m

Easter 2006

£137m*

£143m*

* Before exceptional items

(1)

Trading

+22

SCPD

(1)

13

HY 2006 Expansionary Capital HY 2006 Expansionary Capital

Note: Excludes Hollywood Bowl / Other : £1m

High Street

Pub Restaurants

Restaurants

Locals

City Centre

Foodled

Drinksled

Residential

£7m £22m

£5m £0m

14

High Street

Pub Restaurants

Restaurants

Locals

City Centre

Foodled

Drinksled

Residential

Inc. ROI 16% Inc. ROI 18%

Inc. ROI 8%Inc. ROI 15%

Returns by SegmentReturns by Segment

Notes: Incremental ROI is calculated before tax and after depreciationCumulative £1bn UK expansionary investment over the last 15 years (excl. Hollywood Bowl)

16% overall incremental ROI

15* Unleveraged tax rate

Strong Cash ReturnsStrong Cash Returns

£m

295

(77)

218

3382

(715)

50

2717

10.7%10.7%

12 months to 15 April 2006 £m

EBIT 295

Depreciation/Amortisation 116

EBITDA 411

Cash Tax (at 26% of EBIT)* (77)

Cash Return 334

Average Net Operating Assets 3382

Accumulated Depreciation 410

Revaluations (715)

Goodwill written off 50

Cash Capital Employed 3127

CROCCE

8.0%8.0%

NOPAT

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

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)

* Before £18m bond repayments

Closing Net Debt £1,666m

18

FinancingFinancing

* MAT** Net Debt / (Net Assets + Net Debt)*** Excluding net finance income from pensions

Net Debt : EBITDA* 4.1x

Book Gearing** 57%

Interest Cover*** 2.6x

Well within all securitisation covenants

19

Dividends and Share RepurchaseDividends and Share Repurchase

Dividend

Interim dividend 3.65p, up 14.1%

Progressive policy

Share buy-back programme

£41m to date

Resume to complete £100m by year end

Cash returns to shareholders

20

RefinancingRefinancing

Strong business performance since 2003

Generated capacity to take on more debt

Plan to complete refinancing in H2 2006

Updating property portfolio valuation

Return at least £500m, including H2 buyback- less any funds invested in acquisition

Committed to maintaining an efficient balance sheet

21

SummarySummary

Strong operating performance

good sales growth

net margin ahead

Profitable estate development

capital investment earning high returns

cash from on-going disposals

Capitalising on business success

dividend growth and share buyback

refinancing to access surplus funds

pursuing consolidation opportunities

Focus on maximum value to shareholders

Tim ClarkeTim Clarke

Chief Executive


23

Strategy is DeliveringStrategy is Delivering

Profitable sales growth

Leadership in pub eating out

Accelerated drinks share gains

Estate development: AWTs +7% to £17k

Operating margins increased

Strong investment returns and cash flows

EPS up 18.5%

24

Key levers of profits growthKey levers of profits growth

Attractive market dynamicsGrowth in food, wine, soft drinksWidening consumer appeal of quality pubs

Strong growth prospects

Capturing disproportionate share of the growthFormat innovation and evolutionSuperior amenity, service and range

Converting sales growth into faster profits growthValue and volume marketing strategyIntegrated food and drinks economicsProductivity and purchasing

Leveraging value of proven brands and infrastructureHigh return conversions in existing estateConsolidation opportunity

25

Strong like for like sales growthStrong like for like sales growth

Continuing to deliver the fastest LFL sales growth in the Pub Sector* Same outlet like for like sales growth

4.0%4.4%

4.2%

16 wks to 21/01/06

16 wks to 13/05/06

32 wks to 13/05/06

26

Profitable Market Share GainsProfitable Market Share Gains

(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 Neilsen/ ONS for Pub Market

MAB EstimatedVolume Growth (1) Market Growth (2)

Food + 7% + 5%

Wines & Soft Drinks + 7% + 3%

Spirits - 3% - 10%

Beer & cider + 1% - 3%

27

Sales StrategySales Strategy

Widening consumer base

More female, more affluent and older

Focus is one of profitable volume growth

Recruitment of new customers and market share gains

Profit growth best supported by cash generative volume growth

Volume growth is delivered through a number of levers

Range, Service, Price, Amenity, Added Value Activities

Overall Superior Quality and Customer Value

28

Growth in Average Weekly TakesGrowth in Average Weekly Takes

Other includes AWP, accommodation, door and bowling

Profitability from growing food & drink

Growth + 21%

Beer & Cider

Beer & Cider

Food

Food

Wine & Soft Drinks

Wine & Soft DrinksSpirits

Spirits

Other

Other

£14.1k

£17.0k

2003 MAT to H1 2006

29

Demand Trends Demand Trends –– Overall MarketOverall Market

Consumer Expenditure £m

Eating out growth driven by fundamental life style changes, while drinking out is stable in real terms

Source:Office for National Statistics(1) Eating out market includes soft drink

0

10000

20000

30000

40000

50000

60000

70000

80000

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Beer Spirits Wine Eating Out

CAGR Actual1982 to 2005

Total Total(Real)

7.1% 1.9%

9.1% 3.6%

5.5% 0.3%

(Nominal)

30

Eating Out as a Percentage of Total Food Eating Out as a Percentage of Total Food Expenditure (UK Expenditure (UK vsvs US)US)

Eating out has shown long term growth, UK is 30 years behind the US

0

10

20

30

40

50

60

1970 1975 1980 1985 1990 1995 2000 2004

Perc

enta

ge o

f tot

al h

ouse

hold

exp

endi

ture

on

food

Source: US: US Dept of Agriculture, Economic Research Service UK: ONS (Family Spending Survey)

US

UK

31

Social and Labour Market ChangesSocial and Labour Market Changes

Rising female employment levels

13m working women, up 2.5m since 1983

Rise in single households

29% of all households, up 2.5m since 1981

Rise in pensioner numbers and spending power

9.5m pensioners, up over 600k since 1991

Changing lifestyles

Lowest marriage rates and highest divorce rates recorded

Source: ONS (Social Trends)

Social trends driving eating out growth

32

Average Weekly Meals GrowthAverage Weekly Meals Growth

1500

1925

2003 MAT to H1 2006

Average weekly number of main meals per outlet - Pub Restaurants

Growth

+28%

Total Company - 80 million main meals served p.a.

33

Growth of Wine and Soft DrinksGrowth of Wine and Soft Drinks

+1%

Source: AC Neilsen, Ontrade Survey. MAT to Jan 2006.

Market

+6%

+7%+9%+4%+4%

-1%

Share of Value Volume Growth Volume Growth

+10%

+5%

Wine

Mineral WaterFruit JuiceMixer

Carbonates

Squash

MAB

34

Market share gains in declining beer Market share gains in declining beer marketmarket

200

210

220

230

240

2003 2004 2005 200680

85

90

95

100

105

110

115

120

2003 2004 2005 2006

Source: BBPA, AC Neilsen. 12 months to March. (2003 market price = 4mths to March, 2006 = 10 mths to Jan)

Price per pint Volume

Market average price

MAB average price

On-trade market volumes

MAB volumes

35

IncreaseIncreaseVALUEVALUE

ReduceReduceCOSTSCOSTS

IncreaseIncreaseVOLUMEVOLUME

IncreaseIncreaseBUYING POWERBUYING POWER

Staff training,scheduling, incentives

Reinvest marginin quality/value

Capacity management of

productivity

Supply chain efficiency

Value and Volume

Value and Value and Volume Volume CycleCycle

36

Value for money food as the driver of footfall and growth in cash profit

Variable Contribution

£4.59

Glass Blossom Hill @ £1.75

£9.98

Sales (ex. VAT)

Pint Carling @ £2

Rump steak x 2 @ £3.99 each

Gross Margin

£5.59

Sales(inc. VAT)

£11.73

Combining high volume food with high margin drinks to drive profit

37

Value and volume strategy Value and volume strategy increases purchasing powerincreases purchasing power

COGs held flat on LFL products offsetting;

Inflation

Duty increases

Impact of oil price

Focused menus maximising purchasing power

Re-invest in improving quality to customer

Gross margins constant despite mix changes to food and wine

38

Volume gains drive Volume gains drive efficiency benefitsefficiency benefits

Harvester NOMS +25% since 2003

Harvester Salad CartSpit-roast Chicken

39

Purchasing freedom provides Purchasing freedom provides flexibility flexibility -- BeerBeer

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

Enabled stocking of products at wider spread of price points

Restrained pricing on standard products

More premium products at higher selling price

Better purchasing terms

Driving beer volume growth in declining market

Focus on maximising cash gross profit

40

Raising Wine ProfitabilityRaising Wine Profitability

Wine now accounts for 12% of drink sales

Own label now c.30% of volume

Large volumes with few suppliers

Reduced complexity and logistics of supply chain

Increased bargaining power with branded suppliers

Own label – high volumes and reduced complexity drive lower unit costs

41

Focus on Choice and Value for Focus on Choice and Value for Money Money -- WineWine

Ember Inns wine pricingOwn 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

42

Staff Productivity and Capacity Staff Productivity and Capacity ManagementManagement

Key measure of staff contribution per hour up 3%*

Key initiatives

Service training and staff scheduling

Kitchen efficiency: preparation and cooking processes

Floor service, incentives and tips

Order wait and bill payment times

Reinvesting productivity gains in staffing at peak times to drive volumes

NMW up 25% in real terms since 1999

Recommended to grow in line with average earnings from 2007

Operating skills in driving volumes and drop through to profit*sales less hourly paid employment costs divided by no. hours worked

43

Pub RestaurantsPub Restaurants

Same outlet like for likes up 6.0%*

Toby Carvery, Harlow

Premium Country DiningBarnt Green Inn, Birmingham

Harvester, Horwich Park, BoltonPub & Carvery, The Newbridge, Wolverhampton

*32 weeks to include the entire Easter period in both years

44

Residential PubsResidential Pubs


Ember, Fieldhouse, Solihull

Metro Professionals, Jericho, Oxford

Sizzling Pub Company, Man in Space, Trentham


45

High St/City Centre MarketsHigh St/City Centre Markets


Flares/ Reflex, Doncaster

Circuit VenueLate Evening

Horseshoe, Glasgow

Town PubDaytime/Early Evening

The Argyll Arms, West End

Central London


46

All Bar OneBrownsNicholson’s

Commuter BeltSuburbsInner City

ResidentialCity

Centres

Mid Market

Mass Market

MAB Estate ProfileMAB Estate Profile

Range of Demographics and Locations

Premium

O'Neill’s

FlaresGooseReflex

Metro Professional

ScreamEmber InnsHarvesterToby Carvery

Pub CarverySizzling Pub Co

PremiumCountry Dining

Vintage Inns

Dem

ogra

phic

s

Locations

Town Pubs

47

Three Year Estate DevelopmentThree Year Estate Development

High Street

Pub Restaurants

Restaurants

Locals

City Centre

Foodled

Drinksled

Residential

c. 190 c. 135

c. 75

Number of identified expansionary projects

Pipeline of c.400 investment opportunities

48

Estate DevelopmentEstate DevelopmentSizzling Pub CoSizzling Pub Co

Improving food offers within local Pubs

Pre Investment 2002 2006

Drink Food Other

£9k

£13.3k

£20.4k

Average Weekly Takes

Sizzling Pub Company, The Wildwood, Stafford

49

Estate DevelopmentEstate DevelopmentPub Pub CarveryCarvery

Good quality, high volume, value for money food

£8.4k

£20.7k

Pre Investment Post Investment

>2x’s

Pub & Carvery, Lord Kitchener, Welling

Average Weekly Takes

Drink Food Other

50

Licensing and SmokingLicensing and Smoking

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

Smoking

Scottish experience benign so far

In 7 weeks since ban, same outlet like for likes up 5.8%

Clear regulations required to prepare for English ban

Successfully responding to regulatory change

51

Current Trading and OutlookCurrent Trading and Outlook

2nd quarter acceleration in like for like sales growth

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

Widening consumer appeal of quality food pubs

Intense short term cost pressures: medium term easing

Industry expansionary capex : lowest in 15 years

MAB advantaged amidst improving industry conditions

52

SummarySummary

Leadership of long term growth market in eating out

Accelerating drinks market share gains

Scale productivity and purchasing benefits

Substantial estate development opportunities

Powerful consumer formats generating high returns

Asset appreciation and refinancing

Acquisition opportunitiesOut-performance in a growth market

Questions & AnswersQuestions & Answers


54

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 and certain of the plans and objectives of the board of directors with respect thereto. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use such words as ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’ or other words of similar meaning. The forward-looking statements contained herein are based on assumptions and assessments made by the Mitchells & Butlers’ management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty, and there are a number of factors that could cause actual results and developments to differ materially from those expressed in or implied by such forward-looking statements. These factors include, but are not limited to: the future balance between supply and demand for Mitchells & Butlers’ sites; the effect of economic conditions and unforeseen external events on Mitchells & Butlers’ business; the availability of suitable properties and necessary licenses; consumer and business spending, changes in consumer tastes and preference; levels of marketing and promotional expenditure by Mitchells & Butlers’ and its competitors; changes in the cost and availability of supplies; key personnel and changes in supplier dynamics; significant fluctuations in exchange rates; interest rates and tax rates; the availability and effects of any future business combinations, acquisitions or dispositions; the impact of legal and regulatory actions or developments; the impact of the European Economic and Monetary Union; the ability of Mitchells & Butlers to maintain appropriate levels of insurance; the maintenance of Mitchells & Butlers’ IT structure; competition in markets in which Mitchells & Butlers’ operates; political and economic developments and currency exchange fluctuations; economic recession; management of Mitchells & Butlers’ indebtedness and capital resource requirements; material litigation against Mitchells & Butlers; substantial trading activity in Mitchells & Butlers’ shares; the reputation of Mitchells & Butlers’ brands; the level of costs associated with leased properties; and the weather.

showfile final interims 06 the groupkarim naffah finance director interim results – 25 may 2006 3...

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