Roger Carr
Chairman
1 December 2004
Karim Naffah
Finance Director
Preliminary Results
1 December 2004
Financial Highlights
z Turnover £1,560m
up 3.7%
z Operating profit* £285m
up 3.6%
z Profit before tax* £184m
down 7.5%
z EPS* 22.2p
up 21%
z Final dividend per share 6.65p
up 18%
* Adjusted to exclude exceptional items. 2003 comparative, proforma figures
3
FY 2004 Results - Summary
FY 04
£m
FY 03*
£m
EBITDA
393
374
+ 5.1%
Operating Profit
285
275
+ 3.6%
(101)
(76)
PBT
184
199
Tax
(60)
(64)
Earnings
124
135
(8.1)%
EPS
22.2p
18.4p
+ 20.7%
Average no. of shares
559m
735m
(24)%
Interest
Note: All numbers are stated pre-exceptional items
* Proforma
(7.5)%
4
Presentational Points to Note
z First full financial year as independent PLC
‹
Proforma comparative for 2003
z FRS 5
‹
Turnover recorded net of coupons and staff discounts
‹
Sales comparative reduced by £9m – no profit impact
z Reporting to Debt Investors
‹
Covers securitised estate from 13 November 2003
5
Operating Performance
Turnover
Pubs & Bars
Restaurants
SCPD
Operating Profit*
Pubs & Bars
Restaurants
SCPD
FY 04
£m
FY 03
£m
913
641
6
1,560
873
614
17
1,504
180
104
1
285
177
96
2
275
Note: 2003 turnover restated on the adoption of the Amendment to FRS 5
* Before exceptional items
+ 4.6%
+ 4.4%
Retail
+4.5%
+ 3.7%
+ 1.7%
+ 8.3%
Retail
+4.0%
+ 3.6%
6
Retail Sales Growth
FY 04
Total Sales
Same Outlet*
Pubs and Bars
+ 4.6%
+ 4.6%
Restaurants
+ 4.4%
+ 7.0%
Total Retail
+ 4.5%
+ 5.6%
z Differences in growth rates due to:
‹
Pub disposals and transfers to franchise
‹
New sites acquired
‹
Transfers from Restaurants to Pubs & Bars
*Same outlet like for like includes all managed pubs trading for the 2 years being compared. C.90% of pubs
All comparatives restated for the amendment to FRS 5
7
Like-for-Like Sales
FY 04
Same Outlet (Invested + Uninvested)
Residential
+ 6.6%
High Street
+ 3.4%
Total
+ 5.6%
Uninvested
Residential
+ 4.8%
High Street
+ 1.5%
Total
+ 3.8%
H2 like for likes reflect wks 33-52 to exclude Easter from both periods.
All figures restated for the amendment to FRS 5
8
Balancing Sales Growth & Margin
FY 04
H2 04
Uninvested LFL Sales
+ 3.8%
+ 4.3%
Average Selling Price*
< - 2%
< - 1%
flat
+ve
+ ve
+ ve
Movement in Gross Margin (%)
Movement in LFL Gross Profit (£)
Balance of price, margin and volume to maximise profit
*Food & Drink
9
Key Operating Statistics*
z Drink sales : up 3%
z Food sales : up 7%
‹
Food mix 29.8% sales : up 0.6% points
z Outlet staff costs : constant at 23.8% of sales
z Overhead savings of £5m
Net operating margin: 18.3%
*All figures MAB Retail; 2003 restated for FRS5
10
Operating Profit Movement
+21
£285m*
SCPD
-1
+£10m
£275m*
2003
2004
+5
Trading
External
Costs
Overhead
Savings
-15
11
FY 2004 Expansionary Capital
Residential
Locals
£15m
Pub Restaurants
£30m
Drinks
led
Food
led
£5m
High Street
Note: Excludes Hollywood Bowl / Other: £7m
-
City Centre
Restaurants
12
Returns by Segment
Locals
Residential
Inc. ROI 17%
Pub Restaurants
Inc. ROI 16%
Drinks
led
Food
led
Inc. ROI 14%
High Street
Inc. ROI 10%
City Centre
Restaurants
Incremental ROI - 15% overall, up 1% on last year
Note: UK only – excludes Hollywood Bowl
Cumulative £1bn expansionary investment over the last 14 years
13
Strong Cash Returns
12 months to 25 September 2004
£m
CROCCE
£m
285
EBIT
285
Depreciation/Amortisation
108
EBITDA
393
Cash Tax (at 26% of EBIT)*
(75)
(75)
Cash Return
318
210
3,463
3,463
Average Net Operating Assets
Accumulated Depreciation
Revaluations
Goodwill written off
Cash Capital Employed
*Unleveraged tax rate
NOPAT
285
(731)
10%
(731)
50
50
3,067
2,782
7.5%
14
Cashflow (a)
FY 04
£m
EBITDA
Working capital / non cash items
393
30
Maintenance capex
(93)
Expansionary capex
(57)
Disposals
51
Additional pension contributions
(40)
Operating Cashflow after Net Capex
284
15
Cashflow (b)
FY 04
£m
Operating Cashflow after Net Capex
284
Net Interest paid
(98)
Tax paid
(34)
Normal dividends paid
(44)
Special dividend
Securitisation/separation costs*
Other items
(501)
(27)
(3)
Net Cashflow**
(423)
Closing Net Debt £1.63bn***
* Includes £4m exceptional operating expenditure
** Before £28m bond repayments
*** Net of £22m securitisation issue costs and £(3)m accrued interest
16
Financing
z Net Debt : EBITDA
4.2x
z Book Gearing*
50%
z Interest Cover
2.8x
Well within all securitisation covenants
* Net Debt / (Net Assets + Net Debt)
17
Dividends and Share Repurchase
z Progressive dividend policy
‹
Final dividend of 6.65p
‹
2004 total regular dividend 9.5p
z Share buy-back programme
‹
Plan to spend £100m in FY05
‹
Maintain efficient balance sheet
Cash returns to shareholders
18
Pensions
z Actuarial Valuation at 31/3/04: deficit of £167m**
‹
Regular service contributions – up £3m p.a.
‹
Tri-ennial review cycle going forward
z Additional cash contributions: £40m over 3 years
‹
In addition to £20m pledged at securitisation
‹
Cash payments* - 2005: £30m; 2006: £20m; 2007: £10m
z FRS 17 Deficit*: £173m
‹
Down from £243m (Sep. 2003 ) and £201m (Apr. 2004)
Positive approach to reduce pension deficit
* Excluding tax credit
** On-going basis
19
2005
z Pensions Accounting
‹
Move from SSAP 24 to FRS 17 for FY05
‹
Impact on FY04 comparative:
SSAP 24
£m
Operating Profit Charge
(2)
Interest Income
PBT
(2)
Net Assets
FRS 17
£m
(14)
1
(13)
105
(114)
z IFRS update post Interims
z 53rd Week
‹
Adds c.£6m of operating profit, c.£4m PBT
20
Summary
z Sales-led strategy is working
z Generating strong cashflow
z High returns on investment
z Efficient balance sheet
z Redeploying cash resources
z Preserving appropriate flexibility
More value for shareholders
21
Tim Clarke
Chief Executive
Preliminary Results
1 December 2004
Introduction
z Strong trading results
z Successful execution of strategy
z Benefiting from repositioned estate
z Momentum continuing into 2005
z High returns and increasing cash flow
Clear strategy for delivering value to shareholders
23
Operational Levers
z Delivering superior amenity, range, service and value
z Growing food sales and capturing drinks share
z Optimal balance of price, volume and mix
z Pub and corporate level scale benefits of increasing volumes
z High returns on brand and format investment
Focus on profitable sales growth
24
Strong Like for Like Sales Growth
7.0%
6.0%
5.8%
H2 04
8 w ks 05
5.3%
5.0%
4.0%
6.0%
4.3%
4.4%
H2 04
8 w ks 05
3.4%
3.0%
2.0%
1.0%
0.0%
H1* 04
Uninvested
H1* 04
Same Outlet
* weeks 1 – 32 to include Easter in both years
25
Profitable Market Share Gains
Product Category
Beer
Wines, Spirits, Soft Drinks
Food
Same Outlet
MAB
vs LY
Volume
On-Trade*
Market
vs LY
Volume
+ 4%
- 2%
+ 10%
+ 3%
+ 8%
+ 3%
Sustainable sales growth from wider customer base & greater frequency
*Source : ONS/BBPA/Neilsen
MAB data: FY 04
Beer / soft drinks: MAT to Sept 04. Wine / spirits / food: MAT to June 04
26
The Role of Price
z Most powerful when used with other activity
z Significant evidence of rising price elasticities
z Rigorous control trials to maximise gross profits
z Extent of activity driven by elasticity evidence
‹
Varies across brand segments, product categories, time
slots and geographies
z Like for like standard product deflation, offset by
premium mix improvements
A calculated, pragmatic approach
27
Benefits of Estate Repositioning
Toby Carvery, Nottingham
The Flask, Highgate
z High takes – AWT’s up 8% to £15.2k
z Asset scale in high volume locations
z Brands and formats targeting growth segments
28
Estimated Industry
Supply & Demand
Segment
% of MAB
UK Pub
Sales
% Growth/Decline
in
Supply Demand
Key Factors and
MAB Positioning
Residential
Pub Restaurants
37%
2%
5%
Eating-out growth. Well
targeted brands
Locals Pubs
33%
-1%
2%
Drinks share gains and
food growth
Circuit Venues
11%
0%
-3%
Systemic over-capacity. Outperformance by differentiation
Town Pubs
8%
0%
2%
Gains from site quality and
value offers in buoyant service
economy
Central London
11%
0%
3%
Prime sites and strong offers
in recovering market
High St
Source: MAB estimates for 2004
29
Industry Expansionary Capex
£m
SOURCE: MAB Estimates
30
Residential Segments
The Pine Marten,
Harrogate
Vintage Inns
Crown Inn, Sutton Coldfield - Ember
*FY2004
Drinks price
-1%
Food price
+1%
Drink volume
+6%
Food volume
+9%
Uninvested Like for Like
4.8%
Same outlet Like for Like
6.6%
31
Generating Profitable Volumes
Toby Carvery, Snaresbrook
Toby promotion in Saga magazine
Toby Carvery, Eastbourne
Targeted marketing and capacity management
32
Focus on Range Extension
New Harvester menu
Increased and improved cask ale range
Range of fresh fruit juices
Wider customer choice drives volumes and opportunities for yield
management
33
Maintaining Amenity and Offer
Evolution
Dexter Hotel, Leeds - Ember
Harvester, Eastbourne
34
Food Capabilities in Local Pubs
Vesper Gate, Leeds – Sizzling Pub Co
Sizzling Pub Co Menu
35
High Street/City Centre Market
Flares, Warrington
Circuit Venues
Late Evening
Old Wellington, Manchester
The Clachan, London W1- Nicholsons
Town Pubs for office
workers, shoppers,
tourists.
Day time/early evening
Central London
Drink price
- 4%
Uninvested like for like sales
+1.5%
Drink volume
+ 8%
Same outlet like for like sales
+3.4%
*FY 2004
36
Range Extension
Yield management opportunities from premiumisation and value offers
37
Capturing Scale Benefits Purchasing
z Volume related improvements in purchasing
‹
Over 2% net reduction in unit cost of goods
z Planning for greater drinks supply freedom
‹
Beer supply
‹
Distribution arrangements
Focus on optimal combination of volume, mix and cost
38
Capturing Scale Benefits –
Productivity and Overheads
z Volume related improvements in productivity
‹
Employment costs ratio held at 24% of sales
‹
Offsetting 7% increase in national minimum wage
‹
3% increase in volumes served per hour worked
z Overhead efficiencies through process
improvements
‹
£5m cost savings last year
‹
Reduction in headcount
39
High Returns from Expansionary
Investments
Conversions
Acquisitions
Rising Sun Whetstone – Sizzling Pub co
Jack Rabbit, Vintage Inn &
Innkeepers Lodge Plymouth
z 95 completed
z 10 completed
z Biased towards residential
local pubs
z 4 with lodges
z High Sales uplifts
z Average weekly takes >
£30k
Incremental ROI 16% on last two years’ investment
40
Improving Asset Productivity
z Lodges on existing sites
z Non-trading property
z Business Franchise
z Proactive disposal
41
Regulatory Issues - Alcohol
z Updated Alcohol Social
Responsibility policy
‹
Control of promotions
‹
Operating rules
z “Responsible Drinks Retailer” award
Case for pub as best environment for controlled retailing of alcohol
42
Regulatory Issues - Smoking
z White Paper on Public Health
‹
4 years to prepare for smoking legislation
‹
Wide consultation process
‹
Potential for adverse, unintended consequences
‹
Avoid incentivising pubs to retain smoking
z MAB Approach
‹
In great majority of estate continue to drive strong food sales growth
Intent of working with Government for improved solution
43
Levers of Future Earnings Growth
z Focus on profitable like for like sales growth
‹
Widening competitive gap on customer value
‹
Defensible premium to supermarkets
‹
Scale advantage in value for money eating out
‹
Drinks range extensions
‹
Competitive share gains on standard products
z Virtuous circle on purchasing, productivity, overheads
z Investment for high returns
z Proactive asset management
44
Differentiated Strategy for Growth
z Profitable sales growth and continued momentum
z Outlook for consumer demand uncertain
z Well positioned to continue to take market share
z Cash generation
z Asset appreciation
z Proactive use of cash resources to generate value
45
Preliminary Results
1 December 2004