Roger Carr Roger Carr 4 th December 2003 Chairman Responsibility - - PDF document

4 th December 2003

Roger Carr Roger Carr Chairman

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Responsibility statement The directors of Mitchells & Butlers plc accept responsibility for the information contained in this

• announcement. To the best of the knowledge and belief of the directors of Mitchells & Butlers plc

(who have taken all reasonable care to ensure that such is the case), the information contained in this announcement is in accordance with the facts and does not omit anything likely to affect the import of such information. Cautionary note regarding forward-looking statements This announcement contains certain forward-looking statements as defined under US law (Section 21E of the Securities Exchange Act of 1934). 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 words such as "target", "expect", "intend", "believe" or other words of similar meaning. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty. 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. Factors that could affect the business and the financial results are described in Item 3 Key Information - Risk Factors in the Mitchells & Butlers plc Form 20-F filed with the United States Securities and Exchange Commission

• n 28 March 2003.

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Agenda

Introduction

Roger Carr (Chairman)

Financial Results

Karim Naffah (Finance Director)

Actions and Priorities

Tim Clarke (Chief Executive)

Questions & Answers

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Highlights

Unlocking Value

Demerger and benefit of focus Efficient balance sheet restructuring Prudent use of capital

Ongoing Priorities

Stimulation of organic growth Strengthening of profitability Maximise cash generation and return on capital Reward shareholders

4 th December 2003

Karim Naffah Karim Naffah Finance Director

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Financial Highlights

Turnover £1,513m up 2% EBITDA £374m flat Operating profit £275m down 5% Profit before tax £199m* down 1% Net Operating Cashflow £241m** up £106m EPS 18.4p* down 0.1p Final dividend per share 5.65p

*On a proforma basis ** Before interest, tax and dividends

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Pro forma - Key Assumptions A Reminder

As if separation had occurred on 1st October 2001 No adjustments to operating profit Debt position worked backwards to reflect cashflow Interest based on separation bank facilities Taxation reflects increased interest charge All one-off items relating to separation excluded Weighted average number of shares 735m (2002: 734m)

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Pro forma Results

FY 03 FY 02 £m £m

EBITDA 374 375

• 0.3%

Operating Profit 275 289

• 4.8%

Interest (76) (86) PBT 199 201

• 1.0%

Tax (64) (65) Earnings 135 136

• 0.7%

EPS 18.4p 18.5p

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Operating Performance

FY 03 FY 02 £m £m

Turnover Pubs & Bars 877 866 + 1.3% Restaurants 619 609 + 1.6% Other 17 6 1513 1481 + 2.2% Operating Profit Pubs & Bars 177 190

• 6.8%

Restaurants 96 98 - 2.0% Other 2 1 275 289

• 4.8%

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Key Operating Statistics

Net retail operating margin 18.2% Food sales : up 3% Food mix 29.5% sales : up 0.5% points Outlet staff costs : 24% of sales Retail staff productivity : up +4.5% Support cost savings of £5m in second half

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Margin Movements A year of tw o halves

H1 H2 FY

Sales Growth + 0.4% + 2.6% + 1.4%

• Ave. Selling Price*

c.+ 2% c.- 2% Flat Movement in % Gross Margins + ve

• ve

Flat Movement in Net Margins

• 1.3% pts
• 1.1% pts
• 1.2% pts

Adjusted for Easter

• 0.8% pts
• 1.6% pts
• 1.2 % pts

Additional regulatory costs equivalent to 1.2% pts of margin Promotional sales activity skewed towards second half

*Food & Drink

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Retail Sales Grow th

• NB. Same outlet = uninvested + invested

*Adjusted to include Easter in H1

• 5%
• 4%
• 3%
• 2%
• 1%

0% 1% 2% 3%

Uninvested* Same Outlet* Total

H2

FY - 2.4% FY - 0.4% FY + 1.4% +18% = 94% of pubs 76% of pubs +6% = 100% of pubs

H1 H2 H1 H2 H1

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Like-for-Like Sales

* Adjusted to exclude Easter

FY 03 H2 03*

Same Outlet (i.e. Invested + Uninvested)

Residential +0.9% +3.3% High Street

• 3.2%
• 0.6%

Total

• 0.4%

+ 1.8%

Uninvested

Residential

• 1.5%

+ 0.8% High Street

• 5.2%
• 3.0%

Total

• 2.4%
• 0.1%

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High Street Pub Restaurants Restaurants Locals

City Centre Food led Drinks led Residential

2003 Expansionary Capital

£22m £32m £2m £13m

Note: UK only - excludes Hollywood Bowl

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Performance by Segment

High Street Pub Restaurants Restaurants Locals

City Centre Food led Drinks led Residential

• Inc. ROI 15%
• Inc. ROI 14%
• Inc. ROI 11%
• Inc. ROI 13%

Note: UK only - Excludes Hollywood Bowl *Cumulative £1bn expansionary investment over the last 10 years

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*Unleveraged tax rate (including and benefit of pensions, exceptional costs and demerger related items, estimated rate for 2004 c.26%)

Strong Cash Returns

10% 10%

12 months to 30 September 2003 £m

EBIT 275 Depreciation/Amortisation 99 EBITDA 374 Cash Tax (at 21% of EBIT)* (58) Cash Return 316 Average Net Operating Assets 3484 Accumulated Depreciation 225 Revaluations (741) Goodwill written off 50 Cash Capital Employed 3018

CROCCE £m

275 (58) 217 3484 (741) 50 2793 8% 8%

NOPAT

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Net Cashflow

FY 03 FY 02 £m £m

EBITDA 374 375 Working capital movement (3) (4) Capital Expenditure (151) (256) Disposal proceeds 48 30 Net Operating Cashflow 268 145 + 123 Additional Pension Contributions (27) (10) Net Operating Cashflow inc. pensions 241 135 + 106

Year end net debt was £1,228m

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Exceptional items - P & L

Memo FY 03 FY 04 £m £m

De-merger costs 32 Bid defence costs 10 Syndicated loan to support demerger 8 2 Refinancing fees 4 1 SNR abortive fees 1 55 3 Tax credit* (31) Earnings Impact 24

* Including benefit of group relief from SXC of £75m

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Securitisation - Headlines

Largest corporate securitisation to date

• £1.9bn raised

Cost effective long term fixed rate finance

• Cash Interest cost : 6%
• £24m costs amortised
• Enables £500m return to shareholders
• 12 for 17 share consolidation
• 520m issued shares post consolidation
• Funds returned on 8 December

Appropriate business flexibility

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Securitisation - Key Terms

Maintain progressive dividend policy

• Free cashflow to debt service covenant ≥1.3x’s

Continue to churn the estate

• Disposals 25% EBITDA + ability to re-set
• unlimited with repayment of allocated debt

Maintain asset quality

• Minimum maintenance expenditure
• 6.4% Turnover (capital + revenue)

Compatible with strategy for long term organic growth

Flexibility to:

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Development project

Changes consumer offer Increases trading area

Acquisition Capital

New site

Annual day-to-day repairs

Expensed through Profit & Loss

Minor maintenance spend

Repairs / maintenance work

Refresh spend

Updates existing offer in line with refresh cycle

Categories of Expenditure

FY 03

Capital

Revenue Repairs Maintenance Capital Expansionary Capital

P & L £78m £73m £35m

* Maintenance Covenant = Revenue Repairs + Maintenance Capital

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Appropriate financial structure

Net debt (post return of funds) c.£1.8bn Market cap gearing 150%* Net debt : EBITDA < 5x’s Interest cover >2x’s Dividend cover >2x’s**

• NB. All ratios based on Mitchells & Butlers plc results for y/e 2003 and net debt of £1.8bn

* Based on share price on 4 December 2003 ** Dividend cover based on 9.5 pence per share in 2004 and earnings for y/e 2003

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Dividend Policy

Important Part of Shareholder Returns

2003 Final: 5.65p 2004

Interim - 2.85p Final - 6.65p Underpinned by strong cash flow

Positive top line growth Real growth in underlying earnings Confidence in medium term prospects

Progressive policy to deliver real dividend growth

9.5p

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Summary

Solid set of results in an eventful year Optimal financing structure now in place £500m returned to shareholders Continued focus on cash control and returns Emphasis on driving profitable sales growth Commitment to growth in dividends

4 th December 2003

Tim Clarke Tim Clarke Chief Executive

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Value Creating Operating Actions

Driving profitable sales growth Raising productivity and reducing costs Raising asset productivity through brand and format evolution Proactive asset management

Driving strong cash returns, earnings growth and freehold property appreciation

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Delivering Customer Value to Enhance Asset Productivity and Returns

Range Price Promotions Service Amenity Control trials Growing cash

gross profits

Mix enhancement Productivity

improvements

Purchasing gains Enhancing asset

productivity

Mitigating external

costs

Defending

• perating margins

Building volume to extract profit opportunities from outlet and corporate scale

Sales Generating Actions Grow ing Sales Volumes Driving Returns

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Raising Productivity and Reducing Costs

Action

• Offsetting external costs: £17m in 03/04
• Staff cost flexibility: scheduling and training
• Negotiate lower purchasing costs
• Rationalise central processes
• Enhance IT systems

2003 Progress

• Staff productivity + 4.5%
• Pub staff costs maintained at 24% sales
• 4% reduction on 40% of COGS renegotiated
• £10m annualised support cost saving

Growing volume provides opportunity for continued efficiencies

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Driving Sales Grow th

Focus on improving consumer choice:

Progressive extension of drinks range Enhancing food menus Competitive pricing Targeted marketing and promotions

In a high quality environment:

Increased staff service, sales training and incentives High amenity levels to compete with at-home alternatives

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Improving Like for Like Trend

Same outlet (i.e. invested & uninvested) Un-invested

Adjusted for the movement in Easter

• 5
• 4
• 3
• 2
• 1

1 2 3 4 5 Q1 '03 Q2 '03 Q3 '03 Q4 '03 WKS 1-8 '04

%

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Like for Like Sales First 8 Weeks of 03/04

Same outlet (i.e. invested + uninvested) Residential + 5.7% High St + 2.3% TOTAL + 4.5% Uninvested Residential + 3.8% High St + 0.6% TOTAL + 2.6%

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Driving Sales Drinks and Food Range

Increasing freedom from tied supply contracts

• 40% of beer now free of tie
• 45% of soft drinks now free of tie

Customers value range and choice on bar Now stocking three leading beer brands in each major draught category Wider spread of price points

• Attracting new customers through value perceptions
• Trading up to premium products

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Driving Sales Grow th Drinks and Food Range

Food

250 new dishes introduced Over 200 dishes improved Price points widened

Fresh Juices

Sales of almost 1 million litres Growth in excess of 10%

Wine

Over 10% of drinks sales by value Own label New World brands

Draught Beer

Range extended in around 1400 outlets Dual stocking of Coors and Carlsberg-Tetley products Stella now in c.1200 outlets, 5% of drinks sales Trial of Scottish Courage products Extensive range of regional cask ales

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Enhancing the GP Mix Through Category Grow th

Total drinks sales up 3.5%

Average price down 3.7% Total Volume up 7.5%

Positive grow th in cash gross profits

Volume gains in relatively higher %

margin products Volume 1st 8 w eeks compared to last year

Premium Lager Spirits Soft Drinks Ale/Stout Wine Other Standard Lager Packaged Spirits Packaged Beer + 2%

• 2%
• 6%

+ 10%

• 6%

+ 10% + 25% + 21% + 7% + 11%

Mix Grow th

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Driving Sales Grow th

Combined food and drink promotions

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Driving Differentiation Through Advertising

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Driving Sales Grow th

Sales training and incentives

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Gaining Share Among Managed Pubs

*Beer/ Cider/ FABs/ Soft Drinks (Draught & Packaged) Source: AC Neilsen, Pub Track

%

17 18 19 20 21

MAB % SHARE OF MANAGED PUB MARKET *

January 03 November 03

MAB MAB VALUE VALUE share rolling share rolling 4 weeks 4 weeks MAB MAB VOLUME VOLUME share rolling 4 share rolling 4 weeks weeks

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Brand and Format Evolution to Raise Asset Productivity

Profitable evolution to meet changing customer demand Strong pay-backs: value engineering template costs Spectrum of hard brands, operating formats, individual classics Segmentation and differentiation to add value to licensed sites Over 350 conversion pipeline sites

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Developing and evolving the brands and formats

Value

Goose Town Bars

Coal Hole, Nicholson’s, WC2 All Bar One, Canary Wharf

Differentiation

All Bar One Flares/Reflex Nicholson’s/Classics O’Neill’s

City Centre/High Street

Strategy of differentiation or value

Goose, Doncaster

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Developing and evolving the brands and formats

Residential Strategy

Consumer demand for informal, integrated food and drinks offer Driving food, wine and soft drinks in local pubs

Ember; Metro Professionals; Scream; Sizzling Pub Co.

Increasing drinks sales in pub restaurants:

Harvester, Toby, Vintage Combining high volume food sales with integrated bar areas

Toby Carvery, Eastbourne Three Stags, Ember Inn, Bebbington

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Pro-active Asset Management

Good sales uplifts and high incremental ROIs

• 140 conversions and 15 new site acquisitions

Maintaining site quality and customer offers Gross capital expenditure of £160m Encouraging results from Business Franchise / SAT

• 18 in operation

Disposal of selective individual sites for value

• £30-£40m proceeds anticipated

Driving sales uplifts and incremental returns through development

Plans for 2004

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Market Conditions

Supply

• High Street - growth of new capacity significantly slowed
• Residential areas – low net new investment
• Licensing reform

Demand

• Cautious as to impact of rising interest rates
• Positive demographic and social trends
• Growing 18 – 25 and 45+ age groups
• Growth continues to be driven by value for money

Favourable medium term trends, short term cost pressures

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Outlook

Focused pub business, appropriately financed

• Quality estate, proven formats, scale efficiencies

Growing sales momentum through customer value

• Reinvesting margin to drive cash profits
• Uplifts from estate development

Volume, mix, productivity and purchasing gains

• To overcome regulatory costs

Building competitive advantage, gaining share, driving returns

4 th December 2003

Q & A Q & A