Roger Carr Roger Carr Chairman 1 December 2004 Karim Naffah - - PowerPoint PPT Presentation

1 December 2004

Roger Carr Roger Carr

Chairman

Karim Naffah Karim Naffah

Finance Director

Preliminary Results 1 December 2004

3

Financial Highlights

Turnover £1,560m up 3.7% Operating profit* £285m up 3.6% Profit before tax* £184m down 7.5% EPS* 22.2p up 21% Final dividend per share 6.65p up 18%

* Adjusted to exclude exceptional items. 2003 comparative, proforma figures

4

FY 2004 Results - Summary

Note: All numbers are stated pre-exceptional items * Proforma

FY 04 FY 03* £m £m

EBITDA 393 374 + 5.1% Operating Profit 285 275 + 3.6% Interest (101) (76) PBT 184 199 (7.5)% Tax (60) (64) Earnings 124 135 (8.1)% EPS 22.2p 18.4p + 20.7% Average no. of shares 559m 735m (24)%

5

Presentational Points to Note

First full financial year as independent PLC

Proforma comparative for 2003

FRS 5

Turnover recorded net of coupons and staff discounts Sales comparative reduced by £9m – no profit impact

Reporting to Debt Investors

Covers securitised estate from 13 November 2003

6

Operating Performance

FY 04 FY 03 £m £m

Turnover Pubs & Bars 913 873 + 4.6% Restaurants 641 614 + 4.4% SCPD 6 17 1,560 1,504 + 3.7% Operating Profit* Pubs & Bars 180 177 + 1.7% Restaurants 104 96 + 8.3% SCPD 1 2 285 275 + 3.6%

Note: 2003 turnover restated on the adoption of the Amendment to FRS 5 * Before exceptional items

Retail +4.5% Retail +4.0%

7

Retail Sales Grow th

*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

FY 04

Total Sales Same Outlet*

Pubs and Bars + 4.6% + 4.6% Restaurants + 4.4% + 7.0% Total Retail + 4.5% + 5.6%

Differences in growth rates due to:

Pub disposals and transfers to franchise New sites acquired Transfers from Restaurants to Pubs & Bars

8

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

9

Balancing Sales Grow th & Margin

FY 04 H2 04

Uninvested LFL Sales + 3.8% + 4.3% Average Selling Price* < - 2% < - 1% Movement in Gross Margin (%) flat +ve Movement in LFL Gross Profit (£) + ve + ve

*Food & Drink

Balance of price, margin and volume to maximise profit

10

Key Operating Statistics*

Net operating margin: 18.3%

Drink sales : up 3% Food sales : up 7%

Food mix 29.8% sales : up 0.6% points

Outlet staff costs : constant at 23.8% of sales Overhead savings of £5m

*All figures MAB Retail; 2003 restated for FRS5

11

Operating Profit Movement

£275m* +21 £285m* +5

• 15

Trading Overhead Savings External Costs

2003 2004

+£10m

SCPD

• 1

12

FY 2004 Expansionary Capital

High Street Pub Restaurants Restaurants Locals

City Centre Food led Drinks led Residential

Note: Excludes Hollywood Bowl / Other: £7m

£15m £30m £5m

13

High Street Pub Restaurants Restaurants Locals

City Centre Food led Drinks led Residential

• Inc. ROI 17%
• Inc. ROI 16%
• Inc. ROI 10%
• Inc. ROI 14%

Returns by Segment

Note: UK only – excludes Hollywood Bowl Cumulative £1bn expansionary investment over the last 14 years

Incremental ROI - 15% overall, up 1% on last year

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*Unleveraged tax rate

Strong Cash Returns

£m

285 (75) 210 3,463 (731) 50 2,782 10% 10%

12 months to 25 September 2004 £m

EBIT 285 Depreciation/Amortisation 108 EBITDA 393 Cash Tax (at 26% of EBIT)* (75) Cash Return 318 Average Net Operating Assets 3,463 Accumulated Depreciation 285 Revaluations (731) Goodwill written off 50 Cash Capital Employed 3,067

CROCCE

7.5% 7.5%

NOPAT

15

Cashflow (a)

FY 04 £m

EBITDA 393 Working capital / non cash items 30 Maintenance capex (93) Expansionary capex (57) Disposals 51 Additional pension contributions (40) Operating Cashflow after Net Capex 284

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Cashflow (b)

FY 04 £m

Operating Cashflow after Net Capex 284 Net Interest paid (98) Tax paid (34) Normal dividends paid (44) Special dividend (501) Securitisation/separation costs* (27) Other items (3) Net Cashflow** (423)

* Includes £4m exceptional operating expenditure ** Before £28m bond repayments *** Net of £22m securitisation issue costs and £(3)m accrued interest

Closing Net Debt £1.63bn***

17

Financing

* Net Debt / (Net Assets + Net Debt)

Net Debt : EBITDA 4.2x Book Gearing* 50% Interest Cover 2.8x

Well within all securitisation covenants

18

Dividends and Share Repurchase

Progressive dividend policy

Final dividend of 6.65p 2004 total regular dividend 9.5p

Share buy-back programme

Plan to spend £100m in FY05 Maintain efficient balance sheet

Cash returns to shareholders

19

Pensions

Actuarial Valuation at 31/3/04: deficit of £167m**

• Regular service contributions – up £3m p.a.
• Tri-ennial review cycle going forward

Additional cash contributions: £40m over 3 years

• In addition to £20m pledged at securitisation
• Cash payments* - 2005: £30m; 2006: £20m; 2007: £10m

FRS 17 Deficit*: £173m

• Down from £243m (Sep. 2003 ) and £201m (Apr. 2004)

* Excluding tax credit ** On-going basis

Positive approach to reduce pension deficit

20

2005

Pensions Accounting

• Move from SSAP 24 to FRS 17 for FY05
• Impact on FY04 comparative:

IFRS update post Interims 53rd Week

• Adds c.£6m of operating profit, c.£4m PBT

SSAP 24 FRS 17 £m £m Operating Profit Charge (2) (14) Interest Income

• 1

PBT (2) (13) Net Assets 105 (114)

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Summary

Sales-led strategy is working Generating strong cashflow High returns on investment Efficient balance sheet Redeploying cash resources Preserving appropriate flexibility

More value for shareholders

Tim Clarke Tim Clarke

Chief Executive

Preliminary Results 1 December 2004

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Introduction

Strong trading results Successful execution of strategy Benefiting from repositioned estate Momentum continuing into 2005 High returns and increasing cash flow

Clear strategy for delivering value to shareholders

24

Operational Levers

Delivering superior amenity, range, service and value Growing food sales and capturing drinks share Optimal balance of price, volume and mix Pub and corporate level scale benefits of increasing volumes High returns on brand and format investment

Focus on profitable sales growth

25

Strong Like for Like Sales Growth

* weeks 1 – 32 to include Easter in both years

Uninvested Uninvested Same Outlet Same Outlet

3.4% 4.3% 4.4% 5.3% 6.0% 5.8% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

H1* 04 H2 04 8 w ks 05 H1* 04 H2 04 8 w ks 05

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Profitable Market Share Gains

Product Category Same Outlet On-Trade* MAB Market vs LY vs LY Volume Volume 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

Beer + 4%

• 2%

Wines, Spirits, Soft Drinks + 10% + 3% Food + 8% + 3%

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The Role of Price

Most powerful when used with other activity Significant evidence of rising price elasticities Rigorous control trials to maximise gross profits Extent of activity driven by elasticity evidence

• Varies across brand segments, product categories, time

slots and geographies

Like for like standard product deflation, offset by premium mix improvements

A calculated, pragmatic approach

28

Benefits of Estate Repositioning

High takes – AWT’s up 8% to £15.2k Asset scale in high volume locations Brands and formats targeting growth segments

Toby Carvery, Nottingham The Flask, Highgate

29

Estimated Industry Supply & Demand

Segment % of MAB % Growth/Decline Key Factors and UK Pub in MAB Positioning Sales Supply Demand

Source: MAB estimates for 2004

Residential Pub Restaurants 37% 2% 5% Eating-out growth. Well targeted brands Locals Pubs 33%

• 1%

2% Drinks share gains and food growth High St Circuit Venues 11% 0%

• 3%

Systemic over-capacity. Out- performance 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

30

SOURCE: MAB Estimates

Industry Expansionary Capex

£m

31

Residential Segments

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%

Crown Inn, Sutton Coldfield - Ember The Pine Marten, Harrogate Vintage Inns *FY2004

32

Generating Profitable Volumes

Targeted marketing and capacity management

Toby Carvery, Snaresbrook Toby promotion in Saga magazine Toby Carvery, Eastbourne

33

Focus on Range Extension

Wider customer choice drives volumes and opportunities for yield management

Range of fresh fruit juices New Harvester menu Increased and improved cask ale range

34

Maintaining Amenity and Offer Evolution

Harvester, Eastbourne Dexter Hotel, Leeds - Ember

35

Food Capabilities in Local Pubs

Sizzling Pub Co Menu Vesper Gate, Leeds – Sizzling Pub Co

36

Central London Town Pubs for office workers, shoppers, tourists. Day time/early evening Circuit Venues Late Evening

High Street/City Centre Market

Flares, Warrington Old Wellington, Manchester The Clachan, London W1- Nicholsons

Drink price

• 4%

Uninvested like for like sales +1.5% Drink volume + 8% Same outlet like for like sales +3.4%

*FY 2004

37

Range Extension

Yield management opportunities from premiumisation and value offers

38

Capturing Scale Benefits - Purchasing

Volume related improvements in purchasing

• Over 2% net reduction in unit cost of goods

Planning for greater drinks supply freedom

• Beer supply
• Distribution arrangements

Focus on optimal combination of volume, mix and cost

39

Capturing Scale Benefits – Productivity and Overheads

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

Overhead efficiencies through process improvements

• £5m cost savings last year
• Reduction in headcount

40

High Returns from Expansionary Investments

95 completed Biased towards residential local pubs High Sales uplifts Conversions Acquisitions 10 completed 4 with lodges Average weekly takes > £30k Incremental ROI 16% on last two years’ investment

Rising Sun Whetstone – Sizzling Pub co Jack Rabbit, Vintage Inn & Innkeepers Lodge Plymouth

41

Improving Asset Productivity

Lodges on existing sites Non-trading property Business Franchise Proactive disposal

42

Regulatory Issues - Alcohol

Updated Alcohol Social Responsibility policy

Control of promotions Operating rules

Case for pub as best environment for controlled retailing of alcohol

“Responsible Drinks Retailer” award

43

Regulatory Issues - Smoking

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

MAB Approach

• In great majority of estate continue to drive strong food sales growth

Intent of working with Government for improved solution

44

Levers of Future Earnings Grow th

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

Virtuous circle on purchasing, productivity, overheads Investment for high returns Proactive asset management

45

Differentiated Strategy for Growth

Profitable sales growth and continued momentum Outlook for consumer demand uncertain Well positioned to continue to take market share Cash generation Asset appreciation Proactive use of cash resources to generate value

Preliminary Results

1 December 2004