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Karim NaffahKarim Naffah
Finance Director
Bond Investor Briefing – 30 November 2006
2
Highlights Highlights –– 52 weeks to 30 Sept 200652 weeks to 30 Sept 2006
Gross debt outstanding at last year end £1,837m
Gross debt outstanding at this year end £2,455m
EBITDA (reported) £396m
EBITDA (pro-forma*) £394m
Free cashflow £285m
EBITDA DSCR 2.8x
FCF DSCR 2.0x
* Based on rated estate of 1704 pubs (for tap issue)
Tap issue in Q4: £655m additional debt
£450m FRNs refinanced
3
ProPro--forma EBITDA adjusting for acquisitions/disposalsforma EBITDA adjusting for acquisitions/disposals
Reported EBITDA £396m
Full year from 16 acquired pub restaurants £8m
Disposals of 100 pubs to Trust Inns (£9m)
Other disposals / consented disposals (£4m)
Associated reduction in management charge £3m
Pro-forma EBITDA (ongoing estate)* £394m
239 pubs acquired from Whitbread held outside securitisation
* Based on rated estate of 1704 pubs (for tap issue)
4
ValuationValuation
2003 2006
£2.0m
£2.8m
Average Value Per Pub
Estate Valuation £3.85bn £4.83bn
LTV 49% 51%
5
Maintenance & Capital EnhancementMaintenance & Capital Enhancement
Repairs* 32
Maintenance 104
Enhancement 52
188
Securitisation Estate
136 **
*Charged through Profit & Loss account** Versus required amount of £101m
£m
Substantial investment to improve estate quality
6
Free Cash FlowFree Cash Flow
£m
EBITDA 396
Tax (43)
Required maintenance capital (68)
Free cashflow 285
Interest (107)
Principal repayment (37)
Debt Service (144)
Maintenance capital (over required) (35)
Enhancement capital (net of disposals) (28)
Excess cash 78
2.0x
The restricted payment maximum is now £31m
7
SecuritisationSecuritisation CovenantsCovenants
Year H1 H2 Year
FCF: Debt Service 1.9x 1.9x 2.2x 2.0x
EBITDA: Debt Service 2.7x 2.7x 3.0x 2.8x
Net Worth £1.28bn £2.21bn
FY 05 FY 06
Note: Default Covenants. FCF/Debt Service 1.1x, Net Worth of £0.5bn
Restricted Payment Test. FCF/Debt Service 1.3x, EBITDA/Debt Service 1.7x
Well within required covenants
8
MAB Retail MAB Retail vsvs MAB plcMAB plc
FY06 No. of pubs EBITDA (Year end)
MAB plc £430m 2152
MAB Retail (Securitisation) £396m 1847
MAB Retail as % of total 92% 86%
Securitisation estate continues to represent over 85% of MAB
9
Financial HighlightsFinancial Highlights
*Before exceptional itemsNB. Comparatives are for 52 weeks and are restated for IFRS
52 weeks ended 30 September 2006 % Growth
Revenue £1720m 5.5%
EBITDA* £430m 6.7%
Operating profit* £309m 6.9%
Profit before tax* £208m 10.1%
EPS (before exceptional items) 29.3p 15.4%
EPS (including exceptional items) 39.7p 59.4%
Total dividend 12.25p 14.0%
Net Operating Margin up 0.3% to 18%
10
Operating Profit Movement Operating Profit Movement
* For 52 weeks before exceptional items and restated for IFRS** Before exceptional items
+39
(24)
Regulatory & Energy costs
2005
+£20m
Acquired Sites
2006
£289m*
£309m**
+6
Trading SCPD
(1)
11
FY 2006 Expansionary Capital FY 2006 Expansionary Capital
Note: Excludes non trading property: £1m
High Street
Pub Restaurants
Restaurants
Locals
City Centre
Foodled
Drinksled
Residential
£17m £47m
£8m £0m
Incremental ROI on last 2 years investment > 20%
12
Group Points to NoteGroup Points to Note
Net debt now: c. £2.5bn
Interest cover* c.2.3x
Net debt/EBITDA c.5.8x
Dividend
Total dividend 12.25p, up 14%
Special dividend of £1 per share post year end
Progressive policy
Pensions
£60m commitment
£40m paid in October
13
REIT’sREIT’s
Tax efficient structure for property assets
Available from 1 January 2007
Would require split into two independent companies
REIT and OpCo
Cost / benefit equation
Tax advantages; conversion charge; other transition costs
Stability of new legislation; market ratings of separate entities
Fundamental strategic question
Direct link between pub performance and property value
Possible to align economic incentives through contractual framework?
Testing compatibility of REIT with long-term trading success
14
SummarySummary
Strong operating performance
Growing sales; improving margin
Generating high returns on investment
Property appreciation benefits
Value-creative disposals
Refinancing on attractive terms
Using cash resources profitably
Acquired Sites provide additional platform for growth
Special Dividend and share buyback
Growing cashflow and generating value
John ButterfieldJohn Butterfield
Strategy Director
Bond Investor Briefing – 30 November 2006
16
Strategy is DeliveringStrategy is Delivering
Powerful momentum of sales driven growth
Customer focused, value and volume strategy
Sustained like for like sales growth
Market share gains
Productivity and purchasing gains
Acquisition gives eating out market leadership
High returns from conversions
Further repositioning of core estate to food
17
Key Levers of Profits GrowthKey Levers of Profits Growth
Strong growth prospects
Leading the growth of eating outLarge pubs, uniquely positioned to capture neighbourhood dining growthHigh volume, capacity management skillsMenu development
Accelerating drinks market share gainsExtended range, own label, glycol coolingWidening the competitive value gap
Format innovation and evolutionTargeting the high growth segmentsWidening the competitive amenity gap
Extracting the profit benefits of scaleHigh productivity gains in high take pubsRising volumes generate purchasing gains
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Strong LikeStrong Like--forfor--Like Sales GrowthLike Sales Growth
* 32 weeks to include Easter in both years
UninvestedUninvested Same OutletSame Outlet
H1* 06 H2 06 H1* 06 H2 06
4.0%4.2%
2.6%2.6%
0%
1%
2%
3%
4%
5%
6%
Wks 1-7
2.9%
4.5%
Wks 1-7
19
Profitable Market Share GainsProfitable Market Share Gains
(1) Same outlet like for like for 52 weeks vs. equivalent 52 calendar weeks of FY2005 (incl. pubs disposed to Trust Inns in Oct 2006 but exc. Acquired sites)(2) MAB estimates based on BBPA/ AC Neilsen/ ONS for Pub Market
MAB EstimatedVolume Growth (1) Market Vol Growth (2)
Food + 6% + 4%
Wines & Soft Drinks + 6% + 1%
Spirits - 4% - 5%
Beer & Cider + 1% - 3%
20
Repositioned to Growth Repositioned to Growth -- Product Mix*Product Mix*
*Pro-forma including the Acquired Sites and excluding sites disposed in FY06 and to Trust Inns Ltd in Oct 06
Food 35%
Beer & Cider 31%
Wine& Soft Drinks 13%
Spirits 11%
Accommodation & Other 6%
Machines4%
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Rising pub usage by less frequent Rising pub usage by less frequent customerscustomers
44% visit a pub to eat at least once a monthSource: TNS Drinks Market Survey & Alcovision 2006
Monthly
Weekly
> 3x per week
0
10
20
30
40
50
60
70
80
1980 1990 2000 2006
% Of Adults Visiting
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Capturing a disproportionate share of Capturing a disproportionate share of the growth in eating outthe growth in eating out
* Mintel Pub Catering August 2006** excludes the Acquired Sites
Compound Annual Growth In Value 2000-2006
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Eating Out Market* Pub Food Market* MAB**
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High food volumes at pub High food volumes at pub and company leveland company level
Average food sales per week Average meals per week
96 million meals per annum*
* including the Acquired Sites
£14,700
£6,100
Pub Restaurants Total Company
1950
930
Pub Restaurants Total Company
24
Food PrioritiesFood Priorities
Create offers that are hard to replicate at home
Quality on the plate
Value for money
Freshly cooked & healthy
Responding to changing tastes
Catering for all occasions
Build kitchen capability
Prompt and attentive service
25
£0
£2
£4
£6
£8
£10
£12
£14 EagleFarringdon
FreemasonsArms
(Hampstead)
Rose & Crown(Warwick)
Saxon Mill(Warwick)
Beefeater
Harvesterfull price
Chef & Brewer
TwoForOne
BrewersFayre
VintageInns
HungryHorse
EmberInns
PizzaExpress
TobyCarvery
HarvesterEarlyBird
JDW
SizzlingPubCo
PubCarvery
McDonalds
Average Price of a Main Meal (£s)
Value for money in all market segmentsValue for money in all market segments
PREMIUM MID-MARKET MASS MARKET
Source: Menurama
Mitchells & Butlers’ Formats
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Integrated Food and Drinks EconomicsIntegrated Food and Drinks Economics
Combining higher margins of drinks with faster growth of food
Informality and accessibility key to wide social appeal
Strong bar trade is central to profitability
Maximising ancillary drinks sales at the table
Drinks’ higher gross margins and lower employment costs underpin food value proposition
27
Drinks PrioritiesDrinks Priorities
Focus on points of differentiation to “canned beer”
Widening range
Introduce new and innovative speciality beers
Wine, soft drinks and cider
Focus on presentation
Glassware and serve style
Improve serve quality
Glycol cooling systems now in 700 pubs
Develop non-beer drinks
Wine, soft drinks
28
Widening the drinks rangeWidening the drinks range
Own Label 0 13Red 32 64White 66 111Rose 4 22Sparkling 12 22Total Wine 114 232 +118
Own Label 0 13Red 32 64White 66 111Rose 4 22Sparkling 12 22Total Wine 114 232 +118
Number of Products
2001 2006 +/-Standard Lager 3 7Premium Lager 4 18Speciality beer 0 18Cider 10 18Total Beer 17 61 +44
2001 2006 +/-Standard Lager 3 7Premium Lager 4 18Speciality beer 0 18Cider 10 18Total Beer 17 61 +44
29
Product Innovation Product Innovation –– Draught WineDraught Wine
30
Gaining share in the declining onGaining share in the declining on--trade trade beer marketbeer market
Sustainable profitability from market share gainsSource: BBPA
0.9
0.95
1
1.05
1.1
2003 2004 2005 2006
Off-trade volume
On-trade volume
MAB volume
Volume index
31
MAB Managed Tenancies Supermarkets
£0.00
£0.50
£1.00
£1.50
£2.00
£2.50
£3.00
2004 2005 2006
Widening value gap Widening value gap
Average price of a pint of standard lager
MAB now 18p cheaper than managed competitionand 35p cheaper than tenancies
Source: AC Neilsen
32
Driving productivity through capacity Driving productivity through capacity managementmanagement
Productivity gains key to overcoming £24m last year of regulatory and energy cost increases
Staff contribution per hour: +4%*
Increasing volumes enable
More productive deployment of staff
More accurate forecasting and scheduling
Increased earnings for staff
Higher capacity utilisation
Since FY 2003: Sales volumes up 13%, Staff hours up 4%
* Sales less hourly paid wages divided by number of hours worked
33
Purchasing gainsPurchasing gains
Improved purchasing terms enabled reinvestment in higher food specification and gross margins maintained
Unit COGS held flat off-setting:
• duty
• contractual increases
• inflation
Gains from first year of freedom from beer tie
Logistics and technical service costs reduced
Upward pressure on commodity food prices contained
34
MAB locations positioned in higher MAB locations positioned in higher growth marketsgrowth markets
* Includes Acquired Sites and after disposal to Trust Inns Ltd in October 2006
In 1990, c70% of the estate was in inner cities and industrial areas
Affluent Commuter Beltsand Urban Areas
24% of sales
City Centres/Town Centres25% of sales
Mid-Market Suburbia33% of sales
Disadvantaged InnerCities/Ex Industrial Areas
4% of sales
Mass Market Housing Estatesand Students14% of sales
35
Acquired Sites Acquired Sites –– Conversion Progress in Conversion Progress in line with expectationsline with expectations
Intensive pre-acquisition preparations
Rapid implementation of site appraisals and conversions
25 sites reopened: 10% of estate
50 sites to have reopened by Christmas: 21% of estate
c.100 sites to have reopened by Easter: 40% of estate
36
Growth in Pub RestaurantsGrowth in Pub Restaurants
Same outlet like for like sales +5.4%Bulls Head, Bistro, Meriden
c.180 sites from Acquired SitesNeighbourhood, casual dining growth in mid market suburbs
Market leading food volumes:
Harvester: 2,200 meals / pub / week
Toby: 2,500 meals / pub / week
Pub Carvery: 2,550 meals / pub / week
Segmenting the country pub dining marketPremium Country Dining
Bistro
Vintage Inns
Harvester, Windsor
37
Residential PubsResidential Pubs
Same outlet like for like sales +4.7%
Major drinks market share gains
Repositioning to food: 20% sales mix
2nd half like for like food sales up 13%
50 conversions to Sizzling Pub Co and Ember in 06/07
Disposed smaller pubs with limited food prospects
The Fieldhouse, Ember - Solihull
The Barley Mow, Sizzling Pub Co - Banbury
38
High Street / City Centre MarketsHigh Street / City Centre Markets
Same outlet like for like sales up 2.3%Blackfriar, Nicholson’s – Central London
25% of total sales
Central London: buoyant trading
Town Pubs: strong growth
Circuit venues: competition from later hours in local pubs
Maximise food opportunity
39
Smoking Ban and Licensing ReformSmoking Ban and Licensing Reform
Repositioning the offers to overcome regulatory change
SmokingScottish experience weeks 1-7*
Food sales +7%Drinks sales -2%
80% of the England & Wales estate has external areas
Attracting new food customers to smoke free pubs
Licensing
Marginally positive for sales in FY06
Helping reduction in alcohol related disorder across the country
* To 18 November 2006
40
OutlookOutlook
Widening consumer appeal of quality food pubs
Good start to new financial year
Consumer demand above expectations in 2006
Further polarisation in demand trends
Strong food and ancillary drinks growth
Beer decline intensifying
Priority of successfully converting acquired sites
Pipeline of c.400 investment opportunities in core estate
41
SummarySummary
Focus on long term, sustainable, real growth
Eating out market leadership
Widening drinks market share gains
Scale productivity and purchasing gains
Powerful consumer formats generating high returns
Conversion pipeline
Generating and capturing asset appreciation
Questions & AnswersQuestions & Answers
Bond Investor Briefing – 30 November 2006