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1
Roger CarrRoger Carr
ChairmanChairman
Preliminary Results – 29 November 2007
2
KarimKarim NaffahNaffah
Finance DirectorFinance Director
Preliminary Results – 29 November 2007
3
Financial HighlightsFinancial Highlights
Revenue £1,894m 10.1 %
EBITDA* £472m 9.8 %
Operating profit* £343m 11.0 %
Profit before tax* £207m (0.5) %
EPS* 35.5p 21.2 %
Total dividend 14.25p 16.3 %
*Before exceptional items
52 weeks ended 29 September 2007 % Growth
4
Presentational Points to Note Presentational Points to Note –– FY 2007 FY 2007
FY 2007 events
Special Dividend of £486m and share consolidation in Oct 2006
Disposal of 102 pubs to Trust Inns for £101m in Oct 2006
Results include a full year of the Acquired Sites
Revenue £176m; operating profit* £33m
Pre-opening and closure costs of £14m in FY 2007
Acquired Sites included in like-for-like sales from FY 2008
Revaluation of property assets in Group accounts
Increases fixed asset value by £1.1bn
Exceptional charge of £32m after tax
Reporting to debt investors
* Before pre-opening and closure costs
5
FY 2007 Results - SummaryFY 2007 Results - Summary
FY 07 FY 06
£m £m
Operating Profit* 343 309 11.0%
Net Interest (136) (101)
PBT* 207 208 (0.5)%
Tax (62) (64)
Earnings* 145 144 0.7%
EPS* 35.5p 29.3p 21.2%
Average no. of shares 408m 491m
* Before exceptional items
6
HedgingHedging
Put in place to support delivery of JV transaction
Interest rate and inflation swaps
Post tax deficit of £155m at year-end date
Falling long term interest rates
Rising long term inflation expectations
Reduced liquidity
Exceptional accounting item – not cash
Utilise hedges in a future property based financing
Remain committed to property-based refinancingRemain committed to property-based refinancing
7
FY 2007 Results FY 2007 Results –– Exceptional Items Exceptional Items
£m Gross Net
Operating Profit
- Financial hedges (221) (155)
- Property disposals 22 15
- Impairment from revaluation (45) (32)
- Integration of Acquired Sites (4) (3)
- Property JV transaction (7) (7)
- Tax adjustments 27
Total Exceptional Items (255) (155)
8
Operating PerformanceOperating Performance
FY 07 FY 06
£m £m
Revenue
Pubs & Bars 968 958 1.0%
Restaurants 908 762 19.2%
SCPD 18 -
1894 1720 10.1%
Operating Profit*
Pubs & Bars 191 179 6.7%
Restaurants 145 130 11.5%
SCPD 7 -
343 309 11.0%
Retail
+9.1%
Retail
+8.7%
*Before exceptional items
9
Underlying Profit GrowthUnderlying Profit Growth
+ 4.0%129 16145Operating Profit
+ 2.7%748 160908Revenue
Restaurants
+ 11.9%+ 5.0%188 3191Operating Profit
+ 3.5%- 0.6%952 16968Revenue
Pubs & Bars
%%£m£m£m
Adjusted
Growth
vs LY*
Core
Growth
vs LY
Core
Estate
Acquired
Sites
Division
Total
FY 2007
*Excluding contribution from major disposals
Strong underlying improvement in marginsStrong underlying improvement in margins
10
Like-for-Like Sales: Divisional*Like-for-Like Sales: Divisional*
FY 07 H1 07**
Same Outlet (Invested and uninvested pubs)
Pubs & Bars 4.7% 5.1%
Restaurants 1.0% 1.6%
Total*** 3.0% 3.6%
Uninvested
Pubs & Bars 3.0% 3.4%
Restaurants 0.1% 0.4%
Total*** 1.7% 2.1%
* Excludes Acquired Sites
** 32 weeks to include the entire Easter Period
*** Includes Hollywood Bowl
11
Like-for-Like Sales: Segment*Like-for-Like Sales: Segment*
FY 07 H1 07**
Same Outlet (Invested and uninvested pubs)
Residential 3.1% 4.1%
High Street 3.0% 2.9%
Total 3.0% 3.6%
Uninvested
Residential 1.5% 2.3%
High Street 2.3% 2.2%
Total 1.7% 2.1%
* Excludes Acquired Sites
** 32 weeks to include the entire Easter period
12
Balancing Sales Growth & MarginBalancing Sales Growth & Margin
FY 07 H1 07
Uninvested LFL Sales* +1.7% +2.1%
Average Selling Price** up < 2% up 2%
Movement in Gross Margin (%) flat
Movement in LFL Gross Profit (£) +ve +ve
Sustaining LFL cash contribution from salesSustaining LFL cash contribution from sales
* like-for-like sales to 32 weeks to include the entire Easter weekend in both periods
** Drink & Food
Slightly down
13
Retail Operating Statistics*Retail Operating Statistics*
Strong margin performanceStrong margin performance
Same outlet drink sales: up 2.2%
Same outlet food sales: up 5.1%
Outlet staff costs: 23.6% of sales
Tight cost controls
* Excludes Acquired Sites
14
Operating Profit MovementOperating Profit Movement
2005
(8)
Regulatory
Costs
2006
+ £34m
2007
£309m*
£343m*
* Before exceptional items
Trading
+33
SCPD
+7
Acquired
Sites
+27
Disposals
(11)Closure and
Pre-opening
Costs
(14)
15
FY 2007 Expansionary CapitalFY 2007 Expansionary Capital
High Street
Pub Restaurants
Restaurants
Locals
City Centre
Food
led
Drinks
led
Residential
Core £25m
Acquired Sites £12m
Core £20m
Acquired Sites £68m
Core £5m Core £0m
Note: Excludes non trading property (£1m)
16
High Street
Pub Restaurants
Restaurants
Locals
City Centre
Food
led
Drinks
led
Residential
Inc. ROI 22% Inc. ROI 18%
Inc. ROI 11%Inc. ROI 18%
Returns by SegmentReturns by Segment
Notes: Incremental ROI is calculated before tax and after depreciation
Cumulative £1.1bn UK expansionary investment over the last 16 years, excluding Acquired Sites
18% overall incremental ROI18% overall incremental ROI
17
* Unleveraged tax rate
** Excluding 2007 revaluation
Strong Cash ReturnsStrong Cash Returns
£m
343
(89)
254
3,820
(685)
50
3,185
10.8%10.8%
12 months to 29 September 2007
£m
EBIT 343
Depreciation/Amortisation 129
EBITDA 472
Cash Tax (at 26% of EBIT)*
(89)
Cash Return
383
Average Net Operating Assets**
3,820
Accumulated Depreciation 347
Revaluations**
(685)
Goodwill written off 50
CROCCE
8.0%8.0%
NOPAT
18
Cash Flow (a)Cash Flow (a)
FY 07
£m
EBIT 343
Depreciation & amortisation 129
EBITDA 472
Working capital / non cash items 19
Maintenance capex (122)
Expansionary capex (131)
Purchase of Acquired Sites (8)
Disposals 162
Additional pension contributions (40)
Operating Cash Flow after Net Capex* 352
£(99)m
* Before exceptional operating expenditure of £12m
19
Cash Flow (b)Cash Flow (b)
FY 07
£m
Operating Cash Flow after Net Capex 352
Net Interest paid (145)
Tax paid (33)
Normal dividends paid (52)
Special Dividend paid (486)
Exercise of share options 11
Shares repurchased (46)
Net Cash Flow* (399)
* Before total expenditure on exceptional items of £12m and bond repayments of £39m
Closing Net Debt : £2,479mClosing Net Debt : £2,479m
20
Free Cash FlowFree Cash Flow
£191m
Free Cashflow*EBITDA
£472m
Net Cashflow
£(399)m
* Free cashflow = EBITDA + working capital – maintenance capital – interest - tax
21
FinancingFinancing
* Net Debt / (Net Assets + Net Debt)
** Excluding net finance income from pensions
Net Debt : EBITDA 5.25x
Book Gearing* 61%
Interest Cover** 2.3x
Lower net finance income from pensions in FY08Lower net finance income from pensions in FY08
22
PensionsPensions
IAS 19 deficit of £18m, as at 29 September 2007
Updated mortality assumptions
Full Actuarial Valuation as at 31 March 2007
Gilts-based deficit of c.£250m
Recovery plan to close past service deficit
Schedule of future contributions being finalised
Special contribution of £4m in FY08, plus £20m already committed
Special contributions of £24m p.a. for FY09 and FY10
Next formal review in three yearsNext formal review in three years’’ time time
23
Property UpdateProperty Update
Rigorous review of different ways to release
additional value from property
Preferred option was JV transaction and R20 was
most competitive bidder
Debt market crisis in July prevented implementation
Valuation gap still exists
Actively looking at options to realise objective as
soon as debt markets permit
Revisiting merits and feasibility of a REIT
Aim to access property upside for shareholdersAim to access property upside for shareholders
24
Property ValuationProperty Valuation
Property value of £5bn in year end accounts
Revaluation of freehold / long leasehold properties up £1.1bn
Aggregate value of individual pubs – not portfolio
Plan to revalue each year on a rolling basis
Alternative valuation based on PropCo structure
Freehold / long leasehold properties alone worth £4.8bn*
Based on yield of 5.8% on £280m of rent
Excludes value of OpCo – c.£200m underlying EBITDA for
FY07
Valuation upside from high quality estateValuation upside from high quality estate
* Before any purchaser’s costs
25
DividendsDividends
Ordinary Dividend
Final: 10.0p, up 16.3%
Total: 14.25p, up 16.3%
Special Dividend
£1 per share in Oct 2006
Maintain progressive policy for dividendsMaintain progressive policy for dividends
26
SummarySummary
Generating further value for shareholdersGenerating further value for shareholders
Good sales growth and operating margin result
On track for full uplifts from Acquired Sites in 2008/9
Achieving high returns on investment
Strong cash flows from trading and from disposals
Aim to release additional value from property
Dividend increase of 16.3%
27
Tim ClarkeTim Clarke
Chief ExecutiveChief Executive
Preliminary Results – 29 November 2007
28
Year of Strong GrowthYear of Strong Growth
Fourth year of strong growth: EPS 2003-07 up 105%
Value and volume strategy driving market share gains
Format innovation delivering high returns
Productivity, purchasing and efficiency gains
Rapid conversion of Acquired Sites
Strengthened competitive positionStrengthened competitive position
29
Operational StrategyOperational Strategy
Tightening consumer environment
Rapid response to changing market conditions
Reinforcing value and volume strategy
Gearing up roll-out of category killer formats
Pubs & Bars
Sustained volume driven growth
Rapid food growth and drinks share gains
Restaurants
Enhancing value and quality of winter menus
Initial sharp upturn in volumes in November
Sustainable, volume driven profitabilitySustainable, volume driven profitability
30
Profitable Market Share GainsProfitable Market Share Gains
(1) Same outlet like-for-like growth
(2) MAB estimates based on BBPA/AC Neilsen/ONS
MAB Estimated
Volume Growth (1) Market Volume Growth (2)
Food 6% 3%
Wine & Soft Drinks 1% -2%
Spirits -1% -4%
Beer & Cider 0% -4%
31
Sales MixSales Mix
Increasing exposure to growth categoriesIncreasing exposure to growth categories
Note: Managed Sales
Food
Beer & Cider
Spirits
Wines & Soft
Drinks
Accom &
Other
Machines
37%
31%
13%
11%
5%3%
32
Divergent Disposable Income TrendsDivergent Disposable Income Trends
Low paid/
unemployed
Skilled
blue collar
Mainstream
suburban
Professionals/
managerial
Socio/
Economic grp
Tax credits/
welfare
Full
employment
Interest rates/
stealth taxes
Strong earnings
growth
Economic
position
4%25%44%27%MAB estate
segmentation
+3.5%
+3.8%
31%
+3.0%+6.6%+5.6%ONS inflation
rates by social
group
+3.0%+2.6%+4.3%Earnings growth
13%38%17%% of UK
Households
Source: MAB estimates from current ONS and Family Spending Survey data
(1.3)% (4.0)% +0.3% 0.0%
33
Profitable Food Sales GrowthProfitable Food Sales Growth
High sales sensitivity to customer value perceptions
High price elasticity in mid/lower affluence segments
Rising menu quality expectations in higher affluence segments
Customer buying behaviours different by occasion
Daytime / early evenings – value and speed
Later evenings / weekends – quality and service
Attracting higher food volumes
Generates high margin drinks sales
Low marginal employment costs
High GP drop through to operating margin
Revenue investment in quality and valueRevenue investment in quality and value
34
Retail PriceRetail Price
Value positioning to drive market share gainsValue positioning to drive market share gains
Note: Includes the Acquired sites
Drinks Food
2
3
LFL Price
1
4
+2.6%
+3.4%
1
+0.8%
+1.6%
-0.8%
-2.4%
Mix/Range
LFL Price
Mix/Range
LFL Price
Avera
ge R
eta
il P
rice (
%)
35
High Food Volumes at Pub& Company Level
107 million meals per annum107 million meals per annum
* Excludes the Acquired Sites
Like-for-like food sales up 5.1%*
Average weekly food sales £6,800: +12%
Average number of meals served per week: 1070: +15%
Total food sales £684m: +22%
36
Source: Menurama
PREMIUM MID-MARKET VALUE
Average Price of a Main Meal (£s)Average Price of a Main Meal (£s)
Value for money in all market segments
37
The Value and Volume ModelThe Value and Volume Model
Pub & Carvery example
2004 2007
Average spend per head £4.71 £4.01 -15%
Average meal volumes per pub per week 1,800 2,950 +64%
Price elasticity >4 times
42% drinks sales mix
Ave profit per pub +29%
Very attractive profitable volume growthVery attractive profitable volume growth
38
0.8
0.85
0.9
0.95
1
1.05
1.1
Mar
-03
Jun-
03Sep
-03
Dec
-03
Mar
-04
Jun-
04Sep
-04
Dec
-04
Mar
-05
Jun-
05Sep
-05
Dec
-05
Mar
-06
Jun-
06Sep
-06
Dec
-06
Mar
-07
Jun-
07Sep
-07
Dec
-07
Mar
-08
Gaining share in declining on-tradeGaining share in declining on-tradebeer marketbeer market
Sustainable profitability from market share gainsSustainable profitability from market share gains
Source: BBPA: * Excludes MAB Volume: ** MAB same outlet volumes to October 2007
Off-trade volume
On-trade volume*
MAB volume**
MAT Beer Volume
39
+8% +8% +14% -1%Price change:
FY03 to FY07
Drinks Price GapDrinks Price Gap
Source: AC Neilsen
Balancing short profitability with long term share gainsBalancing short profitability with long term share gains
Average Price per Pint of Standard Lager - FY07
£0.73
£2.48£2.27£2.12
£0.00
£0.50
£1.00
£1.50
£2.00
£2.50
£3.00
MAB Managed Leased Supermarkets
40
Wine, Soft Drinks and CoffeeWine, Soft Drinks and Coffee
Wine
Sales volumes +3%
Draught dispense in 600 pubs
Own label
Soft Drinks
Sales volumes flat
Fresh juices +4%
Draught carbonates +1%
Packaged carbonates & mixers -5%
Coffee
Sales volumes +23%
c.1,200 coffee machines installed
41
Efficiency Gains
Productivity
Rapid growth in staff contribution per hour: +3.9%*
Enhancement of scheduling system
Purchasing
COGS index increases held to under 1%
£7m of purchasing synergies from acquisition
Infrastructure efficiencies
Current year rationalisation process underway
£7m of annualised cost savings to be delivered in 08/09
year
Scale efficiencies underpin value and volume strategyScale efficiencies underpin value and volume strategy
* Excluding the Acquired Sites
42
Residential Pub RestaurantsResidential Pub Restaurants
Suburban Pub Restaurants
Good growth in Harvester,
Toby, Pub & Carvery
Commuter Belt Pub Restaurants
Decline in Vintage Inns
New competitive capacity
Mid market slow-down in
disposable incomes
Same outlet like-for-likes +0.7%Same outlet like-for-likes +0.7%
Toby Carvery, Banbury
The Hedgehog, Vintage Inns, Lichfield
43
Pub Restaurants Margin Reinvestment
Plan to reinvest c.2% of food margin in quality and value
Concentrated in:
Vintage Inns menu quality
Harvester and Toby value and quality
Pub Carvery value
Introduced at end October: Dark Nights menus
Strong growth upswing in November
In all cases generating:
Higher main meals cash GP
Incremental starters / desserts and drinks
Staff productivity gains
Higher net operating profit
Margin reinvestment to drive Pub RestaurantsMargin reinvestment to drive Pub Restaurants’’ profitability profitability
44
Pub Restaurants Pub Restaurants –– Acquired Sites Acquired Sites
Rapid integration process
172 sites converted to date
9 Franchised
15 disposed on premium multiples
Remaining conversions to be
completed in first half
Outstanding site quality
Speed of integration delivers growth platformSpeed of integration delivers growth platform
The Scotsbridge Mill, Premium Country Dining, Rickmansworth
45
Pub Restaurants Pub Restaurants –– Acquired Sites Acquired Sites
Initial sales uplifts of c.20%
Residential sites strongly ahead
Poor Summer impacted destination sites
Post conversion sales build up
Strongest uplifts:
Limited change in customer profile
Overtness of branding
Strong value offer
Post conversion focus:
Productivity
Operating margins
Confident in delivery of 08/09 year targetsConfident in delivery of 08/09 year targets
The Oakmere, Harvester, Potters Bar
46
Residential PubsResidential Pubs
Widening drinks market share gains
Repositioning to food: 21% sales mix
Food sales up 16%
High returns from c.70 conversions
Rapid expansion in Sizzling Pub Co,
Cornerstone and Metro Professional
Exited pubs with limited food potential
The Travellers Rest, Sizzling Pub Co, Reading
Merry Hill, Cornerstone, Wolverhampton
Same outlet like-for-likes +6.3%Same outlet like-for-likes +6.3%
47
High Street & City Centre MarketsHigh Street & City Centre Markets
25% of sales
Strong format portfolio
Successful evolution of
O’Neill’s, Scream & Town Pubs
Central London buoyant:
All Bar One, Nicholson’s
Rapid food growth
Breakfast and coffee
opportunity
Same outlet like-for-like sales growth +3.0%Same outlet like-for-like sales growth +3.0%
Clachan,
Nicholson’s,
London
The Queen of Hearts, Scream, Manchester
48
Estate DevelopmentEstate Development
c.100 conversions including remaining Acquired Sites
6 to 8 new build, high take, super-pubs
Increasing focus on category killer, value formats
Rapid expansion of Sizzling Pub Co, Pub Carvery, Cornerstone
Over 50 to be opened this year
c.300 pubs, over 15% of the total estate by end 2008
Average sales uplifts of £7k per week
High returns from estate repositioning toHigh returns from estate repositioning to
highest growth segmentshighest growth segments
49
Smoking BanSmoking Ban
2nd year strong growth in Scotland2nd year strong growth in Scotland
Initial post ban slowdown in EnglandInitial post ban slowdown in England
2.2%
0.4%
3.2%
4.0%
6.7%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Ban to
end FY06
FY 07 wks
1-16
FY 07 wks
17-32
FY 07 wks
33-52
FY08 1-
7wks
Scottish like-for-like sales since ban
50
Current TradingCurrent Trading
Same outlet like-for-likes up 1.4% in first seven weeks
Same outlet like-for-likes up 2.4% in November
Positive impact of new menus and pricing actions in Restaurants
Pubs & Bars accelerating drinks share gains & food sales growth
Remaining Acquired Sites to close for conversion
Out-performance in a more challenging market conditionsOut-performance in a more challenging market conditions
Stronger NovemberStronger November
51
OutlookOutlook
Uncertain consumer outlook
First winter of smoking ban impact
Resilience against on-trade declines
Positive consumer response to Restaurants’ sales actions
Power of MAB format portfolio
Focus on top line growth from managed super-pubs
Intensifying value and volume model
Attractive strategy for scale operator with high takes
Accelerating share gains amidst challenging trading conditionsAccelerating share gains amidst challenging trading conditions
52
Property and StrategyProperty and Strategy
Overriding commitment to shareholder value
Unlocking the embedded value of the estate
Higher valuations placed by dedicated property investors
Best sites, formats and operational skills
Key is mutual incentives for property and operations in lease
arrangement
Equity growth case for both property and operationsEquity growth case for both property and operations
53
SummarySummary
Out-performing amidst tougher conditions
Formats positioned to growth segments
Scale advantages in value driven markets
Operational excellence, cost efficiency
Consolidation opportunities
Property: reviewing options for unlocking value
Focus on sustainable shareholder valueFocus on sustainable shareholder value
Questions & AnswersQuestions & Answers
Preliminary Results – 29 November 2007