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Andrew VaughanAndrew Vaughan
Group Treasurer
Bond Investor Update – 27 November 2008
2
HighlightsHighlights
Gross debt outstanding at year end £2,374m
EBITDA (reported) £398m
Free cashflow £341m
Debt / EBITDA 6.0x
EBITDA DSCR* 2.3x
FCF DSCR* 2.0x
EBITDA above level at time of Securitisation tap in September 2006
* Relevant Year
3
Free Cash Flow
EBITDA 398Tax 6Required maintenance capital (63)Free cashflow 341
Interest (133)Principal repayment (41)Debt Service (174)
£m
2.0x
£m
4
Securitisation Covenants
H1 H2 Year
Free Cashflow:Debt Service 2.0x 1.9x 2.0x
EBITDA:Debt Service 2.2x 2.4x 2.3x
Net Worth £1.61bn
FY 08
Well within required covenants
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
5
Maintenance & Capital Enhancement
Repairs* 29
Maintenance 85
Enhancement 42
156
Securitisation Estate
114 (vs. required amount of £93m)
£m
Substantial investment to maintain and enhance estate quality
*Charged through Profit & Loss account
6
Cashflow - uses
£m
FCF 341
Debt Service (174)
Maintenance Capital (over required amount) (21)
Net Capital Enhancement Expenditure* 22
Excess Cash 168
Restricted Payments made (147)
Restricted Payment Maximum increase 21
Restricted Payment Maximum at start of year 39
Restricted Payment Maximum at end of year 60
*Net of cash released from disposal proceeds
7
MAB PLC vs. MAB Retail Limited
Number of pubs* 1,993 1,704
Turnover 1,908 1,607
EBITDA 477 398
EBIT 343 287
Securitisation Estate
£m
Difference driven by 289 pubs and head office infrastructure outside the Securitisation
PLC
£m
*As at 27 September 2008
Jeremy TownsendJeremy Townsend
Finance Director
Bond Investor Update – 27 November 2008
9
Key MessagesKey Messages
Resilient sales growth
Robust operating profit performance in a challenging environment
Capital investment has continued to earn good returns
Strong cashflows from operations
Significant debt reduction
Non-core asset disposal program impacted by credit conditions
To accelerate reduction in unsecured facility dividend payments have been suspended
Reducing debt to give strong platform for market out-performance
10
Financial HighlightsFinancial Highlights
52 weeks ended 27 September 2008 Growth
Revenue £1,908m 0.7%
EBITDA* £477m 1.1%
Operating profit* £343m -
Net Interest* £164m (20.6)%
Profit before tax* £179m (13.5)%
EPS* 31.5p (11.3)%
Resilient sales growth and robust operating performance* Before exceptional items and IAS 39 movements
11
Exceptional Items and IAS 39 MovementsExceptional Items and IAS 39 Movements
£m Gross Net
Operating ProfitLoss on swap closure (182) (129)
Strategic review (12) (9)
Impairment revaluation (160) (136)
Fair value adjustments (46) (42)
Property disposals 6 4
Tax credit 26Total Exceptional Items (394) (286)
IAS 39 movements (23) (17)
(206)
12
LikeLike--forfor--Like Sales GrowthLike Sales Growth
H1 07/08 H2 07/08 1st 8 weeks 08/09
1.4%
0.8%
1.0%
Consistent like-for-like sales trend
13
Divisional Operating PerformanceDivisional Operating Performance
FY 08 FY 07£m £m
Revenue Pubs & Bars 954 968 (1.4)%Restaurants 939 908 3.4%SCPD 15 18
1,908 1,894 0.7%Operating Profit*
Pubs & Bars 176 191 (7.9)%Restaurants 156 145 7.6% SCPD 11 7
343 343 -
Retail0.9%
Retail(1.2)%
Strong growth in Restaurants; Pubs & Bars impacted by smoking ban* Before exceptional items and IAS 39 movements
14
Underlying Profit GrowthUnderlying Profit Growth
(2.3)%12630156Operating Profit
1.7%761178939Revenue
Restaurants
(7.0)%1724176Operating Profit
flat93123954Revenue
Pubs & Bars
%£m£m£m
Underlying Growth*
Core Estate
Acquired Sites
Division Total
FY 08
Smoking ban and cost pressures reduce net margins* Year on year movement for the core estate excluding disposals
15
Key Operating StatisticsKey Operating Statistics
Same outlet food sales: up 4.9%
Same outlet drink sales: down 0.8%
Gross margin down 1.4% points
Outlet staff costs: 24.2% of sales
Tight cost control
Increased inflationary cost pressures
Overall net operating margin 17.5%Note: all figures relate to Retail
16
Operating Profit Movement Operating Profit Movement
Original Acquired
Sites
+15
* Before exceptional items and IAS 39 movements
External Costs
SCPD
+4
FY08FY07
Trading £343m*£343m*
(30)
+13
(2)Disposals
Strong trading performance offset by external costs
17
Outlook for FY09 CostsOutlook for FY09 Costs
Volatile energy and food costs
Estimated £30m of inflationary cost pressure in food and energy
Forward markets indicating sharp declines in second half food and energy costs
£20m of additional regulatory cost increases
Productivity, food margin management and other cost savings estimated at £20m
Require c.3% like-for-like sales to hold operating profits flat
Further inflationary cost pressures but mainly in first half
18
FY08 Expansionary Capital FY08 Expansionary Capital
High Street
Pub Restaurants
Restaurants
Locals
City Centre
Foodled
Drinksled
Residential
Core £23m
Original Acquired Sites £1m
Core £21m
Original Acquired Sites £30m
Core £7m
16% investment return on expansionary capex
19
CapexCapex InvestmentsInvestments
FY08 Returns
CROCCE return 10.6%
NOPAT return 8.0%
FY09 projected capex
Reduction in organic expansionary capex while debt reduction prioritised
£18m allocated to 44 new site conversions
Bulk of capex focused on maintenance of amenity
Total capex for year projected at £120m
Well invested estate with high amenity standards
20
Group Debt and Outstanding FacilitiesGroup Debt and Outstanding Facilities
Sept 08 Feb 08£m £m
Securitisation gross debt (2,361) (2,391)
Cash / other 140 76
Unsecured facility (514) (595)
Net debt (2,735) (2,910)
Unsecured facility 600m 700mHeadroom +86m +105m
Net debt reduction of £175m in 8 months
21
Cash Flow (1)Cash Flow (1)
FY 08 FY 07 £m £m
EBIT 343 343
Depreciation & amortisation 134 129
EBITDA 477 472
Working capital / non cash items 33 19
Maintenance capex (111) (122)
Expansionary capex (82) (139)
Total capex (193) (261)
Disposals 82 162
Net capital expenditure (111) (99)
Additional pension contributions (24) (40)
Operating Cash Flow after Net Capex* 375 352
* Before expenditure on exceptional items
22
Cash Flow (2)Cash Flow (2)
FY 08 FY 07£m £m
Operating Cash Flow after Net Capex 375 352
Net Interest paid (164) (145)
Tax paid (4) (33)
Normal dividends paid (58) (52)
Special dividend paid - (486)
Issue of share capital 3 11
Shares repurchased (5) (46)
Net Cash Flow 147 (399)
Exceptional Cash Flow Items £(412)m £12m
Significant operational and other cash flow potential to reduce facility
23
Focus on Reducing DebtFocus on Reducing Debt
Facility Unsecured Secured Total
FY08 Current £600m
FY09 December 2008 £550m 50 43 93
FY10 December 2009 £400m 150
FY10 June 2010 £350m 50 46 246
FY11 December 2010 £300m 50 49 99
Amortisation
£339m of scheduled amortisation over next 2 years
24
Balance SheetBalance Sheet
Net Debt : EBITDA 5.7x
Book Gearing* 69%
IAS 19 Pension deficit £23m
Property Value** £4.7bn
Strong balance sheet and strengthening financial platform* Net Debt / (Net Assets + Net Debt)** Incorporates fixed assets and assets held for resale
25
SummarySummary
Well positioned to further accelerate market share gains
Opportunity for leverage from Original Acquired Sites
Strong operational performance driving productivity gains
Easing pressure from inflation
Cash conservation is key priority
Capital investment programme focussed on maintaining amenity
Dividend payments to resume once unsecured debt is reduced
Well positioned to deliver continuing out performance
Andrew VaughanAndrew Vaughan
Group Treasurer
Bond Investor Update – 27 November 2008
27
Strategy for a RecessionStrategy for a Recession
Generating resilient like-for-like sales performance
Profitable optimisation of volume, price and mix
Productivity and purchasing efficiency gains
Delivering strong uplifts on Original Acquired Sites
Prioritising debt reduction
Reduced capex focus on maintaining amenity levels
Dividend suspended to pre-empt facility step-down
Market share gains, cost efficiencies and cash conservation to withstand recessionary pressures
28
Key Trading PrioritiesKey Trading Priorities
Caution on FY09 market prospects
Top line sales focus crucial to operationally geared model
Protecting amenity, quality, price, service
Value and volume strategy responsive to consumer trends
Deploy purchasing scale to deliver customer needs
Drive marketing scale economies of format portfolio
Accelerating market share gains from widening value gap
Competitive out-performance opportunity enhanced by recession
29
LikeLike--forfor--Like Sales (%)Like Sales (%)
FY 09 FY 08 FY 088wks H2 H1*
Divisional
Pubs & Bars (0.2) (0.3) (0.5)
Restaurants 2.3 3.3 2.2Segmental
Residential 1.9 2.4 0.8
High Street (0.7) Flat 0.3
Total** 1.0 1.4 0.8
FY08 like-for-like sales growth of 1.0%* 32 weeks to include the entire Easter period** Includes Hollywood Bowl
30
Profitable Market Share GainsProfitable Market Share Gains
MAB EstimatedVolume Growth (1) Market Volume Growth (2)
Food 8% 2%
Wine & Soft Drinks 2% -6%
Spirits -6% -7%
Beer & Cider -2% -8%
Acceleration in market share gains
(1) Same outlet like-for-like growth (2) MAB estimates based on BBPA/AC Neilsen / ONS
31
UK Food Growth UK Food Growth –– FY08FY08
Food sales mix 39%
Like-for-like food sales up 4.9%
Total food sales up 7.7%
Average weekly food sales per pub up 7.2% to £7,800
Average number of meals per pub per week up 10.2% to 1,220
Serving over 110 million meals per annum
Enhanced purchasing scale
Food volumes up 72% in 5 years
32
Beer Market Volume OutBeer Market Volume Out--performance*performance*
2%
3%
4%
5%
6%
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Volu
me
out-p
erfo
rman
ce (%
poi
nts)
Strategy is driving increasing market share gains • Rolling MAT volume out-performance by MAB of on-trade beer market (% points)Source:BBPA
33
Retail PriceRetail Price
Drinks Food
Mix/Range
LFL Price
-3.7%
2
3
4
+0.3%
Value positioning to drive market share gains
1
-2.8%
+2.5%
+2.8%+0.9%LFL Price
LFL Price
Ave
rage
Ret
ail P
rice
(%)
Mix/Range
1
2
3
34
Margin ManagementMargin Management
Maximising cash contribution at net operating margin level
Challenges of input cost inflation and shift to lower margin food
Maximise volume, purchasing and productivity gains
Sales growth, offsetting gross margin reinvestment from value strategy
Accelerating market share gains and efficiency improvement reduced 1.4% gross margin decline to 0.4% net margin decline
Sustaining top line in recessionary conditions
Eventual benefit from easing of commodity prices in 2nd half FY09
Customer focused strategy delivering sustainable volume driven profitability
35
Eating Out Market Average Spend & Eating Out Market Average Spend & Volume Volume
Quick Service Restaurants
£0
£2
£4
£6
£8
£10
10 20 30 40 50 60 70 80 90 100Volume Share (%)
£3.22 Pubs
£7.92MAB£6.05
Full Service Restaurants
£9.45
Transport &Leisure
£6.07
Spend per Meal
MAB out-performing eating out market by 6%
Source: NPD Crest Sep 2008NB.Transport and Leisure, includes hotels, motorway and railway service stations, cinemas, garden centres, department stores etc.
36
The Market The Market ––Value for Money in All Market SegmentsValue for Money in All Market Segments
Average price of a main meal (£)
£0.00
£2.00
£4.00
£6.00
£8.00
£10.00
£12.00
£14.00
Ros
e an
d Cr
own
(War
wic
k)
Eag
le F
arrin
gdon
PCDG
Che
f & B
rew
er
Fran
kie
& B
enny
's
Bee
feat
er
Orc
hid
Carv
ery
Piz
za E
xpre
ss
Tayb
arns
Vint
age
Inns
Wag
amam
a
Har
vest
er
Gou
rmet
Bur
ger K
itche
n
Bre
wer
s Fa
yre
Har
vest
er E
arly
Bird
All B
ar O
ne
Nich
olso
n's
& L
P
Toby
Car
very
Embe
r Inn
s
Nan
do's
JD W
ethe
rspo
ons
Hung
ry H
orse
Sizz
ling
Pub
Co.
2 fo
r 1
(Spi
rit)
Tow
n P
ubs
Cro
wn
Car
very
PREMIUM MID MARKET VALUE
Source: Menurama
37
Key Menu PrioritiesKey Menu Priorities
Menus tailored to different timeslot needs
Different dynamics of value, mid-market and premium segments
Widen range of choice and price points on menus
Menu management to mitigate margin impact of products with highest cost inflation
Emphasis on fish and chicken versus red meat and turkey
Rapid response to changing consumer demand patterns
38
Menu DevelopmentMenu Development
Day time value sessions
Protect KVI* entry point dishes to attract customers trading down
Introduction of complementary value packages alongside main menus in mid-market and premium offers
Evening and weekend premium sessions
Enhance quality of dishes to respond to demand for “more for same”
Extend range of premium dishes and “special boards”
Attracting customers from full service restaurants to pub restaurants
Passing on VAT reductions on food to customers
Optimising volume, price and mix*Key Value Indicator
39
Sizzling Pub Co.Sizzling Pub Co.
www.sizzlingpubs.co.ukwww.sizzlingpubs.co.uk
40
Crown Crown CarveriesCarveries
www.crowncarveries.co.ukwww.crowncarveries.co.uk
41
Town PubsTown Pubs
42
Vintage InnsVintage Inns
www.vintageinn.co.ukwww.vintageinn.co.uk
43
Ember InnsEmber Inns
www.emberinns.co.ukwww.emberinns.co.uk
44
TobyToby
www.tobywww.toby--carvery.co.ukcarvery.co.uk
45
Premium Country Dining Premium Country Dining
The SeahorseThursday 20th November
Chris Goodchild our Head Chef is Proud To Recommend:
Soup:Roast Tomato + Bombay Sapphire Gin 4.45
Scallops:Seared Scallops + Black Pudding + Pea & Mint Puree
+ Rocket 7.95Risotto:
Smoked Haddock + Mixed Peppers+ Spring Onion 10.95
Fish:Prosciutto Wrapped Fillet of Halibut + Asparagus + Dill Veloute
+ Herb Cous Cous 13.45Pan-Fried Medallions of Monkfish + Fennel Mash + Broccoli
+ Cherry Tomato + Pesto Cream 14.45Meat:
Fillet Steak + Wild Mushroom Gratin Tart+ Horseradish Mash 19.95
www.thetroutoxford.co.ukwww.thetroutoxford.co.uk
46
Key Drinks PrioritiesKey Drinks Priorities
Beer & CiderExtending range of premium imported lagers: volumes up 33%
Wider distribution of cask ales: volumes up 9%
Growth of cider from new product lines: volumes up 12%
Cellar training: 700 cask marque accreditations
Taking share in declining UK-brewed lager sector
Wine and soft drinksSoft drinks volumes up 2% and hot drinks volumes up 8%
Focus on draught wine: volumes up 59%
SpiritsLong drinks and cocktails to revitalise category
Extending range in growth categories, taking share in declining lager market
NB. All volumes quoted are same outlet like-for-like
47
World Beers, Cask Ale & CiderWorld Beers, Cask Ale & Cider
48
Wine, Soft and Hot DrinksWine, Soft and Hot Drinks
49
Drinks Price GapDrinks Price Gap
Average Price per Pint of Standard Lager – Sept 08 vs Sept 07
£0.00
£0.50
£1.00
£1.50
£2.00
£2.50
£3.00
MAB Managed Pubs Total Tenancy /Leased
Total GroceryMultiples
+6p+10p
+14p
FY07 FY08
+4p
MAB over 40p less per pint than leasedSource: AC Nielsen
50
Efficiency GainsEfficiency Gains
Productivity
Rapid growth in staff contribution per hour +5.4%
Training, deployment, scheduling systems
Purchasing
Food inflation held to 3%
Volume growth mitigating commodity pricing pressures
Infrastructure efficiencies
Rationalisation implemented
Overall fixed and variable costs reduction of £20m
Operating skills and scale efficiencies underpinning margins
51
Residential Pub RestaurantsResidential Pub Restaurants
The Swan, Vintage Inn, HorningThe Swan, Vintage Inn, Horning
Returns from margin reinvestment
Menu quality
Value
Service training
Successful turnaround of Vintage Inns
Harvester
Enhancing evening menus
Evolving day time offer
Strong performance in Crown Carveries and Toby
Toby Carvery BoltonToby Carvery Bolton
Same outlet like-for-likes up 2.4%
52
Residential Pubs Residential Pubs –– Original Acquired Original Acquired SitesSites
Riverside Inn, Harvester, Bournemouth Riverside Inn, Harvester, Bournemouth
Fourth quarter EBITDA run rate uplift of over 50%
Sales uplifts of 20%
Average food volumes up 32%
Productivity gains
Employment ratio fallen from 32% to 27%
Purchasing gains of £8m
Scotsbridge Mill, Premium Country Dining Group, Rickmansworth
Scotsbridge Mill, Premium Country Dining Group, Rickmansworth
Profit targets achieved
53
Residential PubsResidential Pubs
Repositioning to food: 24% sales mix
Food sales up 12%
Sharp acceleration in drinks market share gains
Expansion of Sizzling Pub Co., Cornerstone and Metro Professionals
Man On The Moon, Cornerstone, Kings NortonMan On The Moon, Cornerstone, Kings Norton
Fighting Cocks, Metro Professionals, MoseleyFighting Cocks, Metro Professionals, Moseley
Same outlet like-for-likes +0.2%
54
High Street and City Centre MarketsHigh Street and City Centre Markets
Argyll Arms, Nicholson’s, Oxford Circus Argyll Arms, Nicholson’s, Oxford Circus
24% of sales
Central London growth
All Bar One, Browns, Nicholson’s
Repositioning of O’Neill’s, Scream, Town Pubs
Pressure on Late Evening Venues
Food growth +11%
Rapid growth in breakfast +30% and coffee +10%
Same outlet like-for-like sales growth +0.1%
55
Repositioned EstateRepositioned Estate
Food ledDrinks led
City Centre
Residential
Note: 1. Pie charts equate to total sales in each quadrant split food and drinks/ other2. Excludes Hollywood Bowl (24 outlets) and Alex (42 outlets)3. Percentages and growth equate to UK managed sales in FY 2008
Pub Restaurants46% of sales
Residential Pubs30% of sales
High Street20% of sales
City Centre4% of sales
Food:24% of mix+12% growth
Food:13% of mix+17% growth
Food:61% of mix+4% growth
Food:43% of mix+4% growth
56
Current TradingCurrent Trading
Strong food growth: like-for-likes +3.5% Drinks like-for-likes now positive +0.5%Pub Restaurants
Resilient performance
Actions to improve Harvester
Residential PubsRapid food growth
Further drinks share gains
High StreetImpacted by absence of Rugby World Cup
Late evening venues remain challenging
Same outlet like-for-likes up 1.0% in last 8 weeks
57
OutlookOutlook
Weakening consumer spending in 2009
Value and volume strategy to ensure defensive position in recession
Intense supermarket drinks competition
Widening value gap with rest of on-trade
Rising consumer price elasticities
Customer focus on value in slowing eating out market
First half input cost pressures, reversing in second half
Competitive pub closures and capacity withdrawal
Exploiting scale cost advantage to drive profitable market share
Widening profitability premium to sector: Average EBITDA per pub over £240K p.a.
58
SummarySummary
Radical action to defend business from recessionary pressures
Priorities of debt reduction and operational out-performance
Dividend temporarily suspended to pre-empt facility step downs
Uncertainty over value realisation from disposals
Issue of cash flow, not fundamental long term prospects
Aggressively managing the cost challenges
Accelerating market share gains to offset weakening demand
Profits delivery on Original Acquired Sites demonstrates value from MAB-led consolidation
Resilient business performance, prioritising cash conservation
Questions & AnswersQuestions & Answers
Bond Investor Update – 27 November 2008
