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Drummond HallChairman
Interim Results – 21 May 2009
Jeremy TownsendFinance Director
Interim Results – 21 May 2009
3
Key Messages
Robust current trading
Cost pressure impacts first half profits
Capital investment continuing to earn good returns
Substantial debt reduction
Swap position settled and financed
Well positioned to deliver continuing market out-performance
4
Closure of Retained Property JV Swap
Swap originated from proposed property JV
Majority of swaps closed out in January 2008
Residual swap retained to hedge core debt
Core debt planned to be refinanced through long term debt/securitisation
Discussion with banks ceased in March and exposure frozen at c.£70m net
Additional facility negotiated to close the swap
5
Financial Highlights
28 weeks ended 11 April 2009 Growth
Revenue £1,024m 2.9%
EBITDA* £209m (13.3)%
Operating profit* £139m (17.3)%
Net Interest* £95m (13.1)%
Profit before tax* £44m (47.6)%
EPS* 7.9p (47.0)%
Strong sales impacted by H1 cost pressures*Before exceptional items and IAS 39 movements
6
Like-for-Like Sales Growth
1.0%
1.5%
1.0%
Improving like-for-like sales trend
7
Operating Performance
H1 09 H1 0828 wks £m 28 wks £m
Revenue
Pubs & Bars 512 508 0.8%
Restaurants 511 485 5.4%
SCPD 1 2
1,024 995 2.9%
Operating Profit*
Pubs & Bars 81 90 (10.0)
Restaurants 58 77 (24.7)
SCPD - 1
139 168 (17.3)%
Retail3.0%
Retail(16.8)
* Before exceptional items and IAS 39 movements
8
Key Operating Statistics
Same outlet food sales up 2.5%*
Same outlet drink sales up 1.7%*
Gross margin down 2.0% points
Outlet staff costs 24.5% of sales
Tight cost controls
Net operating margin down 3.3% points
Good sales growth with strong operational controlNote: all figures relate to Retail* 33 weeks
9
Operating Profit Movement
+7Total acquired
sites+11
* Before exceptional items and IAS 39 movements
Regulatory
£(29)m
2009
£139m*
(14)Disposals
(4)
2008
£168m*
Food & Energy
(27)
Trading
(16)
10
H1 09 Capital Expenditure
Focus on maintenance
£40m spent on maintenance capex
Expansionary Capex
£19m on newly acquired Whitbread sites
£7m on conversions in core pubs
ROI on last two years investments at 12%
Good returns on capex
11
Cash Flow (a)
H1 09 £m
EBIT 139
Depreciation & amortisation 70
EBITDA 209
Working capital / non cash items (6)
Maintenance capex (40)
Expansionary capex (37)
Disposals 53
Additional pension contributions (15)
Operating Cash Flow after Net Capex 164
£77m
12
Cash Flow (b)
H1 09 £m
Operating Cash Flow after Net Capex 164
Net Interest paid (82)
Tax credits received 21
Issue of share capital 2
Net Cash Flow* 105
Exceptional Cash Flow Items £3m
Continuing strong operating cash flows* Before total expenditure on exceptional items
13
Group Debt and Outstanding Facilities
April 09 Sept 08 Feb 08£m £m £m
Securitisation gross debt (2,345) (2,361) (2,391)
Cash / other 120 140 76
Unsecured drawings (411) (514) (595)
Net debt (2,636) (2,735) (2,910)
Unsecured facility £550m £600m £700mHeadroom +£139m +£86m +£105m
Unsecured facility reduction of £184m in 15 months
14
Unsecured Facilities
New Facility
Previous Facility
Facility Profile
May-09 Dec-09 Jun-10 Dec-10 Jun-11 Nov-11
15
Financing
Net Debt : EBITDA* 5.9x
Book Gearing** 71%
Interest Cover*** 1.5x
IAS 19 Pension deficit £39m
Fixed Asset Value £4.6bn
Strong balance sheet and financial platform* MAT** Net Debt / (Net Assets + Net Debt)*** Excluding net finance income from pension
16
Summary
Strong sales performance in a challenging environment
Significant cost pressures mitigated by efficiencies and productivity
Conversions to our brands & formats continue to perform well
Swap settled to remove balance sheet risk
Continued strong operating cash flows
Well positioned to accelerate market share gains
Adam FowleActing Chief Executive
Interim Results – 21 May 2009
18
Strategy for a RecessionStrategy for a Recession
Generating robust like-for-like sales growth
Accelerating market share gains
Efficiency gains to mitigate input cost pressures
Strong conversion uplifts on newly acquired sites
Capex focus on sustaining high amenity levels
Prioritising operational outperformance and cash generation
19
Operating PrioritiesOperating Priorities
Value and volume strategy
Incremental drinks sales from maximising food volumes
Profitable optimisation of price, volume and mix
Sales generation from scale brand marketing
Use purchasing scale to deliver customer value
Customer satisfaction, service quality and productivity gains
Delivering profitable volume gains
20
LikeLike--forfor--Like SalesLike Sales
H1 09* FY 08
Divisional
Pubs & Bars 1.9 (0.4)
Restaurants 0.6 2.6Segmental
Residential 2.0 1.5
High Street 0.3 0.1
Total** 1.2 1.0
*Same Outlet like-for-like sales for wks1-33 to include the entire Easter period** Includes Hollywood Bowl
21
LikeLike--forfor--Like Sales by ProductLike Sales by Product
Sales Mix Last 16 wks H1 09*
Drinks 53% +2.2% +1.7%
Food 40% +2.5% +2.5%
Other** 7% -8.5% -8.2%
Total +1.5% +1.2%
* Same outlet like-for-like sales for wks 1-33 to include the entire Easter period**Other includes accommodation, bowling, door money and machines
22
Profitable Market Share GainsProfitable Market Share Gains
MAB EstimatedVolume Growth (1) Market Volume Growth (2)
Food 6% -4%
Wine & Soft Drinks 1% -6%
Spirits -6% -9%
Beer & Cider flat -8%
Acceleration in market share gains(1) Same outlet like-for-like volume growth for wks 1-28(2) MAB estimates based on BBPA/AC Neilsen / CREST data, the NPD Group
23
Trading Strategy
Peak of input cost pressures in H1: £43m
High consumer price sensitivity
Maximise cash contribution at net operating margin level
High demand growth in value food, lower margin offers
Maintain top line momentum in operationally geared business
Volume market share gains underpin purchasing and productivity efficiencies
Sustainable volume driven, cash profit focus to mitigate margin pressures
24
Defending Margins
Continuous testing and trial of elasticities by:
Format, timeslot, product and demographics
Margin reinvestment in high elasticity areas
Price increases focused on low elasticity areas
Introduced new premium products and menu items to offset trading down trends
Renewed drinks sales growth off-setting lower margin food growth
Focus on optimising cash margin
2525
Retail Price
22
33
11
44
11
22
33
44
DrinksDrinks
55
FoodFood
Ave
rage
Ret
ail P
rice
(%)
Ave
rage
Ret
ail P
rice
(%)
Mix/RangeMix/Range
LFL PriceLFL Price
+3.1%+3.1%
2.9%2.9%
--0.2%0.2%
LFL PriceLFL Price
Mix/RangeMix/Range
--4.0%4.0%
+1.3%+1.3%
--5.3%5.3%
Note: Prices exclusive of VATNote: Prices exclusive of VAT
26
UK Food GrowthUK Food Growth -- H1 FY09H1 FY09
Food sales mix 40%*
Like-for-like food sales up 2.5%**
Like-for-like food volumes up 6.3%***
Total food sales up 7.7%
Average weekly food sales per pub up 7.7% to £8,000*
Average number of meals per pub per week up 12.4% to 1,320*
Serving 120 million meals per annum*
Enhanced purchasing scale
Food volumes up 85% up in 6 years* Last 12 months basis** Same outlet like-for-like sales for wks1-33 to include the entire Easter period*** Same outlet like-for-like volume growth for wks1-28
27
MAB Food Volume Growth vs Market
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
Q3 FY08 Q4 FY08 Q1 FY09 Q2 FY09
MAB total volume
Quick service*
Total Market*Pub market*Full service restaurants*
Leisure*
MAB like-for-like volume
Food
Vol
ume
Gro
wth
(%)
Source: CREST data, the NPD Group and Company* Closest data point to MAB quarters chosenNB. Transport and Leisure, includes hotels,motorway and railway service stations, cinemas, garden centres, department stores etc.
28
Year on Year Price Inflation
85
90
95
100
105
110
115
120
125
ONS Grocery (MAB Weighted Basket) ONS Grocery (Unweighted) ONS Catering MAB Average Main Meal RSP
MAB vs Total Grocery and Total Catering
Pric
e In
flatio
n In
dex
(Feb
200
7 =
100)
28%
Source: ONS, Crest data, the NPD Group, MAB EPOS
29
Trading ActionsTrading Actions
Food
Protecting KVI price points on entry products
Increased levels of mid-week food promotional activity
Specials boards and menus for premium occasions
Drinks
Incremental drinks serve opportunity with meals growth
Widening the premium range
Value positioning on standard beers to take “solus” drinks market share
Proactive response to recessionary spending patterns
Note: KVI = Key Value Item
30
Menu OffersMenu Offers
Harvester
Sizzling Pub Co.
O’Neill’s
Town Pubs
31
Food: Promotional ActivityFood: Promotional Activity
Vintage Inns
Sizzling Pub Co.
Toby Carvery
Ember Inns
Harvester
32
Food: Value Added TradingFood: Value Added Trading
Sizzling Pub Co.
Ember Inns
Vintage Inns Premium Country Dining Group
3333
Beer Market Volume Outperformance*
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Sep‐06 Nov‐06 Jan‐07 Mar‐07 May‐07 Jul‐07 Sep‐07 Nov‐07 Jan‐08 Mar‐08 May‐08 Jul‐08 Sep‐08 Nov‐08 Jan‐09 Mar‐09
MA
T Vo
lum
e ou
tM
AT
Volu
me
out -- p
erfo
rman
ce (%
poi
nts)
perf
orm
ance
(% p
oint
s)
Strategy is driving increasing market share gains Strategy is driving increasing market share gains * Rolling MAT volume out* Rolling MAT volume out--performance by MAB of onperformance by MAB of on--trade beer market (% points)trade beer market (% points)Source:BBPASource:BBPA
34
Drinks: Driving Volume
Increasing availability of value draught beer
Over 750 pubs selling draught beer at £2.00 a pint or less
Value led wine promotion
99p 125ml wine in Town Pubs, accounting for 39% of wine purchases
Like-for-like soft drinks sales +3% as meal volumes grow
Dedicated drinks table service in pub restaurants
Responding to key market trends
35
Drinks: Adding Value
Beer quality: over 730 pubs cask marque accredited
Cask ale distribution and range
Number of pubs selling cask ale +11%
Volume +16%*
Cider
Range increased from 42 to 60 products
Volume +13%*
Premium Imported Draught Lager
Volume +12%*
Soft Drinks
New carbonates dispense equipment
Consistency of taste, carbonation and temperature
*Same outlet like-for-like volume growth for wks 1-28
36
Customer Satisfaction and ServiceCustomer Satisfaction and Service
Substantial customer satisfaction programme in place
c.300k responses in H1 across 1,500 pubs
Customer satisfaction measurement now instigated into:
Manager bonus scheme
Food and drinks development
Staff training and incentives
Enhancing operational service delivery
Improved customer satisfaction
37
Efficiency GainsEfficiency Gains
Productivity
Rapid growth in staff contribution per hour +5.6%
New real time scheduling and rostering system
Kitchen, floor service and bar working practices
Purchasing and menu management
LFL Food COGS inflation held to 7.5% versus 10% general food inflation
Food cost of goods per unit up only 1.6%
£7m of menu reformulation
On target for £20m of fixed and variable costs reduction in FY09
38
Maintenance Capital
Sustaining high amenity standards
Reduced overall levels of capital investment
Focus on larger number of small refurbishments of >£40k/pub
250 completed in first half
500 expected to be completed for full year
300 properties in H1 with maintenance projects of average £25k
Customer facing standards prioritised
39
Residential Pub Restaurants
Targeted response to recessionSuburban pub restaurants
Pressures on family spending
Value focus on sustaining volumes
Crown Carveries strong
Turnaround in Harvester
Country pub restaurantsMore affluent customers
Defending premium occasions
Value on week days
Vintage Inns strong
Premium Country Dining resilient
The Oystercatcher, Vintage Inn, Climping
Same outlet like-for-likes up 0.8%Mason’s Arms, Crown Carveries, Bristol
40
Recently Acquired Sites
44 pub restaurants acquired in September swap
All conversions completed in six months
Sales uplifts over 30%
Demonstrating the power of MAB formats
Brampton Mill, PCDG, Huntingdon
Harvester, Windhover, Southampton
41
Residential Pubs
Repositioning to food: 24% of sales
Like-for-like food sales up 8%
Like-for-like drinks sales up 3%
Accelerating market share gains
Strong performances from Ember Inns, Sizzling Pub Co., Cornerstone and Metro-professionals
Hollybrook Tavern, Ember, Littleover
Newlands, Sizzling Pub Co, Coventry
Same outlet like-for-likes up 3.6%
42
High Street and City Centre Markets
23% of sales
Continued central London growth
Benefit from inbound tourism
Strong performance of Town Pubs
O’Neill’s resilient
Pressure on late evening venues
Like-for-like food growth +5%
Breakfast growth +17%
Same outlet like-for-like sales growth +0.3%
Philharmonic, Classic Pubs, Liverpool
O’Neill’s, Cheltenham
43
Current Trading
Underlying trading has strengthened since January (AGM)
Weeks 1-17 Weeks 18-33
Same outlet like-for-likes + 1.0% + 1.5%
Uninvested like-for-likes - 0.5% + 0.9%
Trading has been volatile due to late Easter and uneven weather comparatives
Locals pubs trading strongly
Recent improvements in Pub Restaurant trends
Improvement in trading trends driven by market share gains
44
Outlook
Weak consumer spending through 2009
Value and volume strategy
Some signs of slowing in market declines
Improving disposable income offset by rising unemployment
Reduced supermarket drinks discounting
High consumer price elasticities in eating out and drinking out markets
Input cost pressures reversing or abating
Competitor pub closures and capacity withdrawal
Focus on profitable market share gains
45
Summary
Intensive focus on trading business through recession
Actions to conserve cash
Rapid debt reduction in past 15 months
Swap refinancing
Balancing the drive for volume with defence of margins
Intensive focus on cost efficiencies
Accelerating market share gains
Sales uplifts on recently acquired sites demonstrates value fromMAB-led consolidation
Robust trading performance and strong cash generation
Questions & AnswersQuestions & Answers
Interim Results – 21 May 2009