mab interims 2003 showfile final with script · driving sales growth z1st half: controlled...
TRANSCRIPT
1March 2003
Roger CarrRoger Carr
Chairman
2
Agenda
Introduction Roger Carr (Chairman)
Financial Results Karim Naffah (FD)
Actions and Priorities Tim Clarke (CEO)
Q&A
3
Business Highlights
Independent future with twin goals…
Improved capital efficiency
Accelerated profitable growth
Rebalance business culture
From margin emphasis to driving growth
4
Karim NaffahKarim Naffah
Finance Director
5
Financial Highlights
Turnover £793m - up 1%
EBITDA £191m - flat
Operating Profit £137m - down 6%
EPS 8.6p - down 0.7p*
Net Operating Cashflow £152m** - up £80m
*On a proforma basis**Before interest, tax and dividends
6
Operating Performance
H1 03 H1 02£m £m
TurnoverPubs & Bars 466 465 + 0.2%Restaurants 323 321 + 0.6%Other 4 0
793 786 + 0.9%
Operating ProfitPubs & Bars 91 101 - 9.9%Restaurants 45 45Other 1 0
137 146 - 6.2%
-
7
Proforma – Key Assumptions
As if separation had occurred on 1st October 2001
No adjustments to operating profit
Debt position worked backwards from cashflow
Interest based on terms of current facilities
Taxation reflects increased interest charge
All one-off items relating to separation excluded
Number of shares constant at 734 million
8
9
Proforma P&L
H1 03 H1 02 FY 02£m £m £m
Operating Profit 137 146 287*
Interest (44) (46) (86)
PBT 93 100 201
Tax (30) (32) (65)
63 68 136
EPS 8.6p 9.3p 18.5p
* After £2m exceptional costs on disposal of fixed assets
10
Key Operating Statistics
Food sales up 2.7%
Food mix 29.4% - up 0.6% points
Outlet staff costs - 23.5% of sales
Year to date employee productivity up 5%
Food and drink prices up 2% in first half
expected to be flat for the year as a whole
Cost savings of £5m in second half
11
Managed Estate Segmentation
Note: Excludes Hollywood Bowl and AlexExcludes Innkeepers Lodges associated with other outlets
Other Locals401
Foodled
Drinksled
Local PubsLocal Pubs
City Centre
High StPubs & Bars
High StPubs & Bars RestaurantsRestaurants
PubRestaurants
PubRestaurants
Residential
Ember Inns146
Sizzling114
Scream91
Arena59
Harvester148
Vintage Inns200
Toby 71
24 Express by Holiday Inn
O’Neill’s88
44Goose
Edwards
36
28Flares
51
15
All Bar One
Browns
Other High St357
32Metropolitan Professionals
56 7
Classics Nicholsons
24Innkeepers Fayre
96
Other Pub Restaurants
12
Uninvested Like-for-Like Sales
32 weeks to 10 May
Total company - 3.7%
Pubs & Bars - 4.3%
Restaurants - 2.8%
13
High Street
Pub Restaurants
Restaurants
Locals
City Centre
Foodled
Drinksled
Residential
Performance by Segment
Inc. ROI* - 15%Total sales + 0.7%
AWT £10.6k
Inc. ROI* - 13%Total sales + 1.7%
AWT £17.8k
Inc. ROI* - 10%Total sales - 2.8%
AWT £22.9k
Inc. ROI* - 13%Total sales - 0.6%
AWT £12.8k
* MAT to H1 FY2003 on cumulative £0.9bn expansionary investment.Note: Excludes Hollywood Bowl and Alex
14
High Street
Pub Restaurants
Restaurants
Locals
City Centre
Foodled
Drinksled
Residential
Expansionary Capital - First Half
£13m £16m
£0m£6m
Note: Excludes Hollywood Bowl and Alex
15* Unleveraged tax rate (including capital allowances)
Strong Cash Returns
10%10%
12 months to 12 April 2003 £m
EBIT 280
Depreciation/Amortisation 95
EBITDA 375
Cash Tax (at 23% of EBIT)* (65)
Cash Return 310
Average Net Operating Assets 3449
Accumulated Depreciation 250
Revaluations (746)
Goodwill written off 50
Cash Capital Employed 3003
CROCCE £m
280
(65)
215
3449
(746)
50
2753
8%8%
NOPAT
16
Net Cashflow
H1 03 H1 02£m £m
EBITDA 191 192
Working capital movement 22 5
Capital Expenditure (80) (146)
Disposal proceeds 19 21
Net Operating Cashflow 152 72 + 80
17
Proforma Balance Sheet*
At H1 03£m
Net Operating Assets £3.5bnNet Debt* £1.3bn
Market Cap Gearing** 82%
Debt / EBITDA*** 3.5x
* Post de-merger and £0.7bn return of capital** Share price 219.5 pence as of close 21 May 2003*** Last 12 months
18
Re-Financing Update
Securitisation of UK pubs and restaurants
Further enhance efficiency of balance sheet
Release surplus funds for shareholders
Reduce weighted average cost of capital
19
Securitisation Plan
Major transaction in its own right
Significant work now underwayFinal due diligence
Documentation
Legal structuring
Expect to execute during the Autumn
Raise sufficient proceeds to refinance existing debt and return at least £400m to shareholders
Subject to capital market conditions
20
Criteria on Terms
Equity-based Strategy
EPS growth
Further value creation
Asset appreciation
Dividend Policy
9.5 pence per share in 2004
Progressive thereafter
Equity-based Strategy
EPS growth
Further value creation
Asset appreciation
Dividend Policy
9.5 pence per share in 2004
Progressive thereafter
Sufficient capex
Flexibility to churn
Ability to release capital
Cashflow test
Sufficient capex
Flexibility to churn
Ability to release capital
Cashflow test
Reconcile higher gearing with sufficient corporate flexibility
21
Summary
Solid performance
Defending high returns
Driving strong cash generation
Refinancing plan in place to release surplus funds for shareholders
22
Tim ClarkeTim Clarke
Chief Executive
23
Value Creating Operating Actions
Driving profitable sales growth
Developing and evolving the brands and formats
Disciplined capital allocation programme
Raising productivity and reducing costs
Driving strong cash returns, earnings growthand freehold property appreciation
24
Driving Profitable Sales Growth
Trading conditions changed in the second half of calendar year 2002:
Shift in business priorities and culture
Combining brand and asset development with organic sales growth
From margin defence to sales generation
Optimal balance of volumes, mix and margins
Emphasis on cash gross profit vs % gross margin
Productivity and cost gains to offset fixed cost pressures
25
Competitive Pricing Dynamics
High Street overcapacity/central London weak demand
Defending profit through tactical activity
Recent price stabilisation
Overall industry real price increases vs. off-trade
On-trade beer + 3% p.a.
Off-trade beer - 2% p.a.
Restaurants + 4% p.a.
Food (shops & catering) unchanged
Residential share gain strategy
sources ONS [and Nielsen]
26
Driving Sales Growth
1st half: controlled promotional trials and evaluation
Initially in c.100 outlets
Increased consumer price sensitivity to brand premium pricing
Indiscriminate discounting unviable
Variations across product categories and time slots
Extended activity now in implementation: c.1,000 outlets
Extended product ranges
Price reductions
Promotional marketing
27
Driving Sales Growth
Brands and channels selected by competitive dynamicsCentral London
High Street
Community drinks
Family dining
Key Areas of Promotional Activity
28
Pricing, Volume and Margins
Average retail price change of combined food and drink basket:
Oct 02 vs Oct 01 + 4.7%
April 03 vs April 02 + 0.4%
Est. Sept 03 vs Sept 02 - 1% to - 2%
Positive impact on cash gross profit trend
Gross margin impact mitigated by:
Shift to higher margin lagers & soft drinks
Purchasing cost gains
29
Improving Like-for-Like Sales Trends
Uninvested Like for Likes
8 weeks to 23 Nov - 4.5%
8 weeks to 18 Jan - 3.3%
8 weeks to 15 March - 3.9%
8 Weeks to 10 May - 3.1%
30
6 of the Best (London)
Successful promotion in Town Bars adapted for LondonCarling / Carlsberg, Smirnoff Double and Mixer, Stella, Reef, Becks, WineAll at £1.99Trial results…
Volume up
Positive gross profits
Volume up
Positive gross profits
31
Harvester Early Bird
Re-launched in February…From opening time to 6.30pm, Monday to Friday, 5.00pm Saturday1/3 off almost the entire menuAccompanied by radio advertising
Results to-date encouraging…Food volume up by 9.5%Drink volume up by 9.2%
32
Service, Sales Training and Incentives
Service – “Quality is” programmeProduct knowledge
Serve standards
Partnership with key suppliers
SellingBar floor service
Table service up-selling and techniques to add extra sales (e.g. Coffees, puddings)
Motivation and IncentivesMystery Customer scores
Incentives linked to sales
Cultural change from order takers to sales people
33
Evolution & Development –City Centre & LondonStrategy of Differentiation or Value
Specialist Continental lagers & alesEnhanced wine offerFast Lunch menuEvolution of light bites offerMusic & lighting zoning
Young professionals in affluent suburbs of larger citiesIndividual, re-branding – a good ‘local pub’Interesting range on menuLow capital cost
34
Strategy to Grow Sales & DistributionStrategy to Grow Sales & Distribution
Evolution and Development –Residential
Now 146 outlets
Average sales uplifts of 61%
Growing appeal to sociable regulars
Cask ales & premium lagers
Widening appeal to females
Design and menu enhancement
35
Evolution and Development –ResidentialStrategy to Grow Sales & DistributionStrategy to Grow Sales & Distribution
REDUCING CAPITAL INTENSITY
Ember & Toby
Evolution of template: 40%+ reductions in capital costs
Identify customer key points of value
Maximise ratio of trading to back of house space
Minimisation of structural work
Rationalisation of kitchen specs
Allows fit to a wider variety of sites
36
Evolution and Development –ResidentialStrategy to Grow Sales & DistributionStrategy to Grow Sales & Distribution
Development and roll-out of a scale community pub food brand
Introduction of three plate sizes & healthier menu options
114 sites open: potential for over 200
37
Disciplined Capital Allocation –H1 Development
Conversions Acquisitions
Number of projects opened 70 8
Average investment £234k £2.0m
Incremental ROI 16% 11%
38
Disciplined Capital Allocation Future Development
FY 2003
Pipeline of 500 conversions at start of year
135 conversions
14 acquisitions
£19m disposal proceeds in H1, similar level in H2
FY 2004 – FY 2006
Balance of pipeline developed
Average conversion capex £250k
15-20 acquisitions p.a.
>80% residential
On-going programme of opportunistic site disposals
39
Aggressive Management of Cost Base
Continued improvement in staff productivity: + 6% in Q2
Ongoing renegotiation of non-tied supply contracts
6% reduction achieved on 24% of COGS renegotiated in H1
Support cost rationalisation
Delivered £10m annualised savings, £5m this year
40
Near Term Outlook
Improvement in trading seen in Q2 continued into May
Residential segments with food most resilient
High Street over-capacity
Uncertainty as to prospects for London recovery
Regulatory cost pressures
Impact of marketing, range, pricing, promotional actions
Cautious on UK consumer spending but confident of resilience of M and B model
41
Medium Term Outlook
Integrated economics of food and drink
Take share in eating out/drinking out market versus
Low amenity, small, beer dependent pubs
Restaurants lacking drinks’ profitability
Licensing Reform positives
Proven systems, purchasing and overhead scale
Well placed to add value through consolidation
42
Summary
Key strategic priorities
Driving sales growth
Efficiency on capital and costs
Implementing optimal financial structure
43
Q & AQ & A