Roger CarrRoger Carr
Chairman
Preliminary Results – 29 November 2006
Karim NaffahKarim Naffah
Finance Director
Preliminary Results – 29 November 2006
3
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%
4
Presentational Points to NotePresentational Points to Note
Results include 9 weeks of former Whitbread pubs (“Acquired Sites”)
Revenue £34m
Operating profit £6m
FY 2006/7 events
Disposal of 102 pubs to Trust Inns for £101m
Special Dividend of £1/share (£486m) and share consolidation
First full year results under IFRS
FY 2004/5 comparatives restated
IFRS (No change in EPS*; Net Assets reduced by £234m)
52 weeks
Reporting to debt investors
* Before Exceptional Items
5
FY 2006 Results FY 2006 Results -- SummarySummary
* Before exceptional items**2005 comparatives are for 52 weeks and are restated for IFRS
FY 06 FY 05**£m £m
Operating Profit* 309 289 6.9%
Interest (101) (100)
PBT* 208 189 10.1%
Tax (64) (59)
Earnings* 144 130 10.8%
EPS* 29.3p 25.4p 15.4%
Average no. of shares 491m 511m
6
FY 2006 Results FY 2006 Results –– Exceptional ItemsExceptional Items
£m Gross Net
Operating ProfitProperty disposals 23 20Defence costs (4) (4) Refinancing (3) (2)
Interest Refinancing (4) (3)
TaxRelease in respect of prior years 40
Total Exceptional Items after Tax 51
7
Operating PerformanceOperating Performance
FY 06 FY 05**£m £m
Revenue Pubs & Bars 958 939 2.0%Restaurants 762 684 11.4%SCPD - 8 -
1720 1631 5.5%Operating Profit*
Pubs & Bars 179 175 2.3%Restaurants 130 113 15.0% SCPD - 1
309 289 6.9%
Retail+6.0%
Retail+7.3%
*Before exceptional items**2005 comparatives are for 52 weeks and are restated for IFRS
8
LikeLike--forfor--Like Sales: DivisionalLike Sales: Divisional
FY 06 H1 06*
Same Outlet (Invested + Uninvested)
Pubs & Bars 3.5% 3.4%
Restaurants 5.0% 5.3%
Total 4.1% 4.2%
Uninvested
Pubs & Bars 2.4% 2.3%
Restaurants 2.9% 3.0%
Total 2.6% 2.6%
*32 weeks to include the entire Easter period** Excludes “Acquired Sites”
9
LikeLike--forfor--Like Sales: SegmentLike Sales: Segment
FY 06 H1 06*
Same Outlet (Invested + Uninvested)
Residential 5.1% 5.1%
High Street 2.3% 2.3%
Total 4.1% 4.2%
Uninvested
Residential 3.1% 3.0%
High Street 1.8% 1.8%
Total 2.6% 2.6%
*32 weeks to include the entire Easter period**Excludes “acquired sites”
10
Balancing Sales Growth & MarginBalancing Sales Growth & Margin
FY 06 H1 06*
Uninvested LFL Sales +2.6% +2.6%
Average Selling Price** up 2% up 1%
Movement in Gross Margin (%) flat flat
Movement in LFL Gross Profit (£) +ve +ve
Sustaining LFL cash contribution from sales* like-for-like sales 32 weeks to include the entire Easter weekend in both periods** Drink & FoodNote: Excludes “Acquired Sites”
11
Retail Operating Statistics*Retail Operating Statistics*
Net operating margin up 0.3% points
Drink sales : up 2.1%
Food sales : up 7.8%
Outlet staff costs : 24% of sales
Tight cost controls
* Excludes “Acquired Sites”
12
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)
13
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
14
High Street
Pub Restaurants
Restaurants
Locals
City Centre
Foodled
Drinksled
Residential
Inc. ROI 18% Inc. ROI 19%
Inc. ROI 9%Inc. ROI 15%
Returns by Segment*Returns by Segment*
Notes: Incremental ROI is calculated before tax and after depreciation* Cumulative £1bn UK expansionary investment over the last 15 years (excl. Hollywood Bowl)
17% overall incremental ROI
15
Cash Flow (a)Cash Flow (a)
FY 06 £m
EBIT 309Depreciation & amortisation 121
EBITDA 430Working capital / non-cash items 20
Maintenance capex (109)
Expansionary capex (73)
Expenditure on “Acquired Sites” (489)
Disposals 88
Additional pension contributions (20)Operating Cash Flow after Net Capex (153)
(583)
16
Cash Flow (b)Cash Flow (b)
FY 06£m
Operating Cash Flow after Net Capex (153)
Net Interest paid (107)
Tax paid (48)
Normal dividends paid (56)
Shares repurchased (76)
Exercise of share options 12
Expenditure on refinancing/defence (14)
Net Cash Flow* (442)
* Before £37m bond repayments
17
Free Cash Flow Free Cash Flow
£186m
Free Cashfow*EBITDA
£430m
Net Cashflow
£(442)m
* Free cashflow = EBITDA + working capital – maintenance capital – interest - tax
18* Unleveraged tax rate
Strong Cash ReturnsStrong Cash Returns
£m
309
309
(84)
225
3479
(711)
50
2818
11.0%11.0%
12 months to 30 September 2006 £m
EBIT 309
Depreciation/Amortisation 121
EBITDA 430
Cash Tax (at 27% of EBIT)* (84)
Cash Return 346
Average Net Operating Assets 3479
Accumulated Depreciation 332
Revaluations (711)
Goodwill written off 50
Cash Capital Employed 3150
CROCCE
8.0%8.0%
NOPAT
19
Higher Property ValuesHigher Property Values
Group property value estimated at £5.5bn+, as at August 2006
1704 Securitised pubs: £4.8bn (independent portfolio valuation)
Avg. value per securitised pub up 40% in 3 years (from £2m to £2.8m)
Trading success capitalised in market value of estate
Operating performance: LFL EBITDA growth
Estate management: higher quality pubs with superior growth prospects
Realise benefits of property appreciation
Selective disposals where price exceeds trading value
Additional leverage securitised on higher asset values
Capturing asset appreciation for shareholders is integral part of strategy
20
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
21
Securitised Bond IssueSecuritised Bond Issue
Increased securitised debt from £1.8bn to £2.45bn
Consistent loan-to-value – c.50%
Similar covenant package
£1.1bn bond issue
£450m to refinance existing notes; £655m incremental debt
Cash interest rate of 5.4%
Overall interest rate on securitised debt down to 5.7%
Over £2.4bn of debt, costing less than 4% after tax
Maintaining balance sheet efficiency
22
FinancingFinancing
* Excluding net finance income from pensions
Financing continues to support business strategy for growth
Year end net debt: £2.1bn
Interest cover* 2.8x
Before special dividend, pension contribution and package disposal
Net debt now: c. £2.5bn
Interest cover* c.2.3x
Net debt/EBITDA c.5.8x
23
DividendsDividends
Dividend
Final dividend 8.6p, up 14%
Total dividend 12.25p, up 14%
Progressive policy
Special Dividend of £1 per share post year end
Interim dividend for FY 2006/7
Over £1.1bn returned to shareholders since listing*
* In addition to ordinary dividends
24
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
Generating value for shareholders
Tim ClarkeTim Clarke
Chief Executive
Preliminary Results – 29 November 2006
26
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
27
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
28
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
29
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%
30
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%
31
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
32
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**
33
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
34
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
35
£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
36
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
37
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
38
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
39
Product Innovation Product Innovation –– Draught WineDraught Wine
40
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
41
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
42
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
43
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
44
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
45
Acquired sites Acquired sites –– pre conversionpre conversion
Progress in 16 weeks encouraging, improvement in margins
Focus on maximising pre-conversion profit contribution
Introduction of MAB operating skills: productivity
Removal of discount schemes
Like for like sales decline slightly faster than pre acquisition trend
Emphasis on customer service
Systems integration complete by end of February
Ability to introduce MAB ordering/ suppliers, stock control and scheduling systems
MAB pricing policy and marketing
46
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
47
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
48
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
49
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
50
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
51
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
52
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