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Interim Results 2006

Interim Results 2006. Preliminary results 2005. David Thompson Chairman. 2. Interim results 2006. Strong first half results turnover and profit growth in each of our trading divisions 2. Increased operating margin despite significant cost pressures Earnings per share* up 10.0%

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Interim Results 2006

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  1. Interim Results 2006

  2. Preliminary results 2005 David Thompson Chairman 2

  3. Interim results 2006 • Strong first half results • turnover and profit growth in each of our trading divisions 2. Increased operating margin • despite significant cost pressures • Earnings per share* up 10.0% • strong growth in profit before tax • Dividend +10.0% to 14.52 pence per share • consistent with earnings growth, strong underlying cashflow We remain confident in achieving a satisfactory out-turn for the year * before exceptional items and adjusted for the impact of IFRS 3

  4. Preliminary results 2005 Paul Inglett Finance Director 4

  5. Profit and loss account* • 20062005% change • Turnover £m 281.4 257.6 + 9.2 • Operating profit £m 66.4 58.3 +13.9 • Operating margin % 23.6 22.6 + 1.0 • Profit before tax £m 40.2 35.6 +12.9 • Earnings per share p 36.2 32.9 +10.0 • Dividend per share p 14.52 13.20 +10.0 * before exceptional items and adjusted for the impact of IFRS 5

  6. Increased operating margin* 2006vs 2005Key drivers % % Pathfinder Pubs 16.9 (0.6) Union Pub Company 43.9 +1.6 WDB Brands 19.3 (0.8) Central Costs (2.0) +0.1Group 23.6 +1.0 +ve flat buying in prices – food and drink - ve utilities +£2.5m- ve NMW +£1.0m- ve Sky +£0.4m +ve higher proportion longer leases+ve synergies from acquisitions - ve utilities +£0.5m - ve pricing pressure from further consolidation+ve benefits from acquisitions+ve higher proportion of tenanted profits * before exceptional items and adjusted for the impact of IFRS 6

  7. Strong cashflow 20062005 £m£m% change Cashflow from operating activities 99.2 57.6 + 72.2 Interest (21.0) (22.5) Maintenance capex (14.0)(12.0) Investment capex (36.8) (42.7) Disposals/FT loans/other 14.1 11.1 Acquisitions (45.3) (129.1) Dividends, shares bought/issued (22.3) (16.7)Net increase in debt (26.1) (154.3) Free cashflow 64.2 23.1 +177.9 7

  8. Efficient financing structure 1. Net debt £m Bank facility 153 • headroom of £112m Securitisation 788• c70% of estate securitised Loan notes 10 Cash in bank/securitisation (53) 898 2. Key financing ratios Average interest rate <6.0% % at fixed rate 88% Interest cover* 3.0x Net debt: EBITDA* 4.7x Average debt maturity 15 yrs * Proforma 12 months to March ‘06 8

  9. Financing capacity • 1. Interest • aim to maintain interest cover in range of 2.5x – 3.0x • 2. Impact on financing capacity • ability to finance pub acquisitions of up to £500m without recourse to equity • 3. Acquisition criteria • return above WACC • earnings enhancement • strategic fit Flexibility to make acquisitions or further capital returns 9

  10. Preliminary results 2005 Ralph Findlay Chief Executive 10

  11. W&DB today • 1. Pub operator – 2,358 pubs • Pathfinder Pubs – 543* managed pubs • The Union Pub Company – 1,815* tenanted/leased pubs • situated across England and Wales • 95% community/neighbourhood estate, 95% freehold • 2. Brewer • leading ale brands • largest brewer of cask ale in the UK • 3. Vertically integrated business • clearly differentiated market position • consistent record of strong financial performance * 93 pubs transferring to UPC in H2 11

  12. W&DB strategy • 1. Development of national, high quality pub estate • new build pubs/acquisition of existing pubs • pub refurbishment • predominantly community pubs • continued investment in people and skills • 2. Increase market share of WDB Brands’ beers • exploit benefits of integrated model • 3. Maintain a strong, efficient balance sheet • predominantly freehold ownership • long-term, low cost debt financing • gearing to reflect stable income, risks 12

  13. UPC in strong growth 86.4 • 1. Growth through acquisition • 2005 - Burtonwood: 420 pubs • 2005 - Jennings: 128 pubs • 2006 - Celtic Inns: 63 pubs • 2. Organic growth • average profit per pub +4.4% • operating margin +1.6% • 3. Transfers from Pathfinder Pubs • 93 pubs transferring in H2 70.4 37.9 £m 29.8 Stable business, predictable cashflow 13

  14. Acquisition of Celtic Inns • 70 pubs • £43.1m acquisition cost • acquired 17 March 2006 Rose & Crown, Nether Stowey, Somerset White Lion, Tenterden, Kent • EBITDA £4.5m • effective multiple 9.6x • predominantly freehold, community estate • situated South Wales and Southern England The Cayo Arms Hotel, Cardiff 14

  15. Response to rising costs, competition • Rising costs – impact c£5k per pub p.a. • energy • labour • Sky TV • 2. Competitive pricing environment • value for money offers more prevalent in the on-trade • continued challenge from cut-price deals in supermarkets • Response of good tenants/lessees • manage price, mix and margin • actively manage other costs • develop the pub offer Estate quality and tenant/operator relationships matter 15

  16. More business support (1) • 1. More tenants/lessees attending ‘The Skills Pool’ • RAPPID (5 days) • NCPLH (1 day) • Drinks, Drunks, Rocks and Your Role • 2. Launch of UniOn - intranet • online ordering • marketing and promotional tools • training courses • supplier offers • 3. Preparation for the smoking ban • significant investment planned 2006/07 16

  17. Recognition Social responsibility Development More business support (2) 17 2

  18. Estate composition: year-end 2006 No. of pubs • 1. Community locals 226 • Bostin’ Locals • Taverner’s Carveries • Traditional Locals • 2. Great food pubs 140 • Service That Suits • Two for One • Quality Food Pubs • Pitcher & Piano 27 • Town Centre Traders 50 • Acquisitions/new builds 20 • 463 18

  19. High quality segmented pub estate (1) Bostin’ Locals ● Something for everyone ● They know me, I know them ● Easier than eating at home ● A great place to watch sport Taverner’s Carvery ● A pub, not a restaurant ● Fresh food● A real deal ● Mum’s cooking on demand Llangewydd Arms, Bridgend Loom & Shuttle, Kidderminster Two For One ● A budget deal ● No compromises, irresistible prices ● Well appointed pubs ● Great food, huge choice • Service That Suits • ● Restaurant meal at pub prices ● Everyday special treat • ● Menu choice and quality ● Personal service College Farm, Watchfield Ye Olde Saracen’s Head, Balsall Common 19

  20. High quality segmented pub estate (2) Town Centre ●The gathering place ●A clean & safe venue ● Great food & service Pitcher & Piano ●Cool, contemporary, city & party● To be conspicuous ● Premium food, drink & service ●True retail brand Bell at Mill Hill Richmond 20

  21. 20 new openings in 2006/07 21

  22. Acquisitions: delivering in 2006/07 No. of sites Planning granted - 7 Planning submitted - 10 Allowance for refusals -(3) Deals in legals - 3 Trading pubs - 3 Expected openings - 20 22

  23. Trading pub acquisitions • Bure Farm, Bicester • £1.8m investment • £21k AWT • 18% ROC • Boundary, South Normanton • £1.9m investment • £20k AWT • 15% ROC 23

  24. 7.9 6.8 6.6 6.4 6.2 5.9 % Increasing market share* • 1. All trade channels • WDB Brands has 7.6%of the UK ale market and growing • The UK beer market declined by c2% (last 12 months) • 2.Premium and standard ale • Premium ale performing strongerthan standard ale • Premium ale stronger in off-tradethan standard ale 15.5 12.6 11.1 6.5 % 5.8 5.6 24 *Source: industry estimates 12 months MAT data to March ‘06

  25. Significant brand support 25

  26. Smoking ban: industry impact • Timing of ban- England June ‘07, Wales Dec ‘06? • 2. Winners and losers • - winners: well invested, well located pubs • - losers: pubs with little amenity, limited capacity for investment • 3. Positive action will mitigate impact-positive retailing vs defensive approach • - adapt to changing consumer profile Avoid complacency: act early 26

  27. W&DB action • Ahead of the game • - c900 pubs sold over 5 years • - significant investment already completed • - all plans will be completed by June 2007 • Positive retailing • - outdoor investment: gardens, patios, decor • - continued development of food offers, both managed and tenanted pubs • Co-ordinated activity • - cross-divisional smoking group • - deriving value from integrated model Working fast, working smart, working together 27

  28. Defensive spend • Defensive spend is better than doing nothing ……… • …….. but new customers will not be attracted 28

  29. ‘Inside Out’: patios and gardens 29

  30. ‘Inside Out’: patios and gardens 30

  31. Smoking ban: key points Our pubs are well positioned - >85% have gardens/outside trading areas - food is 30% of retail turnover and growing - we have already disposed of the ‘vulnerable’ pubs 2. We started investment plans early - £5m invested in 250 Pathfinder schemes 2003-2005 - 20 smoke-free sites trading positively - £3m invested in 400 UPC schemes by September 2006 3. We have clear investment plans in place for 2006/07 - £5m on 300 Pathfinder Pubs outlets - £7m on 1,050 Union Pub Company outlets 4. Group benefits from our business model Our aim: neutralise the risks, maximise the opportunities 31

  32. Summary of interim results • 1. Strong interim results • effective implementation of organic development strategies • successful integration of acquisitions • 2. Strong balance sheet • prudently financed, with debt capacity • more flexible financing post securitisation • 3. Current trading • in line with expectations, recent LFL sales +2.5% in Pathfinder • pressure on discretionary spend, set to continue • we remain confident in achieving a satisfactory out-turn for the year 32

  33. Appendices 33

  34. Appendix 1Key financials 2006 2005*% change Turnover £m 153.1 147.3 + 3.9 EBITDA £m 36.3 35.3 + 2.8 Operating profit £m 25.9 25.8 + 0.4 Operating margin % 16.9 17.5 (0.6) * restated for reallocation of central overheads, changes to transfer pricing and impact of IFRS 34

  35. Appendix 2Key financials 20062005*% change Turnover £m 86.4 70.4 +22.7EBITDA £m 42.8 34.2 +25.1 Operating profit £m 37.9 29.8 +27.2 Operating margin % 43.9 42.3 +1.6 * restated for reallocation of central overheads, changes to transfer pricing and impact of IFRS 35

  36. Appendix 3 Key financials 20062005*% change Turnover £m 41.9 39.9 +5.0 EBITDA £m 11.6 11.1 +4.5 Operating profit £m 8.1 8.0 +1.3 Operating margin % 19.3 20.1 (0.8) * restated for reallocation of central overheads, changes to transfer pricing and impact of IFRS 36

  37. Appendix 4 Impact of IFRS restatement (1) Profit and loss account Interim Mar 05 Year to Sept 05 Profit Profit PBT Tax after tax PBT Tax after tax£m £m £m £m £m £m UK GAAP 36.0 (11.1) 24.9 90.1 (26.5) 63.6 Pensions (0.5) 0.2 (0.3) (0.6) 0.2 (0.4) Share based payments 0.1 (0.3) (0.2) 0.2 (1.8) (1.6)Pre-exceptional IFRS profit 35.6 (11.2) 24.4 89.7 (28.1) 61.6 Exceptionals under UK GAAP (3.4) 1.0 (2.4) (42.2) 12.0 (30.2) Revaluation/other (1.7) - (1.7) (0.4) - (0.4) Goodwill 3.6 - 3.6 7.1 - 7.1 Deferred tax - 0.4 0.4 - 1.0 1.0Exceptionals under IFRS (1.5) 1.4 (0.1) (35.5) 13.0 (22.5) Post exceptional IFRS profit 34.1 (9.8) 24.3 54.2 (15.1) 39.1 37

  38. Appendix 5 Impact of IFRS restatement (2) Balance sheet: net assets As at Mar ’05 As at Sept ’05 £m £m £m £m UK GAAP 704.3 758.5 Deferred tax (90.7) (89.9) Pensions (45.8) (45.9) Dividends 10.1 19.8 Revaluation 52.0 - Goodwill 3.6 7.1 Share based payments 3.2 2.5 (67.6)(106.4) IFRS636.7 652.1 38

  39. Appendix 6 Additional information and guidance • Average number of shares in H1 2006 77.3m • Number of shares in issue as at 26 May 2006 77.2m • Additional dilutive number of shares 0.6m • Full year2006 • Forecast tax rate 30.0% - 30.5% • Capex forecast : Existing business £60m • : New builds/sites £25m • : Pub acquisitions £10m • £95m • Forecast disposal proceeds £20m+ 39

  40. Appendix 7 Website addresses Website addresses:www.pathfinderpubs.co.uk www.wdbbrands.co.uk www.theunionpubcompany.co.uk For a pdf version of this presentation please visit our Group website on: www.wdb.co.uk 40

  41. Interim Results 2006

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