Mitchells & Butlers plc (MAB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Mitchells & Butlers half year results announcement. My name is Simona, and I will be coordinating your call today. [Operator Instructions]. I will now hand you over to your host, Phil Urban, Chief Executive Officer at Mitchells & Butlers, to begin. Phil, please go ahead.

Thank you. Good morning, and welcome to the Mitchells & Butlers interims update. I should start by saying we're delighted to be open for business after what has felt like a very long lockdown. As of Monday this week, circa 95% of our business is now trading again and judging by the bookings, which I'll talk about later on, we're in for a busy time. It feels great to be back, and we're excited about the future again for the first time in a long while. We've split today into 2 sections. Tim Jones, our CFO, will start by taking you through the half year numbers, the balance sheet and our cash position. And I will follow-on and remind you of the roller coaster nature of the last 6 to 7 months, give you our read of the macro landscape as we emerge from lockdown and then update you on the range of activity that we're kickstarting, which we hope and believe will return us to the path that we were on as a business before COVID-19. So let's start with Tim.

Thanks, Phil, and good morning, everyone. Clearly, it's been a difficult first half. We've only been open and trading for 14 weeks and even that was on a partial and very restricted basis. So absolutely no surprise that sales are well down over last year. And despite strong control of costs wherever we could, this inevitably flowed down to a large loss for the period GBP 124 million before separately disclosed items. Given the unique circumstances, I'm not intending to dwell too long on the trading results. We started the period on the back of a very strong summer rebound, but as you're well aware, as infection rates rose, so restrictions of increasing severity were introduced, leading to a second shutdown for us in November and then having reopened, but pretty well lost all of the important festive trading season. We were back to full closure again on the 30th of December, and that's where we stayed until the end of the first half. Subsequently, of course, we have reopened and we're trading outdoors for the last 5 weeks. We've approached that carefully, given the fact that many of our sites and our brands are food-focused. Initially, we opened 14% of the estate. That increased to 44% by the end of the 5 weeks. And overall, open sites have traded 37% down on their level of sales pre COVID indoor and outdoor. We wouldn't see any direct read across that performance to future sales or indoor trading, but it has at least afforded us the opportunity to build up to this Monday's reopening on a slightly more controlled basis than a sort of big bang. Clearly, the most important event in the period for us was the announcement and the completion of our GBP 251 million equity raise through the open offer, in conjunction with announcing secured new debt finance package, including covenant waivers and amendments and agreeing to extend our GBP 150 million unsecured facility for a 3-year term. That capital raise has been imperative to raise funds to fund towards our working capital and to reduce the level of debt that we've built up over COVID. But it also crucially enables us to restart our capital program, our investment program across the estate, which we believe has been one of the main pillars of our outperformance as a business in the sector before COVID. And we will be looking to get back onto that 6- or 7-year remodel cycle we were on before as soon as we can, now that we've reopened. The importance of the capital raise is very clearly seen within our cash flow statement, a very large outflow of cash over those 6 months in operations and [ deep fault ] financing, despite the fact that we've limited all costs and CapEx as far as we can throughout the period. I think the most important point for us today, though, is where does that leave us. In terms of indebtedness, we have a net debt just over GBP 1.4 billion. So that represents gearing of 3.4x, if I use a pre-COVID level of EBITDA. So sort of a normal trading EBITDA. So that's reset our debt position to slightly lower actually than it was when we went into COVID. And of course, we also benefit from longer-term unsecured facilities and flexibility on the covenants that we've now negotiated on our refinance package. So looking forward, our strategy remains to focus primarily on debt reduction, whilst investing in the competitiveness of our estate, very much picking up with where we left off before the pandemic. Pulling all that together, we've had a first half that's been dominated by restrictions on trade. Frankly, we're just pleased to see that behind us. But we have protected cash with minimized costs as best as we can. We -- through our equity and debt refinance package, we emerged with a reset capital structure. And I think in good shape to face the challenges and the opportunities that now lie ahead of us. To which end, we're confident that we're now well positioned to create value [ far enough to safe and ] trade, both before trading backed by our Ignite program, which we're restarting, and also to continue to deleverage our balance sheet as we were doing before. To give you a little bit more detail about how we're going about on that, I'd like to hand over to Phil.

Thanks, Tim. As you will appreciate, the last 6 or 7 months have been very difficult for the hospitality sector with the stop/start impact of last autumn's tiering system, the loss of almost all of the festive peak season, followed by complete lockdown from January, which lasted for the whole of our second quarter. It's only from Monday of this week they we're open again across the U.K. for indoors trading. So we've yet to see how quickly we will recover in the wake of the pandemic. Back in October, as our new financial year commenced, we were already beginning to see infection numbers rise and more restrictions being imposed as a consequence of this. Different tiering systems and protocols across England, Scotland and Wales made it very difficult for our General Managers to keep on top of ever-changing rules. The move to single-family groups only and a 10:00 p.m. curfew in England, did the most damage to trade. And the so-called circuit breaker lockdown in November further undermined consumer confidence in the sector. However, it was the loss of Christmas trading for the vast majority of the business that had the biggest impact, swiftly followed by a complete lockdown from January. Government support for hospitality in the form of business rates reliefs and grants, whilst appreciated, did not come close to covering the losses across the sector. And as a big company, we were shut out by the state aid cap in terms of eligibility for all the grants. Clearly, the extension of the job retention scheme was welcome in terms of protecting jobs, but as the employer has had to pay for pension and NI costs throughout, even this was a net cost to us. As you know, in March, we successfully raised the equity that we needed to ensure that we had sufficient funds to withstand a prolonged lockdown, which puts us in good position as the sector reopens. With the apparent success of the UK's vaccination program that is now reflected in reducing levels of COVID-19 infections, hospitalizations and deaths, we can now, at last, be hopeful that we're on the path back. And reopening this week feels like a major step forward. Clearly, we still have to apply COVID-secure protocols, such as 1-meter plus table spacing, rule of 6 and table service only, all of which limits our capacity and impacts on our trade. But we expect that some or all of these restrictions will be lifted on the 21st of June, whereupon we believe the business can bounce back strongly. There's no denying that hospitality has been one of the most severely impacted sectors by the pandemic. Ever since the Prime Minister started talking about pubs being potential hotspots for contracting the virus, the sector has had to endure a lot of potentially damaging PR in terms of consumer confidence. It's worth stressing again that there has never been any figures produced to support this hypothesis. And given the extensive protocols that we've all adopted, we would argue that U.K. hospitality venues have always been and remain very safe places to be. Fortunately, many of our guests agree and are still determined to enjoy what we have to offer, as evidenced when the gardens reopened on April 12. The current estimated fallout from the sector in terms of capacity sits at 7%, but unless the rent-debt time bomb can be resolved, we would expect many more businesses in the sector to fail over the coming months. Clearly, any reduction in supply has a benefit to those that remain, which, of course, includes us. The pandemic has impacted the whole of society and people have changed their habits. Now we won't know for sure what sticks until the sector is reopened for some time. But it seems likely the home working or hybrid working model will increase versus pre pandemic, which obviously reduces footfall in city centers but benefits the suburbs. Our estate is very well balanced, so one segment suffers, another will benefit at its expense. It also seems likely that high levels of guest adoptions of things like ordering and pay at table and delivery, both of which have been boosted by restrictions, will remain. We've also seen an increase in spend per head across our business as people have embraced being able to come out again, and we believe that people will value their eating and drinking out occasions more so than they did before, having been starved of them for so long. We initially reopened 270 businesses in England for outdoors trading on April 12, and then progressively more across England, Scotland and Wales in the run-up to May 17. A combination of the euphoria over being able to meet friends again and the fact that circa 60% of the sector remains shut and unseasonally dry weather, meant that we had a very strong first 2 weeks of trading, belying the fact that we had outdoors-only trading and with COVID-secure restrictions in place and therefore, significantly reduced capacity. However, once the weather broke, it was a reminder that the U.K. doesn't always suit al fresco dining occasions and levels of trade fell back, although we have plenty of examples of hardy souls refusing to leave their pints just because of a bit of rain. Pleasingly, guest review scores have been very strong, sitting at 4.4, up from 4.1 pre pandemic. Now I'm sure there's a little bit of goodwill in that score, but it does bear testimony to the great work our teams have done in delivering safe and hospitable service to our guests. The first 2 weeks were strong for the whole sector, which caught the supply chain out, as not only were individual sites smashing their projections, but operators were deciding to open more sites given the success they had been seeing. This led to a few product shortages that you all have no doubt seen reported, but this was to be expected as our suppliers have been in lockdown, too, and getting back to full production takes time. The poorer weather has reduced volumes, and this has allowed the supply issues to be largely resolved in readiness for the 17th. Now we always viewed the 12th of April as a dress rehearsal and the 17th of May as being opening night. The sites that were able to open before the 17th had the advantage of blowing away any cobwebs built up as a result of being closed for 4 months, and they provided valuable insight into how to handle the current suite of protocols. The teams who have worked have consistently fed back that, a, they've been amazed at how quickly and easily they've got back into the swing of things; b, how this time around, guests don't appear to be anywhere near as anxious as they were last summer; and c, whilst great to be back they hadn't realized how far their garden tables were from their bars and kitchens. Happy but tired teams. We now have 90%,circa 95% of our sites open and trading, with only those sites that are totally dependent on closed offices or closed anchor tenants in the U.K. remaining shut. Our German business, Bar Alex, only has 4 of its outside terraces currently trading with the rest of the business remaining closed. However, we remain hopeful that we should be able to reopen in full next month. Forward bookings have looked strong for some weeks now. And although we expect to see a level of attrition where guests have booked more than one venue, we also expect walk-in business to more than make up for this. Between the 17th of May and June 21, indoors capacity will be reduced due to the 1-meter plus ruling, but we would hope and expect to be able to add back in coverage from June 21 onwards, whereupon we expect the business to trade very strongly. As the sector reopens, it will become quickly apparent how many of the people who have been on long-term furlough, return to the industry. You will have seen industry reports citing concern over labor shortages, not helped by Brexit, where European nationals have returned home and are either unable to or have no intention of returning. That said, people will also be nervous about rejoining the sector until there is more certainty there will be no further lockdowns. We anticipated that this may be an issue and have already had a series of targeted recruitment drives in those locations that may be problematic. We've also set up M&B Borrowed, where team members can take on shifts in other M&B businesses if their site is still closed or if they have insufficient hours. As of today, management vacancies are no different to the level we would normally expect at this time of year, which is very encouraging. But it is in the front and back of house team roles where we've lost some people over the last year. Where -- and this is where we -- those roles will need to be filled as trade builds. Given the level of applicants we've already seen, we're confident of filling our front of house roles quickly. But as always, there will be the back of house areas where we envisage pressure. That is why our ongoing investment in our own chef academy and kitchen skills training and our apprenticeship training is so important. Having been in firefighting mode for the last year has been good over recent weeks to get back onto the front foot. We have used the lockdown period to do a lot of planning, and we're already underway with our Ignite transformation program, which was serving us so well pre the pandemic. To remind you, this is an evolving program of circa 40 or 50 individual initiatives that we drive across M&B that together can step change performance and meet our strategic priorities, which are building and maintaining a balanced portfolio, creating a commercial edge to the way we do business and driving an innovation agenda. We prioritize those initiatives that are the enablers for many other workstreams. For example, finally landing our Auto Order and Prep and Par initiatives will enable us to step change the control of our margins. The master data management project, or MDM as we call it, will complete this summer, which will mean, as the name suggests, we will have one version of the truth for a wide range of our data, which will save a huge amount of time and cost. For example, when we -- when products or prices change, there are currently many different channels that need to be separately updated, multiplying the potential for mistakes, whereas with MDM, we'll be able to change once and publish everywhere. The other Ignite initiatives we'll recommend in earnest in June, and will be added to or evolved with the learnings that we've taken from lockdown. An example of this would be the order at table initiatives where pre pandemic, our main focus was on rollout and driving guest adoption. However, the last year has accelerated that aspect of this initiative, so we can now focus on how best to drive spend and enhanced guest experience. We've also been planning to relaunch our capital program, which was a big driver of our success before the pandemic, and we will complete several schemes between now and Christmas before ramping up the program again in 2022. Our aim will be to return to a 6- to 7-year cycle of investment as soon as we can and to ensure that when we do invest, we invest in the whole business inside and out. We have proven investment models for each of our brands that were delivering strong returns before the pandemic, and we see no reason why this can't continue. So in summary, it's been a very frustrating year, but it finally feels as if we're on the way back. We have a great portfolio of predominantly freehold sites with strong brands and a team of people who we believe are unsurpassed in the industry. Providing restrictions are lifted in June as announced, I would expect us to have a strong finish to this year, so that we enter FY '22 on the up. We aim to get back onto the same journey that we were on before the pandemic as quickly as we possibly can. And then as we de-gear, we will once again create sustained shareholder value. Thank you for listening. We're now happy to take any of your questions.

[Operator Instructions]. Our first question is from Jamie Rollo of STI Consulting (sic) [ Morgan Stanley ].

Yes. It's -- I think it's Morgan Stanley actually, I hope. Three questions, please. Why have you still got 100 or so pubs closed? Is that just a temporary situation? Should we read any sort of permanent closures there? And indeed, any sort of disposal of proceeds? Secondly, just a question on margin. Could you possibly quantify those labor cost pressures that you're seeing? And does that mean you need to get above pre-COVID revenues to get to your pre-COVID margins? Or do these sort of Ignite savings mean you can get back to those margins perhaps a bit earlier than the revenue recovery? And then finally, just on the sort of -- I mean, I know it's sort of less relevant now. Just on that Q2 performance. If I look at the securitization documents, it looks like your Q2 EBITDA loss was only GBP 21 million. And I appreciate that's not all of your pubs, it's sort of 80%, 85%. But that's very low, not relative to the sort of GBP 30 million-plus figure per month for the group. I'm just wondering, is that just the unsecuritized sort of lease cost pubs rather, plus central costs explaining that difference? Or is there something else there?

Thanks, Jamie. I'll take the first one and maybe hand over to Tim for the second, please. No, there's nothing to read into the closed sites. Of those 100, just over 40 of those are in Germany. So that's our Bar Alex in there. And the other sites are sites that are either shut because of anchor tenants or where they're the airport sites, we've still got some closure or where they are reliant on offices to return. So these are strong locations. They will reopen. And also I should also say businesses where actually with the current restrictions, we just can't run them profitably. So if we've got a small pub where you can't do social distancing, until you can have vertical drinking, it doesn't make much sense reopening. But these are good sites. They are certainly not sites we're looking to divest of. And I would hope they'll be open soon in the summer.

On margin, Jamie. I mean now I mean I can't put a quantity on that labor cost inflation. It's varying by region. And we're not going to -- it's only just now we're sort of fully opened, that it will really bide with us, to be honest. So we'll just see what we -- it's not going to be overly material in the context of the group numbers. We have a little bit of shelter because as you'll be aware, living wage and minimum wage typically have been going up by 5% or 6% a year, whereas this April it only went up by 2%. So the base increase in our labor cost has been lower, to which this has been applied to that. I think that -- it sort of washed through largely. You alluded to sort of forward market -- forward margins. I think our assumption is as we normalize out of COVID, I don't see why this business doesn't normalize back at the margins that it was pre COVID. But the situation is dynamic, of course, because if we think back to 2 years ago, we were having to run a lot faster on the sales line than we were on profit line because we had all these GBP 55 million of cost headwinds that we talked about. And I don't see any reason why the business won't be back in that position. So I think we'll reset the -- at about the same margin, but we'll have a sort of a steep task to find enough Ignite efficiencies if we want to hold that percentage margin. I think we can hold our profit, we will profit on, but that's at the risk of a lower percentage margin, which is basically what you got to where we were 3 years ago. In terms of your Q2 loss, I mean, I think you're comparing that -- [ I'm going to put you on the spot ] -- you're comparing that Q2 loss with the cash burn. The -- our EBITDA loss is always lower than our cash burn because the cash burning includes GBP 5 million a month of pension contributions, which, of course, aren't going through the P&L, and also includes payments to suppliers, which are properly costed in the P&L. So whilst we talk about the EUR 30 million to EUR 35 million cash burn a month, that was not the EBITDA loss per month. That would have been much lower. That would have been about around about half or less of that.

Sure. No, appreciate the latter point. I was adjusting. It looks still quite low, just on the pure EBITDA burn. Just if I could get just one follow-up, so when you say we expect to enter FY '22 on the up. What do you mean by on the up, please? Is that a sales or profit related or is that just your feeling?

Probably my feeling. I suppose what I meant by that is, I think the big question is when will the business return to pre-pandemic levels. And I suppose what I'm saying is I think that providing restrictions are lifted in June -- on June 21, I see no reason why we shouldn't have a strong summer with the euros, particularly, and staycations, such that when we enter our new year, I would hope we're beginning to get back in touch with pre-pandemic levels. So therefore, starting to be back onto this journey that we were on pre pandemic. Hopefully, it will start from our new financial year. But it is contingent on those restrictions being lifted. And that, of course, at the moment is the big unknown.

Our next question is from Tim Barrett of Numis.

My first question actually follows up from that last one on the kind of Q4 run-rate. And presumably within that, you're including the benefit of the VAT reduction. Can you remind us on your strategy around pricing? And then 2 more granular ones. When do you expect the working capital negative to rebuild? When does that turn into a positive? And on pensions, can you remind us on the position? Is there a catch-up on the payments to come this year? And is it still -- are you still on track to eradicate the deficit in a couple of years?

Okay. Again, thank you, Tim. Okay. And I'll take the first one. Yes, I think we are -- the VAT benefit is in those numbers, yes, sure. And I think once the restrictions are lifted, we would expect our trade to sort of gradually rebuild. And of course, the VAT there is giving us a little bit of a help until -- whilst that's in place. So again, I think as we start the new year, we took the VAT benefit away. Yes, obviously, we wouldn't be back to pre pandemic run-rates without it. So yes, I'm factoring that into those numbers. But it's -- I do think once the restrictions are lifted, we will see the sector, not just us, I think the sector will recover. The VAT is there to help the sector recover in the meanwhile. In terms of what it means for pricing, it means that we aren't having to be as aggressive on price, and we don't intend to be, but I think it will be interesting once the whole sector has traded for a few weeks to take a read of what's happened on price across the sector, as I'm sure everyone will do. But at the moment, we are -- we've not changed our approach to price, and we are -- we tend to put price through when our input costs move, and we try and pass some of that on and try and absorb some, and we'll continue to do that.

In terms of working capital, Tim, yes, I mean that's reversing as we speak now because our tills are open so tills flooding in, and that's a reverse. So we had an $85 million outflow in the first half. You'll see substantially all of that in the second half. Of course, it's going to depend on where sales get to, right, by the end of what we're running at and whether we get to pre-COVID levels or when. But so I don't think it all will reverse, but the substantial majority of that will reverse in the second half, provided we stay open and we trade in a decent environment. In terms of pension, there's 2 answers. So we have a sort of 6-month holiday last year, and that was added to the back end. So that took our contribution through to the end of 2023. We then had a 3-month holiday at the beginning of this calendar year, but that's now all been caught up. So if you're looking at modeling your numbers, you end up with this year with the normal full sort of GBP 51 million contribution into the pension fund, and the same going forward. And that should hopefully pay it all off by the end of 2023. Are we on track for that? Yes, broadly yes, it seems that we're at 80% hedged. So they haven't moved off their path much with the events of the last year. So I hope we can still get there.

Is it too early to talk about what you might do when you get that GBP 50 million?

Yes. Yes, it's early.

Our next question is from Joe Thomas of HSBC.

Phil, Tim. Just wanted to ask you what you've seen on average spend a head since you've reopened? It sounds like you've not really taken much on price, but I'd just be interested to know how that's moved. And secondly, can you just clarify the issue on labor costs a little bit more? I think you said that there are -- I wasn't quite sure whether you're saying that you were fully staffed now, or there were some significant holes. If you could just perhaps just give a bit more detail around that, it would be helpful.

Yes. I mean, yes, thanks, Joe. I think on average spend a head, probably -- I mean, all I said is actually, we're seeing spend a head increase. I think it's too early really to say by how much and whether that stays or not. But certainly, I think things like the adoption of order at table has actually helped that, because it gives the guest time to shop and then to spend up in a way that they probably don't when they've got the anxiety of queuing. So that's what has been the driver of that. And actually, hopefully, that may continue. I think it's also an element of people in coming out again, having -- coming out and having a good occasion. So we'll see how long that lasts. To clarify on labor, no, what I'm saying is, at the moment, obviously, the industry is reopening at not full capacity. So it doesn't need the full level of its -- the labor that we had been running at before the pandemic. But as trade builds over the coming weeks and months, then obviously we will be recruiting, as we are. So at the moment, we are fine. I think if we suddenly found, and wouldn't it be good, if the whole industry went back to pre-pandemic levels tomorrow in a consistent way, then we would all be recruiting -- really we'd all be desperately recruiting very, very quickly to cover that shortfall. But as we say, actually, you've got a VAT benefit in there. So even though we have strong sales numbers in terms of volumes, obviously, once you discount the VAT benefit, we're not at the same capacity yet. But we'll see. So the -- we are recruiting. The sector is recruiting. As I said to you on my -- on the update, I think we're confident that the front of house roles are filling quickly. And if we run into problems, it will be in the back of house areas, which -- that is where we're putting most of our focus. So not an issue at the moment, but it's one that, if I'm looking forward and the industry recovers very, very quickly, that is where the problem might be, and that is why we've resurrected our chef skills academy, so that we're prepared for that.

Okay. And just sort of push it a bit harder. Are there any numbers that you'd care to venture on spend per head? Or how we can think about that if you sort of eliminate some of the discount?

No, not at this stage, to be honest, Joe. I mean, I think, like I say, we've had, what, 4 weeks of trading in our gardens and 1 or 2 days of trading indoors. You've got a lot of pent-up demand, a lot of euphoria in there. So I think the patterns we're seeing, in terms of the absolutes and in terms of spend a head, mean very little, to be honest. And I certainly wouldn't want to be sharing numbers that people then want to use. I just don't think you can get a read. I think we will know more, and we're certainly taking the view, that it's not going to be until the first or second week of June that we get a real read on where we are with the current restrictions and probably won't be until -- assuming that they do lift restrictions on June 21 -- it probably won't be until early July that we really get a sense of where the business is at. So that would be a better, certainly when we get to prelims, hopefully we can be far more certain about what the future looks like.

Our next question is from Owen Shirley of Berenberg.

Three for me, please. The first one was on delivery. Just if you could update on where you're at in terms of number of sites, brands, what kind of level of sales it's got to? And to what extent do you think it will prove incremental? The second one was just your latest thoughts on CapEx for both the second half and for next year. If next year, you do end up trading looking more normal? And the last one was your balance sheet. On normalized EBITDA it's looking as good as it has in -- well, a long, long, long time. And pensions contributions rolling off soon too. So I'd be interested in your thoughts on M&A and whether that could [ reach in ] meaningfully in the next years?

Okay. Yes. Thank you, Owen. On delivery, I think one of the -- I mean, not many positives coming out of the pandemic, but I think delivery has certainly been boosted by people who thus far haven't sort of accessed delivery, suddenly seeing what it can be. And we've certainly locked into that. We are with 3 partners, with Deliveroo, Just Eat, and just about to go live with Uber Eats too. We've got about 400 venues currently doing delivery. That will increase further, I would imagine. And we are seeing our run-rate increase -- well, we certainly were before lockdown. Obviously, at the moment, as we come out, we're not seeing very big volumes, but I would expect us to pick up where we left off before the last lockdown and see those numbers keep moving. I think we're sort of on for annualized GBP 20 million plus, and that's growing. So we certainly see a lot of headroom in delivery to come. Moving on to the CapEx piece. Tim's going to take the CapEx piece.

Yes. On Capex, Owen, we're keen to get back on the CapEx program we were on going into COVID the 6-, 7-year remodel cycle. And we're keen to do that as quickly as we sensibly can. Unfortunately, of course, it's not a tap we can sort of turn off and on very quickly. We've got to get budget briefed, we've got to get supply chain back, in some cases we've got to get planning consent, et cetera. So we'll get a good number of projects away in the second half of this year, maybe 20, something like that. And then we'll look to build it through next year. So I would hope next year it's pretty close to a full capital investment program [ close we'd stay ] certainly by the year after. Certainly -- and that's -- so that's what we're aspiring to do. I think you should assume that. In terms of the balance sheet, yes, as I said, we've reset the balance sheet. We think that's -- has given us a firm basis to trade going forward. Just to be clear, our priority is still to de-gear rather than anything else. We still have -- although gearing has come down, we still have the same debt service obligation of $200 million. So that hurdle doesn't get lower. But it does mean that should M&A opportunities present themselves, then I think we have the capacity to have a look at them. And I think it's almost certainly going to be freehold base opportunities for us rather than buying any of the distressed leasehold brands out there. But if a package of decent assets comes onto the market, then we would be very keen to have a look at that. We wouldn't be the only ones, of course, but we'd be very pleased to have a look at those.

And Owen, I think I just forgot the other aspect of your delivery question is whether we saw that as being incremental or cannibalistic. I think inevitably as delivery has grown, it has to come from other occasions. Probably the eat-outs can't be bothered to cook occasion is probably where the delivery has taken some headroom. But I don't see it as a threat. I think it's, actually it's opening more people up to what we do, and people are sort of seeing -- actually they're enjoying it. They then want to come and experience it for real in our venue. So it's something here to stay and something we're right behind and we see it sort of complementary to what we do. Obviously, the same is so when we're driving click and collect, which is a win-win, and if we can get people coming in and having a drink while they're waiting for their takeaway, even better. So that's something we are driving too.

That was very clear. If I could just ask one quick follow-up on the M&A point. Would you rule out tenancy in these sites, or would you want only managed sites?

Yes. We're -- yes. I mean, I think, as Tim said, to be understand, that we've always answered that question by the fact that we'll be opportunistic and we'll remain opportunistic. If the right package of freehold businesses came to market, which -- either with their own brand or more likely where we feel they would complement and fit our lineup of brands, then we would look at it. But as Tim said, I think so would everybody else. So it's certainly not on top of our list of must dos. We've got a big estate, and we've got a lot to do with our estate, and we think there's still a lot of headroom in investing in what we're doing, but we'll continue to look to see what opportunities there are.

Our next question is from Diogo Silva of [ Pease Quide ] Asset Management.

It's 3 of them as well. The first is on the working capital, and this is just a confirmation. So you won't have any more working capital outflows now with this later round of reopening. And so we would only expect an inflow which as you guided will be something below EUR 85 million, but almost a full reversal. Is that accurate?

That's correct.

Okay. And then the second question, in terms of the cash flow, would you be able to please quantify -- we obviously talked about rates of cash burn in the past during lockdown, would you be able to quantify during the period in which you were only with the outdoor areas open, what was the rate of cash burn for that period?

Look, when we were open outdoors only, as we said, our like-for-like was down 37%. Our total sales were down 80%. So clearly, we were loss making for that period. It's only 5 weeks. So there was a cash burn there of GBP 10 million, something like that, GBP 15 million, it's not an enormous amount in the whole scheme of things.

Got it. Got it. And then my last question, and this is just in terms of the pricing discussion. Once the VAT exemption came into place, did you increase your prices to keep it the same price for the customer, but you would absorb the VAT portion? Or did that VAT -- the absence of VAT get passed to the customer as a benefit?

I'd say most of the time since this came in, we've been closed, frankly. So we haven't have the privilege of making that decision. But what we've done varies across the estate by brand and all losses through. So we -- some brands have taken the price, some haven't.

Got it. Because my follow-up question will be just like when you look at in strategic terms, how you think about the next month, where you're seeing some cost pressures, I guess, both on the labor side, but also maybe even on the supply side, where you've mentioned you've been having some shortages. How confident are you that you can pass those on? And how much do you think you could pass versus retain yourself?

Well, the reduced VAT gives us some shelter to deal with those increased costs, which means one doesn't need to pass them on to maintain our margin. Beyond that, I mean, we don't operate a cost-plus model. So it's not like we take cost, they go up and we add it to prices. Prices are really set by consumers. And it's our job to try and marry the 2 through efficiencies or whatever is required in between. So it's a little bit difficult to answer your question, because we're not pricing on cost plus.

We also do a lot of work in terms of getting our -- giving people the opportunity to trade up in menus. So another way of -- if you can get people to trade up to different dishes, more premium dishes, that is another way of offsetting some costs, and we've been successful pre pandemic at doing that. And I suspect we'll continue to do that sort of activity, too.

Got it. And sorry, just actually one more last quick question, which is more of a housekeeping item. I've noticed that a lot of your debt is still in a LIBOR kind of indexation framework. How are you guys dealing to -- how are you guys dealing with moving away from LIBOR with the whole move away from LIBOR during 2021?

Yes. So there's a comment in the finance review. Our securitization interest on the bonds, the swaps that are associated that in the liquidity facility are all predicated on LIBOR. So we need to transition those to SONIA, and we'll be looking to do that later on this year.

Our next question is from Peter Testa of One Investments.

Maybe just to try and help us get our compass, settle some of those questions asking about pricing, et cetera. Can you give any directional comments about what you're observing in terms of gross margin versus pre pandemic on food and drink separately? And then maybe some comment on what you're expecting or seeing on labor -- hourly labor rates versus pre pandemic? Just to give us some compass on that because there's a lot of -- it would help, please.

[ The amount ] is operating. No. They're about the same, as we say in the statement, 5 minutes -- 5 weeks of trading outdoor only. It's just far too early to really margin [ do ] anything. So I do think we said we're assuming that margins reset to where they were pre pandemic, and that's still our best view.

I don't that -- I don't know if that answer satisfies your question or not. But I think like we said, I think we're not certainly not reading anything into the numbers we've had for 4 weeks of outdoor, 5 weeks of outdoor trading and 2 days of indoors trading. But on the -- we would -- as Tim says, we would fully expect our margins to be pretty much as they were as we went into the pandemic. And so if you were looking to use anything, that would be our recommendation.

Yes. No, I understand that. I mean you're getting asked bits and pieces of it, and I was trying to get an overall picture. Because you're making a correct point that the market sets prices. So adding or subtracting VAT, it's what the market is doing -- is how it works through. And as the VAT changes then the market will adjust. And there's discussion about cost pressures, et cetera, but you've got menu pricing. And as you said, people were -- are going to come out and want to spend, and you've got many upselling opportunities. So just trying to get a sense of how to look that at a higher level than maybe some of the more granular points being made earlier.

Ladies and gentlemen, we currently have no further questions. So I will hand back to Phil.

I just want to say thank you for dialing in. Obviously, there are questions that come up after this call. Then if you fire them through, I'm sure we will do our best to answer them. Thank you very much.

Ladies and gentlemen, this concludes today's call. Thank you for joining. Have a great rest of your day. You may now disconnect your lines.