MITCHELLS & BUTLERS

MAB
Temps Différé London Stock Exchange - 17:35:13 08/02/2023
161.70 GBX -2.77%

Transcript : Mitchells & Butlers plc, H1 2022 Earnings Call, May 18, 2022

18/05/2022 | 10:30

Presenter Speech
Tim Jones (Executives)

Good morning. Thanks for joining us. I'm going to take you through the financial performance in the last 6 months. I'll focus a little bit on our recovery and sales, talk a bit about costs, our thoughts around cost inflation and what we're doing about it. And just outline our return to profitability and cash flow after what's been a fairly extraordinary 2 years.

Let me start with the P&L. Overall income statement, we made a profit in the first half of the year of GBP 120 million. The comparator, of course, don't really mean anything here because it was beset by multiple closure periods but strong profits in the 6 months and certainly starting to make real inroads on building back to where we were before the pandemic.

If we look at like-for-like sales on this slide by month, now of course we've had varying levels of VAT through the last year. But what you can see here is in the sort of the orange bars gives you our reported like-for-likes and then the blue line shows you an underlying sales performance, so it strips out the impact of the rate of VAT changing. And as you can see, most importantly and very encouragingly, a consistent build in our sales performance since we reopened last summer.

You can see the little bite that Omicron took out of those in December last year. But apart from that, a very robust and consistent building back of business And we're now in growth against pre-pandemic levels of 2.2% in the last 5 weeks. And that, of course, is at a full rate of VAT.

Food remains stronger than drink. Suburban and rural, a little bit better than city centers, although I have to say that, that gap is narrowing. We're starting to see people come back into city centers, particularly in younger venues. And sales continues to be driven by spend per head premiumization over volume declines.

Now one thing we do know is that the future is going to remain quite dynamic for a while and certainly very uncertain. And to that end, I think it is worth emphasizing the wide breadth of the M&B stable of brands and locations, be that covering food or drink occasions, whether we're looking at premium or the value end of the market or whether we're looking at urban, suburban or rural locations. We think that diversity and that breadth should give us a strong measure of resilience in what are going to be very volatile and uncertain times for the next few years, I think.

Costs, of course, are focus of much analysis and debate at the current time for very obvious reasons. And we'd like to spend a bit of time here just picking through how we see things and what our sort of planning assumptions are. Now to be clear, what we've got on this slide is we set out the headwinds for the current year and we look at next year. For the current year, that's a 3-year cost headwind increase. So it's based on FY '19 so that I can anchor it towards a stable start point.

And it's important to understand what these represent. So the headwinds do assume some sort of tactical mitigation by us, whether that's leveraging our buying scale with our supply chain, whether that's trying to manage down some energy volumes or increasing our labor efficiency. So there's a little bit of tactical mitigation here. To that extent, these numbers are probably lower than overall general inflation in the market. However, what they do not include is any specific mitigation, particularly coming from Ignite or any other initiatives like that, to reduce our cost base.

Based on that, in the current year, we had got about 11.5% inflation over a 3-year basis. So that's 3.7% annualized across those 3 years. Of course, these headwinds would have been consistent throughout and particularly that would've been back ended into the last year with energy, particularly in the last 12 months. Next year, we see headwinds being a little bit steeper at around about 6%, driven by wages, in particular. We know the living wage went up by 6.6% in April. And also food in particular, which is running at very high levels of inflation.

I think the big swing next year -- I mean, it's -- we're just not really in a position to call is what happens to energy prices. That could exacerbate the situation or it could, of course, help to mitigate the situation if we see some sort of reversion to where we were 18 months ago in the energy markets. Those headwinds really compare to what we were always talking about pre-pandemic as our long-term rate of cost inflation, which is around about 3.5% per year, so slightly in excess this year and in excess next year. I don't think there's any reason to move away from our long-term rate there.

In terms of cash flow, it's really encouraging to that generating positive cash flow and reducing our net debt. Over the last 12 months, so that's since the equity raise, we've reduced net debt by a further GBP 200 million to GBP 1.253 million, excluding leases. We haven't revalued our properties at the half year. We did see some reversion in those valuations at the end of the last full year, but it leaves our net assets at GBP 2.2 billion, representing just over GBP 3.70 per share.

Now I'd like to say a few words before I wrap up on pensions, particularly because after many years of paying GBP 50 million a year into this fund, there's perhaps some glimmer of light at the end of the tunnel now. We have a triennial as of last March, as of a month or so ago. And we'd expect to see some pretty strong progress there against the deficit that we had previously 3 years ago.

If I talk about our main plan, that's our biggest plan, it makes about 80% of our liabilities. We put again GBP 40 million a year under the current schedule of contributions, we're due to do that only for another 18 months till September next year. The plan is largely derisked and hedged, so we would hope it has some stability to its performance, so we'll look forward and see where we get to with this triennial. But we hope we're getting close to fully funding that plan.

The executive scheme has gone a step further because we actually announced a buy-in that we did in December last year. So we've largely derisked that. Our contributions are going in at GBP 12 million a year, again only until September next year. But we hope they're not all going to be required now. We'll have to see, but we hope they're not all going to be required. So they're actually going to a blocked or escrow account, which, if they aren't, will allow them to be returned to us rather than getting locked inside the pension fund.

So before I hand over to Phil, I'll maybe just to summarize. I think what's really encouraging here is a strong and consistent sales recovery since we reopened a year ago. Cost outlook is certainly going to be challenging, looking forward and it's going to be uncertain, but we've got a number of initiatives to deal with that, and Phil will start to talk you through those.

We do, overall, think we're really well placed to face whatever the future holds for us. We've got a strong balance sheet. We've got a great portfolio of brands and diverse locations, and that allows us to look forward to the future with a degree of confidence.

Presenter Speech
Phil Urban (Executives)

Thanks, Tim, and good morning, ladies and gentlemen. After the 2 years that we've all just enjoyed, I guess it would be easy to focus on nothing but the disruption we've seen in the business and our tale of woes, but I don't know about you, I'm sort of getting fed up with looking backwards and bemoaning what might have been. So today, what I intend to do is just share exactly where we see ourselves today, focus on what we're doing and get across to you why we're confident about the coming months.

Now there's no denying that the COVID-19, Brexit and now the awful war in Ukraine has had a big impact on our cost base, which undoubtedly will put a squeeze on our guests' pockets as well as our own cost base. But this is a macro issue, and we'll take the view that there's nothing we can do about that, so we're focusing on the things that are in our gift to control.

Let's start with sales. As Tim said, we have made steady progress since we reopened the doors last summer, apart from that 5-week blip over Christmas caused by the Omicron variant. And I'm delighted to say that we finished the year -- half year with a like-for-like sales growth of 1%.

Now ironically, for those who were there, it was a day after our prelims that -- just after I stood up here and said, providing what we got a clear run at Christmas, we'd have a strong performance, that Sir Christ Whitty went off script and told everybody to stay away from Christmas parties. The impact was immediate, with cancellations of Christmas bookings, particularly hitting beleaguered city centers. So to recover that lost ground by the half year is extremely pleasing, obviously helped by 7.5% VAT reduction on food and soft drinks through the end of March.

With regards to our performance versus the wider market, the trend we reported at the prelims continues with us outperforming in restaurants and pub restaurants, but slightly underperforming in pubs. As explained last time, we have a very strong and proven brand formats in restaurants and pub restaurants that are pretty much recovered as soon as we reopened the door last summer. And it's in the pub cohort where there's a wide range of offers represented. And it's sort of late night young people's market that is performing particularly strongly where we're not overly representative -- represented where the strong growth is coming from, whereas suburban and workforce-related businesses are still recovering lost ground. However, we believe these wet-led businesses are recovering and will continue to recover as confidence the venture out post COVID continues to build.

In terms of our brands, we've made progress in each of our markets since the prelims, with premium food businesses such as Miller & Carter and Browns leading the way. However, what I think has been most encouraging to me is the continued recovery of city centers as offices have returned to work, and London has had some weeks of growth which bodes really well for the summer, particularly if tourists start to return.

In the 5 weeks since the half year, with VAT back at 20%, we're delighted that we had to say that we have continued to see like-for-like sales growth of 2.2%, as Tim said. Now this means we've continued the path of recovery since last summer if we normalize the VAT, and that is key for the future. There's no denying that across the sector, we're no different, that sales growth has been driven by spend and that volume remains in double-digit growth -- decline, sorry.

But this does not mean that we have simply put up our prices because this is against an FY '19 base. And we have driven our sales by doing a lot of site conversion and also by product laddering within each brand where we introduce more premium product and allow our guests to trade up or have an additional starter or desert.

In fact, we took very modest price increases last month compared to many of our competitors as we've decided it's better to stay on our tried and tested approach to pricing. And because we're yet to understand what the impact of inflation is going to be on household budgets and on propensity to eat out.

Now we have a scale advantage against a lot of our competitors, and we believe staying focused on providing value for money in each of our brands will serve us best for the future. Pricing remains an option to us, but we'll continue to focus on building market share and reducing volume decline.

And we believe there is still potential to build market share if we deliver in our sell our offers well. And the fact that there is still sector-wide volume decline tells us there's still a big chunk of our guest base who is yet to return post-COVID. Market supply will inevitably come under more pressure in the coming months as the cost pressures begin to hit and as the squeeze comes on for a payment of bank loans and back rent, that can only be positive for those of us that remain.

Now winning market share is about delivering superior customer experiences, which relies on many factors, including your product, your price, your service, location, et cetera. We're therefore very encouraged that we have the highest customer satisfaction scores that we've ever had with all of our brands now sitting over 4 out of 5. Now this is very encouraging because there is a clear correlation between customer satisfaction and like-for-like sales, so this is critical to our long-term goals.

I have to acknowledge the outstanding job done by our teams over -- up and down the country in the face of unprecedented pressures. The fact that our team engagement has also grown in the last 6 months gives me a lot of confidence that the underlying health of the business is good, and I know we'll be ready to take and retain business as the market recovers.

However, we accept that the macro landscape is challenging right now, in particular, the cost inflation that Tim talked about. However, we have proven methods of mitigation in our Ignite and Capital programs, and we believe that by remaining focused on getting the business back to doing what it was doing pre-COVID, where we had solid momentum, and we're deleveraging year-by-year, that we will position ourselves to succeed.

To remind you, we have 3 broad strategic objectives. Firstly, to maintain the balanced portfolio. Now 6 years ago, this was about playing catch-up on our development program, but now we have very few distressed assets or under-invested assets. And so it's more about systematically raising the quality of our amenity, ensuring that we keep evolving each of our brand propositions based on deep customer insight and accelerating the expansion of the most successful brands.

Secondly, we want to have a commercial edge to the way we do business, which is about being clear on how every pound of sales converts to bottom line profit and with a guest at the heart of everything that we do.

And finally, it's about driving an innovation agenda. Now we have invested a huge amount of capital upgrading our systems in recent years. And we want to make sure that we sweat that investment by optimizing all the functionality that each component brings.

It's also about making digital marketing the engine room for the business that it should be. And we've come a long way in this space in recent years. And we now have the tools and expertise to be far more sophisticated in the way we attract and retain our guests. And it's also about genuine new product and new concept development. And about having an ethos that accepts we won't always get things right. But by constant experimentation and evolution, we will move each of our brands forward.

Now these principles have stood us in good stead over at least the last 6 years, and will do so again going forward. And the 2 main pillars that enable us to realize our ambitions are the Capital and Ignite programs.

First, with the Capital program, this talks directly to our balanced portfolio ambition, and we aim to invest in every business on an average 6- to 7-year cycle. Now we would aim to see payback within 5 years, so we generate true return in year 6 and 7 before reinvestment. Our ROI before COVID was around 28%. And the early signs are that the current program is in the same ballpark. Investing across the portfolio ensures that no brand will ever again become tired, and it also means we don't swamp any operational team with too many developments at one time, which usually results in the eye coming off the ball on the core business.

However, we do look to accelerate the highest returning developments, which continues to be Miller & Carter, although Browns now has an investment template that we are very confident in too. Indeed, we intend to open our first new Browns restaurants this year since I joined the business, trialing the offer in Suburbia as opposed to its traditional city center locations. With the quality of the offer, the service level and now the amenity, we believe it's a winning formula for the current market. Now these pictures show the recent remodel completed in Manchester and the suburban businesses will have a similar feel.

Successful capital investment takes a lot of time and planning. COVID has undoubtedly impacted many of the third parties that we work with, mainly in terms of availability of materials and labor supply. And of course, this sector too has seen cost increases. That is why we are completing very detailed value engineering exercises for all of our investment formats to mitigate for all or some of the inflation we're seeing coming through.

We are also intending to extend the capital program right through the year, whereas previously, we finished most of our program by period 7 or 8 to minimize profit dilution. We're now taking the view that although this may be diluting for this year, investing throughout the year is a far more efficient way of managing the program because it means we can now take seasonality into account, so brands like Toby Carvery lend themselves to summer development when their demand is at the lowest.

The other thing that we plan to do going forward is to invest in more upper floors and vacant land, looking at Innkeeper's Collection opportunities or third-party rentals. Whilst this may be dilutive to headline ROI, it's accretive to net asset value and so ensures that we sweat the assets that we own. Now some may argue that cutting back on investment during difficult macro times is prudent. We would argue that the current macro factors are temporary, and systematically and relentlessly improving our quality of our estate will serve us best over the long term.

The other key pillar to the way we operate has been and remains our Ignite transformation program. Now to remind you, this is something that we first put in place back in February 2016, and the program remains as full and as stretching as it's always been. It's built on the premise that there's no silver bullet to moving a business of our size forward, but it's progress simultaneously on numerous fronts that together in aggregate makes a difference. It's a program of constant improvement and innovation, and we currently have over 40 initiatives underway, and they've been recently topped up following a Ignite Blue Sky Day that we held at the beginning of this month.

We now have an established weekly and monthly cadence to tracking Ignite program, including a project office, which manages the program and a SteerCo that effectively signs off on every initiative. Each initiative has a multifunctional team tasked and empowered to plan, create and launch the activity into the business and to monitor progress post launch. This has the added benefit that the quality of input is that much better with a variety of people inputting and lessened the barriers to implementation as we have operational representation in each project.

In terms of value, some projects may only grow profit by circa GBP 0.5 million. Others are forecast to improve incremental profit by over GBP 10 million, but all of them are important to us.

There are a wide range of projects in train as we speak, from selling more and better coffee to making autorostering work and hence reducing workload for our general managers and optimizing our labor deployment at the same time. We are extending our delivery footprint, which already has annualized sales of over GBP 45 million. And we are also now focusing hard on improving the performance of the businesses that already do delivery to get every site working to best-in-class levels.

We have order at table across all brands where we believe -- which we believe are relevant to it. And we're now driving usage as we know improves guest experience by taking some of the hassle factors away and because evidence suggests that spend ahead is higher through order at table as guests have more time to look at the range of products and then choose to trade up.

We've digitized the ways of working for our frontline teams so that all tasks are shown in one place and can be reviewed and managed far more easily by our retail business managers. This means we have far greater visibility on the implementation on key pieces of work and it gives line management a one-stop color-coded shop to keep track of their to-do list. We're also releasing more table inventory to online booking and looking at how competitive socializing may play a role in underused spaces.

So we have a lot of activity underway, but we also want to ensure that we don't lose sight of our sustainability goals. We aim to be a net zero operator by 2040, to have 0 operational waste going to landfill by 2030, and have halved food waste by 2030 also. Food accounts for nearly 70% of our total emissions, and we are currently trialing menus with labeled lower emission dishes and testing to see where the change -- this changes guest behavior in terms of the dishes they choose.

We've already made great progress on reducing our landfill as we currently divert 96% of operational waste and are now working on the remaining 4%. And we're working with our suppliers to ensure that all packaging is recyclable. We are now looking at how we can move away from gas cooking platforms, and would aim to be able to start this process as part of the FY '24 Capital program. And by the way, all of our businesses have been on -- have been powered by 100% renewable electricity since 2019.

Tackling food waste is a huge issue for the whole sector. We continue to streamline our menus by taking out what we call orphan products, i.e., those items that only appear in one dish. We work with an organization called FareShare who distribute food that would otherwise become unavoidable waste to charities and communities that can use it. Now where this tends to be from further up the supply chain at site level we're already working with an organization called Too Good To Go in our pub restaurant brands, where unsold food at the end of the day can be packaged up and sold at cost and collected by their customers. And we're already up to 10,000 meals a week.

In terms of community, we are building strong charitable partnerships with Shelter and Social Bite, both of which focus on helping people impacted by home business, including opening up work opportunities, which give people a genuine chance to rebuild their lives.

All new company cars from last month will be fully electric or hybrid, and we are systematically raising our awareness of our sustainability goals throughout the company. We're also a founder member of the sector's Zero Carbon Forum, where it makes sense to pull ideas to ensure hospitality plays its part in delivering nations goals.

We believe that all of our sustainability goals must just become part of what we do and the way we work as opposed to sitting separately from our day-to-day business and we're pleased with the progress we've made to date.

So in summary, we remain in strange and difficult times, there's no denying that, where the macro issues we are facing make it almost impossible to predict with certainty what will happen to consumer confidence, supply chain, the labor market, et cetera. However, rather than retrench and risk inertia, we believe the current situation will be temporary and we need to press on with our agenda and incrementally and relentlessly improve M&B across the whole spectrum of our business. This will put us in the strongest position to capitalize when the market becomes buoyant again.

We're very pleased with the progress we've made to date and are making in this financial year so far, but we do recognize we need to keep growing that momentum. And that is why we've put so much effort into -- and focus into reestablishing our Capital and Ignite programs of work and into getting back to the operational routines that have served us so well in the past. We're building momentum again. And despite the macro pressures, we remain confident in our long-term ambition to create sustainable shareholder value.

Thank you. We will now take your questions.

Answer
Phil Urban (Executives)

I think someone is going to come out with a mic so you could sort of announce who you are and where you're from and then ask your questions. Thank you.

Question
Timothy Barrett (Analysts)

I'm Tim Barrett from Numis. The first question on Page 6, it's really helpful to see those cost categories. But -- it'll also be useful to get an idea of the cumulative Ignite offset. I guess, you've got 3 years of savings. So a reminder on that would be really helpful, please.

And then second question, perhaps a bit longer term. You talked about a GBP 49 million, GBP 50 million swing possibly in the cash flow statement once pensions are funded. What would be the priority for that cash flow, and the board's early thinking on how they use it?

Answer
Tim Jones (Executives)

Yes. So I mean, the quantification of Ignite benefits is really difficult. Some of those projects Phil talked about are in slides. Others are just ideas at the moment or somewhere between an idea and a launch project. Clearly, when we do launch projects, we have targets we're looking to hit within them, and that we quantify that benefit. And they're sort of eye-wateringly large numbers actually. They tend to come out with those. So -- but I'm a bit loathe about putting them out because they're not necessarily incremental to where we are today because in their absence, the floor would be falling away.

So we haven't previously quantified the benefit, and I don't think we can. I think all we can say is we'll look to mitigate the majority of those cost headwinds through what we can do. But as we said in the outlook statement that there's still likely to be a residual negative effect in the short to medium term on marginal earnings.

In terms of use of cash, capital allocation going forward, could it be lovely not to have to write those checks of GBP 50 million. I think that we've always said that our priority is cash allocations, firstly, to meet our fixed charges so that's debt service and what have you.

Next step will be investment in our estate and development of our estate. And then once we get through that, when we start having optionality on anything else we'd like to do. So I think it makes further investment into our estate more affordable, and that could be expanding the estate. It could be refurbing the estate, it could be developing parts of the estate, upper floors and what have you. And we'll certainly be looking at that and see where we are at that time, really, and whether we have enough investment opportunities or not.

I mean, it's not a decision we can make today. It's sort of 2 years away. Who knows what trading conditions will be like in 2 years as well. But it's a better place we are now, so that's good, but we can't really call what choice we're going to make in a couple of years' time.

Question
Timothy Barrett (Analysts)

Can you remind us what the leverage target is medium term?

Answer
Tim Jones (Executives)

We don't really have a leverage target because, to my mind, "level of debt for business" is the most affordable level of debt. And that's a cash flow metric, not a balance sheet metric. And because of our securitization, as we degear and even as that degearing accelerates, which has been done, our debt service doesn't come down, right? So that stays at GBP 200 million because we just have a richer and richer level of capital within our quarterly payments.

So I think for now, the next sort of 3, 4, 5 years, it is just to maintain the cash to pay down that debt. I think once we get closer to the end of the securitization, then we start to have options around what does one replace it with? Does it look the same? Does it look very different? But we're a way away from those because the costs of breaking the securitization early are very high to us, and we just want to follow the curve for now.

Question
Jamie Rollo (Analysts)

Jamie Rollo from Morgan Stanley. Just on the current trading comments, Philip, were encouraging. Are there any signs at all of the consumer trading down or delaying purchases or anything like that at all?

And then secondly, I don't know whether, Tim, you can quantify the sort of residual margin impact you talk about for the cost inflation, and also what sort of top line assumption you're expecting in that sort of commentary?

And then just finally, what is the plan B? If we do get that nasty recession, are you still expecting to sort of mitigate everything even if sales go down? You talked about major mitigation earlier. I'm not sure if that's included in that sort of margin commentary.

Answer
Phil Urban (Executives)

Okay. Well, I'll take the first one of those, Jamie. I mean, yes, I mean, I think we are encouraged, particularly for the last 5 weeks post the VAT moving, so that sort of gradual progression is important. Now at the moment, we are -- I couldn't point to a change in consumer behavior because of the inflation number. That may yet come. I mean household bills, utility bills, people would just be taking that -- paying now, so we'll see. But no, it's -- that trajectory is still there at the moment. City centers recovering slightly, suburban still doing well, but probably the people who were in suburbia are now back in the city. So there's been a bit of trade-off there.

The liquid business -- wet-led businesses are recovering slowly, which is good. London, particularly where we've got a big exposure, we've got stronger. So there's some good signs, really. In terms of recession, I guess this industry has proven to be fairly resilient through recession. So we remain cautiously optimistic. And because there's still a chunk of guests to return post COVID, my hope is they will start to come back, and that will partially also offset if there is any change of behavior due to inflation.

Answer
Tim Jones (Executives)

Margins, I mean, it's difficult to quantify. We flagged in the outlook statement that there is going to be a residual impact. As to how strong that will be, I mean, firstly -- first point I'd make is, whilst we've tried sort of mandatorily give you cost guidance, I mean the volatility is huge. Generally, I feel a little bit hostage to fortune, putting the slide up with something that occurred back in a year's time. So you have to take that in the spirit in which it's given.

Pre-COVID, FY '19, our margin was just over 14%. In this half, it's just over 10% -- 10.5%. Now normally, our second half margin is stronger than the first half. So you'd expect for this full year, if things carried on, we'd be slightly stronger than 10%. But it's going to leave -- it leaves you with maybe a couple of percentage different run rate now to where we were pre-COVID. I just -- I don't see us closing that gap in the near term, and maybe it might sort of come open a little bit.

In terms of top line, really encouraged by how sales have grown over the last year. And I think that shows really compelling on how it demonstrates that. We would expect that growth to continue to rebuild at a certain level through the next year, obviously, absent anything horrific happening with us. But we'd expect that to continue to build.

And in terms of plan B, if there's a recession, there's not a lot we can do to put in place for plan B. We just have to deal with what's in front of us. And I think one of the things we've learned over the last 2 years is you can over plan for a lot of this. Probably the most important quality for us to have is to be agile and ability to respond to events that are unpredictable, frankly, going forward. And we're just trying to put ourselves in a position to do that.

We've acquired the skills we never have -- want to have to use again on shutting businesses quickly and minimizing waste and opening businesses. But we've got those skills now. We're pretty sort of battle hardened from the last 2 years, and we'll face that coming forward. What we do know is depending on what lies ahead, a recession or whatever, we're in a better shape now than we were going into the pandemic because we've got much less debt, and we know how to deal with it. So we'll just see what happens. But for now, I don't think it changes what we do today.

Question
Harold Jack (Analysts)

Douglas Jack at Peel Hunt. Two quick questions. The first one, could you just talk about pricing, what you've done there and any plans -- and any use of tactical discounting? And then the second question is if you could just sort of break out the CapEx for this year and how that sort of splits between maintenance and any kind of expansion or conversions as well?

Answer
Phil Urban (Executives)

Yes. Thanks, Doug. I mean a lot is in the script there, I think we've approached pricing as we've always approached pricing, which is probably twice a year. We take a market view. We don't simply come at it from a point of view where our costs move, let's pass that back on to the guest because we take -- you could do that on paper, but if the guests stop coming, then that doesn't serve you very well. So we've taken fairly modest price increases, I guess, in the 2% to 3% sort of the range last month, that sort of range, probably near to 3%, I would think.

And we've sort of taken the view that actually we'll continue to build back market share by doing that. Price remains a legitimate tool that we can use down the line if we need to. And in the current climate, may need to do more frequently if the cost base continues.

In terms of our discounting approach gains, pretty similar to where we've always been. One of the benefits of lockdown actually in the last 2 years is a lot of the inherent and implicit discounting that's happened in the business, all stopped. When we reopened, we didn't put it all back in. So we've sort of got a cleaner P&L now and enables us to be quite particular about what discounting mechanics we run and when, and we can manage them far more cleanly because we haven't got the same volume in the business.

So we'll continue to do that as a mechanic. But I think at the same time, there is a gradual return to the sector. And so put all those things together, and with Ignite and with the Capital there, those are the things we're going to look at to see where that's all coming out. Pricing remains a tool for us. But well, I know some of our competitors moved by 10%, we would never do that. We typically try and protect entry points in our menus and try and ladder up through the menu.

So we say to people that actually there's some better dishes here at a higher price that you can choose and people are choosing that but we protect the entry points for people who are actually on a budget, and that served us well in the past, and we think will serve us well going forward.

Answer
Tim Jones (Executives)

On CapEx, I mean the backdrop to CapEx is we've been very clear that it's very important to us to continue to maintain our investment in the estate and as quickly as possible to get back to the 6-, 7-year remodel cycle that we're on before the pandemic. That, of course, continues to be the case, although for reasons not affordability but of deliverability that's been very hard this year just for the supply chain issues within the construction sector. So our aspiration is to get back there and that would imply a level of CapEx around GBP 170 million, GBP 180 million a year, perhaps more with some of the price inflation in the construction industry.

We won't get all that away this year for those operational reasons. So I suspect current year CapEx is going to be close to GBP 150 million, maybe something like that, of which about GBP 50 million will be the sort of maintenance and infrastructure elements of it and GBP 100 million will be acquisitions, remodels and conversions. Then next year, hopefully, the supply chain eases up, we can go on to our GBP 170 million, GBP 180 million.

Question
Owen Shirley (Analysts)

Owen Shirley from Berenberg. Most of my questions are actually answered, but just one on the pensions point you're making, Tim. I think you said that versus 2019, you'd expect the deficit to be lower. But I suppose we should hope that's the case given the contributions sort of net of the contributions, do you think the position overall has got worse or better? I know -- I guess the question really is, how confident are you based on what we know today that the last payment will indeed be September '24, isn't it?

Answer
Phil Urban (Executives)

Yes. Yes, September next year.

Answer
Tim Jones (Executives)

'23.

Question
Owen Shirley (Analysts)

'23, sorry.

Answer
Tim Jones (Executives)

I think you're absolutely right. We'd be appalled if the deficit hasn't moved despite 3 years of contributions. I think the best thing we can say is that we believe we're on the right flight path. So obviously, there's a flight path from 3 years ago to 18 months' time. The exact scheme is now derisked and there may be a bit of upside, so which these funds are going to block account. But overall, we don't think we've come off that flight path adversely. So we're where we think we should be.

Question
Owen Shirley (Analysts)

And the assets that are presumably fairly derisked since that was not -- it's not all in equities, isn't it?

Answer
Tim Jones (Executives)

No, that's right. As I showed on the slide and then under 10% of the main plan assets are in equities, and that's declining over time. And the exact scheme -- well, asset is the hedge buying.

Answer
Phil Urban (Executives)

Thank you very much for your time.

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