Mitchells & Butlers PLC
22 May 2007
22 May 2007
MITCHELLS & BUTLERS PLC
INTERIM RESULTS
(For the 28 weeks ended 14 April 2007)
FINANCIAL HIGHLIGHTS
HY 2007 HY 2006 Growth
£m £m
------------------------- --------- --------- ---------
Revenue 995 887 12.2%
------------------------- --------- --------- ---------
EBITDA 230 207 11.1%
------------------------- --------- --------- ---------
Operating Profit 161 143 12.6%
------------------------- --------- --------- ---------
Profit before tax 89 91 (2.2)%
------------------------- --------- --------- ---------
Earnings per share before exceptionals 14.8p 12.8p 15.6%
------------------------- --------- --------- ---------
Earnings per share after exceptionals 17.4p 13.6p 27.9%
------------------------- --------- --------- ---------
Interim dividend 4.25p 3.65p 16.4%
------------------------- --------- --------- ---------
Note: EBITDA, operating profit and profit before tax are all stated before
exceptional items
BUSINESS HIGHLIGHTS
- Good sales growth: same outlet like-for-like sales up 3.6% for 32 weeks to 12
May 2007(1)
- Average weekly sales per managed pub up 7.6% to £18.3k
- Strong market share gains: same outlet food sales up 5.5%(2), drink up 3.2%(2)
- Integration of Acquired Sites(3) on track: over half (126) converted with
initial sales uplifts already above 25%
- Net retail operating margin excluding Acquired Sites(3) up by 1.1 percentage
points to 17.2%
- Actively exploring 50:50 joint venture on majority of property assets
(1) Includes entire Easter trading in both periods being compared
(2) 32 weeks to 12 May 2007
(3) The 'Acquired Sites' are the 239 pub restaurant sites acquired from
Whitbread plc on 21 July 2006.
Commenting on the results, Tim Clarke, Chief Executive said:
'These strong results, with EPS up 15.6%, reflect our leadership position in the
growing eating-out market and significant gains in our drinks market share. Our
average weekly sales per managed pub are up by 7.6%, with a strong underlying
margin performance. We are now serving almost 100 million meals a year. We are
successfully converting the pubs purchased from Whitbread last year and are well
on track to deliver the targets set out at the time of the acquisition. We
remain confident in our future growth prospects.'
DIVIDENDS
In line with our commitment to progressive growth in dividends, an interim
dividend of 4.25p per share, an increase of 16.4%, will be paid on 29 June 2007
to shareholders on the register on 1 June 2007.
A special dividend of £1 per share (£486m) was paid to shareholders at the
beginning of this financial year on 25 October 2006 following the refinancing
completed on 15 September 2006. This was accompanied by a 34 for 41 share
consolidation to enable continuing share price comparability.
CURRENT TRADING
Revenue in the sixteen weeks, since the AGM trading statement to 12 May 2007,
has shown good growth with same outlet like-for-like sales 3.2% ahead of last
year, 1.9% ahead on an uninvested basis. Overall trading is in line with the
Board's expectations.
16 weeks to 12 May 2007* 32 weeks to 12 May 2007*
Same outlet like-for-like sales
Residential 3.7% 4.1%
High Street 3.1% 2.9%
Total** 3.2% 3.6%
Uninvested like-for-like sales
Residential 2.1% 2.3%
High Street 2.3% 2.2%
Total** 1.9% 2.1%
* Includes entire Easter period in both years being compared and excludes the
Acquired Sites
** Includes Hollywood Bowl
Our estate in the residential areas accounting for 75% of managed pub sales,
continues to generate strong growth with same outlet like-for-like sales up 4.1%
for the 32 weeks to 12 May. Within this, our Locals pubs have performed very
strongly, especially in food, which together with our high levels of amenity and
good value for money are attracting a wider customer base and sizeable drinks
market share gains. Our pub restaurants have continued to grow like-for-like
sales, albeit at a slower rate than last year, partly reflecting signs that the
successive rises in interest rates have been having some effect on the spending
patterns of mid-market consumers, as well as some increased competition in the
pub food market ahead of the smoking ban.
In the High Street segment, accounting for 25% of sales, same outlet
like-for-like sales growth has strengthened with an increase of 2.9% for the 32
weeks to 12 May. This has been driven by buoyant trading in central London and a
strong performance by our Town Pubs and Bars outside London, particularly in
food, whilst trading in our late night venues has also seen a good recovery with
positive same outlet like-for-like sales growth since Christmas.
Further strong efficiency gains are being generated and productivity, measured
by staff contribution per hour, is up by 4.6%. On the purchasing front, the
increase in the cost of goods index has been held to 1%, significantly below
inflation and further process efficiencies have been made in the overhead. All
of these factors have contributed to the strong uplift in net operating margin
which is up 1.1 percentage points to 17.2%, excluding the Acquired Sites.
PROGRESS ON ACQUIRED SITES
We have made excellent progress with our conversion of the 239 Acquired Sites.
We currently have over half the estate converted, with 126 pubs reopened and
operating under our formats. Initial sales uplifts are already above 25%, with
further subsequent sales build-ups expected over the next two years. We are
currently on site with a further 23 projects. The sales and operating profit
contribution from the Acquired Sites for the first half were £87m and £4m
respectively, net of closure and pre-opening costs of £10m.
With a further £5m of closure and pre-opening costs expected in the second half,
the acquisition will, as stated at the time, be marginally dilutive to earnings
in the current financial year. Our success to date in converting the sites
underpins our confidence in the value creation from this acquisition.
PREPARATIONS FOR SMOKING BAN
In Scotland, which represents 5% of the estate, our experience of over a year of
the smoking ban has shown that large, high quality pubs, with the ability to
serve good quality meals at high volumes with attractive prices, can benefit
from the ban.
Our same outlet like-for-like sales to 12 May 2007 are cumulatively ahead since
the ban by 1.8%, with food up 7.4% and drinks down 0.4%. We have seen a marked
upturn in trading since the winter months with like-for-like sales up 3.2% in
the last 16 weeks.
In Wales, which represents 4% of the estate, it is too early to draw any firm
conclusions, however the first seven weeks of the ban have seen like-for-like
sales growth of 2.5%, a modest slowdown on the previous trend.
We continue to prepare our businesses in England for the ban on 1 July by
enhancing their food, soft drinks and coffee offers, improving amenity levels
and providing high quality external areas. In those uninvested pubs where we are
now non-smoking, there have been very limited adverse effects. In total we now
have over 340 non-smoking sites in England, including recent conversions,
representing almost 20% of the estate. Overall we aim both to attract new users
and retain existing customers.
We believe we are well placed to minimise any first year slow-down in sales
growth post the ban and, thereafter, believe the ban will accelerate the medium
term growth prospects of the business.
RELEASING ADDITIONAL VALUE FROM THE ESTATE
The Board has undertaken a thorough review of the options available to create
additional value from our property portfolio. Three core beliefs, have shaped
our decision making process:
•enduring shareholder reward is our corporate priority, delivered through
day to day operational excellence, combined with a pragmatic harvesting of
favourable debt and property market conditions when appropriate;
•property ownership and freehold appreciation is an intrinsic part of our
integrated business model providing the firm foundations on which to deliver
attractive returns and operational stability in both the short and longer
term; and
•the business model should provide continued incentive to invest in
consumer amenity in order to preserve competitive advantage and generate
sustainable profit growth with capital appreciation.
We have taken expert advice on the market rent that all our existing freehold
and long leasehold properties could support on a typical lease, which would be
approximately £270m per annum.
In this context we have rigorously tested a variety of options, ranging from
preservation of the status quo to full separation, all against three criteria:
•the quantum of the value potential against the existing share price,
taking into account the costs of execution;
•the certainty of achieving that value in the short term; and
•the sustainability of the new business model and the scope to create yet
more value for shareholders in the future.
The Board is clear that the market for REITs is as yet insufficiently developed
to provide shareholders with certainty of material and sustainable value
enhancement by adopting such a structure today. We will continue to review this
position over time with shareholder value remaining at the top of our agenda.
We have concluded therefore, that the most appropriate solution lies in securing
value for up to 50 percent of our property interests through a partnership
structure. This would crystallise a substantial proportion of our property value
on historically attractive yields, whilst enabling us to preserve the integrity
of the existing, proven business model.
To that end we have conducted a wide-ranging and competitive process with a
number of major UK property companies and private investors in pursuit of the
most favourable terms for shareholders. As announced on 21 May, we are exploring
the possibility of a 50:50 joint venture covering the majority of our property
assets with R20, the investment vehicle of Robert Tchenguiz, which has emerged
as the most competitive bidder at this time. There can be no certainty that any
transaction will be forthcoming, with significant work still required before a
successful conclusion can be reached. A further announcement will be made in due
course as appropriate.
OUTLOOK
Mitchells & Butlers is generating accelerated drinks market share gains and has
built the leading position in the eating-out market. Our value and volume
marketing strategy leaves us competitively well placed to withstand the impact
of the successive rises in interest rates and the inflationary pressures on
consumer spending.
The breadth of our estate and format portfolio is a key advantage. Our
substantial presence in local pubs generating rapid food sales growth and in
premium formats trading strongly in Central London and other affluent,
economically buoyant areas is largely offsetting the current slowdown in our
more mid-market pub restaurant formats.
Our development of enhanced food offers and investment in high amenity standards
will enable us to take advantage of the opportunities arising from the smoking
ban to attract new users as well as retain existing customers.
Our rapid progress in the conversion of the Acquired Sites is incurring
significant closure and pre-opening costs estimated at £15m this year, but will
lead to a good profits advance from these sites next year. We also expect to
continue to generate high returns from our large pipeline of investments in the
core estate.
We are continuing to generate significant productivity and purchasing gains,
whilst the external cost pressures of recent years appear to be easing.
The Board remains confident in future prospects, generating shareholder value
from both profits growth and the directly related capital appreciation of our
licensed property.
For further information please contact:
Investor Relations:
Erik Castenskiold 0121 498 4907
Media:
Kathryn Holland 0121 498 4526
James Murgatroyd (Finsbury Group) 0207 251 3801
There will be a presentation for analysts and investors at 9.30am at the Merrill
Lynch Financial Centre, 100 Newgate St, London EC1. A live webcast of the
presentation will be available on www.mbplc.com
Notes for editors:
- Mitchells & Butlers owns and operates around 2,000 high quality pubs in prime
locations nationwide. The Group's predominantly freehold, managed estate is
biased towards large pubs in residential locations. With around 3% of the pubs
in the UK, Mitchells & Butlers has 10% of industry sales, and average weekly
sales per pub of over three times the industry average.
- Same outlet (invested) like-for-like sales include the sales performance for
the comparable period in the prior year of all managed pubs that were trading
for the two periods being compared. 83% of the estate is included in this
measure.
- Uninvested like-for-like sales include the sales performance for the
comparable period in the prior year of those managed pubs that have not
received expansionary investment of more than £30,000 in the two periods being
compared. 75% of the estate is included in this measure.
Interim Operating and Financial Review
This review provides a commentary on the performance of the Mitchells & Butlers
group for the 28 weeks ended 14 April 2007 and compares it with the equivalent
half year period in 2006. To remove the distortions of the timing of Easter, all
like-for-like, comparisons are made on a 32 weeks basis unless stated.
CHIEF EXECUTIVE'S REVIEW OF THE MARKET & STRATEGY
Mitchells & Butlers has delivered a further period of strong trading performance
generating 12.6% growth in operating profits to £161 million before exceptional
items. Our leadership of the growing, informal, eating out market and strong
drinks market share gains have enabled us to generate like-for-like sales growth
of 3.6%. We have made further efficiency gains with net retail operating
margins, excluding the Acquired Sites, rising by 1.1 percentage points in the
first half to 17.2%.
Earnings per share before exceptional items of 14.8p for the period are 15.6%
ahead of last year. This reflects the strong trading performance and the
reduction in shares in issue following the share buybacks last year and the
share consolidation that accompanied the special dividend at the beginning of
this financial year. As a result of this good performance we are pleased to
announce an interim dividend of 4.25p per share, an increase of 16.4%.
THE MARKET
Our sales volumes have continued to outperform the market in all key product
categories. Market growth rates have remained strong in food and soft drinks
whilst the volume declines in the on-trade beer market have continued.
These trends have resulted from a changing pub usage to a wider but less regular
customer base, driven both by an increase in the availability and quality of pub
food and by social and lifestyle changes.
The eating out market is continuing to grow at 4%(1) per annum in real terms,
with pubs taking a disproportionate share of this growth as the pub's
informality and value for money nature appeals to more frequent and less formal
occasions. This is particularly the case for local pubs that serve high quality
food at attractive prices. This trend, together with the forthcoming ban in
England on smoking in public places from July 2007, is resulting in an increase
in the number of pubs that offer food and an improvement in the quality of food
available. Mitchells & Butlers is particularly well placed to capitalise on this
trend and, as a result, our same outlet like-for-like food volumes grew by 6%
during the first half.
Our unit scale enables us to serve high volumes of food generating productivity
benefits; our corporate scale allows us to source efficiently and to offer high
quality, varied menus at value price points; and our pubs are well maintained
providing a pleasant environment in which to eat.
While overall on-trade market growth in wines and soft drinks has slowed, with
unchanged volumes in the period, Mitchells & Butlers has made further
significant market share gains with volume growth of 2%(2) in these categories.
In contrast to the strong growth in food sales, the on-trade beer market has
continued to decline, being down over 4%(3) in the period, offset a little by
strong growth in cider. However, Mitchells & Butlers has been able to grow beer
and cider volumes by just over 1% in the period. The structural decline in the
market is being exacerbated by the widening price gap between the on-trade and
supermarkets (the off-trade) and in particular by on-trade price inflation of
over 4% during the period.
MITCHELLS & BUTLERS STRATEGY FOR GROWTH
The results achieved in the first half of this year are a further testament to
the success of Mitchells & Butlers' customer-driven pub retailing strategy and
leave us in a strong position for the rest of the year. We have made good
progress against each of our strategic aims to:
Lead the-value-for money casual dining market
Same outlet like-for-like food sales increased by 5.5% during the period through
our emphasis on amenity, service and value. Our Local Pubs businesses, Ember
Inns, Sizzling Pub Co, Metro Professionals and Community pubs delivered a
particularly strong performance, capitalising on the growth in informal value
for money eating out. This is a particularly pleasing performance given our
focus on improving their food offers and capabilities in the run up to the
smoking ban in July. Food still only accounts for 21% of sales in this part of
the estate highlighting the significant opportunity that remains to develop our
food reputation further.
The emphasis within our Pub Restaurants has been on converting to our brands and
formats the 239 sites that we acquired in July last year, (the 'Acquired
Sites'). We have now converted 126 sites generating sales uplifts above 25%.
This acquisition has accelerated the repositioning of the Mitchells & Butlers
pub estate towards food. As we complete the conversions, food will account for
some 40% of the company's sales mix and around 60% of our total sales will
result from an eating out occasion.
Overall, our average retail prices in food remained broadly unchanged, partly
reflecting the rapid growth in good value meals in Pubs & Bars.
Generate significant drinks market share gains
Same outlet like-for-like drinks sales increased by 3.2% in the period against
the background of a significant decline in the on-trade beer market. We continue
to develop the range of beers that we offer and improve serve quality and
presentation through appropriate glassware and investment in glycol cooling
systems. We have been following a similar strategy in wine, soft drinks and
coffee, extending our ranges by stocking new premium products, offering good
value, own label products and enhancing the serve quality. In wine, own label
has grown to over 30% of wine sales and we now have draught dispense in some 500
pubs, improving the serve consistency. In soft drinks, we have been extending
the range of fresh juices, cordials and mineral waters. We are also installing
branded coffee offers in over 1,000 pubs.
Overall drinks prices rose by 3.5%, partly driven by mix changes and trading up
to new premium products. These increases are less than the average for the
on-trade and have further widened the value gap with the competition.
Increasing the inclusive appeal of the pub through high levels of amenity and
service
During the period we invested £135m of capital expenditure maintaining and
upgrading our pubs, including £49m on converting the Acquired Sites. As a result
of this strategy, the amenity gap between our pubs and the majority of the pubs
in the UK is widening significantly, further improving our overall value
proposition relative to the rest of the on-trade.
Deliver a profitable, integrated food and drinks offer
Whilst eating out is increasingly the reason that customers visit a Mitchells &
Butlers pub, combining higher growth, lower margin food sales with higher margin
drinks sales is key to maximising overall profitability. Our aim is to add
incremental food sales which can be delivered at low marginal cost with an
attractive drop-through to profit.
Extract volume driven efficiencies
Extracting maximum benefit from growing volumes across the business has been
critical to our success in offsetting the additional £4m of external costs that
we have incurred in the period. We have maintained our gross margins broadly in
line with last year, both offsetting the negative mix impact of the faster
growth of food and wine as well as the cost of more premium products. We have
also generated further volume-driven purchasing gains with the cost of goods
index held significantly below inflation.
We have driven further process efficiencies in the overhead infrastructure,
thereby leveraging our scale economies during a period of business expansion;
which has resulted in an extra overhead of only £2m to service approximately
£200m of Acquired Site sales. We have generated further employee productivity
gains through servicing the additional volumes sold with low incremental labour
cost. Our principal measure of productivity, contribution per staff hour (sales
less wages divided by hours worked), increased by a further 4.6% in the period
for the core estate; this is the strongest increase we have yet achieved. As a
result, our net operating margin overall is flat compared with last year despite
the dilution from the closure of the Acquired Sites for conversion and
pre-opening costs of £10m. Excluding the Acquired Sites, net operating margin
improved by 1.1 percentage points on last year to 17.2%.
Extend the skill base of operational excellence throughout the estate
The skills and experience of our operating teams provide a critical competitive
advantage for us in delivering good service efficiently. It is through this
experience that we have been able to establish industry leading practices in
areas such as staff training, deployment and scheduling. These have enabled us
to realise significant productivity gains and maintain our pub employment cost
ratio below 24% of sales excluding the Acquired Sites, despite a further
increase of 5.9% in the National Minimum Wage from last October.
Proactively manage the estate to maximise value
Mitchells & Butlers' strategy is to maximise the value of each individual pub
that we own by applying the trading format that is most appropriate to the local
market. During the half year, in addition to the development of the Acquired
Sites, we completed 37 conversions and 9 growth projects to change the customer
offer or increase the trading area of the site. We are generating a pre-tax
incremental return of 19% on our expansionary investment over the last two
years, excluding the Acquired Sites.
We have successfully converted 126 of the 239 Acquired Sites, achieving average
sales uplifts of over 25%. We are on site with a further 23 projects and we are
on track to complete the conversions by Easter 2008, ahead of our original
plans. We continue to be confident of meeting our targets for sales and profit
uplifts from these sites and the value creation from this acquisition.
We achieved £131m of disposal proceeds in the half year, including the sale of
102 pubs to Trust Inns in October, taking advantage of the buoyancy in the
property market to crystallise the value of smaller freehold pubs, which are
worth more to a third party than their trading value to Mitchells & Butlers. We
currently expect to generate of the order of £20m from further disposal proceeds
during the balance of the year.
Grow profits and capture asset appreciation to benefit shareholders
The success of our operational strategy to grow sales and profits has enhanced
the value of our property. In October, we returned £486m to shareholders by
means of a Special Dividend of £1 per share, crystallising for shareholders part
of the incremental value identified in August last year by the £5.5bn valuation
of the estate.
KEY PERFORMANCE INDICATORS
Mitchells & Butlers implements and monitors its performance against its strategy
principally through four key performance indicators ('KPIs'). The performance in
the first half is as follows:
1. Same outlet like-for-like sales growth - Mitchells & Butlers' operational and
marketing plans have delivered strong and consistent like-for-like sales
growth of 3.6% in the half year.
2. EPS growth - Mitchells & Butlers' strong trading performance, together with
the share repurchases in FY2006 and the share consolidation that accompanied
the special dividend earlier this year have generated growth in Earnings per
Share of 15.6% before exceptional items this period.
3. CROCCE in excess of WACC - Mitchells & Butlers aims to maximise the
difference between the post-tax Cash Return on Cash Capital Employed
('CROCCE') and its Weighted Average Cost of Capital ('WACC'), a key measure
of value creation. A CROCCE of 10.5% after tax was achieved in the 12 months
to 14 April 2007, around 4 percentage points ahead of our estimated WACC
reflecting the good operating performance supported by our efficient use of
the balance sheet.
4. Incremental return on expansionary capital - Our track record in this area
has remained strong during the period. Pre-tax returns of 19% are being
achieved on the expansionary capital projects carried out over the last two
years. This measure excludes the recently Acquired Sites due to the
relatively short period of ownership and post conversion trading, making it
more difficult to estimate seasonal patterns and annualised returns.
The basis of KPI calculation is included within the 2006 annual report and
accounts.
FINANCIAL REVIEW
Total revenue for the half year was £995m up 12.2% on last year reflecting the
inclusion of the Acquired Sites, as well as strong like-for-like sales growth in
both Residential and High Street areas, with further significant market share
gains.
Same outlet food and drink sales were up 5.5% and 3.3% respectively with average
retail prices of food and drink up 2.0%, reflecting both price increases on some
standard products as well as the mix impact from more premium products and
customer offers. Our pricing strategy remains focused on value for money and we
have continued to widen the overall price gap between our products and our
competitors who have on average increased prices above inflation.
The overall cost of goods increased by less than the rate of inflation
reflecting the purchasing benefit of our volume strategy more than offsetting
the price increases seen in certain commodity products. Overall gross margins
were broadly maintained, as our purchasing gains helped to offset the cost of
more premium products and the faster growth of the lower margin food and wine
categories, which now account for over 40% of retail sales.
Good profit conversion of incremental sales enabled us to offset £4m of
additional regulatory costs. In particular, further employee productivity
benefits were achieved allowing us to maintain our pub employment cost ratio
below 24% of sales, despite the increase in the National Minimum Wage. We now
expect external cost increases for the year as a whole to be approximately £8m.
As anticipated, the one off cost of closure for conversion and pre-opening
expenses for the 126 Acquired Sites converted during the period had an impact on
overall net retail margins. In total, these costs amounted to £10m in the first
half and we estimate a further £5m in the second half of the year as more sites
are converted. Despite these additional costs, the net retail operating margin
was in line with the first half last year at 16.1% reflecting the benefit of our
volume strategy.
We invested £135m in the estate during the period, with £60m spent on
maintaining the high levels of amenity in the pubs and in the continuing
development and evolution of our brands and formats. The balance of £75m was
spent on expansionary projects, with £49m spent on the Acquired Sites. Three new
pubs were opened, and 37 pubs were converted to one of our brands or formats
from the core estate to uplift their sales and profits. Including disposal
proceeds of £131m, and £7m of acquisition costs for the Acquired Sites, net
capital investment during the period was £11m.
As a result of our progress on all fronts, operating profit before exceptional
items was £161m, up 12.6% on last year.
Pubs & Bars
H1 07 Growth
Revenue £515m +1.4%
Operating profit* £92m +7.0%
Same outlet like-for-like sales** +5.1%
Uninvested like-for-like sales** +3.4%
* Before exceptional items
** 32 weeks to 12 May to include Easter trading in both periods being compared.
Revenue in the Pubs & Bars division was up 1.4% reflecting strong like-for-like
sales growth of 5.1% offset by the impact of disposals last year and at the
beginning of the period. At the end of the period there were 1,147 managed pubs
in the Division following the disposal of 68 pubs, 1 new individual pub, 2
transfers to business franchise and 23 pubs transferred from the Restaurants
division. There were on average 1,154 pubs trading during the period.
Good growth in the Division's drinks sales, as a result of the widening gap
between our amenity, product range and value for money and that of our
competitors, has led to market share gains, with a particularly strong
performance from those businesses in residential areas. This increase is against
a background of on-going decline in the on-trade beer market.
Food sales were up 16%, driven by growth in our residential pubs, notably,
Sizzling Pub Co, Ember Inns and Metropolitan Professionals, as well as by our
Town Pubs and the central London estate. This sales uplift has been generated by
our focus on developing quality and range on the menu as well as increasing our
kitchen skills and capabilities.
Same outlet machines sales were only marginally down reflecting an improved
trajectory with the use of some new machine models following the increase in
stakes and prizes.
A total of 32 conversions were completed, including 16 Acquired Sites
predominantly to residential brands and formats such as Sizzling Pub Co, Ember
Inns and the Metropolitan Professionals format. The Acquired Sites which, post
conversion, were open for a relatively short period and include closure and
pre-opening costs, contributed £4m of revenue and no profit in the period.
As a result of the strong sales performance and tight cost controls, Pubs & Bars
profits were up 7.0% in the period and net margin was one percentage point
higher at 17.9%. Excluding the contribution from major disposals in the
comparative period, underlying profits were up 15.0%.
Restaurants
H1 07 Growth
Revenue £478m +26.1%
Operating profit* £68m +19.3%
Same outlet like-for-like sales** +1.6%
Uninvested like-for-like sales** +0.4%
* Before exceptional items
** Excluding Acquired Sites and for 32 weeks to 12 May to include Easter trading
in both periods being compared.
Total revenue in the Restaurants division was up 26.1% including £83m from the
Acquired Sites. At the end of the period there were 805 managed pubs in the
Division, including 2 new individual pubs, the disposal of 6 pubs, and 23 pubs
transferred to Pub & Bars. There were on average 778 pubs trading during the
period.
The focus of the Division in the period has been on the conversion of the
Acquired Sites to capture as quickly as possible the targeted sales uplifts. All
the Acquired Sites are included within the Restaurants division unless the site
is converted to a Pubs & Bars brand or format and transferred, once opened, to
the Pubs & Bars Division. The vast majority of the Acquired Sites contribution
was therefore in the Restaurant Division with first half sales and operating
profit of £83m and £4m respectively. The modest profit contribution from these
sites reflects a sales decline of 11% pre-conversion and the inevitable
disruption from the intensive conversion programme, resulting in pre-opening and
closure costs of £10m. Same outlet like-for-like sales for the Restaurant
Division grew by 1.6%.
The Restaurants division's focus on food sales growth together with the
associated drinks sales has resulted in operating profit before exceptional
items of £68m. This is 19.3% above last year, including the contribution of £4m
from the Acquired Sites. As expected, the dilution from the significant closure
and pre-opening costs of the Acquired Sites was felt particularly in
Restaurants, leaving operating margins at 14.2% down 0.8% percentage point on
last year. Excluding the Acquired Sites, operating margin would be 16.2%, up 1.2
percentage points on last year.
Standard Commercial Property Developments (SCPD)
SCPD aims to maximise the value of the Group's surplus properties which are
suitable for development. Due to the nature of this activity and the small
number of developments ongoing at any one time, revenue and profit can fluctuate
from period to period. In the first half, SCPD contributed £2m of sales and £1m
of operating profit.
Exceptional items
Exceptional items are those which are separately identified by virtue of their
size or incidence so as to allow a better understanding of the underlying
trading performance of the Group. Exceptional items are generally those which do
not form part of the core operations of the Group. As a result, the Board
focuses on 'pre-exceptional' performance measures in order to compare underlying
performance.
Exceptional items in the first half include £20m of profits on disposal of
properties, primarily due to the sale of 102 pubs to Trust Inns, and £4m in
respect of integration costs on the Acquired Sites. Net of tax, exceptional
profits were £11m.
Finance Costs and Revenue
Finance costs were £82m for the period, £22m higher than the prior year. This
reflects the higher average net debt during the period, largely as a result of
the £486m special dividend paid in October.
Finance Revenue of £3m was achieved and net income from pensions was £7m.
Taxation
The tax charge for the period was £28m before exceptional items. This is an
effective rate of 31% of profit before tax, consistent with last year.
Earnings per share
Earnings per share were 14.8p before exceptional items, 15.6% ahead of last
year. In addition to the growth in operating profit, earnings per share have
benefited from the share buyback programme last year and the share consolidation
accompanying the special dividend this year.
Dividends and returns to shareholders
In line with our commitment to progressive growth in dividends, an interim
dividend of 4.25p per share, an increase of 16.4%, will be paid on 29 June 2007
to Shareholders on the register on 1 June 2006.
A special dividend of £1 per share (£486m) was paid to shareholders at the
beginning of this financial year on 25 October 2006 following the refinancing
completed on 15 September 2006. This was accompanied by a 34 for 41 share
consolidation to enable continuing share price comparability.
Cash flow and net debt
Cashflow from operations was £189m before exceptional items but after additional
pension contributions of £40m. Net capital expenditure was £11m consisting of
£135m of capital investment and £7m of acquisition costs, offset by £131m of
disposal proceeds.
After net interest, tax, dividends and share repurchases but before exceptional
refinancing and integration costs, the total cash outflow for the half year was
£452m, including the £486m Special Dividend paid in October.
Net debt at the half year was £2,533m.
Share price and market capitalisation
At 14 April 2007 the share price was 794p compared with 589.5p at the start of
the financial year, an increase of 35%. The Company was a member of the FTSE 250
index for the period with a market capitalisation of approximately £3.2bn at the
end of the first half. Following the strong growth in the share price, the
Company joined the FTSE 100 index on 20 April 2007.
Treasury management
The financial risks faced by the Group are identified and managed by a central
Treasury department. The activities of the Treasury function are carried out in
accordance with Board approved policies and are subject to regular audit. The
department does not operate as a profit centre.
At 14 April 2007, the Group's net debt of £2,533m consisted of the securitised
debt of £2,388m, drawings against the medium term facility of £185m, derivatives
hedging balance sheet debt, other loan notes and finance lease obligations
together totalling £55m, offset by investments of £95m.
Pensions
On an IAS 19 basis, the Group's pensions schemes showed a surplus of £49m (£34m
after tax) at 14 April 2007 compared with a £99m deficit (£67m deficit after
tax) at 30 September 2006. The move to surplus reflects the benefit of £40m of
additional pension contributions paid in the period, together with improved
investment returns and higher bond yields used to discount future liabilities.
Further contributions of £20m were also committed for FY 2008 at the time of the
special dividend. A full actuarial valuation of the pension schemes is currently
underway and the conclusions will be published with the annual results of the
Company. The valuation process will include, among other things, a review of the
assumptions on increasing life expectancy for the schemes, to ensure that they
reflect the most up-to-date views on this subject.
GROUP INCOME STATEMENT
for the 28 weeks ended 14 April 2007
2007 2006 2006
28 weeks 28 weeks 52 weeks
---------------- ---------------- ----------------
Before Before Before
exceptional exceptional exceptional
items* Total items* Total items* Total
£m £m £m £m £m £m
-------- ------- -------- ------- -------- -------
Revenue (Note 2) 995 995 887 887 1,720 1,720
Operating costs before
depreciation and
amortisation (765) (769) (680) (680) (1,290) (1,297)
Profit arising on
property-
related items - 20 - 2 - 23
-------- ------- -------- ------- -------- -------
EBITDA ** 230 246 207 209 430 446
Depreciation and
amortisation (69) (69) (64) (64) (121) (121)
-------- ------- -------- ------- -------- -------
Operating profit 161 177 143 145 309 325
(Note 2)
Finance costs (82) (82) (60) (60) (118) (122)
Finance revenue 3 3 4 4 9 9
Net finance income
from pensions (Note 14) 7 7 4 4 8 8
-------- ------- -------- ------- -------- -------
Profit before tax 89 105 91 93 208 220
Tax expense (Note 4) (28) (33) (28) (26) (64) (25)
-------- ------- -------- ------- -------- -------
Profit for the
period 61 72 63 67 144 195
======== ======= ======== ======= ======== =======
Earnings per
ordinary
share (Note 5):
Basic 14.8p 17.4p 12.8p 13.6p 29.3p 39.7p
Diluted 14.4p 16.9p 12.5p 13.3p 28.6p 38.8p
======== ======= ======== ======= ======== =======
* Exceptional items are explained in Note 1 and analysed in Note 3.
** Earnings before interest, tax, depreciation and amortisation.
All activities relate to continuing operations.
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the 28 weeks ended 14 April 2007
2007 2006 2006
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
Gains/(losses) on cash flow hedges taken to equity 58 10 (22)
Actuarial gains on defined benefit pension schemes 103 59 27
(Note 14)
Tax on items recognised directly in equity (32) (15) 11
Tax credit/(charge) relating to movement in
unrealised gains due
to previous revaluations - 14 (4)
------- ------- -------
Income recognised directly in equity 129 68 12
Transfers to the income statement:
On cash flow hedges 12 - 16
Tax on items transferred from equity (4) - (5)
------- ------- -------
Net income recognised directly in equity 137 68 23
Profit for the period 72 67 195
------- ------- -------
Total recognised income and expense for the period
attributable to equity holders of the parent 209 135 218
======= ======= =======
GROUP BALANCE SHEET
14 April 2007
2007 2006 2006
14 April 15 April 30 September
ASSETS £m £m £m
-------- -------- ----------
Goodwill and other intangible assets 20 23 22
Property, plant and equipment (Note 6) 3,922 3,472 3,867
Lease premiums 11 15 13
Pension surplus (Note 14) 49 - -
Derivative financial instruments 31 - -
Deferred tax asset 34 - 68
-------- -------- ----------
Total non-current assets 4,067 3,510 3,970
-------- -------- ----------
Inventories 42 41 42
Trade and other receivables 83 78 81
Derivative financial instruments 6 - -
Cash and cash equivalents (Note 11) 94 145 375
Other cash deposits 1 1 -
-------- -------- ----------
Total current assets 226 265 498
-------- -------- ----------
Non-current assets held for sale 7 6 88
-------- -------- ----------
Total assets 4,300 3,781 4,556
-------- -------- ----------
LIABILITIES
Borrowings (240) (40) (41)
Derivative financial instruments (1) (5) (7)
Trade and other payables (259) (233) (251)
Current tax liabilities (21) (44) (22)
-------- -------- ----------
Total current liabilities (521) (322) (321)
-------- -------- ----------
Borrowings (2,349) (1,761) (2,375)
Derivative financial instruments (41) (31) (55)
Pension liabilities (Note 14) - (70) (99)
Deferred tax liabilities (441) (344) (418)
Provisions (3) (4) (3)
-------- -------- ----------
Total non-current liabilities (2,834) (2,210) (2,950)
-------- -------- ----------
Total liabilities (3,355) (2,532) (3,271)
-------- -------- ----------
Net assets (Note 7) 945 1,249 1,285
======== ======== ==========
EQUITY
Called up share capital 34 35 34
Share premium account 14 14 14
Capital redemption reserve 3 2 3
Own shares held (17) (6) (12)
Hedging reserve 20 (17) (30)
Translation reserve 6 6 6
Retained earnings 885 1,215 1,270
-------- -------- ----------
Total equity (Note 8) 945 1,249 1,285
======== ======== ==========
GROUP CASH FLOW STATEMENT
for the 28 weeks ended 14 April 2007
2007 2006 2006
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
Cash flow from operations (Note 10) 196 202 430
Net interest paid (71) (51) (107)
Tax paid (13) (35) (48)
------- ------- -------
Net cash from operating activities 112 116 275
------- ------- -------
Investing activities
Purchases of property, plant and equipment (134) (95) (179)
Acquisition of Whitbread pub restaurant sites (7) - (489)
Purchases of intangibles (computer software) (1) (1) (3)
Proceeds from sale of property, plant and equipment 131 17 88
(Transfers to)/proceeds from cash deposits with a
maturity of greater than three months (1) - 1
Defence costs - - (4)
------- ------- -------
Net cash used in investing activities (12) (79) (586)
------- ------- -------
Financing activities
Purchase of own shares (46) (41) (76)
Proceeds on release of own shares held 10 6 12
Repayment of principal in respect of securitised debt (19) (18) (460)
Proceeds from other loans 198 - -
Proceeds from issue of securitised debt - - 1,078
Expenditure associated with refinancing (3) - (10)
Repayment of principal in respect of other loans - - (1)
Dividends paid (521) (38) (56)
------- ------- -------
Net cash used in financing activities (381) (91) 487
------- ------- -------
Net (decrease)/increase in cash and cash equivalents (281) (54) 176
(Note 12)
Cash and cash equivalents at the beginning of the
period 375 199 199
------- ------- -------
Cash and cash equivalents at the end of the period 94 145 375
======= ======= =======
Cash and cash equivalents are defined in Note 11.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1 GENERAL INFORMATION
Basis of preparation and accounting policies
The interim financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European
Union (EU) and comply with International Accounting Standard (IAS) 34 'Interim
Financial Reporting'. They have been prepared on a consistent basis using the
accounting policies set out in the Annual Report and Financial Statements 2006
and should be read in conjunction with this document. Details of these
accounting policies can also be accessed within the investors section of the
Group's website at www.mbplc.com/IFRS.
The interim financial statements are unaudited and do not constitute statutory
accounts within the meaning of section 240 of the Companies Act 1985. They
were approved by a duly appointed and authorised Committee of the Board of
Directors on 21 May 2007. The financial information for the year ended 30
September 2006 is extracted from the annual accounts for the year ended 30
September 2006, which have been delivered to the Registrar. The auditors'
report on the annual accounts for the year ended 30 September 2006 was
unqualified, and did not include an emphasis of matter reference or any
statement required under section 237(2) or (3) of the Companies Act 1985. The
auditors have carried out a review of the financial information in accordance
with the guidance contained in Bulletin 1999/4 issued by the Auditing
Practices Board.
Exceptional items
In addition to presenting information on an IFRS basis, MAB also presents
information that excludes exceptional items. This information is disclosed to
allow a better understanding of the underlying trading performance of the
Group and is consistent with MAB's internal management reporting. Exceptional
items, which include profits and losses on the disposal of properties, are
identified by virtue of either their size or incidence so as to facilitate
comparison with prior periods and to assess underlying trends in financial
performance.
Exchange rates
The results of overseas operations have been translated into sterling at the
weighted average euro rate of exchange for the period of £1=€1.49 (2006 28
weeks, £1=€1.46; 52 weeks, £1=€1.46). Euro and US dollar denominated assets
and liabilities have been translated into sterling at the relevant rate of
exchange at the balance sheet date of £1=€1.47 (15 April 2006, £1=€1.45; 30
September 2006, £1=€1.47) and £1=$1.98 (15 April 2006, £1=$1.75; 30 September
2006, £1=$1.87) respectively.
2 SEGMENTAL ANALYSIS
The Group's primary reporting format is by business segment.
2007 2006 2006
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
Revenue
Pubs & Bars 515 508 958
Restaurants 478 379 762
------- ------- -------
Retail 993 887 1,720
SCPD 2 - -
------- ------- -------
Total revenue 995 887 1,720
======= ======= =======
Operating profit
Pubs & Bars 92 86 179
Restaurants 68 57 130
------- ------- -------
Retail 160 143 309
SCPD 1 - -
------- ------- -------
Operating profit before exceptional items 161 143 309
Exceptional items (Note 3) 16 2 16
------- ------- -------
Operating profit 177 145 325
======= ======= =======
After the allocation of exceptional items (where these can be attributed to a
segment), the segmental profits are Pubs & Bars £111m (2006 28 weeks, £88m; 52
weeks, £202m), Restaurants £65m (2006 28 weeks, £57m; 52 weeks, £130m), SCPD
£1m (2006 28 weeks, £nil; 52 weeks, £nil) and unallocated £nil (2006 28 weeks,
£nil; 52 weeks, £(7)m).
3 EXCEPTIONAL ITEMS
2007 2006 2006
28 weeks 28 weeks 52 weeks
Notes £m £m £m
-------- -------- --------
Operating exceptional items
Defence costs a - - (4)
Refinancing costs b - - (3)
Integration costs c (4) - -
-------- -------- --------
(4) - (7)
Profits on disposal of properties 27 2 41
Losses on disposal of properties (6) - (14)
Fair value adjustments on classification of
non-current assets held for sale d (1) - (4)
-------- -------- --------
Profit arising on property-related items 20 2 23
Total operating exceptional items 16 2 16
Exceptional finance costs b - - (4)
-------- -------- --------
Total exceptional items before tax 16 2 12
Tax (charge)/credit relating to above items (5) 2 (1)
Exceptional tax released in respect of prior
years - - 40
-------- -------- --------
(5) 2 39
-------- -------- --------
Total exceptional items after tax 11 4 51
======== ======== ========
a Costs associated with evaluation (between March and May 2006) of the R20
approach to acquire the share capital of Mitchells & Butlers plc and its
subsidiaries.
b Expenses incurred in relation to the refinancing of the Group's securitised
debt. Exceptional finance costs represent accelerated amortisation of
capitalised transaction costs relating to secured loan notes repaid as part of
the refinancing.
c Costs associated with the integration of the 239 pub restaurant sites acquired
from Whitbread on 21 July 2006.
d Adjustments to the carrying value of property, plant and equipment, prior to
transferring these to assets held for sale, where the expected net sale
proceeds are less than the book value.
All exceptional items relate to continuing operations.
4 TAX EXPENSE 2007 2006 2006
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
UK corporation tax 19 23 16
Deferred tax 14 3 9
------- ------- -------
33 26 25
======= ======= =======
Further analysed as tax relating to:
Profit before exceptional items 28 28 64
Exceptional items (Note 3) 5 (2) (39)
------- ------- -------
33 26 25
======= ======= =======
Tax has been calculated using an estimated annual effective tax rate of 31%
(2006 28 weeks, 31%; 52 weeks actual, 31%) on profit before tax and exceptional
items.
It is noted that a proposed change in the rate of corporation tax from 30% to
28% was announced in the Chancellor's Budget on 21 March 2007. Proposed changes
in the way corporation tax is calculated (including Capital Allowances and
Industrial Building Allowances) were also announced. These changes, which are
expected to be enacted before the Company's financial year end, may impact the
annual effective tax rate.
5 EARNINGS PER SHARE
Basic earnings per share have been calculated by dividing the profit for the
financial period by the weighted average number of ordinary shares in issue
during the period, excluding own shares held in treasury and by employee share
trusts.
For diluted earnings per share, the weighted average number of ordinary shares
is adjusted to assume conversion of all potentially dilutive ordinary shares.
Earnings per ordinary share amounts are presented before exceptional items
(see Note 3) in order to allow a better understanding of the underlying
trading performance of the Group.
Profit Basic Diluted
EPS EPS
pence per pence per
ordinary ordinary
£m share share
------- ------- -------
28 weeks ended 14 April 2007:
Profit for the period 72 17.4p 16.9p
Exceptional items, net of tax (11) (2.6)p (2.5)p
------- ------- -------
Profit before exceptional items 61 14.8p 14.4p
======= ======= =======
28 weeks ended 15 April 2006:
Profit for the period 67 13.6p 13.3p
Exceptional items, net of tax (4) (0.8)p (0.8)p
------- ------- -------
Profit before exceptional items 63 12.8p 12.5p
======= ======= =======
52 weeks ended 30 September 2006:
Profit for the period 195 39.7p 38.8p
Exceptional items, net of tax (51) (10.4)p (10.2)p
------- ------- -------
Profit before exceptional items 144 29.3p 28.6p
======= ======= =======
The weighted average number of ordinary shares used in the calculations above
are as follows:
2007 2006 2006
28 weeks 28 weeks 52 weeks
m m m
------- ------- -------
For basic EPS calculations 413 494 491
Effect of dilutive potential ordinary shares:
Contingently issuable shares 7 4 7
Other share options 5 5 5
------- ------- -------
For diluted EPS calculations 425 503 503
======= ======= =======
6 PROPERTY, PLANT AND EQUIPMENT
2007 2006 2006
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- --------
At beginning of period 3,867 3,447 3,447
Additions 140 96 684
Disposals (17) (13) (66)
Depreciation provided during the period (66) (59) (114)
Movement in assets held for sale (2) 1 (84)
------- ------- --------
At end of period 3,922 3,472 3,867
======= ======= ========
Property, plant and equipment is accounted for under the cost model but
includes the results of previous property revaluations as permitted by the
IFRS transition rules. The amount of revaluation in excess of the original
cash cost of the assets to the Group (or formerly as a division of Six
Continents PLC) included in the carrying value at 14 April 2007 was £671m (15
April 2006, £715m; 30 September 2006, £702m).
At 14 April 2007, amounts contracted for but not provided in the financial
statements for the acquisition of property, plant and equipment were £36m (15
April 2006, £29m; 30 September 2006, £28m).
7 NET ASSETS
2007 2006 2006
14 April 15 April 30 September
£m £m £m
-------- -------- ----------
Pubs & Bars 1,925 1,965 2,040
Restaurants 1,881 1,416 1,808
-------- -------- ----------
Retail 3,806 3,381 3,848
SCPD 17 17 18
-------- -------- ----------
Segmental net assets 3,823 3,398 3,866
Net debt (2,533) (1,666) (2,067)
Other unallocated net liabilities (345) (483) (514)
-------- -------- ----------
Net assets 945 1,249 1,285
======== ======== ==========
8 CHANGE IN EQUITY
2007 2006 2006
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- --------
Opening equity 1,285 1,183 1,183
Repurchase and cancellation - - (58)
Total recognised income and expense 209 135 218
Dividends (Note 9) (521) (38) (56)
Purchase of own shares (42) (41) (22)
Proceeds on release of own shares held 10 6 12
Credit in respect of share remuneration 4 4 8
------- ------- --------
Closing equity 945 1,249 1,285
======= ======= ========
Own shares held by the Group represent the shares in the Company held in
treasury ('treasury shares') and by the employee share trusts.
During the financial period, the Company acquired 1,033,000 shares at a cost of
£7.4m and released 305,008 shares to employees on the exercise of share options
for a total consideration of £0.4m. The 1,246,010 shares held in treasury at 14
April 2007 had a market value of £9.9m (1 October 2006 518,018 shares held with
a market value of £3.1m). The aggregate nominal value of the treasury shares
held at 14 April 2007 was £88,259.
During the financial period, the employee share trusts acquired 4,908,500 shares
at a cost of £34.5m and released 5,491,066 shares to employees on the exercise
of options and other share awards for a total consideration of £9.2m. The
1,627,058 shares held by the trusts at 14 April 2007 had a market value of
£12.9m (1 October 2006 2,209,624 shares held with a market value of £13.0m).
9 DIVIDENDS
2007 2006 2006
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- --------
Amounts paid and recognised in equity
In respect of the 53 weeks ended 1 October 2005:
- Final dividend of 7.55p per share - 38 38
In respect of the 52 weeks ended 30 September 2006:
- Interim dividend of 3.65p per share - - 18
- Final dividend of 8.60p per share 35 - -
In respect of the 52 weeks ending 29 September 2007
- Interim dividend of 100.00p per share 486 - -
------- ------- --------
521 38 56
======= ======= ========
Proposed interim dividend of 4.25p (2006 3.65p)
per share for the 28 weeks ended 14 April 2007 17 18
======= =======
The proposed interim dividend for the 28 weeks ended 14 April 2007 was
approved by the Board on 21 May 2007 and did not therefore qualify for
recognition in the financial statements at 14 April 2007.
10 CASH FLOW FROM OPERATIONS
2007 2006 2006
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
Operating profit 177 145 325
Adjustments for:
Exceptional items (16) (2) (16)
Depreciation of property, plant and equipment 66 59 114
Amortisation of intangibles (computer software) 3 4 7
Amortisation of lease premiums - 1 -
Cost charged in respect of share remuneration 4 4 8
Defined benefit pension cost less regular cash
contributions 2 2 3
------- ------- -------
Operating cash flow before exceptional items,
movements in working capital and additional
pension contributions 236 213 441
Movements in working capital:
Increase in inventories - (2) (3)
(Increase)/decrease in trade and other receivables (13) (1) 7
Increase in trade and other payables 17 12 6
Movement in provisions - - (1)
Additional pension contributions (40) (20) (20)
------- ------- -------
Cash flow from operations before exceptional
items 200 202 430
Integration costs paid (4) - -
------- ------- -------
Cash flow from operations 196 202 430
======= ======= =======
11 ANALYSIS OF NET DEBT
2007 2006 2006
14 April 15 April 30 September
£m £m £m
------- ------- ---------
Cash and cash equivalents (see below) 94 145 375
Cash deposits with a maturity of greater than
three months 1 1 -
Securitised debt (see below) (2,388) (1,797) (2,413)
Derivatives hedging balance sheet debt* (39) (11) (26)
Loan notes (2) (2) (2)
Other loans and finance leases (199) (2) (1)
------- ------- ---------
(2,533) (1,666) (2,067)
======= ======= =========
* Represents the element of the fair value of currency swaps hedging the
balance sheet value of the Group's dollar denominated loan notes.
Cash and cash equivalents
Cash and cash equivalents (which are presented as a single class of assets on
the face of the balance sheet) comprise cash at bank and in hand plus cash
deposits with a maturity of three months or less.
Securitised debt
On 13 November 2003, a group company, Mitchells & Butlers Finance plc, issued
£1,900m of secured loan notes in connection with the securitisation of the
majority of the Group's UK pubs and restaurants business owned by Mitchells &
Butlers Retail Limited. The funds raised were mainly used to repay existing bank
borrowings of £1,243m, pay issue costs of £23m and return £501m to shareholders
by way of a special dividend.
On 15 September 2006 Mitchells & Butlers Finance plc completed the issue of
£655m of further secured loan notes. These were issued under substantially the
same terms as the original securitisation in November 2003. The funds raised
were mainly used to return £486m to shareholders by way of a special dividend
and to provide long-term funding for the Whitbread pub restaurant sites
acquired. As part of the issue, the original A1 and A3 loan note tranches
(totalling £450m) were repaid and reissued as A1N and A3N loan notes to take
advantage of reduced market rates.
The overall cash interest rate payable on the debt is fixed at 5.7% after taking
account of interest rate hedging and monoline insurance costs. The notes are
secured on the majority of the pubs and pub restaurants of Mitchells & Butlers
Retail Limited and their future income streams.
Other borrowings
On 28 September 2006, Mitchells & Butlers plc signed a £300m facility agreement,
available for three years, for general business purposes. At 14 April 2007,
£185m was drawn under the facility and forms part of the 'Other loans and
finance leases' balance within the analysis of net debt (see above). The
facility is governed by various covenants, representations, undertakings, events
of default and guarantees relating to those parts of the Group held outside of
the securitisation described above.
Interest is payable on the facility at LIBOR plus an applicable margin
calculated with reference to levels of Group Net Debt:EBITDA.
The carrying value of the secured loan notes at 14 April 2007, which excludes
the impact of derivatives, is analysed as follows:
2007 2006 2006
14 April 15 April 30 September
£m £m £m
------- ------- ---------
Principal outstanding at beginning of period 2,429 1,824 1,824
Further loan note issue - - 1,078
Principal repaid during the period (19) (18) (460)
Exchange on translation of dollar loan notes (13) 2 (13)
------- ------- ---------
Principal outstanding at end of period 2,397 1,808 2,429
Deferred issue costs (20) (19) (21)
Accrued interest 11 8 5
------- ------- ---------
Carrying value at end of period 2,388 1,797 2,413
======= ======= =========
12 MOVEMENT IN NET DEBT
2007 2006 2006
14 April 15 April 30 September
£m £m £m
------- ------- ---------
Net (decrease)/increase in cash and cash
equivalents (281) (54) 176
Add back cash flows in respect of other
components of net debt:
Transfers to/(proceeds from) deposits with a
maturity of greater than three months 1 - (1)
(Proceeds from)/repayment of principal in respect
of other loans and finance leases (198) - 1
Repayment of principal in respect of securitised
debt 19 18 460
Proceeds of issue of securitised debt - - (1,078)
------- ------- ---------
Increase in net debt arising from cash flows
('Net cash flow' per Note 13) (459) (36) (442)
Non-cash movements (7) (5) -
------- ------- ---------
Increase in net debt (466) (41) (442)
Opening net debt (2,067) (1,625) (1,625)
------- ------- ---------
Closing net debt (2,533) (1,666) (2,067)
======= ======= =========
13 NET CASH FLOW
2007 2006 2006
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
Operating profit before exceptional items 161 143 309
Depreciation and amortisation 69 64 121
------- ------- -------
EBITDA* 230 207 430
Working capital movement 4 9 9
Other non-cash items 6 6 11
Additional pension contributions (40) (20) (20)
------- ------- -------
Cash flow from operations before exceptional
items 200 202 430
Net capital expenditure ** (11) (79) (583)
------- ------- -------
Cash flow from operations before exceptional
items and after net capital expenditure 189 123 (153)
Integration costs paid (4) - -
------- ------- -------
Cash flow from operations after net capital
expenditure 185 123 (153)
Net interest paid (71) (51) (107)
Tax paid (13) (35) (48)
Dividends paid (521) (38) (56)
Purchase of own shares (46) (41) (76)
Proceeds on release of own shares held 10 6 12
Defence costs - - (4)
Expenditure associated with refinancing (3) - (10)
------- ------- -------
Net cash flow (Note 12) (459) (36) (442)
======= ======= =======
* Earnings before interest, tax, depreciation, amortisation and exceptional
items.
* Comprises purchases of property, plant and equipment and intangibles less
* proceeds from the sale of property, plant and equipment.
14 PENSIONS
Amounts recognised in the Group income statement in respect of the Group's
defined benefit and defined contribution arrangements are as follows:
2007 2006 2006
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
Operating profit
Current service cost (defined benefit plans) (7) (8) (14)
Current service cost (defined contribution plans) (1) - (1)
------- ------- -------
Operating profit charge (8) (8) (15)
------- ------- -------
Finance income
Expected return on pension scheme assets 41 37 69
Interest on pension scheme liabilities (34) (33) (61)
------- ------- -------
Net finance income 7 4 8
------- ------- -------
Total charge (1) (4) (7)
======= ======= =======
Pension liabilities are analysed as follows:
2007 2006 2006
14 April 15 April 30 September
£m £m £m
------- ------- ---------
Fair value of scheme assets 1,281 1,171 1,182
Present value of scheme liabilities (1,232) (1,241) (1,281)
------- ------- ---------
Surplus/(deficit) in the schemes recognised as an
asset/(liability) in the balance sheet 49 (70) (99)
======= ======= =========
Associated deferred tax (liability)/asset (15) 23 32
======= ======= =========
Movements in the scheme deficits are analysed as follows:
2007 2006 2006
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
At beginning of period (99) (151) (151)
Charge in the Group income statement (defined
benefit plans) - (4) (6)
Contributions paid 45 26 31
Actuarial gains 103 59 27
------- ------- -------
At end of period 49 (70) (99)
======= ======= =======
15 CONTINGENT LIABILITIES
The Company has given indemnities in respect of the disposal of certain
companies previously within the Six Continents group. It is the view of the
Directors that, other than to the extent that liabilities have been provided
for in these financial statements, such indemnities are not expected to
result in financial loss to the Group.
- ends -
INDEPENDENT REVIEW REPORT TO MITCHELLS & BUTLERS PLC
Introduction
We have been instructed by the Company to review the financial information
for the 28 weeks ended 14 April 2007 which comprises the Group income
statement, Group statement of recognised income and expense, Group balance
sheet, Group cash flow statement and the related Notes 1 to 15. We have read
the other information contained in the interim report and considered whether
it contains any apparent misstatements or material inconsistencies with the
financial information.
This report is made solely to the Company in accordance with guidance
contained in Bulletin 1999/4 'Review of interim financial information' issued
by the Auditing Practices Board. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the Company, for
our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the interim report in accordance with the
Listing Rules of the Financial Services Authority which require that the
accounting policies and presentation applied to the interim figures should be
consistent with those applied in preparing the preceding annual accounts
except where any changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin
1999/4 'Review of interim financial information' issued by the Auditing
Practices Board for use in the United Kingdom. A review consists principally
of making enquiries of management and applying analytical procedures to the
financial information and underlying financial data, and based thereon,
assessing whether the accounting policies have been applied. A review
excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than
an audit performed in accordance with International Standards on Auditing (UK
and Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications
that should be made to the financial information as presented for the 28
weeks ended 14 April 2007.
Ernst & Young LLP
London
21 May 2007
--------------------------
(1) Office for National Statistics
(2) AC Nielsen
(3) British Beer and Pub Association
This information is provided by RNS
The company news service from the London Stock Exchange
LFID