Refinancing/Estate Valuation
Mitchells & Butlers PLC
31 August 2006
NOT FOR DISTRIBUTION IN THE US
Mitchells & Butlers plc
Estate Valuation, Refinancing and Return of Funds
As part of its stated strategy to maintain an efficient balance sheet and
maximise returns to shareholders, Mitchells & Butlers today announces the
marketing of a bond issue to refinance its securitised debt and enable further
cash returns to shareholders. This follows the strong operational performance
over the last three years and the consequent significant increase in the
valuation of its estate.
Highlights:
- Total Group property value now in excess of £5.5bn
- On-going securitised estate independently valued at £4.8bn(1)
- Average value per securitised pub of £2.8m(1), 40% higher than in 2003
- Properties outside the securitisation, including the sites recently acquired
from Whitbread PLC, valued by the Directors at over £0.7bn
- Launch of £1.1bn bond issue to increase securitised debt by £655m to £2.46bn
- Total cash return to shareholders expected to be £519m since the half year,
comprising:
- Proposed special dividend of £1 per share (approximately £486m in total)
- Share repurchases totalling £33m already completed in the second half
- Commitment to £50m additional contributions to the pension fund
(1)Valued as a portfolio
Commenting on the estate valuation and the return of funds to shareholders Tim
Clarke, Chief Executive, said:
'Mitchells & Butlers' pub estate is now worth over £5.5bn. The substantial
appreciation of our asset base over the past three years demonstrates the value
that has been added to our high quality estate through the successful
implementation of our operational strategy. We continue to build on our
leadership position in the fast growing pub food market.'
'After the special dividend announced today, Mitchells & Butlers will have
returned over £1.1bn to shareholders since listing in April 2003 over and above
ordinary dividends. Based on its strong trading performance and consequent asset
value, the business has created the capacity to take on more debt. This latest
return also reflects our confidence in the future prospects of the Company and
the significant potential of the pubs recently acquired from Whitbread.'
Commenting on the refinancing, Karim Naffah, Finance Director, said:
'Following our detailed financing review, we believe that our existing
securitisation continues to provide the best financing structure to complement
our strategy for profitable growth, which in turn drives long-term value
creation and licensed freehold property appreciation. The rising cashflows and
asset values in the estate support the proposed additional debt, making the
balance sheet more efficient and enabling us to make this further return to
shareholders.'
Estate Valuation
The on-going securitised estate comprises 1704 pubs and generated £387m of
EBITDA in the twelve months to 13 May 2006. This estate has been valued by
Colliers CRE plc at £4.8bn as a portfolio, consistent with the methodology
applied at the time of the original securitisation in November 2003. The average
value per securitised pub of £2.8m is over 40% higher than in 2003, reflecting
the continuing development and improved performance of the estate, as well as
the disposal of smaller pubs.
Together with the remainder of the Group's properties (which include the 239
former Whitbread sites acquired for £497m in July 2006, the package of
approximately 100 smaller pubs held for disposal and around 135 other pub
assets), the Directors estimate that the total property assets of Mitchells &
Butlers currently have a value in excess of £5.5bn. In view of Mitchells &
Butlers' accounting policies under IFRS, the results of these valuations will
not be reflected in the financial statements of the Group.
Refinancing
Together with The Royal Bank of Scotland and Citigroup, Mitchells & Butlers is
today commencing the marketing of a bond issue to increase the level of debt in
its securitised estate by £655m from £1.8bn to £2.46bn.
The proposed issue comprises £1.1bn of bonds, £655m of which will be incremental
financing and the balance of £450m will be used to refinance existing sterling
and dollar denominated Floating Rate Notes. Subject to debt market conditions,
it is expected that the bond issue will be completed during September.
Following completion of the bond issue, Mitchells & Butlers will also enter into
a medium-term unsecured loan facility to replace the short-term bridge financing
put in place to acquire the 239 pub restaurant sites from Whitbread PLC.
Return of Funds
At the time of the successful acquisition of the 239 pub restaurant sites from
Whitbread PLC, Mitchells & Butlers reconfirmed its intention to return of the
order of £500m to shareholders by the end of the calendar year.
Subject to the completion of the proposed bond issue, Mitchells & Butlers
intends to pay a special dividend to shareholders of £1 per share, which will be
accompanied by a proportionate consolidation of the number of shares in issue.
The special dividend will total approximately £486m; this will include the
remaining £26m outstanding under the second half share buyback which will not
now be executed. Together with £33m share repurchases already completed during
the second half, this will mean a total return of approximately £519m to
shareholders.
Following completion of the bond issue, a circular will be posted to
shareholders to seek approval of the share consolidation and to set out the
details of the proposed special dividend. A further announcement will be made at
that time. It is currently anticipated that the special dividend will be paid to
shareholders before the end of October.
Costs relating to the refinancing and the return of funds will be approximately
£10m, £7m of which are expected to be amortised over the life of the new bonds
and the balance will be charged as an exceptional interest cost this year. An
additional £4m exceptional interest cost will be charged this year, representing
the unamortised balance of the issue costs relating to the 2003 Floating Rate
Notes now being refinanced.
Investment in the Pension Fund
Following the completion of the refinancing and return of funds, the Company has
agreed with the Pensions Trustees that further contributions of £30m in FY 2007
and £20m in FY 2008 will be made, on top of the £10m already committed for FY
2007. As at 15 April 2006, the Group's pension schemes had a gross deficit of
£70m on an IAS 19 basis. A full actuarial valuation of the pension schemes is
planned to take place with the normal triennial cycle in 2007.
Update on Disposals
We continue to see alternative use and investment demand for some individual
pubs at substantially higher values than has previously been the case and we are
pursuing opportunities to pro-actively manage the asset base to take advantage
of these conditions in the property market.
We have recently concluded the sale of 21 smaller freehold properties in London
for £53m. In the 12 months to 8 July 2006 these pubs, with average weekly sales
of £7k, generated sales of £8.1m and EBITDA of £2.4m. With this transaction,
disposals amounting to £88m in total have been achieved in the year to date.
Discussions in relation to the disposal of the package of around 100 smaller,
drink-led pubs, announced on 21 July, are on-going.
Pre Close Trading Update
An update on trading will be provided with Mitchells & Butlers' pre close
trading statement on 26 September. The Board remains confident that the results
for the year will be in line with its expectations.
For further information please contact:
Investor Relations:
Kate Holligon 0121 498 5092
Media:
James Murgatroyd (Finsbury Group) 0207 251 3801
There will be a conference call for analysts and fund managers at 10am. Please
dial 020 7162 0125. The replay will be available for 1 week.
For further information on the existing securitisation, please refer to the
'Securitisation & debt information' section of the Mitchells & Butlers website
at www.mbplc.com.
Notes to Editors
Mitchells & Butlers is the leading operator of managed pubs and pub restaurants
in the UK with an estate of approximately 2,200 pubs at 31 August 2006. The
Company aims to grow sales and profits, generate higher cash returns and,
because pub assets are generally valued on a multiple of their cashflows,
achieve asset appreciation over time.
Mitchells & Butlers announced its first securitisation in October 2003, raising
£1.9bn of gross debt. At that time, the securitised estate comprised 1942 pubs
valued at £3.85bn. Following the securitisation, a cash return of £501m was made
to shareholders in December 2003 by way of a special dividend, which was
accompanied by a 17-for-12 share consolidation. By 15 April 2006, the half year
stage, Mitchells & Butlers had returned £141m by way of share buyback since
December 2003. The return of a further £519m since the half year makes the total
amount returned to shareholders since de-merger £1.16bn, in addition to ordinary
dividends.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This announcement contains certain forward-looking statements as defined under
US legislation (section 21E of the Securities Exchange Act of 1934) with respect
to the financial condition, results of operations and business of Mitchells &
Butlers and certain of the plans and objectives of the board of Directors with
respect thereto. These forward-looking statements can be identified by the fact
that they do not relate only to historical or current facts. Forward-looking
statements often use such words as 'will', 'should', 'continue', 'anticipate',
'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe' or other
words of similar meaning. The forward-looking statements contained herein are
based on assumptions and assessments made by Mitchells & Butlers' management in
light of their experience and their perception of historical trends, current
conditions, expected future developments and other factors they believe to be
appropriate. By their nature, forward-looking statements are inherently
speculative and involve risk and uncertainty, and there are a number of factors
that could cause actual results and developments to differ materially from those
expressed in or implied by such forward-looking statements. These factors
include, but are not limited to: the future balance between supply and demand
for Mitchells & Butlers' sites; the effect of economic conditions and unforeseen
external events on Mitchells & Butlers' business; the availability of suitable
properties and necessary licenses; consumer and business spending, changes in
consumer tastes and preference; levels of marketing and promotional expenditure
by Mitchells & Butlers and its competitors; changes in the cost and availability
of supplies; key personnel and changes in supplier dynamics; significant
fluctuations in exchange rates, interest rates and tax rates; the availability
and effects of any future business combinations, acquisitions or dispositions;
the impact of legal and regulatory actions or developments; the impact of the
European Economic and Monetary Union; the ability of Mitchells & Butlers to
maintain appropriate levels of insurance; the maintenance of Mitchells &
Butlers' IT structure; competition in markets in which Mitchells & Butlers'
operates; political and economic developments and currency exchange
fluctuations; economic recession; management of Mitchells & Butlers'
indebtedness and capital resource requirements; material litigation against
Mitchells & Butlers; substantial trading activity in Mitchells & Butlers'
shares; the reputation of Mitchells & Butlers' brands; the level of costs
associated with leased properties; competition for high quality managers;
declining sales of beer in pubs in the UK; food safety scares; funding
liabilities in respect of the Group's pension schemes and the weather.
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