Half Year Pre-Close Trading Update
- Resilient sales growth: same outlet like-for-like sales up 0.6% in the first 27 weeks*
- Significant market share gains: same outlet food sales up 4.8%; drink declines limited to 1.4%
- Robust operating profits performance with productivity and efficiency gains offsetting increasing cost pressures
- Strong operational cash inflows
- Strategic review continues with conclusions to be announced by Interim Results on 20 May
Current Trading – 27 weeks ended 5 April 2008
Mitchells & Butlers reports resilient sales growth and robust operating profits performance, together with strong operational cash generation for the first 27 weeks. This has been achieved amidst challenging trading conditions for beer sales but increased eating out demand in pubs following the smoking ban.
Same outlet like-for-like sales were up 0.6% in the first 27 weeks. Food sales have been buoyant and now account for 38% of sales with same outlet like-for-like sales growth up 4.8%. The smoking ban has widened the appeal of the pub, especially to consumers who previously did not eat out in pubs due to tobacco smoke. The quality and value of our food offers together with our high standards of amenity have enabled us to gain a disproportionate share of this growth. As a result, we have further extended our leadership of the on-trade eating out market, serving over 110 million meals on an annualised basis. In drinks, we have held same outlet like-for-like drinks sales to a decline of 1.4% representing a further substantial gain in drinks market share relative to the fall in on-trade beer market volumes of 9%**. Good growth has been generated in sales of soft drinks and wine as a result of the food sales uplifts.
Same outlet like-for-like sales in our pubs in residential areas are up 0.8% with a particularly strong performance from our Pub Restaurant brands, which have benefited from the successful appeal of the new menus launched in the autumn. Food sales growth in Locals Pubs has been up 9.3%, although drinks sales have seen some negative impact from the smoking ban over the winter months.
In the High Street, same outlet like-for-like sales have grown 0.5% with strong growth in Central London, a good performance from our High Street pubs in the rest of the UK, but significant pressure on our late night venues.
Current trading in our Scottish estate in the second year of the smoking ban is showing good growth with same outlet like-for-like sales up 3.5% in the 27 weeks of this financial year. This increase has been generated by significant food growth, up 7.1% combined with a positive drink sales performance up 1.8%.
The Acquired Sites’ conversion programme has been rapidly implemented and is nearing completion with 196 sites converted to our brands and formats. Taking into account conversions to our franchise model and disposals, there remain only 7 sites to be converted. Initial, post-conversion average weekly sales uplifts are running at 19% above the levels at which the sites were acquired. We will be continuing to develop the trading performance of these high quality sites in order to deliver our three year target of 30% sales uplifts by the end of the 2009 financial year.
Our actions to reduce fixed and variable operating costs have been successfully implemented to offset the increasing cost pressures this year. Staff productivity gains have been very strong, reflecting service training initiatives and the benefits of enhanced scheduling systems. Furthermore, the continuing food volume growth generated by our sales strategy is driving significant purchasing gains which are mitigating food cost inflation that will impact particularly in the second half.
As previously stated on 29 January, net pre-exceptional financing costs will be higher in the first half compared to last year, however operating cash inflows continue to be strong as a result of the robust operating performance. We have also continued proactively to manage the asset base, taking advantage of the continuing strength of the market for quality sites with over £50m of proceeds raised during the first half on EBITDA multiples of approximately 18 times.
Consequently net debt has reduced from £2.9bn to approximately £2.8bn since the closure of the hedges and we anticipate further strong cash inflows in the second half as a result of summer trading and the completion of the Acquired Sites’ conversion programme.
The quality of our estate, the consumer appeal of our formats and the value and volume sales strategy have led to accelerated market share gains in both food and drinks. Continuous improvements in productivity, cost flexibility and further efficiency gains are demonstrating the resilience of the operating model amidst the challenges of the smoking ban and pressures on discretionary consumer expenditure.
The outlook for consumer confidence remains weak while the on-trade beer market is likely to remain depressed with a continuing shift to the off-trade. This will be exacerbated by the recent budget duty increases. However beer now represents only 25% of our sales and we remain confident in the growth prospects of our value for money food offers, continuing strong drinks market share gains and further productivity improvements. We expect these factors to underpin a resilient operating performance for the year as a whole.
The strategic review announced in January remains on schedule and we will announce the conclusions by the time of our Interim Results on 20 May.
* The 27 week period includes the two Easter trading weeks in 2008 and one week of the comparable Easter period last year. This has resulted in a small favourable benefit to like-for-like sales arising despite this year’s poor weather over the holiday period.
** Industry data from October 2007 to February 2008
Appendix: Like-for-like sales
|27 weeks ended 5 April 2008||Same outlet like-for-like sales growth||Uninvested like-for-like sales growth|
Note: These results include the Acquired Sites
For further information, please contact:
|Erik Castenskiold||0121 498 6513|
|Kathryn Holland||0121 498 4526|
|James Murgatroyd (Finsbury Group)||0207 251 3801|
There will be a conference call for analysts and investors at 9.00am; please dial +44(0) 20 7162 0025. The replay will be available until 18 April 2008 on +44(0) 20 7031 4064, passcode 791871.
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 over three times greater than that of the average UK pub.
- Mitchells & Butlers’ leading portfolio of brands and formats includes Ember Inns, Harvester, Sizzling Pub Co., Toby Carvery, Vintage Inns, All Bar One, O’Neill’s, Nicholson’s and Browns. In addition, Mitchells & Butlers operates a large number of individual city centre and residential pubs.
- The “Acquired Sites” are the pub restaurant sites purchased from Whitbread plc in July 2006.
- Same outlet 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. For the 27 weeks to 5 April 92% 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. For the 27 weeks to 5 April 80% of the estate is included in this measure.
Citigroup Global Markets Limited ("Citi") which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for Mitchells & Butlers and no one else in connection with this announcement and will not be responsible to anyone other than Mitchells & Butlers for providing the protections afforded to clients of Citi or for providing advice in relation to the contents of this announcement, or for any other transaction, arrangement or matters referred to in this announcement.
Dealing Disclosure Requirements
Under the provisions of Rule 8.3 of the Takeover Code (the “Code”), if any person is, or becomes, “interested” (directly or indirectly) in 1% or more of any class of “relevant securities” of Mitchells & Butlers, all “dealings” in any “relevant securities” of that company (including by means of an option in respect of, or a derivative referenced to, any such “relevant securities”) must be publicly disclosed by no later than 3.30 pm (London time) on the London business day following the date of the relevant transaction. This requirement will continue until the date on which the offer becomes, or is declared, unconditional as to acceptances, lapses or is otherwise withdrawn or on which the “offer period” otherwise ends. If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire an “interest” in “relevant securities” of Mitchells & Butlers, they will be deemed to be a single person for the purpose of Rule 8.3.
Under the provisions of Rule 8.1 of the Code, all “dealings” in “relevant securities” of Mitchells & Butlers by the offeror or Mitchells & Butlers, or by any of their respective “associates”, must be disclosed by no later than 12.00 noon (London time) on the London business day following the date of the relevant transaction.
A disclosure table, giving details of the companies in whose “relevant securities” “dealings” should be disclosed, and the number of such securities in issue, can be found on the Takeover Panel’s website at www.thetakeoverpanel.org.uk .
“Interests in securities” arise, in summary, when a person has long economic exposure, whether conditional or absolute, to changes in the price of securities. In particular, a person will be treated as having an “interest” by virtue of the ownership or control of securities, or by virtue of any option in respect of, or derivative referenced to, securities.
Terms in quotation marks are defined in the Code, which can also be found on the Panel’s website. If you are in any doubt as to whether or not you are required to disclose a “dealing” under Rule 8, you should consult the Panel.