Half Year Results 2011

Mitchells & Bulters plc - Half year results (For the 28 weeks ended 9 April 2011)

Good progress with execution of strategy

Retained Estate¹ highlights

The Retained Estate represents the continuing operations of the group following the major disposals completed over the last year and before exceptional items and other adjustments.

Sales up 4.2% with food sales up 7.5%
For the first time, food sales overtake drink sales
Operating profit in line with last year despite start-up costs from brand roll-out and the movement of Easter into H2
£53m of expansionary capital invested including 29 new openings and 31 conversions
19% EBITDA returns achieved on expansionary capital invested in FY10 and FY11
Net debt reduced by nearly £400m; net debt:EBITDA now at 4.9x²

Retained Estate	H1 2011 £m	H1 2010 £m	% growth
Retained Estate Revenue	H1 2011 £m 912	H1 2010 £m 875	% growth 4.2
Retained Estate EBITDA¹	H1 2011 £m 194	H1 2010 £m 192	% growth 1.0
Retained Estate Operating Profit¹	H1 2011 £m 136	H1 2010 £m 136	% growth -

Jeremy Blood, Interim Chief Executive, commented:

“Our growth strategy is on track and has delivered a strong trading performance with total sales up 4.2%. Harvester's performance has been particularly good, supported by its new advertising campaign together with its new breakfast and take-away menus. We have successfully positioned Mitchells & Butlers more firmly within the eating-out market with nearly three quarters of our revenue now generated around eating-out.

We have a healthy balance sheet and are investing for further growth with 50 new sites being opened this year from our brand roll-out. I have been impressed with the depth of skills within the Company that gives Mitchells & Butlers an excellent growth platform and enables the Board to have confidence in the prospects for the business.”

Total Company performance

The Company has disposed of a range of its non-core assets in line with the strategy set out in March 2010, which enables an increased focus on the growing eating-out market. In the first half before disposal, those non-core assets contributed revenue of £34m and profit of £5m (H1 2010: £162m and £20m respectively). Total Company performance, including these assets, was as follows:

	H1 2011 £m	H1 2010 £m	% growth
Revenue	H1 2011 £m 946	H1 2010 £m 1,037	% growth (8.8)
Adjusted operating profit⁴	H1 2011 £m 141	H1 2010 £m 156	% growth (9.6)
Adjusted profit before tax⁴	H1 2011 £m 63	H1 2010 £m 73	% growth (13.7)
Profit before tax	H1 2011 £m 43	H1 2010 £m 72	% growth (13.7)
Adjusted earnings per share⁵	H1 2011 £m 11.3p	H1 2010 £m 13.0p	% growth (13.1)
Basic earnings per share	H1 2011 £m 9.1p	H1 2010 £m 12.8p	% growth (28.9)

Strategy on track

The implementation of the strategy as announced in March 2010 is on track with a number of key achievements:

Reshaping of the business is complete

We have finished the first phase of the strategy, to exit non-core assets and focus on core food-led brands. The £373m sale of wet-led pubs to Stonegate was a key element of this and was completed in November.

We now have nearly 1,600 restaurants and pubs distributed across an industry leading portfolio of brands. Food is now our largest single product with nearly three quarters of our sales deriving from meals and their directly associated drink sales.

Food growth driving operational performance

The Retained Estate delivered total sales growth of 4.2% in the first half, driven by a 7.5% increase in food sales. Like-for-like sales growth was 3.3% in the first 33 weeks (with Easter included in both periods) broken down as follows:

Like-for-like sales	Trading to IMS 17 weeks to 22 January 2011	Since IMS 16 weeks to 14 May 2011	Total 33 weeks to 14 May 2011
Like-for-like sales Total	Trading to IMS 17 weeks to 22 January 2011 3.1%	Since IMS 16 weeks to 14 May 2011 3.4%	Total 33 weeks to 14 May 2011 3.3%
Like-for-like sales	Trading to IMS 17 weeks to 22 January 2011	Since IMS 16 weeks to 14 May 2011	Total 33 weeks to 14 May 2011
Like-for-like sales Food	Trading to IMS 17 weeks to 22 January 2011 6.1%	Since IMS 16 weeks to 14 May 2011 4.8%	Total 33 weeks to 14 May 2011 5.5%
Like-for-like sales Drink	Trading to IMS 17 weeks to 22 January 2011 0.9%	Since IMS 16 weeks to 14 May 2011 2.7%	Total 33 weeks to 14 May 2011 1.8%

Gross margins for the first half were 0.2% points higher than last year, with drink gross margin down 0.1% points and food gross margin up 0.6% points. This improvement in food gross margin was generated by ongoing menu development, customer spend increases and some minor like-for-like price rises partially offset by increased food input costs.

Operating profits¹ of £136m were in line with last year, despite being reduced by the movement of Easter into the second half (c.£3m) and by initial costs from our accelerated brand roll-out programme (c.£4m) relating to closedown and pre-opening costs. Net operating margins in the Retained Estate were 14.9%, against 15.5% in the first half last year.

Promising start to brand roll-out

In the first half of the year, £53m was invested with 29 new openings and 31 conversions, reflecting a rapid acceleration of the organic expansion programme. Investment returns are good, with an EBITDA ROI of 19% on all expansionary capital spent in FY10 and FY11. There has been an encouraging early performance from the new retail park investments and the Ha Ha Bar & Grill acquisition. In total we expect to spend approximately £75m on expansionary investments in FY11, of which c.£50m will be in respect of new site acquisitions and we expect this pace to increase in FY12.

Balance sheet and cash flow

Proceeds from our disposals have allowed us to pay off all unsecured borrowings and our net debt stands at £1.9bn, which is 4.9 times EBITDA. We have a clear funding plan in respect of our pension liabilities with £40m p.a. being paid through operating cash flow. We have funds and cash flow to support the roll-out of our brands envisaged in the strategy.

As stated previously, the Board will closely monitor the level of operating cash flow generation and capital investment opportunities for the business before taking a decision on the timing and quantum of the resumption of dividend payments.

Board update

The process for the recruitment of a new Chief Executive is progressing well. We are pleased to welcome Bob Ivell as a new independent non-executive director and will continue to strengthen the Board.

Outlook

Notwithstanding the current robust trading, we believe that challenges lie ahead in respect of input cost inflation from food and energy, in addition to uncertainty around UK discretionary consumer spending. These will create pressures on the business extending into FY12. However our food growth strategy and the reshaped estate mean that Mitchells & Butlers is well placed to deal with these challenges and to deliver sustainable growth in shareholder value.

There will be a presentation for analysts and investors at 9.30am at Nomura, One Angel Lane, London EC4R 3AB. A live webcast of the presentation will be available at www.mbplc.com. The conference will also be accessible by phone by dialling +44 (0) 203 059 5845, quote “Mitchells & Butlers”, the replay will be available until 02/06/11 on +44 (0) 121 260 4861 replay access pin 6786009#.