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Half Year Trading Update, Refinancing and Proposed Return to Shareholders


  • Same outlet like for like sales growth improved to 4.3% for 13 weeks to 22 April 2006
  • Operating margin(I) slightly ahead despite energy and regulatory cost increases
  • Earnings per share (EPS) (I) growth for the 28 weeks to 15 April 2006 of not less than 17%
  • Early signs from Scottish smoking ban favourable
  • At least £500m to be returned to shareholders in calendar 2006, less any funds invested if a value creative acquisition opportunity is secured

Mitchells & Butlers is pleased to report that trading in the 13 weeks to 22 April 2006, a period that includes the Easter weekend in both years, has improved with same outlet like for like sales up 4.3%, an improvement on the 4% growth reported for the first quarter. Same outlet like for like sales for the first 29 weeks to 22 April 2006 are up 4.1%. Net retail operating margin(I) is slightly ahead despite significant external cost pressures; pre-tax returns on new investment continue to be over 20% and operating cashflow remains strong. As a result, EPS(I) in the 28 weeks to 15 April 2006 (“the first half”) will be ahead of last year by not less than 17%.

Strong sales growth

We continue to benefit from our leadership position in the rapidly growing pub eating-out market. Our focus on delivering service, amenity, range and value to our customers has driven further large market share gains in both food and drink. Same outlet sales growth for the first 29 weeks was 6.7% in food and 3.2% in drink. We achieved food volumes of some 80 million meals over the last 12 months.

Average weekly sales per managed pub have increased by 7.1% to £17k per week driven both by the success of our sales strategy and the continued development of our estate.

Total retail sales for the first half were up 3.6%, with the average price of food and drink approximately 1% ahead of last year. Total gross margin was in line with last year, despite the relatively faster growth of food and wine sales.

Sales ahead following Scottish smoking ban

Although it is early days, the 5% of the estate in Scotland has continued to generate good sales growth since 26 March, with the initial impact of the smoking ban being to improve food sales in our pubs. This trend, if sustained, makes us more confident as to any impact of a similar ban when it is introduced in England next year.

High investment returns

Our new investments continue to achieve incremental pre-tax returns of over 20%, demonstrating the consumer power of our brands and formats which we are applying to our large freehold sites to further enhance their sales and profit potential.

Operating margin(I) ahead

Further material gains in staff productivity, purchasing terms and the control of support costs generated net retail operating margin slightly ahead of the first half last year despite the increases in energy and regulatory costs of £14m.

As a result, operating profit(I) as reported for the first time under IFRS, will have grown to not less than £143m for the first half.

Strong cash generation

Cash generation from the business remains strong. The net finance charge, including net income from pensions, was lower in the first half than last year. As a result profit before tax(I) for the first half will be not less than £91m, 9.6% ahead of last year.

During the first half £41m of shares were repurchased under the £100m buyback programme announced in November 2005. The average number of shares during the first half was 494m, 4.4% lower than last year. This, together with the trading performance, will result in EPS(I) growth of not less than 17% for the first half.

Refinancing and return to shareholders

The results delivered over the past three years have created further capacity to increase the debt in the business. In November, consistent with the commitment to maintain an efficient balance sheet, the Board indicated that it would be its intention to refinance the Company later in the financial year and, subject to acquisition opportunities in the short term, surplus funds would be returned to shareholders. To that end, The Royal Bank of Scotland and Citigroup have been appointed to assist the Company in executing a refinancing during the second half of this year.

Although the refinancing process is still in its early stages, the Board is confident that subject to market conditions, at least £500m could be returned to shareholders, including the £59m balance of this year’s share buy-back programme, which has been suspended now that the Company is in an offer period. Such a return and the resulting level of debt would be entirely consistent with Mitchells & Butlers’ long term public equity strategy for continued growth, investment and value creation.

The Board has noted the recent announcement by Whitbread PLC to dispose of a portfolio of pub restaurants. The Board believes that Mitchells & Butlers’ brands and operating skills could add considerable value to this portfolio and intends to explore this in parallel with the refinancing. Before a final decision is made on the quantum of cash to be returned, the Board will assess whether some of those funds could be used to enhance shareholder returns through deployment to acquire additional assets on attractive terms. In the absence of such an opportunity and subject to market conditions, at least £500m will be returned to shareholders.

Pro-active property management

As part of our refinancing, the property valuation that was conducted for the purposes of the securitisation in November 2003 will be updated.

In a buoyant commercial property market, we are seeing 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.


Overall, there are some encouraging signs of stabilisation in consumer confidence in our markets. The strength of our brand portfolio and our customer focus are generating significant sales growth and accelerating market share gains. This performance is adding value to a very high quality estate of licensed assets. We will continue to pursue consolidation opportunities, where we believe we can create further value. We are very confident that our strategy will continue to deliver strong growth, further asset appreciation and value creation for the benefit of our shareholders.

For further information please contact:

Investor Relations: 0121 498 5092
Kate Holligon [email protected]
Simon Ward 0121 498 5795
James Murgatroyd (Finsbury Group) 0207 251 3801

There will be a conference call for analysts and investors at 8.30am; please dial 020 7162 0025. The replay will be available for one week on 020 7031 4064, passcode 702913.

(I) Operating profit, profit before tax and EPS are all stated before exceptional items for the 28 weeks ended 15 April 2006. Net retail operating margin is calculated as net retail operating profit before exceptional items divided by retail sales. Throughout this document EPS refers to basic earnings per share.

On 25 May 2006, Mitchells & Butlers will announce its Interim Results for the 28 week period ended 15 April 2006, the Company’s first results under IFRS. A reconciliation of UK GAAP to IFRS was published in December 2005 and is available on this site. Under IFRS, for the 28 weeks ended 9 April 2005 operating profit before exceptional items was £137m and EPS before exceptional items was 10.8p.

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. 94% 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. 86% of the estate is included in this measure.

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