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Mitchells & Butlers plc Preliminary Results for the year ended 30 September 2003

Mitchells & Butlers plc Preliminary Results for the year ended 30 September 2003

Financial Highlights - Pro forma

  • Turnover up 2% to £1,513m
  • EBITDA flat on 2002 at £374m
  • Operating profit down 5% to £275m
  • Profit before tax down 1% at £199m
  • Net operating cash flow £241m up £106m
  • Earnings per share down 0.1p to 18.4p
  • Final dividend per share 5.65p

MAB was established as an independent company in April 2003. The basis of preparation of the Financial Highlights is set out in Note 1 to the Pro forma Financial Statements

Business Highlights

Turnaround in like for like sales performance in second half

  • Same outlet like for like sales up 1.8%, (-0.1% uninvested basis)
  • Positive trend continuing in first 8 weeks of 2004, +4.5% same outlet like for like sales, (+2.6% uninvested basis)

Purchasing and productivity improvements help to mitigate impact of additional external costs

  • Product range and purchasing cost improvements from increasing non tied supply
  • Retail staff productivity up 4.5%, £10m annualised saving in support costs

Continued high returns on investment

  • Incremental EBIT returns of 13% from 134 development projects and 14 new site acquisitions
  • Total cash returns on cash capital employed of over 10%

Balance Sheet Efficiency

  • Largest ever whole business securitisation completed
  • Returning £0.5 billion to shareholders on 8 December

Tim Clarke, Chief Executive, commented:

“At demerger our priorities were to deliver value to shareholders through our operating performance, an appropriate financing of the balance sheet and a return of surplus funds. We have completed a £1.9billion securitisation providing the business with long term fixed rate finance at attractive rates to support our growth strategy and releasing £0.5 billion of cash for shareholders.”

“Our sales generating actions have delivered a 3.6% point turnaround in uninvested sales from those reported in May. This trend has continued into the first eight weeks of the new financial year, with 4.5% growth in like for like sales boosted by the sporting calendar and good Autumn weather. The 70% of the estate in the residential areas is leading the way, same outlet like for like sales were up 0.9% in 2003 and are 5.7% ahead in the new financial year.”

“Our operating focus has been on improving customer choice and value supported by enhanced sales and service training. Higher sales volumes, better mix, improved productivity and lower purchasing costs are helping to offset the pressure on margins from continuing increases in external costs.”

Current Trading and Outlook

The improvement in sales seen in the second half of 2003 has continued into the first 8 weeks of 2004 aided by some good weather and major sporting events which we estimated to account for up to 1.5% points of the improvement. Same outlet (i.e. invested and uninvested) like for like sales were up 4.5% in the 8 weeks to 22 November. Uninvested like for like sales were up 2.6%. This continuing positive trend has been driven by Mitchells & Butlers’ focus on delivering high quality amenity and service standards and increased choice at competitive prices, improving overall customer value.

Trading in the 70% of the estate in residential areas has strengthened further with same outlet like for like sales up 5.7%, 3.8% on an uninvested basis. Sales have continued to be stronger in the Midlands and the North than the South.

Trading in our high street pubs and bars, where our sales generation activity has been strongest, has seen a sharp improvement with same outlet like for like sales up 2.3%, 0.6% on an uninvested basis. There continued to be a contrast between positive growth on the high streets outside London and marginal decline in a still slowly recovering central London market, which is still down albeit that the decline has now slowed.

On the basis of extrapolating our current sales generating activities, we expect our average prices net of promotions in 2004 to be approximately 2% lower for the year as a whole, although the effect will be greater in the first half when the comparison with 2003 will be most evident. We are taking positive action on product mix, purchasing costs and carefully targeting promotions to minimise the dilution effect on percentage gross margins. Trials of new activity are continuing and will be extended across the estate based on their success in driving cash gross profits.

At the net operating margin level, we continue to focus on raising productivity and reducing costs in order to defend margins against the £17m additional employment, pensions, property and insurance costs we anticipate this year.

The outlook for the business is improving as many of the negative trends which have affected the pub industry over the last five years are now starting to reverse. In particular, new capacity on the high street has virtually ceased and investment in existing pubs in residential areas is low.

Overall, we expect the impact of the new Licensing Bill on Mitchells & Butlers to be positive although there remains some uncertainty about its practical application. We await details of the Local Authority guidelines due later this year to allow us to evaluate more fully the impact on the business.

Whilst we remain cautious on the outlook for UK consumer spending, demographic trends are favourable with forecast growth among the 18 to 25 and 45 plus age groups, two of our key customer groups. In addition, social trends are continuing to strongly favour value for money, informal eating out in neighbourhood pubs. We believe our estate and our brands and formats are well placed to profitably meet those trends.

Whilst in the short term therefore the pub sector continues to bear some significant cost increases, the positive actions we are taking to drive sales, raise productivity and reduce costs makes us well placed to mitigate their impact. We are confident that our medium term business plan and the improving competitive prospects for Mitchells & Butlers will underpin the positive sales and earnings potential of the business over the next few years.

Refinancing and return of funds

The securitisation, completed on 13 November, provides £1.9 billion of cost effective, long term, fixed rate finance. Furthermore, it has enabled us to release £0.5 billion of surplus funds for shareholders and achieve a financial structure appropriate for the business and our strategy. The level of debt and agreed terms provide the flexibility we need to maintain the quality of our assets, continue to churn the estate and maintain our progressive dividend policy.

Shareholders voted in favour of the share consolidation and accompanying return of funds at an EGM on 1 December 2003. As a result, Mitchells & Butlers’ shares, having been consolidated, commenced trading ex the special dividend of 68p per share on Tuesday 2 December. Payment of the special dividend will be made on 8 December and in total will amount to a return of £501m to shareholders. Following the return of funds Mitchells & Butlers will have net debt of approximately £1.8bn and 520 million shares in issue.


The Board are recommending a final dividend of 5.65 pence per share payable in February 2004 and intends to recommend a dividend 9.5 pence per share for the financial year ending 30 September 2004. Thereafter, Mitchells & Butlers will pursue a progressive dividend policy to deliver growth in real terms, consistent with the medium term sales and earnings potential of the business.

For further information, please contact:

Mitchells & Butlers plc
Kate Holligon, Investor Relations
0121 498 5092

Jeremy Probert, Media
0121 498 5547

Finsbury Group
James Murgatroyd
0207 251 3801

Notes to Editors:

Mitchells & Butlers owns and operates over 2000 high quality, managed pubs in prime locations nationwide. The group’s predominantly freehold estate is biased towards large sites in residential locations. With some 3% of the pubs in the UK, Mitchells & Butlers’ estate has 9% of industry sales, an average weekly take per pub of over three times the industry average.

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