Pre Close Trading Update
Mitchells & Butlers is pleased to announce a strong performance in the 22 weeks to 16 September 2006. Earnings for the year are expected to be at the upper end of the Board's expectations.
Mitchells & Butlers estate (excluding 239 acquired sites)
Like for like sales in the 18 weeks to 16 September 2006 (the period since that covered at the interim results) increased by 3.8%. As anticipated, sales in our Restaurants Division were adversely affected during the World Cup in June. However, since then, trading has rebounded strongly. Across the estate, like for like sales in the last 10 weeks since the World Cup increased by 5.3%. For the 50 weeks to 16 September 2006 like for like sales increased by 4.1%. Total retail sales for the same period were 3.8% ahead and average weekly sales per managed pub were up 6% to £17.5k.
In Scotland, like for like sales have grown by 2.6% since the introduction of the smoking ban in March, although this was slower than the growth in England and Wales. Drink sales are down 1%, while food sales, (28% of the sales mix), are strongly ahead at 11%.
Our new summer menus have been well received by customers and have continued the strong growth in food sales seen in the first half and particularly in the last 10 weeks. Like for like food sales for the 50 weeks increased by 7.4%. Across the estate, average food and drink prices were approximately 2% higher than last year reflecting further extensions to the range of drink and menu items available as well as some price increases on standard products.
Against a background of the continuing shift of beer sales from the on-trade to the off-trade, exacerbated by the World Cup and price increases well ahead of inflation across the rest of the on-trade, we have made further significant market share gains. This reflects our focus on range, quality and value, aided by our on-going investment in integrated, glycol cooled dispense systems which are now in over 700 pubs. In the 50 weeks, like for like drink sales increased by 3.2%. With further purchasing and mix benefits, gross margins are broadly in line with last year despite the relatively faster growth of lower margin food and wine.
The strong volume performance, continued productivity gains and good cost control have enabled us to offset the regulatory and energy cost increases of some £24m and generate net operating margins slightly ahead of last year.
239 pub restaurant sites acquired in July
The integration of the pub restaurants recently acquired from Whitbread PLC is progressing as planned. Sales in the 7 weeks of our ownership have continued to decline in line with the trend at the time of acquisition. The actions we are taking on operational management, service delivery and productivity have started to stabilise margins prior to conversion to Mitchells & Butlers' operating formats. The development programme is moving ahead rapidly with the first 10 projects now on site. The acquisition is expected to be neutral to earnings this financial year.
Refinancing and Return of Funds
Following the successful completion of the bond issue earlier this month, a circular to shareholders to convene an EGM and provide details of the special dividend and accompanying share consolidation will be posted shortly in order to effect the return by the end of October.
For the purposes of the Special Dividend, an estimate of the IAS 19 valuation of the pension schemes as at 15 September 2006 has been prepared. At this date, the position reflects a deficit of £87m net of the deferred tax asset, (£129m gross). This is an increase of £40m in the net deficit from the position reported as at 15th April 2006, which is primarily accounted for by market expectations for higher future inflation. As previously announced, the Company has committed to make additional contributions of £40m in FY07 and £20m in FY08. The next full actuarial valuation will take place during the next financial year based on the position at 31st March 2007.
Trading conditions in the casual dining market are continuing to improve in line with the long term trends for eating out. Our pubs and our operating formats are ideally placed to capture that growth. Already over 35% of Mitchells & Butlers’ revenue is derived from food, with sales of some 96 million meals in a full year.
We continue to prepare for next year's smoking bans in England and Wales through the extension of non-smoking areas, the development of outside space and, where it is beneficial, by moving to non-smoking throughout prior to the ban. Already 185 of our pubs outside Scotland are fully non-smoking. We will continue to widen the social appeal of all of our pubs by developing their customer reputation for serving good food at attractive prices, where we see the best long term prospects for profitable growth.
The outlook for regulatory and energy costs is improving although we still anticipate around £14m of additional cost next year, mainly as a result of the increase in the National Minimum Wage to £5.35 and higher energy costs.
For the acquired pub restaurants, conversion to our operating formats and the associated closure periods will inevitably hold back the full year contribution from these pubs next year, particularly during the first half. However, our early experience of owning these pubs has reinforced our confidence in our ability to generate the substantial sales and profit uplifts post-conversion anticipated at the time of acquisition.
In summary, Mitchells & Butlers has strengthened its leadership position in the rapidly growing pub food market and continues to gain significant drinks market share. With further improvements in productivity and cost efficiency, together with high-return investments in the estate, the Board remains confident in the future growth prospects of the company.
Mitchells & Butlers will announce its preliminary results for the year ended 30 September 2006 on 29 November.
For further information please contact:
0121 498 5092
James Murgatroyd (Finsbury Group)
020 7251 3801
There will be a conference call for analysts and investors at 8.30am; please dial 020 7162 0125. The replay will be available for one week on 020 7031 4064, passcode 719233.
APPENDIX: LIKE FOR LIKE SALES (MAB estate excluding acquired sites)
Same Outlet Like-for-Like Sales
|18 weeks* to 16 September 2006||50 weeks to 16 September 2006|
Uninvested Like-for-Like Sales
|18 weeks* to 16 September 2006||50 weeks to 16 September 2006|
* Last reported like-for-like sales included 32 weeks to ensure comparability of Easter trading.
Notes for editors:
- Same outlet (invested) like-for-like sales include the sales performance of all managed pubs (excluding the acquired sites) 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 of those managed pubs (excluding the acquired sites) that have not received expansionary investment of more than £30,000 in the two periods being compared. 88% of the estate is included in this measure.
- Mitchells & Butlers owns and operates around 2,200 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 over 10% of industry sales and average weekly take per pub over three times the industry average.
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 ‘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 the 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 predictive, 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 licences; 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; and the weather.