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Preliminary Results 2007


* EBITDA, operating profit and profit before tax are all stated before exceptional items
** Exceptional items after tax were £(155)m, 2006 £51m
Revenue 1,894 1,720 10.1
EBITDA* 472 430 9.8
Operating Profit* 343 309 11.0
Profit before tax* 207 208 (0.5)
Earnings per share before exceptionals 35.5p 29.3p 21.2
Earnings per share after exceptionals** (2.5)p 39.7p n/a
Dividends 14.25p 12.25p 16.3


  • Continued good sales growth: same outlet like-for-like sales up 3.0% for the year
  • Strong market share gains: same outlet food sales up 5.1%, drink up 2.2%
  • Average weekly sales per managed pub up 6% to £18.5k
  • Net Retail margin at 17.9% versus 18.0% last year despite £8m of additional regulatory costs and £14m of closure and pre-opening costs
  • Majority of Acquired Sites* converted with sales uplifts of c.20%
  • Property revaluation uplift of £1.1bn recognised in balance sheet
  • Committed to unlocking property value for shareholders: hedges retained with mark-to-market deficit of £155m post tax as at year end date
  • Final dividend increase of 16.3%

* The "Acquired Sites" are the pub restaurant sites purchased from Whitbread plc in July 2006

Commenting on the results, Tim Clarke, Chief Executive said:

"Mitchells & Butlers has delivered another strong trading performance. We extended our leadership of the eating-out market, serving 107 million meals and made sizeable drinks market share gains. Our focus on amenity, service and value has positioned us well to deliver further out-performance against the market through the first year of the smoking ban and more challenging market conditions.

We remain committed to unlocking the value of the estate for shareholders."


The Directors are recommending a final dividend of 10.0 pence per share taking the total dividend for the year to 14.25 pence, an increase of 16.3% on last year. Subject to approval at the AGM on 31 January 2008, the final dividend will be paid on 4 February to shareholders on the register on 7 December 2007.

Current Trading

Current trading has been resilient with same outlet like-for-like sales growing by 1.4% in the seven weeks to 17 November. Trading in the three weeks to 17 November has shown a material improvement on October with same outlet like-for-like sales up 2.4% following the launch of our new winter menus. This sales growth has been generated against the background of the start of the first winter period of the smoking ban in England and Wales, a continuing volume decline in the on-trade beer market in October of approximately 8% and a more uncertain consumer environment.

7 weeks ended 17 November 2007 Same outlet like-for-like sales growth Uninvested like-for-like sales growth
Residential 1.3% (1.0%)
High Street 2.5% 1.9%
Total 1.4% (0.5%)
Note: These results include the Acquired Sites

Within the Residential estate, Local Pubs have traded well, with same outlet like-for-like sales growth of 3.3%, reflecting large drinks market share gains, continued strong food sales growth and the benefit of the Rugby World Cup. The Rugby tournament however, had a negative impact on our Pub Restaurants where like-for-like sales have been marginally positive overall, although they were up 2.6% in the last three weeks following the launch of the new menus with their enhanced quality and value.

These new menus are part of a carefully trialled and targeted margin investment programme that we have started to implement within Pub Restaurants to drive profitable volume growth in response to a slowing in performance towards the end of last year, particularly in the Vintage Inns format. The initial customer response to these new menus is very encouraging.

In the High Street, which accounts for 25% of sales, the successful evolution of our formats has generated like-for-like sales ahead by 2.5%, with strong growth in food sales. Trading in Central London has remained buoyant.

Trends following the smoking ban in England are currently broadly in line with those seen in the first year of the ban in Scotland where there was a slowing of overall sales in the winter months. In the 20 weeks since the introduction of the smoking ban in England, same outlet like-for-like sales for our English pubs excluding those previously converted to non-smoking, increased by 1.5%, with food sales up 5.0% and drinks sales marginally up. In the last seven weeks these pubs grew by 0.7% on a same outlet basis. We continue to be encouraged by the improvement in same outlet like-for-like sales this year within our Scottish pubs, up 6.7%, partly helped by the recent Euro 2008 football, and we believe that the overall impact of the ban will be beneficial over time to larger, well invested pubs with an attractive food offer.

Progress on the Acquired Sites

The Acquired Sites conversion programme remains on track with 172 pubs now converted to our brands and formats. Average weekly sales uplifts on the converted sites are running at approximately 20% above the levels at which the pubs were acquired and we remain confident in delivering the year three target of 30% sales uplifts in the 2009 financial year.

Value Release from Property Estate

The Board continues to investigate options for capturing the value of the property estate for shareholders on a sustainable basis.

Whilst its focus has been on the establishment of a property joint venture, this has been impacted, for now, by the disruption in the debt markets. Alternative property based refinancing structures remain under consideration. In this context, the Board has received a proposal from R20 in respect of a demerged REIT structure, the attractiveness and feasibility of which we are now exploring with R20. The proposal includes R20 procuring a fixed price underwriting in the region of 25% of a wholly demerged REIT, which would offer shareholders the option to realise part of their investment in the property company for cash. The key issues under review are the details of the underwriting, the ability to reorganise the debt and the implications for pensions, tax and legal structure. Additionally, a REIT structure would have to meet the Board's requirement for an appropriate balance to optimise the value of both demerged companies as independent entities.

The Board is giving serious consideration to this proposal and will continue to review alternative structures that would demonstrably create value from the property whilst providing an attractive long term business model for the operating company.

Property Revaluation

Given the continued focus on the value of our estate, we have completed a revaluation of our fixed assets based on an updated valuation by our property valuers, Colliers CRE, of our freehold and long leasehold properties as at 29 September 2007. For accounting purposes, this valuation represents the aggregate value of each individual pub, rather than a portfolio approach, based primarily on the trading cash flows. The revised value of the properties at £5.0bn represents a net increase of £1.1bn compared with the historical accounting basis. We will continue to revalue our properties each year on a rolling basis.

The accounting valuation of the property is consistent with the existing structure of the Group. However, based on advice received from Colliers CRE, all of the freehold and long leasehold properties within an OpCo/PropCo structure would support a market rent of £280m and a rental yield of 5.8%, with an indicative valuation of £4.8bn for the PropCo, before any allowance for purchaser's costs, based on a 35 year, RPI inflating lease. This valuation approach relates only to the rent from the freehold and long leasehold pubs and therefore excludes the cash flows received by the operating company from these pubs, as well as other company cash flows including those from existing short leasehold pubs. Based on the year ended 29 September 2007, this would equate to approximately £200m of underlying EBITDA.


At the year end the post tax mark-to-market deficit on the hedges taken out in connection with the planned R20 joint venture transaction in the summer was £155m. Although this does not represent a cash cost in the year, the deficit has been treated as an exceptional cost in the accounts. Due to continuing turbulence in the debt markets, the latest post-tax mark-to-market deficit on the hedges currently stands at approximately £180m. The hedges have been retained as the Board remains committed to a property-based refinancing which would utilise them, once debt markets have recovered.


The pension schemes showed a deficit of £18m, as at 29 September 2007 on an IAS 19 valuation basis, including updated assumptions on life expectancy.

The full actuarial review undertaken in the year is currently being finalised based on the value of the schemes as at 31 March 2007. The actuarial valuation adopts a more conservative basis of discounting the liabilities than is required by IAS 19 and the preliminary result shows a deficit of approximately £250m. In line with the new pensions regulations, the Company is finalising with the Pensions Trustees a formal recovery plan to close this deficit by 2017. As part of this plan, in addition to the ordinary annual service contributions, it is expected that further contributions of £24m will be made in each of the next three years. The contribution for the year ending 30 September 2008 will include the payment of £20m previously committed at the time of the Special Dividend in October 2006. The level of additional contributions will be subject to review during the next actuarial valuation as at 31 March 2010.

Responsible Retailing

Intensive management activity and time goes into the training of all our staff to ensure that Mitchells & Butlers' pubs are responsibly operated, well supervised and safe premises for the consumption of alcohol, as well as food and other drinks.

For instance, we turn away some 50,000 young people a month from our pubs for failing satisfactorily to prove their age, to ensure that we do not serve under age drinkers. Our staff are also trained and supported in refusing to serve customers who are intoxicated. Similarly, we have continued to support fully the industry's self regulatory code to avoid any forms of irresponsible promotion of alcohol.

We have also supported the establishment of The Drinkaware Trust with a wide range of other stakeholders, focused on promoting a more responsible attitude to drinking across society as a whole. We are determined to ensure that Mitchells & Butlers' pubs are operated in a way that fully justifies the grant of a licence for the responsible retailing of alcohol. In that regard we were pleased for the second time to be recognised by the Morning Advertiser as this year's most responsible drinks retailer in the managed pubs category.

We also believe that the retailing of alcohol, where it is subsequently consumed in an unregulated environment, has similar social responsibilities. Against this background we question whether the promotional policies and pricing of alcohol at very cheap levels, sometimes below cost, by the supermarkets and other parts of the off-trade, are compatible with those responsibilities.

All commercial retailers of alcohol need to recognise a joint responsibility for countering the anti-social behaviour and health problems associated with its excessive consumption.


The outlook for consumer spending remains uncertain and the first winter of the English smoking ban will be challenging, although the evidence from Scotland reinforces our belief that the ban will prove beneficial to the business in the longer term.

Mitchells & Butlers has a strong competitive position derived from the quality of its estate, its leadership position in the eating out market, and the consumer appeal and value for money positioning of its formats.

Our out-performance against a challenged on-trade drinks market has widened and we are well placed to make further market share gains in the year ahead. Margin reinvestment in the quality and value of our food offers is being actively pursued with encouraging initial results, to generate profitable volume gains. This, alongside further organisational cost efficiencies, will help to mitigate the additional regulatory costs of £12m and upward pressures on food costs. Not withstanding an expected £4m of pre-opening and closure costs in the first half, the benefits from the conversion of the Acquired Sites will start to be more fully reflected in the current year. As a result, we anticipate a resilient performance amidst more challenging market conditions.

There will be a presentation for analysts and investors at 9.30am at the Merrill Lynch Financial Centre, 2 King Edward St, London EC1. A live webcast of the presentation will be available at

Presentation to investors – webcast

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