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Preliminary Results for the year ended 30 September 2006

Preliminary Results for the year ended 30 September 2006


% growth
(1) EBITDA, operating profit and profit before tax are all stated before exceptional items
(2) FY2005 comprised 53 weeks, comparatives have been restated on a 52 weeks basis
(3) These results are prepared under IFRS, 2005 comparatives have been restated accordingly
Revenue 1,720 1,631 5.5
EBITDA 430 403 6.7
Operating Profit 309 289 6.9
Profit before tax 208 189 10.1
Earnings per share before exceptionals 29.3p 25.4p 15.4
Earnings per share after exceptionals 39.7p 24.9p 59.4
Dividends 12.25p 10.75p 14.0


  • Sustained sales growth: same outlet like-for-like sales up 4.1% for the year
  • Further market share gains: same outlet food sales up 7.3%, drink up 3.2%
  • Average weekly sales per managed pub up 6% to £17.5k
  • Net margin ahead: external cost increases offset by productivity gains
  • Acquisition of 239 pub restaurants provides platform for profitable growth
  • Property value estimated at over £5.5bn in August based on independent valuation
  • Successful refinancing leading to £486m special dividend

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

"Over the past 12 months, we have extended our leadership of the fast growing, eating-out market; delivered over 15% growth in earnings per share; acquired 239 of the best pub restaurant sites in the UK and returned some £560m to shareholders before ordinary dividends.

Our strategy of offering high quality amenity and good value food and drink is generating sustained sales growth. We have had a good start to the new financial year and we are confident of future growth prospects."


The Directors are recommending a final dividend of 8.6 pence per share taking the total dividend for the year to 12.25 pence, a 14% increase on last year. Subject to approval at the AGM on 1 February 2007, the final dividend will be paid on 5 February to shareholders on the register on 8 December 2006.

A Special Dividend of £1 per share, £486m in total, was paid to shareholders on 25 October in line with the Board's commitment to return funds following the refinancing completed on 15 September 2006. This special dividend takes the total amount returned to shareholders to over £1.1bn since demerger, in addition to ordinary dividends.


Revenue in the seven weeks to 18 November 2006, has continued to grow strongly with same outlet like-for-like sales 4.5% ahead of last year, 2.9% ahead on an uninvested basis.

7 weeks ended 18 November 2006 Same outlet like-for-like sales growth* Uninvested like-for-like sales growth*
Residential 5.3% 3.3%
High Street 2.7% 1.9%
Total 4.5% 2.9%

* Excluding the 239 Acquired Sites

Our pubs and pub restaurants in residential areas are driving our growth with same outlet like-for-like sales growth of 5.3%. Our local pubs have performed particularly well reflecting the high amenity standards and value that they offer in their markets. The development of their food and associated drinks offers is ensuring that they are increasingly capturing the growth in casual dining. Our pub restaurants, which also target this market, continue to generate strong growth.

In the High Street segment, same outlet like-for-like sales are 2.7% ahead of last year. Trading in Central London remains buoyant and our town pubs outside London are also well ahead, in both cases with particularly good growth in food. The later evening market remains challenging for our circuit bars and venues with the additional competition from longer hours in local pubs.


Our conversion of the Acquired Sites is progressing well. We already have 25 pubs reopened and operating under our brands and expect to have 50 reopened by Christmas and around 100 by Easter. The ongoing conversion of the Acquired Sites and the associated closure periods will inevitably hold back their contribution this year, particularly in the first half. However, although they have only been open for a very short time, the initial sales uplifts on those open for more than a week are most encouraging.

During the short period prior to conversion, our aim is to maximise the profit contribution from the sites operated under franchise. In the first 16 weeks of ownership, like-for-like sales for these sites have declined at a rate slightly faster than the pre-acquisition trend. Our focus has been on the removal of unprofitable discounted sales and the implementation of our productivity processes to deliver an improvement in operating margin. Overall, progress to date has been in line with our expectations.


In Scotland (which represents 4% of the estate), our experience so far suggests that large pubs, with the capability to serve high volumes of good food at attractive prices, will benefit from a ban on smoking. However, smaller pubs, with limited food capacity and a bias towards beer sales and machine income are likely to suffer. In the first seven weeks of the year, food sales have continued to grow strongly with like for like sales ahead by 7%, whilst drinks sales have declined by 2%. Overall like for like sales are ahead by 1.1%. Sales growth has slowed as the Autumn has drawn in and we continue to believe that a full winter's trading is required before taking a definitive view on the ban's effect.

With some 80% of our estate across England and Wales having external space, we continue to develop our gardens and outside sheltered areas to minimise any future effect on drinks trade. Our Scottish experience also leads us to continue to focus on widening the social appeal of our pubs by developing their reputation for serving good food at attractive prices. This will leave us well placed to take advantage of the opportunity that the ban offers to attract new, casual dining customers, who currently do not use pubs because of tobacco smoke. Our best estimate remains unchanged, that the year one impact will be to reduce the trend rate of sales growth, with a strong acceleration thereafter.

We have already moved over 200 of our pub restaurants in England and Wales to non-smoking, with a less than 1% impact on their rate of sales growth compared to those that still allow smoking, even though customers can still go to other pubs where smoking is currently permitted.


Overall trading conditions in the casual dining market remain strong, in line with the established long-term trends. The Mitchells & Butlers estate and operating formats have been repositioned over the last decade to capture a leading share of that growth.

Our integrated food and drinks offers, in an informal pub environment, are key to both the customer appeal of our formats and our high operating margins. While the traditional on-trade beer market continues to decline, the range and value of our drinks offers alongside high quality casual dining is enabling us to generate significant market share gains.

Consumer demand has clearly been better than expectations during 2006, although it is difficult to be sure if it will continue at this rate, given the levels of household debt. We continue to expect regulatory and energy cost increases of around £14m in the current year.

The potential application of Real Estate Investment Trusts (REITs) as tax efficient structures for property assets from January 2007 is being closely examined. Capturing freehold property appreciation is an integral part of Mitchells & Butlers' strategy due to the direct relationship between the operating cashflows of a pub and its property value. This is currently ensured through common ownership of the pub asset and the control of its operation. The Board is investigating the challenges of realising the potential tax advantages of a REIT, whilst preserving sufficient incentive for the operating company. It is important that it should continue to deliver and gain from the long term capital appreciation arising from the increasing cashflows generated by its operating and investment strategy.

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 returns from investment in the estate and the conversion of the Acquired Sites, the Board remains confident in the future growth prospects of the Company.

There will be a presentation for analysts and investors at 9.30am at the JPMorgan Cazenove auditorium, 20 Moorgate, EC2. A live webcast of the presentation will be available at

Presentation to investors – webcast

Listen to the presentation in Real player format
Listen to the presentation in Windows media format

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