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25/07/2008

Third Quarter Interim Management Statement


Highlights


  • Continuing sales growth: like-for-like sales up 1.1% in the 10 weeks to 19 July
  • Significant market share gains: same outlet food sales up 5.1%; drink declines limited to 0.2% in the 10 weeks to 19 July
  • Productivity gains and cost management continue to help offset input cost increases
  • Strong cash inflows, including £82m from disposals in the year to date
  • Earnings for the year before exceptional items are anticipated to be in line with Board’s expectations

Current Trading

Mitchells & Butlers announces same outlet like-for-like sales growth of 1.1% in the 10 weeks to 19 July reflecting continued strong demand for food in our pubs and pub restaurants and a resilient performance in a declining on-trade drinks market. Same outlet like-for-like sales growth in the first 42 weeks of the year remains at 0.8%.

Market conditions continue to be characterised by robust demand for good value pub food and associated sales of drinks while on-trade beer market volumes have continued to fall by c.10% over the past quarter. With around two thirds of total sales now generated by a food driven visit and beer accounting for only approximately a quarter of sales, the repositioning of the estate and its offers has ensured that Mitchells & Butlers is well placed to benefit from these long term, structural trends.

This strategy, combined with the value of our offers, good amenity standards and consistent service training continue to drive significant market share gains. As a result same outlet like-for-like food sales are up 5.1% while drinks sales declines have been limited to 0.2% in the 10 weeks.

In the Residential estate, which accounts for 76% of total sales, same outlet like-for-like sales were up 2.0% in the 10 weeks, with some particularly powerful performances from our value food formats in Pub & Carvery (average main meal price of £3.96) and Sizzling Pub Co. (average main meal price of £4.94), as well as strong growth in our Vintage Inns and Premium Country Dining formats. Same outlet like-for-like sales in the High Street, accounting for 24% of sales, were down 0.1% reflecting a very challenging market for the later evening venues offset by good growth in both the Central London estate and our High Street pubs in the rest of the UK.

Good progress continues to be made with the Acquired Sites with average sales 20% above the levels prior to acquisition and strong uplifts in operating margins from enhanced productivity. We remain on track to deliver our year three targets by the end of the 2009 financial year.

Cash flow and Financing

Strong operating cash inflows have been generated from this robust trading performance. In addition, a total of £82m disposal proceeds, including £11m from SCPD our property development unit, have been realised in the year to date at high EBITDA multiples. Moreover we remain focused on actively pursuing the creation of additional value from the non-core assets of lodges, Hollywood Bowl and Alex, as outlined in our strategic review. The Company is continuing to explore options including asset swaps, disposals or sector consolidation from these businesses. A combination of operating cash inflows, disposals of "gold bricks" and smaller pubs and opportunities from the non-core assets is expected to lead to further significant reductions in net debt over the coming months.

On the strength of its cash flow projections the Company has refinanced and extended its short term borrowings into a three year unsecured facility to November 2011. As a result of the substantial cash inflow that has been achieved since the end of January and the expected reduction in debt requirements over the next two years, the facility has been set to £600m initially; reducing to £550m from December 2008; £400m from December 2009; and £300m by December 2010. The overall blended interest rate will marginally increase to 6.1% as a result of the new facility and there will continue to be the same level of operational flexibility as under the previous banking facilities. This facility, together with the long term securitised debt, underpins Mitchells & Butlers’ financing requirements and provides an appropriate level of financing headroom as the Company executes its strategic plan over the medium term.

REITs

As part of our commitment to demonstrating the full value of the estate an assessment is being made of our ability to convert to REIT status without breaking the securitisation, through retaining the freehold properties and operating business within the existing Group structure. We are continuing discussions with advisers and HMRC to review the feasibility, costs and benefits of such a transition and we will update as appropriate, should there be further developments on this front.

Outlook

Market conditions are expected to remain challenging amidst weakening consumer spending. Therefore our focus remains on continuing to generate profitable market share gains from the value and volume sales strategy, the strength of the brand portfolio and the quality of the estate. Our leadership position in value for money eating out, serving over 110 million meals a year, is enabling us to benefit from the increasing customer focus on value. This strategy will place us in a resilient position should general economic pressures increase. Strong productivity gains and cost management measures continue to help offset the increasing input cost pressures in the current year. We expect that higher food and energy prices will intensify the cost pressures next year, although, as these prices are very volatile, the precise outlook is still unclear. Earnings for this year, before exceptional items, are anticipated to be in line with the Board’s expectations and we remain confident in our continued competitive out-performance.

For further information, please contact:

Investor Relations:  
Erik Castenskiold 0121 498 6513
   
Media:  
Kathryn Holland 0121 498 4526
James Murgatroyd (Finsbury Group) 0207 251 3801

There will be a conference call for analysts and investors at 9.00am; please dial +44(0) 1452 555 566 and quote conf ID 57355729. The replay will be available until Friday 8 August 2008 on +44(0) 1452 55 00 00, replay access number 57355729#.

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 over three times greater than that of the average UK pub.
  • Mitchells & Butlers’ leading portfolio of brands and formats includes Ember Inns, Harvester, Sizzling Pub Co., Toby Carvery, Vintage Inns, All Bar One, O’Neill’s, Nicholson’s and Browns. In addition, Mitchells & Butlers operates a large number of individual city centre and residential pubs.
  • Same outlet 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. For the 42 weeks to 19 July 92% of the estate is included in this measure.
  • The Acquired Sites are the pub restaurant sites purchased from Whitbread plc in July 2006.

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