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Interim Results 2009

(For the 28 weeks ended 11 April 2009)


  • 1Loss before tax after exceptional items and IAS 39 movements was £(16)m, HY2008: £(121)m
  • * EBITDA, operating profit and profit before tax are all stated before exceptional items and IAS 39 movements
  • ** Adjusted earnings per share is stated as profit after tax before exceptional items and IAS 39 movements, divided by the weighted average ordinary shares in issue
  • *** Basic loss per share is stated after deducting exceptional items after tax of £2m, HY2008 £(135)m; and IAS 39 movements after tax of £(40m), HY2008 £(12m)
Revenue 1,024 995 2.9%
EBITDA* 209 241 (13.3)%
Operating Profit* 139 168 (17.3)%
Profit before tax1* 44 84 (47.6)%
Adjusted earnings per share ** 7.9p 14.9p (47.0)%
Basic loss per share *** (1.5)p (21.6)p n/a
Dividends - 4.55p n/a


  • Long term swap liability settled: £69m net cash outflow; FY10 profits enhanced by £5m
  • Tim Clarke resigns; Adam Fowle steps up as acting Chief Executive
  • Robust trend of like-for-like sales up 1.5% in last 16 weeks
  • Increased market share gains: like-for-like beer volume outperformance of 8% points
  • Like-for-like food sales up 2.5% against weak eating out market
  • Over 30% sales uplifts on 44 recently acquired Whitbread sites
  • Half year operating profits down 17.3% reflecting £43m of regulatory and inflationary cost pressures
  • Significant cash inflows: net debt down nearly £300m in 15 months to half year

Commenting on the results, Drummond Hall, Chairman said:

"The Board has decided to close the residual element of the swap, most of which was dealt with in January 2008. A new facility has been negotiated to provide additional headroom and the Company's financial position is sound. In these circumstances, it is with great regret that the Board has accepted the resignation of Tim Clarke. He has been the architect of the Company's success since it was created in 2003 and we are grateful for his outstanding contribution. Adam Fowle, Chief Operating Officer, will step up on an acting basis. Amidst intense recessionary pressures, we have delivered robust sales growth, unprecedented market share gains and substantial cost efficiencies which have helped us to successfully withstand a period of high input cost inflation. Our priorities remain to continue to outperform and to generate cash."

Current Trading

Recent trading over the past 16 weeks to 16 May, since last reporting at the AGM, has been robust, with like-for-like sales up 1.5%. The cumulative like-for-like sales growth for the first 33 weeks is 1.2%. Amidst significant declines in the on-trade drinks and eating out markets, our focus on customer value, service quality and high amenity standards has generated substantial market share gains. The trading patterns have been unusually volatile. February was poor due to the effects of the snow, particularly on our restaurants. March was much improved and April was very strong reflecting a late Easter and warmer weather. The first half of May has been more subdued against strong weather comparables. On an uninvested basis, like-for-like sales have shown an underlying improvement with growth of 0.2% compared to a decline of 0.7% in FY08, with virtually all of the strengthening occurring in the past 16 weeks.

Like-for-like sales Total
33 weeks to 16 May*
Current Trading
16 weeks to 16 May*
Trading up to AGM
17 weeks to 24 Jan
* Includes entire Easter in both periods being compared
Residential 2.0% 2.2% 1.7%
High street 0.3% 0.9% (0.3)%
Total 1.2% 1.5% 1.0%

In the Residential part of the estate, accounting for 77% of our sales, like-for-like sales were up 2.0% in the first 33 weeks of the year. There were strong performances in Local pubs from Ember Inns, Sizzling Pub Co. and the Metro-professionals format. Pub Restaurants were resilient with a particularly strong performance from Crown Carveries, with its £3.50 meal price. Harvester has had a significant turnaround as a result of initiatives such as marketing the £4.99 Earlybird offer throughout the week.

In the High Street estate, accounting for 23% of sales, like-for-like sales were up 0.3% in the 33 weeks. The later evening venues have remained in decline, albeit with a recent improvement in trading, while the Town Pubs have performed well and Central London has continued to be buoyant.

Drink sales have progressively strengthened, with like-for-like sales growth improving to 1.7% against a declining on-trade market where beer volumes have fallen 8% in the six months to March 2009. In the last 16 weeks like-for-like drinks sales have grown by 2.2%. VAT exclusive drinks prices have increased by 2.9% in the period which includes the impact of the changes at the time of the VAT decrease in December that offset the step up in duty payable.

Like-for-like food sales growth of 2.5% and overall food sales growth of 7.7% represents a resilient performance. As the eating out market has slowed and consumers have become highly value sensitive, our promotional and marketing activity has been increased. As a result, like-for-like food volumes have grown by 6.3%, while the mix changes arising from faster growth in the value food formats and customers buying lower priced menu items, has led to a 4% fall in the average price of a main meal to £5.79.

In both drinks and food, our like-for-like volume performance represents a further significant acceleration in the rate of market share gains.

Other revenue categories, such as machines, accommodation and bowling, which account for 7% of total sales, have declined by 8.2% in the first 33 weeks, reflecting the pressures on consumer spending in their respective markets. This trend has remained consistent in the last 16 weeks with like-for-like sales falling by 8.5%. We anticipate some moderate improvement in the machines market from the increase in stakes and prizes in the next financial year.

Margins and inflationary cost pressures

The further growth in the food mix to 40% of total managed sales, partly reflecting the swap of lodges for pub restaurants in September 2008, combined with the customer shift to lower priced menu items has contributed to the pressures on gross margins. Moreover, as previously announced, energy and food cost inflation have impacted on our profitability with these costs increasing by £27m in the first half. Significant rises in duty, national minimum wage and business rates of £16m have also occurred in the period although these have been partly offset by a benefit from the VAT decrease of around £8m in respect of drinks sales in December 2008 which was higher than the associated duty increase of £4m. To mitigate these increasing costs we have implemented an efficiency plan which is on track to deliver £20m of savings during the year. These savings are mainly in the areas of staff productivity, purchasing and menu management but also include a salary cap of 2% for the purposes of the defined benefit pension scheme which will assist in mitigating future pension liabilities. The overall impact of these factors has been to reduce gross margin in the first half by 2.0% and net operating margins by 3.3% points.

Recently acquired sites

All 44 sites acquired in the lodges for pubs swap deal with Whitbread in September 2008 have already been converted to Mitchells & Butlers' brands and formats. Sales uplifts of over 30% are being achieved above the sales levels acquired, demonstrating the impact of our brand portfolio and operating skills on these excellent pub restaurant sites. The combination of these uplifts with operational efficiencies and productivity gains are expected to deliver sizeable increases in profitability over the next year.

Cash flow and swap settlement

The business continues to generate significant cash inflows that are currently being targeted at debt reduction. Net debt at the half year was £2,636m, around £100m lower than at the year end and a reduction of nearly £300m in the 15 months since the joint venture property swaps were closed out in February 2008. Drawings on the £550m unsecured medium term facility were £411m at the half year, £103m lower than at the year end.

During the first half there were £53m of disposals and a net tax receipt of £21m from the finalisation of previous tax periods and utilisation of tax losses. We will continue to take advantage in the second half of the year of a modest level of disposal opportunities where appropriate value can be achieved. Further cash flow benefits are also being sought through improving supplier terms, which could benefit working capital by up to £25m, supported by an agreement with Abbey.

Since the half year end the long term interest rate swap held against the medium term borrowings has been settled at a net cash cost of £69m post tax. Long term debt in line with the 28 year swap is not now commercially available and with a swap termination clause in 2010 it is therefore appropriate to settle this liability using a medium term loan agreement with an initial value of £75m. This transaction will give rise to an enhancement to profit of £5m in FY10 as interest rates on the facility are based on short term rates, which are currently below 2%, as opposed to the previous 5.5% fixed by the swap. As reflected in the financial statements, the swap had a pre-tax mark to market loss at 27 September 2008 of £40m which had subsequently increased to £95m as at 11 April 2009 due to lower long term interest rates.

The additional loan agreement together with our existing unsecured medium term facility will form a single facility and have a borrowings profile in line with the cash generation of the business, as follows:

  Start date Previous limit Change New limit
FY09 Current £550m - £550m
Note: the facility matures in November 2011
FY10 December 2009 £400m +£75m £475m
FY10 June 2010 £350m +£75m £425m
FY11 December 2010 £300m +£38m £338m

Following the settlement of the swap, the drawings on our unsecured facility are now £451m, well inside the current available limit of £550m and already below the limit until May 2010 of £475m. Given our expectations of continued strong operating cash flows we anticipate that drawings will be comfortably inside the remaining limits as the facility amortises. Although the settlement of the swap will increase net debt in the short term, second half cash inflows are expected to fully offset this resulting in a further decrease in net debt by the year end. Overall, these strong inflows, together with £700m of unsecured pub assets, underpin our borrowings outside the securitisation.

Board Changes

In the light of the crystallisation of the swap loss, Tim Clarke has tendered his resignation, which has been accepted. He will leave Mitchells & Butlers by mutual agreement. Adam Fowle, currently Chief Operating Officer will become acting Chief Executive as the company carries out a thorough process to review the best candidate for the Chief Executive role.


The outlook for consumer spending looks set to remain weak for the rest of 2009. In our markets, we have recently been seeing some signs of slowing in the previous rates of decline. However, customers remain cautious and value sensitive and any recovery prospects from improved levels of disposable income appear to be being offset by rising levels of unemployment.

The severe input cost increases that have had to be absorbed in the first half are now lessening. Energy costs are anticipated to be £5 million lower in the second half compared with last year, while inflation in our food costs is expected to fall to around 3%. These factors combined with the recent improvement in trading performance should reduce the level of pressure on second half net operating margins.

Recent trading patterns have been volatile. However, we expect the consumer appeal of our brands and formats; continued strong market share gains from our value and volume strategy; and the benefits of a high quality estate to support a resilient trading performance for the remainder of the year. As a result, the outlook for the full year remains in line with the Board's expectations.

There will be a presentation for analysts and investors at 9.30am at the Merrill Lynch Auditorium, 100 Newgate St, London EC1A 1H. A live webcast of the presentation will be available at www.mbplc.com. The conference will also be accessible by phone by dialling in 0844 493 6774 or from outside the UK +44(0) 1452 569 103, quote conference ID 97975153, the replay will be available until 03/06/09 on 0845 245 5205 or from outside the UK +44(0) 1452 55 00 00 replay access number 97975153#.

All disclosed documents relating to these Results are available on the Company's website at www.mbplc.com .

For further information, please contact:

Investor Relations:


Erik Castenskiold

0121 498 6513




Alastair Scott

0121 498 6004

James Murgatroyd (Finsbury Group)

0207 251 3801


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 almost four 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, Crown Carveries, 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.
  • Like-for-like sales growth includes the sales performance against the comparable period in the prior year of all managed pubs that were trading in the two periods being compared. For the 33 weeks to 11 April 92% of the estate is included in this measure.
  • Uninvested like-for-like sales include the sales performance for the comparable period in the prior year of those managed pubs that have not received expansionary investment of more than £30,000 in the two periods being compared. For the 33 weeks to 11 April 86% of the estate is included in this measure.

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