MITCHELLS & BUTLERS PLC
LEI no: 213800JHYNDNB1NS2W10
19 May 2021
HALF YEAR RESULTS
(For the 28 weeks ended 10 April 2021)
|Strengthened balance sheet through successful £351m equity raise and refinanced debt arrangements|
|-||Confident of emerging in a position of strength as restrictions are eased|
|-||Almost all sites now open, trading indoors and outdoors|
|-||First half again dominated by Covid-19, with only 14 weeks of restricted trading permitted|
|-||Like-for-like salesa restricted to a decline of 30.1% against pre Covid-19 levels|
|-||Adjusted operating (loss)/profita £(124)m (HY 2020 £108m)|
|-||Adjusted (loss)/earnings per sharea (31.8)p (HY 2020 6.5p as restated)|
Balance sheet and cash flow
|-||Unsecured committed financing facilities of £150m to February 2024|
|-||Extended covenant waivers and then amendments in place for the securitisation until January 2023|
|-||Cash outflow of £(16)m (HY 2020 inflow £58m), including gross equity proceeds of £351m|
|-||Net debt of £2,014m (HY 2020 £2,158m), including £542m of IFRS 16 lease liabilities (HY 2020 £543m)|
Phil Urban, Chief Executive, commented:
"M&B was a high performing business coming into the pandemic. With the support of our main stakeholders, we are now well placed to emerge in a strong competitive position and look forward to the removal of remaining trading restrictions in June such that the business is able to return again to full and sustainable profitability.
With our great estate, well diversified portfolio of brands and proven management team, we look forward to welcoming back our guests for great experiences in Covid-19 secure environments and focusing the business once again on continually enhancing our customer proposition while driving efficiencies through the Ignite programme."
a - The Directors use a number of alternative performance measures (APMs) that are considered critical to aid the understanding of the Group's performance. APMs are explained later in this announcement.
There will be a conference call held today at 9:15am accessible by phone on 0203 936 2999, access code: 327499 and www.incommuk.com/customers/online access code: 327499. The slides will also be available on the website at www.mbplc.com. The replay will be available until 2 June 2021 on 0203 936 3001, access code: 686064.
All disclosed documents relating to these results are available on the Group's website at www.mbplc.com
For further information, please contact:
|Tim Jones - Chief Financial Officer||+44(0)121 498 6112|
|Gabby Shilvock - Investor Relations||+44(0)121 498 6514|
|James Murgatroyd (Finsbury)||+44(0)20 7251 3801|
Note for editors:
Mitchells & Butlers is a leading operator of managed restaurants and pubs. Its portfolio of brands and formats includes Harvester, Toby Carvery, All Bar One, Miller & Carter, Premium Country Pubs, Sizzling Pubs, Stonehouse, Vintage Inns, Browns, Castle, Nicholson's, O'Neill's and Ember Inns. In addition, it operates Innkeeper's Collection hotels in the UK and Alex restaurants and bars in Germany. Further details are available at www.mbplc.com and supporting photography can be downloaded at www.mbplc.com/imagelibrary.
CURRENT TRADING AND OUTLOOK
We successfully launched our Open Offer on 22 February, raising £351m. The equity raise, plus the associated package of refinanced terms for our secured and unsecured debt, provides a strong platform of financial stability as we continue to manage our way through the remaining uncertainty presented by the Covid-19 pandemic.
At the balance sheet date the Group had cash balances on hand of £141m, with undrawn unsecured facilities of £150m. Subsequently, we have had five weeks of limited outdoor trading from 12 April. We started this period with 16% of our estate open, building to 44% as restrictions eased in Scotland and Wales, and based on the strong levels of bookings and demand we have seen open sites generating a level of outdoor sales that were 37% down on their total sales (outdoor plus indoor) pre Covid-19. As restrictions have eased further, we have this week re-opened almost all of our estate, now permitted to trade both indoors and outdoors.
Whilst uncertainty and challenges still remain, we are encouraged by the successful roll out of the Covid-19 vaccination programme and the fall in infection rates and are confident, given the demand that we have seen so far since re-openings, that we will see strong consumer confidence in our brands supporting a rebound to profitability and cash generation once restrictions are fully eased. Until that time, we continue to believe it is not meaningful to provide any forward guidance.
The first half of the financial year continued to be dominated by the effects of Covid-19 with increased trading restrictions, including the introduction of regional tiers, resulting in reduced guest visits in the lead up to the second 4-week lockdown in England on 5 November.
Trading recommenced on 2 December, but with even tighter restrictions within the regional tiers, including tier 3 areas remaining closed. Throughout December, with the introduction of tier 4 as the new variant was discovered, restrictions became progressively tighter still resulting in further site closures and significantly reduced sales activity over the important festive trading season followed by closure of the estate for the third time from 30 December, ahead of the imposition of the wider national lockdown on 4 January.
Total sales in the first half of the year were £219m, a decline of 78.9% reflecting these restrictions on trade.
As a result, the Group's liquidity position deteriorated significantly over the first quarter. On 15 February we announced our intention to undertake an Open Offer to raise additional equity. In parallel with this process, we reached agreement with our relationship banks for a new £150m 3-year unsecured facility and extended the temporary waivers and amendments in place over the securitisation to avoid technical breaches that would have been incurred due to forced closure, both of which were conditional on completion of the Open Offer. The formation of Odyzean was also announced, representing the combined shareholding of Piedmont, Elpida and Smoothfield, showing their support for the Company through this critical period by fully supporting the proposed Open Offer.
The Open Offer was launched on 22 February, with the results published on 11 March confirming gross proceeds of £351m to provide funding for short-term working capital needs, reduce the level of unsecured debt and strengthen the balance sheet. As we emerge from restrictions, this will also enable us to restart our estate investment strategy and maintain our strong competitive position, while continuing our focus on long-term deleveraging.
Throughout closure periods we have kept operating costs to a minimum, have reduced discretionary capital expenditure and over 99% of employees have been on furlough. We have continued to work hard to keep all our team members connected and informed through our support portal, launched last financial year, and social media platforms. The welfare and mental health of our team has continued to be a primary concern and we are encouraged by the way our teams have pulled together in this difficult time.
Mitchells & Butlers has continued to play a role in the UK Hospitality forums that helped devise the Hospitality Sector Protocols Document and have lobbied the Government directly to support the sector during closure. We welcomed the Government's extended support through a reduced VAT rate on certain supplies and the business rates holiday, in addition to the security of employment provided by the furlough scheme enabling us to continue to protect the vast majority of our employees.
The Government's announcement on 22 February provided a roadmap for the easing of restrictions and we have successfully traded an average of 535 sites from outdoor areas since 12 April. Performance has been varied and heavily influenced by the weather, with outdoor sales in open sites being on average 37% down on full pre Covid-19 levels (outdoor and indoor). Encouragingly our average guest review scores since reopening were 4.4 out of 5, despite the restricted trading conditions. The CGA Consumer Pulse survey has shown 44% of adults visited hospitality venues in the first week of trading, 9% points higher than reopening after England's first national lockdown. This indicates that consumer demand for hospitality remains strong and provided us with optimism ahead of our reopening for indoor trading on 17 May, with almost all of our estate now open.
Covid-19 secure procedures including directional and spacing signage, sanitising stations, disposable menus and table spacing have previously been adopted by our teams, whilst still providing a hospitable feel and great experiences for our guests. We have the experience and confidence to support these measures going forward, alongside the application of test and trace guidance. Over this period consumer trends such as home delivery have been accelerated and digital technology that we were already implementing has been increasingly important. Order at table, now successfully rolled out across the majority of our estate, has been particularly popular with our pub brands where we have seen sales mix build to over 60%.
The unprecedented challenges the industry has faced have had a damaging impact on market supply with a 7% decline in licensed premises, according to the May AlixPartners CGA Market Recovery Monitor. We believe that the platform of financial stability provided through the equity raise will leave us well placed to benefit from these changes in the competitive landscape.
OUR STRATEGIC PRIORITIES
Despite the impacts of Covid-19, the fundamental strengths of our business remain. We have an 82% freehold estate, with recognised and diversified brands across consumer demographics and geographical locations, and an experienced and proven management team with the focus to build on the momentum previously gained before the pandemic. In the short to medium term, our priority will be on successfully trading the business in the current challenging environment, ensuring the safety of our team members and guests, and on growing the business back to, and beyond, the levels of trade that we were enjoying before Covid-19.
Our Ignite programme of work remains at the core of our long-term value creation plans and we had refreshed the initiatives and opportunities available to us in early 2020. Our immediate focus will be on the successful rebuilding of trade following the extended periods of closure and we will be prioritising initiatives that support this, such as sales driving actions and the resumption of capital investment in our estate to maintain competitiveness. We remain confident in our ability to deliver long term and sustained efficiencies and business improvements through the existing Ignite programme and will be working to refine and roll out new measures.
Principal risks and uncertainties
Since the financial year end, there have been no material changes to the principal risks previously disclosed (detailed in the Annual Report and Accounts 2020 page 32). However, in experiencing enforced Government closures, which have impacted the business due to Covid-19, we have identified a new risk in relation to 'Mandated Closures'. This new risk has been added to the Group's risk register, given the rare risk that the business could again be severely impacted by an enforced Government closure (or imposed severe trading restrictions), of part or all of the estate. The frequency and nature of these risks are unpredictable and the impact could be substantial for the Group, as evidenced during the Covid-19 pandemic. We continue to monitor and assess all key risks and uncertainties facing the business, in addition to any new and emerging risks.
The Group has prepared for Brexit and does not expect material supply shortages or cost increases. However, having been closed since the date Brexit became effective, the full impact will become more apparent as we begin to reopen for trade.
On a statutory basis, loss before tax for the half year was £200m (HY 2020 loss £121m), on sales of £219m (HY 2020 £1,039m).
The Group Income Statement discloses adjusted profit and earnings per share information that excludes separately disclosed items to allow a better understanding of the trading of the Group. Separately disclosed items are those which are separately identified by virtue of their size or incidence.
|HY 2021||HY 2020||HY 2021||HY 2020|
|(Loss)/profit before tax||(200)||(121)||(192)||38|
|1 (Loss)/earnings per share for the comparative periods have been restated to reflect the bonus element of the Open Offer share issue completed on 12 March 2021.|
At the end of the period, the total estate comprised 1,735 sites in the UK and Germany of which 1,649 are directly managed.
Total revenue of £219m (HY 2020 £1,039m) was 78.9% lower than last year due to restrictions on trading.
During the first 14 weeks of the period some level of restricted trading was possible for parts of the estate. During this period like-for-like salesa (for those sites open) were 30.1 below prior year levels with food salesa down by 20.7% and drink salesa down by 40.3%.
At the end of December, the estate entered a mandated closure for the third time, with the full national lockdown subsequently enforced from 4 January. No further sales were therefore recorded.
Separately disclosed items
Separately disclosed items are identified due to their nature or materiality to help the reader form a better view of overall and adjusted trading.
A charge of £5m was recognised in relation to stock write offs as a result of Covid-19 mandated closure and a £3m past service cost in relation to guaranteed minimum pensions (GMPs) equalisation for the defined benefit pension schemes.
The significant impact of Covid-19 closures and restrictions resulted in an adjusted operating lossa of £124m (HY 2020 adjusted profit £108m). Throughout the closure periods operating costs have been kept to a minimum and over 99% of employees have been on furlough, amounting to £175m of Government support for employees through furlough grants during the period. Support to the Group itself has continued in the form of a holiday from business rates, which is worth £51m across the half year, and a reduction in the rate of VAT to 5% on non-alcoholic sales.
Statutory operating margin of (60.3)% was 55.4ppts lower than last year, impacted by the significant closures and other trading restrictions. Adjusted operating margina for the half year was 67.0ppts lower than last year at (56.6)%.
Net finance costs of £67m for the half year were £1m lower than last year. The net pensions finance charge was £1m (HY 2020 £2m). The charge for the full year is expected to be £3m.
The Group notes the requirement to transition the basis of future rates of interest on securitised bonds, the liquidity facility and swaps away from LIBOR ahead of the cessation of publication of that index. This transition is being reviewed with a view to seeking agreement with relevant stakeholders by the end of the year.
Earnings per share
Basic loss per share, after the separately disclosed items described above, were (33.0)p (HY 2020 (22.6)p), adjusted (loss)/earnings per sharea were (31.8)p (HY 2020 6.5p). (Loss)/earnings per share for comparative periods have been restated to reflect the bonus element of the Open Offer share issue (see note 8).
The basic weighted average number of shares in the period was 500m and the total number of shares issued at the balance sheet date was 596m, following the equity raise and subsequent issue of an additional 167m shares.
|HY 2021||HY 2020|
|EBITDA before movements in the valuation of the property portfolio||(57)||182|
|Non-cash share-based payment and pension costs and other||6||2|
|Operating cash flow before adjusted items, movements in working capital and additional pension contributions||(51)||184|
|Working capital movement||(85)||(34)|
|Pension deficit contributions||(13)||(25)|
|Cash flow from operations||(149)||125|
|Net finance lease principal payments||(18)||(12)|
|Interest on lease liabilities||(9)||(6)|
|Net interest paid||(53)||(55)|
|Issue of shares||342||2|
|Drawings under liquidity facility||49||-|
|(Repayment) of term loan||(100)||-|
|(Repayment)/drawdown of revolving credit facilities||(10)||150|
|Net cash flow before bond amortisation||35||103|
|Mandatory bond amortisation||(51)||(45)|
|Net cash flow before dividends||(16)||58|
The business generated a loss of £57m of EBITDA before movements in the valuation of the property portfolio.
The working capital movement reflects significant periods of closure with continued supplier, landlord and HMRC commitments due. £28m of the movement is due to an increase in the Coronavirus Job Retention Scheme receivable.
Share issue proceeds reflect the equity raise of £351m less £9m transaction fees.
Capital expenditure of £16m (HY 2020 £82m) comprises £15m from the purchase of property, plant and equipment and £1m in relation to the purchase of intangible assets. Capital expenditure was significantly below historic levels as part of the cash management strategy in response to Covid-19. Of the £15m spend, £7m relates to essential maintenance and infrastructure, with the balance being the completion of committed acquisitions and outstanding remodels.
As all sites have continued to be impacted by restrictions and closures, we do not believe it will be possible to calculate a current and meaningful return on previous investment.
The Group continues to make pension deficit payments as agreed as part of the triennial pensions valuation with the schemes' Trustees at 31 March 2019, which showed an actuarial deficit of £293m. It was agreed that the deficit would continue to be funded by cash contributions of £49m per annum indexed with RPI from 2016 to 2023.
During the last financial year, the Group agreed with the Trustees that the contributions into the Mitchells & Butlers Pension Plan and the Mitchells & Butlers Executive Pension Plan would be suspended in respect of the monthly contributions for the six months to September 2020 and those contributions have been added onto the end of the agreed recovery plan so that those contributions will be payable in 2023. During the current period an additional agreement was reached with the trustee to delay monthly contributions from January to March 2021, inclusive, with these now being paid, albeit after the interim date.
In 2024 an additional payment of £13m will be made into escrow, should such further funding be required at that time.
The court hearing in relation to the rate of inflation to be applied to pensions increases for certain sections of the membership in excess of the guaranteed minimum pensions is expected to start during Summer 2021.
Net debt and facilities
Following the adoption of IFRS16 in the prior period, leases are now included in net debt. Net debt at the period end was £1,472m, excluding lease liabilities of £542m (HY 2020 £1,615m excluding lease liabilities of £543m).
On 14 February, the Group reached agreement with its three relationship banks for a new £150 million 3-year unsecured facility. In addition, extended waivers and then amendments until January 2023 were agreed within the Group securitisation to provide flexibility and stability to manage the secured financing structure. Without these extensions certain breaches would have resulted due to the ongoing impact of Covid-19 and the measures taken to stem the spread of the virus. Both the unsecured and secured financing agreements were conditional on completion of the Open Offer. In addition, on completion of the Open Offer the full £100m of the CLBILS term loans was repaid. The details of these arrangements and an analysis of net debt can be found in note 11 to the financial statements.
In securing these valuable amendments the Group has agreed not to pay an external dividend, undertake any share buy-backs or repurchase bond debt until January 2023 at the earliest.
Further details can be found at https://www.mbplc.com/infocentre/debtinformation/.
Director's responsibility statement
We confirm that to the best of our knowledge:
|-||The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as required by DTR 4.2.4R and to the best of their knowledge gives a true and fair view of the information required by DTR 4.2.4R;|
|-||The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first 28 weeks and description of principal risks and uncertainties for the remaining 24 weeks of the year); and|
This responsibility statement was approved by the Board of Directors on 18 May 2021 and is signed on its behalf by:
Chief Financial Officer
18 May 2021
a - The Directors use a number of alternative performance measures (APMs) that are considered critical to aid the understanding of the Group's performance. Key measures are explained later in this announcement.
GROUP CONDENSED INCOME STATEMENT
for the 28 weeks ended 10 April 2021
|Operating costs before depreciation, amortisation and movements in the valuation of the property portfolio||(268)||(276)||(846)||(857)||(1,221)||(1,219)|
|Share in associates results||-||-||-||-||(1)||(1)|
|EBITDAb before movements in the valuation of the property portfolio||(49)||(57)||193||182||253||255|
|Depreciation, amortisation and movements in the valuation of the property portfolio||(75)||(75)||(85)||(233)||(154)||(247)|
|Net pensions finance charge||(1)||(1)||(2)||(2)||(4)||(4)|
|(Loss)/profit before tax||(192)||(200)||38||(121)||(32)||(123)|
|(Loss)/profit for the period||(159)||(165)||31||(107)||(27)||(112)|
|(Loss)/earnings per ordinary share (restated)c:|
|a||Separately disclosed items are explained and analysed in note 4.|
|b||Earnings/(loss) before interest, tax, depreciation, amortisation and movements in the valuation of the property portfolio.|
|c||(Loss)/earnings per share for the comparative periods have been restated to reflect the bonus element of the Open Offer share issue completed on 12 March 2021.|
All results relate to continuing operations.
GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME/(EXPENSE)
for the 28 weeks ended 10 April 2021
|28 weeks||28 weeks||52 weeks|
|Loss for the period||(165)||(107)||(112)|
|Items that will not be reclassified subsequently to profit or loss:|
|Unrealised loss on revaluation of the property portfolio||9||-||(392)||(148)|
|Remeasurement of pension liabilities||12||8||5||3|
|Tax (charge)/credit relating to items not reclassified||7||(1)||42||1|
|Items that may be reclassified subsequently to profit or loss:|
|Exchange differences on translation of foreign operations||(1)||-||-|
|Cash flow hedges:|
|- Gains/(losses) arising during the period||31||(13)||(43)|
|- Reclassification adjustments for items included in profit or loss||35||21||48|
|Tax (charge)/credit relating to items that may be reclassified||7||(13)||4||5|
|Other comprehensive income/(expense) after tax||59||(333)||(134)|
|Total comprehensive expense for the period||(106)|