RNS Number : 8267U
Mitchells & Butlers PLC
20 May 2008

20 May 2008


MITCHELLS & BUTLERS PLC


INTERIMRESULTS

(For the28 weeks ended 12 April 2008)


FINANCIAL HIGHLIGHTS

HY2008
£m
HY2007
£m
% growth
Revenue
995
995
-
EBITDA*
241
230
4.8
Operating Profit*
168
161
4.3
Profit before tax*
84
89
(5.6)
Adjusted earnings per share **
14.9p
14.8p
0.7
Basic (loss) / earnings per share ***
(21.6)p
17.4p
n/a
Dividends
4.55p
4.25p
7.1
* 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 the IAS 39 movements, divided by the weighted average ordinary shares in issue
*** Exceptional items after tax were £(135)m, HY2007 £11m; IAS 39 movements after tax were £(12m), HY 2007 £nil


BUSINESSHIGHLIGHTS


-
Resilient sales growth with same outlet like-for-like sales up 0.8% for 32 weeks to 10 May 2008
-
Significant market share gains with same outlet food sales up 5.1%, drinks decline limited to 1.5%
-
Productivity and cost efficiency gains drive operating profits up 4.3%
-
Net retail operating margin up by 0.7 percentage points to 16.8% despite £6m of additional regulatory costs
-
Strong cash flow from operations and disposals; net debt to EBITDA ratio of 5.8x
-
Interim dividend up 7.1% to 4.55 pence per share
-
Same outlet like-for-like sales in first four weeks of second half up 3.4%*
* Weeks 29 to 32


STRATEGIC REVIEWHIGHLIGHTS


Comprehensive review of all aspects of the business and options for creating valuefor shareholders. These included:


-
testing the strength and sustainability of the business model;
-
reviewing the opportunity for accelerating the operational out-performance;
-
assessing the options for capturing the full value of the property estate;
-
investigating the prospects for managed pub sector consolidation; and
-
exploring the merits of a strategic investment by private equity.


Based on the review the Board has concluded that thebusiness model is robust and well positioned to lead the eating out market growth and that the current performance of sales, operating profits and cash flow is strong. It has also agreed on the following actions to:


-
accelerate the execution of operational strategy for market out-performance;
-
implement a REIT structure to more fully capture the value of the property estate when market conditions are suitable;
-
provide in future the financial reporting on a proforma OpCo / PropCo structure;
-
continue to realise “Gold Brick” disposal proceeds;
-
actively explore opportunities for managed pub sector consolidation;
-
maintain dialogue with private equity on the funding of potential acquisitions;
-
seek to create additional value from non-core assets;
-
strengthen the Board’s property skills by the appointment of two Non-Executive Directors from R20;
-
form a property sub-committee of the Board; and
-
maintain the appropriate balance of Independent Non-Executive Directors on the Board pursuant to the requirements of the Combined Code.


As previously announced, followingRoger Carr's intention to retire as Chairman,Drummond Hall, currently Deputy Chairman,will become Chairmanon20 June.


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


"The comprehensive strategic review has explored all options for creating value. The conclusions reaffirm our commitment to capturing the value of the property for shareholders. We will also focus on accelerating our trading out-performance and pursuing consolidation in managed pubs."


"Strong food sales growth,sizabledrinks market share gains and further productivity improvements have delivered these resilient trading results. The second half has startedwell."


Dividends


In line with our commitment to a progressive policy for dividends, an interim dividend of 4.55p, an increase of7.1%, will be paid on 27 June 2008 to shareholders on the register on 30 May 2008.


TradingPerformance


Against the background of challenging economic conditions, Mitchells & Butlers has performed well with same outlet food sales up 5.1% and significant gains in drinks marketshare. Revenuein the32weeks to10Mayhasbeen resilientwith same outlet like-for-like salesup0.8%.This sales growth has been generated against thebackground ofthefirst winter period of the smoking ban inEnglandandWalesanda continuing volumedecline in theon-trade beer market of approximately9%,as well asweakeningconsumerconfidence.These results havealso been impacted by the very poor weather over this Easter compared withthe similarperiodlast year which we estimatehasreduced same outlet like-for-like sales by 0.4 percentage points.


In the Residential estate same outlet like-for-like sales were up 0.8%in the 32 weeks.Our Pub Restaurant brands performedparticularlywell with accelerating same outlet like-for-like salesup 3.3% in the second quarter, and a 2.0% growth for the period as a whole. Vintage Innshas had a sustainedimprovementas a result of ourmargin reinvestment programmesincethe new menus were launched lastautumn. Our carvery offers,TobyCarveryand Pub&Carvery,continue to see excellent growth. InourResidential Pubs,we have taken advantage of the opportunities to attract new customers to our pubs in the post smoking ban environment, increasing food sales by 15%. This,coupled with our drinks market share gains,has enabled us to holdResidential Pubssame outletlike-for-like declines to0.6% against the severeon-tradebeermarket pressures.


The performance of ourHigh Streetestate, which accounts for 24% of sales,reflectsthediffering trends withinthe three market segments inwhichweoperate.Our Central London pubsand restaurantsshowedstrong growth; our High Street pubs in the rest of theUKperformedwell driven bystrongfood sales growthwhilethere was significant pressure onourcircuitvenues.Overall, same outletlike-for-likesales for ourHighStreet businesses wereup0.3% in the 32 weeks.


Trading in our Scottish estate in the second year of the smoking bancontinuesto beveryencouragingwith same outletlike-for-likesales up 3.4% inthe32 weeks with food particularly strong,up 7.2% and a positive drinks performance,up2.0%.These results reinforce our belief thatthe overall impact of the ban will be beneficial over time to larger, well invested pubs with an attractive food offer.


This good trading performance has generated strong operational cash inflows. Wearealsomanagingthe asset basetotake advantage of the strength in the property market for our quality of assets with disposals of £54m in the first halfon EBITDA multiples of approximately 18 times. Thispositive performance has continued into the second half with £20m of disposals completed, or with contracts unconditionally exchanged, including the sale ofa development propertywithin SCPD realising proceeds of £11m and a profit of £9m.At the end of the first half,net debt hadreduced by around £100m since the closure of the swaps in January and the ratio of net debt to EBITDAwas5.8 times, only a marginal increase from the level a year ago of 5.6 times.


Progress on the Acquired Sites


TheAcquired Sitesconversionprogramme has been completed with 204 sites converted or on site to convert to our brands and formats. 24 of the other sites have been identified for disposal (of which 19 have been completed to date) with the remainder transferred to franchise. Average weekly sales uplifts on the converted sites are running at approximately 19% above the levels at which the pubs were acquired and weare starting to see a good build up of post conversionprofits. Productivity levels have been strongly enhanced, with the employment cost ratio falling from 32%to 27%. We remain confidentofdelivering our year three target of 30% sales uplifts by the end of the 2009 financial year.


Current Trading


Recenttrading in thefirstfourweeks of thesecond halfof the financial year(weeks 29-32)has started well with same outlet like-for-like sales up 3.4%. This short period has encompassed both some poor and strong weather comparatives and it would be premature to draw any conclusions for general market trends. We have seen agoodcustomer response to the launch of our new summer menus, while our drinks market share gains have further acceleratedpartlyas a result ofrestrained priceincreases following the Budget duty uplifts.


Strategic Review


The Board has carried out a comprehensive strategic review to consider all options for creating value for shareholders.


In the past three months, all aspects of the business have been reviewed to test the strength and sustainability of the operating model; the options for more fully capturing the value of the property estate; the prospects for managed pub sector consolidation and the opportunities for improved business focus and accelerated operational out-performance. In the process we also explored the merits of detailed proposals from a number of private equity firms to take a strategic investment in the company to assist in the acceleration ofourexpansionplans. The process has been exhaustive in pursuit of value creation, with no opportunity ignored.


The conclusions have thefull support of all our advisers, Citigroup and JP Morgan Cazenove, as well as Greenhill, who were appointed as an independent advisor tothe strategic review process.


StrategicReview Conclusions


The Board's conclusions are as follows:


The business model is robust, sustainable and competitively powerful. Current performance is strong in sales, operating profits and cash flow. This reflects the quality of the company's estate, its eating out market leadership, the strength of its brands and formats, its operating capabilities and scale efficiencies. When combined with the future potential for unlocking more fully the value of the property estate, these strengths underpin the prospects for long term growth and shareholder value creation.


As a result, the Board is clear that our future strategy should focus on the following key elementsof value creation for the benefit of shareholders:


-
implementation of an operational strategy for accelerated out-performance through extending our eating out market leadership and drinks market share gains;
-
pursue the implementation of a REIT or other appropriate OpCo/PropCo structure when financial market conditions permit and subject to regulatory clearances.We remain committed to ensuring that the value of both the property and the operating business are more fully captured for shareholders;
-
actively explore opportunities for managed pub sector consolidation in line with our strategy of creating value by raising Acquired Sites’ average sales and profits to the levels generated in the MAB estate.We intend to maintain our dialogue with private equity firms, should an attractive acquisition arise, which may require additional funding; and
-
explore options to create additional value from the non-core assets including Lodges, Hollywood Bowl and Alex.


As previously announced, followingRoger Carr's intention to retire as Chairman, Drummond Hall, currently Deputy Chairman, will become Chairman. This will take effecton20 June.


In addition, we are pleased to announce thatthe property skills of the Board will be strengthened by the appointment ofTim Smalley and Aaron Brown,fromR20 as Non-Executive Directorson 20June. This will build upon the relationship established during the joint venture developed in 2007. They willalso become members of a property sub-committee of the Board. It is intended that these directors would transfer to the REIT when the separation is effected.


TheBoard has agreed with R20 that in order to maintain twoNon-ExecutiveDirectorson the Board,R20should havean economic interest of more than 25% in Mitchells & Butlers. In the event that R20's interest falls below 25% but is more that 15%, the Board has agreed that R20 would have oneNon-ExecutiveDirectoron the Board.


If a corporate transaction occurred,which involved the issue of equity such that R20's position was automatically diluted,then the Board has agreed that R20's ownership threshold would reduceproportionately, but in no circumstances would the threshold fall below20% fortwoBoard seats and 10% foroneBoard seat.


An appropriatebalance ofindependent Non-Executive Directors onthe Boardwill be maintainedpursuant to the requirements ofthe Combined Code.



Strategy for operational out-performance


Ouroperating strategy and competitive strengths are delivering strong food growth, substantial drinks market share gains and rapid productivity improvements.Our results announced todayrepresent a material trading out-performance against a pub sector facing the most challenging conditions for many years. This robust performance over the first winter of the smoking ban has reinforced our confidence in future prospects, despite the deteriorating outlook for consumer spending.


Anindependent study carried outby LEK Consultingfor the Board, to test the assumptions inour long termbusiness plan, hasvalidatedand supported the resilient prospects for growth. Our focus will be on intensifying the value and volume sales strategy to attract new customers to our pubs. We expect this to continue to drive market share gains in a market where the consumer is becoming increasingly sensitive to value. We also continue to expect to benefit from the post-smoking ban environment which has widened the consumer appeal of food-led pubs.


We will also look to grow the distribution of our market leading pub food formats through both conversion of existing sites and new build acquisitions. We expect the current slow down in the property market to generate more new site opportunities.


Our widening operational out-performance is set to provide strong opportunities for increased market share gains through the current challenging trading conditions.


Strategy for capturing full value of property estate


The Board believes that a REIT or other appropriate OpCo/PropCo structurewould more fully capture the value of the company's high quality property estate for shareholders than the current integrated model. We believe a dedicated property company with stable and growing rental streams and a strong dividend payoutwould enable greater transparency in the valuation of the estate. The tax advantages of a REIT wouldalsobe a source of significant value. Furthermore, with an appropriate starting level of rents and a long term lease structure, we also believe the strength of the brands and formats, the quality of the sites and the operating capabilities of the company would ensure a robustoperating company business model, with attractive equity growth prospects.


Conditions in the financial markets currently preclude the implementation of such a structure for the group, largely related to the costs and lack of funding availability for the necessary debt restructuring requirements.Regulatory clearances would also be required. However, the Board will continue to actively monitor and pursue future opportunities for implementing such a structure to capture value for shareholders. In the meantime, in the interests of providing full and transparent information to investors, we will report more explicitly the results of the component parts of the operating and property elements within the integrated business.


We will also continue to proactively demonstrate the inherent value of the estate through individual site and smaller package transactions on "gold brick" properties. These will be pursued where high values can be realised on EBITDA multiples significantly above the current multiple on which the company is valued. For instance, in the first half £54m was raised from property sales on an EBITDA multiple of 18 times.


Despite the considerable uncertainties over the property market, we still continue to experience resilient conditions for individual, high quality assets. As a result, subject to those conditions being maintained, we anticipate that property disposal proceeds in the second half will continue to be achieved at a similar run rate.


Managed pub consolidation


We believe significant value can be created through the consolidation of the managed pubs sector by raising the sales and profitability of other estates to the substantially higher levels that are generated in the Mitchells & Butlers' estate. This would be delivered through conversions to our brands and formats, applying our value and volume sales strategy,enhancing service and productivity levels, and reducing purchasing and overhead costs. The company has a strong track record of adding value through this route over the past decade, with the acquisitions of the Harvester, ex-Allied and ex-Whitbread sites. In the case of the ex-Allied sites, average weekly sales have been raised byc.80% since 2000and in the 18 months since the acquisition of the ex-Whitbread sites, average weekly sales have already been raised by 19% and we are confident of achieving our 30% uplift targetsby the end of the 2008/09 year. Should further such managed pub acquisition opportunities arise, we would seek to pursue them on value creative terms.


Non-core assets


There are a number of non-core assets, outside our coreUKpub and restaurant operations. It is our intention to pursue opportunities for value creation above the level that could be created through organic development, whether through asset swaps, disposals or sector consolidation. Assets that we are reviewing the options to create value for include the Lodge business, Hollywood Bowl and the Alex bar and brasserie sites inGermany.


BusinessOutlook


The quality oftheestate, the consumer appeal ofthe brands andformats andthevalue and volume sales strategyare generatingacceleratedmarket share gains in both food and drinks. The demand for value for money,casual dining remainsresilient, which is also underpinningthesales of drinks, such as wines, soft drinks and coffee served with a food related visit. However the traditional on-trade beer market remains in long term structural decline, due to off-trade price competition, social change and the smoking ban. This is likely to remain the case, whatever short term easing of the rate of decline, this summer's weather comparatives and the anniversary of the ban may bring.


Continuous improvements in training and scheduling are raising staff productivity which,alongside further cost efficiency gains,will ensure a reduction in both fixed and variable operating costs of £20m this year. These gains will help mitigate the significant input cost inflation of £11m from food and energy cost increases and £4m from the Budget duty increases during the second half,although it will be a challenge to sustain netretail operating margins for the year as a whole.


We expect discretionary consumer spending to continue to be under significant pressure over the balance of the year. However, we believe our estate and brands are very well positioned to take advantage of the wider consumer appeal of food-led pubs in a post smoking ban environment. Our focus on high amenity standards and good value is also increasing the pace of our drinks market share gains. As a result, we remain confident in a continued, resilient trading out-performance amidst challengingeconomicconditions.


Conclusion


Having completed thecomprehensive strategic review, the Board believes that the company's competitive position and its brand and operational strengths in the pub and restaurant sector, alongside the future opportunities for capturing the property value of the estateand consolidation in managed houses,underpin the prospects for long term growth and shareholder value creation.


The review has been an intensive process, but it has reaffirmed the Board's confidence in Mitchells & Butlers' business model. The current trading performance underpins our confidence in the strategy and our ability to execute it to the benefit of all shareholders.



There will be a presentation for analysts and investors at 9.30am at the Merrill Lynch Financial Centre,2 King Edward St,LondonEC1. A live webcast of the presentation will be available atwww.mbplc.com. The conference will also be accessible by phone by dialling in0845 245 5000or from outside theUK+44(0)1452 562 716, the replay will be available until4June2008 on0845 245 5205or from outside theUK+44 (0)1452 55 00 00passcode47625670#.


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


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.
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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 32 weeks to 10 May 2008 92% of the estate is included in this measure.
-
The “Acquired Sites” are the pub restaurant sites purchased from Whitbread plc in July 2006


MITCHELLS & BUTLERS STRATEGY FOR GROWTH


The results in the period reflect our leadership position in the growing eatingout market; further significant drinks market share gains and the strength of our operational cashflows. They have been achieved amidst challenging trading conditions for beer sales but increased eating out demand post the smoking ban. Despite these pressures and further increases in external costs, operating profits grew by 4.3% to £168m and net retail operating margins improved by 0.7 percentage points to 16.8%. As a result of this performance we are pleased to announce an interim dividend of 4.55p, an increase of 7.1%. We have generated this performance through the successful implementation of our sales strategy, which is to:


Lead the value for money casual dining market


Our operational expertise and consumer insight have enabled us to capitalise on the growth in informal, value for money eating out with food now accounting for 38% of managed sales, up from only 10% in 1993. We are therefore now the largest on-trade caterer selling over 110m meals on an annualised basis. This position has accelerated with the rapid conversion of the sites we acquired from Whitbread in July 2006 and has enabled us to increase same outlet like-for-like food volumes by 7% against a pub food market up 3%. The smoking ban in theUKhas widened the appeal of the pub, especially to customers who previously did not eat out in pubs due to tobacco smoke. This has created an opportunity for our pubs where the quality and value of our food offers together with our high standards of amenity have enabled us to gain a disproportionate share of this growth. We will continue to reinvest in our menu offers through competitive pricing and enhanced quality to generate profitable food growth and to respond to customers' high sensitivity to perceptions of value. For example during the first half of the financial year the averagepriceof a main mealwasapproximately £5.70and our food retail prices fell3.3%.


Generate significant drinks market share gains


Our same outlet like-for-like drinks sales were held to a decline of 1.5% in the period, a very strong performance given the pressure on on-trade volumes as a result of the smoking ban. Our sales volumes once again strongly out-performed the market across the key categories of beer, cider, wines and soft drinks.


Beer now constitutes around a quarter of our total sales, having accounted for over 70% fifteen years ago. The significant pressure on this category as a result of social and lifestyle changes over the last decade has been accelerated by the smoking ban resulting in a decline in on-trade beer market volumes of9% in the first half. Against this, our pubs have gained five percentage points ofmarketshare, representing our strongest out-performance to date and reflecting the value and quality that our pubs offer.


Our focus in beer has been on widening the product range that we offer, improving the serve quality through intensive cellar training and investment in cooling systems, as well as delivering better presentation through attractive glassware. In the first half we focused on increasing the number and quality of the cask ales that we serve. In Vintage Inns, for example, the number of pubs with two or more hand-pulls has increased from just under 100 at this time last year to 180 now, which constitutes over 90% of theVintage Innestate. This emphasis has been accompanied by further investment in cellar training; with over 500 outlets now having passed the Cask Marque Accreditation, 98 of which are new cask stockists during this financial year. In draught cider we have concentrated on providing further choice, with all of our pubs now stocking at least one draught cider and 780 pouring more than one. The range has been increased to drive interest and premiumisation into the category with products such as Addlestones and Aspalls being installed in addition to a standard cider. Value also plays a key part in our out-performance with the average price of a pint of standard lager in a Mitchells & Butlers pub at £2.23in April,approximately40 pence per pint less than the average in leased pubs. This was despite our average retail drinks prices rising by 3% as a result of like-for-like price increases as well as the introduction of new, premium products.


The growth in food sales is resulting in strong associated uplifts in wine and coffee particularly following the smoking ban. We have been extending our ranges with new premium products, offering good value, own label products and enhancing the serve quality. Coffee volumes therefore grew by 8% respectively in the period.


In soft drinks we have been extending the range of fresh juices, and cordials in our pub restaurants. We are also beginning the roll out of new dispense equipmentfor our carbonateswhich is industry leading in ensuring theirconsistency of the taste, carbonation and temperature. The roll out of this innovative technology began in April and we will have completed 800 installations by the year end.


Develop and evolve an industry-leading portfolio of formats to drive sales growth


We remain focused on developing and evolving our brands and formats to keep pace with fast changing consumer expectations ensuring that we attract new customers and generate higher levels of visits. We have developed an industry leading portfolio of brands and formats targeted at the growth segments of the market with average weekly sales per pub at well over three times the industry average.


We have further expanded our value food formats, Sizzling Pub Co., Pub Carvery and our new Community locals format Cornerstone during the period. These each offer outstanding food value, with main meals priced between £3.50 and £4.50, in an attractive, high amenity pub environment. These pubs are well positioned in residential areas to take advantage of the strong growth in mass market eating out. Pub & Carvery is now our highest volume pub restaurant brand, and Sizzling Pub Co.'s near 1,000 meals a week is a measure of the food revolution occurring in our Local Pubs. We have also continued the successful evolution of our long established High Street formats of O'Neill's and Town Pubs, with stronglike-for-likesales growth generated. Similarly our Metro Professional and Nicholson's format have sustained their growth rates in the first half with double digit food sales growth.


Deliver a profitable, integrated food and drinks offer


Many of our pubs have prime locations in residential areas and are able to create an informal casual dining experience alongside a strong bar trade. In this way our formats are able to take advantage of higher margin drink sales together with lower margin food sales delivered at a small incremental cost with an attractive drop through to profit.


Extract volume driven efficiencies


The smoking ban has accelerated the shift in the sales mix to food which has had an adverse effect on gross margins. In addition, rising food inflation continues to put upward pressure on costs of goods sold. In light of this, we have defended gross margins very effectively through our volume driven sales strategy and efficiencies in purchasing terms with only a 0.9 percentage point decrease.


To offset the impact of these pressures, strong management action has been implemented successfully in the first half to reduce both fixed and variable operating costs by £20m for the year as a whole. This half year we have seen a further strong rate of increase in staff productivity, with a 4.2% increase in staff contribution per hour. In the second quarterthis has accelerated to 7%. This reflects the impact of our training programmes, our focus on the optimum deployment of staff and ever more refined techniques for forecasting and scheduling. These, along with the actions taken on fixed and variable costs in January, have enabled us to realise significant productivity gains and maintain our pub employment cost ratio at 24% of sales, despite a further increase of 3% in the National Minimum Wage in October 2007.


These scale operating efficiencies have enabled us to continue our value and volume strategy in the face of sizeable input cost inflation, while at the same time increasing net operating margins by 0.7 percentage points in the first half.


Extend the skill base of operational excellence throughout the estate


The skills and experience of our operating teams provide a critical competitive advantage for us in delivering high standards of customer service efficiently and profitably. We have continued to build our staff training programmes and industry leading practices in the areas of capacity management at peak times; kitchen processes and organisation; bar and floor service productivity; staff product knowledge and our responsiveness to direct measures of feedback on guest satisfaction. This focus on operational excellence is central to the high average levels of sales and profitability generated by our pubs.


Proactively manage the estate to maximise value


Our strategy is to maximise the profitability and value of each pub by applying the most appropriate trading format to the local market and demographics. During the half year we have applied this strategy to both the Acquired Sites and the existing estate. The Acquired Sites' conversion programme has been completed with over 200 pubs converted or on site to be converted to our formats. Average weekly sales uplifts on the converted sites are running at approximately 19% above the levels at which the pubs were acquired. We will be continuing to develop the trading performance of these high quality sites in order to deliver our three year target of 30% sales uplifts by the end of the 2009 financial year.


In addition, we opened 4 new sites, and carried out 35 conversions and 17 growth projects to change the customer offer or increase the trading area of the site in the core estate. We are generating a pre-tax incremental return of 17% on these investments over the last two years.


As a result of this strategy, and in light of the general levels of investment in the on-trade market as a whole, the amenity gap between our pubs and the majority of pubs in theUKis widening, further improving our overall customer value proposition and our market share gains relative to the rest of the on-trade.


We have continued to make targeted disposals taking advantage of the continuing strength of the market for quality sites, where the value to third parties is higher than the trading value to us. During the first half we generated £54m of disposal proceeds, at EBITDA multiples of 18 times.


Grow profits and capture asset appreciation to benefit shareholders


We remain committed to capturing more fully the property value of the estate for shareholders, than has been reflected in the current integrated business model.


Pubs are valued as specific use assets, primarily on the basis of their profitability, and our strong operating performance has helped to underpin the capital value of the estate. This is reflected in the £5.0bn valuation of the estate that was carried out in 2007 in conjunction with our property valuers, Colliers CRE.


We believe that a dedicated property company with high quality rental streams, the tax advantages of a REIT and a strong dividend payout would enable much greater transparency in the valuation of the estate.


We also fundamentally believe that under such arrangements, the strengths of our brands and formats, the quality of the sites, our exposure to growth markets and the operating capabilities of the company would ensure a business capable of above inflation growth through the cycle with attractive equity growth prospects.


Conditions in the financial markets currently preclude a structure which would enable the full value of the property to be demonstrated. If those conditions were to change, the Board is committed to seeking a property structure which would deliver the full value of the estate to shareholders.


KEY PERFORMANCE INDICATORS


Mitchells & Butlers implements and monitors its performance against its strategy principally through four key performance indicators ("KPIs"). The performance in the first half is as follows:

1. Same outlet like-for-like sales – Mitchells & Butlers’ operational and marketing plans have delivered resilient like-for-like sales growth of 0.8% in the first 32 weeks of the year.Like-for-like sales growth has reduced from 3.6% in the first half last year as a result of the impact of the smoking ban in England and Wales and the more challenging consumer environment.
2.Earnings per share - Operating profit in the first half has increased by 4.3% however, as a result of higher debt levels and interest costs, earnings per share before exceptional items and IAS 39 movements has increased by 0.7% to 14.9 pence per share.
3.CROCCE in excess of WACC Mitchells & Butlers aims to maximise the difference between the post-tax Cash Return on Cash Capital Employed (“CROCCE”) and its Weighted Average Cost of Capital (“WACC”), a key measure of value creation.A CROCCE of 10.8% after tax was achieved in the 12 months to 12 April 2008, constant in comparison with last year and around 4 percentage points ahead of our estimated WACC, reflecting the good operating performance supported by our efficient use of the balance sheet.
4.Incremental return on expansionary capital – Our performance in this area has been strong and remains well above our cost of capital and our internal investment appraisal hurdle rates.Pre-tax returns of 17% are being achieved on the expansionary capital projects carried out over the last two years compared with the 19% reported a year ago.This measure excludes the Acquired Sites due to the relatively short period of ownership and post conversion trading, making it more difficult to estimate seasonal patterns and annualised returns post conversion.

The basis of KPI calculation is included within the 2007 Annual report and accounts.


FINANCIAL REVIEW


Total revenue for the first half of the financial year was £995m, equal tothe same period lastyear, including £2m of sales in both years from Standard Commercial Property Developments (SCPD).


Like-for-like sales growth was resilient in both Residential and High Street areas, reflecting the strength of our offers which are making significant market share gains in food and drink in more challenging trading conditions.


Like-for-like sales*
Same Outlet
Residential
0.8%
High Street
0.3%
Total
0.8%


* For 32 weeks


With the success of our ongoing sales and marketing activities, same outlet food sales were up 5.1% and drink sales decline was limited to 1.5%. This was achieved with average food and drink prices up 0.7%, reinforcing our value position in a market characterised by above inflation price increases.


Our increased share of the drinks market and the increasing scale of our food volumes have helped us to mitigate continuing pressures on cost of goods from food inflation and the recent drinks duty rises. Overall gross margins were approximately 1% lower than in the same period lastyear, also reflecting a further shift in the sales mix towards the higher growth but lower margin categories of food and wine.


By continuing to improve employee productivity, our pub employment ratio was maintained at approximately 24% of total retail sales, despite further increases in the National Minimum Wage andadditionalholiday payentitlementadding £5m to our labour costs. Strong management action was also taken in the first half to reduce both fixed and variable operating costs by £20m for the year as a whole. As a result the net retail operating margin at 16.8% was 0.7 percentage points higher than the same periodyear.


We invested £117min the half year, of which £18m related to the completion of the conversion of the Acquired Sites. In the existing estate, £59m was invested to maintain the high levels of amenity in the pubs and in the continuing development and evolution of our brands and formats and £40m was spent on expansionary projects. During thefirst half4 new pubs opened and 35 existing pubs were converted to one of our brands or formats to uplift their sales and profits. We are achieving an incremental, pre-tax return of 17% on the core expansionary projects of the last two years.


During the first half we generated £54m of disposal proceeds taking advantage of the continuing strength of the market for quality sites, at EBITDA multiples of 18 times. As a result, net capital investment during thehalfyear after disposalswas £63m.


In addition to the strong Retail performance, SCPD realised a property development profit of £1m in the half year. As a result, total operating profit before exceptional items was £168m, up 4.3% onthe same period lastyear.


Pubs & Bars


HY08
Growth
Revenue
£508m
(1.4)%
Operating profit*
£90m
(2.2)%
Same outlet like-for-like sales**
(0.5)%


* Before exceptional items
** For 32 weeks


After the disposal of 25 managed pubs, 1 transfer to business franchise and 2 acquisitions, there were 1,105 managed pubs in the Pubs & Bars division at the end of the period, including 28 Acquired Sites. There were on average 1,113 managed pubs trading during the half year.


As a result of the impact of the smoking ban and the challenging consumer environment, revenue was down 1.4%, after including £13m from the Acquired Sites transferred to the division following conversion in the half. Excluding those Acquired Sites revenue in the core Pubs & Bars estate was down 1.8%.


Pubs & Bars continued to achieve market share gains in drink sales, as a result of the widening gap between our amenity, product range and value for money and that of the competition. Food sales in thehalfyear were up 14.8% driven by growth in the residential pubs, notably Sizzling Pub Co., Scream and Metropolitan Professionals, as well as by the Town Pubs and the centralLondonestate.


Machine sales have been negatively affected by the smoking ban with same outlet like-for-like sales down 8.0%.

A total of 29 conversions were completed, predominantly to residential brands and formats such as Sizzling Pub Co., Ember Inns and the Metropolitan Professionals format.


Pubs & Bars operating profit of £90m before exceptional items was down 2.2% in thehalfyear with net operating margin decreasing from 17.9%to 17.7%.


Restaurants

HY08
Growth
Revenue
£485m
1.5%
Operating profit*
£77m
13.2%
Same outlet like-for-like sales**
2.2%


* Before exceptional items
** For 32 weeks


Following the disposal of 10 pubs and 4 transfers to business franchise, there were 775 managed pubs in the Restaurants division at the end of the period, including 182 Acquired Sites and 2 new individual pubs. There were on average 768 managed pubs trading during the period.


Revenue was up 1.5%, including £88m from the Acquired Sites. Excluding the Acquired Sites, there were on average 585 pubs trading during the period and in these pubs revenue grew by 0.5%.


The Restaurants division has successfully integrated the Acquired Sites and has now completed or is on site with the remainder of the conversions as planned. Excluding these pubs, growth in the core estate in the period was good despite the increasing economic pressure on mid-market consumers and greater intensity of competition in pub food.


Restaurants operating profit of £77m before exceptional items was up 13.2% onthe same period lastyear, including £11m from the Acquired Sites. Net operating margin was up 1.7 percentage points to 15.9%, as a result of the improved profit performance post the conversion of the Acquired Sites. Excluding the Acquired Sites, the Restaurants estate increased operating profit by 3.1% and increased operating margins by 0.4 percentage points.


Standard Commercial Property Developments (SCPD)


SCPD generated £2m of revenue and £1m of operating profit in the half year. After the period end SCPD exchanged contracts unconditionally on the sale of land realising proceeds of £11m and an estimated profit of £9m.


Exceptional items and IAS 39 Movements


Exceptional items are those which are separately identified by virtue of their size or incidence so as to allow a better understanding of the underlying trading performance of the Group. Exceptional items are generally those which do not form part of the core operations of the Group. As a result, the Board focuses on "pre-exceptional" performance measures in order to compare underlying performance year on year.


The settlement in January 2008 of the majority of the interest rate and inflation hedging arrangements that thecompany entered into in July 2007 in respect of the proposed property joint venture resulted in apost tax loss of £274mwith£129mbooked in this half in addition to the£145mprovided last year. A portion of the interest rate swaps were retained to cover approximately £300m of debt outside the securitisation and this forms part of the company's core long term debt structure. These swaps provide an economic hedge against the future anticipated cash flows associated with the company's financing, however they do not qualify for hedge accounting as defined in IAS39. The movement in fair value on these swaps was £12m after tax at the end of the first half.


The Board has concluded a comprehensive strategic review examining all options for realising value for shareholders. The cost of the associated advisers' fees was £9m post tax, which is disclosed as an exceptional operating charge in the first half.


An exceptional post tax profit of £3m was made on individual pub disposals during the first half. This resulted in total post taxexceptional losses of £135m.


Financecosts andrevenue


Finance costs during the first half were £89m before exceptional items, £7m higher thanthe same period lastyear, primarily as a result of higher debt levels in thecompany. Finance revenue of £4m was achieved on the Group's cash balances, £1m higher thanthe same period lastyear.


Net finance income from pensions was £1m, £6m lower thanthe same period lastyear due to a decrease in the expected return on the assets in the pension scheme compared to the charge for the liabilities.


The Group's blended net interest rate for the half year was 5.9% including the impact of the net finance income from pensions.


Taxation


The tax charge for the periodwas £24m before exceptional itemsand IAS39 movements. This is an effective rate of 29% of profit before tax, 2 percentage points lower than the previous first halfreflecting a change in the corporation tax rate.


Earnings per share


Earnings per share were 14.9p before exceptional itemsand IAS 39 movements,an increase of 0.7%.


The loss per share after exceptional items was21.6p reflecting primarily the exceptional losses on the financial hedges settled in January.


Dividends and returns to shareholders


The Board remains committed to a progressive policy for dividends consistent with the medium term growth prospects of the company. An interim dividend of 4.55 pence per share, an increase of 7.1% onthe same period lastyear, will be paid on 27 June 2008 to shareholders on the register on 30 May 2008. Notwithstanding a more challenging outlook for the economy and the market environment, the proposed increase in the ordinary dividend is reflects the Board's confidence in the prospects of the business.


Since Mitchells & Butlers listed in April 2003, shareholders have received more than £1.1bn in cash through special dividends and share buybacks, over and above ordinary dividends paid. This represents more than 70% of the company's market capitalisation in April 2003.


Cash flow and net debt


The Group's operations continue to be highly cash generative. Cash flow from operations was £180m before exceptional items but after additional pension contributions of £20m. Net capital expenditure was £63m which comprised £18m of expenditure on the Acquired Sites, £40m of core expansionary capital investment, £59m of maintenance capital, less disposal proceeds of £54m.


Net interest paid of £78m was £7m higher thanthe same period lastyear reflecting the effect of the increase in debt associated with the close-out of the interest rate and inflationhedging arrangements that the company entered into in July 2007.Tax paid was £4m, £9m lower than the prior year driven primarily by £8m of tax rebatesreceived from the HM Revenue & Customs during the period.


As a result, there was a net cash inflow of £55m before exceptional costs of £386m onthe closure of the hedging arrangements and operating exceptional expenditure of £6m.


Net debt at the end of the half was £2,822m, £289m higher thanthe same period lastyear, representing 5.8 times EBITDA.


Treasury management


The financial risks faced by the Group are identified and managed by a central Treasury department. The activities of the Treasury function are carried out in accordance with Board approved policies and are subject to regular audit. The department does not operate as a profit centre.


At 12 April 2008, the Group's net debt of £2,822m consisted of the securitised debt of £2,349m, non-securitised other borrowings and finance leases of £590m derivatives hedging balance sheet debt of £38m, offset by cash deposits of £155m.


Pensions


The pension schemes deficit had reduced to £7m (£5m after tax) at 12 April 2008 from £18m (£13m after tax) at 29 September 2007, on an IAS 19 basis. This reflectsanincrease in corporate bond ratesused to discount the scheme's liabilities, partly offset by increased inflation expectations and lower returns on pension scheme assets.


The actuarial review undertaken in 2007 has been completed and showed a deficit as at 31 March 2007 of approximately £250m using the more conservative discount rateagreed with the trustees. The company has now formally agreed the recovery plan to close this deficit by 2017, whichcalls for pensionpayments of £24mper annum until2017including £4m in the second half.The recovery plan is subject to reviews atthe next actuarial valuation as at 31 March 2010.


Risk factors and uncertainties


The risks anduncertainties that affect the company are set out in the 2007 Financial Statements which are available on the Mitchells & Butlers web site onwww.mbplc.com.In this context we note that the business is seasonal with the frequenting of pubs and pub restaurantstypicallybeing slightly lower during the winter months than in summer.


GROUPINCOME STATEMENT

for the 28 weeks ended12 April 2008



2008


2007


2007


28 weeks


28 weeks


52weeks



Before




Before




Before




exceptional




exceptional




exceptional




items




items




items




and IAS 39




and IAS 39




and IAS 39




movements*


Total


movements*


Total


movements*


Total


£m


£m


£m


£m


£m


£m


Revenue(Note 2)

995


995


995


995


1,894


1,894













Operating costs before












depreciation and












amortisation

(754)


(766)


(765)


(769)


(1,422)


(1,433)













Profit/(loss)arising on












property-related items

-


5


-


20


-


(23)

























EBITDA**

241


234


230


246


472


438













Depreciation and












amortisation

(73)


(73)


(69)


(69)


(129)


(129)

























Operating profit(Note 2)

168


161


161


177


343


309













Finance costs(Note 4)

(89)


(287)


(82)


(82)


(153)


(374)













Finance revenue(Note 4)

4


4


3


3


6


6













Net finance income












from pensions (Note 4)

1


1


7


7


11


11

























Profit/(loss)before tax

84


(121)


89


105


207


(48)













Tax(expense)/credit












(Note 5)

(24)


34


(28)


(33)


(62)


38

























Profit/(loss)for the












period

60


(87)


61


72


145


(10)













Earnings/(loss)per












ordinary share(Note 6):














Basic

14.9p


(21.6)p


14.8p


17.4p


35.5p


(2.5)p


Diluted

14.9p


(21.6)p


14.4p


16.9p


34.4p


(2.5)p


Dividends(Note 10):












Ordinary dividends














Proposed or paid













(pence)



4.55




4.25




14.25


Proposed or paid (£m)



18




17




57


Special dividends














Paid (pence)


-




100.0




100.0


Paid (£m)


-




486




486


*
Exceptional items and IAS 39 movements are explained in Note 1 and analysed in Notes 3 and 4.
**
Earnings before interest, tax, depreciation and amortisation.


All activities relate to continuing operations.


GROUPSTATEMENT OF RECOGNISED INCOME AND EXPENSE

for the 28 weeks ended12 April 2008



2008


2007


2007


28 weeks


28 weeks*


52weeks


£m


£m


£m







Unrealised gain on revaluation of the property portfolio

1


-


1,124







Tax charge relating to movement in unrealised gain due to






revaluation

-


-


(317)







Tax credit relating to indexation of gains in respect of previous






revaluations

7


11


25







(Losses)/gainson cash flow hedgestaken to equity

(30)


58


55







Actuarial (losses)/gainsondefined benefit pension schemes

(9)


103


33

(Note 15)












Tax on itemsrecogniseddirectlyinequity

(6)


(32)


(23)







Tax credit in respect of change in tax rate

-


-


30







(Loss)/income recognised directly in equity

(37)


140


927







Transfersto the income statement:












On cash flow hedges

(14)


12


15







Tax on items transferred from equity

4


(4)


(5)







Net(loss)/income recognised directly in equity

(47)


148


937







(Loss)/profit for the period

(87)


72


(10)













Total recognised income and expense for the period






attributable to equity holders of the parent

(134)


220


927


*
Restated to reflect the prior year adjustment which arose as at 29 September 2007 (see Note 1).


GROUPBALANCE SHEET

12 April 2008


2008


2007


2007


12April


14April*


29 September

ASSETS

£m


£m


£m







Goodwill and other intangible assets

17


20


17

Property, plant and equipment(Note 7)

5,015


3,922


5,030

Lease premiums

11


11


11

Pension surplus (Note 15)

-


49


-

Derivative financial instruments

5


31


30

Deferred tax asset

23


34


75







Total non-current assets

5,071


4,067


5,163







Inventories

39


42


38

Trade and other receivables

66


83


69

Derivative financial instruments

1


6


79

Cash and cashequivalents (Note 12)

130


94


117

Other cash deposits

25


1


-







Total current assets

261


226


303







Non-current assets held for sale

26


7


6







Total assets

5,358


4,300


5,472







LIABILITIES












Borrowings

(630)


(240)


(234)

Derivative financial instruments

(40)


(1)


(295)

Trade and other payables

(267)


(259)


(243)

Currenttaxliabilities

(13)


(21)


(18)







Total currentliabilities

(950)


(521)


(790)







Borrowings

(2,309)


(2,349)


(2,317)

Derivative financial instruments

(49)


(41)


(47)

Pensionliabilities (Note 15)

(7)


-


(18)

Deferred tax liabilities

(634)


(506)


(723)

Provisions

(1)


(3)


(1)







Total non-current liabilities

(3,000)


(2,899)


(3,106)







Total liabilities

(3,950)


(3,420)


(3,896)







Net assets(Note 8)

1,408


880


1,576







EQUITY












Called up share capital

34


34


34

Share premium account

14


14


14

Capital redemption reserve

3


3


3

Revaluation reserve

824


-


828

Own shares held

(9)


(17)


(13)

Hedging reserve

(12)


20


20

Translation reserve

13


6


7

Retained earnings

541


820


683







Total equity(Note 9)

1,408


880


1,576


*
Restated to reflect the prior year adjustment which arose as at 29 September 2007 (see Note 1).


GROUPCASH FLOW STATEMENT

for the 28 weeks ended12 April 2008



2008


2007


2007


28 weeks


28 weeks


52weeks


£m


£m


£m







Cash flow from operations(Note11)

240


196


447







Net interest paid

(78)


(71)


(145)

Tax paid

(4)


(13)


(33)







Net cash from operating activities

158


112


269







Investing activities






Purchases of property, plant and equipment

(117)


(134)


(252)

Acquisition of Whitbread pub restaurant sites

-


(7)


(8)

Purchases of intangibles(computer software)

-


(1)


(1)

Proceeds from sale of property, plant and equipment

54


131


162

Transfers tocash deposits with a maturity of






greater than three months

(25)


(1)


-

Corporate restructuring costs

(3)


-


(4)







Net cash used in investing activities

(91)


(12)


(103)







Financing activities






Purchase of own shares

(5)


(46)


(46)

Proceeds on release of own shares held

2


10


11

Repayment of principal in respect of securitised debt

(20)


(19)


(39)

Proceeds from other debt

395


198


192

Expenditure associated with refinancing

-


(3)


(4)

Derivative financial instruments closure costs

(386)


-


-

Dividends paid

(40)


(521)


(538)







Net cash used in financing activities

(54)


(381)


(424)







Net increase/(decrease)in cash andcash equivalents

13


(281)


(258)

(Note 13)












Cash and cash equivalents at the beginning of the period

117


375


375







Cash and cash equivalents at the end of the period

130


94


117


Cash and cash equivalents are defined in Note 12.


NOTES TO THE INTERIM FINANCIAL STATEMENTS


1

GENERAL INFORMATION




Basis of preparationand accounting policies


The interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and comply with International Accounting Standard (IAS) 34 'Interim Financial Reporting'. They have been prepared on a consistent basis using the accounting policies set out in the Annual report and accounts 2007 and should be read in conjunction with this document. Details of these accounting policies can also be accessed within the investors section of the Group's website atwww.mbplc.com/IFRS.




The interim financial statements are unaudited and do not constitute statutoryaccounts within the meaning of Section 240 of the Companies Act 1985.They were approved by a duly appointed and authorised committee of the Board of Directors on 19 May 2008. The financial information for the year ended 29 September 2007is extracted from the annual accounts for the year ended 29 September 2007, which have been delivered to the Registrar.The auditors' report on the annual accounts for the year ended29 September 2007was unqualified, and did not include an emphasis of matter reference or any statement required under Section 237(2) or (3) of the Companies Act 1985.




Adjusted profit


In addition to presenting information on an IFRS basis, the Group also presents information that excludes exceptional items and IAS 39 movements (see below). This information is disclosed to allow a better understanding of the underlying trading performance of the Group and is consistent with the Group's internal management reporting. Exceptional items, which include profits and losses on the disposal of properties, are identified by virtue of either their size or incidence so as to facilitate comparison with prior periods and to assess underlying trends in financial performance. IAS 39 movements represent movements in the fair value of the Group's derivative financial instruments which are commercially effective but which do not qualify for hedge accounting and are therefore recognised in the income statement. Adjusted profit excludes exceptional items and the IAS 39 movements.




Prior year adjustment


The Group noted in the 2007 Annual report and accounts that it had recognised a prior year adjustment. The adjustment related to thedeferred tax provision for the future tax payable on the theoretical disposal of allofthe Group's land and buildings. As a result of obtaining more detailed analysis of the tax base cost for individual assets, the Group demonstrated that the deferred taxation provision as at 1 October 2006 was understated by £76m. In order to correct this understatement the Group increased its deferred taxation provision as at 1 October 2006 by £76m, with a corresponding entry recognised in retained earnings at the same date. This adjustment was recognised through a prior year adjustment as the understatement represented an error which it would not be appropriate to correct prospectively. The prior year adjustment has increased the tax credit which relates to the indexation of gains in respect of previous revaluationsfor the 28 weeks ended 14 April 2007, by £11m. This is reflected in the statement of recognised income and expense. The deferred taxation provision reported at 14 April 2007 has also increased by £65m and the amount of retained earnings reported in 2007 has reduced by £65m.




Exchange rates


The results of overseas operations have been translated into sterling at the weighted average euro rate of exchange for the period of £1=€1.37 (2007 28 weeks, £1=€1.49; 52 weeks, £1=€1.48). Euro and US dollar denominated assets and liabilities have been translated into sterling at the relevant rate of exchange at the balance sheet date of £1=€1.25 (14 April 2007, £1=€1.47; 29 September 2007, £1=€1.43) and £1=$1.97 (14 April 2007, £1=$1.98; 29 September 2007, £1=$2.04) respectively.

2

SEGMENTAL ANALYSIS




The Group's primary reporting format is by business segment.




2008


2007


2007



28 weeks


28 weeks


52weeks



£m


£m


£m


Revenue














Pubs & Bars

508


515


968









Restaurants

485


478


908









Retail

993


993


1,876









SCPD

2


2


18









Total revenue

995


995


1,894









Operating profit














Pubs & Bars

90


92


191









Restaurants

77


68


145









Retail

167


160


336









SCPD

1


1


7









Operating profit before exceptional items

168


161


343









Exceptional items (Note 3)

(7)


16


(34)









Operating profit

161


177


309



After the allocation of exceptional items(where these can be attributed to a segment), the segmentalprofits are Pubs & Bars £96m (2007 28 weeks, £111m; 52weeks, £174m), Restaurants £76m (2007 28 weeks, £65m; 52 weeks, £135m), SCPD £1m (2007 28 weeks, £1m; 52 weeks, £7m)and unallocated £(12)m (2007 28 weeks, £nil; 52 weeks, £(7)m).


3

EXCEPTIONALITEMS





2008


2007


2007




28 weeks


28 weeks


52weeks



Notes

£m


£m


£m










Operating exceptional items








Integration costs

a

-


(4)


(4)


Corporate restructuring costs

b

-


-


(7)


Strategic review costs

c

(12)


-


-












(12)


(4)


(11)










Profits on disposal of properties


11


27


39


Losses on disposal of properties


(3)


(6)


(12)


Impairment arising from the revaluation of the








property portfolio

d

(1)


-


(45)


Fair value adjustments on classification of








Non-current assets held for sale

e

(2)


(1)


(5)










Profit/(loss) arising on property-related items


5


20


(23)










Total operating exceptional items


(7)


16


(34)










Exceptional finance costs








Movement in fair value of derivative financial








instruments closed out in the period

f

(182)


-


(204)










Total exceptional items before tax


(189)


16


(238)


Tax credit/(charge) relating to above items


54


(5)


69


Exceptional tax released in respect of prior








years


-


-


9


Tax credit in respect of change in tax rate

g

-


-


17












54


(5)


95










Total exceptional items after tax


(135)


11


(143)



a

Costs associated with the integration of the 239 pub restaurant sites acquired from Whitbread on 21 July 2006.


b

Expenditure incurred in connection with the evaluation of alternative corporate structures for the separation and refinancing of the Group's property portfolio and operating business.


c

Expenditure incurred in connection with the Group's review of strategic options for value creation.


d

Impairment arising from the Group's adoption of a policy of revaluing its freehold and long leasehold land and buildings with effect from 29 September 2007.


e

Adjustments to the carrying value of property, plant and equipment, prior to transferring these to assets held for sale, where the expected net sale proceeds are less than the book value.


f

Movement in fair value of derivative financial instruments closed out in the period is the fair value movement during the period of the derivative financial instruments closed out in January 2008. The sum of the movement of £182m charged this period and the amount of £204m charged in the prior year represents the total cash cost of terminating these instruments.


g

A deferred tax credit was recognised in the year following the enactment of legislation in July 2007 which lowers theUKstandard rate of corporation tax from 30% to 28% with effect from 1 April 2008.



All exceptional items relate to continuing operations.


4

FINANCE COSTS AND REVENUE

2008


2007


2007



28 weeks


28 weeks


52weeks



£m


£m


£m









Finance costs







Securitised and other debt:







- before exceptional charge

(89)


(82)


(153)









Exceptional finance costs:







Movement in fair value of derivative financial







instruments closed out in the period (Note 3)

(182)


-


(204)









IAS 39 movements*

(16)


-


(17)


Exceptional finance costs and IAS 39 movements

(198)


-


(221)










(287)


(82)


(374)









Finance revenue







Interest receivable

4


3


6









Net finance income from pensions

1


7


11


*
IAS 39 movements represent the movements during the period in the fair value of the Group's derivative financial instruments which are commercially effective but do not qualify for hedge accounting.


5

TAX(CREDIT)/EXPENSE

2008


2007


2007



28 weeks


28 weeks


52weeks



£m


£m


£m









UKcorporation tax

(1)


19


35









Deferred tax

(33)


14


(73)










(34)


33


(38)









Further analysed as tax relating to:














Profitbeforeexceptional items

24


28


62









Exceptional items (Note 3)

(54)


5


(95)









IAS 39 movements (Note 4)

(4)


-


(5)










(34)


33


(38)



Tax has been calculated using an estimatedannualeffectivetaxrate of29% (2007 28 weeks, 31%; 52 weeks actual, 30%) on profit before tax,exceptional itemsand IAS 39 movements.


6

EARNINGS PERORDINARYSHARE




Basic earnings per share have been calculated by dividing theprofit or loss for the financial periodby the weighted average number of ordinary shares in issue during the period,excluding own shares held in treasury and by employee share trusts.




For diluted earnings per share, the weighted average number of ordinary shares is adjusted to assume conversion of all potentiallydilutive ordinary shares.




Adjusted earnings per ordinary share amountsexclude exceptional items and the IAS 39 movements (see Notes3 and 4) in order to allow a better understanding of the underlying trading performance of the Group.




Profit/


Basic


Diluted



(loss)


EPS


EPS





pence per


pence per





ordinary


ordinary



£m


share


share


28 weeks ended 12 April 2008







Lossfortheperiod

(87)


(21.6)p


(21.6)p*


Exceptional items, net of tax

135


33.5p


33.5p


IAS 39 movements, net of tax

12


3.0p


3.0p









Adjusted profit/EPS

60


14.9p


14.9p









28 weeks ended 14 April 2007







Profit for the period

72


17.4p


16.9p


Exceptional items, net of tax

(11)


(2.6)p


(2.5)p


IAS 39 movements, net of tax

-


-


-









Adjusted profit/EPS

61


14.8p


14.4p









52weeks ended29 September 2007







Lossfor the period

(10)


(2.5)p


(2.5)p*


Exceptional items, net of tax

143


35.0p


34.0p


IAS 39 movements, net of tax

12


3.0p


2.9p









Adjusted profit/EPS

145


35.5p


34.4p


*
Diluted EPS per ordinary share for the 28 weeks ended 12 April 2008 and for the 52 weeks ended 29 September 2007 is unchanged from basic EPS, as the inclusion of the dilutive ordinary shares would reduce the loss per share and is therefore not dilutive.



The weighted average number of ordinary shares used in the calculations above are as follows:




2008


2007


2007



28 weeks


28 weeks


52weeks



millions


millions


millions









Forbasic EPS calculations

403


413


408









Effect of dilutive potential ordinary shares:







Contingently issuable shares

5


7


8


Other share options

2


5


5









Fordiluted EPS calculations

410


425


421


7

PROPERTY, PLANT AND EQUIPMENT




2008


2007


2007



28 weeks


28 weeks


52 weeks



£m


£m


£m









At beginning of period

5,030


3,867


3,867









Exchange differences

4


-


-









Additions

113


140


259









Revaluation

1


-


1,124









Impairment arising from the revaluation of the property







portfolio

(1)


-


(45)









Disposals

(42)


(17)


(46)









Depreciation provided during the period

(70)


(66)


(122)









Movement in assets held for sale

(20)


(2)


(7)









At end of period

5,015


3,922


5,030



Freehold and long leasehold land and buildings are stated at market value as at 12 April 2008 and 29 September 2007, following the adoption by the Group of a policy of revaluing its freehold and long leasehold property portfolio to market value as at 29 September 2007. Property, plant and equipment as at 14 April 2007 is accounted for under the cost model, including the results of property revaluations prior to transition to IFRS.




At 12 April 2008, amounts contracted for but not provided in the financial statements for the acquisition of property, plant and equipment were £29m (14 April 2007, £36m; 29 September 2007, £26m).


8

NET ASSETS




2008


2007*


2007



12April


14April


29 September



£m


£m


£m









Pubs & Bars

2,409


1,925


2,322









Restaurants

2,490


1,881


2,597









Retail

4,899


3,806


4,919









SCPD

14


17


10









Segmental net assets

4,913


3,823


4,929









Net debt(Note 12)

(2,822)


(2,533)


(2,479)









Otherunallocatednet liabilities**

(683)


(410)


(874)









Net assets

1,408


880


1,576


*
Restated to reflect the prior year adjustment which was reported at 29 September 2007 (see Note 1).
**
Includes balances relating to derivatives, pensions, deferred and current tax and non-operating payables.


9

CHANGE IN EQUITY




2008


2007


2007



28 weeks


28 weeks


52weeks



£m


£m


£m









Opening equity

1,576


1,209*


1,209*









Exchange differences

6


-


1









Total recognised income and expense

(134)


220


927









Dividends(Note 10)

(40)


(521)


(538)









Purchase of own shares

(5)


(42)


(42)









Release of own shares

2


10


11









Credit in respect of shareremuneration

3


4


8









Closing equity

1,408


880


1,576


*
Opening equity for 2007 was restated at 29 September 2007 due to a prior year adjustment of £76m (see Note 1 for further details).




Own shares held by the Group represent the shares in the Company held in treasury ('treasury shares') and by the employee share trusts.




During the financial period, the Company acquired nil (2007 28 weeks 1,033,000, 52 weeks 1,033,000) shares for treasury at a cost of £nil (2007 28 weeks £7.4m, 52 weeks £7.4m), released 542,580 (2007 28 weeks 216,565, 52 weeks 220,606) shares to employees on the exercise of share options for a total consideration of £1.1m (2007 28 weeks £0.4m, 52 weeks £0.4m) and consolidated nil (2007 28 weeks 88,443, 52 weeks 88,443) shares. The 699,389 shares held in treasury at 12 April 2008 had a market value of £2.3m (2007 28 weeks 1,246,010 shares had a market value of £9.9m, 52 weeks 1,241,969 shares had a market value of £7.6m). The aggregate nominal value of the treasury shares held at 12 April 2008 was £59,739 (2007 28 weeks £88,259, 52 weeks £106,000).



During the financial period, the employee share trusts acquired 866,643 (2007 28 weeks 4,908,500, 52 weeks 4,967,276) shares at a cost of £5.0m (2007 28 weeks £34.5m, 52 weeks £35.0m), released 1,063,841 (2007 28 weeks 5,301,160, 52 weeks 5,916,545) shares to employees on the exercise of share options and other share awards for a total consideration of £1.3m (2007 28 weeks £9.2m, 52 weeks £10.5m) and consolidated nil (2007 28 weeks 189,906, 52 weeks 189,906) shares. The 873,251 shares held by the trusts at 12 April 2008 had a market value of £2.9m (2007 28 weeks 1,627,058 shares had a market value of £12.9m, 52 weeks 1,070,449 shares had a market value of £13.0m).


10

DIVIDENDS




2008


2007


2007



28 weeks


28 weeks


52weeks



£m


£m


£m


Amountspaid andrecognisedinequity














In respect of the 52 weeks ended 30 September 2006:







- Final dividend of 8.60p per share

-


35


35









In respect of the 52 weeks ended 29 September 2007:







- Special interim dividend of 100.00p per share

-


486


486


- Interim dividend of 4.25p per share

-


-


17


- Final dividend of 10.00p per share

40


-


-










40


521


538









Proposed interim dividend of 4.55p (2007 4.25p)







per share for the 28 weeks ended 12 April 2008

18


17





The proposed interim dividend for the 28 weeks ended 12 April 2008 was approved by the Board on 19 May 2008anddid notqualify for recognitionin the financial statementsat12 April 2008.


11

CASH FLOW FROM OPERATIONS




2008


2007


2007



28 weeks


28 weeks


52weeks



£m


£m


£m









Operating profit

161


177


309









Adjustments for:














Operating exceptional items

7


(16)


34


Depreciation of property, plant and equipment

70


66


122


Amortisation of intangibles(computer software)

3


3


6


Amortisation of lease premiums

-


-


1


Cost charged in respect of share remuneration

3


4


8


Defined benefit pension cost lessregularcash







contributions

1


2


3









Operating cash flow before exceptional items,







movements in working capital and additional

245


236


483


pension contributions














Movements in working capitaland pension







contributions:














(Increase)/decreasein inventories

(1)


-


4


(Increase)/decreasein trade and other receivables

(2)


(13)


3


Increasein trade and other payables

21


17


3


Movement in provisions

-


-


(2)


Additional pension contributions

(20)


(40)


(40)









Cash flow from operations before exceptional







items

243


200


451









Integration costs paid

-


(4)


(4)


Strategic review costs

(3)


-


-









Cash flow from operations

240


196


447


12

ANALYSIS OF NET DEBT




2008


2007


2007



12 April


14 April


29 September



£m


£m


£m









Cash and cash equivalents(see below)

130


94


117









Cash deposits with a maturity of greater than three







Months

25


1


-









Securitised debt (see below)

(2,349)


(2,388)


(2,356)









Derivatives hedging balance sheet debt*

(38)


(39)


(45)









Loan notes

-


(2)


(2)









Other borrowings and finance leases (see below)

(590)


(199)


(193)










(2,822)


(2,533)


(2,479)


*
Represents the element of the fair value of currency swaps hedging the balance sheet value of the Group’s US dollar denominated loan notes.


Cash and cash equivalents and cash deposits
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and in hand plus cash deposits with an original maturity of three months or less. At 12 April 2008, Mitchells & Butlers Retail Limited had cash and cash equivalents of £117m (29 September 2007 £89m) which were governed by the covenants associated with the securitisation. Of this amount £8m (29 September 2007 £9m), representing disposal proceeds, was held on deposit in a secured account (‘restricted cash’). The use of this cash requires the approval of the securitisation trustee and may only be used for certain specified purposes such as capital enhancement expenditure and business acquisitions.
Cash deposits with a maturity of greater than three months include an amount of £23m held at 12 April 2008, as part of a swap collateral arrangement.
Securitised debt
On 13 November 2003, a group company, Mitchells & Butlers Finance plc, issued £1,900m of secured loan notes in connection with the securitisation of the majority of the Group’s UK pubs and restaurants business owned by Mitchells & Butlers Retail Limited.The funds raised were mainly used to repay existing bank borrowings of £1,243m, pay issue costs of £23m and return £501m to shareholders by way of a Special Dividend.
On 15 September 2006 Mitchells & Butlers Finance plc completed the issue of £655m of further secured loan notes.These were issued under substantially the same terms as the original securitisation in November 2003.The funds raised were mainly used to return £486m to shareholders by way of a Special Dividend and to provide long-term funding for the Whitbread pub restaurant sites acquired.As part of the issue, the original A1 and A3 loan note tranches (totalling £450m) were repaid and reissued as A1N and A3N loan notes to take advantage of market rates.
The overall cash interest rate payable on the loan notes is fixed at 5.7% after taking account of interest rate hedging and monoline insurance costs.The notes are secured on the majority of the Group’s property and future income streams therefrom.

Other borrowings
On 28 September 2006, Mitchells & Butlers plc entered into a three year £300m revolving credit facility for general business purposes.On 21 November 2007, Mitchells & Butlers plc entered into a further £400m facility expiring on 28 September 2009 to provide the required liquidity in the event that a settlement amount resulted from the termination of the derivative financial instrument transactions relating to the property joint venture.As at 12 April 2008, £186m (14 April 2007 £185m, 29 September 2007 £192m) was drawn under the £300m facility and £385m under the £400m facility, which forms part of the ‘Other borrowings and finance leases’ balance within the analysis of net debt (see above).A further £18m was drawn under a short term uncommitted facility (14 April 2007 £13m, 29 September 2007 £nil).
Interest is payable on the facilities at LIBOR plus a margin (based on the prevailing level of Group net debt:EBITDA in respect of the £300m and £400m facilities).


The carrying value of the securitised debt in the Group balance sheet at 12 April 2008 is analysed as follows:


2008
2007
2007
12 April
14 April
29 September
£m
£m
£m
Principal outstanding at beginning of period
2,371
2,429
2,429
Principal repaid during the period
(20)
(19)
(39)
Exchange on translation of dollar loan notes
7
(13)
(19)
Principal outstanding at end of period
2,358
2,397
2,371
Deferred issue costs
(19)
(20)
(20)
Accrued interest
10
11
5
Carrying value at end of period
2,349
2,388
2,356


13

MOVEMENT INNET DEBT




2008


2007


2007



12 April


14 April


29 September



£m


£m


£m









Net increase/(decrease) in cash and cash







Equivalents

13


(281)


(258)









Add back cash flows in respect of other components







of net debt:














Transfers to deposits with a maturity of greater than







three months

25


1


-









Proceeds from principal in respect of other borrowings







and finance leases

(395)


(198)


(192)









Repayment of principal in respect of securitised debt

20


19


39









Increase in net debt arising from cash flows







('Net cash flow' per Note 14)

(337)


(459)


(411)









Non-cash movements

(6)


(7)


(1)









Increasein net debt

(343)


(466)


(412)









Opening net debt

(2,479)


(2,067)


(2,067)









Closing net debt

(2,822)


(2,533)


(2,479)


14

NET CASH FLOW




2008


2007


2007



28 weeks


28 weeks


52weeks



£m


£m


£m









Operating profit before exceptional items

168


161


343









Depreciation and amortisation

73


69


129









EBITDA*

241


230


472









Working capital movement

18


4


8









Other non-cash items

4


6


11









Additional pension contributions

(20)


(40)


(40)









Cash flow from operations before exceptional







items

243


200


451









Net capital expenditure **

(63)


(11)


(99)









Cash flow from operations before exceptional







items and afternetcapital expenditure

180


189


352









Integration costs paid

-


(4)


(4)









Strategic review costs

(3)


-


-









Cash flowfrom operations after net capital







expenditure

177


185


348









Net interest paid

(78)


(71)


(145)









Tax paid

(4)


(13)


(33)









Dividends paid

(40)


(521)


(538)









Purchase of own shares

(5)


(46)


(46)









Proceeds on release of own shares held

2


10


11









Expenditure associated with refinancing

-


(3)


(4)









Derivative financial instruments closure costs

(386)


-


-









Corporate restructuring costs

(3)


-


(4)









Net cash flow(Note 13)

(337)


(459)


(411)


*
Earnings before interest, tax, depreciation, amortisation and exceptional items.
**
Comprises purchases of property, plant and equipment and intangibles less proceeds from the sale of property, plant and equipment.


15

PENSIONS




Amountsrecognised in the Group income statementin respect of the Group's defined benefitand defined contributionarrangements are as follows:




2008


2007


2007



28 weeks


28 weeks


52weeks



£m


£m


£m









Operating profit







Current service cost (defined benefit plans)

(7)


(7)


(13)


Current service cost (defined contribution plans)

(1)


(1)


(1)









Operating profit charge

(8)


(8)


(14)









Finance income







Expected return on pension scheme assets

42


41


74


Interest on pension scheme liabilities

(41)


(34)


(63)









Net finance income

1


7


11









Total charge

(7)


(1)


(3)



Pension(deficit)/surplus isanalysed as follows:




2008


2007


2007



12April


14April


29 September



£m


£m


£m









Fairvalue ofschemeassets

1,292


1,281


1,292


Present value of scheme liabilities

(1,299)


(1,232)


(1,310)









Net (deficit)/surplusin the schemes recognised as







a(liability)/asset in the balance sheet

(7)


49


(18)









Associated deferred taxasset/(liability)

2


(15)


5



Movements in the Schemes' net deficitisanalysed as follows:




2008


2007


2007



28 weeks


28 weeks


52weeks



£m


£m


£m









At beginning of period

(18)


(99)


(99)


Charge in the Group income statement (defined







benefit plans)

(6)


-


(2)


Contributionspaid

26


45


50


Actuarial(losses)/gains

(9)


103


33









At end of period

(7)


49


(18)



The inflation rate assumption used in calculating the pension scheme liabilities is 3.7% (29 September 2007 3.4%) and the discount rate applied to the pension scheme liabilities is 6.3% (29 September 2007 5.9%). With the exception of these two assumptions, the principal financial and mortality assumptions are consistent with those disclosed in the 2007 Annual report and accounts.




On 23April 2008 theCompany formally agreeda recovery planwith the Trusteesto close the funding deficit in respect of its pension scheme liabilities, using a more prudent basis to discount the scheme liabilities than is required by IAS 19. The result of this is that the Group will make further additional contributions of£4m during the financial year 2008 and£24m in each of the financial years from 2009 to 2017, subject toreviewduring the next actuarial valuation at 31 March 2010.

16

RELATED PARTY TRANSACTIONS




There have been no related party transactions during the period that have materially affected the financial position or performance of the Group.




There have been no changes in the related party transactions described in the last annual report that could have a material effect on the financial position or performance of the Group during the period.


17

CONTINGENT LIABILITIES




The Company has given indemnities in respect of the disposal of certain companies previously within the Six Continents group. It is the view of the Directors that such indemnities are not expected to result in financial loss to the Group.



18

EVENTS AFTER THE BALANCE SHEET DATE




On 9 May 2008, the Group exchanged contracts unconditionally for the sale of landrealising proceeds of £11mand estimated profit of £9m.




STATEMENT OF DIRECTORS' RESPONSIBILITIES




The Directors confirm to the best of their knowledge that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8.




On behalf of the Board










Tim Clarke

Chief Executive

19 May 2008

Jeremy Townsend

Finance Director

19 May 2008


INDEPENDENT REVIEW REPORT TO MITCHELLS & BUTLERS PLC




Introduction


We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 28 week period ended 12 April 2008, which comprises Group income statement, Group statement of recognised income and expense, Group balance sheet and Group cash flow statement. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.




This report is made solely to the company in accordance with guidance contained in ISRE 2410 (UKandIreland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.




Directors' responsibilities


The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority.




As disclosed innote1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.




Our Responsibility


Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.




Scope of Review


We conducted our review in accordance with International Standard on Review Engagements (UKandIreland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in theUnited Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UKandIreland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.




Conclusion


Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 28 week period ended 12 April 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.














Ernst & Young LLP

London

19 May 2008



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