MITCHELLS & BUTLERS PLC

22 May 2014

HALF YEAR RESULTS

(For the 28 weeks ended 12 April 2014)

Return to food volume growth underpins successful first half

Statutory results

-
Profit before tax: £68m (H1 2013: £68m)
-
Basic earnings per share: 12.9p (H1 2013: 13.4p)

Financial performance

-
Total revenue of £1,016m, up 2.5%
-
-
Adjusted operating profit of £147mb, up 2.1%
-
Adjusted earnings per share of 14.6pb, up 1.4%
-

Balance sheet and cash flow

-
Agreement reached with Trustees on 2013 pensions valuation. Deficit increased to £572m as at March 2013; annual contribution increased to £45m (previously £40m per annum)
-
Capital expenditure increased to £86m (H1 2013: £59m), including 11 new site openings and 4 conversions
-

Operational performance

-
Turnaround in volume performance: like-for-like food volume growth (H1 2014:+0.2%, H1 2013: -4.7%), drink volume stabilising (H1 2014:-0.3%, H1 2013: -6.0%)
-
-
-
Staff turnover at historical low of 78% and net promoter score growing strongly to 63%

Alistair Darby, Chief Executive, commented:

"We are pleased with our trading performance in this first half, particularly the turnaround in volumes, alongside which we have made good progress against our key priorities, and continued to position Mitchells & Butlers for sustainable long-term future growth.

Successful resolution of the recent triennial pensions valuation, which we are announcing today, provides greater visibility and certainty over future funding and cash flow, at an affordable level.

Our business transformation is gaining momentum. Through our clearly laid-out strategy, we are well-placed to take advantage of the economic recovery across the UK."

Definitions

a - Like-for-like sales growth includes the sales performance against the comparable period in the prior year of all UK managed pubs that were trading in the two periods being compared. For the 28 weeks to 12 April 2014, 97% of the UK managed estate is included in this measure.

b - Adjusted items are quoted before exceptional items and other adjustments as noted in the Group Income Statement.

c - Net cash flow excludes £28m mandatory bond amortisation and £148m which the Group was obliged to draw down from a liquidity facility under the terms of the securitisation. Net cash flow is detailed within the Financial Review.

d - Adjusted EBITDA for the 52 weeks to 12 April 2014.

e - Operating margin is taken before exceptional items and other adjustments and is compared to H1 2013.

f - Growth in annualised site EBITDA, expressed as a percentage of expansionary capital.

There will be a presentation for analysts and investors at 9.00am at Nomura International plc, 1 Angel Lane, London, EC4R 3AB. A live webcast of the presentation will be available at www.mbplc.com. The conference will also be accessible by phone: 020 3059 8125 and quote "Mitchells & Butlers". The replay will be available until 4 June 2014on 0121 260 4861 replay access pin 4751710#.

For further information, please contact:

Tim Jones - Finance Director
+44 (0)121 498 6112
James Murgatroyd (RLM Finsbury)
+44 (0)207 251 3801

Notes for editors:

-
-
Mitchells & Butlers serves around 130 million meals and 410 million drinks each year and is one of the largest operators within the UK's £75 billion eating and drinking out market.

BUSINESS REVIEW

We are the UK's largest operator of managed restaurants and pubs, with a leading portfolio of well-recognised brands and a high quality freehold estate. We focus on long-term growth in the eating-out market, a focus that has yielded a 48% increase in food sales since 2007. Around three-quarters of our turnover is generated from the guests eating out in our restaurants and pubs.

We are a strong and resilient business:

· we own and operate around 1,600 of the highest quality managed houses in the country, across a wide geographic distribution;

· we have a number of the nation's most popular restaurant and pub brands;

· we employ 40,000 dedicated and hard-working people;

· we have an asset base of £3.9bn; with 83% of sites owned on a freehold and long leasehold basis;

· we have significant scale at the corporate, brand and unit levels; and

· we have long-term, fixed rate debt financing with secure asset backing.

These strengths represent a solid foundation on which to build. We are well positioned to grow as the UK economy enters a period of recovery which we expect to come from all geographic regions.

In line with the business transformation plan previously outlined by the Company, we remain fully focused on our business priorities; our people, our practices, our guests and our profits. We believe that if we develop, retain and recruit exceptional people to operate scale brands and formats in which our guests love to eat and drink, then we will achieve market leadership and deliver sustainable growth in shareholder value.

The market, brand positioning and expansion opportunities

We generate annual sales of approximately £1.9bn from a wide range of scale brands and formats, serving guests across the economic spectrum and across a broad range of occasions, from a casual meeting with friends to special occasion dining. Our market is highly fragmented, offering substantial opportunities for growth through market share gains.

Our 'five-star approach' to the market optimises our growth potential by focusing on five substantial 'market spaces', covering around half of the total market size. Three of the sectors, Upmarket Social, Special and Family, which include brands such as Miller & Carter, Harvester, Toby Carvery and All Bar One, are together worth £35bn per annum and benefit from the most attractive consumer trends. We invest in these areas and expand our brands where possible. The Everyday Social space, including brands such as Ember Inns, is worth £2bn. Here we optimise and invest in our brands to grow like-for-like sales and profits. In the Heartland space, worth £4bn and including brands such as Sizzling Pubs, we protect our position and compete to maximise cash generation, which is critical to fund overall business growth.

Business transformation plan

We have made further progress with our business transformation plan, now in its second full year, which places people and guests at the heart of our organisation. The first phase saw the restructuring of our central functions, the removal of unnecessary bureaucracy, and the start of major upgrades to our IT infrastructure. We continue to build on these foundations and are undertaking a more wide-ranging change programme, aimed at focusing the business on four priority areas: our people, our practices, our guests, and our profits.

Our people:

In an environment where unemployment is falling and a highly skilled workforce is critical to our ongoing success, our focus remains on the recruitment, induction, engagement, and retention of our people. Highly engaged people stay with us for longer, become more efficient, provide better service to our guests and in turn drive like-for-like sales. Retail staff turnover is therefore considered to be a key measure of success. We have shown good progress on this in the past year and it remains an area of focus for us.

Key activity in H1:

· Retail staff turnover was at a historical low of 78%, a fall of 4%pts since the start of the transformation plan

· Implementation of a centralised recruitment project for retail teams, aimed at utilising our scale to recruit collectively and improve team member engagement. This project started in London, where we have seen staff turnover fall, and is now being implemented in cities where we have a strong presence

· Investment in the time spent inducting every retail team member who is new to our business, further driving staff engagement and enhanced interaction with our guests

· Further investment in apprenticeships. We currently have more than 1,500 apprentices and in March pledged to recruit an additional 1,000 in the next two years

Our practices:

Practices refer to the professional, safe and efficient way that we run our operations. We continue to improve our already high scores in the FSA's Food Hygiene Ratings ('Scores on the Doors') by targeting four stars as a minimum acceptable rating whilst focusing our teams on achieving five.

Key activity in H1:

· Further improvements seen in FSA Food Hygiene Ratings, from an already high base. This is a measure which we know is of critical importance to our guests, and therefore we continue to drive performance in this area

· Having started in June 2013, new pub systems are now installed and live in more than 750 pubs, with rollout to be completed during FY 2015. The introduction of handheld order pads and kitchen management systems have enabled us to speed up guest service, thus driving net promoter score

· Investment in back of house systems reducing administration and freeing up time for the General Manager and Area Manager to grow the business

Our guests:

We continue to invest in guest service, aiming to grow our sales and profits through delivering consistently excellent guest experiences, leading to increased revisits and recommendation. The best measure of how well we are delighting our guests is whether they are likely to recommend our restaurants and pubs (net promoter score). Our philosophy is supported by 'Good to Great', our long-term programme to enable and empower general management and teams to deliver great guest service.

Key activity in H1:

· Further strong improvements seen in our 'net promoter score'a to 63% (FY 2013: 59%)

· Continued evolution of long-term 'Good to Great' programme across the business

· Significant food and drink innovation informed by guest research

Our profits:

A detailed review of our profit performance is provided in the next section. The return to positive food volume growth in H1, which underpins our increasing sales, is an initial sign of the success of our focus on enhancing guest experiences at affordable prices.

We expect to deliver around 35 new site acquisitions and conversions this financial year, consistent with our 'five star approach' to the market.

Key activity in H1:

· Consistent financial performance during business transformation, generating like-for-like sales growth of 1.1% and adjusted earnings per share growth of 1.4%

· Increase in site acquisitions and conversions to 15 in H1 2014 (H1 2013: 10), primarily in the Upmarket Social, Special and Family segments, alongside an accelerated remodel programme

Outlook

We are encouraged by the economic recovery that is developing across the UK. Against this backdrop, our business transformation is gaining momentum. We have a clear strategy for the long term development of the business, which is founded on well defined operational priorities. We are confident that we will make further progress against our key performance indicators and that we are well positioned for profitable future growth.

Notes

a - We ask our guests how likely they are to recommend our restaurants and pubs us to their friends, families and colleagues, scored out of 10. Each year we obtain over 700,000 responses. Net promoter score is defined as the percentage of responses where we score 9 or 10 out of 10 ('brand promoters') less the percentage of responses where we score 0 to 6 out of 10 ('brand detractors'). Responses scoring 7 or 8 ('passives') are ignored in the calculation.

b - Number of main meals sold

FINANCIAL REVIEW

On a statutory basis, profit before tax for the period was £68m (H1 2013: £68m), on sales of £1,016m (H1 2013: £991m).

TheGroupdisclosesadjustedprofitandearningspershareinformationthatexcludesexceptional itemsandotheradjustmentstoallowabetterunderstandingoftheunderlyingtradingoftheGroup. Adjusted earnings per share increased in the first half by 1.4%.

At the end of the first half, the total estate comprised 1,592 managed businesses and 59 franchised businesses in the UK and Germany.

Revenue

The Group's total revenues increased by 2.5% to £1,016m, as a result of growth in like-for-like sales as well as the contribution from new pubs and restaurants. Food sales increased by 2.7% and drink sales by 2.2%.

Total like-for-like sales increased by 1.1%, with growth from both food and drink sales. Whilst both food and drink sales were supported by price increases, food sales returned to volume growth of 0.2%a in the first half. Drink volumes declined by 0.3%b.

The like-for-like sales increase slowed in the latter part of the period, although the comparison in this period was impacted by Easter falling in the first half of last year.

Like-for-like sales growth
Trading to IMS
Since IMS
Total
Total
17 weeks to
11 weeks to
28 weeks to
33 weeks to
25 January 2014
12 April 2014
12 April 2014
17 May 2014
Total
2.0%
(0.3%)
1.1%
1.2%
Food
2.5%
(1.5%)
0.9%
1.1%
Drink
1.3%
1.2%
1.3%
1.3%

Since the end of the first half, like for like sales, including Easter, have increased by 1.5%, bringing growth over the first 33 weeks (to 17 May 2014) to 1.2%.

Operating profit

Adjusted operating profit increased by 2.1% to £147m, reflecting a stable operating margin at 14.5%. The period benefited from sales growth and a marginally lower depreciation charge. These were partly offset by an additional £4m investment on IT infrastructure projects.

The Company opened 22 sites during FY 2013, which contributed £2m to operating profit growth in the first half. New site acquisitions and conversions in FY 2014 have had a slightly dilutive profit impact, due to opening costs.

Internal rent

A regime of internal rents is in place to enable greater internal transparency around the performance of freehold and leasehold properties and external transparency concerning the performance of the operating and property functions. The operating performance is monitored on a regular basis through a system of profit reviews through all levels of the Group. Estate management is primarily monitored through the Portfolio Development Committee.

Operating
Property
Total
£m
vs LY%
£m
Vs LY%
£m
vs LY%
Revenue
1,016
2.5%
1,016
2.5%
EBITDAR
233
0.9%
233
0.9%
External Rent
(29)
(29)
Internal Rent
(105)
105
0
EBITDA
99
(1.0%)
105
1.0%
204
0.0%
EBITDA %
9.7%
(0.4 ppts)
20.1%
(0.5ppts)

Interest

The interest charge for the first half comprises three main elements: a finance cost of £71m relating to interest paid on the Company's securitised debt; finance income of £1m relating to cash deposit balances; and the net finance charge from pensions under IAS 19 (revised) of £5m. Further detail is provided in note 3.

Taxation

The estimated annual effective tax rate is 22%. The effective rate for the prior year (20%) was reduced by £2.5m of non-recurring historical tax credits.

Exceptional items and other non-cash adjustments

Exceptional items and other adjustments comprise a short lease impairment charge (£4m), the net finance charge for pensions referred to above (£5m), together with the associated tax credit (£2m).

Earnings per share

Adjusted earnings per share were 14.6p, 1.4% higher than last year. Basic earnings per share were 12.9p (H1 2013: 13.4p). Further detail is provided in note 6.

Cash flow and net debt

The cash flow statement below excludes £148m drawn from a liquidity facility under the terms of the securitisation. These funds are charged under the securitisation and are not available for use in the wider Group. Further detail is provided in note 9.

H1 2014
H1 2013
£m
£m
EBITDA before exceptional items
204
204
Working capital movement / non-cash items
25
22
Pension deficit contributions
(20)
(20)
Cash flow from operations before exceptional items
209
206
Maintenance and infrastructure capex
(58)
(48)
Interest
(65)
(63)
Tax
(16)
(13)
Free cash flow before exceptional items
70
82
Expansionary capex
(28)
(11)
Disposals
2
0
Operating exceptionals and other
(1)
(1)
Net cash flow
43
70
Mandatory bond amortisation
(28)
(27)
Net cash flow after bond amortisation
15
43

The business generated £204m of EBITDA in the first half, in line with last year. The working capital movement was largely driven by a reduction in trade receivables. Pension deficit contributions of £20m continued, in line with the deficit recovery plan agreed with the Trustees following the 2010 triennial valuation of the schemes. Cash flow from operations was £209m, £3m higher than last year.

Capital expenditure on maintenance, infrastructure and expansion increased from the low levels last year to £86m (H1 2013: £59m), resulting in a decrease in net cash flows to £43m (H1 2013: £70m). Net debt reduced to £1,721m, representing 4.1 times annualised EBITDA (FY 2013: 4.2 times EBITDA).

Net debt within the securitisation was £2,002m and cash and cash equivalents held outside the securitisation were £281m.

Capital expenditure

Total capital expenditure in the first half was £86m, £27m higher than the prior year. Of this amount, £58m was spent on maintenance and infrastructure projects. This includes a significant IT project to upgrade all pub and restaurant EPOS systems. The project rollout is due to be completed during FY 2015. The expected total cost of the project is £33m, of which approximately two thirds will be capital. Other ongoing infrastructure projects include upgrades to key head office HR and Finance systems.

The blended EBITDA return on expansionary capital since FY 2011 was 16% (FY 2013: 17%). Given the varying nature of freehold acquisitions, leasehold acquisitions and conversions, the business reviews returns by category:

H1 2014
H1 2014
FY 2011 - 2014
No. of sites
EBITDA ROI
Freehold acquisitions
£23m
6
14%
Leasehold acquisitions
£5m
5
18%
Conversions
£1m
4
17%
Total expansionary investment
£29m
15
16%

Pensions

The Company has now reached agreement on the triennial valuation of the group pension schemes as at 31 March 2013. Due principally to lower real gilt rates and an increase in assumed longevity the funding shortfall as at the valuation date has increased to £572m (March 2010 valuation: £400m). The following arrangements and recovery plan have been agreed to address the shortfall:

· The Company has provided a PPF compliant parent company guarantee and will put in place a negative pledge, in favour of the schemes, over net assets outside of the existing securitisation arrangements

· The existing recovery plan will be extended by three years to March 2023, and comprise an increase in annual contributions to £45m (previously £40m). Annual contributions will be fixed in nominal terms for the first three years and indexed to RPI thereafter

· The Companywill accelerate funding bymaking further contributionstotalling £40m by 30 September 2015on terms to be agreed with the Trustees

· Normal dividends may be resumed by the Company provided they are initially funded out of cashflow after bond amortisation and future increases are limited to the higher of the rate of RPI indexation and the annual increase in Group adjusted EPS

IAS 19 Employee Benefits (revised) was adopted on 29 September 2013 and has been applied retrospectively in accordance with the transition provisions.

The new standard replaces the interest charge on defined benefit obligations and the expected return on plan assets with a single net interest cost that is calculated by applying the discount rate to the net pension surplus or deficit at the beginning of the period, inclusive of any minimum funding requirement. In addition, the administration costs of the pension scheme, previously charged against the expected return on plan assets, are now charged within operating costs.

The impact of IAS 19 (revised) has been to reduce profit before tax by £4m for the 28 weeks to 13 April 2013; and by £8m for the 52 weeks ended 28 September 2013.

Dividends

Following agreement of the 2013 triennial pensions valuation and related recovery plan, the Board will assess a return to paying dividends in light of the full year trading and cashflow generation.

Responsibility statement

We confirm to the best of our knowledge that this condensed set of financial information, which has been prepared in accordance with IAS 34, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole; and that the interim management report herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.

This responsibility statement was approved by the Board of Directors on 21 May 2014 and is signed on its behalf by Tim Jones, Finance Director.

Notes

a - Number of main meals sold

b - Number of drinks sold

c - H1 2014 investments comprise expansionary capital specifically invested in respect of H1 2014 new site acquisitions and conversions

GROUP CONDENSED INCOME STATEMENT

for the 28 weeks ended 12 April 2014

2014
2013
2013
Before
Before
Before
exceptional
exceptional
exceptional
items
items
items
and other
and other
and other
Total
Total
Total
£m
£m
£m
£m
£m
£m
Revenue (note 2)
1,016
1,016
991
991
1,895
1,895
Operating costs before depreciation, amortisation, movements in the valuation of the property portfolio and impairment of goodwill
(812)
(812)
(787)
(787)
(1,475)
(1,475)
204
204
204
204
420
420
Depreciation, amortisation, movements in the valuation of the property portfolio and impairment of goodwill
(57)
(61)
(60)
(60)
(110)
(139)
Operating profit
147
143
144
144
310
281
Finance costs (note 4)
(71)
(71)
(71)
(71)
(130)
(130)
Finance revenue (note 4)
1
1
1
1
2
2
Net pensions finance charge (note 4)
-
(5)
-
(6)
-
(11)
Profit before tax
77
68
74
68
182
142
Tax expense (note 5)
(17)
(15)
(15)
(13)
(41)
(14)
Profit for the period
60
53
59
55
141
128
Earnings per ordinary share (note 6):
Basic
14.6p
12.9p
14.4p
13.4p
34.4p
31.2p
Diluted
14.5p
12.8p
14.4p
13.4p
34.2p
31.1p

* Restated for movement in pension liability recognised due to minimum funding requirements and for the impact of IAS 19 (revised), see note 15.

** Restated for the impact of IAS 19 (revised), see note 15.

a
Exceptional items and other adjustments are explained in note 1 and analysed in note 3.
b
Earnings before interest, tax, depreciation, amortisation, movements in the valuation of the property portfolio and impairment of goodwill.

All results relate to continuing operations.

GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME

for the 28 weeks ended 12 April 2014

2014
2013
2013
28 weeks
£m
£m
£m
(Unaudited)
(Unaudited)
(Audited)
Profit for the period
53
55
128
Items that will not be reclassified subsequently to profit or loss:
Unrealised gain on revaluation of the property portfolio
-
-
60
Remeasurement of pension liability (note 11)
(2)
(1)
-
Tax relating to items not reclassified (note 5)
4
5
16
2
4
76
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
-
1
1
Cash flow hedges:
-(Losses)/gains arising during the period
(27)
(6)
53
- Reclassification adjustments for losses included in profit or loss
31
11
47
Tax relating to items that may be reclassified (note 5)
(1)
(1)
(30)
3
5
71
Other comprehensive income after tax
5
9
147
Total comprehensive income for the period
58
64
275

* Restated for movement in pension liability recognised due to minimum funding requirements and for the impact of IAS 19 (revised), see note 15.

** Restated for the impact of IAS 19 (revised), see note 15.

GROUP CONDENSED BALANCE SHEET

12 April 2014

2014
2013
2013
12 April
28 September
ASSETS
£m
£m
£m
(Unaudited)
(Unaudited)
(Audited)
Goodwill and other intangible assets (note 7)
5
5
5
Property, plant and equipment (note 7)
3,919
3,848
3,895
Lease premiums
1
1
2
Deferred tax asset
103
146
105
Derivative financial instruments
-
16
5
Total non-current assets
4,028
4,016
4,012
Inventories
26
26
24
Trade and other receivables
46
73
72
Other cash deposits (note 9)
25
25
25
Cash and cash equivalents (note 9)
503
354
340
Total current assets
600
478
461
Total assets
4,628
4,494
4,473
LIABILITIES
Pension liabilities (note 11)
(40)
(40)
(40)
Trade and other payables
(273)
(300)
(263)
Current tax liabilities
(17)
(18)
(17)
Borrowings (note 9)
(207)
(56)
(57)
Derivative financial instruments
(45)
(47)
(46)
Total current liabilities
(582)
(461)
(423)
Pension liabilities (note 11)
(196)
(224)
(208)
Other payables
-
(12)
(12)
Borrowings (note 9)
(2,042)
(2,121)
(2,075)
Derivative financial instruments
(181)
(275)
(182)
Deferred tax liabilities
(337)
(384)
(345)
Long-term provisions
(12)
(10)
(9)
Total non-current liabilities
(2,768)
(3,026)
(2,831)
Total liabilities
(3,350)
(3,487)
(3,254)
Net assets
1,278
1,007
1,219
EQUITY
Called up share capital
35
35
35
Share premium account
24
23
23
Capital redemption reserve
3
3
3
Revaluation reserve
869
793
869
Own shares held
(5)
(3)
(4)
Hedging reserve
(184)
(253)
(187)
Translation reserve
12
12
12
Retained earnings
524
397
468
Total equity
1,278
1,007
1,219

* Restated for movement in pension liability recognised due to minimum funding requirements (see note 15).

GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY

for the 28 weeks ended 12 April 2014

Called
Share
Capital
Own
Translation
up share
premium
redemption
Revaluation
shares
Hedging
of foreign
Retained
Total
capital
account
reserve
reserve
held
reserve
operations
earnings
equity
£m
£m
£m
£m
£m
£m
£m
£m
£m
At 29 September 2012 (Audited)
35
21
3
793
(3)
(257)
11
340
943
Profit for the period*
-
-
-
-
-
-
-
55
55
Other comprehensive income/(expense)*
-
-
-
-
-
4
1
4
9
Total comprehensive income/(expense)
-
-
-
-
-
4
1
59
64
Share capital issued
-
2
-
-
-
-
-
-
2
Purchase of own shares
-
-
-
-
(2)
-
-
-
(2)
Release of own shares
-
-
-
-
2
-
-
(2)
-
Credit in respect of share-based payments
-
-
-
-
-
-
-
1
1
Tax on share-based payments
-
-
-
-
-
-
-
(1)
(1)
At 13 April 2013 (restated*) (Unaudited)
35
23
3
793
(3)
(253)
12
397
1,007
Profit for the period*
-
-
-
-
-
-
-
73
73
Other comprehensive income/(expense)*
-
-
-
76
-
66
-
(4)
138
Total comprehensive income/(expense)
-
-
-
76
-
66
-
69
211
Purchase of own shares
-
-
-
-
(3)
-
-
-
(3)
Release of own shares
-
-
-
-
2
-
-
-
2
Credit in respect of share-based payments
-
-
-
-
-
-
-
1
1
Tax on share-based payments
-
-
-
-
-
-
-
1
1
At 28 September 2013 (Audited)
35
23
3
869
(4)
(187)
12
468
1,219
Profit for the period
-
-
-
-
-
-
-
53
53
Other comprehensive income/(expense)
-
-
-
-
3
-
2
5
Total comprehensive income/(expense)
-
-
-
-
-
3
-
55
58
Share capital issued
-
1
-
-
-
-
-
-
1
Purchase of own shares
-
-
-
-
(2)
-
-
-
(2)
Release of own shares
-
-
-
-
1
-
-
(1)
-
Credit in respect of share-based payments
-
-
-
-
-
-
-
1
1
Tax on share-based payments
-
-
-
-
-
-
-
1
1
35
24
3
869
(5)
(184)
12
524
1,278

* Restated for movement in pension liability recognised due to minimum funding requirements and for the impact of IAS 19 (revised) (see note 15).

GROUP CONDENSED CASH FLOW STATEMENT

for the 28 weeks ended 12 April 2014

2014
2013
2013
28 weeks
28 weeks
52 weeks
£m
£m
£m
(Unaudited)
(Unaudited)
(Audited)
Cash flow from operations (note 8)
209
206
371
Cash flow from operating exceptional items
-
(1)
(2)
Interest paid
(66)
(64)
(128)
Interest received
1
1
2
Tax paid
(16)
(13)
(31)
Net cash from operating activities
128
129
212
Investing activities
Purchases of property, plant and equipment
(85)
(59)
(126)
Purchases of intangibles (computer software)
(1)
-
(1)
Payment of lease premium
-
-
(1)
Proceeds from sale of property, plant and equipment
2
-
1
Net cash used in investing activities
(84)
(59)
(127)
Financing activities
Issue of ordinary share capital
1
2
2
Purchase of own shares
(2)
(2)
(5)
Proceeds on release of own shares
-
-
2
Repayment of principal in respect of securitised debt
(28)
(27)
(55)
Drawings under liquidity facility
148
-
-
Net cash from/(used in) financing activities
119
(27)
(56)
Net increase in cash and cash equivalents (note 10)
163
43
29
Cash and cash equivalents at the beginning of the financial period
340
311
311
Cash and cash equivalents at the end of the financial period
503
354
340

Cash and cash equivalents are defined in note 9.

NOTES TO THE INTERIM FINANCIAL INFORMATION

1. GENERAL INFORMATION
Basis of preparation and accounting policies
This interim financial information has been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting as adopted by the European Union. The interim financial information does not constitute statutory accounts as defined in section 434 of the Companies Act 2006.
The financial information for the 52 weeks ended 28 September 2013 is extracted from the audited accounts for that period, which have been delivered to the Registrar of Companies and have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). The auditor's report on these accounts was unqualified, did not include an emphasis of matter paragraph and did not contain any statement under section 498(2) or (3) of the Companies Act 2006. This interim financial information should be read in conjunction with the Annual Report and Accounts 2013.
Adjusted profit
2. SEGMENTAL ANALYSIS
IFRS 8 Operating Segments requires operating segments to be based on the Group's internal reporting to its Chief Operating Decision Maker ("CODM"). The CODM is regarded as the Chief Executive together with other Board members. The CODM uses profit before interest and exceptional items (operating profit pre-exceptionals) as the key measure of the segment results. Group assets are reviewed as part of this process but are not presented on a segment basis.
The retail operating business operates all of the Group's retail operating units and generates all of its external revenue. The property business holds the Group's freehold and long leasehold property portfolio and derives all of its income from the internal rent levied against the Group's retail operating units. The internal rent charge is eliminated at the total Group level.
Retail Operating Business
Property Business
Total
2014
2013
2013
2014
2013
2013
2014
2013
2013
28 wks
28 wks
28 wks
52 wks
28 wks
£m
£m
£m
£m
£m
£m
£m
£m
£m
1,016
991
1,895
-
-
-
1,016
991
1,895
EBITDA pre exceptionals
99
100
228
204
204
420
Operating profit pre exceptionals
50
48
131
97
96
179
147
144
310
(4)
-
(29)
Operating profit
143
144
281
Net finance costs
(75)
(76)
(139)
Profit before tax
68
68
142
Tax expense
(15)
(13)
(14)
Profit for the financial period
53
55
128

* Restated for movement in pension liability recognised due to minimum funding requirements and for the impact of IAS 19 (revised), see note 15.

** Restated for the impact of IAS 19 (revised), see note 15.

a
Revenue includes other income of £4m (13 April 2013 £3m; 28 September 2013 £7m) in respect of franchise operations.
b
The EBITDA pre-exceptionals of the property business relates entirely to rental income received from the retail operating business.
c
Refer to note 3.
3. EXCEPTIONAL ITEMS AND OTHER ADJUSTMENTS
2014
2013
2013
28 weeks
Notes
£m
£m
£m
Operating exceptional items
Movement in the valuation of the property portfolio and goodwill:
- Impairment arising from the revaluation
a
-
-
(12)
- Other impairment
a
(4)
-
(17)
Total operating exceptional items
(4)
-
(29)
Other adjustments:
Net pensions finance charge (note 11)
b
(5)
(6)
(11)
Total exceptional items and other adjustments before tax
(9)
(6)
(40)
Tax credit relating to above items
2
2
9
Tax credit in respect of change in tax legislation
c
-
-
18
Total tax credit on exceptional items and other adjustments
2
2
27
Total exceptional items and other adjustments charge after tax
(7)
(4)
(13)

* Restated for movement in pension liability recognised due to minimum funding requirements and for the impact of IAS 19 (revised), see note 15.

** Restated for the impact of IAS 19 (revised), see note 15.

a
Movements in the valuation of the property portfolio includes impairment arising from the Group's revaluation of its pub estate and impairment of short leasehold and unlicensed properties where their carrying values exceed their recoverable amount.
b
The net pensions finance charge is a non-cash adjustment which is excluded from adjusted profit.
c
The prior year deferred tax credit relates to the enactment of legislation on 17 July 2013 which lowered the UK standard rate of corporation tax from 23% to 20% with effect from 1 April 2015.
All exceptional items relate to continuing operations.
4. FINANCE COSTS AND FINANCE REVENUE
2014
2013
2013
28 weeks
£m
£m
£m
Finance costs
Securitised and other debt - loans and receivables
(71)
(71)
(130)
Finance revenue
Interest receivable - cash
1
1
2
Net pensions finance charge (note 11)
(5)
(6)
(11)

* Restated for movement in pension liability recognised due to minimum funding requirements and for the impact of IAS 19 (revised), see note 15.

** Restated for the impact of IAS 19 (revised), see note 15.

5. TAXATION
2014
2013
2013
28 weeks
£m
£m
£m
Tax charged in the income statement
Current tax
(16)
(3)
(20)
Deferred tax
1
(10)
6
(15)
(13)
(14)

* Restated for movement in pension liability recognised due to minimum funding requirements and for the impact of IAS 19 (revised), see note 15.

** Restated for the impact of IAS 19 (revised), see note 15.

2014
2013
2013
28 weeks
52 weeks restated**
£m
£m
£m
Tax relating to items recognised in other comprehensive income
Deferred tax:
Items that will not be reclassified subsequently to profit or loss:
- Unrealised gains due to revaluations - revaluation reserve
-
-
16
- Unrealised gains due to revaluations - retained earnings
4
4
11
- Remeasurement of pension liability
-
1
(11)
4
5
16
Items that may be reclassified subsequently to profit or loss:
- Cash flow hedges:
- Losses/(gains) arising during the period
5
1
(11)
- Reclassification adjustments for losses included in profit or loss
(6)
(2)
(19)
(1)
(1)
(30)
Total tax credit/(charge) recognised in other comprehensive income
3
4
(14)

* Restated for movement in pension liability recognised due to minimum funding requirements and for the impact of IAS 19 (revised), see note 15.

** Restated for the impact of IAS 19 (revised), see note 15.

Tax has been calculated using an estimated annual effective tax rate of 22% (2013 28 weeks, 23.5%; 52 weeks, 23.5%) on profit before tax. This excludes the impact of prior year tax credits which reduces the overall tax expense for the 28 weeks ended 13 April 2013.
The Finance Act 2013 reduced the main rate of corporation tax from 23% to 20% from 1 April 2015. The effect of this change was reflected in the closing deferred tax balance at 28 September 2013.
6. EARNINGS PER ORDINARY SHARE
Basic earnings per share have been calculated by dividing the profit or loss for the financial period by 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 potentially dilutive ordinary shares.
Adjusted earnings per ordinary share amounts are presented before exceptional items and other adjustments (see note 3) in order to allow a better understanding of the underlying trading performance of the Group.
Basic
Diluted
EPS
EPS
pence per
pence per
Profit
ordinary
ordinary
£m
share
share
28 weeks ended 12 April 2014
Profit for the period
53
12.9 p
12.8 p
Exceptional items and other adjustments, net of tax
7
1.7 p
1.7 p
Adjusted profit/EPS
60
14.6 p
14.5 p
28 weeks ended 13 April 2013 (restated*)
Profit for the period
55
13.4p
13.4p
Exceptional items and other adjustments, net of tax
4
1.0p
1.0p
Adjusted profit/EPS
59
14.4p
14.4p
52 weeks ended 28 September 2013 (restated**)
Profit for the period
128
31.2p
31.1p
Exceptional items and other adjustments, net of tax
13
3.2p
3.1p
Adjusted profit/EPS
141
34.4p
34.2p

* Restated for movement in pension liability recognised due to minimum funding requirements and for the impact of IAS 19 (revised), see note 15.

** Restated for the impact of IAS 19 (revised), see note 15.

The weighted average number of ordinary shares used in the calculations above are as follows:
2014
2013
2013
28 weeks
28 weeks
52 weeks
millions
millions
millions
For basic EPS calculations
410
410
410
Effect of dilutive potential ordinary shares:
- Contingently issuable shares
1
-
-
- Other share options
2
1
2
For diluted EPS calculations
413
411
412
7. PROPERTY, PLANT AND EQUIPMENT
2014
2013
2013
12 April
13 April
28 September
£m
£m
£m
At beginning of period
3,895
3,848
3,848
Additions
85
59
126
Revaluation
(4)
-
31
Disposals
(2)
-
(1)
Depreciation provided during the period
(55)
(59)
(109)
At end of period
3,919
3,848
3,895
8. CASH FLOW FROM OPERATIONS
2014
2013
2013
28 weeks
£m
£m
£m
Operating profit
143
144
281
Add back: operating exceptional items
4
-
29
Operating profit before exceptional items
147
144
310
Add back:
Depreciation of property, plant and equipment
55
59
109
Amortisation of intangibles
1
1
1
Amortisation of lease premium
1
-
-
Cost charged in respect of share based payments
1
1
2
Adjustment for pension funding
1
1
2
Operating cash flow before exceptional items, movements in working capital and additional pension contributions
206
206
424
Movements in working capital and pension contributions:
(Increase)/decrease in inventories
(2)
-
2
Decrease/(increase) in trade and other receivables
18
(3)
(10)
Increase/(decrease) in trade and other payables
4
22
(5)
Increase in provisions
3
1
-
Additional pension contributions (note 11)
(20)
(20)
(40)
Cash flow from operations (pre exceptional items)
209
206
371

* Restated for movement in pension liability recognised due to minimum funding requirements and for the impact of IAS 19 (revised), see note 15.

** Restated for the impact of IAS 19 (revised), see note 15.

9. ANALYSIS OF NET DEBT
2014
2013
2013
12 April
13 April
28 September
£m
£m
£m
Cash and cash equivalents (see below)
503
354
340
Other cash deposits (see below)
25
25
25
Securitised debt (see below)
(2,101)
(2,177)
(2,132)
Liquidity facility (see below)
(148)
-
-
-
21
8
(1,721)
(1,777)
(1,759)
a
Represents the element of the fair value of currency swaps hedging the balance sheet value of the Group's US dollar denominated loan notes. This amount is disclosed separately to remove the impact of exchange movements which are included in the securitised debt amount.
Cash and cash equivalents
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 of £432m (13 April 2013 £268m, 28 September 2013 £268m) plus cash deposits with an original maturity of three months or less of £71m (13 April 2013 £86m, 28 September 2013 £72m).
The securitisation is governed by various covenants, warranties and events of default, many of which apply to Mitchells & Butlers Retail Limited, the Group's main operating subsidiary. These include covenants regarding the maintenance and disposal of securitised properties and restrictions on its ability to move cash, by way of dividends for example, to other Group companies. At 12 April 2014, Mitchells & Butlers Retail Limited had cash and cash equivalents of £97m (13 April 2013 £130m, 28 September 2013 £99m) which were governed by the covenants associated with the securitisation. Of this amount £46m (13 April 2013 £43m, 28 September 2013 £43m), representing disposal proceeds, was held on deposit in an account over which there are a number of restrictions. 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.
Other cash deposits
Other cash deposits at 12 April 2014 comprise £25m (13 April 2013 £25m, 28 September 2013 £25m) of cash at bank with an original maturity of three months or more.
Securitised debt
The overall cash interest rate payable on the loan notes is fixed at 6.1% (13 April 2013 5.9%, 28 September 2013 6.1%) after taking account of interest rate hedging and the cost of the provision of a financial guarantee provided by Ambac in respect of the Class A and AB notes. The notes are secured on the majority of the Group's property and future income streams.
The carrying value of the securitised debt in the Group balance sheet at 12 April 2014 is analysed as follows:
2014
2013
2013
12 April
13 April
28 September
£m
£m
£m
Principal outstanding at beginning of period
2,137
2,192
2,192
Principal repaid during the period
(28)
(27)
(55)
Exchange on translation of dollar loan notes
(8)
12
-
Principal outstanding at end of period
2,101
2,177
2,137
Deferred issue costs
(9)
(10)
(9)
Accrued interest
9
10
4
Carrying value at end of period
2,101
2,177
2,132

Liquidity facility

Under the terms of the securitisation, the Group hold a liquidity facility of £295m provided by two counterparties. As a result of the decrease in credit rating of one of the counterparties, the Group has been obliged to draw that counterparty's portion of the facility during the period. The amount drawn at 12 April 2014 is £148m (13 April 2013 £nil, 28 September 2013 £nil). These funds are charged under the terms of the securitisation and are not available for use in the wider Group.

10. MOVEMENT IN NET DEBT
2014
2013
2013
28 weeks
28 weeks
52 weeks
£m
£m
£m
Net increase in cash and cash equivalents
163
43
29
Add back cash flows in respect of other components of net debt:
- Repayment of principal in respect of securitised debt
28
27
55
- Drawings under liquidity facility
(148)
-
-
Decrease in net debt arising from cash flows
43
70
84
Movement in capitalised debt issue costs net of accrued interest
(5)
(6)
(2)
Decrease in net debt
38
64
82
Opening net debt
(1,759)
(1,841)
(1,841)
Closing net debt
(1,721)
(1,777)
(1,759)

11. PENSIONS

Retirement and death benefits are provided for eligible employees in the United Kingdom, principally by the Mitchells & Butlers Pension Plan (MABPP) and the Mitchells & Butlers Executive Pension Plan (MABEPP). These plans are funded, HMRC approved, occupational pension schemes with defined contribution and defined benefit sections. The defined benefit section of the plans is now closed to future service accrual.

Measurement of scheme assets and liabilities

Actuarial valuation

The actuarial valuations used for IAS 19 (revised) purposes are based on the results of the actuarial valuation carried out at 31 March 2010 and updated by the schemes' independent qualified actuaries to 12 April 2014. Scheme assets are stated at market value at 12 April 2014 and the liabilities of the schemes have been assessed as at the same date using the projected unit method. IAS 19 (revised) requires that the scheme liabilities are discounted using market yields at the end of the period on high quality corporate bonds.

The principal financial and mortality assumptions used at the balance sheet date have been updated to reflect changes in market conditions in the period and more up to date mortality assumptions, in line with those used in the 2013 actuarial valuation (as agreed on 21 May 2014 - see note 16).

2014
2013
2013
28 weeks
28 weeks
52 weeks
Discount Rate
4.2%
4.2%
4.4%
Inflation (RPI)
3.4%
3.4%
3.4%
Implied life expectancies from age 65:
- MABPP male currently 45
24.3 years
23.0 years
23.0 years
- MABEPP male currently 45
27.6 years
26.4 years
26.4 years

Minimum funding requirements

The results of the 2010 funding valuation showed a funding deficit of £400m, using a more prudent basis to discount the scheme liabilities than is required by IAS19 and on 21 July 2010 the Company formally agreed a 10 year recovery plan with the Trustees to close the funding deficit in respect of its pension liabilities. The result of this was that the Group agreed to increase additional contributions from £24m to £40m per annum, commencing 1 April 2010, subject to review following completion of the 2013 actuarial valuation. The Group has therefore continued to make additional contributions of £40m per annum during the current financial period. Under IFRIC 14, an additional liability is recognised, such that the overall pension liability at the period end reflects the schedule of contributions in relation to a minimum funding requirement.

The 2013 funding valuation and a new schedule of additional contributions were agreed on 21 May 2014 (see note 16).

Amounts recognised in respect of pension schemes

The following amounts relating to the Group's defined benefit and defined contribution arrangements have been recognised in the Group income statement and Group statement of comprehensive income:

Group income statement
2014
2013
2013
28 weeks
£m
£m
£m
Operating profit
Employer contributions (defined contribution plans)
(3)
(3)
(5)
Administration costs (defined benefit plans)
(1)
(1)
(2)
Total pensions operating costs
(4)
(4)
(7)
Finance costs
Net pensions finance charge on actuarial deficit
(2)
(2)
(3)
Additional pensions finance charge due to minimum funding
(3)
(4)
(8)
Net pensions finance charge
(5)
(6)
(11)
Total charge
(9)
(10)
(18)

* Restated for movement in pension liability recognised due to minimum funding requirements and for the impact of IAS 19 (revised), see note 15.

** Restated for the impact of IAS 19 (revised), see note 15.

Group statement of comprehensive income
2014
2013
2013
28 weeks
£m
£m
£m
Actuarial loss
(94)
(29)
(65)
Movement in pension liability due to minimum funding
92
28
65
Remeasurement of pension liability
(2)
(1)
-

* Restated for movement in pension liability recognised due to minimum funding requirements and for the impact of IAS 19 (revised), see note 15.

** Restated for the impact of IAS 19 (revised), see note 15.

Group balance sheet
2014
2013
2013
12 April
28 September
£m
£m
£m
Fair value of scheme assets
1,780
1,807
1,732
Present value of scheme liabilities
(1,974)
(1,907)
(1,849)
Actuarial deficit in the schemes
(194)
(100)
(117)
Additional liability recognised due to minimum funding
(42)
(164)
(131)
Total pension liability
(236)
(264)
(248)
Associated deferred tax asset
47
61
50

* Restated for movement in pension liability recognised due to minimum funding requirements (see note 15).

Movements in the total pension liability are analysed as follows:
2014
2013
2013
28 weeks
28 weeks
52 weeks
£m
£m
£m
At beginning of period
(248)
(276)
(276)
Administration costs
(1)
(1)
(2)
Net pensions finance charge
(5)
(6)
(11)
Contributions
20
20
41
Remeasurement of pension liability
(2)
(1)
-
At end of period
(236)
(264)
(248)
12. FINANCIAL INSTRUMENTS
The fair value of derivative financial liabilities held by the Group at 12 April 2014 are:
13. RELATED PARTY TRANSACTIONS
There have been no related party transactions during the period or the previous year requiring disclosure under IAS 24 Related Party Disclosures.
14. 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.
15. RESTATEMENT OF PRIOR PERIOD INFORMATION
16. POST BALANCE SHEET EVENTS
INDEPENDENT REVIEW REPORT TO MITCHELLS & BUTLERS PLC
We have been engaged by the Company to review the condensed set of financial information in the half-yearly financial report for the 28 week period ended 12 April 2014 which comprises the Group condensed income statement, the Group condensed statement of comprehensive income, the Group condensed balance sheet, the Group condensed cash flow statement, the Group condensed statement of changes in equity and related notes 1 to 16. 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 International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review 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 the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial information 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 information 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 (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, 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 (UK and Ireland) 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 information in the half-yearly financial report for the 28 weeks ended 12 April 2014 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 Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK
21 May 2014