RNS Number : 6244S
Mitchells & Butlers PLC
21 May 2009

21May 2009


MITCHELLS & BUTLERS PLC


INTERIMRESULTS

(For the28 weeks ended 11 April 2009)


FINANCIAL HIGHLIGHTS


HY2009

£m

HY2008

£m


% growth

Revenue

1,024

995

2.9%

EBITDA*

209

241

(13.3)%

Operating Profit*

139

168

(17.3)%

Profit before tax*

44

84

(47.6)%

Adjusted earnings per share **

7.9p

14.9p

(47.0)%

Basic loss per share ***

(1.5)p

(21.6)p

n/a

Dividends

-

4.55p

n/a

Loss before tax after exceptional itemsand IAS 39 movementswas £(16)m, HY2008: £(121)m

*EBITDA, operating profit and profit before tax are all stated before exceptional itemsand IAS 39 movements

** Adjusted earnings per share is stated as profit after tax before exceptional items and IAS 39 movements, divided by the weighted average ordinary shares in issue

*** Basic loss per share is stated after deducting exceptional items after tax of £2m, HY2008 £(135)m; and IAS 39 movements after tax of £(40m), HY2008 £(12m)


BUSINESSHIGHLIGHTS

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


Commenting on the results,
Drummond Hall,Chairmansaid:


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



Current Trading


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



Total

Current Trading

Trading up to AGM

Like-for-like sales

33 weeks to 16 May*

16 weeks to 16 May*

17 weeks to 24 Jan

Residential

2.0%

2.2%

1.7%

High street

0.3%

0.9%

(0.3)%

Total

1.2%

1.5%

1.0%

* Includes entire Easter in both periods being compared


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


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


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


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


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


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


Margins and inflationary cost pressures


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


Recently acquired sites


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


Cash flow and swap settlement


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


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


Since the half year end the long term interest rate swap held against the medium term borrowings has beensettled at a net cashcost of £69m post tax. Long term debtin line with the 28 year swapisnotnow commercially available andwith a swap termination clause in 2010itisthereforeappropriatetosettle this liability using a medium term loan agreement with an initial value of £75m. This transaction will give rise to an enhancement to profit of £5m in FY10 as interest rates on the facility are based on short term rates, which are currently below 2%, as opposed to the previous 5.5% fixed by the swap. As reflected in the financial statements, the swap had apre-taxmark to market loss at27 September 2008of £40m whichhadsubsequently increasedto £95m as at 11 April 2009 due to lowerlong term interest rates.


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



Start date

Previous limit

Change

New limit

FY09

Current

£550m

-

£550m

FY10

December 2009

£400m

+£75m

£475m

FY10

June 2010

£350m

+£75m

£425m

FY11

December 2010

£300m

+£38m

£338m

Note:thefacilitymaturesin November 2011


Following thesettlementof the swap, the drawingson our unsecured facility are now £451m, well inside the current available limit of £550mand already below the limit until May 2010 of £475m. Given our expectations of continued strong operating cash flows we anticipate that drawings will be comfortably inside theremaininglimitsas thefacility amortises. Although the settlement of the swap will increase net debt in theshort term, second half cash inflows are expected to fully offset thisresulting in a further decrease in net debt by the year end. Overall, these strong inflows, together with £700m of unsecured pub assets, underpin our borrowingsoutside the securitisation.


Board Changes


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



Outlook


The outlook forconsumer spendinglooks setto remain weak for the rest of 2009.In our markets, wehave recently beenseeing some signs of slowing in the previousrates ofdecline. However,customers remain cautious and value sensitive andany recoveryprospects fromimproved levels of disposable incomeappear to bebeing offset byrising levels ofunemployment.


The severeinputcost increases that havehad to be absorbedin the first half arenowlessening. Energy costs are anticipated to be £5 million lower in the second halfcompared withlast year,whileinflationin ourfood costs is expected to fall to around 3%. These factors combined with the recentimprovementin trading performance should reduce the level of pressure on second half net operating margins.


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


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


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


For further information, please contact:


Investor Relations:

Erik Castenskiold

0121 498 6513



Media:

Alastair Scott

01214986004

James Murgatroyd (Finsbury Group)

0207 251 3801


Notes for editors:


-

Mitchells & Butlers owns and operates around 2,000 high quality pubs in prime locations nationwide. The Group's predominantly freehold, managed estate is biased towards large pubs in residential locations. With around 3% of the pubs in the UK, Mitchells & Butlers has 10% of industry sales and average weekly sales per pub almost four times greater than that of the average UK pub.

-

Mitchells & Butlers' leading portfolio of brands and formats includes Ember Inns, Harvester, Sizzling Pub Co., Toby Carvery, Vintage Inns, Crown Carveries, All Bar One, O'Neill's, Nicholson's and Browns. In addition, Mitchells & Butlers operates a large number of individual city centre and residential pubs.

-

Like-for-like sales growth includes the sales performance against the comparable period in the prior year of all managed pubs that were trading in the two periods being compared. For the 33 weeks to 11 April 92% of the estate is included in this measure.

-

Uninvested like-for-like sales include the sales performance for the comparable period in the prior year of those managed pubs that have not received expansionary investment of more than £30,000 in the two periods being compared. For the 33 weeks to 11 April86% of the estate is included in this measure.


Mitchells & Butlers' strategy for growth and business review


Mitchells & Butlers' performance this period has been robust in light of the significant adverse impact that the economic recession is having on the pub market. Against this depressed background the strength of our brands and formats as well as our operating performance and marketing expertise has enabled us to deliver an improved trading performance with like-for-like sales up 1.5% in the last 16 weeks. As the on-trade's largest caterer selling 120 million meals in the UK per year we have the scale to deliver quality food at an average main meal price of only £5.79, a powerful combination in a highly value sensitive market. In drinks, our quality estate with high levels of amenity has been the bedrock of an impressive performance, with the value and range of our drinks products, coupled with the success of our food offers, enabling a significant outperformance of the market.


Operating Profit in the period has been impacted by increasing food and energy costs as well as regulatory costs (including duty) however our mitigating actions have partly offset these increases to enable our average profits per pub to remain as some of the highest in the industry.


We have generated this successful performance through the implementation of our operational strategy:


Lead the value for money casual dining market

Over the last 15 years food has been the main growth driver in the pub industry with 50% more now being spent in real terms by UK consumers on eating out. Through our operational expertise and consumer insight we have been able to take advantage of this increase in informal casual dining to develop high quality value menus such that our food volumes have grown by over 85% in the past six years with food now being the primary reason for visiting a Mitchells & Butlers pub.


The current economic pressures have for the first time in nearly 20 years reduced this market growth as people have become more value conscious and have eaten more at home. As our brands offer better value, this trend has given us significant competitive advantage which has generated further substantial market share gains. As a result, we have increased our relative outperformance of the eating-out market to over 10 percentage points with same outlet like-for-like food volume growth of 6% against a pub eating out market down approximately 4%. Over the last three months our volume performance has improved further to 7% growth.


The experience of previous recessions leads us to believe that value for money eating out remains well entrenched throughout the UK and therefore, as we come out of the current downturn, we expect to revert to the previous long term growth patterns. Over the last two years the relevance of value for money eating out has been further reinforced by the rise in the affordability of food in a Mitchells & Butlers pub compared to the cost of eating at home, with weighted grocery food prices having risen by 21% whilst the average price of a like-for-likemeal in aMitchells & Butlers pub has fallen by 7%. This 28% differential has given us significant opportunities in mainstream markets where our ability to deliver quality meals at good value price points is generating huge demand. The growth however is not solely driven by these offers with ourformats focused on more affluent customersperforming strongly and a resilient performance in our mid marketbrands where suburban families have been increasingly careful in their spending.


In thefirsthalf, we have targeted our marketing activity to ensure that it drives incremental food profit; even before the benefits of the incremental drinks volumes are added.In addition,we have used our brand scale both through press and digital marketing to communicate our promotions and offers more effectively to customers. We are now therefore receiving over one million visits per month to our websites and have sent out some 2.5 million promotional emails over the period, with some very good take up rates. As well as this,we have also focused on giving our customers options to trade up, ranging from specials menus in Vintage Inns and Premium Country Dining, to steak and sauce trade ups in SizzlingPub Co.and CommunityPubs.


Generate significant drinks market-share gains

The structural decline in the on-trade drinks market has continued in the first half. This has led to all the major on-trade product categories being under severe pressure with the market for beer and cidervolumes down 8%;wines down10%;spirits down 9% andsoft drinks down5%. This decline has particularly impacted drinks focused pubs with poor amenity and limited food capability. Against this challenging background Mitchells & Butlers has been able to deliver a very strong performance, with like-for-like drinks sales up1.7% in the first 33 weeks of the yearand beer volumes outperforming the market by 8% in the last year. This has been generated due to our focus on improving the quality and choice that we offer by widening the product range; offering excellent value for money; improving the serve quality through intensive cellar training; delivering better presentation through attractive glassware; as well as maximising the sales of drinks bought in conjunction with our increasing food volumes.


In support of this strategy during thefirsthalf, we have increased to over 750 the number of pubs retailing entry level draught beers at £2.00 a pint with these products now generating on average some 30% of their pub's draught beer volumes. Similarly, we have trialled a very successful offer at 99p for a 125ml glass of wine in our Town Pubs which we are now looking at extending to other suitable formats. We have also been looking to add value to drinks through focusing on serve quality and range extensions in the growth categories. Consequently we have enhanced cellar training across the estate and are particularly pleased to now have over 730 pubs with the gold standard of cask marque accreditation. This investment in training combined with further extended distribution in the estate has helped like-for-like cask ale volumes grow by 16% in the period. We have also increased the range in cider and like-for-like volumes have grown by 13% in the period. Lastly we have underpinned our strong soft drinks market share gains with the continued rollout of new dispense equipment which has much improved the serve quality of draught carbonates.


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

A key element of our success has been our ability to develop, expand and evolve our formats to keep pace with fast changing consumer expectations. By having clearly differentiated offers targeted to a specific customer grouping, together with focused capital investment to invigorate and evolve formats, we have been able to create an industry leading portfolio of brands and formats focused on the growth segments of the market. This has enabled us to build long term sustainable brands such as Toby, Vintage Inns, O'Neill's, Nicholson's and All Bar One and then to evolve them over a number of years to meet changing customer demands. More recently during the period, in Harvester, we have extended Earlybird to Sundays and made a substantial price adjustment to the evening menu which has led to a strong second quarter turnaround.


We are achieving sales uplifts ofover 30% on the pre-acquisition levels on the 44 pub restaurant sites acquired from Whitbread in September 2008. All the conversions of these outstanding sites to our formats have now been completed and a number have taken their place amongst the highest taking houses in our whole estate. This, following on from the successful integration of our larger acquisition in 2006,further demonstrates the power of our brand portfolio and operating skills.


Our new brand development has also been very successful over a number of years. Formats such as Crown Carveries and Premium Country Dining have been rolled out recently (we now have 108 and 55 pub restaurants respectively trading in these formats) and our new steakhouse offer, Miller & Carter (with 15 pub restaurants trading) is delivering strong like-for-like sales uplifts.


Deliver a profitable, integrated food and drink offer

Through carefully thought through pub design and offer development we have created more relaxed areas in our pubs to create an informal casual dining experience that resonates with customers. These have a less rigid separation between restaurants and drinking areas, encouraging eating out at any time of the day not just at mealtimes. This has allowed us to successfully integrate food and drinks offers with higher margin drink salestogether withslightly lower margin food sales, delivered at a small incremental cost, resulting in attractiveincreases inprofits.


The success of this strategy can be clearly seen in the profitability and continuing strength of sales growth being achieved in our previously drinks-led residential pubs where brands such as Sizzling Pub Co. and Ember Inns are now achieving food volumes of nearly 1,000 meals per week with same outlet drinks sales growthat 4%.


Extract volume driven efficiencies

A key element in our trading strategy is targeting the combination of price, volume and mix, that will generate the optimal profitability from our integrated food and drinks model.


During the first halfin food, like-for-like prices on a VAT exclusive basis rose 1.3%. However, the more rapid growth in our value food formats and customers trading down to lower priced menu items and timeslots, led to average retail food prices falling by 4%. In December last year we put through, across all our menu items, the reduction in VAT from 17.5 to 15%.


In drinks, like-for-like prices on a VAT exclusive basis were raised by 3.1%, with a benefit from the VAT reduction being greater than the associated duty increase. There was also a much more modest element of consumer trading down in drinks than in food at 0.2%, and as a result, overall drinks prices rose some 2.9%. Drinks prices continued to increase at a slower rate than the market, for example, in the period, the price of a pint of standard lager in a Mitchells & Butlers pub has risen by half the rate of the on-trade.


The key effect of these divergent price trends was to sustain strong volume growth in food, which in turn helped to generate a return to drinks sales growth for the first time since before the smoking ban. It has also generated drinks category performance well above market levels with beer and cider volume growth in line with last year; spirits volumes declining by only 6%; and wine and soft drinks volumes up by 1%.


This volume growth enables significant purchasing synergies and cost efficiencies to be created,enhancing profitability. For example in the period, we have worked closely with our supply chain to hold our like-for-like food cost of goods inflation to 7.5%, a level well below that of the double digit general food cost inflation. Moreover we have kept food cost of goods inflation per unit to only 1.6%,partly due to consumers trading down but also as a result of our menu management actionswhich we expect to total £7m in the year as a whole. In addition, we have increased contribution per labour hour by5.6%, our best ever growth, a significant achievementgiven the near 4%cost increase from the national minimum wage.


Extend the skill base of excellence throughout the estate

We continue to attract and train exceptional people looking to develop their career in licensed retailing and currently employ over 40,000 people throughout the estate. In a high staff turnover environment the ability to retain core staff is the key driver of long term performance and we have successfully increased the retention of long term employees by nearly 5 percentage points this period. A key factor supporting this is the continuing development of 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, and staff product knowledge. In January, the new, purpose-built Kitchen Skills Academy opened in Watford which provides a dedicated, state of the art training facility to support our food growth strategy and will deliver kitchen training at all levels across our brands and formats. This focus is central to our overall staff turnover rate improving by 14 percentage points to 104% in the period, one of the best in the pub industry.


The skills and experience of our operating teams are a key advantage in improving our customers' experience. We are maintaining our drive for excellence in guest service, with our continuous survey of customers' experiences across most of our brands providing direct guest feedback both on the offer and the individual pub and we have received some 300,000responses in the first half. This gives us real competitive edge in identifying and addressing customer preferences and trends and drives profits through enhanced customer satisfaction.


Our training programmes not only give our employees the skills to achieve their ambitions but also, crucially, underpin our commitment to operate our businesses safely and meet our legal obligations. In this respect, we are in the final stages of our preparations to comply with the new Licensing (Scotland) Act 2005, which becomes effective on 1 September this year and requires a change to the way in which we operate our premises in Scotland. We strongly believe in the role of the pub to provide a safe, supervised environment for both the sale and consumption of alcohol and we give rigorous training on the responsible retailing of alcohol to give our retail employees the expertise and the confidence to serve our customers correctly.


Proactively manage the estate to maximise value

Our operational strategy continues to be to maximise the profitability and value of each pub by applying the most appropriate trading format for the local market and demographics, whilst looking to demonstrate and release the value of the estate through individual pub disposals at high EBITDA multiples.


In a pub market suffering from a dearth of capital investment, both in maintenance and new product development, the quality of Mitchells & Butlers pubs and our continued investment in capital is giving us further competitive advantage by driving the evolution of our offers and sustaining our high amenity levels. This further improves our customer value proposition and supports our continuing market share gains.


During the half year in addition to the completion of the conversion projects for the 44 pub restaurant sites acquired from Whitbread in September 2008, we have strived to ensure that the slightly lower capital investment does not put our market share gains at risk. We have thereforefocused on carrying out a largenumber of refurbishments with spends of £40,000or above. In the first half 250 of these have re-opened and we expect to complete a further 250 projects in the balance of the year. In addition, during the first half over 300 properties have had repairs or maintenance projects, with average spends of £25,000.


We have also achieved disposals of £53m in the period. These have been athigh pub EBITDA multiples of over14 times, in a market which is more challenging but where there are still opportunities to create value.These disposals have beenin line withtheir net book valueand reinforce thesignificant property value of £4.6bn on the balance sheet.


Key Performance Indicators


1. Same outlet like-for-like sales growth - despite the significant recessionary pressures and their effect on general consumer demand Mitchells & Butlers' operational and marketing plans have delivered resilient like-for-like salesgrowth of1.2% in the first 33 weeks of the year. This compares with like-for-like sales growth of 0.8% in the first 32 weeks of last year.


2. EPS growth - on the back of a good trading performance, revenue for the Group was up 2.9%; however EBITDAand operating profit were down 13.3% and17.3% respectively; impacted by energy and food inflation as well as regulatory cost increases such as duty and the national minimum wage in the first half. Higher net debt levels in the first half and reduced net interest income from pensions led to higher financing costs and hence profit before tax was 47.6% lower than the previous year. The effective tax rate was reduced from 29% to 28%, leading to anearnings per share decline of 47.0% (EPS increase of 0.7% in the first half last year).


3. CROCCE in excess of WACC - Mitchells & Butlers aims to maximise the difference between the post-tax CROCCE and its WACC, a key measure of value creation. A CROCCEof9.9% after tax was achieved in the 12 months to 11 April 2009,around threepercentage points ahead of the estimated WACC for the year, reflecting the higher cost pressure in the period coupled with a worsening economic environment. (CROCCE was 10.8% after tax in the 12 months to 12 April 2008, around three to four percentage points ahead of our estimated WACC for that year.)


4. Incremental return on expansionary capital - the 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 of12% are being achieved on the expansionary capital projects carried out over the last two years (7% on the same basis at H1 2008). This measure excludes the 44 sites acquired from Whitbread in September 2008 due to the relatively short period of ownership and post conversion trading for all these sites, making it more difficult to estimate seasonal patterns and annualised returns post conversion.


The basis of KPI calculation is included within the 2008 Annual Report and Accounts.


Financial review


Group results


The Company's results for the 28 weeks to 11April reflect an improved like-for-like sales performance with increasing market share gains against declining food and drinks market volumes. On the back of this good trading performance total revenue was £1,024m, up 2.9% on last year. As previously flagged, the profits out-turn in the first half has been adversely affected by inflationary cost pressures, some of which are now beginning to reverse.


Like-for-like sales growth was robust in both Residential and High Street areas, reflecting a return to growth in drink sales and a continued good demand for food in our pubs and Pub Restaurants.


Like-for-like sales*

Same outlet

Residential

2.0%

High Street

0.3%

Total

1.2%

* Wks 1-33 to include the entire Easter period


The first half has seen continued food sales growth with same outlet sales up2.5%in the 33 weeks, a strong result in light of the weakening eating out market. In the most recent 16 weeks like-for-like food sales also grew by 2.5%.Assisted by the growth in food volumes,same outletdrinks sales have returned to growth and were up 1.7%, representing an increased level of market share gains.


In order to maintain our highly competitive key price points, we have generally looked to absorb the inflationary pressure in food costs and duty and hence our gross margins have reduced. This combined with the increase in the food sales mix and the swap of high gross margin lodge assets for the 44 Whitbread pub restaurants has led to a reduction in gross margins of 2.0% points overall.


We continue to mitigate the gross margin decrease by actively managing our operational efficiency particularly through staff productivity. We have driven significant labour productivity gains again this year and have kept outlet staff costs at 24.5% of sales in line with last year despite the pressure of national minimum wage cost increases.

Even with this tight operational cost control and continued cost savings, net operating margin was down by 3.3% points to 13.6% as a result of the inflationary pressures particularly on energy costs and significant rises in dutyandnational minimum wage. Operating profit pre exceptional items and IAS39 movementswas therefore down 17.3% at £139m.


In total we invested £77m in the period, of which£6m related to acquisition costs from the 44 sites acquired from Whitbread in September 2008;£19m related to their conversion;£40m was invested to maintain the high levels of amenity in the pubs and in the continuing development and evolution of our brands and formats;£5m related to new individual site acquisitionsand £7m was spent on expansionary projects in the existing estate. During the year3new pubs opened and50 pubs were converted to one of our brands or formats to uplift their sales and profits.We expect that gross capex for the full year will be approximately £125m.


Pubs & Bars

H1 2009

Growth

Revenue

£512m

0.8%

Operating profit*

£81m

(10.0)%

Same outlet like-for-like sales**

1.9%

* Before exceptional items

** Wks 1-33 to include the entire Easter period


After the disposal of11 managed pubs,3 transfers fromtheRestaurantdivision and 1 transfer to business franchise,there were1,072 managed pubs in the Pubs & Barsdivision at the end of theperiod. There were on average 1,074managed pubs trading during the period.


Revenue was up 0.8% as the Pubs & Bars division continued to achieve substantial market share gains in drink and food sales. This was primarily as a result of the widening gap between the estate's high amenity levels, its product range and its value-for-money compared with that of the competition. Food sales in the first half were up 7.7% driven by strong growth in a number of formats and most notably Sizzling Pub Co., Ember, O'Neill's, Scream and Metropolitan Professionals, as well as our Town Pubs and central London estate.


Pubs& Bars' operating profit of £81m before exceptional items was down10.0% in the period with net operating margin decreasing from 17.7% to15.8%, impacted by the cost increases in regulatory costs, food and energy.



Restaurants

H1 2009

Growth

Revenue

£511m

5.4%

Operating profit*

£58m

(24.7)%

Sameoutlet like-for-like sales**

0.6%

* Before exceptional items

** Wks 1-33 to include the entire Easter period


Following the disposal of 3 pubs,the addition of 3individual pubsand 3transfers to Pubs and Bars there were815 managed pubs in the Restaurants division at the end of the period. Therewere on average 801managed pubs trading during the period.


The Restaurants division has successfully integrated and converted to Mitchells & Butlers brands and formats the majority of the 44 pubs acquired from Whitbread and total sales growth was strongwith revenue up5.4%.


Restaurants' operating profit of £58m before exceptional items wasdown24.7% on the same period last year, impacted more acutely by the cost increases in food, energy and regulatory costs as well as the dilution from pre-opening and closure costs on the newly acquired sites. Net operating margin was down4.5percentage points to11.4%.


Standard Commercial Property Developments (SCPD)

SCPD hasgenerated £1m of revenue and a marginaloperating profit during the half year.


Property

The Group has reviewed the valuation of its property estatewhich was last updated at 27 September 2008 reflectingthe anticipated impact of the economic slowdown on pub values. Although increasing numbers of smaller wet-led pubs have come on to the market in the first half, demand for high quality pubs in prime locations remainsgoodas evidencedby market multiples. Given theunderlying trading levels, the Group believes that its pubs remain fairly valued at the half year.


Exceptional items and IAS 39movements

Exceptional items are separately disclosed in order to aid the readers' understanding of the Group's underlying trading. They generally represent items which do not form part of the core operations of the Group, or which are sufficiently large to warrant separate disclosure in order to facilitate comparisons with earlier trading periods. Given the nature of these items, the Board uses "pre-exceptional" performance measures in order to compare underlying performance year on year.


The fair value movement of the interest rate swaps held against the Group's unsecured debt cost was £(40)m aftertax (£(55)m before tax) at the end of the first half.After the end of the first half,the Group settled theswaps at a cost of £96m(£69m after tax).


A loss of £3m after tax was generated from individual pub disposals during the first half and an impairment charge of £5m after tax has been recognised, representing the book value of assets which the Group expects to sell within the next 12 months, to the extent that this is deemed to be irrecoverable.


Exceptional interest of £2m after tax has been recognised on tax receipts received from HMRC following the settlement of earlier tax years.


The result of the above is thattotal exceptional losses are £38m after tax (£60m before tax).


Finance charges

Finance costs were £93m in the first half before exceptional items, £4m higher than the same period last year, due to higher debt levels. Finance revenue of £1m was earned on the Group's cash balances, £3m lower than the same period last year reflecting the significant reductions in interest rates.


A net finance charge of £3m was recorded against pensions compared to income of £1m during the same period last year, principally as a result of the fall in the fair value of the pensions schemes assets in the period.


The Group's blended net interest rate for the half year was 6.2% including the impact of the net finance charge from pensions.


Taxation

Thetax charge for the period was £12m before exceptional items and IAS 39 movements. This is an effective rate of 28% of profit before tax, a reduction of 1% on H1 2008.The tax rate is expected to revert back to 29% in FY 2010.


Earnings per share

Earnings per share were7.9p before exceptional items and IAS 39 movements, a reduction of47.0%.


The loss per share after exceptional items was1.5p reflecting the IAS 39 fair value movements of the interest rate swaps held against the Group's unsecured debt cost.


Funding and 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.


The banking facilities in place within the business combined with the strong cash flows generated by the business support the Directors' view that the Group has sufficient facilities available to it to meet its foreseeable working capital requirements.


Pensions

The pension schemes deficit had increased to £39m (£28m after tax) at 11 April 2009 from £23m (£17mafter tax) at 27 September 2008, on an IAS 19 basis. This reflects the lower than expected returns on pension scheme assets, offset by a minor increase in the corporate bond rate used to discount the scheme's liabilities and the reduction in the inflation rate assumptions since 27 September2008.


The valuation basis agreed with the trustees uses a more conservative discount rate than is required under the accounting guidance for the balance sheet. The lastformalvaluation on the trustee basis was carried out in March 2007, at which time, on this more conservative basis,the valuation showed a deficit ofaround£250m. As a result a recovery plan was agreed with the trustees under which payments of £24m per annum would be made until 2017 to close the deficit bythis time. The next full actuarialvaluation will be carried out in March 2010 at which time the recovery plan will be reconsidered.


Risk factors and uncertainties


The risks and uncertainties that affect the company which remain unchanged are set out in the 2008 Financial Statements which are available on the Mitchells & Butlers website onwww.mbplc.com/ar08. In this context we note that the business is seasonal with the frequenting of pubs and pub restaurants typically being slightly lower during the winter months than in summer.



GROUPINCOME STATEMENT

for the 28 weeks ended11 April 2009



2009
2008
2008
28 weeks
28 weeks
52 weeks
Before
Before
Before
exceptional
exceptional
exceptional
items
items
items
and IAS 39
and IAS 39
and IAS 39
movementsa
Total
movementsa
Total
movementsa
Total
£m
£m
£m
£m
£m
£m
Revenue (Note 2)
1,024
1,024
995
995
1,908
1,908
Operating costs before
depreciation and
amortisation
(815)
(815)
(754)
(766)
(1,431)
(1,443)
Net (loss)/profit arising on
property disposals
-
(3)
-
8
-
6
EBITDAb
209
206
241
237
477
471
Depreciation,
amortisation and
impairment
(70)
(75)
(73)
(76)
(134)
(340)
Operating profit (Note 2)
139
131
168
161
343
131
Finance costs (Note 4)
(93)
(148)
(89)
(287)
(174)
(379)
Finance revenue (Note 4)
1
4
4
4
7
7
Net finance (charge)/
income from pensions
(Note 4)
(3)
(3)
1
1
3
3
Profit/(loss) before tax
44
(16)
84
(121)
179
(238)
Tax (expense)/credit
(Note 5)
(12)
10
(24)
34
(52)
62
Profit/(loss) for the
period
32
(6)
60
(87)
127
(176)
Earnings/(loss) per
ordinary share (Note 6):
Basic
7.9p
(1.5)p
14.9p
(21.6)p
31.5p
(43.7)p
Diluted
7.9p
(1.5)p
14.9p
(21.6)p
31.1p
(43.7)p
Dividends (Note 10):
Ordinary dividends
Proposed or paid
(pence)
-
4.55
4.55
Proposed or paid (£m)
-
18
18

a

Exceptional itemsandIAS39 movementsare explained innote 1 and analysed innotes3and 4.

b

Earnings before interest, tax, depreciation,amortisationand impairment.


All activities relate to continuing operations.


GROUPSTATEMENT OF RECOGNISEDINCOME AND EXPENSE

for the28 weeksended11 April 2009



2009


2008


2008


28 weeks


28 weeks


52weeks


£m


£m


£m







Unrealisedgain/(loss) on revaluation of the property portfolio

-


1


(166)







Tax credit relating to movements in respect of revaluations

3


7


64







Losseson cash flow hedgestaken to equity

(73)


(30)


(20)







Actuarial lossesondefined benefit pension schemes






(Note 15)

(30)


(9)


(35)







Tax on itemsrecogniseddirectlyinequity

30


(6)


5







Lossrecognised directly in equity

(70)


(37)


(152)







Transfersto the income statement:












On cash flow hedges

(53)


(14)


(30)







Tax on items transferred from equity

15


4


8







Netlossrecognised directly in equity

(108)


(47)


(174)







Lossfor the period

(6)


(87)


(176)







Total recognised expense for the period attributable to
equity holders of the parent

(114)


(134)


(350)


GROUPBALANCE SHEET

11 April 2009


2009


2008


2008


11April


12April


27September

ASSETS

£m


£m


£m







Goodwill and other intangible assets

2


17


3

Property, plant and equipment(Note 7)

4,602


5,015


4,545

Lease premiums

10


11


10

Deferred tax asset

108


23


58

Derivative financial instruments

11


5


1







Total non-current assets

4,733


5,071


4,617







Inventories

40


39


39

Trade and other receivables

55


66


80

Current tax asset

-


-


3

Derivative financial instruments

15


1


-

Cashcollateraldeposits(Note 12)

22


25


2

Cash and cashequivalents (Note 12)

93


130


129







Total current assets

225


261


253







Non-current assets held for sale

12


26


114







Total assets

4,970


5,358


4,984







LIABILITIES












Borrowings

(199)


(630)


(89)

Derivative financial instruments

(71)


(40)


(48)

Trade and other payables

(260)


(267)


(276)

Currenttaxliabilities

(3)


(13)


-







Total currentliabilities

(533)


(950)


(413)







Borrowings

(2,588)


(2,309)


(2,755)

Derivative financial instruments

(158)


(49)


(33)

Pensionliabilities (Note 15)

(39)


(7)


(23)

Deferred tax liabilities

(584)


(634)


(584)

Provisions

-


(1)


(1)







Total non-current liabilities

(3,369)


(3,000)


(3,396)







Total liabilities

(3,902)


(3,950)


(3,809)







Net assets attributable to equity holders of the






parent(Note 8)

1,068


1,408


1,175







EQUITY












Called up share capital

35


34


34

Share premium account

15


14


14

Capital redemption reserve

3


3


3

Revaluation reserve

691


824


697

Own shares held

(2)


(9)


(3)

Hedging reserve

(107)


(12)


(16)

Translation reserve

17


13


12

Retained earnings

416


541


434







Total equity(Note 9)

1,068


1,408


1,175


GROUPCASH FLOW STATEMENT

for the28 weeksended11 April 2009



2009


2008


2008


28 weeks


28 weeks


52weeks


£m


£m


£m







Cash flow from operations(Note11)

188


240


474







Net interest paid

(82)


(78)


(164)

Taxreceived /(paid)

21


(4)


(4)

Exceptional interest on tax credits

3


-


-

Net cash from operating activities

130


158


306







Investing activities






Purchases of property, plant and equipment

(76)


(117)


(192)

Purchases of intangibles(computer software)

(1)


-


(1)

Proceeds from sale of property, plant and equipment

15


54


82

Proceeds fromdisposalof non-current assets held for sale

38


-


-

Transfers tocashcollateraldeposits

(20)


(25)


(2)

Corporate restructuring costs

-


(3)


(3)







Net cash used in investing activities

(44)


(91)


(116)







Financing activities






Issue of ordinary share capital

2


-


-

Purchase of own shares

-


(5)


(5)

Proceeds on release of own shares held

-


2


3

Repayment of principal in respect of securitised debt

(22)


(20)


(41)

(Repayment of)/proceeds fromprincipal in respect ofother






borrowings

(102)


395


320

Expenditure associated with refinancing

-


-


(11)

Derivative financial instruments closure costs

-


(386)


(386)

Dividends paid

-


(40)


(58)







Net cash used in financing activities

(122)


(54)


(178)







Net(decrease)/increasein cash andcash equivalents






(Note 13)

(36)


13


12







Cash and cash equivalents at the beginning of the period

129


117


117







Cash and cash equivalents at the end of the period

93


130


129


Cash and cash equivalents are defined innote 12.


NOTES TO THEINTERIMFINANCIAL STATEMENTS


1

GENERAL INFORMATION




Basis of preparationand accounting policies


The interim financial statementshave been prepared in accordance withInternational Financial Reporting Standards (IFRS) as adopted by the European Union (EU) andcomplywith International Accounting Standard (IAS) 34 'Interim Financial Reporting'and the provisions of the Companies Act 2006. They have been prepared on a consistent basis using the accountingpolicies set out in the Annual report andaccounts 2008and should be read in conjunction with this document. Details oftheseaccounting policies canalsobe accessed within the investors section of the Group's website atwww.mbplc.com/IFRS.




The interim financial statements are unaudited and do not constitute statutoryaccountsas defined inSection435of the Companies Act2006.They were approved by aduly appointed and authorised committee of the Board of Directors on20May 2009. The financial information for the year ended 27 September 2008is extracted from the annual accounts for the year ended 27 September 2008, which have been delivered to the Registrar.The auditors' report on the annual accounts for the year ended27 September 2008was 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 Groupalso presents information that excludes exceptional itemsand IAS 39 movements. Thisinformation is disclosed to allow a better understanding of the underlying trading performance of theGroup and is consistent withthe Group'sinternal management reporting. Exceptional items, which include profits and losses on the disposal ofproperties,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 39movements representmovements in the fair value of the Group's derivative financial instruments which do not qualify for hedge accountingand are therefore recognised in the income statement. Adjusted profit excludes exceptional items andIAS 39 movements.




Exchange rates


The results of overseas operations have been translated into sterling attheaverageeurorateofexchange for the period of £1=€1.15(2008 28 weeks, £1=€1.37; 52 weeks, £1=€1.31). Euroand US dollardenominated assets and liabilities have been translated into sterling at therelevantrate of exchange at the balance sheet date of £1=€1.11(12April2008, £1=€1.25;27 September 2008, £1=€1.26) and£1=$1.47(12April2008, £1=$1.97;27 September 2008, £1=$1.84) respectively.


2

SEGMENTAL ANALYSIS




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




2009


2008


2008



28 weeks


28 weeks


52weeks



£m


£m


£m


Revenue














Pubs & Bars

512


508


954









Restaurants

511


485


939









Retail

1,023


993


1,893









SCPD

1


2


15









Total revenue

1,024


995


1,908









Operating profit














Pubs & Bars

81


90


176









Restaurants

58


77


156









Retail

139


167


332









SCPD

-


1


11









Operating profit before exceptional items

139


168


343









Exceptional items (Note 3)

(8)


(7)


(212)









Operating profit

131


161


131



After the allocation of exceptional items(where these can be attributed to a segment), the segmentalprofits are Pubs & Bars £76m (2008 28 weeks, £96m; 52weeks, £42m), Restaurants £55m (2008 28 weeks, £76m; 52 weeks, £90m),SCPD('Standard Commercial Property Developments')£nil(200828 weeks, £1m; 52 weeks, £11m)and unallocated £nil(200828 weeks, £(12)m; 52 weeks, £(12)m).


3

EXCEPTIONALITEMS





2009


2008


2008




28 weeks


28 weeks


52weeks



Notes

£m


£m


£m


Operating exceptional items








Strategic review costs

a

-


(12)


(12)












-


(12)


(12)










Profits on disposal of properties


7


11


19


Losses on disposal of properties


(10)


(3)


(13)










Net(loss)/profit arising on property disposals


(3)


8


6


Impairment arising from the revaluation of the property portfolio

b

-


(1)


(160)


Impairment arising on classification of
non-current assets held for sale

c

(5)


(2)


(46)










Total impairment


(5)


(3)


(206)










Total operating exceptional items


(8)


(7)


(212)










Exceptional finance costsand revenue








Movement in fair value of derivative financial instruments closed out(Note 4)

d

-


(182)


(182)


Exceptional interest on tax credits(Note 4)

e

3


-


-




3


(182)


(182)










Total exceptional items before tax


(5)


(189)


(394)


IAS 39 movements(Note 4)


(55)


(16)


(23)










Total exceptional items and IAS 39 movements before tax


(60)


(205)


(417)


Tax credit relating to above items


14


58


88


Exceptional tax released in respect of prior years

e

8


-


14


Tax credit in respect of change in tax
legislation

f

-


-


12










Tax credit on exceptional items and IAS 39 movements


22


58


114










Total exceptional items and IAS 39
movements after tax


(38)


(147)


(303)



a

Professional feesincurred in connection with theGroup'sreview of strategic options for value creation.


b

Impairment arising from the Group'svaluation of its property estate.


c

Impairment arising onthe carrying value of property, plant and equipmentand goodwill, prior to transferring these tonon-currentassets held for sale, where the expected net sale proceeds are less than the book value.


d

Movement in fair value of derivative financial instruments closed outrepresentsthe fair value movementduring thepriorperiod of the derivative financial instrumentsclosed out in January 2008.The sum of the movement of £182m charged in the priorperiod and anamount of £204m charged in2007represents the totalcashcostbefore taxationof terminating these instruments.


e

Provisionsof £8m have been releasedin 2009relating to tax matters which have been settled principally relating todemerger costsand qualifying capital expenditure.Provisions of £14m were released in 2008 following the settlement of tax matters principally relating to disposals and qualifying capital expenditure. In addition £3m of interest arising on the settlement of prior year tax matters has been receivedin the period.


f

Following changes to the taxlegislationfor hotels, a tax credit of £12m arose in 2008 in respect of the release of deferred tax on hotel assets.



All exceptional items relate to continuing operations.

4

FINANCE COSTS AND REVENUE

2009


2008


2008



28 weeks


28 weeks


52weeks



£m


£m


£m









Finance costs







Securitised and other debt:







- before exceptional charge

(93)


(89)


(174)









Exceptional finance costs:







- movement in fair value of derivative financial







instruments closed out (Note 3)

-


(182)


(182)









IAS 39 movementsa(Note 3)

(55)


(16)


(23)


Exceptional finance costs and IAS 39 movements

(55)


(198)


(205)










(148)


(287)


(379)









Finance revenue







Interest receivable

1


4


7


Exceptional interest on tax credits(Note 3)

3


-


-



4


4


7









Net finance(charge)/income from pensions(Note 15)

(3)


1


3



a

IAS 39 movements represent the movements during the period in the fair value of the Group's derivative financial instruments which do not qualify for hedge accounting. On 20 May 2009 the fair value liability relating to these derivative financial instruments was settled (see note 12). This liability was fully charged against the income statement in the current and prior periods through the IAS 39 movements.


5

TAX(CREDIT) / EXPENSE

2009


2008


2008



28 weeks


28 weeks


52weeks



£m


£m


£m









Currenttax

(7)


(1)


(15)









Deferred tax

(3)


(33)


(47)










(10)


(34)


(62)


Further analysed as tax relating to:














Profitbeforeexceptional items

12


24


52









Exceptional items (Note 3)

(7)


(54)


(107)









IAS 39 movements (Note 3)

(15)


(4)


(7)










(10)


(34)


(62)



Tax has been calculated using an estimatedannualeffectivetaxrate of28% (2008 28 weeks, 29%; 52weeksactual, 29%) on profitbefore tax,exceptional itemsand IAS 39 movements.


6

EARNINGS PERORDINARYSHARE




Basic earnings per share have been calculated by dividing theprofitor lossfor 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 potentiallydilutiveordinary shares.




Earnings per ordinary share amounts are presented before exceptional items (see note 3) and IAS 39 movements (see note 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 11April 2009







Lossfortheperiod

(6)


(1.5)p


(1.5)pa


Exceptional items, net of tax

(2)


(0.5)p


(0.5)p


IAS 39 movements, net of tax

40


9.9p


9.9p









Adjusted profit/EPS

32


7.9p


7.9p









28 weeks ended 12April 2008







Lossfor the period

(87)


(21.6)p


(21.6)pa


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









52weeks ended27September 2008







Lossfor the period

(176)


(43.7)p


(43.7)pa


Exceptional items, net of tax

286


71.0p


70.1p


IAS 39 movements, net of tax

17


4.2p


4.2p









Adjusted profit/EPS

127


31.5p


31.1p



a

The diluted EPS per ordinary share is unchanged from basic EPS, as the inclusion of the dilutive ordinary shares would reduce the loss per share and is therefore not dilutivein accordance with IAS 33 'earnings per share'.



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




2009


2008


2008



28 weeks


28weeks


52weeks



millions


millions


millions









Forbasic EPS calculations

405


403


403









Effect of dilutive potential ordinary shares:







Contingently issuable shares

1


5


3


Other share options

-


2


2









Fordiluted EPS calculations

406


410


408


7

PROPERTY, PLANT AND EQUIPMENT




2009


2008


2008



28 weeks


28 weeks


52weeks



£m


£m


£m









At beginning of period

4,545


5,030


5,030









Exchange differences

4


4


3









Additions

69


113


267









Revaluation

-


1


(166)









Impairment arising from the revaluation of the propertyportfolio

-


(1)


(160)









Disposals

(6)


(42)


(151)









Depreciation provided during the period

(67)


(70)


(129)









Net movement in assets held for sale

57


(20)


(149)









At end of period

4,602


5,015


4,545



Freehold andlongleasehold land and buildings arestated at market value. Short leasehold properties and fixtures, fittings and equipment are held at deemed cost at transition to IFRS less depreciation and impairment.




At 11 April 2009, amounts contracted for but not provided in the financial statements for the acquisition of property, plant and equipment were £16m (12April2008, £29m;27September2008, £19m).




Net movements in assets held for sale includes assets with a carrying value of £70mwhichwere included in non-current assets held for sale as at 27 September 2008, as in the view of the Directors at that time they met the criteria under 'IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations' as highly probabledisposalswithin 12 months. They have been transferred back to Property Plant and Equipment as at 11 April 2009 as they no longer meet the necessary criteria under IFRS 5 for treatment as non-current assets held for sale.




Impairment arising on classification of non-current assets held for sale of £5m (seenote 3) is included inNet movement in assets held for sale.


8

NET ASSETS




2009


2008


2008



11April


12April


27September



£m


£m


£m









Pubs & Bars

2,101


2,409


2,128









Restaurants

2,346


2,490


2,370









Retail

4,447


4,899


4,498









SCPD

13


14


15









Segmental net assets

4,460


4,913


4,513









Net debt(Note 12)

(2,636)


(2,822)


(2,735)









Otherunallocatednet liabilitiesa

(756)


(683)


(603)









Net assets

1,068


1,408


1,175



a

Includes balances relating to derivatives, pensions, deferred and current tax and non-operating payables.


9

CHANGE IN EQUITY




2009


2008


2008



28 weeks


28 weeks


52weeks



£m


£m


£m









Opening equity

1,175


1,576


1,576









Exchange differences

5


6


5









Share capital issued

2


-


-









Purchase of own shares

-


(5)


(5)









Release of own shares

-


2


3









Credit in respect of share-based payments

-


3


4









Total recognised income and expense

(114)


(134)


(350)









Dividends(Note 10)

-


(40)


(58)









Closing equity

1,068


1,408


1,175



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 acquirednil(200828 weeksnil, 52 weeksnil) sharesfor treasuryat a cost of £nil(2008 28 weeks £nil, 52 weeks £nil) andreleased57,762(200828 weeks542,580, 52 weeks 1,183,778)shares to employees on the exercise of share options for a total consideration of £0.1m(2008 28 weeks £1.1m, 52 weeks £1.7m).The429shares held in treasury at 11 April 2009had a market value of £0.0m(200828 weeks699,389shares had a market value of£2.3m, 52 weeks58,191shareshad a market value of £0.1m).The aggregate nominal value of the treasury shares held at 11 April 2009was £37(200828 weeks £59,739,52 weeks £5,000).


During the financial period, the employee share trustssubscribed for890,893(200828 weeksacquired866,643, 52 weeksacquired1,297,329)shares at a cost of £0.1m(2008 28 weeks £5.0m, 52 weeks £5.0m) andreleased952,833(200828 weeks1,063,841, 52 weeks1,260,408)shares to employees on the exercise ofshareoptions and other share awards for a total consideration of £0.0m(2008 28 weeks £1.3m, 52 weeks £1.6m).The1,045,430shares held by the trusts at 11 April 2009had a market value of £3.0m(200828 weeks873,251 shares had a market value of £2.9m, 52 weeks 1,107,370shares hada market value of £2.6m).


10

DIVIDENDS




2009


2008


2008



28 weeks


28 weeks


52weeks



£m


£m


£m


Amountspaid andrecognisedinequity














In respect of the 52 weeks ended29 September 2007







- Final dividend of 10.00p per share

-


40


40









In respect of the 52 weeks ended 27 September 2008







- Interim dividend of 4.55p per share

-


-


18










-


40


58









Proposed interim dividend of nil (2008 4.55p) per share for the 28 weeks ended 11 April 2009

-


18




11

CASH FLOW FROM OPERATIONS




2009


2008


2008



28 weeks


28 weeks


52weeks



£m


£m


£m









Operating profit

131


161


131


Add back: operating exceptional items

8


7


212









Operatingprofit beforeexceptional items

139


168


343









Add back:







Depreciation of property, plant and equipment

67


70


129


Amortisation of intangibles(computer software)

3


3


4


Amortisation of lease premiums

-


-


1


Cost charged in respect of share remuneration

-


3


4


Defined benefit pension cost less regular cash contributions

(2)


1


(2)









Operating cash flow before exceptional items,







movements in working capital and additional pension contributions

207


245


479









Movements in working capitaland pension







contributions:














Increasein inventories

(1)


(1)


(1)


Decrease/(increase)in trade and other receivables

16


(2)


(7)


(Decrease)/increasein trade and other payables

(18)


21


39


Movement in provisions

(1)


-


-


Additional pension contributions

(15)


(20)


(24)









Cash flow from operations before exceptional items

188


243


486









Strategic review costs

-


(3)


(12)









Cash flow from operations

188


240


474

12

ANALYSIS OF NET DEBT




2009


2008


2008



11April


12April


27September



£m


£m


£m









Cash and cash equivalents(see below)

93


130


129









Cashcollateraldeposits(see below)

22


25


2









Securitised debt (see below)

(2,381)


(2,349)


(2,339)









Derivatives hedging balance sheet debta

36


(38)


(22)









Other borrowings and finance leases (see below)

(406)


(590)


(505)










(2,636)


(2,822)


(2,735)



a

Represents the element of the fair value of currency swaps hedging the balance sheet value of the Group'sUSdollar 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 plus cash deposits with an originalmaturity of three months or less. At 11 April 2009, Mitchells&Butlers Retail Limited had cashand cash equivalents of £82m(12 April 2008 £117m,27 September 2008 £118m)which were governed by the covenants associated with the securitisation. Ofthis amount £15m(12 April 2008 £8m, 27 September 2008 £14m), representing disposal proceeds, was held on deposit in a secured account ('restricted cash').The use of this cash requires the approval of the securitisation trusteeand may only be used for certain specified purposes such as capital enhancement expenditure and business acquisitions.




Cash and cash equivalents exclude an amount of £42m posted by the Group's swap providers within the securitisation as at 11 April 2009. This amount was posted under swap collateral arrangements with the Group following recent downgrades in the credit ratings of the swap providers. This is excluded from the cash and cash equivalents balance as the Group has no rights over the collateral in the absence of an event of loan default by its lenders.




Cash collateral deposits


Cash collateral deposits consist principally of £20m of collateral which was required to be held by the Group at 11 April 2009, as part of swap collateral arrangements with its swap providers. This cash was therefore subject to restrictions.The collateral was used as part of the settlement of the fair value of the £225mswapsandtheforward startingswapson20May 2009 (see 'Derivative financial instruments' below), at which point thecollateralrequirementwas removed.Cash collateral depositsalsoinclude £2m of cash held in escrow at 11 April 2009.




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 torepay existing bank borrowings of £1,243m, pay issue costs of £23m and return £501mto 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 theloan notesis fixed at 5.7% after taking account ofinterest rate hedging and monoline insurance costs.The notes are secured onthe majority oftheGroup'sproperty and future income streams therefrom.



The carrying value of the securitised debt in the Group balance sheet at 11 April 2009 is analysed as follows:




2009


2008


2008



11April


12 April


27 September



£m


£m


£m









Principal outstanding at beginning of period

2,353


2,371


2,371


Principal repaid during the period

(22)


(20)


(41)


Exchange on translation of dollar loan notes

58


7


23









Principal outstanding at end of period

2,389


2,358


2,353









Deferred issue costs

(17)


(19)


(18)


Accrued interest

9


10


4









Carrying value at end of period

2,381


2,349


2,339



Otherborrowingsand finance leases


On 24 July 2008 the Group entered into a three year £600m term and revolving credit facility expiring on 30 November 2011, including a £300m revolving credit facility, for general purposes which incursinterest at LIBOR plus a margin.The facility reduced to £550m from December 2008.As at 11 April 2009 the Group had drawn an amount of £411m (£404mnet of deferred issue costs) against the £550m facility which forms part of the 'Other borrowings and finance leases' balance within the analysis of net debt (see above).




On20May 2009 the Groupagreed anamendment to the £550m facility with its lenders under which anadditional £75m facilitywas provided, which reduces to £37.5m in December 2010 and matures in November 2011.The amended facility incurs interest at LIBOR plus a margin. As theamendment to thefacility wasfinalisedafter 11 April2009, the drawings against this are not reflected in the net debt at 11 April 2009 stated above.Following the£75m amendment,the£550munsecured facilitywill reduce to£475min December 2009, £425m in June 2010 and £338m in December 2010.




Finance leases increased to £2m as at 11 April 2009, which is included within the 'Other borrowings and finance leases' balance above.




Derivative financial instruments


As at 11 April 2009, the Group held swaps ('the £225m swaps') which had an initial notional principal of £225m and a maturity date of 15 September 2037 against its medium-term borrowings; these included a mandatory early termination and settlement provision in December 2010 and did not qualify for hedge accounting.On 11 March 2009 the Group acquired forward starting swapsto limit the exposure of the fair value of the £225m swaps tofurtherreductions in long term interest rates.Thesesubstantiallyfixed the economic fair value of the £225m swaps.The forward starting swaps had a start date of 15 September 2009, following which the Group would have paid LIBOR and received fixed rate interest of3.6617% and included a mandatory early termination and settlement provisioneffective on 15 September 2009.On20May 2009theGroup agreed to settle the£225m swaps and the forward starting swaps at theirfair value of £(96)m.The movement in the fair value of these swaps during theperiodwas £(55)m before tax, disclosed within IAS 39 movements in note 4.




Funding and liquidity position


TheGroup's available secured debt and unsecured banking facilities, including the£75magreedon20May 2009,whichsupported the settlement of the swaps(see above),combined with the strong cash flows generated by the businesssupport theDirectors' view thatthe Group has sufficient facilities available to it to meet its foreseeable working capital requirements.

13

MOVEMENT INNET DEBT




2009


2008


2008



11April


12April


27September



£m


£m


£m









Net(decrease)/increase in cash and cash







equivalents

(36)


13


12









Add back cash flows in respect of other components of net debt:














Transfers to cash collateral deposits

20


25


2









Repayment of principal in respect of securitised debt

22


20


41















Repayments of/(proceeds from) principal in respect of other borrowings and finance leases

102


(395)


(320)









Decrease/(increase) in net debt arising from cash flows ('Net cash flow' per Note 14)

108


(337)


(265)









Non-cash movements

(9)


(6)


9









Decrease/(increase)in net debt

99


(343)


(256)









Opening net debt

(2,735)


(2,479)


(2,479)









Closing net debt

(2,636)


(2,822)


(2,735)


14

NET CASH FLOW




2009


2008


2008



28 weeks


28 weeks


52weeks



£m


£m


£m









Operating profit before exceptional items

139


168


343









Depreciation and amortisation

70


73


134









EBITDA before exceptional itemsa

209


241


477









Working capital movement

(4)


18


31









Other non-cash items

(2)


4


2









Additional pension contributions

(15)


(20)


(24)









Cash flow from operations before exceptional items

188


243


486









Net capital expenditureb

(24)


(63)


(111)









Cash flow from operations before exceptional items and afternetcapital expenditure

164


180


375









Strategic review costs

-


(3)


(12)















Cash flow from operations after net capital
expenditure

164


177


363









Net interest paid

(82)


(78)


(164)









Taxreceived/(paid)

21


(4)


(4)









Exceptional interest on tax credits

3


-


-









Dividends paid

-


(40)


(58)









Issue of ordinary share capital

2


-


-









Purchase of own shares

-


(5)


(5)









Proceeds on release of own shares held

-


2


3









Expenditure associated with refinancing

-


-


(11)









Derivative financial instruments closure costs

-


(386)


(386)









Corporate restructuring costs

-


(3)


(3)









Net cash flow(Note 13)

108


(337)


(265)



a

Earnings before interest, tax, depreciation, amortisation and exceptional items.


b

Comprises purchases of property, plant and equipment and intangibles less proceeds from the sale of property, plant and equipment.


15

PENSIONS




Amountsrecognised inthe Group incomestatementin respect of the Group's defined benefitand defined contributionarrangements are as follows:




2009


2008


2008



28 weeks


28 weeks


52weeks



£m


£m


£m









Operating profit







Current service cost (defined benefit plans)

(6)


(7)


(13)


Current service cost (defined contribution plans)

(1)


(1)


(2)









Operating profit charge

(7)


(8)


(15)









Finance income







Expected return on pension scheme assets

40


42


79


Interest on pension scheme liabilities

(43)


(41)


(76)









Net finance(charge)/income(Note 4)

(3)


1


3









Total charge

(10)


(7)


(12)



Pensiondeficit isanalysed as follows:




2009


2008


2008



11April


12April


27September



£m


£m


£m









Fairvalue ofschemeassets

1,126


1,292


1,211


Present value of scheme liabilities

(1,165)


(1,299)


(1,234)















Deficit in the schemes recognised as a liability in the balance sheet

(39)


(7)


(23)









Associated deferred taxasset

11


2


6



Movements in the schemes' net deficitisanalysed as follows:




2009


2008


2008



28 weeks


28 weeks


52weeks



£m


£m


£m









At beginning of period

(23)


(18)


(18)








Charge in the Group income statement (defined benefit plans)

(9)


(6)


(10)


Contributionspaid

23


26


40


Actuariallosses

(30)


(9)


(35)









At end of period

(39)


(7)


(23)



The principal financial and mortality assumptionsused by the actuaries at the balance sheet date wereconsistentwith those disclosed in the 2008Annualreport andaccounts.




As part of therecovery planagreedwith the Trusteeson 23 April 2008to close the funding deficit in respect of its pension scheme liabilities, the Group will make further additional contributions of£24m during the financial year 2009and£24m in eachof the financial years from 2010to 2017, subject toreviewduring the next actuarial valuation at 31 March 2010. The funding deficitwasmeasuredusing a more prudent basis to discount the scheme liabilities than is required by IAS 19.

16

RELATED PARTY TRANSACTIONS




There have been no related party transactions during the periodorthe previous year requiring disclosure under IAS 24 'Related Party Disclosures'.


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


On20May 2009 the Group agreedtosettle its £225mswapsand forward starting swapsat their fair value of £(96)m, using £76m provided by its lenders against the £550m facility and £20m of cash collateral held with its swap providers.Details of thisare included in note 12.




On 18 May 2009 the Group announced that it was introducing a salary cap of 2% for the purposes of its defined benefit pension scheme.This change will impact the IAS 19 pension scheme liability reported in the 2009 Annual report and accounts, but has no impact on these interim financial statements.




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


Adam Fowle

Chief Operating Officer

20May 2009

Jeremy Townsend

Finance Director

20May 2009


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 11April 2009, which compriseof theGroup income statement, Group statement of recognised income and expense, Group balance sheet,Group cash flow statementand related notes1 - 18.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 theCompany in accordance with guidance contained in ISRE 2410 (UK and Ireland) "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 theCompany, 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, theDirectors. TheDirectors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United 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 (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 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 (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 statements in the half-yearly financial report for the 28 week period ended 11April 2009is 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


20 May 2009



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