Final Results
Mitchells & Butlers PLC
29 November 2007
29 November 2007
MITCHELLS & BUTLERS PLC
PRELIMINARY RESULTS
(For the year ended 29 September 2007)
FINANCIAL HIGHLIGHTS
FY2007 FY2006
£m £m % growth
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Revenue 1,894 1,720 10.1
------------------------- --------- --------- ---------
EBITDA* 472 430 9.8
------------------------- --------- --------- ---------
Operating Profit* 343 309 11.0
------------------------- --------- --------- ---------
Profit before tax* 207 208 (0.5)
------------------------- --------- --------- ---------
Earnings per share before exceptionals 35.5p 29.3p 21.2
------------------------- --------- --------- ---------
Earnings per share after exceptionals** (2.5)p 39.7p n/a
------------------------- --------- --------- ---------
Dividends 14.25p 12.25p 16.3
------------------------- --------- --------- ---------
* EBITDA, operating profit and profit before tax are all stated before
exceptional items
** Exceptional items after tax were £(155)m, 2006 £51m
BUSINESS HIGHLIGHTS
- Continued good sales growth: same outlet like-for-like sales up 3.0% for the
year
- Strong market share gains: same outlet food sales up 5.1%, drink up 2.2%
- Average weekly sales per managed pub up 6% to £18.5k
- Net Retail margin at 17.9% versus 18.0% last year despite £8m of additional
regulatory costs and £14m of closure and pre-opening costs
- Majority of Acquired Sites* converted with sales uplifts of c.20%
- Property revaluation uplift of £1.1bn recognised in balance sheet
- Committed to unlocking property value for shareholders: hedges retained with
mark-to-market deficit of £155m post tax as at year end date
- Final dividend increase of 16.3%
* The 'Acquired Sites' are the pub restaurant sites purchased from Whitbread plc
in July 2006
Commenting on the results, Tim Clarke, Chief Executive said:
'Mitchells & Butlers has delivered another strong trading performance. We
extended our leadership of the eating-out market, serving 107 million meals and
made sizeable drinks market share gains. Our focus on amenity, service and value
has positioned us well to deliver further out-performance against the market
through the first year of the smoking ban and more challenging market
conditions.
We remain committed to unlocking the value of the estate for shareholders.'
Dividends
The Directors are recommending a final dividend of 10.0 pence per share taking
the total dividend for the year to 14.25 pence, an increase of 16.3% on last
year. Subject to approval at the AGM on 31 January 2008, the final dividend will
be paid on 4 February to shareholders on the register on 7 December 2007.
Current Trading
Current trading has been resilient with same outlet like-for-like sales growing
by 1.4% in the seven weeks to 17 November. Trading in the three weeks to 17
November has shown a material improvement on October with same outlet
like-for-like sales up 2.4% following the launch of our new winter menus. This
sales growth has been generated against the background of the start of the first
winter period of the smoking ban in England and Wales, a continuing volume
decline in the on-trade beer market in October of approximately 8% and a more
uncertain consumer environment.
7 weeks ended 17 Same outlet like-for-like Uninvested like-for-like
November 2007 sales growth sales growth
Residential 1.3% (1.0%)
High Street 2.5% 1.9%
Total 1.4% (0.5%)
Note: These results include the Acquired Sites
Within the Residential estate, Local Pubs have traded well, with same outlet
like-for-like sales growth of 3.3%, reflecting large drinks market share gains,
continued strong food sales growth and the benefit of the Rugby World Cup. The
Rugby tournament however, had a negative impact on our Pub Restaurants where
like-for-like sales have been marginally positive overall, although they were up
2.6% in the last three weeks following the launch of the new menus with their
enhanced quality and value.
These new menus are part of a carefully trialled and targeted margin investment
programme that we have started to implement within Pub Restaurants to drive
profitable volume growth in response to a slowing in performance towards the end
of last year, particularly in the Vintage Inns format. The initial customer
response to these new menus is very encouraging.
In the High Street, which accounts for 25% of sales, the successful evolution of
our formats has generated like-for-like sales ahead by 2.5%, with strong growth
in food sales. Trading in Central London has remained buoyant.
Trends following the smoking ban in England are currently broadly in line with
those seen in the first year of the ban in Scotland where there was a slowing of
overall sales in the winter months. In the 20 weeks since the introduction of
the smoking ban in England, same outlet like-for-like sales for our English pubs
excluding those previously converted to non-smoking, increased by 1.5%, with
food sales up 5.0% and drinks sales marginally up. In the last seven weeks these
pubs grew by 0.7% on a same outlet basis. We continue to be encouraged by the
improvement in same outlet like-for-like sales this year within our Scottish
pubs, up 6.7%, partly helped by the recent Euro 2008 football, and we believe
that the overall impact of the ban will be beneficial over time to larger, well
invested pubs with an attractive food offer.
Progress on the Acquired Sites
The Acquired Sites conversion programme remains on track with 172 pubs now
converted to our brands and formats. Average weekly sales uplifts on the
converted sites are running at approximately 20% above the levels at which the
pubs were acquired and we remain confident in delivering the year three target
of 30% sales uplifts in the 2009 financial year.
Value Release from Property Estate
The Board continues to investigate options for capturing the value of the
property estate for shareholders on a sustainable basis.
Whilst its focus has been on the establishment of a property joint venture, this
has been impacted, for now, by the disruption in the debt markets. Alternative
property based refinancing structures remain under consideration. In this
context, the Board has received a proposal from R20 in respect of a demerged
REIT structure, the attractiveness and feasibility of which we are now exploring
with R20. The proposal includes R20 procuring a fixed price underwriting in the
region of 25% of a wholly demerged REIT, which would offer shareholders the
option to realise part of their investment in the property company for cash. The
key issues under review are the details of the underwriting, the ability to
reorganise the debt and the implications for pensions, tax and legal structure.
Additionally, a REIT structure would have to meet the Board's requirement for an
appropriate balance to optimise the value of both demerged companies as
independent entities.
The Board is giving serious consideration to this proposal and will continue to
review alternative structures that would demonstrably create value from the
property whilst providing an attractive long term business model for the
operating company.
Property Revaluation
Given the continued focus on the value of our estate, we have completed a
revaluation of our fixed assets based on an updated valuation by our property
valuers, Colliers CRE, of our freehold and long leasehold properties as at 29
September 2007. For accounting purposes, this valuation represents the aggregate
value of each individual pub, rather than a portfolio approach, based primarily
on the trading cash flows. The revised value of the properties at £5.0bn
represents a net increase of £1.1bn compared with the historical accounting
basis. We will continue to revalue our properties each year on a rolling basis.
The accounting valuation of the property is consistent with the existing
structure of the Group. However, based on advice received from Colliers CRE, all
of the freehold and long leasehold properties within an OpCo/PropCo structure
would support a market rent of £280m and a rental yield of 5.8%, with an
indicative valuation of £4.8bn for the PropCo, before any allowance for
purchaser's costs, based on a 35 year, RPI inflating lease. This valuation
approach relates only to the rent from the freehold and long leasehold pubs and
therefore excludes the cash flows received by the operating company from these
pubs, as well as other company cash flows including those from existing short
leasehold pubs. Based on the year ended 29 September 2007, this would equate to
approximately £200m of underlying EBITDA.
Hedges
At the year end the post tax mark-to-market deficit on the hedges taken out in
connection with the planned R20 joint venture transaction in the summer was
£155m. Although this does not represent a cash cost in the year, the deficit has
been treated as an exceptional cost in the accounts. Due to continuing
turbulence in the debt markets, the latest post-tax mark-to-market deficit on
the hedges currently stands at approximately £180m. The hedges have been
retained as the Board remains committed to a property-based refinancing which
would utilise them, once debt markets have recovered.
Pensions
The pension schemes showed a deficit of £18m, as at 29 September 2007 on an IAS
19 valuation basis, including updated assumptions on life expectancy.
The full actuarial review undertaken in the year is currently being finalised
based on the value of the schemes as at 31 March 2007. The actuarial valuation
adopts a more conservative basis of discounting the liabilities than is required
by IAS 19 and the preliminary result shows a deficit of approximately £250m. In
line with the new pensions regulations, the Company is finalising with the
Pensions Trustees a formal recovery plan to close this deficit by 2017. As part
of this plan, in addition to the ordinary annual service contributions, it is
expected that further contributions of £24m will be made in each of the next
three years. The contribution for the year ending 30 September 2008 will include
the payment of £20m previously committed at the time of the Special Dividend in
October 2006. The level of additional contributions will be subject to review
during the next actuarial valuation as at 31 March 2010.
Responsible Retailing
Intensive management activity and time goes into the training of all our staff
to ensure that Mitchells & Butlers' pubs are responsibly operated, well
supervised and safe premises for the consumption of alcohol, as well as food and
other drinks.
For instance, we turn away some 50,000 young people a month from our pubs for
failing satisfactorily to prove their age, to ensure that we do not serve under
age drinkers. Our staff are also trained and supported in refusing to serve
customers who are intoxicated. Similarly, we have continued to support fully the
industry's self regulatory code to avoid any forms of irresponsible promotion of
alcohol.
We have also supported the establishment of The Drinkaware Trust with a wide
range of other stakeholders, focused on promoting a more responsible attitude to
drinking across society as a whole. We are determined to ensure that Mitchells &
Butlers' pubs are operated in a way that fully justifies the grant of a licence
for the responsible retailing of alcohol. In that regard we were pleased for the
second time to be recognised by the Morning Advertiser as this year's most
responsible drinks retailer in the managed pubs category.
We also believe that the retailing of alcohol, where it is subsequently consumed
in an unregulated environment, has similar social responsibilities. Against this
background we question whether the promotional policies and pricing of alcohol
at very cheap levels, sometimes below cost, by the supermarkets and other parts
of the off-trade, are compatible with those responsibilities.
All commercial retailers of alcohol need to recognise a joint responsibility for
countering the anti-social behaviour and health problems associated with its
excessive consumption.
Outlook
The outlook for consumer spending remains uncertain and the first winter of the
English smoking ban will be challenging, although the evidence from Scotland
reinforces our belief that the ban will prove beneficial to the business in the
longer term.
Mitchells & Butlers has a strong competitive position derived from the quality
of its estate, its leadership position in the eating out market, and the
consumer appeal and value for money positioning of its formats.
Our out-performance against a challenged on-trade drinks market has widened and
we are well placed to make further market share gains in the year ahead. Margin
reinvestment in the quality and value of our food offers is being actively
pursued with encouraging initial results, to generate profitable volume gains.
This, alongside further organisational cost efficiencies, will help to mitigate
the additional regulatory costs of £12m and upward pressures on food costs. Not
withstanding an expected £4m of pre-opening and closure costs in the first half,
the benefits from the conversion of the Acquired Sites will start to be more
fully reflected in the current year. As a result, we anticipate a resilient
performance amidst more challenging market conditions.
There will be a presentation for analysts and investors at 9.30am at the Merrill
Lynch Financial Centre, 2 King Edward St, London EC1. A live webcast of the
presentation will be available at www.mbplc.com. The conference will also be
accessible by phone by dialling in 0845 245 5000 or from outside the UK +44(0)
1452 562 716, the replay will be available until 07/12/07 on 0845 245 5205 or
from outside the UK +44 (0) 1452 550 000 passcode 25010379#.
For further information, please contact:
Investor Relations:
Erik Castenskiold 0121 498 6513
Media:
Kathryn Holland 0121 498 4526
James Murgatroyd (Finsbury Group) 0207 251 3801
Notes for editors:
- Mitchells & Butlers owns and operates around 2,000 high quality pubs in prime
locations nationwide. The Group's predominantly freehold, managed estate is
biased towards large pubs in residential locations. With around 3% of the pubs
in the UK, Mitchells & Butlers has 10% of industry sales and average weekly
sales per pub over three times greater than that of the average UK pub.
- Mitchells & Butlers' leading portfolio of brands and formats includes Ember
Inns, Harvester, Sizzling Pub Co., Toby Carvery, Vintage Inns, All Bar One,
O'Neill's, Nicholson's and Browns. In addition, Mitchells & Butlers operates a
large number of individual city centre and residential pubs.
- Same outlet like-for-like sales include the sales performance for the
comparable period in the prior year of all managed pubs that were trading for
the two periods being compared. For the seven weeks to 17 November 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 seven weeks to 17 November 82% of the estate is included in
this measure.
MITCHELLS & BUTLERS STRATEGY FOR GROWTH
The results achieved this year reflect our leadership position in the growing
eating-out market and further significant drinks market share gains. Our average
weekly sales per pub are up 6% to £18.5k and operating profit has increased by
11% to £343m. We have generated this performance through the successful
implementation of our sales strategy, which is to:
Lead the value for money casual dining market
We have continued to capitalise on the growth in informal, value for money,
eating out with same outlet like-for-like food volumes increasing by 6% in the
year against a pub food market up 3%. We are now selling in total 107m meals a
year. Our total food sales, including the benefits of the Acquired Sites, grew
by 22% in the year. This has been achieved through a constant focus on quality
and value to the customer and we will continue to reinvest margin into our menu
offers to generate further profitable volume growth.
The key to generating profitable food growth is responding to customers' high
sensitivity to perceptions of value. This is reflected in both high consumer
price elasticities and rising menu quality expectations.
Our business model is focused on attracting incremental food volumes which in
turn generates high margin drinks sales. With low additional employment costs,
the gross profit generated has a high drop through to operating margin.
As a result of this trading strategy, across the estate as a whole, average
weekly food sales rose by 12%, while the average number of meals served grew by
15% as the mix moved strongly towards the value segment. Thus, although
like-for-like food prices rose 1.6%, the average retail price of food served
fell by 0.8% due to the shift in mix.
We believe that the smoking ban, now implemented across the UK, will further
strengthen the growth prospects for food sales in our pubs, by being able to
attract new customers previously deterred by tobacco smoke. Since the smoking
ban was implemented in England, same outlet like-for-like food sales are up
5.0%.
Generate significant drinks market share gains
Our same outlet like-for-like drinks sales increased by 2.2% in the period.
Sales volumes, a crucial measure of underlying customer usage, once again
strongly out-performed the market across all the key categories of beer, cider,
wines, spirits and soft drinks. Crucially, our same outlet beer and cider
volumes were maintained against the background of a 4% decline in the on-trade
market for these products in the year as a whole.
We are outperforming this in the beer category through widening the product
range that we offer, improving the serve quality through intensive cellar
training and investment in cooling systems, as well as delivering better
presentation through attractive glassware.
Value is also playing a key part in our strong drinks market share gains, with a
wide gap opening between our pricing and general on-trade pricing, thereby
protecting our volumes from the supermarket discounting. As a result, the
average retail price of standard lager is now 36 pence per pint less in our pubs
than the average in leased pubs. This was despite our average retail drinks
prices rising by 3.4%, partly due to like-for-like price increases, but also due
to trading up to new, premium products. This increase was less than the price
rises across the on-trade as a whole. As a result of these product initiatives
and pricing policies, on a longer term perspective, we have grown our same
outlet beer volumes by 6% over the past four years, against a 15% decline in the
rest of the on-trade.
We have been following a similar strategy in wine, soft drinks and coffee which
are key attractions to new users of pubs. We have been extending our ranges with
new premium products, offering good value, own label products and enhancing the
serve quality. Wine sales volumes grew last year by 3% with draught dispense now
in some 630 pubs. In soft drinks, we have been successfully extending the range
of fresh juices, cordials and mineral waters. We have also installed new branded
coffee offers in around 1,200 pubs, with an uplift in sales volumes of 23%.
Develop and evolve an industry-leading portfolio of formats to drive sales
growth
Our emphasis on innovation to develop our brands and formats to keep pace with
fast changing consumer expectations is focused on ensuring that we continually
attract new customers and generate higher levels of visits. We have developed an
industry leading portfolio of brands and formats targeted at the growth segments
of the market. Average weekly sales per pub are well over three times the
industry average.
For instance, during the course of the year we have further developed our
category killer, value food formats, Sizzling Pub Co, Pub Carvery and our new
Community Locals format Cornerstone.
These each offer outstanding food value, with main meals priced between
£3.50 and £4.50, in an attractive, high amenity pub environment. Pub Carvery is
now generating an average of 2,950 meals per week, the highest, we believe, of
any format in the industry. We have also evolved our long established High
Street formats of O'Neill's and Scream, with strong performances resulting.
Similarly the development of our London offers of Nicholson's and Metro
Professionals has generated exceptional double digit food sales growth.
Deliver a profitable, integrated food and drinks offer
Whilst eating out is increasingly the reason that customers visit a Mitchells &
Butlers pub, combining higher growth, lower margin food sales with higher margin
drinks sales is key to maximising overall profitability. Our aim is to add
incremental food sales which can be delivered at low marginal cost with an
attractive drop-through to profit.
Extract volume driven efficiencies
Our rising volumes are critical in underpinning our efficiency gains. This year
we have seen a further strong rate of increase in staff productivity, with a
3.9% increase in staff contribution per hour in the core estate. This reflects
the impact of our training programmes, our focus on the optimum deployment of
staff and ever more refined techniques for forecasting and scheduling. These
have enabled us to realise significant productivity gains and maintain our pub
employment cost ratio below 24% of sales excluding the Acquired Sites, despite a
further increase of 6% in the National Minimum Wage in October 2006.
On purchasing, the Cost of Goods' index increases have seen cost rises held to
under 1%, significantly below inflation, while £7m per annum of purchasing
synergies from the Acquired Sites were delivered this year, ahead of our
forecasts at this time of acquisition.
We also continue to drive process efficiencies in the infrastructure to leverage
our scale economies. For example, the extra overhead required to service some
£200m of sales from the Acquired Sites will have been held to £2m per annum.
These factors have enabled us to maintain high net operating margins of 17.9%
broadly in line with last year, despite £8m of regulatory cost increases and
£14m of closure and pre-opening costs.
Over the next twelve months we have instigated a material rationalisation of the
organisation, with approximately £7m of annualised cost efficiencies targeted to
be delivered in FY2009.
Extend the skill base of operational excellence throughout the estate
The skills and experience of our operating teams provide a critical competitive
advantage for us in delivering high standards of customer service efficiently
and profitably. We have continued to build our staff training programmes and
industry leading practices in the areas of: capacity management at peak times;
kitchen processes and organisation; bar and floor service productivity; staff
product knowledge and our responsiveness to direct measures of feedback on guest
satisfaction. This focus on operational excellence is central to the high
average levels of sales and profitability generated by our pubs.
Proactively manage the estate to maximise value
Our strategy is to maximise the profitability and value of each pub by applying
the breadth of our trading formats as is most appropriate to the local market
and demographics. During the year we have been adding value through this
strategy to both the Acquired Sites and the existing estate. The Acquired Sites'
conversion programme remains on track with 172 pubs now converted to our
formats. We have moved at a rapid pace with the integration programme to turn
around their previous under-performance and provide a platform for future
growth. Average weekly sales uplifts on the converted sites are running at
approximately 20% above the levels at which the pubs were acquired. We remain
confident in delivering the year three target of 30% sales uplifts in the 2009
financial year.
In addition, we opened six new sites, and carried out 65 conversions and 13
growth projects to change the customer offer or increase the trading area of the
site in the core estate. Overall, we are generating a pre-tax incremental return
of 20% on our expansionary investment over the last two years in the core
estate.
As a result of this strategy, and in the light of the general levels of
investment in the on-trade market as a whole, the amenity gap between our pubs
and the majority of pubs in the UK is widening, further improving our overall
customer value proposition and our market share gains relative to the rest of
the on-trade.
We continue to make targeted disposals, where the value to third parties is
higher than the trading value to us. During the year we generated £162m of
disposal proceeds, including the sale of 102 pubs to Trust Inns in October 2006,
taking advantage of the buoyancy in the property market to crystallise the value
of smaller pubs, which had limited food growth potential.
Grow profits and capture asset appreciation to benefit shareholders
Pubs are valued as specific use assets, primarily on the basis of their
profitability and our strong operating performance has helped to generate
further capital appreciation within our estate. This has been reflected in the
£1.1bn upward revaluation of the estate to £5.0bn that has been carried out in
conjunction with our property valuers, Colliers CRE.
Our focus remains on releasing to shareholders the benefits of this capital
appreciation. At the start of the year, in October 2006, we returned £486m to
shareholders by means of a Special Dividend of £1 per share, crystallising for
shareholders the continuing growth in the value of the estate.
It has also been clear that property investors are attracted to the long term,
secure growth prospects that can be created through the rentalising of part of
our operational cash flows in a dedicated property structure. Whether in a Joint
Venture, a REIT or another separate property structure, fundamentally higher
values appear to be placed on the estate than when it is combined in an
integrated model with the operations.
We believe that substantial value can be potentially captured from our high
quality, freehold and long leasehold assets, through such structures. A key
consideration in such a process is to construct a lease arrangement which
ensures that both the property and the operations remain mutually incentivised
to continue to create long term value.
The Board will continue to actively investigate options for capturing the value
of the property estate for shareholders on a sustainable basis.
FINANCIAL REVIEW
Total revenue for the year was £1,894m, up 10.1% on last year, including the
first full year of ownership of the Acquired Sites purchased from Whitbread plc
in July 2006.
Strong like-for-like sales growth continued in the year in both Residential and
High Street areas, reflecting resilient trading in more challenging conditions
in the second half and further significant market share gains.
Like-for-like sales Same Outlet* Uninvested*
Residential 3.1% 1.5%
High Street 3.0% 2.3%
Total 3.0% 1.7%
* Excludes the Acquired Sites
With the success of our ongoing sales and marketing activities, same outlet food
sales and drink sales were up 5.1% and 2.2% respectively, with average retail
prices up less than 2%, reinforcing our value position in a market characterised
by real price increases.
Our increased share of the drinks market and the increasing scale of our food
volumes have helped us to mitigate continuing pressures on the cost of goods
purchased, including drinks duty rises and global food inflation. Overall gross
margins were slightly below last year, reflecting a further shift in the sales
mix towards the higher growth but lower margin categories of food and wine.
By continuing to improve employee productivity, our pub employment ratio in the
estate was maintained at below 24% of sales, despite further increases in the
National Minimum Wage adding £7m to our labour costs. As a result the net retail
operating margin at 17.9% was broadly in line with last year, despite £14m of
one-off closure and pre-opening costs incurred in connection with the conversion
of the Acquired Sites.
We invested £261m in the year, of which £8m related to the purchase of the
Acquired Sites and £80m was invested to convert the majority of those sites to
Mitchells & Butlers' brands and formats. In the existing estate, £122m was
invested to maintain the high levels of amenity in the pubs and in the
continuing development and evolution of our brands and formats and £51m was
spent on expansionary projects. During the year six new pubs opened and 65
existing pubs were converted to one of our brands or formats to uplift their
sales and profits. We are continuing to achieve an incremental, pre-tax return
of 20% on the core expansionary projects of the last two years.
During the year we raised £162m of cash from disposals, including £101m from the
sale of 102 of our smaller, community pubs to Trust Inns Limited. As a result,
net capital investment during the year was £99m.
In addition to the strong Retail performance, SCPD realised a property
development profit of £7m in the year. As a result, total operating profit
before exceptional items was £343m, up 11.0% on last year.
Pubs & Bars
FY07 Growth
Revenue £968m 1.0%
Operating profit* £191m 6.7%
Same outlet like-for-like sales** 4.7%
Uninvested like-for-like sales** 3.0%
* Before exceptional items
** Excluding the Acquired Sites
After the disposal of 86 managed pubs, 8 transfers to business franchise and 1
pub transferred to the Restaurants division, there were 1,129 managed pubs in
the Pubs & Bars division at the end of the period, including 28 Acquired Sites.
There were on average 1,159 managed pubs trading during the year.
Revenue was up 1.0%, including £16m from the Acquired Sites transferred to the
division following conversion. Excluding those Acquired Sites and adjusting for
major disposals made last year and at the beginning of this year, revenue in the
core Pubs & Bars estate was up 3.5%.
Pubs & Bars continued to achieve market share gains in drink sales, as a result
of the widening gap between our amenity, product range and value for money and
that of the competition. Food sales in the year were up 12.5% (excluding the
Acquired Sites) driven by growth in the residential pubs, notably Sizzling Pub
Co and Metropolitan Professionals, as well as by the Town Pubs and the central
London estate.
The review of machines stakes and prizes shortly before the beginning of the
year raised the maximum stake to 50p and the maximum prize to £35. These changes
were modestly beneficial to machine sales although the negative impact of the
smoking ban introduced in July meant that machine sales were slightly down for
the year as a whole.
A total of 56 conversions were completed, predominantly to residential brands
and formats such as Sizzling Pub Co, Ember Inns and the Metropolitan
Professionals format.
As a result of tight cost control and improved employee productivity, Pubs &
Bars operating profit of £191m before exceptional items was up 6.7% in the year
and the net operating margin increased from 18.7% last year to 19.7%. Excluding
the contribution from the Acquired Sites and the impact of major disposals in
the comparative, the existing Pubs & Bars estate increased operating profit by
11.9%.
Restaurants
FY07 Growth
Revenue £908m 19.2%
Operating profit* £145m 11.5%
Same outlet like-for-like sales** 1.0%
Uninvested like-for-like sales** 0.1%
* Before exceptional items
** Excluding the Acquired Sites
Following the disposal of 15 pubs and 8 transfers to business franchise, there
were 787 managed pubs in the Restaurants division at the end of the period,
including 191 Acquired Sites 2 new individual pubs and 1 pub transferred from
Pubs & Bars. There were on average 768 managed pubs trading during the year.
Revenue was up 19.2%, including £160m from the Acquired Sites. Excluding the
Acquired Sites, there were on average 591 pubs trading during the year and in
these pub restaurants, revenue grew by 2.7%, with food sales up 3.9% and drinks
up 0.7%.
The Restaurants division successfully integrated the Acquired Sites and
completed the majority of the conversions during the year as planned. Growth in
the rest of the estate slowed during the year primarily as a result of
increasing economic pressure on mid-market consumers and greater intensity of
competition in pub food. Management focus is on continuing to evolve the offer
in our brands and formats, combined with further efficiency and productivity
improvements.
Restaurants operating profit of £145m before exceptional items was up 11.5% on
last year, including £16m from the Acquired Sites. The net operating margin fell
from 17.1% last year to 16.0% due to the closure and pre-opening costs
associated with the conversion of the Acquired Sites and the comparatively low
margins achieved by those sites prior to conversion. Excluding the Acquired
Sites, the Restaurants estate increased operating profit by 4.0% with a net
operating margin improvement of 0.2 percentage points.
Standard Commercial Property Developments (SCPD)
SCPD generated £18m of revenue and £7m of operating profit in the year, the
majority of which related to the sale of a long term development property in
Burton-on-Trent, which was completed in August.
Property backed re-financing and related hedging arrangements
Substantial progress was made in the summer on structuring an attractive
property transaction, with terms largely concluded with R20 (the investment
vehicle of Robert Tchenguiz) based on the sale of a 50% stake in a £4.5bn
property joint venture comprising approximately 1,300 pubs and £240m of rent.
In the final stage of the planned transaction, the Company and R20 separately
entered into certain interest and inflation hedging arrangements intended to be
contributed to the joint venture. However, the sudden, rapid deterioration in
debt market conditions in late July meant that a financing package could not be
obtained and the transaction could not be executed. The hedges remain in place
as it is the Board's intention to utilise these financial instruments in a
future property based re-financing once debt markets have stabilised.
Property Revaluation
Given the continued focus on the value of our estate, we have completed a
revaluation of our fixed assets based on an updated valuation by our property
valuers, Colliers CRE, of our freehold and long leasehold properties as at 29
September 2007. For accounting purposes, this valuation represents the aggregate
value of each individual pub, rather than a portfolio approach, based primarily
on the trading cash flows. The revised value of the properties at £5.0bn
represents a net increase of £1.1bn compared with the historical accounting
basis. We will continue to revalue our properties each year on a rolling basis.
The accounting valuation of the property is consistent with the existing
structure of the Group. However, based on advice received from Colliers CRE, all
of the freehold and long leasehold properties within an OpCo/PropCo structure
would support a market rent of £280m and a rental yield of 5.8%, with an
indicative valuation of £4.8bn for the PropCo, before any allowance for
purchaser's costs, based on a 35 year, RPI inflating lease. This valuation
approach relates only to the rent from the freehold and long leasehold pubs and
therefore excludes the cash flows received by the operating company from these
pubs, as well as other company cash flows including those from existing short
leasehold pubs. Based on the year ended 29 September 2007, this would equate to
approximately £200m of underlying EBITDA.
Exceptional items
Exceptional items are those which are separately identified by virtue of their
size or incidence so as to allow a better understanding of the underlying
trading performance of the Group. Exceptional items are generally those which do
not form part of the core operations of the Group. As a result, the Board
focuses on 'pre-exceptional' performance measures in order to compare underlying
performance year on year.
The interest rate and inflation hedging arrangements that the Company entered
into in July 2007 provide an economic hedge against the future anticipated cash
flows associated with a property based refinancing, however they do not qualify
for hedge accounting as defined in IAS39. Movements in their fair values are
therefore recognised directly in the Group income statement, within exceptional
finance costs. The total fair value movement of these instruments during the
year reported within exceptional finance was £(221)m, (£(155)m after tax).
An exceptional loss on property related items of £23m (£17m after tax) arose
during the year. This was caused by impairment arising from the revaluation of
the property portfolio of £45m (£32m after tax) partly offset by net profits on
the disposal of properties of £22m (£15m after tax), primarily related to the
sale of 102 pubs to Trust Inns Limited on 6 October 2006.
Exceptional costs of £4m (£3m after tax) were incurred in the first half of the
year relating to the integration of the Acquired sites, whilst a further £7m of
costs (£7m after tax) were incurred in the second half of the year, relating
primarily to professional advisers' fees in relation to the Board's review of a
potential property refinancing and the proposed joint venture transaction with
R20.
The tax impact of the above exceptional items is a £73m credit. In addition,
there is a further £27m of exceptional deferred tax credits (giving a total of
£100m), primarily relating to the change in the corporate tax rate from 30% to
28% in April 2008.
Finance Costs and Revenue
Finance costs during the year were £153m before exceptional items, £35m higher
than last year. Finance revenue of £6m was achieved on the Group's cash balances
being £3m lower than last year. The net increase in finance costs of £38m
against last year reflects the higher level of debt in the Group following the
purchase of the Acquired Sites in August 2006 and the payment of a special
dividend of £486m to shareholders in October 2007.
Net finance income from pensions was £11m, £3m higher than last year due to an
increase in the expected return on the assets in the pension scheme compared to
the charge for the liabilities.
The Group's blended net interest rate for the year was 5.5% including the impact
of the net finance income from pensions.
Taxation
The tax charge for the year was £62m before exceptional items. This is an
effective rate of 30% of profit before tax, 1 percentage point lower than the
previous year. The decrease has been achieved following the resolution during
the second half of the year of various outstanding items with HMRC.
As part of the exercise to revalue assets at the year end, management also
reviewed the Group's deferred tax provision for unrealised gains under IAS 12.
This review has resulted in a prior year adjustment which has the effect of
increasing the deferred tax provision in the opening balance sheet by £76m. This
adjustment has no impact on previously reported profits. In addition, as a
result of the revaluation, the deferred tax balance at 29 September 2007 has
increased by £296m.
Earnings per share
Earnings per share were 35.5p before exceptional items, 21.2% ahead of last
year. In addition to the growth in operating profit, earnings per share have
benefited from a 17% reduction in the average number of shares mainly as a
result of the 34 for 41 share consolidation carried out in October 2006 in
conjunction with the special dividend.
The loss per share after exceptional items was 2.5p reflecting primarily the
exceptional accounting losses on the financial hedges entered into in
anticipation of a property re-financing and the proposed joint venture
transaction with R20.
Dividends and returns to shareholders
The Board is recommending a final dividend for 2007 of 10 pence per share.
Together with the interim dividend of 4.25p pence paid on 29 June 2007, this
gives a total dividend for the year of 14.25 pence, up 16.3% on last year.
Notwithstanding a more challenging outlook for the economy and the market
environment, the proposed increase in the ordinary dividend is underpinned by
the strong underlying earnings per share performance achieved in the year. The
Board remains committed to a progressive policy for dividends consistent with
the growth prospects of the Company.
Subject to approval at the AGM, on 31 January 2008, the final dividend will be
paid on 4 February 2008 to shareholders on the register on 7 December 2007.
Since Mitchells & Butlers listed in April 2003, shareholders have received more
than £1.1bn in cash through Special Dividends and share buybacks, over and above
ordinary dividends paid. This represents more than 70% of the Company's market
capitalisation at the time.
Cash flow and net debt
The Group's operations continue to be highly cash generative. Cash flow from
operations was £447m before exceptional items but after additional pension
contributions of £40m. Net capital expenditure was £99m comprising £80m of
expenditure on the Acquired Sites, £51m of core expansionary capital investment,
£122m of maintenance capital, less disposal proceeds of £162m.
Net interest paid of £145m was £38m higher than last year reflecting the
increased level of debt in the business. Tax paid was £33m, £15m lower than the
prior year driven primarily by £10m of tax rebates received from the Inland
Revenue during the year. Payments totalling £52m were made in respect of the
final dividend for FY2006 and the interim dividend for FY2007 in addition to the
special dividend of £486m paid in October 2006. £46m was spent to repurchase
shares, whilst £11m was received from the exercise of share options.
As a result, there was a net cash outflow of £399m before exceptional costs of
£12m and bond repayments of £39m. This compared to a cash outflow before
exceptional items of £428m last year. Net debt at the year end was £2,479m,
£412m higher than last year, representing 5.25 times EBITDA.
Share price and market capitalisation
At 28 September 2007 the share price was 611p compared with 590p at the start of
the financial year, an increase of 3.6%. The Company is a member of the FTSE 100
index with a market capitalisation of approximately £2.5bn at the year end.
Treasury management
The financial risks faced by the Group are identified and managed by a central
Treasury department. The activities of the Treasury function are carried out in
accordance with Board approved policies and are subject to regular audit. The
department does not operate as a profit centre.
At 29 September 2007, the Group's net debt of £2,479m consisted of the
securitised debt of £2,356m, borrowings on the Group's revolving credit facility
of £192m, derivatives hedging balance sheet debt of £45m, other loan notes and
finance lease obligations together totalling £3m, offset by a cash balance of
£117m.
Pensions
On an IAS 19 basis, the Group's pensions schemes showed a deficit of £18m, (£14m
after tax) at 29 September 2007 compared with £99m (£67m after tax) at 30
September 2006. The reduction in the deficit reflects the benefit of £40m of
additional pension contributions paid in the year and improved investment
returns, partially offset by updated assumptions of life expectancy.
The full actuarial review undertaken in the year is currently being finalised
based on the value of the schemes as at 31 March 2007. The actuarial valuation
adopts a more conservative basis of discounting the liabilities than is required
by IAS 19 and the preliminary result shows a deficit of approximately £250m. In
line with the new pensions regulations, the Company is finalising with the
Pensions Trustees a formal recovery plan to close this deficit by 2017. As part
of this plan, in addition to the ordinary annual service contributions, it is
expected that further contributions of £24m will be made in each of the next 3
years. The contribution for the year ending 30 September 2008 will include the
payment of £20m previously committed at the time of the Special Dividend in
October 2006. The level of additional contributions will be subject to review
during the next actuarial valuation as at 31 March 2010.
Shareholders' funds
Shareholders funds were £1,576m at the end of the year including the impact of
the property revaluation compared with £1,209m at the start of the year which
incorporates the impact of the £76m prior year adjustment.
GROUP INCOME STATEMENT
For the 52 weeks ended 29 September 2007
2007 2006
---------------- ----------------
52 weeks 52 weeks
---------------- ----------------
Before Before
exceptional exceptional
items Total items Total
£m £m £m £m
--------- --------- --------- ---------
Revenue (Note 3) 1,894 1,894 1,720 1,720
Operating costs before depreciation
and amortisation (1,422) (1,433) (1,290) (1,297)
(Loss)/profit arising on
property-related items
(Note 4) - (23) - 23
--------- --------- --------- ---------
EBITDA* 472 438 430 446
Depreciation and amortisation (129) (129) (121) (121)
--------- --------- --------- ---------
Operating profit (Note 3) 343 309 309 325
Finance costs (Note 5) (153) (374) (118) (122)
Finance revenue (Note 5) 6 6 9 9
Net finance income from pensions
(Note 14) 11 11 8 8
--------- --------- --------- ---------
Profit/(loss) before tax 207 (48) 208 220
Tax (expense)/credit (Notes 4 and 6) (62) 38 (64) (25)
--------- --------- --------- ---------
Profit/(loss) for the financial
period attributable to equity
holders of the parent 145 (10) 144 195
========= ========= ========= =========
Earnings/(loss) per ordinary share
(Note 8)
Basic 35.5p (2.5)p 29.3p 39.7p
Diluted 34.4p (2.5)p 28.6p 38.8p
========= ========= ========= =========
Dividends (Note 7)
Ordinary dividends proposed or paid
(pence) 14.25 12.25
Ordinary dividends proposed or paid (£m) 57 53
Special dividends paid (pence) 100.00 -
Special dividends paid (£m) 486 -
========= =========
* Earnings before interest, tax, depreciation and amortisation.
All activities relate to continuing operations.
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the 52 weeks ended 29 September 2007
2007 2006
52 weeks 52 weeks
restated*
£m £m
--------- ---------
Unrealised gain on revaluation of the property portfolio
(Note 2) 1,124 -
Tax charge relating to movement in unrealised gain due to
revaluation (Note 6) (317) -
Tax credit relating to indexation of gains in respect of
previous revaluations (Note 6) 25 19
Gains/(losses) on cash flow hedges taken to equity 55 (22)
Actuarial gains on defined benefit pension schemes (Note 14) 33 27
Tax on items recognised directly in equity (Note 6) (23) 11
Tax credit in respect of change in tax rate (Note 6) 30 -
--------- ---------
Income recognised directly in equity 927 35
Transfers to the income statement:
On cash flow hedges 15 16
Tax on items transferred from equity (Note 6) (5) (5)
--------- ---------
Net income recognised directly in equity 937 46
(Loss)/profit for the financial period (10) 195
--------- ---------
Total recognised income and expense for the financial period
attributable to equity holders of the parent 927 241
========= =========
Effect of prior year adjustment (Note 2) (76)
=========
* Restated in respect of a prior year adjustment (see Note 2).
GROUP BALANCE SHEET
29 September 2007
2007 2006
restated*
£m £m
--------- ---------
ASSETS
Goodwill and other intangible assets 17 22
Property, plant and equipment 5,030 3,867
Lease premiums 11 13
Deferred tax asset 75 68
Derivative financial instruments 30 -
--------- ---------
Total non-current assets 5,163 3,970
--------- ---------
Inventories 38 42
Trade and other receivables 69 81
Derivative financial instruments 79 -
Cash and cash equivalents 117 375
--------- ---------
Total current assets 303 498
--------- ---------
Non-current assets held for sale 6 88
--------- ---------
Total assets 5,472 4,556
--------- ---------
LIABILITIES
Borrowings (234) (41)
Derivative financial instruments (295) (7)
Trade and other payables (243) (251)
Current tax liabilities (18) (22)
--------- ---------
Total current liabilities (790) (321)
--------- ---------
Borrowings (2,317) (2,375)
Derivative financial instruments (47) (55)
Pension liabilities (Note 14) (18) (99)
Deferred tax liabilities (723) (494)
Provisions (1) (3)
--------- ---------
Total non-current liabilities (3,106) (3,026)
--------- ---------
Total liabilities (3,896) (3,347)
--------- ---------
Net assets attributable to equity holders of the parent 1,576 1,209
(Note 9) ========= =========
EQUITY
Called up share capital 34 34
Share premium account 14 14
Capital redemption reserve 3 3
Revaluation reserve (Note 2) 828 -
Own shares held (13) (12)
Hedging reserve 20 (30)
Translation reserve 7 6
Retained earnings 683 1,194
--------- ---------
Total equity 1,576 1,209
========= =========
* Restated in respect of a prior year adjustment (see Note 2).
GROUP CASH FLOW STATEMENT
For the 52 weeks ended 29 September 2007
2007 2006
52 weeks 52 weeks
£m £m
--------- ---------
Cash flow from operations (Note 10) 447 430
Interest paid (151) (115)
Interest received 6 8
Tax paid (33) (48)
--------- ---------
Net cash from operating activities 269 275
--------- ---------
Investing activities
Purchases of property, plant and equipment (252) (179)
Acquisition of Whitbread pub restaurant sites (8) (489)
Purchases of intangibles (computer software) (1) (3)
Proceeds from sale of property, plant and equipment 162 88
Proceeds from cash deposits with a maturity of greater than
three months - 1
Defence costs - (4)
Corporate restructuring costs (4) -
--------- ---------
Net cash used in investing activities (103) (586)
--------- ---------
Financing activities
Purchase of own shares (46) (76)
Proceeds on release of own shares held 11 12
Repayment of principal in respect of securitised debt (39) (460)
Proceeds from issue of securitised debt - 1,078
Proceeds from issue of other debt 192 -
Expenditure associated with refinancing (4) (10)
Repayment of principal in respect of other loans - (1)
Dividends paid (538) (56)
--------- ---------
Net cash used in financing activities (424) 487
--------- ---------
Net (decrease)/increase in cash and cash equivalents
(Note 13) (258) 176
Cash and cash equivalents at the beginning of the financial
period 375 199
--------- ---------
Cash and cash equivalents at the end of the financial period 117 375
========= =========
1. GENERAL INFORMATION
Mitchells & Butlers plc ('the Group') is required to prepare its consolidated
financial statements in accordance with International Financial Reporting
Standards as adopted by the European Union (IFRS) and in accordance with the
Companies Act 1985. As a result, the information contained within this
release has been prepared in accordance with IFRS.
The preliminary financial statements include the results of Mitchells &
Butlers plc and all its subsidiaries for the 52 week period ended 29
September 2007. The comparative period is for the 52 week period ended 30
September 2006. The respective balance sheets have been drawn up to 29
September 2007 and 30 September 2006.
Exchange rates
The results of overseas operations have been translated into sterling at the
weighted average euro rate of exchange for the financial period of £1 = €1.48
(2006 £1 = €1.46), where this is a reasonable approximation to the rate at
the dates of the transactions. Euro and US denominated assets and liabilities
have been translated at the relevant rate of exchange at the balance sheet
date of £1 = €1.43 (2006 £1 = €1.47) and £1 = $2.04 (2006 £1 = $1.87)
respectively.
2. CHANGE OF ACCOUNTING POLICY AND PRIOR YEAR ADJUSTMENT
As at 29 September 2007 the Group has adopted a policy of revaluing its
freehold and long leasehold property portfolio to market value, in accordance
with the fair value provisions of IAS 16. This is a change from the previous
policy, under which property, plant and equipment was stated at historical
cost, except for certain items of property, plant and equipment held at
deemed cost under the transitional rules of IFRS. The change in accounting
policy reflects the adoption by the Group of emerging best practice among UK
listed companies. In addition, the Group has been pursuing a property based
refinancing during the year, seeking to realise for shareholders the
potential value of the Group's property portfolio. The revaluation of
property, plant and equipment within the Group's balance sheet provides
shareholders with a more representative value than the historic cost basis.
The impact on the financial statements of this change in accounting policy
has been to:
- increase the net book value of land and buildings as at 29 September 2007 by
£1,124m;
- recognise an exceptional charge against operating profit in respect of
'Impairment arising from revaluation of the property portfolio' of £45m. This
impairment reflects the difference for all assets where the fair value of the
asset as determined by the revaluation as at 29 September 2007 is below the
net book value prior to the revaluation.
- the impact of the above is a net increase in the value of property, plant and
equipment of £1,079m;
- increase the amount of the deferred taxation provision by £296m after taking
account of the change in the rate of corporation tax in 2008;
- recognise an exceptional deferred tax credit of £13m in respect of 'Impairment
arising from revaluation of the property portfolio';
- recognise a credit of £828m against the revaluation reserve, representing the
revaluation adjustment of £1,124m, plus the related deferred taxation
liability of £296m.
As a result of the work performed to enable a policy of revaluation to be
adopted, the Group has obtained more detailed information in respect of the
valuation and tax base cost for individual assets. This information has
enabled the Group to adjust its brought forward deferred taxation provision as
at 1 October 2005 to a more appropriate amount. The Group has increased its
deferred taxation provision as at 1 October 2005 by £99m, with a corresponding
entry recognised in retained earnings at the same date. It has increased the
tax credit relating to the indexation of gains in respect of previous
revaluations in its statement of recognised income and expense in 2006 by
£23m. As a result of this prior year adjustment, the deferred taxation
provision reported in 2006 has increased by £76m and the amount of retained
earnings reported in 2006 has reduced by £76m.
3. SEGMENTAL ANALYSIS
The Group has two main retail operating segments: Pubs & Bars, focusing
primarily on drink and entertainment-led sites, and Restaurants, focusing on
food and accommodation-led sites. The other Group activity is property
development which is undertaken by Standard Commercial Property Developments
Limited ('SCPD'). There are no inter-segment sales.
2007 52 weeks
-----------------------------------------------------------
Pubs Retail
& Bars Restaurants Total SCPD Unallocated Total
£m £m £m £m £m £m
-------- ---------- -------- -------- --------- --------
Revenue
Sales to third
parties 968 908 1,876 18 - 1,894
======== ========== ======== ======== ========= ========
Operating profit
Operating profit
before exceptional
items 191 145 336 7 - 343
Exceptional items (17) (10) (27) - (7) (34)
-------- ---------- -------- -------- --------- --------
Operating profit
after exceptional
items 174 135 309 7 (7) 309
-------- ---------- -------- -------- ---------
Net finance costs (357)
Tax credit 38
--------
Loss for the
financial period (10)
========
2006 52 weeks
-----------------------------------------------------------
Pubs Retail
& Bars Restaurants Total SCPD Unallocated Total
£m £m £m £m £m £m
-------- --------- -------- -------- --------- --------
Revenue
Sales to third
parties 958 762 1,720 - - 1,720
======== ========= ======== ======== ========= ========
Operating profit
Operating profit
before exceptional
items 179 130 309 - - 309
Exceptional items 23 - 23 - (7) 16
-------- --------- -------- -------- --------- --------
Operating profit
after exceptional
items 202 130 332 - (7) 325
-------- --------- -------- -------- ---------
Net finance costs (105)
Tax expense (25)
--------
Profit for the
financial period 195
========
4. EXCEPTIONAL ITEMS
2007 2006
52 weeks 52 weeks
Notes £m £m
--------- ---------
Operating exceptional items
Defence costs a - (4)
Refinancing costs b - (3)
Integration costs c (4) -
Corporate restructuring costs d (7) -
--------- ---------
(11) (7)
Profits on disposal of properties 39 41
Losses on disposal of properties (12) (14)
Impairment arising from the revaluation of the e (45) -
property portfolio
Fair value adjustments on classification of
non-current assets held for sale f (5) (4)
--------- ---------
Profit arising on property-related items (23) 23
Total operating exceptional items (34) 16
Exceptional finance costs
Write off of unamortised transaction costs b - (4)
Movements in fair value of derivative financial g (221) -
instruments --------- ---------
(221) (4)
Total exceptional items before tax (255) 12
Tax credit/(charge) relating to above items 74 (1)
Exceptional tax released in respect of prior years h 9 40
Tax credit in respect of change in tax rate i 17 -
--------- ---------
100 39
--------- ---------
Total exceptional items after tax (155) 51
========= =========
a Costs associated with evaluation of the R20 approach to acquire the share
capital of Mitchells & Butlers plc and its subsidiaries.
b Refinancing costs consist of operating expenses incurred in relation to the
refinancing of the Group's securitised debt, further details of which are
given in Note 12. The refinancing also gave rise to accelerated amortisation
of capitalised transaction costs. This related to secured loan notes, which
were repaid on refinancing. The amortisation has been charged to finance
costs.
c Costs associated with the Group's acquisition of the 239 pub restaurant sites
acquired from Whitbread on 21 July 2006.
d Expenditure incurred in connection with the evaluation of alternative
corporate structures for the separation and refinancing of the Group's
property portfolio and operating business.
e Impairment arising from the Group's adoption of a policy of revaluing its
freehold and long leasehold land and buildings with effect from 29 September
2007.
f Fair value adjustments on classification of non-current assets held for sale
represent adjustments to the carrying value of property, plant and equipment,
prior to transferring these to assets held for sale. This adjustment is made
where the expected net sale proceeds are less than the book value.
g The movement in the fair value of the Group's derivative financial instruments
which does not qualify for hedge accounting.
h Represents the release of provisions relating to tax matters which have been
settled principally relating to disposals and qualifying capital expenditure.
i A deferred tax credit has been recognised in the year following the enactment
of legislation in July 2007 which lowers the UK standard rate of corporation
tax from 30% to 28% with effect from 1 April 2008.
None of the above exceptional items relate to discontinued operations, as
defined by IFRS 5 'Non-current Assets Held for Sale and Discontinued
Operations'.
5. FINANCE COSTS AND REVENUE
2007 2006
52 weeks 52 weeks
£m £m
--------- ---------
Finance costs
Securitised and other debt
- before exceptional charge (153) (118)
Exceptional finance costs
- write off of unamortised transaction costs (i) - (4)
- movement in fair value of derivative financial instruments (221) -
(ii) --------- ---------
(374) (122)
========= =========
Finance revenue
Interest receivable 6 9
========= =========
Net finance income from pensions (Note 14) 11 8
========= =========
(i) Accelerated amortisation of capitalised transaction costs relating to
secured loan notes repaid as part of the 2006 refinancing.
(ii) Represents the movement in the fair value of the Group's derivative
financial instruments, which does not qualify for hedge accounting. This
arises from the requirement to revalue the swaps at the balance sheet date.
6. TAX EXPENSE
2007 2006
52 weeks 52 weeks
£m £m
--------- ----------
Tax charged in the income statement
Current tax expense:
UK corporation tax 40 49
Amounts overprovided in previous years (5) (33)
--------- ----------
Total current tax 35 16
--------- ----------
Deferred tax:
Origination and reversal of temporary differences (51) 18
Adjustments in respect of prior years (5) (9)
Change in tax rate (17) -
--------- ----------
Total deferred tax (73) 9
--------- ----------
Total tax (credited)/charged in the income statement (38) 25
========= ==========
2007 2006
52 weeks 52 weeks
restated*
£m £m
--------- ----------
Tax on items recognised directly in equity
Unrealised gains due to revaluations (317) -
Indexation of gains in respect of previous revaluations 25 19
Actuarial gains on pension schemes (10) (7)
Share-based payments 3 14
Derivative financial instruments (21) (1)
Change in tax rate 30 -
--------- ----------
Total tax (charge)/credit on items recognised directly in (290) 25
equity
========= ==========
* Restated in respect of a prior year adjustment (see Note 2).
7. DIVIDENDS
2007 2006
52 weeks 52 weeks
£m £m
--------- ---------
Amounts paid and recognised in equity
In respect of the 53 weeks ended 1 October 2005
- Final dividend of 7.55p per share - 38
In respect of the 52 weeks ended 30 September 2006
- Interim dividend of 3.65p per share - 18
- Final dividend of 8.60p per share 35 -
In respect of the 52 weeks ended 29 September 2007
- Special interim dividend of 100.0p per share 486 -
- Interim dividend of 4.25p per share 17 -
--------- ---------
538 56
========= =========
Proposed final dividend of 10.0p (2006 8.60p) per share 40 35
========= =========
The payment of the special interim dividend amounting to £486m was approved by
the shareholders on 17 October 2006 at the Extraordinary General Meeting. The
shareholders also approved the consolidation of the share capital of the Company
by the issue of 34 new ordinary shares of 8 13/24p each for every 41 existing
shares of 7 1/12p each.
The Board approved on 28 November 2007 the proposed final dividend for the 52
weeks ended 29 September 2007. This did not qualify for recognition in the
financial statements at 29 September 2007 as it had not been approved by the
shareholders at that date.
8. EARNINGS PER ORDINARY SHARE
Basic earnings per share (EPS) has 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 of 408m (2006 491m), 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 dilutive potential ordinary
shares. The resulting weighted average number of ordinary shares is 421m
(2006 503m).
Earnings per ordinary share amounts are presented before exceptional items
(see Note 4) 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
--------- --------- ---------
52 weeks ended 29 September 2007:
Profit for the period (10) (2.5)p (2.5)p*
Exceptional items, net of tax (Note 4) 155 38.0 p 36.9 p
--------- --------- ---------
Profit before exceptional items 145 35.5 p 34.4 p
========= ========= =========
52 weeks ended 30 September 2006:
Profit for the period 195 39.7 p 38.8 p
Exceptional items, net of tax (Note 4) (51) (10.4)p (10.2)p
--------- --------- ---------
Profit before exceptional items 144 29.3 p 28.6 p
========= ========= =========
* The 2007 diluted EPS per ordinary share is unchanged from the basic EPS, as
the inclusion of the dilutive potential ordinary shares would reduce the loss
per share and is therefore not dilutive.
9. NET ASSETS
2007 52 weeks
-----------------------------------------------------------
Pubs Retail
& Bars Restaurants Total SCPD Unallocated Total
£m £m £m £m £m £m
-------- --------- -------- -------- --------- --------
Net assets
Assets 2,445 2,709 5,154 16 - 5,170
Liabilities (123) (112) (235) (6) - (241)
-------- --------- -------- -------- --------- --------
Segmental net assets 2,322 2,597 4,919 10 - 4,929
-------- --------- -------- --------
Net debt (2,479) (2,479)
Other unallocated
liabilities* (874) (874)
--------- --------
(3,353) 1,576
========= ========
Other
Capital expenditure 110 150 260 - - 260
Depreciation and
amortisation 66 63 129 - - 129
* Includes balances relating to derivatives, pensions, deferred and current tax
and non-operating payables.
2006 52 weeks
-----------------------------------------------------------
Pubs Retail
& Bars Restaurants Total SCPD Unallocated Total
restated* restated*
£m £m £m £m £m £m
-------- --------- -------- -------- --------- --------
Net assets
Assets 2,179 1,914 4,093 19 - 4,112
Liabilities (139) (106) (245) (1) - (246)
-------- --------- -------- -------- --------- --------
Segmental net 2,040 1,808 3,848 18 - 3,866
assets -------- --------- -------- --------
Net debt (2,067) (2,067)
Other unallocated
liabilities** (590) (590)
--------- --------
(2,657) 1,209
========= ========
Other
Capital expenditure 92 595 687 - - 687
Depreciation and
amortisation 69 52 121 - - 121
* Restated in respect of a prior year adjustment (see note 2).
** Includes balances relating to derivatives, pensions, deferred and current tax
and non-operating payables.
10. CASH FLOW FROM OPERATIONS
2007 2006
52 weeks 52 weeks
£m £m
---------- --------
Operating profit 309 325
Add back: operating exceptional items 34 (16)
---------- --------
Operating profit before exceptional items 343 309
Add back:
Depreciation of property, plant and equipment 122 114
Amortisation of intangibles (computer software) 6 7
Amortisation of lease premiums 1 -
Costs charged in respect of share remuneration 8 8
Defined benefit pension costs less regular cash
contributions 3 3
---------- --------
Operating cash flow before exceptional items, movements in
working capital and additional pension contributions 483 441
Movements in working capital and pension contributions:
Decrease/(increase) in inventories 4 (3)
Decrease in trade and other receivables 3 7
Increase in trade and other payables 3 6
Movement in provisions (2) (1)
Additional pension contributions (40) (20)
---------- --------
Cash flow from operations before exceptional items 451 430
Integration costs paid (4) -
---------- --------
Cash flow from operations 447 430
========== ========
11. NET CASH FLOW
2007 2006
52 weeks 52 weeks
£m £m
---------- --------
Operating profit before exceptional items 343 309
Depreciation and amortisation 129 121
---------- --------
EBITDA before exceptional items (a) 472 430
Working capital movement 8 9
Other non-cash items 11 11
Additional pension contributions (40) (20)
---------- --------
Cash flow from operations before exceptional items 451 430
Net capital expenditure (b) (99) (583)
---------- --------
Cash flow from operations before exceptional items and after
net capital expenditure 352 (153)
Integration costs paid (4) -
---------- --------
Cash flow from operations after net capital expenditure 348 (153)
Interest paid (151) (115)
Interest received 6 8
Tax paid (33) (48)
Dividends paid (538) (56)
Purchase of own shares (46) (76)
Proceeds on release of own shares held 11 12
Defence costs (Note 4) - (4)
Expenditure associated with refinancing (4) (10)
Corporate restructuring costs (4) -
---------- --------
Net cash flow (411) (442)
========== ========
(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.
12. ANALYSIS OF NET DEBT
2007 2006
£m £m
--------- ---------
Cash and cash equivalents (see below) 117 375
Securitised debt (2,356) (2,413)
Other borrowings (192) -
Derivatives hedging balance sheet debt* (45) (26)
Loan notes (2) (2)
Finance leases (1) (1)
--------- ---------
(2,479) (2,067)
========= =========
* 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 £80m (2006
£260m) plus cash deposits with an original maturity of three months or less of
£37m (2006 £115m).
Securitised debt
On 13 November 2003 securitised debt was issued in connection with the
securitisation of the majority of the Group's UK pubs and restaurants
business. The debt was issued in six loan note tranches raising £1,900m,
before issue costs of £23m. The notes are secured on the majority of the
Group's property and future income streams therefrom.
On 15 September 2006 there was a further issue of £655m secured loan notes in
the form of the A4, AB, C2 and D1 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 were repaid and reissued as A1N and A3N loan notes to take
advantage of market rates.
The overall cash interest payable on the above loan notes is 5.7%, 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 notes.
13. MOVEMENT IN NET DEBT
2007 2006
52 weeks 52 weeks
£m £m
--------- ---------
Net (decrease)/increase in cash and cash equivalents (258) 176
Add back cash flows in respect of other components of net
debt:
Proceeds from cash deposits with a maturity of greater than
three months - (1)
Repayment of principal in respect of other loans - 1
Repayment of principal in respect of securitised debt 39 460
Proceeds of issue of securitised debt - (1,078)
Proceeds of issue of other borrowings (192) -
--------- ---------
Increase in net debt arising from cash flows (411) (442)
Non-cash movements (1) -
--------- ---------
Increase in net debt (412) (442)
Opening net debt (2,067) (1,625)
--------- ---------
Closing net debt (2,479) (2,067)
========= =========
14. PENSIONS
The following amounts relating to the Group's defined benefit and defined
contribution arrangements have been recognised in the Group income statement:
2007 2006
Group income statement 52 weeks 52 weeks
£m £m
--------- ---------
Operating profit:
Current service cost (defined benefit plans) (13) (14)
Current service cost (defined contribution plans) (1) (1)
--------- ---------
Charge to operating profit (14) (15)
--------- ---------
Finance income:
Expected return on pension scheme assets 74 69
Interest on pension scheme liabilities (63) (61)
--------- ---------
Net finance income in respect of pensions 11 8
--------- ---------
Total charge (3) (7)
========= =========
The deficit in the schemes recognised as a liability in the balance sheet is
analysed as follows:
2007 2006
Value Value
£m £m
--------- ---------
Equities 345 596
Bonds 854 488
Property 93 98
--------- ---------
Fair value of assets 1,292 1,182
Present value of scheme liabilities (1,310) (1,281)
--------- ---------
Deficit in the schemes recognised as a
liability in the balance sheet (18) (99)
========= =========
Associated deferred tax asset 5 32
--------- ---------
The table below analyses the movement in the schemes' net deficit in the period:
Net deficit
2007 2006
--------- ---------
£m £m
At beginning of period (99) (151)
Current service cost (13) (14)
Interest cost on benefit obligations (63) (61)
Expected return on plan assets 74 69
Contributions 50 31
Actuarial gain recognised 33 27
--------- ---------
At end of period (18) (99)
--------- ---------
15. CONTINGENT LIABILITIES
The Group 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.
16. FINANCIAL STATEMENTS
This preliminary statement of results was approved by the Board of Directors
on 28 November 2007. It does not constitute the Group's statutory financial
statements for the 52 weeks ended 29 September 2007 or for the 52 weeks
ended 30 September 2006. The financial information is derived from the
statutory financial statements of the Group for the 52 weeks ended 29
September 2007. The auditors, Ernst & Young LLP, have reported on those
financial statements and given an unqualified report under Section 235 of
the Companies Act. The 2007 financial statements will be delivered to the
Registrar of Companies in due course.
17. REVALUATION
The majority of the Group's freehold and long leasehold land and buildings,
with the exception of land and buildings identified for disposal, were
valued as at 29 September 2007 by Colliers CRE plc, independent chartered
surveyors and by Andrew Cox MRICS, Director of Property, Chartered Surveyor.
The land and buildings were valued at market value, in accordance with the
provisions of RICS Appraisal and Valuation Standards ('The Red Book')
assuming each asset is sold as part of the continuing enterprise in
occupation individually as a fully operational trading entity. The market
value has been determined having regard to factors such as current and
future projected income levels, taking account of the location, the quality
of the pub or restaurant and recent market transactions in the sector.
In 1996, a group restructuring by Six Continents resulted in the transfer at
book value of certain property, plant and equipment to a subsidiary that
subsequently became part of the Mitchells & Butlers group. The book value
included the effect of revaluations undertaken prior to 1996. Accordingly,
the carrying value of the Group's property, plant and equipment reflects
those revaluations in its deemed cost under IFRS, which at 30 September 2006
amounted to £374m. In addition, the carrying value of the Group's fixed
assets reflects the most recent valuation of the properties undertaken in
1999 which at 30 September 2006 amounted to £328m.
This information is provided by RNS
The company news service from the London Stock Exchange