Interim Results
Mitchells & Butlers PLC
19 May 2005
19 May 2005
MITCHELLS & BUTLERS plc
INTERIM RESULTS
(For the 28 weeks ended 9 April 2005)
Financial results
- Turnover up 5.0% to £864m
- EBITDA up 5.8% to £202m
- Operating profit up 4.5% to £140m
- Profit before tax up 4.9% to £86m
- Earnings per share up 20.4% to 11.2p
- Basic earnings per share 11.4p
- Interim dividend up 12.3% to 3.2p
Notes:
(1) 2004 comparatives restated for FRS 17
(2) With the exception of basic earnings per share, all results exclude
exceptional items
Business highlights
Commenting on the results, Tim Clarke, Chief Executive said:
'We have achieved 4.8% like for like sales growth in the first half,
strengthening our position as the UK's leading managed pub operator. This has
been driven by our strong brand portfolio and our commitment to customer
service, product range and value. We have maintained our margins despite the
significant external cost pressures. Our focus on the growth opportunities in
food, wine and soft drinks has delivered substantial volume gains.'
- Sales momentum sustained: same outlet like for like sales up 4.8%*
- Volume-led sales strategy working well: food volumes up 9%, drink volumes up
3%
- Focus on service, amenity, range and value: average prices flat on last
year
- Average weekly sales per managed pub £15.9k per week** up 8%
- Improving returns: 10.4%** post tax cash returns
- Strong cashflow: £158m net operating cashflow after capex
- Efficient use of cash resources: half way through £100m share buyback
* 32 weeks to 7 May. Includes Easter in both years
** 12 months to 9 April 2005
Current trading and outlook
Commenting on current trading in the 8 weeks to 7 May and the outlook, Tim
Clarke, Chief Executive said:
'Amidst more challenging trading conditions, like for like sales are growing at
5.1% and we are making substantial market share gains. Our focus on operational
performance is generating strong cashflow which we will continue to redeploy in
the best interest of shareholders, through reinvestment for high returns, value
creative acquisitions or return by way of dividend and share buy-back.'
Overall trading is in line with the Board's expectations for the year. There
were mixed trading patterns across the first 32 weeks. Despite a noticeable
deceleration in the early part of the second quarter, same outlet like for like
sales growth for the most recent 8 weeks to 7 May was in line with the 32 week
trend at 5.1%.
8 weeks to 7 May 2005* Same Outlet (invested) Uninvested
Residential 5.2% 3.1%
High Street 5.6% 4.0%
Total 5.1% 3.2%
* Includes Easter in both years
To date in the pub market, there has been a contrast between the continuing
growth in the demand for food and other drinks and the decline in on-trade beer.
However, we are making substantial market share gains in all of these key
product categories as a result of our range and value proposition and the
consumer appeal of our brands and formats. Strong trading by our Central London
businesses continues to benefit the trend of like for like sales in the High
Street segment.
The long term repositioning of the business is increasingly orientating
Mitchells & Butlers towards the higher growth segments of the pub and pub
restaurant market offering good value for money.
As we enhance our capacity management skills to drive high sales volumes,
average weekly sales per managed pub have risen by 8% to £15.9k per week over
the last 12 months. We have further opportunities for organic estate development
where we are generating high incremental returns. Our focus on productivity and
efficiency gains will remain key to offsetting the external cost pressures which
are unlikely to diminish in the short term, with the regulatory and energy cost
challenge expected to be similar next year.
Whilst the outlook for consumer spending is deteriorating, we remain confident
that our strategy will enable us to capture additional market share and to
leverage our economies of scale to generate further growth and cashflows to
benefit shareholders.
For further information please contact:
Mitchells & Butlers plc
Kate Holligon - Investor Relations 0121 498 5092
Simon Ward - Media 0121 498 5795
Finsbury Group - James Murgatroyd 0207 251 3801
A presentation for analysts and investors will be held at 9am on 19 May 2005 at
the Merrill Lynch Financial Centre, 2 King Edward Street, London EC1A 1HQ. A
live webcast of the presentation will be available on the Mitchells & Butlers
plc website www.mbplc.com.
CHIEF EXECUTIVE'S OPERATING REVIEW
In the first 28 weeks of 2005, Mitchells & Butlers has continued to perform
well. Total sales growth of 5% has driven operating profit growth of 4.5% and
generated 20.4% growth in earnings per share.
Value focus drives sales growth
Our strategy to offer good value to our customers through a widening product
range, good service and high quality amenity at fair prices, has generated same
outlet like for like sales growth of 4.8%, 3.2% on an uninvested basis, for the
first 32 weeks of the year.
This strategy to generate profitable sales growth is aimed at attracting a wider
customer base, thereby generating higher footfall and more repeat visits. Our
brands and formats are focused on the product growth opportunities in food and
ancillary sales of wines and soft drinks where demand growth is greatest. At the
same time, we are equally focused on market share gains in the declining
on-trade beer market through continuing our policy of range extension and
pricing restraint. The relative growth rates of these product categories has
resulted in a different profit performance between the Restaurants and Pubs &
Bars divisions. However, we have continued to grow our market share in all of
the key sales categories of food, beer, wines, soft drinks and spirits.
Delivering growth in gross profits
Whilst increasing turnover is important, our overriding objective is to grow
sales volumes in order to maximise gross profits. All our sales activity is
gauged to ensure that we are gaining adequate volume to offset any margin
investment. Our 5% sales growth was achieved with percentage gross margin in
line with last year. This was despite the pressure from contractual price
increases and the movement in sales mix towards food and wine rather than the
lower growth, albeit higher margin, categories of beer and machines.
Extracting volume driven efficiency benefits
Extracting maximum benefit from our growing volume is critical given the £18m
increase in regulatory and energy costs anticipated for the year. Of this
increase, £10m has arisen in the first half. Our volume scale has enabled us to
maintain our unit cost of goods at last year's levels despite the contractual
increases in our tied supply contracts. In addition, through evermore effective
scheduling of staff hours to match sales patterns and by enhancing our capacity
management skills to capture incremental sales we have maintained our employment
costs at 24% of sales.
Strong brand performance from estate development
Our five key residential brands and our Central London formats are performing
particularly well. We continue to evolve our existing brands and formats and
develop and trial new ones that can add to the sales and profits of the estate.
These are particularly focused on extending the attractiveness of our food
offers. We are currently generating an incremental return on investment of 19%
before tax on the projects that we have invested in 2004 and the first half of
2005.
At the same time, maintaining the high quality of amenity within the estate and
evolving our offers through regular maintenance is a deliberate part of our
strategy and key to the sustainability of our market share gains.
Proactive use of cash resources
Our objective is to grow our profits, improve the returns from the estate and
generate cash. The net cash inflow for the period was £12m, after payments of
£52m, to repurchase shares as part of our £100m share buyback and £30m, being
our full commitment of additional pension contributions this financial year.
A strong first half in a challenging environment
In the first half of 2005 both the operational and financial performance of the
business has been strong. We have generated good growth in sales and earnings
per share, strong cashflows and post tax cash returns of over 10%. As we go
forward, our focus on strong consumer brands and formats, widening product
range, high quality amenity, and customer value should stand us in good stead in
a more challenging consumer environment. We will concentrate on growing profits
and generating cashflows. We will continue to redeploy our cash resources in the
best interest of shareholders, through reinvestment for high returns, value
creative acquisitions or return by way of dividend and share buyback.
FINANCIAL REVIEW
This Financial Review provides a commentary on the performance of the Mitchells
& Butlers group for the 28 weeks ended 9 April 2005 and compares it with the
equivalent half year period in 2004. To remove the distortions from the timing
of Easter, where appropriate, comparisons are made on a 32 week basis.
Comparative figures for 2004 have been restated for FRS 17.
Overall performance
Sales momentum has been sustained with total sales in the first half up 5.0% on
last year at £864m. We have continued to gain market share in our residential
pubs and High Street businesses in the face of a softer second quarter trading
environment.
Same Outlet (invested)* Uninvested*
Residential 5.7% 3.8%
High Street 3.5% 2.5%
Total 4.8% 3.2%
*32 weeks to 7 May. Includes Easter in both years
Through our sales and marketing activities we have successfully grown both food
and drink volumes in the period, up 9% and 3% respectively on a same outlet
basis, with average prices remaining broadly flat.
We have also driven organic growth in the estate through investment of £88m in
the period. Expansionary capital of £31m was invested in 4 new pubs, 46
conversions to our brands or formats and the development of 3 Innkeepers Lodges
adjacent to existing pubs. We are achieving an incremental return on investment
of 19% before tax on the projects that we have invested in 2004 and the first
half of 2005. £57m was invested in maintaining the high levels of amenity within
our pubs and in the continuing evolution of our brands and formats.
We have achieved £42m of disposal proceeds from the opportunistic sale of 26
individual pubs, taking advantage of the continued buoyancy in the property
market in the early part of the year. As a result, our net capital investment
was £46m and we expect our net capital expenditure for the full year to be
between £100m and £110m.
Productivity improvements, purchasing benefits and tight cost management have
enabled us to offset regulatory and energy cost increases of some £10m in the
period.
As a result of our progress, operating profit before exceptional items increased
by £6m, up 4.5%, to £140m.
Pubs & Bars
H1 2005
Total sales £500m +3.1%
Operating profit £86m -2.3%
Same outlet like for like sales +3.1%*
Uninvested like for like sales +1.9%*
*32 weeks to 7 May. Includes Easter in both years
Sales in the Pubs & Bars Division were 3.1% ahead of last year. Despite further
volume declines in the on-trade beer market and on-going price competition from
supermarkets, drinks sales showed good growth as a result of our continuing
development of the range of products and price points that we offer. Our branded
local pubs in residential areas with strong food offers and our Central London
pubs performed very strongly. By contrast, our unbranded local pubs with a lower
food sales mix were more exposed to the beer market declines and our High Street
circuit bars continued to face intense competitive conditions. During the
period, 19 pubs were sold and 16 were transfered to operate under franchise
agreements.
A total of 25 conversions were completed, predominantly to residential brands
and formats such as Sizzling Pub Co, Ember Inns and the Metropolitan
Professionals format. One new Ember Inn opened in the period, the first new site
acquisition for this brand.
The increase in sales has only partially offset the impact of regulatory, energy
and Sky cost increases for the Pubs & Bars Division and this, together with some
dilution from disposals, has resulted in operating profit being down 2% on last
year at £86m.
Restaurants
H1 2005
Total sales £356m +6.9%
Operating profit £53m +17.8%
Same outlet like for like sales +7.4%*
Uninvested like for like sales +5.3%*
*32 weeks to 7 May. Includes Easter in both years
The Restaurant Division has produced an excellent performance. This has been
achieved by the strength of our brands and operating skills in driving high
cover volumes; a Mitchells & Butlers pub restaurant now sells on average some
1700 main meals per week. Sales benefited from continuing menu development
combined with drinks value and range enhancements to drive higher footfall and
volumes. All our key brands of Vintage Inns, Harvester, Toby and All Bar One
performed very strongly. Through increasing the variety of dishes and extending
the range of tastes, we have been enhancing choice and attracting a wider
customer base.
We opened 2 new Vintage Inns and 1 Toby in the period. In addition, 21 pubs were
converted to existing brands and formats and our more recent offer development
in the premium country dining market segment.
The strong trading result for the Restaurant Division together with tight cost
controls and productivity improvements have maximised the profit impact of the
increase in sales and enhanced operating margins giving an operating profit of
£53m, up 17.8% on last year.
Standard Commercial Property Developments (SCPD)
SCPD aims to maximise the value of the Group's surplus properties which are
suitable for development. Turnover of £8m and operating profit of £1m were
generated during the period primarily through the sale of two developments in
Burton on Trent and Bournemouth.
Exceptional items
There were no operating exceptional items during the period. A non-operating
exceptional profit of £1m arose on the disposal of fixed assets.
Interest
The net interest charge for the half year was £54m being interest charged on net
debt of £55m less finance income in respect of pensions of £1m. The increase on
the prior year was a result of the completion of the refinancing part way
through the prior period.
Taxation
The tax charge of £28m represents an effective tax rate of 32.4%, before
exceptional items, which is unchanged from 2003/4. This is higher than the UK
statutory rate due to non allowable items, in particular the depreciation of
properties.
Earnings per share
Adjusted earnings per share, which adjusts for exceptional items, were up 20.4%
at 11.2p from 9.3p. Basic earnings per share for the period were 11.4p up from
8.8p last year.
Dividends
The dividend charge for the period of £16m represents the proposed interim
dividend of 3.2p per ordinary share and will be paid on 30 June 2005 to
shareholders registered on 27 May 2005.
Cashflow and net debt
The Group's operations continued to generate strong cashflow with EBITDA of
£202m, before exceptional items, compared to £191m last year. Operating cash
flow was £158m compared with £155m last year, after working capital movements,
net capital expenditure of £46m and additional pension contributions of £30m.
Net interest paid was £51m, tax paid was £22m and the final dividend for 2003/4
was £34m. Following the share buyback and income from the exercise of share
options, there was a net cash inflow of £12m. The Group had net debt at 9 April
2005 of £1,625m.
Share buyback
The Group repurchased 15.5m shares during the period for a consideration of
£52m. 10.2m shares were cancelled and 5.3m shares were placed in Treasury or
Employee Trusts to satisfy the exercise of existing share options.
Pensions
On an FRS 17 basis, the Group's pension schemes showed a deficit of £122m (£81m
after deferred tax) at 9 April 2005. This represents an improvement of £51m from
the deficit reported at 25 September 2004 as a result of the additional £30m of
pension contributions paid during the period and improved investment returns.
The Company has committed to make further additional contributions of £20m and
£10m in 2005/6 and 2006/7 respectively.
Accounting policies
The Group has adopted FRS 17 'Retirement Benefits' in full with effect from 26
September 2004. In prior years, the Group has complied with the transitional
disclosure requirements of this standard. The full adoption of FRS 17 has
resulted in a change in the accounting treatment of the Group's defined benefit
arrangements. In particular, the net liabilities of the pension schemes are
included on the balance sheet, current service costs and net financial returns
are included in the profit and loss account and actuarial gains and losses are
recognised in the statement of total recognised group gains and losses. Previous
accounting under SSAP 24 'Accounting for pensions costs' required the charging
of regular costs and variations from regular cost in the profit and loss account
with the difference between the cumulative amounts charged and the payments made
to the pensions schemes shown as a prepayment on the balance sheet. This change
in accounting policy has been accounted for as a prior period adjustment and
previously reported figures have been restated accordingly. Full details of the
restatement are set out in Note 2 of the Financial Statements.
IFRS update
Mitchells & Butlers will present its financial statements under IFRS for the
first time in the year to 30 September 2006, including the interim accounts for
that year.
Whilst IFRS will require a number of accounting changes, these will have no
impact on cashflow. Mitchells & Butlers has an ongoing implementation project in
place to ensure a smooth transition to IFRS. This project is progressing well
and is on track. Work is on-going in the areas of fixed assets and leases and
final audited numbers may differ from those estimated.
As the Group has adopted FRS 17 for 2004/5, there is not expected to be a
material adjustment to Pensions accounting from IFRS subject to the endorsement
of the amendment to IAS 19 by the EU.
Based on our evaluation to date which is unaudited, it is anticipated that the
annual net impact of IFRS on reported earnings will be broadly neutral and will
reduce Net Assets by up to £250m, predominantly due to additional deferred tax
provisions.
A further update will be provided at the time of the Preliminary Results.
GROUP PROFIT AND LOSS ACCOUNT
for the 28 weeks ended 9 April 2005
2005 2004 2004
28 weeks 28 weeks 52 weeks
restated* restated*
-------- ------ -------- ------ -------- ------
Before Before Before
exceptional exceptional exceptional
items Total items Total items Total
£m £m £m £m £m £m
-------- ------ -------- ------ -------- ------
Turnover (Note 864 864 823 823 1,560 1,560
3)
Costs and (724) (724) (689) (691) (1,287) (1,289)
overheads,
less
other income
-------- ------ -------- ------ -------- ------
Operating 140 140 134 132 273 271
profit (Note 4)
Profit on - 1 - - - 2
disposal of
fixed assets
(Note 5)
-------- ------ -------- ------ -------- ------
Profit on 140 141 134 132 273 273
ordinary
activities
before
interest
Interest on net (55) (55) (52) (54) (101) (103)
debt (Note 6)
Net finance 1 1 - - 1 1
income in
respect of
pensions (Note
14)
-------- ------ -------- ------ -------- ------
Profit on 86 87 82 78 173 171
ordinary
activities
before
taxation
Tax on profit (28) (28) (27) (26) (56) (53)
on ordinary
activities
(Note 7) -------- ------ -------- ------ -------- ------
Earnings 58 59 55 52 117 118
available for
shareholders
Dividends on (16) (16) (516) (516) (550) (550)
equity shares
(Note 8)
-------- ------ -------- ------ -------- ------
Retained profit 42 43 (461) (464) (433) (432)
/(loss) for
the
financial
period ======== ====== ======== ====== ======== ======
Earnings per
ordinary
share
(Note 9):
Basic - 11.4p - 8.8p - 21.1p
Diluted - 11.2p - 8.7p - 21.0p
Adjusted 11.2p - 9.3p - 20.9p -
======== ====== ======== ====== ======== ======
Dividend per - 3.20p - 2.85p - 9.50p
ordinary
share
======== ====== ======== ====== ======== ======
* Restated on the full adoption of FRS 17 'Retirement Benefits' (see Note
2).
All activities relate to continuing operations.
STATEMENT OF TOTAL RECOGNISED GROUP GAINS AND LOSSES
for the 28 weeks ended 9 April 2005
2005 2004 2004
28 weeks 28 weeks 52 weeks
restated* restated*
£m £m £m
-------- -------- --------
Earnings available for shareholders 59 52 118
Actuarial gain on pension schemes (Note 14) 21 9 39
Deferred tax relating to actuarial gain (6) (3) (12)
Exchange differences arising on foreign - (2) (1)
currency net investments
-------- -------- --------
Total recognised gains for the period 74 56 144
-------- ======== ========
Prior period adjustment on the full adoption (219)
of FRS 17 (Note 2)
--------
Total recognised losses since previous year (145)
end
========
RECONCILIATION OF MOVEMENT IN GROUP SHAREHOLDERS' FUNDS
for the 28 weeks ended 9 April 2005
2005 2004 2004
28 weeks 28 weeks 52 weeks
restated* restated*
£m £m £m
-------- -------- --------
Total recognised gains for the period 74 56 144
Dividends (16) (516) (550)
Issue of ordinary shares 2 5 8
Purchase of own shares (52) (3) (12)
Proceeds on release of own shares held 11 - 1
Credit in respect of employee share schemes 2 5 7
-------- -------- --------
Net increase/(decrease) in shareholders' 21 (453) (402)
funds
======== ======== ========
Opening shareholders' funds as previously 1,642 2,064 2,064
reported
Prior period adjustment on the full adoption (219) (239) (239)
of FRS 17
-------- -------- --------
Opening shareholders' funds as restated 1,423 1,825 1,825
======== ======== ========
Closing shareholders' funds 1,444 1,372 1,423
======== ======== ========
* Restated on the full adoption of FRS 17 'Retirement Benefits' (see Note
2).
GROUP BALANCE SHEET
9 April 2005
2005 2004 2004
9 April 10 April 25 Sept
restated* restated*
£m £m £m
------- ------- -------
Intangible assets 10 11 10
Tangible assets 3,503 3,514 3,509
------- ------- -------
Fixed assets 3,513 3,525 3,519
------- ------- -------
Stocks 39 43 43
Debtors 80 70 82
Investments 130 139 144
Cash at bank and in hand 90 72 81
------- ------- -------
Current assets 339 324 350
Creditors: amounts falling due within one year
Borrowings (36) (36) (35)
Other creditors (304) (284) (291)
------- ------- -------
Net current (liabilities)/assets (1) 4 24
------- ------- -------
Total assets less current liabilities 3,512 3,529 3,543
Creditors: amounts falling due after more than one
year
Borrowings (1,809) (1,842) (1,822)
Provisions for liabilities and charges
Deferred taxation (176) (178) (182)
Other provisions (2) (3) (2)
------- ------- -------
Net assets before net pension liabilities 1,525 1,506 1,537
Net pension liabilities (Note 14) (81) (134) (114)
------- ------- -------
Net assets (Note 10) 1,444 1,372 1,423
======= ======= =======
Capital and reserves
Equity share capital 36 37 37
Share premium account 14 9 12
Capital redemption reserve 1 - -
Revaluation reserve (Note 15) 335 340 339
Profit and loss account ** 1,058 986 1,035
------- ------- -------
Equity shareholders' funds 1,444 1,372 1,423
======= ======= =======
* Restated on the full adoption of FRS 17 'Retirement Benefits' (see Note
2).
** After deduction for own shares held in treasury and by employee share trusts
of £15m (2004 10 April, £3m; 25 September, £11m).
GROUP CASH FLOW STATEMENT
for the 28 weeks ended 9 April 2005
2005 2004 2004
28 weeks 28 weeks 52 weeks
£m £m £m
-------- -------- --------
Operating cash flow before separation costs 204 199 379
paid
Separation costs paid - (1) (1)
-------- -------- --------
Net cash inflow from operating activities (Note 204 198 378
11)
-------- -------- --------
Interest paid (57) (49) (107)
Issue costs paid in respect of securitised - (22) (22)
debt
Interest received 6 4 9
-------- -------- --------
Returns on investments and servicing of (51) (67) (120)
finance
-------- -------- --------
UK corporation tax paid (22) (9) (34)
-------- -------- --------
Purchase of tangible fixed assets (88) (77) (150)
Sale of tangible fixed assets 42 29 51
-------- -------- --------
Capital expenditure and financial investment (46) (48) (99)
-------- -------- --------
Final dividend (34) (29) (29)
Normal interim dividend - - (15)
Special interim dividend - (501) (501)
-------- -------- --------
Equity dividends paid (34) (530) (545)
-------- -------- --------
Net cash inflow/(outflow) before management of 51 (456) (420)
liquid
resources and financing
-------- -------- --------
Movement in short-term deposits 14 (136) (141)
Issue of ordinary share capital 2 5 8
Purchase of own shares (52) (3) (12)
Proceeds on release of own shares held 11 - 1
Proceeds from issue of securitised debt - 1,900 1,900
Repayments of principal in respect of (17) (11) (28)
securitised debt
Borrowings drawn down under syndicated loan - 25 25
facility
Borrowings repaid in respect of syndicated loan - (1,243) (1,243)
facility
-------- -------- --------
Management of liquid resources and financing (42) 537 510
-------- -------- --------
Movement in cash and overdrafts (Note 13) 9 81 90
======== ======== ========
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
The interim financial statements, which are unaudited, comply with relevant
accounting standards under UK GAAP and should be read in conjunction with
the Annual Report and Financial Statements 2004. They have been prepared on
a consistent basis using the accounting policies set out in that report,
except in respect of pensions accounting as explained in Note 2 below.
The interim financial statements do not constitute statutory accounts within
the meaning of Section 240 of the Companies Act 1985.
The financial information for the 52 weeks ended 25 September 2004 has been
extracted from the Group's published financial statements for that year,
restated for the adoption of FRS 17, which contain an unqualified audit
report and which have been filed with the Registrar of Companies.
The periods ended 9 April 2005 and 10 April 2004 are regarded as distinct
financial periods for accounting purposes; income and costs are recognised
in the profit and loss account as they arise; tax is charged on the basis of
the expected effective tax rate for the full year.
The results of overseas operations have been translated into sterling at
weighted average rates of exchange for the period of £1=€1.43 (2004 28
weeks, £1=€1.46; 52 weeks, £1=€1.48) and euro denominated assets and
liabilities have been translated into sterling at the rate of exchange at
the balance sheet date of £1=€1.46 (2004 10 April, £1=€1.51; 25 Sept, £1=
€1.47).
2 CHANGE IN ACCOUNTING POLICY
The Group has adopted FRS 17 'Retirement Benefits' in full with effect from
26 September 2004. In prior years, the Group has complied with the
transitional disclosure requirements of this standard. The full adoption of
FRS 17 has resulted in a change in the accounting treatment of the Group's
defined benefit arrangements. In particular, the net liabilities of the
pension schemes are included on the balance sheet, current service costs and
net financial returns are included in the profit and loss account and
actuarial gains and losses are recognised in the statement of total
recognised group gains and losses. Further information on FRS 17 is provided
in Note 14. Previous accounting under SSAP 24 'Accounting for pension costs'
required the charging of regular costs and variations from regular cost in
the profit and loss account with the difference between the cumulative
amounts charged and the payments made to the pension schemes shown as a
prepayment on the balance sheet. This change in accounting policy has been
accounted for as a prior period adjustment and previously reported figures
have been restated accordingly, as follows:
2 CHANGE IN ACCOUNTING POLICY (Continued)
Group profit and loss account
Profit Profit for
before the
interest Interest Tax period
£m £m £m £m
-------- -------- -------- --------
28 weeks to 10 April 2004:
As previously reported 138 (54) (28) 56
Adoption of FRS 17 (6) - 2 (4)
-------- -------- -------- --------
As restated 132 (54) (26) 52
======== ======== ======== ========
52 weeks to 25 September 2004:
As previously reported 285 (103) (57) 125
Adoption of FRS 17 (12) 1 4 (7)
-------- -------- -------- --------
As restated 273 (102) (53) 118
======== ======== ======== ========
The restated profits have resulted in restated EPS numbers. For the 28 weeks to
10 April 2004, Basic, Adjusted and Diluted EPS have been restated from 9.5p,
10.0p and 9.4p to 8.8p, 9.3p and 8.7p respectively. For the 52 weeks to 25
September 2004, Basic, Adjusted and Diluted EPS have been restated from 22.4p,
22.2p and 22.2p to 21.1p, 20.9p and 21.0p respectively.
Group balance sheet
Provisions Profit and
for Net loss
liabilities pension account
Debtors & charges liabilities reserve
£m £m £m £m
-------- -------- -------- --------
10 April 2004:
As previously reported 207 (215) - 1,223
Adoption of FRS 17 (137) 34 (134) (237)
-------- -------- -------- --------
As restated 70 (181) (134) 986
======== ======== ======== ========
25 September 2004:
As previously reported 222 (219) - 1,254
Adoption of FRS 17 (140) 35 (114) (219)
-------- -------- -------- --------
As restated 82 (184) (114) 1,035
======== ======== ======== ========
3 TURNOVER
2005 2004 2004
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
Pubs & Bars 500 485 913
Restaurants 356 333 641
------- ------- -------
Retail 856 818 1,554
SCPD 8 5 6
------- ------- -------
Turnover 864 823 1,560
======= ======= =======
4 OPERATING PROFIT
2005 2004 2004
28 weeks 28 weeks 52 weeks
restated* restated*
£m £m £m
------- ------- -------
Pubs & Bars 86 88 173
Restaurants 53 45 99
------- ------- -------
Retail 139 133 272
SCPD 1 1 1
------- ------- -------
Operating profit before operating 140 134 273
exceptional items
Operating exceptional items (Note - (2) (2)
5)
------- ------- -------
Operating profit 140 132 271
======= ======= =======
* Restated on the full adoption of FRS 17 'Retirement Benefits' (see Note
2).
Due to the nature of the operating exceptional items (see Note 5), it is not
possible to provide a meaningful allocation of the costs to the operating
segments.
5 EXCEPTIONAL ITEMS
2005 2004 2004
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
Operating exceptional items
Securitisation costs (Note a) - (2) (2)
Non-operating exceptional items
Profit on disposal of fixed assets 1 - 2
------- ------- -------
Total exceptional items before interest 1 (2) -
Exceptional interest charge (Note b) - (2) (2)
------- ------- -------
Total exceptional items before tax 1 (4) (2)
Tax credits on above items - 1 3
------- ------- -------
Total exceptional items after tax 1 (3) 1
======= ======= =======
a Securitisation costs related to operating expenses incurred in relation
to the securitisation of the Group's UK pubs and restaurants business.
b The exceptional interest charge arose from the acceleration of facility
fee amortisation in respect of the Group's borrowing facilities which
were repaid on securitisation.
All exceptional items relate to continuing operations and are excluded from
the calculation of adjusted earnings per ordinary share (see Note 9).
6 INTEREST ON NET DEBT
2005 2004 2004
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
Securitised debt 61 47 100
Bank overdrafts and loans
- before exceptional charge - 9 10
- exceptional charge (Note 5) - 2 2
------- ------- -------
Interest payable 61 58 112
Interest receivable (6) (4) (9)
------- ------- -------
55 54 103
======= ======= =======
7 TAX ON PROFIT ON ORDINARY ACTIVITIES
2005 2004 2004
28 weeks 28 weeks 52 weeks
restated* restated*
£m £m £m
------- ------- -------
UK corporation tax 21 19 43
Deferred tax 7 7 10
------- ------- -------
28 26 53
======= ======= =======
Further analysed as tax relating to:
Profit before exceptional items 28 27 56
Exceptional items (Note 5) - (1) (3)
------- ------- -------
28 26 53
======= ======= =======
* Restated on the full adoption of FRS 17 'Retirement Benefits' (see Note
2).
Tax has been calculated using an estimated effective rate of 32.4% (2004 28
weeks, 32.4%; 52 weeks, 32.4%) on profit on ordinary activities before taxation
and exceptional items.
8 DIVIDENDS
2005 2004 2004
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
Normal interim dividend 16 15 15
Special interim dividend - 501 501
Final dividend - - 34
------- ------- -------
16 516 550
======= ======= =======
9 EARNINGS PER SHARE
Basic earnings per share have been calculated by dividing the earnings
available for shareholders of £59m (2004 28 weeks, £52m; 52 weeks, £118m),
by 517m (2004 28 weeks, 591m; 52 weeks, 559m), being the weighted average
number of ordinary shares, excluding own shares held in treasury and by
employee share trusts, in issue during the period.
Diluted earnings per share are calculated by adjusting basic earnings per
ordinary share to reflect the notional exercise of the weighted average
number of dilutive ordinary share options outstanding under the Group's
share option schemes. The resulting weighted average number of ordinary
shares is 525m (2004 28 weeks, 595m; 52 weeks, 563m).
In December 2003, the Company combined the payment of a special interim
dividend with a 12 for 17 consolidation of its share capital. These
transactions were designed to have the same overall commercial effect, in
terms of net assets, earnings and number of shares, as a buy back of shares
at fair value. Accordingly, earnings per share for prior periods were not
restated for the share consolidation.
Adjusted earnings per ordinary share are calculated as follows:
2005 2004 2004
28 weeks 28 weeks 52 weeks
restated* restated*
pence per pence per pence per
ordinary ordinary ordinary
share share share
--------- ------- -------
Basic earnings 11.4 8.8 21.1
Exceptional items and tax thereon (0.2) 0.5 (0.2)
(Note 5)
--------- ------- -------
Adjusted earnings 11.2 9.3 20.9
========= ======= =======
* Restated on the full adoption of FRS 17 'Retirement Benefits' (see Note
2).
Adjusted earnings per ordinary share are disclosed in order to show
performance undistorted by abnormal items.
10 NET ASSETS
2005 2004 2004
9 April 10 April 25 Sept
restated* restated*
£m £m £m
------- ------- -------
Pubs & Bars 2,068 2,117 2,106
Restaurants 1,318 1,288 1,320
------- ------- -------
Retail 3,386 3,405 3,426
SCPD 15 21 19
------- ------- -------
Net operating assets 3,401 3,426 3,445
Net debt (1,625) (1,667) (1,632)
Other net non-operating liabilities (332) (387) (390)
------- ------- -------
Net assets 1,444 1,372 1,423
======= ======= =======
* Restated on the full adoption of FRS 17 'Retirement Benefits' (see Note
2).
11 NET CASH INFLOW FROM OPERATING
ACTIVITIES
2005 2004 2004
28 weeks 28 weeks 52 weeks
restated* restated*
£m £m £m
------- ------- -------
Operating profit before operating 140 134 273
exceptional items
Depreciation and amortisation 62 57 108
------- ------- -------
Earnings before interest, taxation, 202 191 381
depreciation,
amortisation and exceptional items
Working capital movement 29 43 28
Additional pension contributions (30) (40) (40)
Other non-cash items 3 9 14
------- ------- -------
Operating cash flow before expenditure 204 203 383
relating
to exceptional items
Operating exceptional expenditure - (4) (4)
Separation costs paid - (1) (1)
------- ------- -------
Net cash inflow from operating 204 198 378
activities
======= ======= =======
* Restated on the full adoption of FRS 17 'Retirement Benefits' (see Note
2).
12 NET CASH FLOW
2005 2004 2004
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
Operating cash flow before expenditure 204 203 383
relating
to exceptional items * (Note 11)
Net capital expenditure (46) (48) (99)
------- ------- -------
Operating cash flow after net capital 158 155 284
expenditure
Net interest paid (51) (45) (98)
Tax paid (22) (9) (34)
Normal dividends paid (34) (29) (44)
Issue of ordinary share capital 2 5 8
Purchase of own shares (52) (3) (12)
Proceeds on release of own shares held 11 - 1
Special dividends paid - (501) (501)
Operating exceptional expenditure - (4) (4)
Separation costs paid - (1) (1)
Issue costs paid in respect of securitised - (22) (22)
debt
------- ------- -------
Net cash flow 12 (454) (423)
======= ======= =======
* Includes £30m (2004 28 weeks, £40m; 52 weeks, £40m) of additional pension
contributions.
13 NET DEBT
2005 2004 2004
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
Movement in cash and overdrafts 9 81 90
Management of liquid resources and 42 (537) (510)
financing
Issue of ordinary share capital 2 5 8
Purchase of own shares (52) (3) (12)
Proceeds on release of own shares held 11 - 1
------- ------- -------
Net cash flow (Note 12) 12 (454) (423)
Issue costs paid in respect of securitised - 22 22
debt
------- ------- -------
Decrease/(increase) in net debt arising 12 (432) (401)
from cash
flows
Non-cash movement in net debt (5) (7) (3)
------- ------- -------
Decrease/(increase) in net debt 7 (439) (404)
Opening net debt (1,632) (1,228) (1,228)
------- ------- -------
Closing net debt (1,625) (1,667) (1,632)
======= ======= =======
Comprising:
Cash at bank and in hand 90 72 81
Current asset investments 130 139 144
Securitised debt (see below) (1,841) (1,874) (1,853)
Other loan notes and finance leases (4) (4) (4)
------- ------- -------
(1,625) (1,667) (1,632)
======= ======= =======
Securitised debt
The securitised debt was issued on 13 November 2003 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 overall cash interest rate payable on the loan notes is fixed
at 6% after taking account of interest rate hedging and monoline insurance
costs. The notes are secured on substantially all of the Group's property and
future income streams therefrom.
13 NET DEBT (Continued)
The carrying value of the secured loan notes in the Group balance sheet at
9 April 2005 is analysed as follows:
£m
-------
Principal outstanding at 26 September 2004 1,872
Principal repaid during the period (17)
-------
Principal outstanding at 9 April 2005 1,855
Deferred issue costs (21)
Accrued interest 7
-------
Carrying value at 9 April 2005 1,841
=======
14 PENSIONS
As explained in Note 2, the Group has adopted FRS 17 in full during the
period resulting in a restatement of prior period comparatives. Amounts
(charged)/credited to profit in respect of the Group's defined benefit
arrangements under FRS 17 are as follows:
2005 2004 2004
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
Operating profit
Current service costs (7) (7) (14)
------- ------- -------
Finance income
Expected return on pension scheme 33 30 57
assets
Interest on pension scheme (32) (30) (56)
liabilities
------- ------- -------
Net finance income 1 - 1
------- ------- -------
Total charge (6) (7) (13)
======= ======= =======
14 PENSIONS (Continued)
Under FRS 17 the requirement to perform a full valuation of the Group's
pension schemes applies at the end of each financial year. At the half
year, the previous year end valuation is updated for market related
movements, being the market value of scheme assets and the discount rate
used for liabilities. Accordingly, net FRS 17 pension liabilities are
analysed as follows:
2005 2004 2004
9 April 10 April 25 Sept
£m £m £m
------- ------- -------
Total market value of assets 1,001 895 915
Present value of scheme liabilities (1,123) (1,096) (1,088)
------- ------- -------
Deficit in the schemes (122) (201) (173)
Related deferred tax asset 41 67 59
------- ------- -------
Net pension liabilities (81) (134) (114)
======= ======= =======
Movements in the scheme deficits are analysed as follows:
2005 2004 2004
28 weeks 28 weeks 52 weeks
£m £m £m
------- ------- -------
At beginning of period (173) (243) (243)
Current service cost (7) (7) (14)
Contributions 36 40 44
Net finance income 1 - 1
Actuarial gain 21 9 39
------- ------- -------
At end of period (122) (201) (173)
======= ======= =======
15 REVALUATION RESERVE
In 1996, a group restructuring by Six Continents resulted in the transfer
at book value of certain fixed assets 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 fixed assets reflects those revaluations in its
historic cost, which at 9 April 2005 amounted to £388m (2004 28 weeks,
£395m; 52 weeks £392m). In addition, the carrying value of the Group's
fixed assets reflects the most recent valuation of the properties
undertaken in 1999 which at 9 April 2005 amounted to £335m (2004 28 weeks,
£340m; 52 weeks £339m).
16 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, other than to the extent that liabilities have been
provided for in these financial statements, such indemnities are not
expected to result in financial loss to the Group.
17 AUDITORS' REVIEW
The auditors, Ernst & Young LLP, have reported to the Directors on their
review of these financial statements in accordance with the guidance
contained in Bulletin 1999/4 'Review of interim financial information'
issued by the Auditing Practices Board. Their unqualified report will be
included in the Interim Report & Accounts 2005 which will be sent to
shareholders.
______________________________________
Responsibility statement
The Directors of Mitchells & Butlers plc accept responsibility for the
information contained in this announcement. To the best of the knowledge
and belief of the Directors of Mitchells & Butlers plc (who have taken all
reasonable care to ensure that such is the case), the information contained
in this announcement is in accordance with the facts and does not omit
anything likely to affect the import of such information.
Cautionary note regarding forward-looking statements
This announcement contains certain forward-looking statements as defined
under US legislation (section 21E of the Securities Exchange Act of 1934)
with respect to the financial condition, results of operations and business
of Mitchells & Butlers and certain of the plans and objectives of the board
of directors with respect thereto. These forward-looking statements can be
identified by the fact that they do not relate only to historical or
current facts. Forward-looking statements often use such words as
'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal',
'believe' or other words of similar meaning. The forward-looking statements
contained herein are based on assumptions and assessments made by the
Mitchells & Butlers' management in light of their experience and their
perception of historical trends, current conditions, expected future
developments and other factors they believe to be appropriate. By their
nature, forward-looking statements are inherently predictive, speculative
and involve risk and uncertainty, and there are a number of factors that
could cause actual results and developments to differ materially from those
expressed in or implied by such forward-looking statements. These factors
include, but are not limited to: the future balance between supply and
demand for Mitchells & Butlers' sites; the effect of economic conditions
and unforeseen external events on Mitchells & Butlers' business; the
availability of suitable properties and necessary licenses; consumer and
business spending, changes in consumer tastes and preference; levels of
marketing and promotional expenditure by Mitchells & Butlers' and its
competitors; changes in the cost and availability of supplies; key
personnel and changes in supplier dynamics; significant fluctuations in
exchange rates; interest rates and tax rates; the availability and effects
of any future business combinations, acquisitions or dispositions; the
impact of legal and regulatory actions or developments; the impact of the
European Economic and Monetary Union; the ability of Mitchells & Butlers to
maintain appropriate levels of insurance; the maintenance of Mitchells &
Butlers' IT structure; competition in markets in which Mitchells & Butlers'
operates; political and economic developments and currency exchange
fluctuations; economic recession; management of Mitchells & Butlers'
indebtedness and capital resource requirements; material litigation against
Mitchells & Butlers; substantial trading activity in Mitchells & Butlers'
shares; the reputation of Mitchells & Butlers' brands; the level of costs
associated with leased properties; and the weather.
- ends-
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