29th Nov 2007 07:02
Mitchells & Butlers PLC29 November 2007 29 November 2007 MITCHELLS & BUTLERS PLC PRELIMINARY RESULTS (For the year ended 29 September 2007) FINANCIAL HIGHLIGHTS FY2007 FY2006 £m £m % growth------------------------- --------- --------- ---------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 beforeexceptional 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 plcin July 2006 Commenting on the results, Tim Clarke, Chief Executive said: "Mitchells & Butlers has delivered another strong trading performance. Weextended our leadership of the eating-out market, serving 107 million meals andmade sizeable drinks market share gains. Our focus on amenity, service and valuehas positioned us well to deliver further out-performance against the marketthrough the first year of the smoking ban and more challenging marketconditions. 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 takingthe total dividend for the year to 14.25 pence, an increase of 16.3% on lastyear. Subject to approval at the AGM on 31 January 2008, the final dividend willbe 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 growingby 1.4% in the seven weeks to 17 November. Trading in the three weeks to 17November has shown a material improvement on October with same outletlike-for-like sales up 2.4% following the launch of our new winter menus. Thissales growth has been generated against the background of the start of the firstwinter period of the smoking ban in England and Wales, a continuing volumedecline in the on-trade beer market in October of approximately 8% and a moreuncertain consumer environment. 7 weeks ended 17 Same outlet like-for-like Uninvested like-for-likeNovember 2007 sales growth sales growthResidential 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 outletlike-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. TheRugby tournament however, had a negative impact on our Pub Restaurants wherelike-for-like sales have been marginally positive overall, although they were up2.6% in the last three weeks following the launch of the new menus with theirenhanced quality and value. These new menus are part of a carefully trialled and targeted margin investmentprogramme that we have started to implement within Pub Restaurants to driveprofitable volume growth in response to a slowing in performance towards the endof last year, particularly in the Vintage Inns format. The initial customerresponse to these new menus is very encouraging. In the High Street, which accounts for 25% of sales, the successful evolution ofour formats has generated like-for-like sales ahead by 2.5%, with strong growthin food sales. Trading in Central London has remained buoyant. Trends following the smoking ban in England are currently broadly in line withthose seen in the first year of the ban in Scotland where there was a slowing ofoverall sales in the winter months. In the 20 weeks since the introduction ofthe smoking ban in England, same outlet like-for-like sales for our English pubsexcluding those previously converted to non-smoking, increased by 1.5%, withfood sales up 5.0% and drinks sales marginally up. In the last seven weeks thesepubs grew by 0.7% on a same outlet basis. We continue to be encouraged by theimprovement in same outlet like-for-like sales this year within our Scottishpubs, up 6.7%, partly helped by the recent Euro 2008 football, and we believethat the overall impact of the ban will be beneficial over time to larger, wellinvested pubs with an attractive food offer. Progress on the Acquired Sites The Acquired Sites conversion programme remains on track with 172 pubs nowconverted to our brands and formats. Average weekly sales uplifts on theconverted sites are running at approximately 20% above the levels at which thepubs were acquired and we remain confident in delivering the year three targetof 30% sales uplifts in the 2009 financial year. Value Release from Property Estate The Board continues to investigate options for capturing the value of theproperty estate for shareholders on a sustainable basis. Whilst its focus has been on the establishment of a property joint venture, thishas been impacted, for now, by the disruption in the debt markets. Alternativeproperty based refinancing structures remain under consideration. In thiscontext, the Board has received a proposal from R20 in respect of a demergedREIT structure, the attractiveness and feasibility of which we are now exploringwith R20. The proposal includes R20 procuring a fixed price underwriting in theregion of 25% of a wholly demerged REIT, which would offer shareholders theoption to realise part of their investment in the property company for cash. Thekey issues under review are the details of the underwriting, the ability toreorganise the debt and the implications for pensions, tax and legal structure.Additionally, a REIT structure would have to meet the Board's requirement for anappropriate balance to optimise the value of both demerged companies asindependent entities. The Board is giving serious consideration to this proposal and will continue toreview alternative structures that would demonstrably create value from theproperty whilst providing an attractive long term business model for theoperating company. Property Revaluation Given the continued focus on the value of our estate, we have completed arevaluation of our fixed assets based on an updated valuation by our propertyvaluers, Colliers CRE, of our freehold and long leasehold properties as at 29September 2007. For accounting purposes, this valuation represents the aggregatevalue of each individual pub, rather than a portfolio approach, based primarilyon the trading cash flows. The revised value of the properties at £5.0bnrepresents a net increase of £1.1bn compared with the historical accountingbasis. We will continue to revalue our properties each year on a rolling basis. The accounting valuation of the property is consistent with the existingstructure of the Group. However, based on advice received from Colliers CRE, allof the freehold and long leasehold properties within an OpCo/PropCo structurewould support a market rent of £280m and a rental yield of 5.8%, with anindicative valuation of £4.8bn for the PropCo, before any allowance forpurchaser's costs, based on a 35 year, RPI inflating lease. This valuationapproach relates only to the rent from the freehold and long leasehold pubs andtherefore excludes the cash flows received by the operating company from thesepubs, as well as other company cash flows including those from existing shortleasehold pubs. Based on the year ended 29 September 2007, this would equate toapproximately £200m of underlying EBITDA. Hedges At the year end the post tax mark-to-market deficit on the hedges taken out inconnection 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 hasbeen treated as an exceptional cost in the accounts. Due to continuingturbulence in the debt markets, the latest post-tax mark-to-market deficit onthe hedges currently stands at approximately £180m. The hedges have beenretained as the Board remains committed to a property-based refinancing whichwould utilise them, once debt markets have recovered. Pensions The pension schemes showed a deficit of £18m, as at 29 September 2007 on an IAS19 valuation basis, including updated assumptions on life expectancy. The full actuarial review undertaken in the year is currently being finalisedbased on the value of the schemes as at 31 March 2007. The actuarial valuationadopts a more conservative basis of discounting the liabilities than is requiredby IAS 19 and the preliminary result shows a deficit of approximately £250m. Inline with the new pensions regulations, the Company is finalising with thePensions Trustees a formal recovery plan to close this deficit by 2017. As partof this plan, in addition to the ordinary annual service contributions, it isexpected that further contributions of £24m will be made in each of the nextthree years. The contribution for the year ending 30 September 2008 will includethe payment of £20m previously committed at the time of the Special Dividend inOctober 2006. The level of additional contributions will be subject to reviewduring the next actuarial valuation as at 31 March 2010. Responsible Retailing Intensive management activity and time goes into the training of all our staffto ensure that Mitchells & Butlers' pubs are responsibly operated, wellsupervised and safe premises for the consumption of alcohol, as well as food andother drinks. For instance, we turn away some 50,000 young people a month from our pubs forfailing satisfactorily to prove their age, to ensure that we do not serve underage drinkers. Our staff are also trained and supported in refusing to servecustomers who are intoxicated. Similarly, we have continued to support fully theindustry's self regulatory code to avoid any forms of irresponsible promotion ofalcohol. We have also supported the establishment of The Drinkaware Trust with a widerange of other stakeholders, focused on promoting a more responsible attitude todrinking 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 licencefor the responsible retailing of alcohol. In that regard we were pleased for thesecond time to be recognised by the Morning Advertiser as this year's mostresponsible drinks retailer in the managed pubs category. We also believe that the retailing of alcohol, where it is subsequently consumedin an unregulated environment, has similar social responsibilities. Against thisbackground we question whether the promotional policies and pricing of alcoholat very cheap levels, sometimes below cost, by the supermarkets and other partsof the off-trade, are compatible with those responsibilities. All commercial retailers of alcohol need to recognise a joint responsibility forcountering the anti-social behaviour and health problems associated with itsexcessive consumption. Outlook The outlook for consumer spending remains uncertain and the first winter of theEnglish smoking ban will be challenging, although the evidence from Scotlandreinforces our belief that the ban will prove beneficial to the business in thelonger term. Mitchells & Butlers has a strong competitive position derived from the qualityof its estate, its leadership position in the eating out market, and theconsumer appeal and value for money positioning of its formats. Our out-performance against a challenged on-trade drinks market has widened andwe are well placed to make further market share gains in the year ahead. Marginreinvestment in the quality and value of our food offers is being activelypursued with encouraging initial results, to generate profitable volume gains.This, alongside further organisational cost efficiencies, will help to mitigatethe additional regulatory costs of £12m and upward pressures on food costs. Notwithstanding 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 morefully reflected in the current year. As a result, we anticipate a resilientperformance amidst more challenging market conditions. There will be a presentation for analysts and investors at 9.30am at the MerrillLynch Financial Centre, 2 King Edward St, London EC1. A live webcast of thepresentation will be available at www.mbplc.com. The conference will also beaccessible 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 orfrom 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 4526James 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 growingeating-out market and further significant drinks market share gains. Our averageweekly sales per pub are up 6% to £18.5k and operating profit has increased by11% to £343m. We have generated this performance through the successfulimplementation 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 theyear against a pub food market up 3%. We are now selling in total 107m meals ayear. Our total food sales, including the benefits of the Acquired Sites, grewby 22% in the year. This has been achieved through a constant focus on qualityand value to the customer and we will continue to reinvest margin into our menuoffers to generate further profitable volume growth. The key to generating profitable food growth is responding to customers' highsensitivity to perceptions of value. This is reflected in both high consumerprice elasticities and rising menu quality expectations. Our business model is focused on attracting incremental food volumes which inturn 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, averageweekly food sales rose by 12%, while the average number of meals served grew by15% as the mix moved strongly towards the value segment. Thus, althoughlike-for-like food prices rose 1.6%, the average retail price of food servedfell by 0.8% due to the shift in mix. We believe that the smoking ban, now implemented across the UK, will furtherstrengthen the growth prospects for food sales in our pubs, by being able toattract new customers previously deterred by tobacco smoke. Since the smokingban was implemented in England, same outlet like-for-like food sales are up5.0%. 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 againstrongly out-performed the market across all the key categories of beer, cider,wines, spirits and soft drinks. Crucially, our same outlet beer and cidervolumes were maintained against the background of a 4% decline in the on-trademarket for these products in the year as a whole. We are outperforming this in the beer category through widening the productrange that we offer, improving the serve quality through intensive cellartraining and investment in cooling systems, as well as delivering betterpresentation through attractive glassware. Value is also playing a key part in our strong drinks market share gains, with awide gap opening between our pricing and general on-trade pricing, therebyprotecting our volumes from the supermarket discounting. As a result, theaverage retail price of standard lager is now 36 pence per pint less in our pubsthan the average in leased pubs. This was despite our average retail drinksprices rising by 3.4%, partly due to like-for-like price increases, but also dueto trading up to new, premium products. This increase was less than the pricerises across the on-trade as a whole. As a result of these product initiativesand pricing policies, on a longer term perspective, we have grown our sameoutlet beer volumes by 6% over the past four years, against a 15% decline in therest of the on-trade. We have been following a similar strategy in wine, soft drinks and coffee whichare key attractions to new users of pubs. We have been extending our ranges withnew premium products, offering good value, own label products and enhancing theserve quality. Wine sales volumes grew last year by 3% with draught dispense nowin some 630 pubs. In soft drinks, we have been successfully extending the rangeof fresh juices, cordials and mineral waters. We have also installed new brandedcoffee 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 salesgrowth Our emphasis on innovation to develop our brands and formats to keep pace withfast changing consumer expectations is focused on ensuring that we continuallyattract new customers and generate higher levels of visits. We have developed anindustry leading portfolio of brands and formats targeted at the growth segmentsof the market. Average weekly sales per pub are well over three times theindustry average. For instance, during the course of the year we have further developed ourcategory killer, value food formats, Sizzling Pub Co, Pub Carvery and our newCommunity 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 isnow generating an average of 2,950 meals per week, the highest, we believe, ofany format in the industry. We have also evolved our long established HighStreet formats of O'Neill's and Scream, with strong performances resulting.Similarly the development of our London offers of Nicholson's and MetroProfessionals 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 margindrinks sales is key to maximising overall profitability. Our aim is to addincremental food sales which can be delivered at low marginal cost with anattractive drop-through to profit. Extract volume driven efficiencies Our rising volumes are critical in underpinning our efficiency gains. This yearwe have seen a further strong rate of increase in staff productivity, with a3.9% increase in staff contribution per hour in the core estate. This reflectsthe impact of our training programmes, our focus on the optimum deployment ofstaff and ever more refined techniques for forecasting and scheduling. Thesehave enabled us to realise significant productivity gains and maintain our pubemployment cost ratio below 24% of sales excluding the Acquired Sites, despite afurther increase of 6% in the National Minimum Wage in October 2006. On purchasing, the Cost of Goods' index increases have seen cost rises held tounder 1%, significantly below inflation, while £7m per annum of purchasingsynergies from the Acquired Sites were delivered this year, ahead of ourforecasts at this time of acquisition. We also continue to drive process efficiencies in the infrastructure to leverageour 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 theorganisation, with approximately £7m of annualised cost efficiencies targeted tobe delivered in FY2009. Extend the skill base of operational excellence throughout the estate The skills and experience of our operating teams provide a critical competitiveadvantage for us in delivering high standards of customer service efficientlyand profitably. We have continued to build our staff training programmes andindustry leading practices in the areas of: capacity management at peak times;kitchen processes and organisation; bar and floor service productivity; staffproduct knowledge and our responsiveness to direct measures of feedback on guestsatisfaction. This focus on operational excellence is central to the highaverage 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 applyingthe breadth of our trading formats as is most appropriate to the local marketand demographics. During the year we have been adding value through thisstrategy to both the Acquired Sites and the existing estate. The Acquired Sites'conversion programme remains on track with 172 pubs now converted to ourformats. We have moved at a rapid pace with the integration programme to turnaround their previous under-performance and provide a platform for futuregrowth. Average weekly sales uplifts on the converted sites are running atapproximately 20% above the levels at which the pubs were acquired. We remainconfident in delivering the year three target of 30% sales uplifts in the 2009financial year. In addition, we opened six new sites, and carried out 65 conversions and 13growth projects to change the customer offer or increase the trading area of thesite in the core estate. Overall, we are generating a pre-tax incremental returnof 20% on our expansionary investment over the last two years in the coreestate. As a result of this strategy, and in the light of the general levels ofinvestment in the on-trade market as a whole, the amenity gap between our pubsand the majority of pubs in the UK is widening, further improving our overallcustomer value proposition and our market share gains relative to the rest ofthe on-trade. We continue to make targeted disposals, where the value to third parties ishigher than the trading value to us. During the year we generated £162m ofdisposal 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 valueof 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 theirprofitability and our strong operating performance has helped to generatefurther 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 inconjunction with our property valuers, Colliers CRE. Our focus remains on releasing to shareholders the benefits of this capitalappreciation. At the start of the year, in October 2006, we returned £486m toshareholders by means of a Special Dividend of £1 per share, crystallising forshareholders 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 ofour operational cash flows in a dedicated property structure. Whether in a JointVenture, a REIT or another separate property structure, fundamentally highervalues appear to be placed on the estate than when it is combined in anintegrated model with the operations. We believe that substantial value can be potentially captured from our highquality, freehold and long leasehold assets, through such structures. A keyconsideration in such a process is to construct a lease arrangement whichensures that both the property and the operations remain mutually incentivisedto continue to create long term value. The Board will continue to actively investigate options for capturing the valueof 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 thefirst full year of ownership of the Acquired Sites purchased from Whitbread plcin July 2006. Strong like-for-like sales growth continued in the year in both Residential andHigh Street areas, reflecting resilient trading in more challenging conditionsin 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 foodsales and drink sales were up 5.1% and 2.2% respectively, with average retailprices up less than 2%, reinforcing our value position in a market characterisedby real price increases. Our increased share of the drinks market and the increasing scale of our foodvolumes have helped us to mitigate continuing pressures on the cost of goodspurchased, including drinks duty rises and global food inflation. Overall grossmargins were slightly below last year, reflecting a further shift in the salesmix towards the higher growth but lower margin categories of food and wine. By continuing to improve employee productivity, our pub employment ratio in theestate was maintained at below 24% of sales, despite further increases in theNational Minimum Wage adding £7m to our labour costs. As a result the net retailoperating margin at 17.9% was broadly in line with last year, despite £14m ofone-off closure and pre-opening costs incurred in connection with the conversionof the Acquired Sites. We invested £261m in the year, of which £8m related to the purchase of theAcquired Sites and £80m was invested to convert the majority of those sites toMitchells & Butlers' brands and formats. In the existing estate, £122m wasinvested to maintain the high levels of amenity in the pubs and in thecontinuing development and evolution of our brands and formats and £51m wasspent on expansionary projects. During the year six new pubs opened and 65existing pubs were converted to one of our brands or formats to uplift theirsales and profits. We are continuing to achieve an incremental, pre-tax returnof 20% on the core expansionary projects of the last two years. During the year we raised £162m of cash from disposals, including £101m from thesale 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 propertydevelopment profit of £7m in the year. As a result, total operating profitbefore exceptional items was £343m, up 11.0% on last year. Pubs & Bars FY07 GrowthRevenue £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 1pub transferred to the Restaurants division, there were 1,129 managed pubs inthe 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 thedivision following conversion. Excluding those Acquired Sites and adjusting formajor disposals made last year and at the beginning of this year, revenue in thecore Pubs & Bars estate was up 3.5%. Pubs & Bars continued to achieve market share gains in drink sales, as a resultof the widening gap between our amenity, product range and value for money andthat of the competition. Food sales in the year were up 12.5% (excluding theAcquired Sites) driven by growth in the residential pubs, notably Sizzling PubCo and Metropolitan Professionals, as well as by the Town Pubs and the centralLondon estate. The review of machines stakes and prizes shortly before the beginning of theyear raised the maximum stake to 50p and the maximum prize to £35. These changeswere modestly beneficial to machine sales although the negative impact of thesmoking ban introduced in July meant that machine sales were slightly down forthe year as a whole. A total of 56 conversions were completed, predominantly to residential brandsand formats such as Sizzling Pub Co, Ember Inns and the MetropolitanProfessionals 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 yearand the net operating margin increased from 18.7% last year to 19.7%. Excludingthe contribution from the Acquired Sites and the impact of major disposals inthe comparative, the existing Pubs & Bars estate increased operating profit by11.9%. Restaurants FY07 GrowthRevenue £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, therewere 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 fromPubs & Bars. There were on average 768 managed pubs trading during the year. Revenue was up 19.2%, including £160m from the Acquired Sites. Excluding theAcquired Sites, there were on average 591 pubs trading during the year and inthese pub restaurants, revenue grew by 2.7%, with food sales up 3.9% and drinksup 0.7%. The Restaurants division successfully integrated the Acquired Sites andcompleted the majority of the conversions during the year as planned. Growth inthe rest of the estate slowed during the year primarily as a result ofincreasing economic pressure on mid-market consumers and greater intensity ofcompetition in pub food. Management focus is on continuing to evolve the offerin our brands and formats, combined with further efficiency and productivityimprovements. Restaurants operating profit of £145m before exceptional items was up 11.5% onlast year, including £16m from the Acquired Sites. The net operating margin fellfrom 17.1% last year to 16.0% due to the closure and pre-opening costsassociated with the conversion of the Acquired Sites and the comparatively lowmargins achieved by those sites prior to conversion. Excluding the AcquiredSites, the Restaurants estate increased operating profit by 4.0% with a netoperating 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, themajority of which related to the sale of a long term development property inBurton-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 attractiveproperty transaction, with terms largely concluded with R20 (the investmentvehicle of Robert Tchenguiz) based on the sale of a 50% stake in a £4.5bnproperty joint venture comprising approximately 1,300 pubs and £240m of rent. In the final stage of the planned transaction, the Company and R20 separatelyentered into certain interest and inflation hedging arrangements intended to becontributed to the joint venture. However, the sudden, rapid deterioration indebt market conditions in late July meant that a financing package could not beobtained and the transaction could not be executed. The hedges remain in placeas it is the Board's intention to utilise these financial instruments in afuture property based re-financing once debt markets have stabilised. Property Revaluation Given the continued focus on the value of our estate, we have completed arevaluation of our fixed assets based on an updated valuation by our propertyvaluers, Colliers CRE, of our freehold and long leasehold properties as at 29September 2007. For accounting purposes, this valuation represents the aggregatevalue of each individual pub, rather than a portfolio approach, based primarilyon the trading cash flows. The revised value of the properties at £5.0bnrepresents a net increase of £1.1bn compared with the historical accountingbasis. We will continue to revalue our properties each year on a rolling basis. The accounting valuation of the property is consistent with the existingstructure of the Group. However, based on advice received from Colliers CRE, allof the freehold and long leasehold properties within an OpCo/PropCo structurewould support a market rent of £280m and a rental yield of 5.8%, with anindicative valuation of £4.8bn for the PropCo, before any allowance forpurchaser's costs, based on a 35 year, RPI inflating lease. This valuationapproach relates only to the rent from the freehold and long leasehold pubs andtherefore excludes the cash flows received by the operating company from thesepubs, as well as other company cash flows including those from existing shortleasehold pubs. Based on the year ended 29 September 2007, this would equate toapproximately £200m of underlying EBITDA. Exceptional items Exceptional items are those which are separately identified by virtue of theirsize or incidence so as to allow a better understanding of the underlyingtrading performance of the Group. Exceptional items are generally those which donot form part of the core operations of the Group. As a result, the Boardfocuses on "pre-exceptional" performance measures in order to compare underlyingperformance year on year. The interest rate and inflation hedging arrangements that the Company enteredinto in July 2007 provide an economic hedge against the future anticipated cashflows associated with a property based refinancing, however they do not qualifyfor hedge accounting as defined in IAS39. Movements in their fair values aretherefore recognised directly in the Group income statement, within exceptionalfinance costs. The total fair value movement of these instruments during theyear reported within exceptional finance was £(221)m, (£(155)m after tax). An exceptional loss on property related items of £23m (£17m after tax) aroseduring the year. This was caused by impairment arising from the revaluation ofthe property portfolio of £45m (£32m after tax) partly offset by net profits onthe disposal of properties of £22m (£15m after tax), primarily related to thesale 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 theyear relating to the integration of the Acquired sites, whilst a further £7m ofcosts (£7m after tax) were incurred in the second half of the year, relatingprimarily to professional advisers' fees in relation to the Board's review of apotential property refinancing and the proposed joint venture transaction withR20. 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% to28% in April 2008. Finance Costs and Revenue Finance costs during the year were £153m before exceptional items, £35m higherthan last year. Finance revenue of £6m was achieved on the Group's cash balancesbeing £3m lower than last year. The net increase in finance costs of £38magainst last year reflects the higher level of debt in the Group following thepurchase of the Acquired Sites in August 2006 and the payment of a specialdividend of £486m to shareholders in October 2007. Net finance income from pensions was £11m, £3m higher than last year due to anincrease in the expected return on the assets in the pension scheme compared tothe charge for the liabilities. The Group's blended net interest rate for the year was 5.5% including the impactof the net finance income from pensions. Taxation The tax charge for the year was £62m before exceptional items. This is aneffective rate of 30% of profit before tax, 1 percentage point lower than theprevious year. The decrease has been achieved following the resolution duringthe second half of the year of various outstanding items with HMRC. As part of the exercise to revalue assets at the year end, management alsoreviewed 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 ofincreasing the deferred tax provision in the opening balance sheet by £76m. Thisadjustment has no impact on previously reported profits. In addition, as aresult of the revaluation, the deferred tax balance at 29 September 2007 hasincreased by £296m. Earnings per share Earnings per share were 35.5p before exceptional items, 21.2% ahead of lastyear. In addition to the growth in operating profit, earnings per share havebenefited from a 17% reduction in the average number of shares mainly as aresult of the 34 for 41 share consolidation carried out in October 2006 inconjunction with the special dividend. The loss per share after exceptional items was 2.5p reflecting primarily theexceptional accounting losses on the financial hedges entered into inanticipation of a property re-financing and the proposed joint venturetransaction 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, thisgives 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 marketenvironment, the proposed increase in the ordinary dividend is underpinned bythe strong underlying earnings per share performance achieved in the year. TheBoard remains committed to a progressive policy for dividends consistent withthe growth prospects of the Company. Subject to approval at the AGM, on 31 January 2008, the final dividend will bepaid on 4 February 2008 to shareholders on the register on 7 December 2007. Since Mitchells & Butlers listed in April 2003, shareholders have received morethan £1.1bn in cash through Special Dividends and share buybacks, over and aboveordinary dividends paid. This represents more than 70% of the Company's marketcapitalisation at the time. Cash flow and net debt The Group's operations continue to be highly cash generative. Cash flow fromoperations was £447m before exceptional items but after additional pensioncontributions of £40m. Net capital expenditure was £99m comprising £80m ofexpenditure 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 theincreased level of debt in the business. Tax paid was £33m, £15m lower than theprior year driven primarily by £10m of tax rebates received from the InlandRevenue during the year. Payments totalling £52m were made in respect of thefinal dividend for FY2006 and the interim dividend for FY2007 in addition to thespecial dividend of £486m paid in October 2006. £46m was spent to repurchaseshares, 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 beforeexceptional 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 ofthe financial year, an increase of 3.6%. The Company is a member of the FTSE 100index 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 centralTreasury department. The activities of the Treasury function are carried out inaccordance with Board approved policies and are subject to regular audit. Thedepartment does not operate as a profit centre. At 29 September 2007, the Group's net debt of £2,479m consisted of thesecuritised debt of £2,356m, borrowings on the Group's revolving credit facilityof £192m, derivatives hedging balance sheet debt of £45m, other loan notes andfinance 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, (£14mafter tax) at 29 September 2007 compared with £99m (£67m after tax) at 30September 2006. The reduction in the deficit reflects the benefit of £40m ofadditional pension contributions paid in the year and improved investmentreturns, partially offset by updated assumptions of life expectancy. The full actuarial review undertaken in the year is currently being finalisedbased on the value of the schemes as at 31 March 2007. The actuarial valuationadopts a more conservative basis of discounting the liabilities than is requiredby IAS 19 and the preliminary result shows a deficit of approximately £250m. Inline with the new pensions regulations, the Company is finalising with thePensions Trustees a formal recovery plan to close this deficit by 2017. As partof this plan, in addition to the ordinary annual service contributions, it isexpected that further contributions of £24m will be made in each of the next 3years. The contribution for the year ending 30 September 2008 will include thepayment of £20m previously committed at the time of the Special Dividend inOctober 2006. The level of additional contributions will be subject to reviewduring 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 ofthe property revaluation compared with £1,209m at the start of the year whichincorporates the impact of the £76m prior year adjustment. GROUP INCOME STATEMENTFor 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 onproperty-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 financialperiod 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 39.7pDiluted 34.4p (2.5)p 28.6p 38.8p ========= ========= ========= ========= Dividends (Note 7) Ordinary dividends proposed or paid(pence) 14.25 12.25Ordinary dividends proposed or paid (£m) 57 53Special 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 EXPENSEFor 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 torevaluation (Note 6) (317) - Tax credit relating to indexation of gains in respect ofprevious 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 periodattributable 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 SHEET29 September 2007 2007 2006 restated* £m £m --------- ---------ASSETSGoodwill and other intangible assets 17 22Property, plant and equipment 5,030 3,867Lease premiums 11 13Deferred tax asset 75 68Derivative financial instruments 30 - --------- --------- Total non-current assets 5,163 3,970 --------- --------- Inventories 38 42Trade and other receivables 69 81Derivative 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 --------- ---------LIABILITIESBorrowings (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) ========= ========= EQUITYCalled up share capital 34 34Share premium account 14 14Capital redemption reserve 3 3Revaluation reserve (Note 2) 828 -Own shares held (13) (12)Hedging reserve 20 (30)Translation reserve 7 6Retained earnings 683 1,194 --------- --------- Total equity 1,576 1,209 ========= ========= * Restated in respect of a prior year adjustment (see Note 2). GROUP CASH FLOW STATEMENTFor 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 8Tax paid (33) (48) --------- --------- Net cash from operating activities 269 275 --------- --------- Investing activitiesPurchases 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 88Proceeds from cash deposits with a maturity of greater thanthree months - 1Defence costs - (4)Corporate restructuring costs (4) - --------- --------- Net cash used in investing activities (103) (586) --------- --------- Financing activitiesPurchase of own shares (46) (76)Proceeds on release of own shares held 11 12Repayment of principal in respect of securitised debt (39) (460)Proceeds from issue of securitised debt - 1,078Proceeds 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 -------- ---------- -------- -------- --------- -------- RevenueSales to third parties 968 908 1,876 18 - 1,894 ======== ========== ======== ======== ========= ========Operating profitOperating profitbefore exceptional items 191 145 336 7 - 343 Exceptional items (17) (10) (27) - (7) (34) -------- ---------- -------- -------- --------- --------Operating profitafter exceptional items 174 135 309 7 (7) 309 -------- ---------- -------- -------- --------- Net finance costs (357)Tax credit 38 -------- Loss for thefinancial period (10) ======== 2006 52 weeks ----------------------------------------------------------- Pubs Retail & Bars Restaurants Total SCPD Unallocated Total £m £m £m £m £m £m -------- --------- -------- -------- --------- --------RevenueSales to third parties 958 762 1,720 - - 1,720 ======== ========= ======== ======== ========= ========Operating profitOperating profitbefore exceptional items 179 130 309 - - 309 Exceptional items 23 - 23 - (7) 16 -------- --------- -------- -------- --------- -------- Operating profitafter exceptional items 202 130 332 - (7) 325 -------- --------- -------- -------- --------- Net finance costs (105)Tax expense (25) -------- Profit for thefinancial period 195 ======== 4. EXCEPTIONAL ITEMS 2007 2006 52 weeks 52 weeks Notes £m £m --------- --------- Operating exceptional itemsDefence costs a - (4)Refinancing costs b - (3)Integration costs c (4) -Corporate restructuring costs d (7) - --------- --------- (11) (7) Profits on disposal of properties 39 41Losses on disposal of properties (12) (14)Impairment arising from the revaluation of the e (45) -property portfolioFair value adjustments on classification ofnon-current assets held for sale f (5) (4) --------- --------- Profit arising on property-related items (23) 23 Total operating exceptional items (34) 16 Exceptional finance costsWrite 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 40Tax 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 costsSecuritised 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 revenueInterest 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) 18Adjustments 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 equityUnrealised gains due to revaluations (317) -Indexation of gains in respect of previous revaluations 25 19Actuarial gains on pension schemes (10) (7)Share-based payments 3 14Derivative financial instruments (21) (1)Change in tax rate 30 - --------- ---------- Total tax (charge)/credit on items recognised directly in (290) 25equity ========= ========== * 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 bythe shareholders on 17 October 2006 at the Extraordinary General Meeting. Theshareholders also approved the consolidation of the share capital of the Companyby the issue of 34 new ordinary shares of 8 13/24p each for every 41 existingshares of 7 1/12p each. The Board approved on 28 November 2007 the proposed final dividend for the 52weeks ended 29 September 2007. This did not qualify for recognition in thefinancial statements at 29 September 2007 as it had not been approved by theshareholders 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 pExceptional 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 unallocatedliabilities* (874) (874) --------- -------- (3,353) 1,576 ========= ========OtherCapital expenditure 110 150 260 - - 260 Depreciation andamortisation 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 assetsAssets 2,179 1,914 4,093 19 - 4,112 Liabilities (139) (106) (245) (1) - (246) -------- --------- -------- -------- --------- -------- Segmental net 2,040 1,808 3,848 18 - 3,866assets -------- --------- -------- -------- Net debt (2,067) (2,067) Other unallocatedliabilities** (590) (590) --------- -------- (2,657) 1,209 ========= ========OtherCapital expenditure 92 595 687 - - 687 Depreciation andamortisation 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 325Add back: operating exceptional items 34 (16) ---------- -------- Operating profit before exceptional items 343 309 Add back:Depreciation of property, plant and equipment 122 114Amortisation of intangibles (computer software) 6 7Amortisation of lease premiums 1 -Costs charged in respect of share remuneration 8 8Defined benefit pension costs less regular cash contributions 3 3 ---------- --------Operating cash flow before exceptional items, movements inworking 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 7Increase in trade and other payables 3 6Movement 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 afternet 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 375Securitised 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 netdebt: Proceeds from cash deposits with a maturity of greater thanthree 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 definedcontribution arrangements have been recognised in the Group income statement: 2007 2006Group 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 69Interest 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 isanalysed as follows: 2007 2006 Value Value £m £m --------- --------- Equities 345 596Bonds 854 488Property 93 98 --------- --------- Fair value of assets 1,292 1,182Present value of scheme liabilities (1,310) (1,281) --------- --------- Deficit in the schemes recognised as aliability 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 69Contributions 50 31Actuarial 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 ExchangeRelated Shares:
Mitchells & Butlers