Half Yearly Report

MITCHELLS & BUTLERS PLC

18 May 2012

HALF YEAR RESULTS

(For the 28 weeks ended 7 April 2012)

Resilient operating performance; business transformation programme underway

Financial performance

Statutory results

Brand roll-out

Strategic progress

Bob Ivell, Executive Chairman, commented:

"We have remained firmly on the front foot with a relentless focus on actions that will drive the medium and long term success of the business. We are continuing to deliver a resilient operating performance, maintaining the roll-out of our industry-leading brands and progressing our major business change programme. I am pleased with the progress being made to appoint a new CEO and further Non-Executive Directors and look forward to being able to make an announcement at the appropriate time.

Despite challenging trading conditions, we remain confident that we can deliver a full year result in line with expectations."

Definitions

a - The Retained Estate comprises the ongoing business. It excludes the major disposal of 333 non-core pubs in November 2010.

b - Like-for-like sales growth includes the sales performance against the comparable period in the prior year of all UK managed pubs that were trading in the two periods being compared. For the 28 weeks to 7 April 2012, 92% of the UK managed estate is included in this measure.

c - Net operating margin is Retained Estate operating profit before exceptional items divided by Retained Estate revenue.

d - Adjusted earnings per share is profit after tax before exceptional items and other adjustments, divided by the weighted average number of ordinary shares in issue.

e - EBITDA used is from the Retained Estate before exceptional items for the 52 weeks to 7 April 2012.

There will be a presentation for analysts and investors at 9.30am at Nomura International plc, 1 Angel Lane, London, EC4R 3AB. A live webcast of the presentation will be available at www.mbplc.com. The conference will also be accessible by phone: +44 (0) 203 059 8125 and quote "Mitchells & Butlers". The replay will be available until 1 June 2012 on +44 (0) 121 260 4861 replay access pin 7959697#.

All disclosed documents relating to these results are available on the Group's website at www.mbplc.com

For further information, please contact:

Notes for editors:

BUSINESS REVIEW

Mitchells & Butlers is the UK's largest operator of managed restaurants and pubs, with a leading portfolio of well-recognised brands and a high quality freehold estate. Nearly three quarters of our sales relate to guests using our businesses to eat. We are:

1. Continuing to deliver a resilient operating performance

2. Maintaining the roll-out of our industry-leading brands

3. Progressing a major business change programme

1. Continuing to deliver a resilient operating performance

Our operations teams have delivered growth in both sales and operating profit in the Retained Estate of 6.3% and 1.5% respectively (before exceptional items and other adjustments) with adjusted earnings per share up by 10.6%, despite the difficult trading environment.

Like-for-like sales growth driven by food: Sales growth was driven by our ability to capture growth in food sales, which were up 9.4% in total. The table below shows like-for-like sales growth to the end of the half year:

Subsequently, following a poor April impacted by the persistent rain, like-for-like sales growth in the first 33 weeks (to 12 May 2012) fell to 2.0%.

We continue to outperform the market* consistently in challenging economic conditions by offering good value for money to our customers. Demand on key trading days in particular has remained strong, with like-for-like sales up 5.4% over the Valentine's Day weekend and 4.5% over the most recent May Day bank holiday weekend.

* Market measured as the Coffer Peach Business Tracker

Margin affected by cost headwinds and investment in service: In the period, inflationary and regulatory cost pressures continued to have an adverse impact on profitability. Alongside this, we have invested a higher percentage of our income into site-level employment costs which, despite a short term adverse impact on margin, has driven our guest satisfaction scores to record levels. Overall, Retained Estate operating margins (before exceptional items and other adjustments) were down 0.7 percentage points to 14.2%.

2. Maintaining the roll-out of our industry-leading brands

Our restaurants and pubs are some of the largest in the industry with an average weekly take of £22k.

Brand roll-out programme remains on track: We have opened 35 new sites in the first half, creating over 1,200 new jobs, and converted 7 existing sites, largely completing the current conversion programme. 27 of the new openings are leasehold sites, and, of these, 24 are on leisure or retail parks, taking the total number of sites in or next to these locations to around 80 across the estate. We remain on track to open a total of approximately 55 new or converted sites in FY 2012.

An important milestone during the period was the opening of the 200th Harvester at the Pavilions shopping centre in Peterborough. Following the recent modernisation of the brand's design, signage and menu, as well as increasing public awareness through our TV advertising campaigns, Harvester won the Peach Report's Evolutionary Brand award in November.

Capital returns: EBITDA returns on expansionary capital invested over the last two financial years are at 17%, down from 21% as at the FY 2011 Final Results, due in part to the cost pressures described above. Returns on single site leasehold acquisitions, which form the bulk of the acquisition programme going forward, remained attractive at 26% and we continue to see a strong pipeline in this area as we consolidate our entry into the retail and leisure park market. Returns on freehold acquisitions were 14% and on the residual conversion programme were 15%. Returns from packaged leasehold acquisitions were 14%, as a result of lower than expected sales levels.

3. Progressing a major business change programme

We are fundamentally changing the way we work to improve our focus on our guests, our people, our practices and our profits. The actions below are focused on driving like-for-like sales growth, effectively supporting the business with a reduced cost base and delivering the Company's vision: "People love to eat and drink with us".

Simplification of organisational structure: we have simplified central support functions to increase the focus on our guests throughout all areas of the business; to clarify accountabilities and responsibilities; and to improve the pace of decision making through reduced bureaucracy. In total, around 90 roles will be removed from our support functions, representing a reduction of approximately 11%. Alongside this, we have reinvested to strengthen selected areas focused mainly on talent development, service enhancement and operational efficiency.

Supporting outstanding customer service delivery: the next phase of the programme includes embedding the new organisational design; redesigning the way the Company operates and providing our teams with the skills, space and motivation to deliver outstanding customer service. We are trialling new ways of working for our managers and teams to deliver a step change in guest service.

Upgraded IT infrastructure:we have also upgraded our IT infrastructure through the implementation of a cloud-based data centre and network systems. These systems have delivered a more robust and flexible back of house system with significant additional capacity for growth. They also facilitate a number of service enhancements, for example free wi-fi is now being rolled out across the entire estate. The system provides for additional functionality in the future such as improved kitchen and table management systems, customer loyalty schemes, new payment mechanisms and faster menu development.

The restructured support functions and IT systems will result in annualised savings of £10m, with a £5m saving in the second half of this year. An exceptional charge of £14m was booked in the first half relating to these activities.

Outlook

The consumer environment remains challenging however cost inflationary pressures are expected to ease marginally in the second half of the year. Overall, Mitchells & Butlers' strong portfolio of assets, brands and operating capabilities, allied to the benefits from the ongoing business transformation process, leave us well placed to grow the business.

FINANCIAL REVIEW

Total Group results

Group revenue was up 2.4% to £969m and operating profit down 5.6% to £118m after operating exceptional costs of £20m (H1 2011: £16m). Total Group results include discontinued operations, comprising 333 non-core pubs sold in the previous financial year, which contributed sales of £34m and operating profits of £5m in H1 2011. Commentary on the continuing operations - the Retained Estate - is made below.

Net interest costs were £76m, down from £82m in the first half of last year due to the repayment and cancellation of the unsecured facility in February 2011, primarily with the proceeds from disposal of the non-core pubs.

The tax charge for the period was £6m, consisting of £17m charged against profit before exceptional items and an exceptional tax credit of £11m. Tax on profit before exceptional items is at an effective rate of 25% (H1 2011: 27%).

Basic earnings per share were 8.8p, down marginally on 9.1p in H1 2011. Before exceptional items and other adjustments, earnings per share were 12.5p, up 10.6% against the first half of last year.

Retained Estate results

The Retained Estate comprises the ongoing business. It excludes the major disposal of 333 non-core pubs in November 2010.

Total Retained Estate revenues increased by 6.3% in the first half to £969m, with food sales up 9.4% and drink sales up 4.8%.

On a like-for-like basis in the first half, sales were up 2.7%, with food sales up 3.4% and drink sales up 2.2%. Sales growth was driven by increases in food spend per head of 4.2% and average drink spend of 6.2%, despite a decline in like-for-like main meal volumes of 0.7% and drink volumes of 3.7%.

Operating profit before exceptional items increased 1.5% to £138m although the operating margin was down 0.7 percentage points compared to H1 2011 at 14.2%. Margins were impacted by increases in energy and food cost prices of £13m. Continuing regulatory cost increases in alcohol duty, the national minimum wage, the Carbon Reduction Charge and business rates reduced operating profits by £12m in the period.

Exceptional items and other adjustments

Exceptional items in the first half of the year reduced operating profit by £20m (FY 2011: £16m) and profit before tax by £26m (FY 2011: £20m). These items include a £6m charge for professional fees and other costs relating to the approach from Piedmont Inc in September 2011 and £14m of costs relating to the internal restructuring and IT reorganisation which will result in £10m of annualised savings.

The net pensions finance charge was £6m and an exceptional deferred tax credit of £6m has been recognised relating to the reduction in the UK standard rate of corporation tax.

Dividends

The Board continues to monitor operating cash flow generation and capital investment opportunities before taking a decision on the timing and quantum of the resumption of dividend payments.

Capital expenditure

Total capital expenditure in the first half was £90m, £9m lower than in the first half of FY 2011. Of this, £42m was invested in expansionary capital as outlined in the Business Review and £43m was spent on refurbishing and enhancing the level of amenity in our estate. A further £5m was spent on infrastructure projects, including improvements in the energy efficiency of our restaurants and pubs.

Cash flow and balance sheet

Net cash flow of £12m in the first half was generated as follows:

Strong trading cash flow of £158m in the first half of the year was £33m higher than the first half of last year. This was largely as a result of a working capital inflow of £6m in H1 2012 compared to an outflow of £33m in the first half last year, the latter due to the timing of a number of insurance and payroll costs as well as the impact of the disposal of pubs to Stonegate Pub Company. After pension deficit contributions, tax, interest, capital expenditure and exceptional items, £12m of net cash was generated by the business in the first half.

Net debt reduced to £1,864m, with net debt of £2,071m within the securitisation. Net cash held outside the securitisation was £207m. Total Group net debt is a multiple of 4.6 times Retained Estate EBITDA in the 52 weeks ending 7 April 2012, down from 4.7 times at the last year end.

Pensions

Over the period the pre-tax IAS19 deficit on the group defined benefit pension schemes increased to £57.5m (FY2011: £36.7m) due to the combined effect of a lower discount rate and higher inflation more than offsetting company contributions and a positive return on scheme assets.

Following the previous actuarial valuation, as at March 2010, the company has agreed to contribute £40m per annum towards recovery of the schemes' deficits, which were assessed at that time at £400m. The next valuation is scheduled as at March 2013 at which time the funding position and recovery plan will be reassessed. The prevailing low level of real gilt yields will put upward pressure on the measurement of the deficit should it persist to that time.

53 weeks in FY 2012

Full year financial results for FY 2012 will be made up of trading for 53 weeks to 29 September 2012. FY 2013 will then revert to the standard 52 week period.

KEY PERFORMANCE INDICATORS

Mitchells & Butlers implements and monitors its performance against its strategy principally through three KPIs. The performance was as follows:

1. Same outlet like-for-like sales growth - Mitchells & Butlers' operational and marketing plans have delivered like-for-like sales growth of 2.0% in the first 33 weeks of FY12 (3.3% in the first 33 weeks of FY11).

2. EPS growth - After lower interest and tax charges adjusted EPS has increased from 11.3p in H1 FY11 to 12.5p in H1 FY12.

3. Incremental return on expansionary capital - Pre-tax EBITDA returns of 17% are being achieved on expansionary capital projects carried out over the last two financial years.

RISK FACTORS AND UNCERTAINTIES

The risks and uncertainties that affect the company remain unchanged and are set out on pages 10-11 of the 2011 Annual report and accounts which is available on the Mitchells & Butlers web site at www.mbplc.com. In summary, these are:

GROUP CONDENSED INCOME STATEMENT

for the 28 weeks ended 7 April 2012

GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME

for the 28 weeks ended 7 April 2012

GROUP CONDENSED BALANCE SHEET

7 April 2012

GROUP CONDENSED CASH FLOW STATEMENT

for the 28 weeks ended 7 April 2012

GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY

for the 28 weeks ended 7 April 2012

NOTES TO THE INTERIM FINANCIAL INFORMATION