25th May 2006 07:03
Mitchells & Butlers PLC25 May 2006 25 May 2006 MITCHELLS & BUTLERS PLC INTERIM RESULTS (For the 28 weeks ended 15 April 2006) HIGHLIGHTS - Revenue of £887m, up 2.7%- EBITDA of £207m, up 4.0%- Operating profit of £143m, up 4.4%- Profit before tax of £91m, up 9.6%- Earnings per share of 12.8p, up 18.5%- Interim dividend 3.65p per share, up 14.1% Notes:(1) All results are before exceptional items(2) These results are prepared in accordance with IFRS for the first time, 2005 comparatives have been restated accordingly BUSINESS HIGHLIGHTS Commenting on the results, Tim Clarke, Chief Executive said: "These are strong results driven by our leadership position in the fast growingpub food market and our accelerating gains in drinks market share. Our salesgrowth, combined with further productivity gains, have enabled us to overcomesignificant external cost pressures, increase operating margins and generate18.5% growth in earnings per share." - Same outlet like for like sales improved to 4.4% for 16 weeks to 13 May 2006*- On-going market share gains: same outlet food sales up 7.0%**, drink up 3.4%**- Average weekly sales per managed house up 7.1% to £17k- Further productivity gains overcome £14m external cost increases- Net retail operating margin slightly ahead of last year- High returns on investment: over 20% pre tax on last 2 years' expansionary capital- Refinancing and estate revaluation process underway* includes entire Easter period in both years being compared** 32 weeks to 13 May 2006 CURRENT TRADING Revenue in the 16 weeks to 13 May, has continued to grow strongly with sameoutlet like for like sales up 4.4%, an improvement on the 4.0% reported for thefirst 16 weeks of the year. As a result, same outlet like for like sales for thefirst 32 weeks of the financial year were 4.2%, slightly ahead of the trendreported for the 29 weeks with the Trading Update on 28 April. Same outlet likefor like sales for the 3 weeks to 13 May were ahead by 5.1% aided by favourableweather compared to the previous 13 weeks. Like for like sales by market segmentfor the second quarter and the first 32 weeks were as follows: 16 weeks to 13 May 2006* 32 weeks to 13 May 2006* Same outlet like for like sales Residential 5.6% 5.1%High Street 1.9% 2.3%Total 4.4% 4.2% Uninvested like for like sales Residential 3.4% 3.0%High Street 1.4% 1.8%Total 2.8% 2.6% * includes entire Easter period in both years being compared Our pubs in residential locations generated strong like for like sales growthdriven by the growth in food sales in our pub restaurants and local pubs, withsame outlet like for like sales up 5.1% in the 32 weeks. This performancehighlights the continuation of buoyant demand for eating out and acceleratingdrinks market share gains, both of which are reflected in our strong same outletlike for like sales growth of 7.0% in food and 3.4% in drink for the Company asa whole in the 32 weeks. The performance of our pubs on the high street continues to reflect the verydifferent characteristics of the three market segments in which they operate.Town pubs showed good growth, as did our central London estate, recovering wellfrom the effect on sales of the terrorist activities of last summer. However thebars & venues market remains challenging with increased competition from lateropening hours in local pubs following licensing reform. Overall, same outletlike for like sales for our high street businesses grew by 2.3% in the 32 weeks. Operating profit, profit before tax and earnings per share (before exceptionalitems) Net retail operating margin was slightly ahead of the first half last year,despite the increases in energy and regulatory costs of £14m, due to the furthermaterial gains in staff productivity, purchasing terms and the control ofsupport costs. Operating profit of £143m and profit before tax of £91m were achieved for thefirst half, up 4.4% and 9.6% respectively on last year, as previously presentedin the Profit Estimate provided on 28 April. Earnings per share were 12.8p,18.5% up on last year reflecting the strong trading performance and the benefitof the share buybacks. Dividend and share buyback In line with our commitment to progressive growth in dividends, an interimdividend of 3.65p per share, an increase of 14.1%, will be paid on 30 June 2006to Shareholders on the register on 9 June 2006. During the first half, £41m of the £100m share buyback announced in November wascompleted. The buyback was suspended when the Company was declared to be in anoffer period by the Takeover Panel on 13 March 2006. It is the Board's intentionto resume the buyback with a view to repurchasing the remaining £59m of sharesby the end of the financial year. Cash flow and balance sheet strategy Cash generation from the business remained strong. Cash flow from operationsbefore exceptional items was £123m after an additional pension contribution of£20m and net capital expenditure of £79m. We continue to take advantage of thebuoyancy in the commercial property market where demand for some individual pubsis leading to substantially higher values than has previously been the case.£17m of proceeds were achieved in the first half from the disposal of individualpubs and we now anticipate realising around £70m from disposals for the year asa whole. The Board remains committed to refinancing the business later this financialyear and to return at least £500m to shareholders in calendar 2006, less anyfunds required as part of the financing of any value creative acquisitionopportunity. The revaluation of the property portfolio is underway and its results will bepublished in parallel with the refinancing later this financial year. Outlook Overall, there are some encouraging signs of stabilisation in consumerconfidence in our markets. The strength of our brands and our customer focus aregenerating significant sales growth and accelerating market share gains. Thisperformance is adding value to a very high quality portfolio of licensed assetswhich is currently being revalued. We will pursue consolidation opportunitieswhere we believe we can create further value. We will also continue to return toshareholders any funds that are surplus to requirements. We remain confidentthat our strategy will go on delivering strong growth, further assetappreciation and value creation for the benefit of our shareholders. For further information please contact: Investor Relations:Kate Holligon 0121 498 5092 Media:Simon Ward 0121 498 5795James Murgatroyd (Finsbury Group) 0207 251 3801 There will be a presentation for analysts and investors at 9am at the MerrillLynch Financial Centre, 2 King Edward St, EC1. A live webcast of thepresentation will be available on www.mbplc.com 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 of over three times the industry average.- Same outlet (invested) 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. 94% 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. 86% of the estate is included in this measure. CHAIRMAN'S STATEMENT In the first half of this financial year, Mitchells & Butlers has traded verystrongly and delivered good sales and profits growth. At the start of the year,the consumer environment was uncertain and consumer spending remained subduedduring the first quarter. More recently there have been some signs ofstabilisation in the key markets in which the Company operates and it istestament to the skill and experience of our operating teams that we havecapitalised on this improvement and delivered strong results. In particular, thefocus on efficiency gains across all operating costs has, once again, enabledthe business to offset the increase in external costs and deliver over 18%growth in earnings per share before exceptional items. Clearly the value which we have created, and are creating, from our unique puband pub restaurants business attracts both interest and attention. On 13 March2006, R20, the investment vehicle of the Tchenguiz Family Trust, confirmed thatit was considering forming a consortium to make an offer for the Company. On 3May 2006, we received a pre-conditional proposal from the consortium to acquirethe entire equity of the Company for 550p per share. The Board, together withits advisers, reviewed the proposal and decided that it materially undervaluedthe business and its prospects. Consequently, the Board considered it was not inthe best interests of shareholders and rejected the proposal. The consortiumelected to withdraw their interest on 5 May 2006. It is to the immense credit of our employees that they have not been distractedby the corporate activity in the first half, but have further improved like forlike performance. This is a significant achievement, and I would like to thankthem all for their loyalty, commitment and focus in a turbulent period ofuncertainty. We now look forward to continuing to pursue our operational and financialstrategy, executing the refinancing in the second half and evaluating theopportunities for consolidation amongst large scale managed pubs. Throughout theperiod, the Board was committed to the delivery of value as our keyconsideration; this has been our primary motivation to date and will remainfirmly so in the future. CHIEF EXECUTIVE'S REVIEW This review provides a commentary on the performance of the Mitchells & Butlersgroup for the 28 weeks ended 15 April 2006 and compares it with the equivalenthalf year period in 2006. To remove the distortions of the timing of Easter,where appropriate comparisons are made on a 32 weeks basis. With effect from 2 October 2005, Group financial statements are required to beprepared in accordance with International Financial Reporting Standards (IFRS).These are the Group's first interim financial statements to be prepared on thisbasis. Prior year comparatives have been restated accordingly. Details of thebasis of preparation and restatement are set out in Note 1 below and areconciliation of UK GAAP profit and equity is set out in Note 16. In the first 28 weeks of 2006 Mitchells & Butlers has traded strongly. Totalrevenue growth of 2.7% has driven operating profit growth of 4.4% and 18.5%growth in earnings per share (both before exceptional items). This performancehas been achieved through a focus on the execution of our operating strategy,specifically: Maximising the sales value added to prime licensed pub assets Our pubs, surrounded by housing density and with large trading space, kitchens,car parks and gardens are ideally placed to capture the growth in casual eatingout. We are constantly developing and evolving our brands and formats to appealto changing consumer tastes in order to capture this growth. Our managed pubsnow take on average £17k per week, an increase of 7.1% compared to last year. Leading the growth in the pub food market The consumer appeal of eating out in pubs is expanding rapidly throughout thesocial income scale, both into the more affluent areas and within mainstreammarkets. Eating out is consistently growing significantly ahead of UK GDP, andpubs are capturing a disproportionate share of that growth. We are broadeningthe consumer base of our pubs and have built the leading position in the pubfood market, now serving some 80 million meals a year. Food is now our largestselling product. Capturing drinks market share Capturing drinks market share is also central to our sales growth. Together withfood sales growth, we have generated wine and soft drinks volumes 7% ahead oflast year and have achieved 1% growth in beer volumes, despite a further 3%decline in the on trade beer market, through a focus on range extensions andserve quality. Successfully responding to regulatory change Direct ownership and operating control of our pubs has enabled us to plan andprepare for regulatory changes. To date, the additional hours that we havegained under the new Licensing Act have added a little over 0.5% to total salesoverall. In particular, our residential pubs have benefited with some sales lossin our bars and venues. Although it is early days, with only seven weeks of trading since theintroduction of the smoking ban, the 5% of the estate in Scotland has continuedto generate good sales growth, with same outlet like for like sales up 5.8% overthat period. Our food sales in particular have shown strong growth and there hasonly been some slowdown in drink sales growth. It is now important that theindustry is given clarity as soon as possible by Government over the detailedregulations and the timing for next year's ban in England, so that we can havesensible lead times to be able to prepare as effectively as we have been able todo in Scotland. Combining high volume food and higher margin drinks to maximise profit The appeal of value for money, good quality food is an increasing reason tovisit our pubs. This drives footfall which in turn generates ancillary drinkssales at higher margins. Our gross margins during the period were constant,despite the rising importance of food and wine. This reflected both trading upto new products and improved purchasing terms. The average price of food anddrink was approximately 1% ahead of last year. Driving volume related productivity and cost efficiency gains High unit volumes require specialist skills in menu development, kitchenoperation and capacity management to ensure the quality of customer experienceand to improve productivity. Our focus on the training, service skills andoptimum deployment of our staff has enabled us to maintain our outlet employmentcosts at 24% of sales since 2003, despite the 20% increase in the NationalMinimum Wage over that period. Moreover, our focus on efficiency gains in allareas of cost management has enabled us to report net retail operating marginsfor the first half slightly ahead of last year, despite an additional £14m ofexternal costs. Investing in estate development The wider customer base that is driving our sales growth has a higherexpectation of amenity, range, service and value than the traditional pub user.The evolution of our brands and formats and the maintenance of our pubs istherefore critical to support our value and volume operating strategy. Awidening amenity gap to the market as a whole is playing a central part in ouraccelerating market share gains. We invested £96m of capital expenditure in thefirst half of which £61m was for maintenance and £35m was on expansionaryprojects. We have continued to generate incremental pre-tax returns of over 20%on this year's and last year's expansionary investments. Pubs & Bars H1 2006Revenue £508m +1.6%Operating profit** £86m +2.4%Same outlet like for like sales +3.4%*Uninvested like for like sales +2.3%* *32 weeks to 13 May 2006, includes entire Easter period in both years beingcompared** before exceptional items Revenue in the Pubs & Bars division was 1.6% ahead of last year. At the end ofthe period there were 1,239 managed pubs following the disposal of 16 pubs, 9transferred to Business Franchise and a net movement of 3 pubs betweendivisions. On average during the period there were 1,236 managed pubs trading,4% fewer than last year. As a result, same outlet like for like sales growth wasconsiderably ahead of the total revenue growth of the division at 3.4%. Drinks sales showed good growth, particularly in our residential pubs, as aresult of the widening value gap of amenity, product range and value for money,compared to the competition. The growth in sales of new premium products led toa modest increase in average drink prices, however this was below the 3%increase in on-trade retail prices for drink across the market as a whole.Conditions for our bar and venues businesses, approximately 10% of the totalestate, remain challenging due to the additional competition from longer openinghours following licensing de-regulation. Food sales growth was particularly strong, driven by growth in our residentialpubs notably, Sizzling Pub Co and Metropolitan Professionals, as well as by ourTown Pubs and the central London estate. A total of 39 expansionary projects were completed in the period. These includedconversions and upgrades to Sizzling Pub Co and Metropolitan Professionals, ourresidential pub formats where food is becoming an increasingly importantproportion of their sales. We also converted 5 pubs to a new format aimed atimproving the food offers in our Town Pubs. Strong productivity gains enabled the division to maintain margins despite theincrease in external costs during the period. As a result, operating profitbefore exceptional items was £86m, 2.4% ahead of last year. Restaurants H1 2006Revenue £379m +6.5%Operating profit** £57m +9.6%Same outlet like for like sales +5.3%*Uninvested like for like sales +3.0%* *32 weeks to 13 May 2006, includes entire Easter period in both years beingcompared** before exceptional items The Restaurants Division traded very strongly in the period. Total revenue was6.5% ahead of last year and same outlet like for like sales were up 5.3%. Thisgrowth reflects the constant evolution of the appeal of our brands and formats,significant new menu development, extended drinks range and improved drinksserve quality. The operational expertise in high volume food retailing wasenhanced by new capacity management initiatives. Our pub restaurants now serveover 1,925 meals each on average per week, turning their covers on averagenearly 16 times per week. During the period 32 expansionary projects were completed. These includedconversions to our newer formats of Premium Country Dining and Pub Carvery, withlarge sales and profits uplifts, as well as upgrades to extend the tradingpotential of a number of Toby and Harvester sites. We plan to open 4 new siteacquisitions in the year, all of which are due to open in the second halfsubject to planning approvals. Overall, there were on average 583 restaurants trading during the period and 595restaurants at the end of the period. The Restaurants division's focus on high levels of volume growth and maximisingthe drop-through to profit of incremental sales, resulted in operating profitbefore exceptional items of £57m, 9.6% ahead of last year with an increase inoperating margin of 0.4 percentage points. This was achieved through costefficiency gains and substantial improvements in employee productivity driven bya continual focus on the training, optimal deployment and service qualitydelivered by our staff. Standard Commercial Property Developments (SCPD) SCPD aims to maximise the value of the Group's surplus properties, often throughredevelopment. Due to the nature of this activity and the small number ofdevelopments on-going at any one time, revenue and profit can fluctuate fromperiod to period. During the first half, SCPD did not contribute any revenue orprofit to the Group result, compared to £8m and £1m respectively in the firsthalf last year. Exceptional Items An exceptional profit of £2m was achieved on the disposal of properties duringthe period which gave rise to an exceptional tax credit of £2m. Finance costs & revenue Finance costs were £60m during the period, £1m below last year following therepayment of £18m of the Group's securitised bonds. Finance revenue of £4m was achieved on the Group's cash balances. This incomewas £2m below last year due to the lower average cash balances on depositfollowing the share buybacks last year and during the first half. Net finance income from pensions was £4m, an increase of £3m on last year due tothe greater expected return on the assets in the scheme compared to the chargefor the liabilities. The Group's blended net interest rate during the period was slightly below 6%including the impact of net finance income from pensions.Taxation The tax charge of £28m before the exceptional tax credit of £2m, equates to aneffective tax rate of 31%, a reduction of one percentage point on the effectiverate for the first half last year, but in line with the annual effective ratefor last year. Earnings per share Basic earnings per share before exceptional items were 12.8p, an increase of18.5% on last year reflecting the strong trading performance during the periodand the impact of last year's and this year's share buybacks. Basic earnings per share after exceptional items were 13.6p compared with 10.8pfor the first half last year. Dividends and returns to shareholders In line with our commitment to progressive growth in dividends, the Boardintends to pay an interim dividend of 3.65p per share, an increase of 14.1%. Thedividend will be paid on 30 June 2006 to shareholders on the register on 9 June2006. During the period, the Company repurchased 10.2m shares for a consideration of£41m as part of the £100m share buyback announced with the Group's PreliminaryResults in November. Of the shares repurchased, 0.9m were transferred to theEmployee Benefit Trust to satisfy the exercise of options and 9.3m werecancelled. Cash flow and net debt The Group's operations continue to be highly cash generative with EBITDA of£207m achieved in the first half this year, compared to £199m in the first halflast year. Cash flow from operations was £123m before exceptional items butafter an additional pension contribution of £20m and net capital expenditure of£79m. Net interest paid of £51m was in line with last year. Tax paid of £35m was £13mgreater than last year due to the later timing of the period end date this yearrelative to the tax payment dates. The final dividend for 2005 of £38m was paid,£41m was spent on the repurchase of shares and £6m was received from theexercise of share options. As a result there was a net cash outflow of £36m inthe period, compared to a net cash inflow of £12m in the first half last year.Net debt at the half year was £1,666m. Treasury management The financial risks faced by the Group are managed by a central Treasurydepartment, in accordance with Board approved policies and subject to regularaudit. The Group is primarily financed through a securitisation of the majority of itspubs, providing long term financing at a pre-tax cash interest cost of 6%, fixedthrough the use of interest rate and currency swap agreements. The Treasurydepartment is responsible for the robustness of procedures ensuring compliancewith various securitisation covenants. Credit risk on treasury transactions is minimised by restricting investment tobank counterparties with an A credit rating or better, with limits set forindividual counterparties. Pensions On an IAS 19 basis the Group's pension schemes showed a gross deficit of £70mcompared to £151m at the end of the last financial year. The reduction in thedeficit is mainly accounted for by an additional contribution of £20m paid inthe period and positive investment returns, with the liabilities broadlyunchanged. A further additional contribution of £10m is committed for 2007 andthe next actuarial valuation is planned to take place with the normal triennialcycle in 2007. Shareholders funds Shareholders funds were £1,249m at the end of the period compared with £1,183mat the start of the year. In addition to the profit for the period of £67m, £68mof net income was recognised directly in equity relating to actuarial gains onthe defined pension schemes and gains on cash flow hedges, both net of tax.These increases in equity were partially offset by the payment of the finaldividend for 2005 and the repurchase of own shares referred to above. GROUP INCOME STATEMENTfor the 28 weeks ended 15 April 2006 2006 2005 2005 28 weeks 28 weeks 53 weeks -------- --------- -------- --------- -------- --------- Before Before Before exceptional exceptional exceptional items* Total items* Total items* Total £m £m £m £m £m £m -------- ------ -------- ------ -------- ------ Revenue (Note 2) 887 887 864 864 1,662 1,662 Operating costsbeforedepreciation and amortisation (680) (680) (665) (665) (1,251) (1,255) Profit on disposalof properties - 2 - 1 - 1 -------- ------ -------- ------ -------- ------EBITDA ** 207 209 199 200 411 408 Depreciation andamortisation (64) (64) (62) (62) (116) (116) -------- ------ -------- ------ -------- ------Operating profit (Note 2) 143 145 137 138 295 292 Finance costs (60) (60) (61) (61) (116) (116) Finance revenue 4 4 6 6 11 11 Net finance incomefrom pensions 4 4 1 1 3 3(Note 14) -------- ------ -------- ------ -------- ------Profit before tax 91 93 83 84 193 190 Tax expense (Note (28) (26) (27) (28) (60) (60)4) -------- ------ -------- ------ -------- ------Profit for the period 63 67 56 56 133 130 ======== ====== ======== ====== ======== ====== Earnings perordinaryshare (Note 5): Basic 12.8p 13.6p 10.8p 10.8p 26.0p 25.4p Diluted 12.5p 13.3p 10.7p 10.7p 25.7p 25.1p ======== ====== ======== ====== ======== ====== * Exceptional items are explained in Note 1 and analysed in Note 3.** Earnings before interest, tax, depreciation and amortisation. All activities relate to continuing operations. GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the 28 weeks ended 15 April 2006 2006 2005 2005 28 weeks 28 weeks 53 weeks £m £m £m ------- ------- ------- Gains/(losses) on cash flow hedges taken to equity 10 (21) (28) Actuarial gains/(losses) on defined benefit pension schemes (Note 14) 59 21 (7) Tax on items taken directly to equity (15) 2 15 Tax credit relating to indexation on properties 14 10 20 ------- ------- -------Net income recognised directly in equity 68 12 - Transfers To the income statement on cash flow hedges - 14 3 Tax on items transferred from equity - (4) (1) Profit for the period 67 56 130 ------- ------- -------Total recognised income and expense for the period 135 78 132 ======= ======= ======= GROUP BALANCE SHEET15 April 2006 2006 2005 2005 15 April 9 April 1 OctoberASSETS £m £m £m ------- ------- ------- Goodwill and other intangible assets 23 27 26Property, plant and equipment (Note 6) 3,472 3,436 3,447Lease premiums 15 16 16 ------- ------- -------Total non-current assets 3,510 3,479 3,489 ------- ------- ------- Inventories 41 39 39Trade and other receivables 78 81 77Cash and cash equivalents (Note 11) 145 220 199Other cash deposits 1 - 1 ------- ------- -------Total current assets 265 340 316 ------- ------- -------Non-current assets held for sale 6 6 9 ------- ------- ------- Total assets 3,781 3,825 3,814 ------- ------- -------LIABILITIES Borrowings (40) (36) (39)Derivative financial instruments (5) (2) (6)Trade and other payables (233) (238) (220)Current tax liabilities (44) (58) (60) ------- ------- -------Total current liabilities (322) (334) (325) ------- ------- ------- Borrowings (1,761) (1,782) (1,773)Derivative financial instruments (31) (42) (42)Pension liabilities (Note 14) (70) (125) (151)Deferred tax liabilities (344) (352) (336)Provisions (4) (2) (4) ------- ------- -------Total non-current liabilities (2,210) (2,303) (2,306) ------- ------- -------Total liabilities (2,532) (2,637) (2,631) ------- ------- -------Net assets (Note 7) 1,249 1,188 1,183 ======= ======= =======EQUITY Called up share capital 35 36 35Share premium account 14 14 14Capital redemption reserve 2 1 2Own shares held (6) (15) (12)Hedging reserve (17) (12) (24)Translation reserve 6 6 6Retained earnings 1,215 1,158 1,162 ------- ------- -------Total equity (Note 8) 1,249 1,188 1,183 ======= ======= ======= GROUP CASH FLOW STATEMENTfor the 28 weeks ended 15 April 2006 2006 2005 2005 28 weeks 28 weeks 53 weeks £m £m £m ------- ------- ------- Cash flow from operations (Note 10) 202 204 400 Net interest paid (51) (51) (102)Tax paid (35) (22) (43) ------- ------- -------Net cash from operating activities 116 131 255 ------- ------- ------- Investing activitiesPurchases of intangibles (computer software) (1) - (2)Purchases of property, plant and equipment (95) (88) (165)Proceeds from sale of property, plant and equipment 17 42 57Sale of cash deposits with a maturity of greater than - 20 19three months ------- ------- -------Net cash used in investing activities (79) (26) (91) ------- ------- ------- Financing activitiesIssue of ordinary share capital - 2 2Purchase of own shares (41) (52) (101)Proceeds on release of own shares held 6 11 14Repayment of principal in respect of securitised debt (18) (17) (35)Dividends paid (38) (34) (50) ------- ------- ------- Net cash used in financing activities (91) (90) (170) ------- ------- ------- Net (decrease)/increase in cash and cash equivalents (54) 15 (6)(Note 12) Cash and cash equivalents at the beginning of the 199 205 205period ------- ------- ------- Cash and cash equivalents at the end of the period 145 220 199 ======= ======= ======= Cash and cash equivalents are defined in Note 11. NOTES TO THE INTERIM FINANCIAL STATEMENTS 1 GENERAL INFORMATION Basis of preparation and accounting policies With effect from 2 October 2005, Mitchells & Butlers plc (MAB) has been required to prepare its group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted for use by the European Union (EU). These are the Group's first interim financial statements to be prepared on this basis. The interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting' using the accounting policies that the directors intend to apply when preparing the Group's first set of complete IFRS audited financial statements for the 52 weeks ending 30 September 2006. Details of these accounting policies were made publicly available on 7 December 2005 and can be accessed within the investors section of the Group's website at www.mbplc.com/IFRS. ------------------------------------------------------------------------------------------ IFRS is subject to ongoing amendment by the International Accounting Standards Board and subsequent endorsement by the EU. In addition, the Group may need to review accounting treatments as a result of emerging industry consensus on the practical application of IFRS and further technical opinion. For these reasons, the financial information presented in this document may be subject to change before its inclusion in the 2006 Annual Report and Accounts. The interim financial statements are unaudited and do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. They were approved by a duly appointed and authorised Committee of the Board of Directors on 24 May 2006. The auditors have carried out a review of the financial information in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board. Comparatives For periods up to and including the 53 weeks ended 1 October 2005, MAB prepared its financial statements in accordance with UK generally accepted accounting practice (UK GAAP). On 7 December 2005, the Group issued a statement explaining the impact of the transition to IFRS and made publicly available UK GAAP to IFRS reconciliations of the Group's results for the 28 weeks ended 9 April 2005 and the 53 weeks ended 1 October 2005. This information can be accessed within the investor section of the Group's website at www.mbplc.com/IFRS. The restated IFRS results contained therein form the comparative financial information contained in these interim financial statements. ------------------------------------------------------------------------------------------ As required by IFRS 1 'First-time Adoption of International Financial Reporting Standards', UK GAAP to IFRS reconciliations of profit for the 28 weeks ended 9 April 2005 and equity at 9 April 2005 are presented in Note 16 to these interim financial statements. The Group's statutory financial statements for the 53 weeks ended 1 October 2005, prepared under UK GAAP and containing an unqualified audit report, have been filed with the Registrar of Companies. Exceptional items In addition to presenting information on an IFRS GAAP basis, MAB also presents information that excludes exceptional items. This information is disclosed to allow a better understanding of the underlying trading performance of the Group and is consistent with MAB's internal management reporting. Exceptional items, which include profits and losses on the disposal of properties, are identified by virtue of either their size or incidence so as to facilitate comparison with prior periods and to assess underlying trends in financial performance. Exchange rates The results of overseas operations have been translated into sterling at the weighted average euro rate of exchange for the period of £1=€1.46 (2005 28 weeks, £1=€1.43; 53 weeks, £1=€1.45). Euro and US dollar denominated assets and liabilities have been translated into sterling at the relevant rate of exchange at the balance sheet date of £1= €1.45 (2005 28 weeks, £1=€1.46; 53 weeks, £1=€1.47) and £1=$1.75 (2005 28 weeks, £1=$1.89; 53 weeks, £1=$1.76) respectively. 2 SEGMENTAL ANALYSIS The Group's primary reporting format is by business segments. 2006 2005 2005 28 weeks 28 weeks 53 weeks £m £m £m ------- ------- ------- Revenue Pubs & Bars 508 500 957 Restaurants 379 356 697 ------- ------- ------- Retail 887 856 1,654 SCPD - 8 8 ------- ------- ------- Total revenue 887 864 1,662 ======= ======= ======= Operating profit Pubs & Bars 86 84 179 Restaurants 57 52 115 ------- ------- ------- Retail 143 136 294 SCPD - 1 1 ------- ------- ------- Operating profit before exceptional items 143 137 295 Exceptional items (Note 3) 2 1 (3) ------- ------- ------- Operating profit 145 138 292 ======= ======= ======= After the allocation of exceptional items, the segmental profits are Pubs & Bars £88m (2005 28 weeks, £85m; 53 weeks, £177m), Restaurants £57m (2005 28 weeks, £52m; 53 weeks, £114m) and SCPD £nil (2005 28 weeks, £1m; 53 weeks, £1m). 3 EXCEPTIONAL ITEMS 2006 2005 2005 28 weeks 28 weeks 53 weeks £m £m £m ------- ------- ------- Operating costs before depreciation and amortisation - licensing * - - (4) Profit on disposal of properties 2 1 1 ------- ------- ------- Total exceptional items before tax 2 1 (3) Tax credit/(charge) relating to above items 2 (1) - ------- ------- ------- Total exceptional items after tax 4 - (3) ======= ======= ======= * Licensing costs were those incurred in relation to obtaining new licences for the Group's pubs and pub restaurants as required by the Licensing Act 2003. All exceptional items relate to continuing operations. 4 TAX EXPENSE 2006 2005 2005 28 weeks 28 weeks 53 weeks £m £m £m ------- ------- ------- UK corporation tax 23 20 44 Deferred tax 3 8 16 ------- ------- ------- 26 28 60 ======= ======= ======= Further analysed as tax relating to: Profit before exceptional items 28 27 60 Exceptional items (Note 3) (2) 1 - ------- ------- ------- 26 28 60 ======= ======= ======= Tax has been calculated using an estimated annual effective tax rate of 31% (2005 28 weeks, 32%; 53 weeks actual, 31%) on profit before tax and exceptional items. 5 EARNINGS PER SHARE Basic earnings per share have been calculated by dividing the profit for the financial period by the weighted average number of ordinary shares in issue during the period, excluding own shares held in treasury and by employee share trusts. For diluted earnings per share, the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares. Earnings per ordinary share amounts are presented before exceptional items (see Note 3) in order to allow a better understanding of the underlying trading performance of the Group. Profit Basic Diluted EPS EPS pence per pence per ordinary ordinary £m share share ------- ------- ------- 28 weeks ended 15 April 2006: Profit for the period 67 13.6p 13.3p Exceptional items, net of tax (4) (0.8)p (0.8)p ------- ------- ------- Profit before exceptional items 63 12.8p 12.5p ======= ======= ======= 28 weeks ended 9 April 2005: Profit for the period 56 10.8p 10.7p Exceptional items, net of tax - - - ------- ------- ------- Profit before exceptional items 56 10.8p 10.7p ======= ======= ======= 53 weeks ended 1 October 2005: Profit for the period 130 25.4p 25.1p Exceptional items, net of tax 3 0.6p 0.6p ------- ------- ------- Profit before exceptional items 133 26.0p 25.7p ======= ======= ======= The weighted average number of ordinary shares used in the calculations above are as follows: 2006 2005 2005 28 weeks 28 weeks 53 weeks m m m ------- ------- ------- For Basic EPS calculations 494 517 511 Effect of dilutive potential ordinary shares: Contingently issuable shares 4 2 3 Other share options 5 4 4 ------- ------- ------- For Diluted EPS calculations 503 523 518 ======= ======= ======= 6 PROPERTY, PLANT AND EQUIPMENT 2006 2005 2005 28 weeks 28 weeks 53 weeks £m £m £m ------- ------- -------- At beginning of period 3,447 3,445 3,445 Additions 96 88 167 Disposals (13) (33) (46) Depreciation provided during the period (59) (58) (110) Movement in assets held for sale 1 (6) (9) ------- ------- -------- At end of period 3,472 3,436 3,447 ======= ======= ======== Property, plant and equipment is accounted for under the cost model but includes the results of previous property revaluations as permitted by the IFRS transition rules. The amount of revaluation in excess of the original cash cost of the assets to the Group (or as a division of Six Continents PLC) included in the carrying value at 15 April 2006 was £715m (2005 9 April, £720m; 1 October, £718m). At 15 April 2006, amounts contracted for but not provided in the financial statements for the acquisition of property, plant and equipment were £29m (2005 9 April, £27m; 1 October, £28m). 7 NET ASSETS 2006 2005 2005 15 April 9 April* 1 October* £m £m £m ------- ------- -------- Pubs & Bars 1,965 1,978 1,971 Restaurants 1,416 1,372 1,402 ------- ------- -------- Retail 3,381 3,350 3,373 SCPD 17 15 17 ------- ------- -------- Segmental net assets 3,398 3,365 3,390 Net debt (1,666) (1,625) (1,625) Other unallocated net liabilities (483) (552) (582) ------- ------- -------- Net assets 1,249 1,188 1,183 ======= ======= ======== * The segmental net assets have been revised from previously reported under UK GAAP as part of the Group's transition to IFRS reflecting adjustments to property, plant and equipment, leases and holiday pay (see Note 16). 8 CHANGE IN EQUITY 2006 2005 2005 28 weeks 28 weeks 53 weeks £m £m £m ------- ------- -------- Opening equity 1,183 1,180 1,180 Total recognised income and expense 135 78 132 Dividends (Note 9) (38) (34) (50) Issue of ordinary shares - 2 2 Purchase of own shares (41) (52) (101) Proceeds on release of own shares held 6 11 14 Credit in respect of share remuneration 4 3 6 ------- ------- -------- Closing equity 1,249 1,188 1,183 ======= ======= ======== 9 DIVIDENDS 2006 2005 2005 28 weeks 28 weeks 53 weeks £m £m £m ------- ------- -------- Amounts paid and recognised in equity In respect of the 52 weeks ended 25 September 2004: - Final dividend of 6.65p per share - 34 34 In respect of the 53 weeks ended 1 October 2005: - Interim dividend of 3.20p per share - - 16 - Final dividend of 7.55p per share 38 - - ------- ------- -------- 38 34 50 ======= ======= ======== Proposed interim dividend of 3.65p (2005 3.20p) per share for the 28 weeks ended 15 April 2006 18 16 ======= ======= The proposed interim dividend for the 28 weeks ended 15 April 2006 was approved by the Board on 24 May 2006 and did not therefore qualify for recognition in the financial statements at 15 April 2006. 10 CASH FLOW FROM OPERATIONS 2006 2005 2005 28 weeks 28 weeks 53 weeks £m £m £m ------- ------- ------- Operating profit 145 138 292 Adjustments for: Exceptional items (2) (1) 3 Depreciation of property, plant and equipment 59 58 110 Amortisation of intangibles (computer software) 4 3 5 Amortisation of lease premiums 1 1 1 Cost charged in respect of share remuneration 4 3 6 Defined benefit pension cost less regular cash contributions 2 1 1 ------- ------- ------- Operating cash flow before exceptional items, movements in working capital and additional 213 203 418 pension contributions Movements in working capital: (Increase)/decrease in inventories (2) 4 4 Increase in trade and other receivables (1) (2) (2) Increase in trade and other payables 12 29 12 Additional pension contributions (20) (30) (30) Movement in provisions - - 2 ------- ------- ------- Cash flow from operations before exceptional items 202 204 404 Exceptional licensing costs paid - - (4) ------- ------- ------- Cash flow from operations 202 204 400 ======= ======= ======= 11 ANALYSIS OF NET DEBT 2006 2005 2005 15 April 9 April 1 October £m £m £m ------- ------- ------- Cash and cash equivalents (see below) 145 220 199 Cash deposits with a maturity of greater than three months 1 - 1 Securitised debt (see below) (1,797) (1,814) (1,808) Derivatives hedging balance sheet debt* (11) (27) (13) Other loans and finance leases (4) (4) (4) ------- ------- ------- (1,666) (1,625) (1,625) ======= ======= ======= * Represents the element of the fair value of currency swaps hedging the balance sheet value of the Group's dollar denominated loan notes. Cash and cash equivalentsCash and cash equivalents (which are presented as a single class of assets on theface of the balance sheet) comprise cash at bank and in hand plus cash depositswith a maturity of three months or less. Securitised debtThe securitised debt was issued on 13 November 2003 in connection with thesecuritisation of the majority of the Group's UK pubs and restaurants business. Thedebt 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% aftertaking account of interest rate hedging and monoline insurance costs. The notes aresecured on substantially all of the Group's property and future income streamstherefrom. The carrying value of the secured loan notes at 15 April 2006, which excludes theimpact of derivatives, is analysed as follows: £m ------- Principal outstanding at 2 October 2005 1,824Principal repaid during the period (18)Exchange on translation of dollar loan notes 2 ------- Principal outstanding at 15 April 2006 1,808 Deferred issue costs (19)Accrued interest 8 ------- Carrying value at 15 April 2006 1,797 ======= 12 MOVEMENT IN NET DEBT 2006 2005 2005 15 April 9 April 1 October £m £m £m ------- ------- ------- Net (decrease)/increase in cash and cash equivalents (54) 15 (6) Add back cash flows in respect of other components of net debt: Sale of cash deposits with a maturity of greater than three months - (20) (19) Repayment of principal in respect of securitised 18 17 35 debt ------- ------- ------- (Increase)/decrease in net debt arising from cash flows ('Net cash flow' per Note 13) (36) 12 10 Non-cash movements (5) (5) (3) ------- ------- ------- (Increase)/decrease in net debt (41) 7 7 Opening net debt (1,625) (1,632) (1,632) ------- ------- ------- Closing net debt (1,666) (1,625) (1,625) ======= ======= ======= 13 NET CASH FLOW 2006 2005 2005 28 weeks 28 weeks 53 weeks £m £m £m ------- ------- ------- Operating profit before exceptional items 143 137 295 Depreciation and amortisation 64 62 116 ------- ------- ------- EBITDA* 207 199 411 Working capital movement 9 31 16 Other non-cash items 6 4 7 Additional pension contributions (20) (30) (30) ------- ------- ------- Cash flow from operations before exceptional items 202 204 404 Net capital expenditure ** (79) (46) (110) ------- ------- ------- Cash flow from operations before exceptional items and after net capital expenditure 123 158 294 Exceptional licensing costs paid - - (4) ------- ------- ------- Cash flow from operations after net capital expenditure 123 158 290 Net interest paid (51) (51) (102) Tax paid (35) (22) (43) Dividends paid (38) (34) (50) Issue of ordinary share capital - 2 2 Purchase of own shares (41) (52) (101) Proceeds on release of own shares held 6 11 14 ------- ------- ------- Net cash flow (Note 12) (36) 12 10 ======= ======= ======= * Earnings before interest, tax, depreciation, amortisation and exceptional items.* Comprises purchases of property, plant and equipment and intangibles less* proceeds from the sale of property, plant and equipment. 14 PENSIONS Amounts recognised in the Group income statement in respect of the Group's defined benefit arrangements are as follows: 2006 2005 2005 28 weeks 28 weeks 53 weeks £m £m £m ------- ------- ------- Operating profit Current service cost (8) (7) (12) Past service cost - - (1) ------- ------- ------- Operating profit charge (8) (7) (13) ------- ------- ------- Finance income Expected return on pension scheme assets 37 33 62 Interest on pension scheme liabilities (33) (32) (59) ------- ------- ------- Net finance income 4 1 3 ------- ------- ------- Total charge (4) (6) (10) ======= ======= ======= Pension liabilities are analysed as follows: 2006 2005 2005 15 April 9 April 1 October £m £m £m ------- ------- ------- Fair value of scheme assets 1,171 998 1,079 Present value of scheme liabilities (1,241) (1,123) (1,230) ------- ------- ------- Deficit in the schemes recognised as a liability in the balance sheet (70) (125) (151) ======= ======= ======= Associated deferred tax asset 23 42 50 ======= ======= ======= Movements in the scheme deficits are analysed as follows: 2006 2005 2005 28 weeks 28 weeks 53 weeks £m £m £m ------- ------- ------- At beginning of period (151) (176) (176) Total charge in the Group income statement (4) (6) (10) Contributions paid 26 36 42 Actuarial gains/(losses) 59 21 (7) ------- ------- ------- At end of period (70) (125) (151) ======= ======= ======= 15 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. 16 IFRS RECONCILIATIONS UK GAAP to IFRS profit and equity reconciliations for the 28 weeks ended 9 April 2005 are as follows: Profit Equity for the period 28 weeks ended At 9 April 2005 9 April 2005 £m £m --------- -------- Under UK GAAP 59 1,444 Adjustments: Share-based payments (1) - Leases - (3) Dividend accrual - 16 Holiday pay accrual (2) (8) Pension liabilities - (3) Property, plant and equipment - (24) Derivatives - (17) Deferred tax - (217) --------- -------- Under IFRS 56 1,188 ========= ======== An explanation of the adjustments together with reconciliations for the 53 weeks ended 1 October 2005, the IFRS transition balance sheet at 26 September 2004 and MAB's accounting policies under IFRS can be found within the investors section of the Group's website at www.mbplc.com/IFRS. ------------------------------------------------------------------------------------------ Cautionary note regarding forward-looking statements This announcement contains certain forward-looking statements as defined underUS legislation (section 21E of the Securities Exchange Act of 1934) with respectto the financial condition, results of operations and business of Mitchells &Butlers and certain of the plans and objectives of the board of Directors withrespect thereto. These forward-looking statements can be identified by the factthat they do not relate only to historical or current facts. Forward-lookingstatements often use such words as 'will', 'should', 'continue', 'anticipate','target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe' or otherwords of similar meaning. The forward-looking statements contained herein arebased on assumptions and assessments made by Mitchells & Butlers' management inlight of their experience and their perception of historical trends, currentconditions, expected future developments and other factors they believe to beappropriate. By their nature, forward-looking statements are inherentlyspeculative and involve risk and uncertainty, and there are a number of factorsthat could cause actual results and developments to differ materially from thoseexpressed in or implied by such forward-looking statements. These factorsinclude, but are not limited to: the future balance between supply and demandfor Mitchells & Butlers' sites; the effect of economic conditions and unforeseenexternal events on Mitchells & Butlers' business; the availability of suitableproperties and necessary licenses; consumer and business spending, changes inconsumer tastes and preference; levels of marketing and promotional expenditureby Mitchells & Butlers and its competitors; changes in the cost and availabilityof supplies; key personnel and changes in supplier dynamics; significantfluctuations in exchange rates, interest rates and tax rates; the availabilityand effects of any future business combinations, acquisitions or dispositions;the impact of legal and regulatory actions or developments; the impact of theEuropean Economic and Monetary Union; the ability of Mitchells & Butlers tomaintain 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 exchangefluctuations; economic recession; management of Mitchells & Butlers'indebtedness and capital resource requirements; material litigation againstMitchells & Butlers; substantial trading activity in Mitchells & Butlers'shares; the reputation of Mitchells & Butlers' brands; the level of costsassociated with leased properties; competition for high quality managers;declining sales of beer in pubs in the UK; food safety scares; fundingliabilities in respect of the Group's pension schemes and the weather. - ends - INDEPENDENT REVIEW REPORT TO MITCHELLS & BUTLERS PLC IntroductionWe have been instructed by the Company to review the financial information forthe 28 weeks ended 15 April 2006 which comprises the Group income statement,Group statement of recognised income and expense, Group balance sheet, Groupcash flow statement and the related Notes 1 to 16. We have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. This report is made solely to the Company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the Company, for our work,for this report, or for the conclusions we have formed. Directors' responsibilitiesThe interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in Note 1, the next annual financial statements of the Group willbe prepared in accordance with those IFRSs adopted for use by the EuropeanUnion. This interim report has been prepared in accordance with InternationalAccounting Standard 34, 'Interim Financial Reporting' and the requirements ofIFRS 1, 'First Time Adoption of International Financial Reporting Standards'relevant to interim reports. The accounting policies are consistent with those that the directors intend touse in the next financial statements. Review work performedWe conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof management and applying analytical procedures to the financial informationand underlying financial data, and based thereon, assessing whether theaccounting policies have been applied. A review excludes audit procedures suchas tests of controls and verification of assets, liabilities and transactions.It is substantially less in scope than an audit performed in accordance withInternational Standards on Auditing (UK & Ireland) and therefore provides alower level of assurance than an audit. Accordingly, we do not express an auditopinion on the financial information. Review conclusionOn the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the 28 weeks ended15 April 2006. Ernst & Young LLPLondon24 May 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Mitchells & Butlers