31st Aug 2006 07:02
Mitchells & Butlers PLC31 August 2006 NOT FOR DISTRIBUTION IN THE US Mitchells & Butlers plc Estate Valuation, Refinancing and Return of Funds As part of its stated strategy to maintain an efficient balance sheet andmaximise returns to shareholders, Mitchells & Butlers today announces themarketing of a bond issue to refinance its securitised debt and enable furthercash returns to shareholders. This follows the strong operational performanceover the last three years and the consequent significant increase in thevaluation of its estate. Highlights: - Total Group property value now in excess of £5.5bn - On-going securitised estate independently valued at £4.8bn(1) - Average value per securitised pub of £2.8m(1), 40% higher than in 2003 - Properties outside the securitisation, including the sites recently acquired from Whitbread PLC, valued by the Directors at over £0.7bn- Launch of £1.1bn bond issue to increase securitised debt by £655m to £2.46bn- Total cash return to shareholders expected to be £519m since the half year, comprising: - Proposed special dividend of £1 per share (approximately £486m in total) - Share repurchases totalling £33m already completed in the second half- Commitment to £50m additional contributions to the pension fund (1)Valued as a portfolio Commenting on the estate valuation and the return of funds to shareholders TimClarke, Chief Executive, said: "Mitchells & Butlers' pub estate is now worth over £5.5bn. The substantialappreciation of our asset base over the past three years demonstrates the valuethat has been added to our high quality estate through the successfulimplementation of our operational strategy. We continue to build on ourleadership position in the fast growing pub food market." "After the special dividend announced today, Mitchells & Butlers will havereturned over £1.1bn to shareholders since listing in April 2003 over and aboveordinary dividends. Based on its strong trading performance and consequent assetvalue, the business has created the capacity to take on more debt. This latestreturn also reflects our confidence in the future prospects of the Company andthe significant potential of the pubs recently acquired from Whitbread." Commenting on the refinancing, Karim Naffah, Finance Director, said: "Following our detailed financing review, we believe that our existingsecuritisation continues to provide the best financing structure to complementour strategy for profitable growth, which in turn drives long-term valuecreation and licensed freehold property appreciation. The rising cashflows andasset values in the estate support the proposed additional debt, making thebalance sheet more efficient and enabling us to make this further return toshareholders." Estate Valuation The on-going securitised estate comprises 1704 pubs and generated £387m ofEBITDA in the twelve months to 13 May 2006. This estate has been valued byColliers CRE plc at £4.8bn as a portfolio, consistent with the methodologyapplied at the time of the original securitisation in November 2003. The averagevalue per securitised pub of £2.8m is over 40% higher than in 2003, reflectingthe continuing development and improved performance of the estate, as well asthe disposal of smaller pubs. Together with the remainder of the Group's properties (which include the 239former Whitbread sites acquired for £497m in July 2006, the package ofapproximately 100 smaller pubs held for disposal and around 135 other pubassets), the Directors estimate that the total property assets of Mitchells &Butlers currently have a value in excess of £5.5bn. In view of Mitchells &Butlers' accounting policies under IFRS, the results of these valuations willnot be reflected in the financial statements of the Group. Refinancing Together with The Royal Bank of Scotland and Citigroup, Mitchells & Butlers istoday commencing the marketing of a bond issue to increase the level of debt inits securitised estate by £655m from £1.8bn to £2.46bn. The proposed issue comprises £1.1bn of bonds, £655m of which will be incrementalfinancing and the balance of £450m will be used to refinance existing sterlingand dollar denominated Floating Rate Notes. Subject to debt market conditions,it is expected that the bond issue will be completed during September. Following completion of the bond issue, Mitchells & Butlers will also enter intoa medium-term unsecured loan facility to replace the short-term bridge financingput in place to acquire the 239 pub restaurant sites from Whitbread PLC. Return of Funds At the time of the successful acquisition of the 239 pub restaurant sites fromWhitbread PLC, Mitchells & Butlers reconfirmed its intention to return of theorder of £500m to shareholders by the end of the calendar year. Subject to the completion of the proposed bond issue, Mitchells & Butlersintends to pay a special dividend to shareholders of £1 per share, which will beaccompanied by a proportionate consolidation of the number of shares in issue.The special dividend will total approximately £486m; this will include theremaining £26m outstanding under the second half share buyback which will notnow be executed. Together with £33m share repurchases already completed duringthe second half, this will mean a total return of approximately £519m toshareholders. Following completion of the bond issue, a circular will be posted toshareholders to seek approval of the share consolidation and to set out thedetails of the proposed special dividend. A further announcement will be made atthat time. It is currently anticipated that the special dividend will be paid toshareholders before the end of October. Costs relating to the refinancing and the return of funds will be approximately£10m, £7m of which are expected to be amortised over the life of the new bondsand the balance will be charged as an exceptional interest cost this year. Anadditional £4m exceptional interest cost will be charged this year, representingthe unamortised balance of the issue costs relating to the 2003 Floating RateNotes now being refinanced. Investment in the Pension Fund Following the completion of the refinancing and return of funds, the Company hasagreed with the Pensions Trustees that further contributions of £30m in FY 2007and £20m in FY 2008 will be made, on top of the £10m already committed for FY2007. As at 15 April 2006, the Group's pension schemes had a gross deficit of£70m on an IAS 19 basis. A full actuarial valuation of the pension schemes isplanned to take place with the normal triennial cycle in 2007. Update on Disposals We continue to see alternative use and investment demand for some individualpubs at substantially higher values than has previously been the case and we arepursuing opportunities to pro-actively manage the asset base to take advantageof these conditions in the property market. We have recently concluded the sale of 21 smaller freehold properties in Londonfor £53m. In the 12 months to 8 July 2006 these pubs, with average weekly salesof £7k, generated sales of £8.1m and EBITDA of £2.4m. With this transaction,disposals amounting to £88m in total have been achieved in the year to date.Discussions in relation to the disposal of the package of around 100 smaller,drink-led pubs, announced on 21 July, are on-going. Pre Close Trading Update An update on trading will be provided with Mitchells & Butlers' pre closetrading statement on 26 September. The Board remains confident that the resultsfor the year will be in line with its expectations. For further information please contact: Investor Relations:Kate Holligon 0121 498 5092 Media:James Murgatroyd (Finsbury Group) 0207 251 3801 There will be a conference call for analysts and fund managers at 10am. Pleasedial 020 7162 0125. The replay will be available for 1 week. For further information on the existing securitisation, please refer to the"Securitisation & debt information" section of the Mitchells & Butlers websiteat www.mbplc.com. Notes to Editors Mitchells & Butlers is the leading operator of managed pubs and pub restaurantsin the UK with an estate of approximately 2,200 pubs at 31 August 2006. TheCompany aims to grow sales and profits, generate higher cash returns and,because pub assets are generally valued on a multiple of their cashflows,achieve asset appreciation over time. Mitchells & Butlers announced its first securitisation in October 2003, raising£1.9bn of gross debt. At that time, the securitised estate comprised 1942 pubsvalued at £3.85bn. Following the securitisation, a cash return of £501m was madeto shareholders in December 2003 by way of a special dividend, which wasaccompanied by a 17-for-12 share consolidation. By 15 April 2006, the half yearstage, Mitchells & Butlers had returned £141m by way of share buyback sinceDecember 2003. The return of a further £519m since the half year makes the totalamount returned to shareholders since de-merger £1.16bn, in addition to ordinarydividends. 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. 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