26th Sep 2006 07:04
Mitchells & Butlers PLC26 September 2006 26 September 2006 Mitchells & Butlers plc Pre Close Trading Update Mitchells & Butlers is pleased to announce a strong performance in the 22 weeksto 16 September 2006. Earnings for the year are expected to be at the upper endof the Board's expectations. Mitchells & Butlers estate (excluding 239 acquired sites) Like for like sales in the 18 weeks to 16 September 2006 (the period since thatcovered at the interim results) increased by 3.8%. As anticipated, sales in ourRestaurants Division were adversely affected during the World Cup in June.However, since then, trading has rebounded strongly. Across the estate, like forlike sales in the last 10 weeks since the World Cup increased by 5.3%. For the50 weeks to 16 September 2006 like for like sales increased by 4.1%. Totalretail sales for the same period were 3.8% ahead and average weekly sales permanaged pub were up 6% to £17.5k. In Scotland, like for like sales have grown by 2.6% since the introduction ofthe smoking ban in March, although this was slower than the growth in Englandand Wales. Drink sales are down 1%, while food sales, (28% of the sales mix),are strongly ahead at 11%. Our new summer menus have been well received by customers and have continued thestrong growth in food sales seen in the first half and particularly in the last10 weeks. Like for like food sales for the 50 weeks increased by 7.4%. Acrossthe estate, average food and drink prices were approximately 2% higher than lastyear reflecting further extensions to the range of drink and menu itemsavailable as well as some price increases on standard products. Against a background of the continuing shift of beer sales from the on-trade tothe off-trade, exacerbated by the World Cup and price increases well ahead ofinflation across the rest of the on-trade, we have made further significantmarket share gains. This reflects our focus on range, quality and value, aidedby our on-going investment in integrated, glycol cooled dispense systems whichare now in over 700 pubs. In the 50 weeks, like for like drink sales increasedby 3.2%. With further purchasing and mix benefits, gross margins are broadly inline with last year despite the relatively faster growth of lower margin foodand wine. The strong volume performance, continued productivity gains and good costcontrol have enabled us to offset the regulatory and energy cost increases ofsome £24m and generate net operating margins slightly ahead of last year. 239 pub restaurant sites acquired in July The integration of the pub restaurants recently acquired from Whitbread PLC isprogressing as planned. Sales in the 7 weeks of our ownership have continued todecline in line with the trend at the time of acquisition. The actions we aretaking on operational management, service delivery and productivity have startedto stabilise margins prior to conversion to Mitchells & Butlers' operatingformats. The development programme is moving ahead rapidly with the first 10projects now on site. The acquisition is expected to be neutral to earnings thisfinancial year. Refinancing and Return of Funds Following the successful completion of the bond issue earlier this month, acircular to shareholders to convene an EGM and provide details of the specialdividend and accompanying share consolidation will be posted shortly in order toeffect the return by the end of October. For the purposes of the Special Dividend, an estimate of the IAS 19 valuation ofthe pension schemes as at 15 September 2006 has been prepared. At this date, theposition reflects a deficit of £87m net of the deferred tax asset, (£129mgross). This is an increase of £40m in the net deficit from the positionreported as at 15th April 2006, which is primarily accounted for by marketexpectations for higher future inflation. As previously announced, the Companyhas committed to make additional contributions of £40m in FY07 and £20m in FY08.The next full actuarial valuation will take place during the next financial yearbased on the position at 31st March 2007. Outlook Trading conditions in the casual dining market are continuing to improve in linewith the long term trends for eating out. Our pubs and our operating formats areideally placed to capture that growth. Already over 35% of Mitchells & Butlers'revenue is derived from food, with sales of some 96 million meals in a fullyear. We continue to prepare for next year's smoking bans in England and Wales throughthe extension of non-smoking areas, the development of outside space and, whereit is beneficial, by moving to non-smoking throughout prior to the ban. Already185 of our pubs outside Scotland are fully non-smoking. We will continue towiden the social appeal of all of our pubs by developing their customerreputation for serving good food at attractive prices, where we see the bestlong term prospects for profitable growth. The outlook for regulatory and energy costs is improving although we stillanticipate around £14m of additional cost next year, mainly as a result of theincrease in the National Minimum Wage to £5.35 and higher energy costs. For the acquired pub restaurants, conversion to our operating formats and theassociated closure periods will inevitably hold back the full year contributionfrom these pubs next year, particularly during the first half. However, ourearly experience of owning these pubs has reinforced our confidence in ourability to generate the substantial sales and profit uplifts post-conversionanticipated at the time of acquisition. In summary, Mitchells & Butlers has strengthened its leadership position in therapidly growing pub food market and continues to gain significant drinks marketshare. With further improvements in productivity and cost efficiency, togetherwith high-return investments in the estate, the Board remains confident in thefuture growth prospects of the company. Mitchells & Butlers will announce its preliminary results for the year ended 30September 2006 on 29 November. For further information please contact: Investor Relations:Kate Holligon 0121 498 5092Media:James Murgatroyd (Finsbury Group) 020 7251 3801 There will be a conference call for analysts and investors at 8.30am; pleasedial 020 7162 0125. The replay will be available for one week on 020 7031 4064,passcode 719233. APPENDIX: LIKE FOR LIKE SALES (MAB estate excluding acquired sites) Same Outlet Like-for-Like Sales 18 weeks* to 16 September 2006 50 weeks to 16 September 2006Residential 4.8% 5.0%High Street 2.0% 2.2%Total 3.8% 4.1% Uninvested Like-for-Like Sales 18 weeks* to 16 September 2006 50 weeks to 16 September 2006Residential 3.1% 3.0%High Street 1.7% 1.8%Total 2.5% 2.6%* Last reported like-for-like sales included 32 weeks to ensure comparability ofEaster trading. Notes for editors:- Same outlet (invested) like-for-like sales include the sales performance of all managed pubs (excluding the acquired sites) 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 of those managed pubs (excluding the acquired sites) that have not received expansionary investment of more than £30,000 in the two periods being compared. 88% of the estate is included in this measure.- Mitchells & Butlers owns and operates around 2,200 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 over 10% of industry sales and average weekly take per pub over three times the industry average. 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 'anticipate', 'target', 'expect', 'estimate','intend', 'plan', 'goal', 'believe' or other words of similar meaning. Theforward-looking statements contained herein are based on assumptions andassessments made by the Mitchells & Butlers' management in light of theirexperience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.By their nature, forward-looking statements are inherently predictive,speculative and involve risk and uncertainty, and there are a number of 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 licences; 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 & Butlersoperates; 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; and the weather. 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