17th Sep 2007 07:02
Mitchells & Butlers PLC17 September 2007 17 September 2007 Mitchells & Butlers plc Update on hedge position Mitchells & Butlers, noting press comment yesterday, states that the post taximpact of marking-to-market the company's share of the hedges, entered into inthe summer when the transaction with R20 was about to be implemented, was adeficit of approximately £140m as at 13 September 2007. This does not representa cash loss and compares with a post-tax deficit of £60m as at 31 July 2007, asreported on 2 August 2007 when the Board of Mitchells & Butlers concluded thatthe joint venture with R20 was unlikely to be achieved until debt markets haveimproved. Background to hedge transaction Until the recent market turbulence, Mitchells & Butlers and R20 were in finalnegotiations with banks to finance the transaction. Putting in place hedges oninterest rates and inflation rates was a fundamental requirement of the banks tounderwrite the junior debt facility and to achieve the appropriate ratings fromthe rating agencies on the senior debt. On the assurance of credit-approved debtterms from the banks, Mitchells & Butlers and R20 separately entered into anumber of debt hedging arrangements intended to be contributed to the jointventure, to underpin the delivery of a successful transaction. The sudden rapiddeterioration in debt market conditions meant that the transaction could not beimplemented. Drivers of valuation and accounting treatment Mitchells & Butlers' hedges include interest rate swaps and inflation swaps.Marking-to-market against current values, the latest deficit on these hedgesreflects the combined effect since July, of reduced long term interest rates andhigher long-term inflation expectations brought about by the recent instabilityof the debt market. The impact of marking-to-market on the inflation hedge inparticular has been exacerbated by sharply reduced liquidity in the market forsuch instruments under present market conditions. The carrying value of the debt hedging arrangements as at the year end datewill, for accounting purposes, be treated as an exceptional item in thecompany's accounts. An accounting deficit would not reflect a cash loss to thebusiness, as the hedges will not have been closed out as they are expected to beutilised in a future property based re-financing. Future policy The Board continues to believe that substantial value can be released toshareholders through the creation by Mitchells & Butlers of a dedicated propertycompany structure and discussions are continuing with banks to implement atransaction on acceptable financing terms once the debt markets have stabilised. On 27 September, Mitchells & Butlers will issue a pre-close trading update forthe year ending 29 September 2007. Trading results for the current year areexpected to be at the upper end of the Board's expectations. For further information, please contact: Investor Relations: 0121 498 4907Erik Castenskiold Media 0121 498 4526Kathryn Holland 020 7251 3801James Leviton (Finsbury Group) 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. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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