M&B's Karim Naffah gets board's "full support

Despite mounting hedge-related losses resulting from its postponed property joint venture with R20, Karim Naffah, Mitchells & Butlers' (M&B) finance director, has the "full support" of the group's board.

Naffah, along with other members of M&B's senior management, has come under fire from investors for allowing the group to get into a position where it is facing a near £200m pre-tax accounting loss resulting from hedges taken out in connection with the deal.

However M&B's chief executive Tim Clarke personally backed his finance director and said of the deficit: "We pursued a strategy that we believed was, and remains, highly valuable for our shareholders. However we hit the misfortune of what happened recently in the debt markets.

"Once the situation in these markets has improved we will continue to move towards completing the transaction," he added.

Responding to criticism that M&B had been caught out by movements in the debt markets, Clarke said: "The hedge was a requirement from rating agencies and banks to execute the transaction.

"We have long term instruments in place going forward and while it is impossible to predict when it will happen, when the time is right we will pursue the joint venture."

Clarke rejected suggestions that M&B would cede any control over its pubs as and when the joint venture materialised. "Operationally there will be no change," he said.

He said the group shared "the acute disappointment of many of its shareholders" who had watched M&B's stock rise to nearly £9 a share in recent months, only to fall to its current level of 614p, but said "this is why we're working hard to ensure [the property joint venture] goes ahead".

M&B meanwhile reported same outlet like-for-like trading in the 50 weeks to September 15 had risen 3.2 per cent, and in the 11 weeks since the start of the English smoking ban, sales were up 2.2 per cent.

"We're very pleased to be reporting at the upper end of expectations," said Clarke, who pointed out that M&B was making "significant drinks market share gains" at a time when beer volumes were down nearly seven per cent.

Overall food sales for the period were up 5.3 per cent, although Clarke noted that rising interest rates were hitting its mid-market customers, and there was "some slowing in Pub Restaurants".

Clarke said he expected the smoking ban to "bite" as winter approached, but that following the group's Scottish experience said he believed that smoking customers will return within 12 to 18 months.

Retail net operating margins were "broadly in line" with last year, "despite £8m of regulatory cost increases and £14m-worth of closure and pre-opening costs of acquired sites".