Despite posting a hedging loss of £180m over its proposed property joint venture with shareholder Robert Tchenguiz, Mitchells & Butlers (M&B) said it remains committed to unlocking shareholder value via such an arrangement or similar proposal.
The managed pubco said the hedges had been retained "as the board remains committed to a property-based refinancing which would utilise them, once debt markets have recovered". It added its pub estate had recently been revauled at £5bn, an increase of £1.1bn.
M&B confirmed its commitment to such a deal as it revealed turnover for the year to September 29 up 10.1 per cent to £1,894m. Operating profits grew 11 per cent to £343m, while pre-tax profits dipped 0.5 per cent to £207m, in part due to an exceptional charge relating to the hedging position.
Trading since the year end saw same outlet like-for-like sales up 1.4 per cent.
M&B said within its residential estate, its 'local pubs' were trading well despite the smoking ban, with same outlet like-for-like sales growth of 3.3 per cent, "reflecting large drinks market share gains, continued strong food sales growth and the benefit of the Rugby World Cup".
The rugby had had a negative impact on M&B's pub restaurants, however. Like-for-like sales "have been marginally positive overall, although they were up 2.6 per cent in the last three weeks following the launch of the new menus", the group said.
On the question of the property deal with Tchenguiz, or an alternative arrangement, M&B said it had received a proposal from his R20 group to underwrite around 25 per cent of a wholly demerged real estate investment trust, "which would offer shareholders the option to realise part of their investment in the property company for cash". M&B was considerting the proposal, it said.
"Whether in a joint venture, a real estate investment trust or another separate property structure, fundamentally higher values appear to be placed on the estate than when it is combined in an integrated model with the operations.
"We believe that substantial value can be potentially captured from our high quality, freehold and long leasehold assets, through such structures.
"A key consideration in such a process is to construct a lease arrangement which ensures that both the property and the operations remain mutually incentivised to continue to create long term value.
"The board will continue to actively investigate options for capturing the value of the property estate for shareholders on a sustainable basis."
On future trading, M&B said the outlook for consumer spending "remains uncertain", while the first winter of the English smoking ban will be "challenging". It said the evidence from Scotland "reinforces our belief that the ban will prove beneficial to the business in the longer term".