M&B suspends dividend payments
Mitchells & Butlers (M&B) has suspended dividend payments to shareholders in a bid to reduce its levels of unsecured medium term debt.
The managed operator said that it would suspend dividends until Decmber 2010 when drawing levels on its medium term facility are adequately below £300m.
Profit before tax at M&B for the year to 27 September was down 13.5% on last year to £179m with turnover up 0.7% to £1,908m. Operating profit remained stable at £343m and earnings before interest, tax, depreciation and amoritisation (EBITDA) grew 1.1% to £477m.
The company said that its bid to sell non-core assets had "been significantly impacted by the prevailing conditions in the financial markets in recent months" and as a result it is also reducing its capital expenditure for next year from £193m to £120m to conserve cash. The money will largely be spent on maintenance of existing sites.
The 2,000 pubs owned by M&B have seen a 7% decline in value to £4.7bn on last year, according to a new valuation by Colliers CRE and it has decided not pursue conversion to the tax-efficient Real Estate Investment Trust (Reit) model.
"Given the recent Treasury announcement to exclude internal re-organisations from the Reit regime, the need for cash conservation and the current Group tax position, we have no plans of adopting any such structure for the foreseeable future," it said.
Food sales
Eating out has now become the core reason to visit an M&B pub with same outlet like-for-like food volume growth up 8%. Around two-thirds of sales are generated by a food-related visit, with food itself accounting for 40% of all sales. The food growth has been driven by M&B's value concepts such as Crown Carveries (average main meal price of £3.94), Sizzling Pub Co. (average main meal price of £4.85) and Cornerstone (average main meal price of £4.07). Food prices roses just 3% compared to increases of 10% in food costs in the marketplace.
The average cost of a meal across the estate is £6.05 and the average cost of a standard pint of lager is £2.21 — up to 40p cheaper than the average in a leased pub. Beer sales now account for just a quarter of sales compared to 70% fifteen years ago.
Cautious outlook
"We remain highly cautious on the outlook for consumer spending in 2009 as the UK economy slides into recession," said M&B chief executive Tim Clarke. "As a result, we expect continued significant declines in on-trade beer volumes and a contraction in the eating-out market in line with decreases in disposable incomes. Against this demand background, our value and volume strategy is well placed to support a resilient performance in a market driven by value orientated customers."
He added: "We expect a £30m increase in food and energy input costs, heavily concentrated into the first half. We expect those increases to subside and in some cases reverse in the second half as the impact of the recent commodity price declines feed through into our input costs. In addition, there will be a £20m increase in regulatory costs driven by national minimum wage and holiday pay increases and by the pre-announced increase in the beer duty.
"We expect these cost increases to continue to be partially offset by further improvements in staff productivity, food margin management, purchasing and other cost efficiency savings, which we are targeting to be in the region of £20m in the year.
"Our outlet scale, with average EBITDA per pub of £240,000 per annum, as well as our corporate scale, with sales of over 110 million meals and over 500 million drinks, will enable us to maximise the benefits of operating efficiencies and purchasing power to mitigate the impact of these external cost increases."
