M&B sees upturn after ban

Mitchells & Butlers has reported an increase in like-for-like sales since the smoking ban was introduced.

The company also said it would press on with plans to form property arm to release 'substantial value" from its property.

Mitchells & Butlers has also announced it is preparing for an additional £12million in costs next year thanks mostly to the National Minimum Wage, holiday pay, rising food costs and the impact of the smoking ban.

M&B made the announcement in a trading update released this morning.

It said it had had a "strong trading performance" in the 22 weeks to 15 September 2007 with earnings for the year before exceptional items expected to be at the upper end of the Board's expectations.

The statement read: "Same outlet like-for-like sales in the 18 weeks to 15 September 2007 (the period since that covered at the Interim Results) increased by 2.6%. This represents a resilient performance during a period of poor weather, the introduction of the smoking ban in England and strong comparatives in July to September last year.

Significant drinks market share gains have been made against an on-trade market where beer volumes fell by almost 7% in the four months to the end of August.

"For the 50 weeks to 15 September 2007, same outlet like-for-like sales increased by 3.2%, with drinks sales up 2.5% and food sales up 5.3%.

"Residential same outlet like-for-like sales for the 50 weeks increased by 3.4%, with Local pubs performing very strongly, particularly in food, but the pressure on mid market consumers continuing to lead to some slowing in Pub Restaurants.

"On the High Street, the successful evolution of our formats and the buoyancy of trading in central London led to increasing like-for-like sales growth of 3.1% in the 50 weeks with a further improvement in the last 18 weeks. Total Retail sales for the 50 weeks were 9.1% ahead and average weekly sales per managed pub were up 6% to £18.5k.

In the 11 weeks since the introduction of the smoking ban, same outlet like-for-like sales for our English pubs excluding those previously converted to non-smoking, increased by 2.2%, with drinks sales up 0.9% and food sales up 5.8%. This result is in line with our expectations of the initial impact from the ban before the onset of winter. We are encouraged by trading in Scotland up 3.9% in the last 18 weeks and in the longer term we continue to believe the overall impact of the ban will be beneficial to our business.

Our operational strategy, emphasising quality, value and innovation, has been key to this resilient trading performance. Average retail price rises over the year of less than 2% for food and drink remained below inflation, reinforcing our value position in a market characterised by substantial real price increases. Our focus remains on generating profitable volume growth and we are making further revenue investment in the value of our menus to strengthen our competitive position. Customer service standards have continued to be enhanced by our staff training programmes, evidenced by increased mystery guest scores.

"Sales increases have been efficiently converted into profits growth.

"This has been achieved through further improvements in employee productivity, purchasing gains and effective cost controls, which have overcome £8m of external regulatory cost increases.

"As a result, Retail net operating margins are broadly in line with last year despite £14m of closure and pre-opening costs arising from the conversion of the Acquired Sites.

"The integration of the Acquired Sites has progressed well. 163 of the sites have now been converted to Mitchells & Butlers' formats, with the remaining conversions expected to be completed during the first half of next year. To date, average weekly sales uplifts on the converted sites are running approximately 20% above the levels at which the sites were acquired. This is despite the substantial impact of the poor summer weather, particularly on the country pub restaurants in destination locations.

"The performance is on track to deliver in the year 2008/9 uplifts of 30% in average weekly sales as anticipated at the time of acquisition. With further post-conversion sales build-ups and a significant focus on enhancing staff productivity, the Acquired Sites are expected to deliver strong profits uplifts in the year ahead.

"In addition to the Retail profits, an operating profit of approximately £7m is expected from SCPD for the current year, of which the majority relates to the sale of a long term development property in Burton-on-Trent completed in August.

Value release from freehold property estate​The Board continues to believe that substantial value can be released to shareholders through the creation by Mitchells & Butlers of a dedicated property company structure and discussions are continuing to implement a transaction on acceptable financing terms once the debt markets have stabilised.

"The current post tax mark-to-market deficit on the hedges taken out in connection with the planned R20 transaction remains at approximately £140m and, although not a cash cost, any accounting loss related to the debt hedging arrangements at the year-end date will be accounted for as an exceptional item."

Outlook​

Despite the uncertain outlook for consumer spending, Mitchells & Butlers is competitively well placed to make further market share gains in the year ahead.

Margin reinvestment in the quality and value of our food offers is being actively pursued to generate further volume increases.

"This will help to mitigate the estimated £12m of additional regulatory costs next year, resulting primarily from increases in the National Minimum Wage and holiday pay, as well as the significant upward pressures on food costs and the impact of the smoking ban.

"With the benefits from the conversion of the Acquired Sites starting to be more fully reflected next year and the prospects for further market share gains, we anticipate a resilient performance amidst more challenging market conditions.

"Mitchells & Butlers will announce its Preliminary Results for the year ended 29 September 2007 on 29 November 2007."