Clarke quits M&B over further hedge losses
Mitchells & Butlers (M&B) boss Tim Clarke has resigned from the company after it was forced to pay another £96m pre-tax to settle a disastrous hedge swap taken out in 2007 in relation to an aborted property deal with ertswhile investor Robert Tchenguiz.
M&B was forced to pay £391m to pay off part of the swap losses in January 2008 and Clarke offered to resign at the time.
His offer was rejected by the board but finance director Karim Naffah's resignation offer was accepted. Clarke's resignation also comes as M&B unveils a 47.6% drop in profit before tax to £44m for its first six months.
Clarke has been replaced by chief operating officer Adam Fowle on an acting basis. Chairman Drummond Hall said: "The board has decided to close the residual element of the swap, most of which was dealt with in January 2008. A new facility has been negotiated to provide additional headroom and the Company's financial position is sound.
"In these circumstances, it is with great regret that the Board has accepted the resignation of Tim Clarke. He has been the architect of the Company's success since it was created in 2003 and we are grateful for his outstanding contribution.
"Adam Fowle, chief operating officer, will step up on an acting basis. Amidst intense recessionary pressures, we have delivered robust sales growth, unprecedented market share gains and substantial cost efficiencies which have helped us to successfully withstand a period of high input cost inflation.
"Our priorities remain to continue to outperform and to generate cash."
M&B said that the further growth in the food mix to 40% of total managed sales, partly reflecting the swap of lodges for pub restaurants in September 2008, combined with the customer shift to lower priced menu items, had contributed to pressures on gross margins, down by 2% in the first half with net operating margins don by 3.3%.
Energy and food cost inflation impacted M&B profitability with these costs increasing by £27m in the first half. Significant rises in duty, national minimum wage and business rates of £16m have also occurred in the period although these have been partly offset by a benefit from the VAT decrease of around £8m in respect of drinks sales in December 2008 which was higher than the associated duty increase of £4m.
M&B has started a an efficiency plan which is on track to deliver £20m of savings during the year. The company has also imposed a 2% salary cap.
Comment by The PMA Team
Tim Clarke, the architect of M&B's value-volume strategy, survived by the skin of his teeth in January 2008 when the company unveiled hedge swap losses of almost £400m.
Further losses of £96m this morning represent cumulative losses of five years' worth of pre-tax profits if the rate of profit generation unveiled this morning was to continue.
Clarke, an honourable man, will have felt that shareholders have not been well-served by the board's plan to spin-off its freehold property, a strategy hatched when Robert Tchenguiz owned more than 20% of the company.
This morning's slump in profits will, no doubt, have added weight to his urge to resign.
What looks a little odd now is that bonus payments for Mitchells & Butlers (M&B) executive directors resumed in 2008 despite the crystalisation of a near-£400m loss after hedges against the aborted property deal were closed out.
The four executive directors at M&B had deferred payment of annual bonuses, amounting to almost £1.4m, that were due from the 2007 financial year pending the outcome of M&B's delayed property transaction. In the event, the bonuses from 2007 were not paid. But Clarke earned a basic of £550,000 plus a bonus of £28,000 in 2008 — maximum bonus achievable was £554,000. Total earnings, including benefits, were £611,000 in 2008 compared to £560,000 in 2007.
Adam Fowle, who replaced Tony Hughes as boss of the pub restaurants division at the start of 2008, earned the biggest bonus paid to the executive directors, some £61,000. Mike Bramley, head of the pubs and bars division earned the next highest bonus — £20,000 out of a total possible of £390,000. His total earnings were £431,000, including a basic salary of £386,000 in 2008, compared to £395,000 the year before.
New finance director Jeremy Townsend, who joined the company on 31 January 2008, earned a bonus of £10,000 out of a total possible of £206,000. Tony Hughes, who took early retirement on 31 December 2007, earned a bonus of £17,000 out a possible maximum of £96,000.
The bonuses look especially odd given that other company's like Marston's paid no bonuses in the same year.
Maybe the honourable thing would be for executive directors to pay back their 2008 bonuses.
