TIDMMAB
RNS Number : 1335V
Mitchells & Butlers PLC
30 November 2023
MITCHELLS & BUTLERS PLC
LEI no: 213800JHYNDNB1NS2W10
30 November 2023
FULL YEAR RESULTS
(For the 53 weeks ended 30 September 2023)
Highlights
Like-for-like sales(a) growth for the period of 9.1% against
- FY 2022 with record outperformance against the market (b)
Adjusted operating profit increased by 17.6% (52-weeks,
- net of government support)
Cost headwinds starting to abate
-
Purchase of Ego Restaurants will provide synergy and rollout
- opportunities
Improved guest feedback and employee engagement scores
-
Reported results (53 week year)
Total revenue of GBP2,503m (FY 2022 GBP2,208m)
- Operating profit of GBP98m (FY 2022 GBP124m)
Profit/(loss) before tax of GBP(13)m (FY 2022 GBP8m)
-
-
Trading results
Adjusted operating profit(a) GBP221m on 52-week basis (FY
- 2022 GBP240m)
Adjusted earnings per share(a) 15.6p on 52-week basis (FY
- 2022 18.0p)
Balance sheet and cash flow
Net debt(a) reduced to GBP1,170m (FY 2022 GBP1,198m), excluding
- GBP463m of IFRS 16 lease liabilities (FY 2022 GBP481m)
Refinancing of Revolving Credit Facility to July 2026, increased
- by GBP50m to GBP200m
Successful buy-in of M&B Main pension scheme with no further
- pension contributions anticipated
Phil Urban, Chief Executive, commented:
"We are delighted by the continued strength of our trading
performance, and resilience in the face of unprecedented cost
headwinds. We have achieved good growth in underlying profit,
excluding government support, with like-for-like sales (a) growth
across all of our brands, and record outperformance against the
market (b) . Whilst we remain mindful of the pressures that the UK
consumer is facing, the strength of our sales growth alongside an
abating cost environment gives us confidence for the financial year
ahead.
We will remain focused on our strategic priorities delivered
through our Ignite and capital programmes, which combined with our
diverse portfolio of well-known brands, strong estate locations and
talented people, leave us well positioned to rebuild margins back
towards pre-pandemic levels."
Definitions
a - The Directors use a number of alternative performance
measures (APMs) that are considered critical to aid the
understanding of the Group's performance. APMs are explained later
in this announcement.
b - Market performance as measured by CGA Business Tracker.
There will be a presentation held today at 8:30am accessible by
phone on 0204 587 0498, access code: 029921 and at
https://www.netroadshow.com/events/login?show=eb765856&confId=56017
The slides will also be available on the website at www.mbplc.com
The replay will then be available at
http://www.mbplc.com/fy2023/analystspresentation
All disclosed documents relating to these results are available
on the Group's website at www.mbplc.com
For further information, please contact:
Tim Jones - Chief Financial Officer +44(0)121 498 6112
Amy de Marsac - Investor Relations +44(0)121 498 6514
James Murgatroyd (Finsbury) +44(0)20 7251 3801
Note for editors:
Mitchells & Butlers is a leading operator of managed
restaurants and pubs. Its portfolio of brands and formats includes
Harvester, Toby Carvery, All Bar One, Miller & Carter, Premium
Country Pubs, Sizzling Pubs, Stonehouse, Vintage Inns, Browns,
Castle, Nicholson's, O'Neill's, Ember Inns and Ego Restaurants. In
addition, it operates Innkeeper's Collection hotels in the UK and
Alex restaurants and bars in Germany. Further details are available
at www.mbplc.com and supporting photography can be downloaded at
www.mbplc.com/imagelibrary.
CURRENT TRADING AND OUTLOOK
Since the period end, we have been further encouraged by
like-for-like sales(a) growth of 7.2%. The strength of our sales
performance continues to be broad-based across the brand portfolio
and underpinned by stable volumes, giving us confidence that
further opportunity remains, although we are very mindful of the
potential implications of the cost of living challenge facing
guests.
Cost headwinds presented a significant challenge in FY 2023 but
we are seeing clear evidence that these are starting to abate. We
now know that the National Living Wage will increase by 9.8%, and
be extended to everyone over 21, from April next year, but a
reduction in energy prices and slowing food inflation, in
particular, mean that anticipated overall cost headwinds for the
year ahead are expected to reduce to c.GBP65m. This should allow us
to start to rebuild margins back towards pre-pandemic levels.
We are working hard to continue to drive sales growth above the
market, whilst both leveraging our buying power and further
enhancing the efficiency of our business. This allows us to face
the future with a renewed level of confidence.
BUSINESS REVIEW
Total sales across the period were GBP2,503m with year-on-year
growth driven by strong like-for-like sales(a) performance across
all of our brands. Operating profit of GBP98m was GBP26m lower than
the prior year, impacted both by property portfolio valuation
movements classified in separately disclosed items and the
inclusion last year of an additional GBP52m of non-recurring
government support (in the form of reduced VAT and grants).
Overall, we are very pleased with our 52-week adjusted operating
profit(a) result of GBP221m, before separately disclosed items,
which reflects a strong performance in the face of considerable
cost headwinds and a record like-for-like sales(a) outperformance
against the market, as measured by the CGA Business Tracker, of
2.7ppts.
We made a good start to the financial year with like-for-like
sales (a) growth of 6.5% over the first ten weeks, primarily driven
by drink sales. Growth then increased further in the final five
weeks of the first quarter due principally to last year being
impacted by the emergence of the Omicron variant which resulted in
a downturn in activity across much of the festive season.
Like-for-like sales (a) for the quarter were up 10.4% against FY
2022.
Sales remained resilient through the second quarter with strong
performances on key trading dates and from our drink-led, city
centre pubs, especially in London, that benefitted from a further
return to office working and recovery in tourism. Across the
quarter, we recorded like-for-like sales (a) growth of 6.4%,
comprising drink sales growth of 9.9% and food sales growth of
5.2%.
Through the second half, sales performance remained strong and
our outperformance of the market extended further. Despite a wetter
and cooler summer than the prior year, like-for-like (a) sales grew
by 9.7% through the second half, with all brands in like-for-like
sales (a) growth and supported by sustained growth in both food and
drink volumes.
The uncertainty and cost challenges the industry has faced have
had an unavoidable impact on market supply with a 3.6% net decline
in pubs and restaurants in the year to October 2023 and a 13.2% net
decline since the start of the Covid-19 pandemic in March 2020 (CGA
October Hospitality Market Monitor 2023). Independent and tenanted
businesses have made up the substantial majority of the net
closures. Given our strong estate and portfolio of brands, we
believe that we are well placed to continue to benefit from these
changes in the competitive landscape.
OUR STRATEGIC PRIORITIES
The strengths of our business provide a strong platform for the
future. We have an 83% freehold and long leasehold estate, with
recognised and diversified brands across a broad range of consumer
occasions, demographics and locations, and an experienced and
proven management team with the focus to build on the momentum we
now have. We are focused on the strategic pillars which began to
turn the business's performance around in 2018, remained at the
heart of the business through the pandemic and continue to guide
our growth;
- Build a more balanced business
- Instil a commercial culture
- Drive an innovation agenda
Our Ignite programme of work remains at the core of our
long-term value creation plans. The programme consists of a rolling
total of approximately 40 initiatives, with new workstreams being
introduced in the period replacing those fully implemented in the
business. Given the cost headwinds faced over the last year, we
have been particularly focused on initiatives which increase
efficiency and productivity through enhancements such as improved
labour scheduling, cost mitigating procurement strategies and
energy consumption reduction. Energy reduction projects in
particular have helped to offset utility cost headwinds, as well as
contribute towards our sustainability aims, including investment in
solar panels, the roll out of voltage optimisers and the trial of
internet-connected control devices to lower electricity and gas
consumption. In addition, our energy and sustainability ambassadors
across the country support General Managers in the behavioural
change needed to continue reducing consumption in our sites, the
combined result being a reduction in energy consumption of 3%
versus last year and 14% versus 2019.
We have also continued to focus on sales-driving initiatives,
ensuring that General Managers are equipped with the knowledge and
tools to drive sales in their businesses. Each of our General
Managers attended a workshop designed to develop and enhance these
skills as well as focusing on improving guest metrics by delivering
great experiences. We have also increased our capacity at peak
times by opening additional bookable covers across bars and outside
areas. The benefit of these workstreams is reflected in the
broad-based like-for-like sales (a) performance across all of our
brands, supported by volume growth, as well as guest scores of over
4.1 in every one of our brands.
Across a multi-location business, comprising over 1,650 sites,
execution of business change will always be a key challenge when
targeting efficiencies. Consistent delivery of our Ignite
initiatives has become an increased focus in order to realise the
full value of activities which have been proven in other parts of
the business. Therefore, in FY 2024, alongside new initiatives we
will be focusing on extracting the full value of initiatives which
have already been rolled out to the business, but which currently
have inconsistent results. We already have the knowledge and
experience to make these activities work, therefore targeted
training and sharing of expertise should enable the full value of
these initiatives to be realised.
We remain committed to accelerating our digital strategy, which
presents an opportunity for more personalised guest experiences.
Our strategy focuses on building the correct digital and
organisational capabilities to allow for quick activation of new
channels and services as consumer behaviours change, allowing us to
be at or near the forefront of digital advances in the sector. We
have made significant progress in recent years, for example our
digital order at table facility, our streamlined online booking
experience, and the development of own channel delivery capability
seeking to drive sales and protect margins.
Our capital programme continues to deliver value by improving
the competitive position of our pubs and restaurants within their
local markets. We are committed to re-establishing a seven-year
investment cycle, which was interrupted by Covid-19. This financial
year we have completed 151 investment projects, slightly fewer than
last year but with a higher proportion of larger projects,
including 11 conversions of sites to brands such as Miller &
Carter and Nicholson's to enable them to optimise trading
opportunities in their location. We have also purchased six new
sites (of which four are freehold) either by buying in existing
leases to give us assured tenancy of successful sites, or by
establishing new locations to broaden our offer in areas such as
Edinburgh airport, Cardiff, Sheffield and Middlesbrough. We are
continuing to see strong performances from our investment
projects.
In June 2023 we completed the acquisition of the remaining 60%
stake in 3Sixty Restaurants Limited, owners of Ego Restaurants,
having acquired the initial 40% stake in August 2018. Ego is a
collection of Mediterranean-inspired pubs and restaurants where
guests can enjoy freshly cooked food, cocktails, cask ales and wine
from across the continent. It currently has 29 sites, including 16
that are leased from Mitchells & Butlers , and c.1,000
employees. We currently foresee scope for c.20-30 conversions using
the Ego format over the next three to five years. This type of
acquisition, of a brand which provides a conversion opportunity
which complements our brand portfolio, allows us to generate value
through cost synergies of c.GBP3m as well as incremental profit on
conversion.
PEOPLE
Our fantastic team of over 50,000 people is central to the
performance of our business, delivering the all-important
experiences guests have with us. We are delighted that our staff
turnover reduced this financial year to 81%, a return to
pre-pandemic stability. Lower turnover has a positive impact on
guest experience and also holds commercial benefits due to the cost
of training new team members. We are also delighted that our team
engagement scores have continued to improve over the course of the
year and are now at record highs, demonstrating the commitment of
our teams to work together towards the shared goal of driving the
future success of the business.
The recent employment environment has been challenging, and our
centralised HR function has been focused on attracting the best
talent, enhancing performance through our development programmes
and retaining teams through progression opportunities. During the
period, over 50% of our General Manager appointments were internal,
which reflects the strength of the pipeline of talent we have in
the organisation. Our apprentice scheme forms part of our training
and progression opportunity, and we believe it will provide
excellent future talent to our organisation, from front and back of
house roles in our pubs and restaurants to corporate roles in our
head office. This financial year over 680 apprentices have joined
our business and 980 of our current employees have enrolled onto
one of the apprenticeship opportunities open to them. Given the
importance of developing and retaining chefs, we continue to grow
our culinary capability via our Chefs' Academy and 187 of our chefs
have embarked on the Commis Chef apprenticeship delivered by our
award-winning tutors.
SUSTAINABILITY
We are committed to reducing the environmental impact of our
business and have set ambitious targets against which to measure
our progress:
- Net Zero emissions by 2040, including Scope 1, 2 and 3
emissions; in the period we reduced our emissions by 11% against
our 2019 baseline, driven by reduced energy consumption, moving to
100% renewable electricity and reduced emissions in relation to
employee travel as we transition our fleet towards hybrid and
electric cars. On the intensity measure of emissions to turnover,
our output of emissions has reduced by over 20% from our 2019
baseline and by 2% from FY 2022. We have submitted our roadmap to
Net Zero for Science Based Target initiative for approval and
continue to be active members of the Zero Carbon Forum where we
work collaboratively with the ambition of decarbonising the
hospitality industry as a whole.
- Zero operational waste to landfill by 2030; we continued to
make good progress in this area and currently divert 97% of
operational waste from landfill. We have also focused on increasing
the proportion of waste that we recycle and have improved our
recycling performance to 59%.
- 50% reduction in food waste by 2030; aligned with the UN
Sustainable Development Goals we will halve food waste in our
supply chain and in sites by 2030. As at the year end, we have
achieved a 25% reduction in food waste from our 2019 baseline,
driven by operational improvements and aided by partnerships with
Fareshare and Too Good to Go. This performance reflects a 1%
reduction of the intensity measure of grams of waste per meal from
FY 2022.
We have a number of initiatives underway to support these
ambitions. Our network of Energy and Sustainability Ambassadors
have helped to facilitate a 3% reduction in energy consumption
during the year driven by behavioural change as well as investment
in voltage optimisers. To reach our near-term Net Zero targets we
are focused on removing gas as an energy source. To this aim,
during the year we collaborated with suppliers to develop electric
kitchen equipment, which is more operationally effective than their
gas equivalents, and we are in the process of testing the kit with
teams. In addition, we have opened two all-electric sites,
trialling alternatives to gas boilers for heating and hot water, as
well as various insulation techniques. These trials will help to
inform our future strategy for removal of gas.
Our sustainability strategy has a strong focus on the positive
impact we have on people and communities and we are proud to
partner with Social Bite, a homelessness charity. Under the Jobs
First programme, helping people back to independence through
long-term employment opportunities, we were delighted to employ 10
people from their academy and hope to expand this in future years.
In addition, we raised GBP140k for Social Bite through fundraising
activity and GBP160k for Shelter, another charity partner.
We remain focused on the delivery of our transition plan
designed to reduce our climate impact, evolving our plan in
response to emerging technologies, best practice and collaborative
opportunities. Meanwhile, we also aim to enhance our social impact
through our own operations, by facilitating social mobility, as
well as through our work with charitable partners.
FINANCIAL REVIEW
On a statutory basis, sales were GBP2,503m (FY 2022 GBP2,208m).
The loss before tax for the period of GBP(13)m (FY 2022 profit of
GBP8m) was impacted by movements to the property portfolio
valuation as well as significant cost headwinds during the
financial year.
The Group Income Statement discloses adjusted profit and
earnings per share information that excludes separately disclosed
items to allow an understanding of the trading performance of the
Group. Separately disclosed items are identified by virtue of their
size or incidence.
T he financial period being reported on was a 53-week period,
therefore in order to facilitate comparison to prior year, adjusted
results have been restated on a 52-week basis, as set out
below.
Statutory 53 week Adjusted (a) 52 week
FY 2023 FY 2022 FY 2023 FY 2022
GBPm GBPm GBPm GBPm
Revenue 2,503 2,208 2,459 2,208
Operating profit 98 124 221 240
Profit / (loss) before
tax (13) 8 112 124
Earnings / (loss) per
share (0.7p) 2.2p 15.6p 18.0p
Operating margin 3.9% 5.6% 9.0% 10.9%
At the end of the period, the total estate comprised 1,718 sites
in the UK and Germany of which 1,654 are directly managed.
Revenue
Total revenue of GBP2,503m (FY 2022 GBP2,208m) reflects a strong
period of trading.
Like-for-like sales (a) for the period increased by 9.1%,
comprising an increase in like-for-like food sales (a) of 8.6% and
an increase in like-for-like drink sales of 9.9%. Like for like
sales (a) growth was broad-based, with growth across all brands,
supported by volume growth in both food and drink. Excluding the
impact of reduced rates of VAT in the first half of FY 2022,
like-for-like sales (a) growth across the period was 11.3%.
Like-for-like sales (a) growth against FY 2022:
Wks 1-15 Wks 16-28 Wks 29-43 Wks 44-52 Wks 1-52
Q1 Q2 Q3 Q4
Food 6.4% 5.2% 11.6% 11.6% 8.6%
Drink 15.5% 9.9% 7.4% 6.4% 9.9%
Total 10.4% 6.4% 9.7% 9.7% 9.1%
Against FY 2019, the last pre-covid year, like-for-like sales
increased by 10.5% driven by spend-per-head with volumes down 8%
for food and 12% for drinks.
For the eight weeks since the period end like-for-like sales(a)
against FY 2023 have increased by 7.2%.
Separately disclosed items
Separately disclosed items are identified due to their nature or
materiality to help the reader form a view of overall and adjusted
trading.
A GBP131m reduction in value is recognised relating to valuation
and impairment of properties, comprising a GBP110m impairment
arising from the revaluation of freehold and long leasehold sites,
a GBP6m impairment of short leasehold and unlicensed properties, a
GBP14m impairment of right-of-use assets and a GBP1m impairment of
goodwill. The GBP28m tax credit relates to these impairments.
Other separately disclosed items include a net profit arising on
property disposals, a shortfall on an HMRC VAT claim on gaming
machines and a number of items related to acquisition accounting
for 3Sixty Restaurants Limited. These items net to an overall
credit of GBP3m.
Operating profit and margins (a)
Adjusted operating profit (a) for the financial year was GBP221m
(FY 2022 GBP240m).
FY 2023 benefited from GBP1m (FY 2022 GBP53m) of government
support. The year-on-year adjusted operating profit increase, net
of government support, of GBP33m reflects a strong underlying sales
performance supported by efficiency gains to more than offset the
cost headwinds of GBP175m faced in the period.
Adjusted operating margin of 9.0% was 1.9 ppts lower than prior
period, driven by the significant cost headwinds and the margin
benefit of government support received in FY 2022. Statutory
operating margin of 3.9% was 1.7ppts lower than last year due also
to the impact of separately disclosed property impairments.
Cost headwinds are now starting to abate and for FY 2024 are
expected to be in the region of c.GBP65m, representing 3% of the
overall cost base, including an expectation of energy cost
reduction.
Interest
Net finance costs of GBP108m for the period were GBP6m lower
than last year, with annual amortisation reducing the value of
securitised debt and higher levels of interest income from cash
balances.
The net pensions finance charge was GBP3m (FY 2022 GBP2m). The
net pensions charge for next year is expected to be GBP1m.
Earnings per share
Basic losses per share, after the separately disclosed items
described above, were (0.7)p (FY 2022 earnings 2.2p), with adjusted
earnings per share of 16.1p, (FY 2022 18.0p).
The basic weighted average number of shares in the period was
595m and the total number of shares issued at the balance sheet
date was 598m.
Cash flow
FY 2023 FY 2022
GBPm GBPm
EBITDA before movements in the valuation
of the property portfolio 362 374
Non-cash share-based payment and pension
costs and other 6 6
Operating cash flow before movements
in working capital and additional pension
contributions 368 380
Working capital movement (1) 19
Pension deficit contributions (8) (44)
Cash flow from operations 359 355
Capital expenditure (157) (122)
Acquisition of 3Sixty Restaurants Limited (17) -
Cash acquired on acquisition of 3Sixty 5 -
Restaurants Limited
Net finance lease principal payments (52) (45)
Interest on lease liabilities (16) (16)
Net interest paid (90) (99)
Tax (3) (2)
Other 1 -
Net cash flow before bond amortisation 30 71
Mandatory bond amortisation (116) (110)
-------- --------
Net cash flow (86) (39)
The business generated GBP362m of EBITDA before movements in the
valuation of the property portfolio.
Pension deficit contributions reduced to GBP8m as contributions
for both the Executive and Main Plan schemes started to be paid
into escrow accounts. No further contributions are now anticipated
into these schemes.
Capital expenditure increased by GBP35m to GBP157m with GBP11m
of the increase in relation to investment in technology to enable
progress against our sustainability goals, as analysed below.
An investment of GBP17m was made to acquire the remaining 60%
stake in 3Sixty Restaurants Ltd, owners of Ego Restaurants,
partially offset by GBP5m cash acquired on acquisition.
Before mandatory bond amortisation, cash inflow was GBP30m (FY
2022 GBP71m). After mandatory bond amortisation, cash outflow was
GBP86m (FY 2022 outflow of GBP39m).
Capital expenditure
Capital expenditure of GBP157m (FY 2022 GBP122m) comprises
GBP154m from the purchase of property, plant and equipment and
GBP3m in relation to the purchase of intangible assets. Of the
GBP157m spend, GBP90m relates to the completion of acquisitions,
conversions and remodels, with the balance being essential
maintenance and infrastructure spend which includes investment to
enable our Net Zero transition.
FY 2023 FY 2022
GBPm # GBPm #
--------------------------------- ----- ---- ----- ----
Maintenance and infrastructure 67 39
Remodels - refurbishment 65 127 60 155
Remodels - expansionary 4 7 2 5
Conversions 11 11 6 6
Acquisitions - freehold 9 4 14 3
Acquisitions - leasehold 1 2 1 1
Total return generating capital
expenditure 90 151 83 170
Total capital expenditure 157 122
The four freehold acquisitions represent the purchase of two
properties previously held as leasehold and two new sites.
To enable our transition to Net Zero emissions we have invested
in technologies which reduce our environmental impact. During the
period we invested GBP3m on installing 50 sites with solar panels,
with a further c.150 sites identified for installation during FY
2024, and GBP8m on installing 1,200 voltage optimisers. These
investments will underpin continued reduction in energy usage,
which reduced by 3% in the period overall.
Property
In line with our property valuation policy, a red book valuation
of the freehold and long leasehold estate has been completed in
conjunction with the independent property valuer, CBRE. In
addition, the Group has undertaken an impairment review on short
leasehold and unlicensed properties. The overall property portfolio
valuation of c.GBP4bn has decreased by GBP192m (FY 2022 decrease of
GBP282m). This reflects GBP116m impairment included as a separately
disclosed item in the income statement and a GBP76m decrease in the
revaluation reserve. In addition, there was a GBP14m impairment of
right-of-use assets and a GBP1m impairment of goodwill, relating to
an historic acquisition, included within separately disclosed items
in the income statement.
Net debt(a) and facilities
Net debt(a) at the period end was GBP1,633m, comprised of
GBP1,170m non-lease liabilities and lease liabilities of GBP463m
(FY 2022 GBP1,679m comprised of GBP1,198m non-lease liabilities and
lease liabilities of GBP481m).
During the period we successfully refinanced our unsecured debt
facilities which were due to expire in February 2024. The new
Revolving Credit Facility ('RCF') has been increased in size to
GBP200m based on a wider banking group, including the continued
support of all existing banks, and extends to July 2026. The RCF
remains unsecured, with a negative pledge in favour of
participating banks, and is based on two main financial covenants -
net debt to EBITDA to not exceed 3.0 times (as before) and EBITDAR
to rent plus interest of not less than 1.25 times (reduced from 1.5
times).
Further details of existing debt arrangements and an analysis of
net debt(a) can be found in Note 10 to the financial statements and
at https://www.mbplc.com/infocentre/debtinformation/ .
Pensions
During the period we were delighted to announce that the
trustees of the M&B Main Pension Plan, working closely with the
Company, successfully completed a full scheme buy-in with Standard
Life. This transaction follows on from the completion of the buy-in
of the Executive Plan announced last year and eliminates
substantially all remaining pensions risk in the group.
Following each buy-in, committed contributions were made into
blocked escrow accounts, to a balance of GBP47m. As of September
this year all contributions have ceased.
The residual liability on the balance sheet of GBP22m (before
tax) represents an unfunded unapproved pension top-up arrangement
in respect of certain members of the M&B Executive Plan.
Going Concern
After considering forecasts, sensitivities and mitigating
actions available to management and having regard to risks and
uncertainties, the Directors have a reasonable expectation that the
Group has adequate resources to continue to operate within its
borrowing facilities and covenants for a period of at least 12
months from the date of signing the financial statements.
Accordingly, the financial statements have been prepared on the
going concern basis. Full details are included in Section 1 of the
financial statements.
Director's responsibility statement
The 2023 Annual Report and Accounts which will be issued in
December 2023, contains a responsibility statement in compliance
with DTR 4.1.12 of the Listing Rules which sets out that as at the
date of approval of the Annual Report on 29 November 2023, the
Directors confirm to the best of their knowledge:
- the Group and unconsolidated Company financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and Company, and the undertakings included in the consolidation taken as a whole; and
- the performance review contained in the Annual Report and
Accounts includes a fair review of the development and performance
of the business and the position of the Group and the undertakings
including the consolidation taken as a whole, together with a
description of the principal risks and uncertainties they face.
This responsibility statement was approved by the Board of
Directors on 29 November 2023 and is signed on its behalf by:
Tim Jones
Chief Financial Officer
29 November 2023
Group income statement
For the 53 weeks ended 30 September 2023
2023 2022
53 weeks 52 weeks
----------------------------------------------- ------------------------------------------------
Before Before
separately Separately separately Separately
disclosed disclosed disclosed disclosed
items items(a) Total items items(a) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------------------ -------- ------------------ ------------------ --------
Revenue 2 2,503 - 2,503 2,208 - 2,208
Operating costs
before
depreciation,
amortisation
and movements
in the valuation
of the property
portfolio (2,145) - (2,145) (1,836) - (1,836)
Share in
associates'
results 1 - 1 1 - 1
Net profit
arising
on property
disposals 3 - 3 3 - 1 1
EBITDA(b) before
movements in
the valuation
of the property
portfolio 359 3 362 373 1 374
Depreciation,
amortisation
and movements
in the valuation
of the property
portfolio 3 (133) (131) (264) (133) (117) (250)
----------------- ------------------ -------- ------------------ ------------------ --------
Operating
profit/(loss) 226 (128) 98 240 (116) 124
Finance costs 11 (116) - (116) (115) - (115)
Finance income 11 8 - 8 1 - 1
Net pensions 11,
finance charge 12 (3) - (3) (2) - (2)
----------------- ------------------ -------- ------------------ ------------------ --------
Profit/(loss)
before tax 115 (128) (13) 124 (116) 8
Tax
(charge)/credit 5 (19) 28 9 (17) 22 5
----------------- ------------------ -------- ------------------ ------------------ --------
Profit/(loss)
for the period 96 (100) (4) 107 (94) 13
================= ================== ======== ================== ================== ========
Earnings/(loss)
per ordinary
share
Basic 6 16.1p (0.7p) 18.0p 2.2p
Diluted 6 16.1p (0.7p) 18.0p 2.2p
================= ======== ================== ========
a. Separately disclosed items are explained and analysed in note
3.
b. Earnings before interest, tax, depreciation, amortisation and
movements in the valuation of the property portfolio. The Directors
use a number of alternative performance measures (APMs) that are
considered critical to aid the understanding of the Group's performance.
Key measures are explained later in this announcement.
All results relate to continuing operations.
Group statement of comprehensive income
For the 53 weeks ended 30 September 2023
2023 2022
53 weeks 52 weeks
Notes GBPm GBPm
--------- ---------
(Loss)/profit for the period (4) 13
--------- ---------
Items that will not be reclassified subsequently
to profit or loss:
Unrealised loss on revaluation of the property
portfolio 7 (76) (187)
Remeasurement of pension liability 12 42 41
Tax relating to items not reclassified 5 5 32
(29) (114)
--------- ---------
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation of
foreign operations (1) 2
Cash flow hedges:
- (Losses)/gains arising during the period (9) 180
- Reclassification adjustments for items
included in profit or loss 30 1
Tax relating to items that may be reclassified 5 (5) (45)
15 138
Other comprehensive (expense)/income after
tax (14) 24
--------- ---------
Total comprehensive (expense)/income for
the period (18) 37
========= =========
Group balance sheet
30 September 2023 2023 2022
Notes GBPm GBPm
--------------------------------- ----------------------------------
Assets
Goodwill and other intangible assets 17 14
Property, plant and equipment 7 4,086 4,194
Right-of-use assets 8 327 339
Interests in associates - 6
Finance lease receivables 11 12
Other receivables 47 -
Deferred tax asset 4 4
Derivative financial instruments 33 56
Total non-current assets 4,525 4,625
Inventories 25 23
Trade and other receivables 123 90
Current tax asset - 1
Finance lease receivables 1 1
Derivative financial instruments 2 4
Cash and cash equivalents 10 126 207
Total current assets 277 326
Total assets 4,802 4,951
--------------------------------- ----------------------------------
Liabilities
Pension liabilities 12 (1) (42)
Trade and other payables (491) (408)
Current tax liabilities (2) -
Borrowings 10 (144) (130)
Lease liabilities 8 (33) (53)
Total current liabilities (671) (633)
Pension liabilities 12 (21) (22)
Borrowings 10 (1,186) (1,334)
Lease liabilities 8 (430) (428)
Derivative financial instruments (7) (28)
Deferred tax liabilities (348) (354)
Provisions (9) (9)
--------------------------------- ----------------------------------
Total non-current liabilities (2,001) (2,175)
Total liabilities (2,672) (2,808)
Net assets 2,130 2,143
================================= ==================================
Equity
Called up share capital 13 51 51
Share premium account 13 357 357
Capital redemption reserve 3 3
Revaluation reserve 951 1,009
Own shares held (5) (5)
Hedging reserve (4) (20)
Translation reserve 14 15
Retained earnings 763 733
Total equity 2,130 2,143
================================= ==================================
Group statement of changes in equity
For the 53 weeks ended 30 September 2023
Called Share Capital Own
up premium redemption Revaluation shares Hedging Translation Retained Total
share
capital account reserve reserve held reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- ---------- ----------- ------ ------- ----------- -------- -------
At 25 September
2021 51 356 3 1,150 (3) (156) 13 690 2,104
Profit for the
period - - - - - - - 13 13
Other
comprehensive
(expense)/income - - - (141) - 136 2 27 24
Total
comprehensive
(expense)/income - - - (141) - 136 2 40 37
Share capital
issued - 1 - - - - - - 1
Purchase of own
shares - - - - (2) - - - (2)
Credit in respect
of share-based
payments - - - - - - - 4 4
Tax charge on
share-based
payments - - - - - - - (1) (1)
At 24 September
2022 51 357 3 1,009 (5) (20) 15 733 2,143
Loss for the
period - - - - - - - (4) (4)
Other
comprehensive
(expense)/income - - - (58) - 16 (1) 29 (14)
------- ------- ---------- ----------- ------ ------- ----------- -------- -------
Total
comprehensive
(expense)/income - - - (58) - 16 (1) 25 (18)
Credit in respect
of share-based
payments - - - - - - - 5 5
At 30 September
2023 51 357 3 951 (5) (4) 14 763 2,130
======= ======= ========== =========== ====== ======= =========== ======== =======
Group cash flow statement
For the 53 weeks ended 30 September 2023
2023 2022
53 weeks 52 weeks
Notes GBPm GBPm
---------- ---------
Cash flow from operations
Operating profit 98 124
Add back/(deduct):
Movement in the valuation of the property portfolio 3 131 117
Net profit arising on property disposals 3 (3) (1)
Loss on disposal of fixtures, fittings and 2 -
equipment
Depreciation of property, plant and equipment 7 93 93
Amortisation of intangibles 4 4
Depreciation of right-of-use assets 8 36 36
Cost charged in respect of share-based payments 5 4
Administrative pension costs 12 5 4
Share of associates results (1) (1)
Settlement of pre existing lease contracts 14 3 -
Fair value gain on associate 14 (5) -
Operating cash flow before movements in working
capital
and additional pension contributions 368 380
Increase in inventories (2) (3)
Increase in trade and other receivables (42) (19)
Increase in trade and other payables 44 42
Decrease in provisions (1) (1)
Additional pension contributions 12 (8) (44)
---------- ---------
Cash flow from operations 359 355
Interest payments(a) (95) (67)
Interest payments on interest rate swaps(a) (7) (33)
Interest receipts on cross currency swap(a) 7 1
Interest payments on cross currency swap(a) (4) (1)
Other interest paid - lease liabilities 10 (16) (16)
Borrowing facility fees paid (2) -
Interest received 9 1
Tax paid (3) (2)
Net cash from operating activities 248 238
Investing activities
Acquisition of 3Sixty Restaurants Limited 14 (17) -
Cash acquired on acquisition of 3Sixty Restaurants
Limited 14 5 -
Purchases of property, plant and equipment (154) (117)
Purchases of intangible assets (3) (5)
Proceeds from sale of property, plant and equipment 3 1
Finance lease principal repayments received 1 3
Net cash used in investing activities (165) (118)
Financing activities
Issue of ordinary share capital 13 - 1
Purchase of own shares - (2)
Repayment of principal in respect of securitised
debt(b) 10 (121) (115)
Principal receipts on currency swap(b) 10 21 20
Principal payments on currency swap(b) 10 (16) (15)
Cash payments for the principal portion of
lease liabilities 10 (53) (48)
Net cash used in financing activities (169) (159)
Net decrease in cash and cash equivalents (86) (39)
Cash and cash equivalents at the beginning
of the period 10 190 227
Foreign exchange movements (1) 2
Cash and cash equivalents at the end of the
period 10 103 190
========== =========
a. Interest paid is split to show gross payments on the interest
rate and cross currency swaps.
b. Principal repayments on securitised debt are split to show
repayments relating to the cross currency swap.
Notes to the consolidated financial statements
1. Preparation of preliminary consolidated financial
statements
General information
Mitchells & Butlers plc, along with its subsidiaries,
(together 'the Group') is required to prepare its consolidated
financial statements in accordance with UK-adopted International
Financial Reporting Standards (IFRSs) as and in accordance with the
Companies Act 2006. While the financial information included in
this release is based on the Group's consolidated financial
statements and has been prepared in accordance with the recognition
and measurement criteria of UK-adopted International Financial
Reporting Standards (IFRSs), this announcement does not itself
contain sufficient information to comply with IFRSs.
The preliminary financial statements include the results of
Mitchells & Butlers plc and all its subsidiaries for the 53
week period ended 30 September 2023. The comparative period is for
the 52 week period ended 24 September 2022. The respective balance
sheets have been drawn up as at 30 September 2023 and 24 September
2022.
The consolidated financial statements have been prepared on the
historical cost basis as modified by the revaluation of freehold
and long leasehold properties, pension obligations and financial
instruments.
The Group's accounting policies have been applied
consistently.
Going concern
The Directors have adopted the going concern basis in preparing
the Group and the Company financial statements after assessing the
impact of identified principal risks and their possible adverse
impact on financial performance, specifically revenue and cash
flows throughout the going concern period, being at least 12 months
from the date of signing of these financial statements.
The challenges presented to the hospitality sector of Covid-19,
Brexit and more recently high and persistent cost inflation (both
for the business and its customers) have resulted in reduced levels
of profits and operating cash flow since March 2020. These factors
cast a degree of uncertainty as to the future financial performance
and cash flows of the Group and have been considered by the
Directors in assessing the ability of the Group and the Company to
continue as a going concern.
The Group's primary source of borrowings is through ten tranches
of fully amortising loan notes with a gross debt value of GBP1.3bn
as at the end of the year. These are secured against the majority
of the Group's properties and its future income streams. The
principal repayment period varies by class of note with maturity
dates ranging from 2023 to 2036.
During the year the Group completed a refinancing of its
unsecured credit facility. The new facility of GBP200m is committed
and remains unsecured, with a negative pledge in favour of
participating banks, and has a maturity date in July 2026. At the
balance sheet date there were no drawings under this facility.
Within the secured debt financing structure there are two main
covenants: the level of net worth (being the net asset value of the
securitisation group) and, FCF to DSCR. As at 30 September 2023
there was substantial headroom on the net worth covenant. FCF to
DSCR represents the multiple of Free Cash Flow (being EBITDA less
tax and required capital maintenance expenditure) generated by
sites within the structure to the cost of debt service (being the
repayment of principal, net interest charges and associated fees).
This is tested quarterly on both a trailing two quarter and a four
quarter basis.
The unsecured facility also has two main financial covenants,
based on the performance of the unsecured estate: the ratio of
EBITDAR to rent plus interest (at a minimum of 1.25 times) and Net
debt to EBITDA (to be no more than 3.0 times), both tested on a
half-yearly basis (for the prior four quarters).
In the year ahead the main uncertainties facing the Group are
considered to be the maintenance of growth in sales in the face of
pressure on consumer spending power, and cost inflation. The
outlook for these is uncertain and will depend on a number of
factors including consumer confidence, global political
developments and supply chain disruptions and government
policy.
1. Preparation of preliminary consolidated financial statements
(continued)
Going concern (continued)
The Directors have reviewed the financing arrangements against a
base case forward trading forecast in which they have considered
the Group's current financial position. This forecast assumes mid
single digit growth in sales across the year, a rate slightly below
the level generated in recent months. Cost inflation is assumed to
abate from the historic high levels last year, with some deflation
in energy costs, blending at an expected net increase of
approximately three percent across the cost base of the business of
approximately GBP2bn. Under this base case the Group is able to
stay within securitisation and committed facility financial
covenants and maintains sufficient liquidity.
The Directors have also considered a severe but plausible
downside scenario covering adverse movements against the base
forward forecast in both sales and cost inflation in which some
mitigation activity is taken including lower capital expenditure on
site remodel activity and a flex down of labour and site costs in
line with reduced sales. In this scenario sales are assumed to
remain in growth but at an initial level of one percent, falling to
three percent, below the base case forecast. Unmitigated cost
inflation is also higher in the areas of food, labour and energy.
In this downside scenario the Group is again able to stay within
securitisation and committed facility financial covenants, whilst
maintaining sufficient liquidity.
Furthermore, the Directors have considered a reverse stress test
analysis, to review the headroom below which trading could fall
beyond the downside scenario before the earlier of financial
covenants becoming breached, or available liquidity becoming
insufficient. This analysis indicates that on consistent cost
assumptions, sales would be able to fall a further 3.3% (being
approximately one percent down on FY 2023) throughout the forecast
period before financial covenants were breached when tested at Q4
FY 2024 being the last full testing period within the 12 month
going concern assessment period. In this scenario the Group would
still have sufficient available liquidity.
After due consideration of these factors, the Directors
therefore believe that it remains appropriate to prepare the
financial statements of the Group and the Company on a going
concern basis.
Foreign currencies
The results of overseas operations have been translated into
sterling at the weighted average euro rate of exchange for the
period of GBP1 = EUR1.16 (2022 GBP1 = EUR1.18), where this is a
reasonable approximation to the rate at the dates of the
transactions. Euro and US dollar denominated assets and liabilities
have been translated at the relevant rate of exchange at the
balance sheet date of GBP1 = EUR1.15 (2022 GBP1 = EUR1.12) and GBP1
= $1.22 (2022 GBP1 = $1.09) respectively.
New and amended IFRS Standards that are effective for the
current period
The International Accounting Standards Board (IASB) and
International Financial Reporting Interpretations Committee (IFRIC)
have issued the following standards and interpretations which have
been adopted by the Group in these consolidated financial
statements for the first time with the following impact.
Accounting standard Effective date
------------------------- --------------------------------------------------
Amendments to IAS 37 The amendments specify which costs an entity
(Onerous Contracts - includes in determining the cost of fulfilling
cost of fulfilling a a contract for the purpose of assessing whether
contract) the contract is onerous. The amendments apply
for annual reporting periods beginning on or
after 1 January 2022.
The amendments have no impact on the contracts
of the Group that are identified as onerous,
as all costs associated with fulfilling the
lease contracts are allocated in the assessment
of whether a lease is onerous. As such there
is no change to the leases assessed as onerous,
or the resulting onerous lease provision.
International Tax Reform The amendments were endorsed on 19 July 2023,
- Pillar 2 model Rules and provide a temporary mandatory exception
- Amendments to IAS from deferred tax accounting for the top-up
12 tax, which is effective immediately, and require
new disclosures about the Pillar 2 exposure
from 31 December 2023. Further details are
provided in note 5.
------------------------- --------------------------------------------------
1. Preparation of preliminary consolidated financial statements
(continued)
New and amended IFRS Standards that are effective for the
current period (continued)
The following standards and interpretations have been adopted by
the Group in these consolidated financial statements for the first
time, with no impact.
Accounting standard Effective date
------------------------------- ---------------
Amendments to IFRS 1 January 2022
3 (Reference to the
Conceptual Framework)
------------------------------- ---------------
Amendments to IAS 16 1 January 2022
(PPE - proceeds before
intended use)
------------------------------- ---------------
Annual improvements 1 January 2022
to IFRS standards 2018-2020
cycle (Amendments to
IFRS 1 First-time Adoption
of International Financial
Reporting Standards,
IFRS 9 Financial Instruments,
IFRS 16 Leases, and
IAS 41 Agriculture)
------------------------------- ---------------
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of the consolidated financial statements
requires management to make judgements, estimates and assumptions
in the application of accounting policies that affect reported
amounts of assets, liabilities, income and expense.
Estimates and judgements are periodically evaluated and are
based on historical experience and other factors including
expectations of future events that are believed to be reasonable
under the circumstances. Actual results may differ from these
estimates.
Judgements and estimates for the period remain largely unchanged
from the prior period, with the selection of assumptions for
calculation of the defined benefit pension liability removed in the
current period due to the reduced sensitivity to the assumptions
following the main plan buy-in (see note 12).
Significant accounting estimates:
The significant accounting estimate with a significant risk of a
material change to the carrying value of assets and liabilities
within the next year in terms of IAS 1 Presentation of Financial
Statements, is:
-- Fair value of freehold and long leasehold properties - see note 7
Other areas of judgement are described in each section listed
below:
-- Determination of items that are separately disclosed - see note 3
-- Impairment review of short leasehold properties and right-of-use assets - see note 9
Other sources of estimation uncertainty are described in:
-- Impairment review of short leasehold properties and right-of-use assets - see note 9
2. Segmental analysis
Operating segments
IFRS 8 Operating Segments requires operating segments to be based
on the Group's internal reporting to its Chief Operating Decision
Maker (CODM). The CODM is regarded as the Chief Executive together
with other Board members. The Group trades in one business segment
(that of operating pubs and restaurants) and the Group's brands meet
the aggregation criteria set out in Paragraph 12 of IFRS 8. Economic
indicators assessed in determining that the aggregated operating
segments share similar economic characteristics include: expected
future financial performance; operating and competitive risks; and
return on invested capital. As such, the Group reports the business
as one reportable business segment.
The CODM uses EBITDA and operating profit before interest and separately
disclosed items as the key measures of the Group's results on an
aggregated basis.
Geographical segments
Substantially all of the Group's business is conducted in the United
Kingdom. In presenting information by geographical segment, segment
revenue and non-current assets are based on the geographical location
of customers and assets.
Geographical segments
UK Germany Total
-------------------------- -------------------------- ------------------------------
2023 2022 2023 2022 2023 2022
53 weeks 52 weeks 53 weeks 52 weeks 53 weeks 52 weeks
GBPm GBPm GBPm GBPm GBPm GBPm
---------- ---------- ---------- ---------- ---------- ----------
Revenue - sales
to third parties 2,387 2,117 116 91 2,503 2,208
Segment non-current
assets(a) 4,442 4,524 46 41 4,488 4,565
a. Includes balances relating to intangibles, property, plant and
equipment, right-of-use assets, investments in associates, finance
lease receivables and non-current other receivables.
3. Separately disclosed items
The items identified in the current period are as follows:
2023 2022
53 weeks 52 weeks
Notes GBPm GBPm
--------- ---------
Separately disclosed items
Gaming machine settlement a (1) -
Fair value adjustment to investment in 3Sixty b 5 -
Restaurants Limited
Settlement of pre-existing lease contracts c (3) -
on acquisition of 3Sixty Restaurants Limited
Costs associated with the acquisition of 3Sixty d (1) -
Restaurants Limited
--------- ---------
Total separately disclosed items recognised - -
within operating costs
Net profit arising on property disposals 3 1
Movement in the valuation of the property portfolio:
- Impairment charge arising from the revaluation
of freehold and long leasehold properties e (110) (86)
- Net impairment of short leasehold and unlicensed
properties f (6) (9)
- Net impairment of right-of-use assets g (14) (22)
- Net impairment of goodwill h (1) -
Net movement in the valuation of the property
portfolio (131) (117)
Total separately disclosed items before tax (128) (116)
Tax credit relating to above items 28 22
Total separately disclosed items after tax (100) (94)
========= =========
a. During the period GBP19m has been received from HMRC, relating
to VAT on gaming machine income for the period 2005 to 2012,
including interest. An estimate of GBP20m for the amount receivable
was recognised in the 52 weeks ended 25 September 2021 as
a separately disclosed item. As a result, the shortfall of
GBP1m has been recognised.
b. During the period, the Group acquired the remaining 60% of
share capital of 3Sixty Restaurants Limited, after having
a 40% interest since April 2018. As a result of this acquisition
achieved in stages, the Group has applied the principles of
IFRS 3 and remeasured the 40% interest to fair value at acquisition
(see note 14 for further details).
c. As a result of the acquisition of 3Sixty Restaurants Limited,
a loss has been recognised at acquisition for the settlement
of pre-existing lease contracts, due to the terms of the contracts
being below to market terms (see note 14).
d. Relates to integration costs, restructuring costs and legal
and professional fees incurred in the acquisition of 3Sixty
Restaurants Limited on 18 June 2023.
e. The impairment arising from the Group's revaluation of its
freehold and long leasehold pub estate comprises an impairment
charge, where the carrying values of the properties exceed
their recoverable amount, net of a revaluation surplus that
reverses past impairments. See note 7 for further details.
f. Impairment of short leasehold and unlicensed properties where
their carrying values exceed their recoverable amounts, net
of reversals of past impairments. See note 9 for further details.
g. Impairment of right-of-use assets where their carrying values
exceed their recoverable amounts, net of reversals of past
impairments. See note 9 for further details.
h. Impairment of goodwill where the carrying value exceeds the
recoverable amount. See note 9 for further details.
4. Government grants
Government grants are not recognised until there is reasonable
assurance that the Group will comply with the conditions attaching
to them and that the grants will be received.
Government grants are recognised in the income statement on a
systematic basis over the periods in which the Group recognises as
expenses the related operating costs for which the grants are
intended to compensate.
Apprenticeship incentives
The Group is entitled to claim GBP1,000 for each apprentice
employed, where they are aged 16 to 18, or under 25 and meet
certain other criteria. In prior periods, as part of its response
to the Covid-19 pandemic, the UK Government introduced a scheme to
enable an employer to receive up to an additional GBP3,000 per
apprentice, where the apprentice commenced employment between 1
August 2020 and 31 January 2022. The payment is phased with amounts
due in equal instalments at 90 days and 365 days after employment
commenced and is recognised on receipt of cash.
Local Authority grants
During the prior period, following the EU Court ruling on State
Aid aggregation, the Group recognised an additional GBP2m of
Covid-19 support, subject to the individual caps applicable in both
the UK and Germany. In addition, following the outbreak of the
Omicron variant of Covid-19 in the UK in November 2021, the
Government introduced some further grants to help support
businesses in the leisure and hospitality sectors. As a result, a
further GBP1m of grants were recognised.
German Government grants
In the prior period, following the impact of the Omicron
variant, grant claims were made for costs incurred during periods
of significantly lower sales under an extension of the Bridging Aid
scheme.
The impact of grants received on the income statement is as
follows:
Government grant scheme Income statement line 2023 2022
impact
53 weeks 52 weeks
GBPm GBPm
--------- ---------
Local Authority Grants
(UK and Germany) Revenue - other - 3
Grants for loss of profits
in Germany Revenue - other - 1
Apprenticeship incentives Revenue - other 1 1
Total Government grants
received 1 5
========= =========
VAT
In addition to the above grants, in the prior period, the Group
benefited from a reduction in the rate of VAT from 20% to 12.5%
applied for the six month period from 1 October 2021 until 31 March
2022. The estimated impact of this on food and drink revenue in the
current period is GBPnil (2022 GBP43m).
Business rates
The Group also benefitted from business rates relief in the
prior period. Across all sites within the UK, this is an estimated
saving of GBPnil (2022 GBP5m).
5. Taxation
Taxation - Group income statement
2023 2022
53 weeks 52 weeks
GBPm GBPm
--------- ---------
Current tax:
* Corporation tax (5) (3)
* Amounts over-provided in prior periods - 1
---- -----
Total current tax charge (5) (2)
---- ----
Deferred tax:
* Origination and reversal of temporary differences 11 3
* Effect of changes in UK tax rate 3 4
---
Total deferred tax credit 14 7
---
Total tax credit in the Group income statement 9 5
===
Further analysed as tax relating to:
Profit before separately disclosed items (19) (17)
Separately disclosed items 28 22
------------- -----
9 5
============= =====
The standard rate of corporation tax applied to the reported
(loss)/profit is 22.0% (2022 19.0%).
The tax credit (2022 credit) in the Group income statement for
the period is higher than (2022 lower) the standard rate of
corporation tax in the UK. The differences are reconciled
below:
2023 2022
53 weeks 52 weeks
GBPm GBPm
--------- ---------
(Loss)/profit before tax (13) 8
Taxation credit/(charge) at the UK standard rate
of corporation tax of 22.0% (2022 19.0%) 3 (1)
Expenses not deductible (1) (2)
Permanent benefits 5 4
Tax credit in respect of change in UK tax rate 3 4
Adjustment in respect of prior periods - 1
Effect of different tax rates of subsidiaries in
other jurisdictions (1) (1)
Total tax credit in the Group income statement 9 5
========= =========
Taxation for other jurisdictions is calculated at the rates
prevailing in those jurisdictions.
2023 2022
53 weeks 52 weeks
GBPm GBPm
--------- ---------
Deferred tax in the Group income statement:
Accelerated capital allowances (14) (12)
Retirement benefit obligations - (8)
Unrealised losses on revaluations 28 23
Tax losses - UK - (9)
Tax losses - Interest restriction - 13
Total deferred tax credit in the Group income statement 14 7
========= =========
5. Taxation (continued)
Taxation - other comprehensive income
2023 2022
53 weeks 52 weeks
GBPm GBPm
--------- ---------
Deferred tax:
Items that will not be reclassified subsequently
to profit or loss:
* Unrealised losses due to revaluations - revaluation
reserve 18 46
* Unrealised gains due to revaluations - retained
earnings (4) (5)
* Remeasurement of pension liability (9) (9)
--------- ---------
5 32
--------- ---------
Items that may be reclassified subsequently to profit
or loss:
* Cash flow hedges (5) (45)
Total tax charge recognised in other comprehensive
income - (13)
========= =========
2023 2022
53 weeks 52 weeks
GBPm GBPm
-------------- ---------
Tax relating to items recognised directly in equity
Deferred tax:
- Tax charge related to share-based payments - (1)
=============== =========
Factors which may affect future tax charges
The Finance Act 2021 increased the main rate of corporation tax
from 19% to 25% with effect from 1 April 2023. The effect of this
change has been reflected in the closing deferred tax balances at
24 September 2022 and 30 September 2023.
The Group is within the Pillar Two income tax legislation, which
is effective for financial periods beginning on or after 31
December 2023. The Group is currently assessing the impact of the
legislation on its future financial performance and although it
does not anticipate that the legislation will have a material
impact on the Group's results, this cannot be confirmed until the
assessment has been completed.
6. Earnings/(loss) per share
Basic earnings per share (EPS) has been calculated by dividing
the profit for the period by the weighted average number of
ordinary shares in issue during the period, excluding own shares
held by employee share trusts.
For diluted earnings per share, the weighted average number of
ordinary shares is adjusted to assume conversion of all dilutive
potential ordinary shares.
Adjusted earnings per ordinary share amounts are presented
before separately disclosed items (see note 3) in order to allow an
understanding of the adjusted trading performance of the Group.
The profits used for the earnings per share calculations are as
follows:
2023 2022
53 weeks 52 weeks
GBPm GBPm
--------- ---------
(Loss)/profit for the period (4) 13
Separately disclosed items, net of tax 100 94
--------- ---------
Adjusted profit for the period(a) 96 107
========= =========
a. Adjusted profit and adjusted EPS are alternative performance
measures (APMs) and are considered critical to aid understanding of
the Group's performance. These measures are explained later in this
announcement.
6. Earnings/(loss) per share (continued)
The number of shares used for the earnings per share
calculations are as follows:
2023 2022
53 weeks 52 weeks
million million
--------- ---------
Basic weighted average number of ordinary shares 595 595
Effect of dilutive potential ordinary shares:
- Contingently issuable shares - 1
Diluted weighted average number of shares 595 596
--------- ---------
2023 2022
53 weeks 52 weeks
Pence pence
--------- ---------
Basic earnings/(loss) per share
Basic (loss)/earnings per share (0.7p) 2.2p
Separately disclosed items net of tax per share 16.8p 15.8p
--------- ---------
Adjusted basic earnings per share(a) 16.1p 18.0p
========= =========
Diluted earnings/(loss) per share
Diluted earnings per share (0.7) p 2.2 p
Adjusted diluted earnings per share(a) 16.1 p 18.0 p
========= =========
a. Adjusted earnings and adjusted EPS are alternative
performance measures (APMs) and are considered critical to aid
understanding of the Group's performance. These measures are
explained later in this announcement.
At 30 September 2023, 7,323,559 (2022 4,839,607) other share
options were outstanding that could potentially dilute basic EPS in
the future but were not included in the calculation of diluted EPS
as they are anti-dilutive for the periods presented.
7. Property, plant and equipment
Accounting policies
Property, plant and equipment
The majority of the Group's freehold and long leasehold licensed
land and buildings, and the associated landlord's fixtures,
fittings and equipment (i.e. fixed fittings) are revalued annually
and are therefore held at fair value less depreciation. Tenant's
fixtures and fittings (i.e. loose fixtures) within freehold and
long leasehold properties, are held at cost less depreciation and
impairment.
Short leasehold buildings (leases with an unexpired lease term
of less than 50 years), unlicensed land and buildings and
associated fixtures, fittings and equipment are held at cost less
depreciation and impairment.
Revaluation
The revaluation, performed at 30 September 2023, is determined
via annual third-party inspection of 20% of the sites with the aim
that all sites are individually valued approximately every five
years. The valuation utilises estimates of fair maintainable trade
and valuation multiples, with fair maintainable trade comprising
estimates of both fair maintainable turnover (FMT) and fair
maintainable operating profit (FMOP), and estimated fair value of
tenant's fixtures and fittings. The revaluation determined by the
annual inspection was carried out in accordance with the RICS
Valuation - Global Standards 2022 which incorporate the
International Valuation Standards and the RICS Valuation -
Professional Standards UK (the 'Red Book') assuming each asset is
sold as a fully operational trading entity.
7. Property, plant and equipment (continued)
Accounting policies (continued)
Revaluation (continued)
Properties are valued as fully operational entities, to include
fixtures and fittings but excluding stock, personal goodwill and
estimated fair value of tenant's fixtures and fittings.
The 80% of the freehold and long leasehold estate which is not
subject to a third-party valuation in the period is instead
revalued internally by management. The Group's external valuer
provides advice to management in relation to their internal
valuation. This valuation is performed using the same principles
applied in determining FMT and FMOP for the externally valued
estate together with using the same multiples as those applied by
the external valuer. Sites impacted by expansionary capital
investment in the preceding twelve months are reviewed for
impairment only, based on estimated annualised post investment fair
maintainable trade against the carrying value of the asset. Where
the value of land and buildings derived purely from a multiple
applied to the fair maintainable trade misrepresents the underlying
asset value, a spot valuation is applied.
Surpluses which arise from the revaluation exercise are included
within other comprehensive income (in the revaluation reserve)
unless they are reversing a revaluation deficit which has been
recognised in the income statement previously; in which case an
amount equal to a maximum of that recognised in the income
statement previously is recognised in the income statement. Where
the revaluation exercise gives rise to a deficit, this is reflected
directly within the income statement, unless it is reversing a
previous revaluation surplus against the same asset; in which case
an amount equal to the maximum of the revaluation surplus is
recognised within other comprehensive income (in the revaluation
reserve).
Impairment
Short leaseholds, unlicensed properties and fixtures and
fittings are reviewed on an outlet basis for impairment if events
or changes in circumstances indicate that the carrying amount may
not be recoverable. Further details of the impairment policy are
provided in the impairment note 9.
Property, plant and equipment can be analysed as follows:
2023 2022
GBPm GBPm
------ ------
At beginning of period 4,194 4,442
Acquired through business combinations (note 29 -
14)
Additions 151 130
Net decrease from property revaluation (186) (273)
Impairment of short leasehold properties (6) (9)
Disposals (3) (4)
Depreciation provided during the period (93) (93)
Exchange differences - 1
At end of period 4,086 4,194
====== ======
7. Property, plant and equipment (continued)
Revaluation and impairment recognised
Current period valuations have been incorporated into the
consolidated financial statements and the resulting revaluation
adjustments have been taken to the revaluation reserve or Group
income statement as appropriate.
The impact of the revaluations/impairments described above is as
follows:
2023 2022
53 weeks 52 weeks
GBPm GBPm
------------------ ----------------
Group income statement
Revaluation deficit charged as an impairment (162) (115)
Reversal of past revaluation deficits 52 29
------------------ ----------------
Total impairment charge arising from the revaluation (110) (86)
Impairment of short leasehold and unlicensed
properties (note 9) (11) (9)
Reversal of past impairments of short leasehold 5 -
and unlicensed properties (note 9)
Net impairment of short leaseholds and unlicensed
properties (6) (9)
Total impairment charge recognised in the income
statement (116) (95)
------------------ ----------------
Group statement of other comprehensive income
Unrealised revaluation surplus 162 60
Reversal of past revaluation surplus (238) (247)
------------------ ----------------
Total movement recognised in other comprehensive
income (76) (187)
Net decrease in property, plant and equipment (192) (282)
================== ================
Accounting judgements
Revaluation of freehold and long leasehold properties
The revaluation methodology is determined, with advice from
CBRE, independent chartered surveyors and incorporates management
judgement where appropriate. The application of a valuation
multiple to the fair maintainable trade of each site is considered
the most appropriate method for the Group to determine the fair
value of freehold and long leasehold licensed land and
buildings.
In the current and prior period judgement has been applied to
establish the basis of fair maintainable trade that a willing
third-party buyer would assume. The estimation of fair maintainable
trade is derived from the individual profit and loss accounts of
pubs and restaurants and is inclusive of the trading margins earned
by the Group but exclusive of any head office costs. This
represents the Group's best view of the value that would be
attributed by other reasonably efficient operators. In the current
period the prevailing reported profits have been negatively
impacted by high and sustained cost inflation, notably in food and
energy price increases driven by the Ukraine conflict. In the
current period, turnover (FMT) has been determined using recent
site performance however the inflationary pressures are not
expected to fully impact onsite valuations and as such, FMOP has
been determined to include an adjustment to current margins. In the
prior period ending 24 September 2022 judgement was made to adjust
both turnover and margin for the impact of the Omicron variant of
Covid-19 in November 2021 and the recovery in trade thereafter, and
high cost inflation on margin.
Where sites have been impacted by expansionary capital
investment in the preceding twelve months, the fair maintainable
trade has been determined by estimating both FMT and FMOP by
reference to post-investment forecasts and turnover trends post
opening.
For the purposes of the valuation, and in order to group
together properties of a similar nature, groupings by brand are
applied for which standard multiples have been established through
third-party inspections of 20% of the freehold and long leasehold
licensed property estate. Judgements are applied in assessing
multiples on the basis of market evidence of transaction prices and
nature of the overall offer within the local market, with specific
consideration given to geographical location, ancillary revenue
such as accommodation sales from bedrooms and lease terms for long
leasehold sites.
7. Property, plant and equipment (continued)
Accounting judgements (continued)
Revaluation of freehold and long leasehold properties
(continued)
Further judgement is required when a spot valuation is applied
where the property value derived purely from a multiple applied to
the fair maintainable trade misrepresents the underlying asset
value with consideration given to the level of trade and location
characteristics.
Significant accounting estimates
Revaluation of freehold and long leasehold properties
The application of the valuation methodology requires two
significant estimates; the estimation of valuation multiples, which
are determined via third-party inspections; and an estimate of fair
maintainable trade, consisting of estimates of both fair
maintainable turnover (FMT) and fair maintainable operating profit
(FMOP).
Adjustments have been made to pub and restaurant trading margins
to reflect the margin impacts of recent cost inflation which are
expected to persist into the level of FMOP used by third-party,
reasonably efficient operators in arriving at a transaction price.
The impact of inflation across drink and food, labour, energy and
other pub operating costs in the current period compared to pre
Covid has been assessed and adjusted individually. In aggregate
approximately 2.5% of the total margin reduction reported in the
current period against pre Covid trade is expected to recover in
the short to medium term and has been included in estimated fair
maintainable trade.
The estimation of valuation multiples is derived from the
valuers knowledge of market evidence of transaction prices for
similar properties. In the current period the multiples adopted
reflect a slight easing of demand for freehold property caused by
the lower profit margins in the sector.
There is considered to be a significant risk that an adjustment
to either of these assumptions could lead to a material change in
the property valuation within the next year.
The carrying value of properties to which these estimates apply
is GBP3,933m (2022 GBP4,036m).
Sensitivity analysis
Changes in the fair maintainable trade, or the multiple could
materially impact the valuation of the freehold and long leasehold
properties, and as such they are both considered to be significant
estimates in the current period.
Fair maintainable trade
In the current period, fair maintainable trade has declined by
4% as a result of changes in trade and the impact of the FMOP
margin adjustment excluding the sites with investment in the
current period which are only assessed for impairment. Judgement
has been applied to determine the adjusted FMOP by assessing the
extent that current levels of inflation are considered to be
impacting on freehold licensed property values. As a result, the
valuation is sensitive to the view taken on the duration of the
impact of high inflation on fair maintainable trade. Should the
FMOP margins fall to the levels reported through the reporting
period the fair maintainable trade used as the basis in property
valuations may decline by a further 6%. Assuming multiples remain
stable, and without applying any further judgement on the resulting
property valuation, this would generate an approximate GBP188m
reduction in the valuation.
Multiples
Valuation multiples are determined at an individual brand level.
Over the last three financial periods, the weighted average brand
multiple has moved by an average of 0.2, which is considered to be
within the range of reasonably possible outcomes for future
movements in multiples. It is estimated that a 0.2 change in the
multiple would generate an approximate GBP78m movement in
valuation.
Impairment review
Short leasehold and unlicensed properties (comprising land,
buildings, fixtures, fittings and equipment) which are not revalued
to fair market value, are reviewed for impairment as described in
the impairment note 9. A net impairment of GBP6m (2022 GBP9m) has
been recognised against short leasehold and unlicensed properties
in the period.
8. Leases
Right - of - use assets
Right-of-use assets can be analysed as follows:
2023 2022
GBPm GBPm
----- -----
At beginning of period 339 379
Acquired through business combinations (note 6 -
14)
Additions 36 26
Impairment (14) (22)
Disposals (2) (9)
Depreciation provided during the period (36) (36)
Foreign currency movements (2) 1
At end of period 327 339
===== =====
Impairment review of right-of-use assets
Right-of-use assets are reviewed for impairment by comparing
site recoverable amounts to their carrying values. Impairment is
considered at a cash-generating unit level. A net impairment of
GBP14m (2022 GBP22m) has been recognised against right-of-use
assets in the period. Details of the impairment review at a
cash-generating unit level are disclosed in note 9.
Lease liabilities
2023 2022
GBPm GBPm
----- -----
Analysed as:
Current lease liabilities - principal amounts
due within twelve months 33 53
Non-current lease liabilities - principal amounts
due after twelve months 430 428
----- -----
463 481
===== =====
9. Impairment
Accounting policies
Impairment - Property, plant and equipment, right-of-use assets
and goodwill
Impairment reviews are considered at a cash-generating unit
level, with this being an individual outlet.
The carrying value of assets for an individual outlet, comprise
the property, plant and equipment value, the associated
right-of-use asset and any attributable goodwill. At each balance
sheet date, the Group assesses whether there is any indication that
the carrying value of assets for individual outlets may be
impaired. If any such impairment indicator exists then an
impairment loss is recognised whenever the carrying value of the
outlet exceeds its recoverable amount, which is determined as the
higher of the value in use, or fair value less costs to sell for
each outlet. Any resulting impairment relates to sites with poor
trading performance, where the output of the value in use
calculations are insufficient to justify their current net book
value. Changes in outlet earnings or cash flows, the discount rate
applied to those cash flows, or the estimate of fair value less
costs of disposal could give rise to an additional impairment
loss.
Where an impairment loss subsequently reverses, the carrying
amount of the asset is increased to the revised estimate of its
recoverable amount, but only so that the increased carrying amount
does not exceed the carrying amount that would have been determined
had no impairment loss been recognised for the asset in prior
periods. A reversal of an impairment loss is recognised in the
income statement. An impairment reversal is only recognised where
there is a change in circumstances or favourable events since the
last impairment test impacting estimates used to determine
recoverable amounts, not where it results from the passage of
time.
In addition to the cash-generating unit level impairment review
performed for individual outlets, the overall Group's
cash-generating units are grouped together to ensure that the
corporate level assets are also considered for impairment.
9. Impairment (continued)
Accounting judgements
Impairment review of cash-generating units - p roperty, plant
and equipment, right-of-use assets and goodwill
For the individual outlet level impairment review, judgement has
been applied to determine the most appropriate site level profit
and cash flow forecasts based on the Group forecast for FY 2024 to
FY 2026 that was in place at the balance sheet date.
Management apply judgement when allocating overhead costs to
site cash flows, with an overhead allocation being made only for
those costs that can be directly attributable to a site on a
consistent basis.
Other sources of estimation uncertainty
Impairment review of cash-generating units - p roperty, plant
and equipment, right-of-use assets and goodwill
The impairment review requires two key sources of estimation
uncertainty in calculating the value in use: the estimation of
forecast cash flows for each site and the selection of an
appropriate discount rate. The discount rate is applied
consistently to each cash-generating unit.
The carrying value of assets to which these estimates apply is
GBP442m (2022 GBP458m).
Impairment review of cash-generating units, comprising property,
plant and equipment, right-of-use assets and goodwill
Recoverable amount is determined as the higher of the value in
use, or fair value less costs to sell for each outlet.
Value in use calculations use forecast trading performance
pre-tax cash flows, for years 1 to 3. These include steady growth
in revenue and a gradual recovery in operating margins as annual
cost inflation eases, albeit that costs remain ahead of historical
levels. In the short to medium term, over the three year forecast
period, no allowances have been made for any potential impact
activity related to climate change, as the impacts of this on
future cash flows or capital expenditure cannot yet be reasonably
estimated or allocated to cash-generating units.
The forecast cash flows are discounted by applying a pre-tax
discount rate of 11.00% (2022 9.65%) and a long-term growth rate of
2.0% from year 4 (2022 2.0%). The long-term growth rate is applied
to the net cash flows and is based on up-to-date economic data
points.
In summary, the carrying value of the cash-generating units and
impairment charges and reversals recognised against those
cash-generating units is as follows.
Carrying Impairment Impairment Net impairment
value charges reversals
Note 2023 2023 2023 2023
GBPm GBPm GBPm GBPm
--------- ----------- ----------- ---------------
Short leasehold
properties 7 113 (11) 5 (6)
Right-of-use
assets 8 327 (27) 13 (14)
Goodwill 2 (1) - (1)
442 (39) 18 (21)
========= =========== =========== ===============
Carrying Impairment Impairment Net impairment
value charges reversals
Note 2022 2022 2022 2022
GBPm GBPm GBPm GBPm
--------- ----------- ----------- ---------------
Short leasehold
properties 7 117 (9) - (9)
Right-of-use
assets 8 339 (22) - (22)
Goodwill 2 - - -
458 (31) - (31)
========= =========== =========== ===============
9. Impairment (continued)
Impairment review of corporate level assets
In addition to the cash-generating unit level impairment review
performed, the overall Group's cash-generating units have been
grouped together to ensure that the corporate level assets are also
considered for impairment. The assumptions are consistent with
those described above for the value in use calculations performed
at an individual outlet level, whilst also including unallocated
central overheads. As a result of this review, no impairment of
corporate assets has been recognised in the current period (2022
GBPnil) and the Directors consider that it is not a reasonable
expectation that a material impairment could occur in FY 2024 (2022
same expectation for FY 2023).
Sensitivity analysis
Changes in forecast cash flows or the discount rate could impact
the impairment charge recognised against the cash-generating units,
and corporate level assets.
Forecast cash flows
The forecast pre-tax cash flows used in the value in use
calculations are site level forecasts determined from the Group
forecast for FY 2024 to FY 2026 that was in place at the balance
sheet date. Should future cash flows decline by 5%, this would
result in an increase of GBP8m to the net impairment charge
recognised.
Discount rate
The pre-tax discount rate applied to the forecast cash flows is
derived from the Group's post-tax weighted average cost of capital
(WACC). The assumptions used in the calculation of the Group's WACC
are benchmarked to externally available data. A single discount
rate is applied to all cash-generating units. Over recent periods,
the discount rate used in impairment reviews has moved by c.1.0%.
An increase of 1.0% in the discount rate would result in an
increase of GBP5m to the net impairment charge recognised.
10. Borrowings and net debt
Borrowings can be analysed as follows:
2023 2022
GBPm GBPm
------ ------
Current
Securitised debt(a) 123 113
Unsecured revolving credit facilities(b) (2) -
Overdrafts(c) 23 17
Total current 144 130
Non-current
Securitised debt(a) 1,186 1,334
Total borrowings 1,330 1,464
====== ======
a. Stated net of deferred issue costs.
b. At 30 September 2023 the amount of GBP2m (2022 GBPnil) represents
unamortised issue costs.
c. The overdraft is within a cash pooling arrangement. In the cash
flow statement, cash and cash equivalents are presented net of
this overdraft.
2023 2022
GBPm GBPm
------------------------------------------------------------------ ------
Analysis by year of repayment
Due within one year or on demand 144 130
Due between one and two years 164 182
Due between two and five years 435 412
Due after five years 587 740
------------------------------------------------------------------ ------
Total borrowings 1,330 1,464
================================================================== ======
10. Borrowings and net debt (continued)
Securitisation
The securitisation is governed by various covenants, warranties
and events of default, many of which apply to Mitchells &
Butlers Retail Limited, the Group's main operating subsidiary.
There are two main financial covenants, being the level of net
assets and free cash flow (FCF) to debt service. FCF to debt
service represents the multiple of cash generated by sites within
the structure to the cost of debt service. This is tested quarterly
on both a trailing two quarter and a four quarter basis. There are
additional covenants regarding the maintenance and disposal of
securitised properties and restrictions on its ability to move
cash, by way of dividends for example, to other Group companies .
Further details of the covenants are provided in the going concern
review in note 1.
Unsecured revolving credit facilities
In the prior period, the Group held a single unsecured committed
revolving credit facility of GBP150m. During the period, the
unsecured committed revolving credit facility of GBP150m was
cancelled and replaced by a new unsecured committed revolving
credit facility of GBP200m, which expires on 20 July 2026. The
amount drawn at 30 September 2023 is GBPnil (2022 GBPnil).
There are covenants on the unsecured revolving credit facilities
relating to the ratio of EBITDAR to rent plus interest and net debt
to EBITDA based on the performance of the unsecured estate. Further
details of the covenants are provided in the going concern review
in note 1.
2023 2022
Net debt GBPm GBPm
--------------------------------- --------------------------------
Cash and cash equivalents 126 207
Overdraft (23) (17)
--------------------------------- --------------------------------
Cash and cash equivalents as
presented in
the cash flow statement(a) 103 190
Securitised debt (1,309) (1,447)
Unsecured revolving credit facility 2 -
Derivatives hedging securitised
debt(b) 34 59
Net debt excluding leases (1,170) (1,198)
Lease liabilities (463) (481)
Net debt including leases (1,633) (1,679)
================================= ================================
a. Cash and cash equivalents, in the cash flow statement, are
presented net of an overdraft within a cash pooling arrangement
relating to various entities across the Group.
b. Represents the element of the fair value of currency swaps
hedging the balance sheet value of the Group's US$ denominated
A3N loan notes. This amount is disclosed separately to remove
the impact of exchange movements which are included in the
securitised debt amount.
10. Borrowings and net debt (continued)
2023 2022
53 weeks 52 weeks
Movement in net debt excluding leases GBPm GBPm
----------------- -----------------
Net decrease in cash and cash equivalents (86) (39)
Add back cash flows in respect of other components
of net debt:
Principal repayments on securitised debt 121 115
Principal receipts on cross currency swap (21) (20)
Principal payments on cross currency swap 16 15
Decrease in net debt arising from cash flows 30 71
Movement in capitalised debt issue costs net of
accrued interest (1) (1)
Decrease in net debt excluding leases 29 70
Opening net debt excluding leases (1,198) (1,270)
Foreign exchange movements on cash (1) 2
Closing net debt excluding leases (1,170) (1,198)
================= =================
Movement in lease liabilities:
2023 2022
53 weeks 52 weeks
GBPm GBPm
---------- ----------
Opening lease liabilities (481) (513)
Acquired through business combinations (note (5) -
14)
Additions(a) (35) (25)
Interest charged during the period (16) (16)
Repayment of principal 53 48
Payment of interest 16 16
Disposals 4 11
Foreign currency movements 1 (2)
---------- ----------
Closing lease liabilities (463) (481)
========== ==========
a. Additions to lease liabilities include new leases and lease
extensions or rent reviews relating to existing leases.
11. Finance costs and income
2023 2022
53 weeks 52 weeks
GBPm GBPm
--------------- -----------------
Finance costs
Interest on securitised debt (89) (94)
Interest on other borrowings (11) (5)
Interest on lease liabilities (16) (16)
Total finance costs (116) (115)
=============== =================
Finance income
Interest receivable - cash 8 1
=============== =================
Net pensions finance charge (note 12) (3) (2)
=============== =================
12. Pensions
Measurement of scheme assets and liabilities
MABPP - buy-in policy transaction
During the current period, the Trustees of the MABPP entered a
Bulk Purchase Agreement (BPA) with Standard Life. The resulting
policies have been set up to provide the plan with sufficient
funding to cover the majority of known member benefits of the
scheme, leaving c. GBP27m of uninsured benefits which the Trustees
will meet using the remaining Plan assets..
The difference between the buy-in purchase price and the defined
benefit obligation covered by the policies has been accounted for
in other comprehensive income. The accounting treatment has been
based on the following considerations made by the Company:
-- the employer is not relieved of primary responsibility for
the obligation. The policy simply covers the benefit payments that
continue to be payable by the scheme;
-- the contract is effectively an investment of the scheme; and
-- the contract provides the option to convert the annuity into
individual policies, which would transfer the obligation to the
insurer (known as a "buy-out"). Whilst this course of action may be
considered in future, this is not a requirement and a separate
decision will be required before any buy-out proceeds. The Company
has not yet made a decision to move to buy-out.
MABEPP - buy-in policy transaction
During the prior period, the Trustees of the MABEPP entered a
Bulk Purchase Agreement (BPA) with Legal and
General Assurance Society Limited. The resulting policy was set
up to provide the plan with sufficient funding
to cover all known member benefits of the scheme.
The difference between the buy-in purchase price and the defined
benefit obligation covered by the policy was accounted for in other
comprehensive income. The accounting treatment was based on the
following considerations made by the Company:
-- the employer is not relieved of primary responsibility for
the obligation. The policy simply covers the benefit payments that
continue to be payable by the scheme;
-- the contract is effectively an investment of the scheme; and
-- the contract provides the option to convert the annuity into
individual policies, which would transfer the obligation to the
insurer (known as a "buy-out"). Whilst this course of action may be
considered in future, this is not a requirement and a separate
decision will be required before any buy-out proceeds. T he Company
had not made a decision, and has still not made a decision, to move
to buy-out.
Actuarial valuation
The actuarial valuations used for IAS 19 (revised) purposes are
based on the results of the latest full actuarial valuation carried
out as at 31 March 2022, which completed in December 2022, and
updated by the schemes' independent qualified actuaries to 30
September 2023. Schemes' assets are stated at market value at 30
September 2023 and the liabilities of the schemes have been
assessed as at the same date using the projected unit method. IAS
19 (revised) requires that the schemes' liabilities are discounted
using market yields at the end of the period on high-quality
corporate bonds.
The principal financial assumptions have been updated to reflect
changes in market conditions in the period and are as follows:
Main plan Executive Main plan Executive
plan plan
2023 2023 2022 2022
Discount rate 5.7% 5.7% 5.3% 5.3%
Pensions increases -
RPI max 5% 3.1% 3.1% 3.2% 3.2%
Inflation rate - RPI 3.3% 3.3% 3.5% 3.5%
The discount rate is based on a yield curve for AA corporate
rated bonds which are consistent with the currency and estimated
term of retirement benefit liabilities. To determine the RPI
assumption the gilt implied inflation yield curve has been used,
reflecting the duration of the Plan's cash flows, and adjusting for
an assumed inflation risk premium.
12. Pensions (continued)
Minimum funding requirements
The results of the 2022 actuarial valuation, which was completed
in December 2022, show a marginal surplus. As a result of the 2022
actuarial valuation, the Company subsequently agreed a revised
schedule of contributions for both the MABPP and MABEPP
schemes.
For the MABEPP, the agreement confirms that from December 2022,
payments into the "Blocked Account" that commenced after completion
of the buy-in transaction in the prior period have been
suspended.
For the MABPP, there was no change to the remaining
contributions due, which have been paid in full during the current
period. However, all contributions since December 2022 have been
made into a new "Blocked Account". As the scheme is in surplus,
these payments are no longer considered a minimum funding
requirement and therefore are not recognised as plan assets.
As a result, the Blocked Accounts for MABEPP and MABPP are
recognised within non-current other receivables as recovery of
these amounts is expected. The amount recognised as at 30 September
2023 is GBP47m (2022 is GBP9m).
In addition, under IFRIC 14, an additional liability is
recognised to offset the actuarial surplus, due to the asset
ceiling, as the Company does not have an unconditional right to a
refund of the surplus.
As a result of the above changes, the resulting net pension
liability as at 30 September 2023 of GBP22m relates solely to the
MABETUS plan, with a total of GBP47m in "Blocked" accounts across
the MABPP and MABEPP schemes, recognised in non-current other
receivables.
Amounts recognised in respect of defined benefit schemes
The following amounts relating to the Group's defined benefit
and defined contribution arrangements have been recognised in the
Group income statement and Group statement of comprehensive
income.
2023 2022
53 weeks 52 weeks
Group income statement GBPm GBPm
--------- ---------
Operating profit:
Employer contributions (defined contribution plans) (17) (16)
Administrative costs (defined benefit plans) (5) (4)
Charge to operating profit (22) (20)
Finance costs:
Net pensions finance income on actuarial surplus 14 8
Additional pensions finance charge due to asset
ceiling/minimum funding (17) (10)
--------- ---------
Net finance charge in respect of pensions (3) (2)
Total charge (25) (22)
========= =========
2023 2022
53 weeks 52 weeks
Group statement of comprehensive income GBPm GBPm
--------- ---------
Return on scheme assets and effects of changes in
assumptions (153) (161)
Movement in pension liabilities recognised due to
asset ceiling/minimum funding 195 202
--------- ---------
Remeasurement of pension liabilities 42 41
========= =========
12. Pensions (continued)
2023 2022
Group balance sheet GBPm GBPm
------- --------
Fair value of schemes' assets 1,434 1,699
Present value of schemes' liabilities (1,313) (1,442)
------- --------
Actuarial surplus in the schemes 121 257
Additional liabilities recognised due to asset ceiling/minimum
funding (143) (321)
------- --------
Total pension liabilities(a) (22) (64)
======= ========
Associated deferred tax asset 5 14
======= ========
The total pension liabilities of GBP22m (2022 GBP64m) is
presented as a GBP1m current liability (2022 GBP42m) and a GBP21m
non-current liability (2022 GBP22m).
The movement in the actuarial surplus in the period is as
follows:
2023 2022
GBPm GBPm
------ ------
Actuarial surplus at beginning of period 257 370
Interest income 14 8
Return on scheme assets and effects of changes in
assumptions (153) (161)
Additional employer contributions 8 44
Administration costs (5) (4)
------
At end of period 121 257
====== ======
13. Share capital and share premium
2023 2022
Called up share capital Number of GBPm Number of GBPm
shares shares
------------ ----- ------------ -----
Allotted, called up and
fully paid
Ordinary shares of 8(13/)
(24) p each
At start of period 597,383,363 51 596,618,849 51
Share capital issued(a) 343,496 - 764,514 -
At end of period 597,726,859 51 597,383,363 51
a. During the period, the Company issued 343,496 (2022 764,514)
shares at nominal value under share option schemes, for
consideration of GBP29,340 (2022 GBP65,302).
All of the ordinary shares rank equally with respect to voting
rights and rights to receive Ordinary and Special Dividends. There
are no restrictions on the rights to transfer shares.
Dividends
There were no dividends declared or paid during the current
period.
Share premium account
The share premium account represents amounts received in excess
of the nominal value of shares on issue of new shares. Share
premium of GBPnil (2022 GBP1m) has been recognised on shares issued
in the period.
14. Acquisitions
In August 2018, the Group acquired 40% of the share capital of
3Sixty Restaurants Limited for GBP4m, together with a put and call
option that would enable the Group to purchase the remaining 60%
share capital at a future date. On 18 April 2023, the Group
exercised the call option, resulting in the acquisition of the
remaining 60% of share capital of 3Sixty Restaurants Limited, for
GBP17m, with the purchase completing on 18 June 2023. The date of
the option exercise, 18 April 2023, is considered to be the date at
which control passed to the Group, and therefore consolidation has
taken place from that date.
At acquisition, the carrying value of the investment in 3Sixty
Restaurants Limited of GBP7m was revised to fair value of GBP12m,
with a gain of GBP5m recognised as a separately disclosed item
within the income statement (see note 3).
In addition, the pre-existing property leases that existed
between the Group and 3Sixty Restaurants Limited have been treated
as settled at the acquisition date, with a resulting GBP3m loss
recognised as a separately disclosed item within the income
statement (see note 3).
The amounts recognised in respect of identifiable assets and
liabilities relating to the acquisition were as follows.
Fair value
on acquisition
GBPm
----------------
Land and buildings 26
Fixtures, fittings and equipment 3
Right-of-use assets 6
Brand intangible 5
Cash and cash equivalents 5
Trade and other receivables 1
Trade and other payables (8)
Lease liabilities (5)
Deferred tax liability (8)
Net identifiable assets of 3Sixty Restaurants Limited 25
Goodwill 1
Fair value of assets and liabilities 26
================
Consideration:
Cash consideration for purchase of the remaining 60%
interest 17
Less: cash and cash equivalents acquired (5)
----------------
Net cash outflow on acquisition 12
Plus: Fair value of the existing 40% interest at acquisition 12
Less: settlement of pre-existing contracts (3)
Net consideration 21
================
Goodwill of GBP1m has arisen on the acquisition of 3Sixty
Restaurants Limited primarily through the benefits that will be
gained from cost synergies that will be obtained on joining the
Group and future conversions of other Group outlets.
The brand intangible has been fair valued by reference to an
estimated royalty income based on forecast cash flows for 3Sixty
Restaurants Limited over the expected useful life of 20 years.
Acquisition costs, relating to restructuring costs, integration
and legal and professional fees, amounted to GBP1m and have been
charged to the income statement and recognised within separately
disclosed items during the period (see note 3).
3Sixty Restaurants Limited has contributed GBP18m to revenue and
GBP1m to the Group's operating profit for the period between
acquisition date and the balance sheet date. If 3Sixty Restaurants
Limited had been included as a subsidiary since the start of the
financial period, it would have contributed GBP45m revenue and
GBP3m to the Group's operating profit.
15. Financial statements
The preliminary statement of results was approved by the Board
of Directors on 29 November 2023. It does not constitute the
Group's statutory consolidated financial statements for the 53
weeks ended 30 September 2023 or for the 52 weeks ended 24
September 2022. The financial information is derived from the
statutory consolidated financial statements of the Group for the 53
weeks ended 30 September 2023.
Statutory accounts for 2022 have been delivered to the Registrar
of Companies and those for 2023 will be delivered following the
Company's Annual General Meeting.
The financial information for the 52 weeks ended 24 September
2022 is derived from the statutory accounts for that year which
have been delivered to the Registrar of Companies. The auditors
reported on those accounts: their report was unqualified and did
not contain a statement under s498(2) or (3) of the Companies Act
2006, but did include a section highlighting a material uncertainty
that may cast significant doubt on the Group and Company's ability
to continue as a going concern.
The statutory financial statements for the 53 weeks ended 30
September 2023 will be filed with the Registrar of Companies
following the 2023 Annual General Meeting. The report of the
auditor was unqualified and did not contain a statement under
s498(2) or (3) of the Companies Act 2006. Further detail is
provided with the Outlook assessment and notes to these preliminary
statement of results.
Alternative Performance Measures
The performance of the Group is assessed using a number of
Alternative Performance Measures (APMs).
The Group's results are presented both before and after
separately disclosed items. Adjusted profit measures are presented
excluding separately disclosed items as we believe this provides
both management and investors with useful additional information
about the Group's performance and supports an effective comparison
of the Group's trading performance from one period to the next.
Adjusted profit measures are reconciled to unadjusted IFRS results
on the face of the income statement with details of separately
disclosed items provided in note 3.
The Group's results are also described using other measures that
are not defined under IFRS and are therefore considered to be APMs.
These APMs are used by management to monitor business performance
against both shorter term budgets and forecasts but also against
the Group's longer-term strategic plans.
As FY 2023 is a 53-week period, in order to aid comparability
with prior years we have provided a 52-week result. The 52-week
result is derived by removing the 53(rd) week of the financial
year. FY 2022 was a 52-week year.
APMs used to explain and monitor Group performance include:
APM Definition Source
---------------------- ---------------------------------------------- -----------------------
EBITDA Earnings before interest, tax, depreciation Group income statement
and amortisation.
---------------------- ---------------------------------------------- -----------------------
Adjusted EBITDA EBITDA before separately disclosed Group income statement
items is used to calculate net debt
to EBITDA.
---------------------- ---------------------------------------------- -----------------------
52-week Adjusted EBITDA on a 52-week basis, adjusted APM D
EBITDA to remove the 53(rd) week of the period,
before separately disclosed items
is used to calculate net debt to EBITDA.
---------------------- ---------------------------------------------- -----------------------
Operating profit Earnings before interest and tax. Group income statement
---------------------- ---------------------------------------------- -----------------------
Adjusted operating Operating profit before separately Group income statement
profit disclosed items.
---------------------- ---------------------------------------------- -----------------------
52-week adjusted Operating profit before separately APM B
operating profit disclosed items adjusted to remove
the 53(rd) week of the period.
---------------------- ---------------------------------------------- -----------------------
52-week revenue Revenue adjusted to remove the 53(rd) APM B
week of the year.
---------------------- ---------------------------------------------- -----------------------
Like-for-like Like-for-like sales growth reflects APM A
sales growth the sales performance against the
comparable period in the prior year
of UK managed pubs, bars and restaurants
that were trading in the two periods
being compared, unless marketed for
disposal.
---------------------- ---------------------------------------------- -----------------------
52-week like-for-like Like-for-like sales growth reflects APM A
sales growth the sales performance against the
comparable period in the prior year
of UK managed pubs, bars and restaurants
that were trading in the two periods
being compared, unless marketed for
disposal. Adjusted to remove 53(rd)
week of the period.
---------------------- ---------------------------------------------- -----------------------
Like-for-like Like-for-like sales excluding VAT APM A
sales excluding benefit reflects like-for-like sales
VAT benefit growth excluding the benefit of the
temporary reduction in the rate of
VAT on food and non-alcoholic drink
sales to 12.5% in the first half of
FY 2022.
---------------------- ---------------------------------------------- -----------------------
Adjusted earnings Earnings per share using profit before Note 6
per share (EPS) separately disclosed items.
---------------------- ---------------------------------------------- -----------------------
52- week adjusted Earnings per share using profit before APM C
earnings per separately disclosed items adjusted
share (EPS) for 53(rd) week of period.
---------------------- ---------------------------------------------- -----------------------
Net debt Net debt comprises cash and cash equivalents, Note 10
cash deposits net of borrowings and
discounted lease liabilities. Presented
on a constant currency basis due to
the inclusion of the fixed exchange
rate component of the cross currency
swap.
---------------------- ---------------------------------------------- -----------------------
Net debt : Adjusted The multiple of net debt including APM D
EBITDA lease liabilities, as per the balance
sheet compared against 52-week EBITDA
before separately disclosed items,
which is a widely used leverage measure
in the industry.
---------------------- ---------------------------------------------- -----------------------
Net debt : Adjusted The multiple of net debt including APM D
52-week EBITDA lease liabilities, as per the balance
sheet compared against 52-week EBITDA
before separately disclosed items,
which is a widely used leverage measure
in the industry. Adjusted for 53(rd)
week of the period.
---------------------- ---------------------------------------------- -----------------------
FY 2023 52-week A 53-week accounting period occurs APM E
reconciliation every five years. FY 2023 was a 53-week
period and therefore presentation
of a 52-week basis provides useful
comparability to previous financial
years
---------------------- ---------------------------------------------- -----------------------
Return on capital Return generating capital includes APM F
investments made in new sites and
investment in existing assets that
materially changes the guest offer.
Return on investment is measured by
incremental site EBITDA following
investment expressed as a percentage
of return generating capital. Return
on investment is measured for four
years following investment. Measurement
commences three periods following
the opening of the site.
---------------------- ---------------------------------------------- -----------------------
A. Like-for-like sales
The sales this year compared to the sales in the previous year
of all UK managed sites that were trading in the two periods being
compared, expressed as a percentage. This widely used industry
measure provides better insight into the trading performance than
total revenue which is impacted by acquisitions and disposals.
Like-for-like sales is provided on a 52-week basis.
2023 2022 Year-on-year
Source GBPm GBPm %
------- ------- -------------
Reported revenue Income statement 2,503 2,208 13.4%
Adjust for 53(rd) week APM E (44) - -
Less 52-week non like-for-like
sales and income (311) (239) 30.1%
52-week like-for-like
sales 2,148 1,969 9.1%
------- -------
Less like-for-like sales - (39) -
VAT benefit
------- -------
52-week like-for-like
sales basis excl. VAT benefit 2,148 1930 11.3%
------- -------
Drink sales 2023 2022
Year-on-year
Source GBPm GBPm %
------- ------- -------------
Reported drink revenue 1,092 957 14.1%
Adjust for 53(rd) week (20) - -
Less 52-week non like-for-like
drink sales (117) (88) 33.0%
52-week drink like-for-like
sales 955 869 9.9%
------- -------
Food sales 2023 2022
Year-on-year
Source GBPm GBPm %
------- ------- -------------
Reported food revenue 1,323 1,166 13.5%
Adjust for 53(rd) week (23) - -
Less 52-week non like-for-like
food sales (171) (126) 35.7%
------- -------
52-week food like-for-like
sales 1,129 1,040 8.6%
------- -------
Other sales 2023 2022
Year-on-year
Source GBPm GBPm %
------- ------- -------------
Reported other revenue 87.8 85.2 3.3%
Adjust for 53(rd) week (1.5) - -
Less non like-for-like
other sales (41.6) (41.8) 0.5%
------- -------
52 week other like-for-like
sales 44.7 43.4 3.0%
------- -------
B. Adjusted operating profit
Operating profit before separately disclosed items as set out in
the Group Income Statement. Separately disclosed items are those
which are separately identified by virtue of their size or nature.
Excluding these items allows a more effective comparison of the
Group's trading performance from one period to the next.
2023 2022 Year-on
-year
Source GBPm GBPm %
-------------- ----------------- --------------
Operating profit Income statement 98 124 (21.0)%
Separately disclosed items Income statement 128 116 10.3%
Adjusted operating profit Income statement 226 240 (5.8)%
Adjusted operating profit APM E (5) - -
53(rd) week
-------------- -----------------
52-week adjusted operating
profit 221 240 (7.9)%
-------------- -----------------
Reported revenue Income statement 2,503 2,208 13.4%
Revenue 53(rd) week APM E (44) - -
52-week revenue 2,459 2,208 11.4%
============== =================
52-week adjusted operating
margin 9.0% 10.9% (1.9)ppts
============== =================
C. Adjusted earnings per share
Earnings per share using profit before separately disclosed
items. Separately disclosed items are those which are separately
identified by virtue of their size or nature. Excluding these items
allows a more effective comparison of the Group's trading
performance from one period to the next.
2023 2022 Year-on
-year
Source GBPm GBPm %
------ ------ ---------
Profit/(loss) for the period Income statement (4) 13 (130.8)%
Add back separately disclosed
items Income statement 100 94 6.4%
Adjusted profit 96 107 (10.3)%
Adjusted profit 53(rd) (3) -
week
52-week adjusted profit 93 107 (13.1%)
Basic weighted average
number of shares Note 6 595 595 -%
Adjusted earnings per 16.1p - -
share
====== ======
52-week adjusted earnings
per share 15.6p 18.0p (13.3)%
====== ======
D. Net Debt: 52-week adjusted EBITDA
The multiple of net debt as per the balance sheet compared
against 52-week EBITDA before separately disclosed items which is a
widely used leverage measure in the industry. From FY 2020, leases
are included in net debt following adoption of IFRS16. Adjusted
52-week EBITDA is used for this measure to prevent distortions in
performance resulting from separately disclosed items.
2023 2022 Year-on
-year
Source GBPm GBPm %
------ ------ --------
Net Debt including leases Note 10 1,633 1,679 (2.7)%
------ ------
EBITDA Income statement 362 374 (3.2)%
Add back separately disclosed
items Income statement (3) (1) (200)%
EBITDA 53(rd) week APM E (7) - -
------ ------
Adjusted 52-week EBITDA 352 373 (5.6)%
------ ------
Net debt : Adjusted 52-week
EBITDA 4.6 4.5 2.2%
====== ======
E. FY 2023 52-week reconciliation
A 53-week accounting period occurs every five years. FY 2023 was
a 53-week period and therefore presentation of a 52-week basis
provides useful comparability to previous financial years.
2023 2023 2023
Source 52 weeks Week 53 53 weeks
------------------ ---------- -------- ----------
Revenue Income statement GBP2,459m GBP44m GBP2,503m
Adjusted EBITDA Income statement GBP352m GBP7m GBP359m
Adjusted operating Income statement GBP221m GBP5m GBP226m
profit
Adjusted PBT Income statement GBP112m GBP3m GBP115m
Adjusted profit Income statement GBP93m GBP3m GBP96m
for the period
Adjusted EPS Income statement 15.6p 0.5p 16.1p
F. Return on capital
Return generating capital includes investments made in new sites
and investment in existing assets that materially changes the guest
offer. Return on investment is measured by incremental site EBITDA
following investment expressed as a percentage of return generating
capital. Return on investment is measured for four years following
investment. Measurement of return commences three periods following
the opening of the site.
Return on expansionary capital
2022 2023 2023 2023
FY19-22 FY20-22 FY23 Total
Source GBPm GBPm GBPm GBPm
------------------- -------- -------- ----- ------
Maintenance and infrastructure 151 91 67 158
Remodel - refurbishment 188 123 65 188
-------- -------- ----- ------
Non-expansionary capital 339 214 132 346
-------- -------- ----- ------
Remodel expansionary 9 5 4 9
Conversions and acquisitions* 30 14 11 25
-------- -------- ----- ------
Expansionary capital
for return calculation 39 19 15 34
-------- -------- ----- ------
Expansionary capital
open < 3 periods pre
year end 37 30 10 40
-------- -------- ----- ------
Total capital 52-week Cash flow 415 263 157 420
-------- -------- ----- ------
Adjusted 52-week EBITDA Income statement 1,230 794 352 1,146
Non-incremental EBITDA 1,223 790 350 1,140
Incremental EBITDA 7 4.3 1.9 6.2
-------- -------- ----- ------
Return on expansionary
capital 18% 22% 13% 18.5%
======== ======== ===== ======
*Conversion and acquisition capital is net of capex incurred for
projects which have been open for less than 3 periods pre year
end
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END
FR BCBDBCDDDGXC
(END) Dow Jones Newswires
November 30, 2023 02:00 ET (07:00 GMT)
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