REG - Mitchells & Butlers - FULL YEAR RESULTS
30/11/2023 07:15
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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 £2,503m (FY 2022 £2,208m)
- Operating profit of £98m (FY 2022 £124m)
- Profit/(loss) before tax of £(13)m (FY 2022 £8m)
Trading results
- Adjusted operating profit(a) £221m on 52-week basis (FY 2022 £240m)
- 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 £1,170m (FY 2022 £1,198m), excluding £463m of IFRS
16 lease liabilities (FY 2022 £481m)
- Refinancing of Revolving Credit Facility to July 2026, increased by £50m to
£200m
- 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
(https://protect-eu.mimecast.com/s/2E2iC36MMcL6G8zuqzGz2?domain=netroadshow.com)
The slides will also be available on the website at www.mbplc.com
(http://www.mbplc.com) The replay will then be available at
http://www.mbplc.com/fy2023/analystspresentation
(http://www.mbplc.com/fy2023/analystspresentation)
All disclosed documents relating to these results are available on the Group's
website at www.mbplc.com (http://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.£65m. 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 £2,503m with year-on-year growth driven by
strong like-for-like sales(a) performance across all of our brands. Operating
profit of £98m was £26m 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 £52m 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 £221m, 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.£3m 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 £140k for Social Bite through fundraising activity and
£160k 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 £2,503m (FY 2022 £2,208m). The loss before
tax for the period of £(13)m (FY 2022 profit of £8m) 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.
The 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
£m £m £m £m
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 £2,503m (FY 2022 £2,208m) 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 £131m reduction in value is recognised relating to valuation and impairment
of properties, comprising a £110m impairment arising from the revaluation of
freehold and long leasehold sites, a £6m impairment of short leasehold and
unlicensed properties, a £14m impairment of right-of-use assets and a £1m
impairment of goodwill. The £28m 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 £3m.
Operating profit and margins(a)
Adjusted operating profit(a) for the financial year was £221m (FY 2022
£240m).
FY 2023 benefited from £1m (FY 2022 £53m) of government support. The
year-on-year adjusted operating profit increase, net of government support, of
£33m reflects a strong underlying sales performance supported by efficiency
gains to more than offset the cost headwinds of £175m 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.£65m, representing 3% of the overall cost base, including an
expectation of energy cost reduction.
Interest
Net finance costs of £108m for the period were £6m 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 £3m (FY 2022 £2m). The net pensions
charge for next year is expected to be £1m.
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
£m £m
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 368 380
contributions
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 Restaurants Limited 5 -
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 £362m of EBITDA before movements in the valuation of
the property portfolio.
Pension deficit contributions reduced to £8m 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 £35m to £157m with £11m of the increase in
relation to investment in technology to enable progress against our
sustainability goals, as analysed below.
An investment of £17m was made to acquire the remaining 60% stake in 3Sixty
Restaurants Ltd, owners of Ego Restaurants, partially offset by £5m cash
acquired on acquisition.
Before mandatory bond amortisation, cash inflow was £30m (FY 2022 £71m).
After mandatory bond amortisation, cash outflow was £86m (FY 2022 outflow of
£39m).
Capital expenditure
Capital expenditure of £157m (FY 2022 £122m) comprises £154m from the
purchase of property, plant and equipment and £3m in relation to the purchase
of intangible assets. Of the £157m spend, £90m 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
£m # £m #
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 £3m on installing 50 sites with solar panels, with a further c.150
sites identified for installation during FY 2024, and £8m 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.£4bn has decreased by £192m (FY 2022
decrease of £282m). This reflects £116m impairment included as a separately
disclosed item in the income statement and a £76m decrease in the revaluation
reserve. In addition, there was a £14m impairment of right-of-use assets and
a £1m 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 £1,633m, comprised of £1,170m non-lease
liabilities and lease liabilities of £463m (FY 2022 £1,679m comprised of
£1,198m non-lease liabilities and lease liabilities of £481m).
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 £200m 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/
(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 £47m. As of September this year all contributions
have ceased.
The residual liability on the balance sheet of £22m (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 disclosed Separately disclosed separately disclosed Separately disclosed
items items(a) Total items items(a) Total
Notes £m £m £m £m £m £m
Revenue 2 2,503 - 2,503 2,208 - 2,208
Operating costs before depreciation, amortisation and movements in the (2,145) - (2,145) (1,836) - (1,836)
valuation of the property portfolio
Share in associates' results 1 1 1 1
- -
Net profit arising on property disposals 3 - 3 - 1
3 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 3 (133) (131) (264) (133) (117) (250)
portfolio
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 finance charge 11, 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 (100) (4) (94) 13
96 107
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 £m £m
(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 £m £m
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 (633)
(671)
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 share premium redemption Revaluation shares Hedging Translation Retained Total
capital account reserve reserve held reserve reserve earnings equity
£m £m £m £m £m £m £m £m £m
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 £m £m
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 equipment 2 -
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 368 380
and additional pension contributions
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 £1.3bn 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 £200m 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 £2bn. 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 £1 = €1.16 (2022
£1 = €1.18), 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 £1 = €1.15 (2022 £1 = €1.12) and £1 = $1.22 (2022
£1 = $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 (Onerous Contracts - cost of fulfilling a contract) The amendments specify which costs an entity includes in determining the cost
of fulfilling a contract for the purpose of assessing whether 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 - Pillar 2 model Rules - Amendments to IAS 12 The amendments were endorsed on 19 July 2023, and provide a temporary
mandatory exception from deferred tax accounting for the top-up 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 3 (Reference to the Conceptual Framework) 1 January 2022
Amendments to IAS 16 (PPE - proceeds before intended use) 1 January 2022
Annual improvements to IFRS standards 2018-2020 cycle (Amendments to IFRS 1 1 January 2022
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
£m £m £m £m £m £m
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 £m £m
Separately disclosed items
Gaming machine settlement a (1) -
Fair value adjustment to investment in 3Sixty Restaurants Limited b 5 -
Settlement of pre-existing lease contracts on acquisition of 3Sixty c (3) -
Restaurants Limited
Costs associated with the acquisition of 3Sixty Restaurants Limited d (1) -
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 e (110) (86)
leasehold properties
- 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 £19m has been received from HMRC, relating to VAT on gaming
machine income for the period 2005 to 2012, including interest. An estimate of
£20m 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
£1m 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 £1,000 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 £3,000 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 £2m 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 £1m 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 impact 2023 2022
53 weeks 52 weeks
£m £m
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 £nil (2022 £43m).
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 £nil (2022
£5m).
5. Taxation
Taxation - Group income statement
2023 2022
53 weeks 52 weeks
£m £m
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
£m £m
(Loss)/profit before tax (13) 8
Taxation credit/(charge) at the UK standard rate of corporation tax of 22.0% 3 (1)
(2022 19.0%)
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
£m £m
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
£m £m
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
£m £m
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
£m £m
(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
£m £m
At beginning of period 4,194 4,442
Acquired through business combinations (note 14) 29 -
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
£m £m
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 and unlicensed properties 5 -
(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 £3,933m
(2022 £4,036m).
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 £188m 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 £78m 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 £6m (2022 £9m) 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
£m £m
At beginning of period 339 379
Acquired through business combinations (note 14) 6 -
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 £14m (2022 £22m) 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
£m £m
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 - property, 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 - property, 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 £442m (2022
£458m).
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 value Impairment charges Impairment reversals Net impairment
Note 2023 2023 2023 2023
£m £m £m £m
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 value Impairment charges Impairment reversals Net impairment
Note 2022 2022 2022 2022
£m £m £m £m
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 £nil) 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 £8m 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 £5m to the net impairment charge recognised.
10. Borrowings and net debt
Borrowings can be analysed as follows:
2023 2022
£m £m
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 £2m (2022 £nil) 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
£m £m
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 £150m. During the period, the unsecured committed
revolving credit facility of £150m was cancelled and replaced by a new
unsecured committed revolving credit facility of £200m, which expires on 20
July 2026. The amount drawn at 30 September 2023 is £nil (2022 £nil).
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 £m £m
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
(1,170) (1,198)
Net debt excluding leases
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 £m £m
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
£m £m
Opening lease liabilities (481) (513)
Acquired through business combinations (note 14) (5) -
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
£m £m
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. £27m 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. The 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 plan Main plan Executive 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 £47m (2022 is £9m).
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 £22m relates solely to the MABETUS plan, with a total of
£47m 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 £m £m
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 £m £m
Return on scheme assets and effects of changes in assumptions (153) (161)
Movement in pension liabilities recognised due to asset ceiling/minimum 195 202
funding
Remeasurement of pension liabilities 42 41
12. Pensions (continued)
2023 2022
Group balance sheet £m £m
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 £22m (2022 £64m) is presented as a £1m
current liability (2022 £42m) and a £21m non-current liability (2022 £22m).
The movement in the actuarial surplus in the period is as follows:
2023 2022
£m £m
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 shares £m Number of shares £m
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 £29,340
(2022 £65,302).
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 £nil (2022 £1m) 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 £4m, 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 £17m, 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 £7m was revised to fair value of £12m, with a gain of £5m
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 £3m 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
£m
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 £1m 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 £1m 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 £18m to revenue and £1m 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
£45m revenue and £3m 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 and amortisation. Group income statement
Adjusted EBITDA EBITDA before separately disclosed items is used to calculate net debt to Group income statement
EBITDA.
52-week Adjusted EBITDA EBITDA on a 52-week basis, adjusted to remove the 53(rd) week of the period, APM D
before separately disclosed items is used to calculate net debt to EBITDA.
Operating profit Earnings before interest and tax. Group income statement
Adjusted operating profit Operating profit before separately disclosed items. Group income statement
52-week adjusted operating profit Operating profit before separately disclosed items adjusted to remove the APM B
53(rd) week of the period.
52-week revenue Revenue adjusted to remove the 53(rd) week of the year. APM B
Like-for-like sales growth Like-for-like sales growth reflects the sales performance against the APM A
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 sales growth Like-for-like sales growth reflects the sales performance against the APM A
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 sales excluding VAT benefit Like-for-like sales excluding VAT benefit reflects like-for-like sales growth APM A
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 per share (EPS) Earnings per share using profit before separately disclosed items. Note 6
52- week adjusted earnings per share (EPS) Earnings per share using profit before separately disclosed items adjusted for APM C
53(rd) week of period.
Net debt Net debt comprises cash and cash equivalents, cash deposits net of borrowings Note 10
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 EBITDA The multiple of net debt including lease liabilities, as per the balance sheet APM D
compared against 52-week EBITDA before separately disclosed items, which is a
widely used leverage measure in the industry.
Net debt : Adjusted 52-week EBITDA The multiple of net debt including lease liabilities, as per the balance sheet APM D
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 reconciliation A 53-week accounting period occurs every five years. FY 2023 was a 53-week APM E
period and therefore presentation of a 52-week basis provides useful
comparability to previous financial years
Return on capital Return generating capital includes investments made in new sites and APM F
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 £m £m %
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 VAT benefit - (39) -
52-week like-for-like sales basis excl. VAT benefit 2,148 1930 11.3%
Drink sales
2023 2022 Year-on-year
Source £m £m %
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 £m £m %
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 £m £m %
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 £m £m %
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 53(rd) week APM E (5) - -
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 £m £m %
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) week (3) -
52-week adjusted profit 93 107 (13.1%)
Basic weighted average number of shares Note 6 595 595 -%
Adjusted earnings per share 16.1p - -
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 £m £m %
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 £2,459m £44m £2,503m
Adjusted EBITDA Income statement £352m £7m £359m
Adjusted operating profit Income statement £221m £5m £226m
Adjusted PBT Income statement £112m £3m £115m
Adjusted profit for the period Income statement £93m £3m £96m
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 £m £m £m £m
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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