TIDMMAB
RNS Number : 8360I
Mitchells & Butlers PLC
07 December 2022
MITCHELLS & BUTLERS PLC
LEI no: 213800JHYNDNB1NS2W10
7 December 2022
FULL YEAR RESULTS
(For the 52 weeks ended 24 September 2022)
Highlights
Like-for-like sales(a) growth for the year of 1.1% against
- FY 2019 (pre Covid-19)
Excluding the impact of utilities, profits broadly recovered
- to pre Covid-19 levels
Encouraging start to the new year with like-for-like sales(a)
- growth of 6.5% against FY 2022 in ten weeks since the end
of the financial year (9.2% growth against FY 2019)
Reported results
Total revenue of GBP2,208m (FY 2021 GBP1,065m)
- Operating profit of GBP124m (FY 2021 GBP81m)
Profit before tax of GBP8m (FY 2021 GBP(42)m loss)
-
-
Basic earnings per share of 2.2p (FY 2021 (11.5)p loss)
-
Trading results
Adjusted operating profit(a) GBP240m (FY 2021 GBP29m)
-
Adjusted earnings per share(a) 18.0p (FY 2021 (13.6)p loss)
-
Balance sheet and cash flow
Cash inflow before bond amortisation of GBP71m (FY 2021 inflow
- GBP174m, including gross equity proceeds of GBP351m)
Cash balances on hand of GBP190m at year end (FY 2021 GBP227m)
- with undrawn unsecured committed financing facilities of
GBP150m to February 2024
Net debt(a) reduced to GBP1,198m (FY 2021 GBP1,270m), excluding
- GBP481m of IFRS 16 lease liabilities (FY 2021 GBP513m)
Net assets increased to GBP2,143m (FY 2021 GBP2,104m)
-
Phil Urban, Chief Executive, commented:
"The trading environment remains highly challenging, with cost
inflation continuing to put pressure on margins and we are ever
mindful of the pressures that the UK consumer is facing. However,
we are encouraged by the strength of sales growth at the end of
last financial year which has improved further into the early weeks
of this year.
We remain focused on the delivery of our Ignite programme with
existing and new initiatives driving cost efficiencies and
increased sales, alongside our capital investment programme.
Combined with our diverse portfolio of well-known brands, value
proposition, strong estate locations and talented people, we are
well positioned to face both the challenges and opportunities
ahead."
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.
There will be a presentation held today at 8:30am accessible by
phone on 020 3936 2999, access code: 643020 and at
https://www.netroadshow.com/events/login?show=dc48af11&confId=43454
The slides will also be available on the website at www.mbplc.com
The replay will then be available at
http://www.mbplc.com/fy2022/analystspresentation
All disclosed documents relating to these results are available
on the Group's website at www.mbplc.com
For further information, please contact:
Tim Jones - Chief Financial Officer +44(0)121 498 6112
George Kitchen - 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 and Ember Inns. 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 year end, we have been encouraged by like-for-like
sales(a) growth of 6.5% as compared to FY 2022, which equates to
growth of 11.1% excluding the VAT benefit in place last year.
Comparing to FY 2019 pre Covid-19, like-for-like sales(a) have
grown by 9.2%.
The continued recovery of sales is encouraging, with a general
return to office working, city centres becoming stronger and guests
across the country becoming ever more confident to return to the
hospitality sector. This makes us cautiously optimistic about the
future, although we remain very mindful of the potential
implications of the cost-of-living challenge facing guests, which
is expected to persist at least through the year ahead.
Cost inflation headwinds continue to present a significant
challenge for the sector as a whole, notably in energy, food and
wages but now evident throughout our supply chains. Overall for the
current year, we anticipate an inflationary cost headwind across
our c.GBP1.8 billion cost base in the region of 10-12% before
mitigation. The Energy Price Guarantee from the Government for
businesses for 6 months from 1 October 2022 was welcome but energy
costs are still expected to increase this year and significant
uncertainty remains over the second half. At the current time we
have bought forward 45% of this financial year's anticipated energy
requirement.
The trading environment therefore remains very challenging.
However, based on recent sales performance, the strength and
diversity of our portfolio of brands, delivery of a new wave of
efficiency initiatives under our proven Ignite programme and
continued focus on our capital programme we believe we are well
positioned to meet this challenge.
BUSINESS REVIEW
Total sales across the period were GBP2,208m reflecting a 1.3%
decline on FY 2019, driven mainly by temporary covid-related sales
reductions and closures in the first part of the year plus site
disposals since FY 2019. Despite this, adjusted operating profit(a)
of GBP240m reflects a strong return to profitability. Excluding the
c.GBP70m increase in utility costs, profits would have been close
to pre Covid-19 levels, despite the impact during the year of the
Omicron variant and inflationary cost pressures.
We made a good start to FY 2022 with positive like-for-like
sales(a) growth over the first eight weeks. This encouraging
performance continued until late November when concerns first arose
around the emergence of the new Covid variant, Omicron, which led
to calls for further caution in socialising and resulted in a clear
downturn in activity across the sector. As a result, over the seven
weeks to the end of the first quarter, like-for-like sales(a)
declined with the adverse impact of Omicron being particularly felt
over the important festive season.
As guest confidence returned early in the new year, our business
regained momentum, supported by the benefits from a new set of
Ignite initiatives, with strong like-for-like sales(a) growth in
the second quarter. Over the first half of the year, food sales
continued to outperform drink, with food like-for-like sales(a)
growth of 6.9%, helped by the reduced rate of VAT. At this point,
we started to observe an encouraging trend of recovery in city
sites, as people began to return to offices and city centre
destinations, albeit trading in some areas of London, such as The
City, remained relatively subdued, particularly at the end of the
week. Drink sales continued to be challenging across the sector and
drink like-for-like sales(a) declined by 6.9% in the first half,
with suburban locations seeing the largest declines.
VAT reverted from 12.5% to 20% on 1 April 2022 which contributed
to a softening of sales in the third quarter, alongside industrial
action and very hot weather, resulting in only modest like-for-like
sales(a) growth across the full quarter, with food continuing to be
the main driver. Trading improved in the fourth quarter, despite an
additional period of extreme heat as well as further rail strikes.
Sales over the August bank holiday were encouraging, with strong
like-for-like(a) growth over the three-day weekend, before
returning to levels consistent with the quarter as a whole. Growth
continued to be driven by food sales with the strongest
performances in our premium, food-led brands.
The unprecedented challenges the industry has faced have had an
unavoidable impact on market supply with a 9.9% decline in pubs and
restaurants since March 2020 (CGA Outlet Index October 22).
Food-led venues have been hit harder by closures: the number of
outlets reducing by 12.0%, with independent and tenanted businesses
making up 82% of net closures. Given our strong estate and
portfolio of brands, we believe that we are well placed to benefit
from these changes in the competitive landscape.
OUR STRATEGIC PRIORITIES
The fundamental strengths of our business provide a 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
previously gained. We remain focused on the strategic pillars which
formed the foundations of our strong performance before the
pandemic, and which are equally relevant to the current challenging
trading environment.
We continue to provide value for money to our guests, working
hard to protect entry level items where we can and introducing more
premium items to provide trade-up options. The benefit of our size
and scale, our ability to continue to invest in our capital
programme and the mitigation generated through Ignite allow us to
use price tactically and to remain competitive.
Our Ignite programme of work remains at the core of our
long-term value creation plans and we are working on over 40 fresh
initiatives, alongside a large number already implemented in the
business. We are currently focusing particularly on initiatives
which enhance efficiency and productivity, helping to offset cost
headwinds, through enhancements such as improved labour scheduling,
cost mitigating procurement strategies and energy consumption
reduction. The auto-scheduling project aims to assist our site
managers by producing automatically generated team member rosters
to help ensure we have the right people on shift at the right time,
to drive sales at peak times and reduce costs at quieter times. We
have a number of energy reduction projects underway including the
installation of voltage optimisers that reduce electricity
consumption, chemical additives that have been added to our heating
systems to reduce gas consumption, trial of internet-connected
control devices to lower electricity and gas consumption and we
have trained energy ambassadors across the country to complete site
energy audits, all further reducing consumption in our sites. In
addition, we are working with our waste oil collection partner as
we look to grow our oil recycling rate though increasing frequency
of pickups and trialling a QR code driver validation system.
With increasing food costs, we are flexible in the way we
procure, and we are constantly looking to limit exposure to the
lines that are seeing the highest inflation at any one time. This
may mean a higher level of product substitution than we would
normally have, or the removal of some food items entirely, until
markets settle down. We also look to use our scale purchasing
power, where we can procure items across all brands, and hence
secure volume advantage. We are confident in our ability to deliver
long-term and sustained efficiencies and business improvements
through the existing Ignite programme.
We remain committed to accelerating our digital strategy, an
area which became increasingly important to guests during the
pandemic. Our strategy focuses on building the correct
organisational capabilities to allow for quick activation of new
digital 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 our digital services in recent years,
for example our digital order at table facility, our streamlined
online booking experience, and the development of our own channel
delivery capability seeking to drive sales and protect margins.
Success in hospitality is inextricably linked to customer
satisfaction, with the correlation between superior guest review
scores and stronger like for like sales, irrefutable. When we
re-opened our doors in FY 2021, we saw our guest review scores
strengthen, from an average 4.0 out of 5.0 pre Covid, to 4.3 post
Covid. Whilst there may have been a grace period in guest
expectations post lockdown, as the year progressed we were
delighted to see these guest scores maintained, with every brand
over 4.0. This is a solid foundation to build upon, and
strengthening these scores further remains a key focus.
From the start of the financial year our capital programme has
been resumed, delivering 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 and,
whilst short-term supply issues in terms of material procurement
and contractor availability affected progress last year, this
continues to be a key focus for the business. This year we have
completed 170 investment projects including 160 remodels, six
conversions, the acquisition of the freehold of three sites that
were previously leasehold and opened one new Alex site in Germany.
We are continuing to see strong performances from our investment
projects. The conversion programme includes the trial of Browns in
suburbia, stretching the brand beyond its usual high street
location. The first trial site opened in August and is performing
well and a second has just opened in December.
PEOPLE
Our fantastic team of over 46,000 people are central to the
performance of our business, delivering the all-important
experiences guests have with us. FY 2022 presented the industry
with a challenging recruitment environment with wide-spread
staffing issues across the country, largely as a result of losing
people during furlough to other sectors and the absence of the EU
talent pool. Therefore, our focus on attracting, training and
retaining great people was more important to our organisation than
ever and we were pleased that employee numbers recovered to
pre-pandemic levels during the second half of the year. Staff
turnover has stabilised through the year which is an important
factor as lower turnover has a positive impact on guest experience.
We are also delighted that our team engagement scores have
continued to improve over the course of the year and are now at
near record highs.
In order to retain our teams, we are committed to providing
progression opportunities and development facilitated through
training and a strong centralised HR function. We are proud of the
work we have done on our apprentice scheme which we believe 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 year over 1,000 apprentices have joined
our business and a similar number of our current employees have
enrolled onto one of the apprenticeship opportunities open to them.
In the year ahead, we will continue to expand our apprenticeship
opportunities from Level 2 through to Level 7 and have a passion to
keep growing our own apprenticeship talent, aspiring to recruit a
further 1,000 new apprentices in addition to accelerating the
careers of 1,000 current employees. Given the importance of
developing and retaining chefs, M&B continue to grow our
culinary capability via our Chefs' Academy. 175 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 the Board has agreed
even more challenging targets to drive momentum in this area. We
have committed to:
- Net Zero emissions by 2040, including scope 1, 2 and 3
emissions; we will submit our roadmap to net zero for Science Based
Target Initiative approval next calendar year. We are founding
members of the Zero Carbon Forum and are committed to playing our
part in decarbonising the hospitality industry as a whole.
- Zero operational waste to landfill by 2030; we have made great
progress in this area in recent years and currently divert 96% of
operational waste away from landfill. We have underpinned this
ambition with a recycling rate target of 80% over the same
period.
- 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 29% reduction in food waste since our 2019 baseline,
driven by operational improvements and aided by partnerships with
Fareshare and Too Good to Go.
We have a number of initiatives underway to support these
ambitions. Food emissions are the largest contributor to our carbon
footprint and during the year we conducted two successful menu
trials which significantly reduced emissions. We will take the
learnings from these trials forward to expand the programme, which
involved working closely with suppliers. We are also developing a
transition plan to remove gas from our businesses through the
electrification of our kitchens, finding alternative heating
solutions to gas boilers and the trial of onsite renewable energy
generation.
Our sustainability strategy has a strong focus on the positive
impact we have on people and communities. For example, we are
committed to enhancing the wellbeing of our own people, and we have
an established nutritional strategy aiming to provide balanced
choices and information to guests. We have also developed
charitable partnerships with Shelter and Social Bite through which
we are helping to tackle the growing issue of homelessness in the
UK.
FINANCIAL REVIEW
On a statutory basis, profit before tax for the year was GBP8m
(FY 2021 loss GBP42m), on sales of GBP2,208m (FY 2021
GBP1,065m).
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 those which are separately
identified by virtue of their size or incidence.
Statutory Adjusted (a)
FY 2022 FY 2021 FY 2022 FY 2021
GBPm GBPm GBPm GBPm
Revenue 2,208 1,065 2,208 1,065
Operating profit 124 81 240 29
Profit / (loss) before
tax 8 (42) 124 (94)
Earnings / (loss) per
share 2.2p (11.5)p 18.0p (13.6)p
Operating margin 5.6% 7.6% 10.9% 2.7%
At the end of the period, the total estate comprised 1,718 sites
in the UK and Germany of which 1,636 are directly managed.
Revenue
Total revenue of GBP2,208m (FY 2021 GBP1,065m) reflects a period
of continuous trading, albeit disrupted by the Omicron variant in
the first quarter, as compared to the prior year which included
substantial closures and restrictions relating to Covid-19. Sales f
igures in the first half of the year include the benefit of the
temporary reduction in the rate of VAT on food and non-alcoholic
drink sales to 12.5%.
Unless otherwise noted, sales comparisons below are on a
three-year basis, to the same period in FY 2019, being the last
full pre Covid-19 financial year.
Like-for-like sales (a) for the year increased by 1.1%,
comprising an increase in like-for-like food sales (a) of 5.2% and
a decrease in like-for-like drink sales (a) of (4.1)%.
Like-for-like sales (a) growth/(decline) against FY 2019:
Wks 1-15 Wks 16-28 Wks 29-42 Wks 43-52 Wks 1-52
Q1 Q2 Q3 Q4
Food 5.2% 8.9% 2.9% 4.1% 5.2%
Drink (9.1)% (4.2)% (1.3)% (1.0)% (4.1)%
Total (1.5)% 3.8% 0.9% 1.5% 1.1%
Total excl. (5.5)% 0.2% 0.9% 1.5% (0.9)%
VAT benefit
Sales growth in food was driven by premiumisation and other
increases in spend per head, with the strongest performances in our
premium, food-led brands. Volumes for both food and drink were in
double-digit decline against FY 2019.
For the ten weeks since the period end like-for-like sales(a)
against FY 2019 have increased by 9.2%.
Moving forward it will become more meaningful to use FY 2022 as
a primary comparator for like-for-like sales. On this basis, for
the ten weeks since the period end, like-for-like sales (a) have
increased by 6.5%, comprising an increase in like-for-like food
sales (a) of 1.9% and like-for-like drink sales (a) growth of
12.1%, with both in volume growth. Total sales in this period grew
by 7.3%.
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 GBP117m reduction in value is recognised relating to valuation
and impairment of properties, comprising a GBP86m impairment
arising from the revaluation of freehold and long leasehold sites,
a GBP9m impairment of short leasehold and unlicensed properties and
a GBP22m impairment of right-of-use assets. The GBP22m tax credit
relates to these impairments.
There was a GBP1m net profit arising on property disposals in
the period.
Operating profit and margins (a)
Adjusted operating profit (a) for the year was GBP240m (FY 2021
GBP29m), a substantial increase on FY 2021 which was significantly
impacted by Covid-19 closures and restrictions.
Adjusted operating margin of 10.9% was 8.2ppts higher than last
year, again due mainly to significant periods of closure and other
trading restrictions. Statutory operating margin of 5.6% was
2.0ppts lower than last year due to the impact of separately
disclosed property impairments.
Inflationary cost pressures presented an increasing challenge
both to our business and to the hospitality sector as a whole,
especially through the second half of the year. Inflationary costs
were initially concentrated in the areas of energy, wages and food
costs but progressively became evident throughout most of the
supply chain. Inflationary cost headwinds against FY 2019 totalled
c.GBP220m during FY 2022, over the three year period, with energy
cost increases contributing c.GBP70m, after consumption
savings.
We continue to work very hard to mitigate as much of the impact
of these cost increases as we can, both through driving sales
growth and through identifying and implementing further cost
efficiencies, all executed under our Ignite programme of work.
Looking forward, we anticipate an aggregate cost headwind in the
region of 10-12% on our cost base of c.GBP1.8 billion this year
before mitigation, with operating margins remaining lower than
pre-Covid levels in the medium term.
Government Support
Following the outbreak of the Covid-19 global pandemic in early
2020 and the subsequent enforced closure of the business, M&B
received a number of different areas of support from both local and
central Government in the UK and in Germany. During the year,
Government support was received in the form of Local Authority
Grants GBP3m (FY 2021 GBP11m), business rates relief GBP5m (FY 2021
GBP75m), grants for loss of profits in Germany GBP1m (FY 2021
GBP14m) and apprenticeship incentives GBP1m (FY 2021 GBPnil).
In the prior period, GBP210m of support was received in relation
to the UK Coronavirus Job Retention Scheme (CJRS) and a further
GBP9m of Government assistance for wages and salaries in Germany
(Kurzarbeit).
The Group also benefitted from a reduction in the rate of VAT
from 20% to 5% on non-alcoholic sales which was introduced by the
UK Government on 15 July 2020 and continued until 30 September
2021. Following this a rate of 12.5% applied for the subsequent six
months until 31 March 2022. The estimated impact of this on food
and drink revenue in FY 2022 is GBP43m (FY 2021 GBP81m).
Interest
Net finance costs of GBP114m for the year were GBP6m lower than
the same period last year, with annual amortisation reducing the
value of securitised debt.
The net pensions finance charge was GBP2m (FY 2021 GBP3m). The
net pensions charge for next year is expected to remain at the same
level.
Earnings per share
Basic earnings per share, after the separately disclosed items
described above, were 2.2p (FY 2021 loss (11.5)p), adjusted
earnings per share (a) were 18.0p (FY 2021 loss (13.6)p).
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 597m.
Cash flow
FY 2022 FY 2021
GBPm GBPm
EBITDA before movements in the valuation
of the property portfolio 374 182
Non-cash share-based payment and pension
costs and other 6 13
Operating cash flow before movements
in working capital and additional pension
contributions 380 195
Working capital movement 19 7
Pension deficit contributions (44) (52)
-------- --------
Cash flow from operations 355 150
Capital expenditure (122) (33)
Net finance lease principal payments (45) (41)
Interest on lease liabilities (16) (21)
Net interest paid (99) (104)
Tax (2) 1
Issue and purchase of shares (1) 341
Other 1 -
Repayment under liquidity facility - (9)
Repayment of term loan - (100)
Repayment of revolving credit facilities - (10)
Net cash flow before bond amortisation 71 174
Mandatory bond amortisation (110) (104)
-------- --------
Net cash flow (39) 70
The business generated GBP374m of EBITDA before movements in the
valuation of the property portfolio. This is notably higher than
last year due to FY 2021 being significantly impacted by Covid-19
closures and restrictions.
Capital expenditure has increased in FY 2022 as the capital
programme resumed following reduced activity in the prior period
due to the cash management strategy adopted in response to Covid-19
restrictions.
In FY 2021, share issue proceeds reflect the equity raise of
GBP351m less GBP9m transaction fees and GBP1m purchase of own
shares.
Before mandatory bond amortisation, cash inflow was GBP71m (FY
2021 GBP174m). After mandatory bond amortisation, cash outflow was
GBP39m (FY 2021 inflow of GBP70m).
Capital expenditure
Capital expenditure of GBP122m (FY 2021 GBP33m) comprises
GBP117m from the purchase of property, plant and equipment and
GBP5m in relation to the purchase of intangible assets.
Capital expenditure remains a priority for the business but was
below targeted levels due primarily to global supply chain
disruption and delays in obtaining planning consent, resulting in
reduced project completions. We expect capital expenditure for FY
2023 to increase further to approximately GBP200m.
FY 2022 FY 2021
GBPm # GBPm #
--------------------------------- ----- ---- ----- ---
Maintenance and infrastructure 39 14
Remodels - refurbishment 60 155 9 21
Remodels - expansionary 2 5 1 2
Conversions 6 6 2 5
Acquisitions - freehold 14 3 7 2
Acquisitions - leasehold 1 1
Total return generating capital
expenditure 83 170 19 30
Total capital expenditure 122 33
The three freehold acquisitions represent the purchase of three
properties previously held as leasehold.
Property
In line with our property valuation policy a red book valuation
of the freehold and long leasehold estate has been completed in
conjunction with the independent property valuer, CBRE. In
addition, the Group has undertaken an impairment review on short
leasehold and unlicensed properties. The overall property portfolio
valuation of c. GBP4bn has decreased by GBP282m (FY 2021 increase
of GBP196m). This reflects GBP95m impairment separately disclosed
in the income statement and a GBP187m decrease in the revaluation
reserve. In addition to this, there was a GBP22m impairment of
right-of-use assets, separately disclosed in the income
statement.
Pensions
During the period, the trustees of the M&B Executive Pension
Plan (MABEPP), working closely with the Company, have successfully
completed a full scheme buy-in with Legal and General Assurance
Society Limited. This transaction eliminates substantially all
remaining risk in this scheme within the level of existing
committed contributions. The MABEPP makes up approximately 20% of
the Company's total pension obligations, with the vast majority of
the balance being in the M&B Pension Plan (MABPP).
The latest triennial pension valuations of both schemes are
assessed as at 31 March 2022 (2019 GBP293m combined deficit).
MABEPP having already achieved buy-in, requires only limited future
funding to cover its running costs and any data true ups.
Preliminary results for MABPP show a significant improvement in the
actuarial funding position. Once the valuations are agreed, the
future contributions to be made by the company until 2023 should
remain unchanged, but with all monies now being made into blocked
escrow accounts.
Net debt(a) and facilities
Following the adoption of IFRS 16 in FY 2020, leases are now
included in net debt(a) . Net debt(a) at the period end was
GBP1,679m, comprised of GBP1,198m non-lease liabilities and lease
liabilities of GBP481m (FY 2021 GBP1,783m comprised of GBP1,270m
non-lease liabilities and lease liabilities of GBP513m).
In addition to the securitisation, the Group has a GBP150
million unsecured facility expiring in February 2024. Further
details of existing debt arrangements and an analysis of net
debt(a) can be found in Note 9 to the financial statements and at
https://www.mbplc.com/infocentre/debtinformation/ .
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. However,
given the prevailing high level of unpredictability and uncertainty
concerning both sales and, particularly, cost inflation, the
Directors have concluded that a material uncertainty exists which
may cast significant doubt over the Group's ability to trade as a
going concern, in which case it may be unable to realise its assets
and discharge its liabilities in the normal course of business.
Accordingly, the financial statements continue to be prepared on
the going concern basis but with material uncertainty arising from
the impact of macro-economic factors on the group's compliance with
financial covenants and its liquidity. Full details are included in
Note 1.
Director's responsibility statement
The 2022 Annual Report and Accounts which will be issued in
December 2022, 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 6 December 2022, 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 6 December 2022 and is signed on its behalf by:
Tim Jones
Chief Financial Officer
6 December 2022
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. Key measures are
explained later in this announcement.
Group income statement
For the 52 weeks ended 24 September 2022
2022 2021
52 weeks 52 weeks
--------- ---------
Before Before
separately Separately separately Separately
disclosed disclosed disclosed disclosed
items items Total items items (a) Total
(a)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ------------------ -------- ------------------- ------------------- --------
Revenue 2 2,208 - 2,208 1,065 - 1,065
Operating costs
before
depreciation,
amortisation
and movements
in the valuation
of the property
portfolio 3 (1,836) - (1,836) (898) 13 (885)
Share in
associates
results 1 - 1 1 - 1
Net profit
arising
on property
disposals - 1 1 - 1 1
EBITDA (b) before
movements in
the valuation
of the property
portfolio 373 1 374 168 14 182
Depreciation,
amortisation
and movements
in the valuation
of the property
portfolio 3 (133) (117) (250) (139) 38 (101)
------------------ ------------------ -------- ------------------- ------------------- --------
Operating
profit/(loss) 240 (116) 124 29 52 81
Finance costs 10 (115) - (115) (122) - (122)
Finance income 10 1 - 1 2 - 2
Net pensions 10,
finance charge 11 (2) - (2) (3) - (3)
------------------ ------------------ -------- ------------------- ------------------- --------
Profit/(loss)
before tax 124 (116) 8 (94) 52 (42)
Tax
(charge)/credit 5 (17) 22 5 17 (40) (23)
------------------ ------------------ -------- ------------------- ------------------- --------
Profit/(loss)
for the period 107 (94) 13 (77) 12 (65)
================== ================== ======== =================== =================== ========
Earnings/(loss)
per ordinary
share
Basic 6 18.0p 2.2p (13.6)p (11.5)p
Diluted 6 18.0p 2.2p (13.6)p (11.5)p
================== ======== =================== ========
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.
These measures are explained later in this announcement.
All results relate to continuing operations.
Group statement of comprehensive income
For the 52 weeks ended 24 September 2022
2022 2021
52 weeks 52 weeks
Notes GBPm GBPm
--------- ---------
Profit/(loss) for the period 13 (65)
--------- ---------
Items that will not be reclassified subsequently
to profit or loss:
Unrealised (loss)/gain on revaluation of
the property portfolio 7 (187) 150
Remeasurement of pension liability 11 41 9
Tax relating to items not reclassified 5 32 (97)
(114) 62
--------- ---------
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation of
foreign operations 2 (1)
Cash flow hedges:
- Gains arising during the period 180 32
- Reclassification adjustments for items
included in profit or loss 1 56
Tax relating to items that may be reclassified 5 (45) (4)
138 83
Other comprehensive income after tax 24 145
--------- ---------
Total comprehensive income for the period 37 80
========= =========
Group balance sheet
24 September 2022 2022 2021
Notes GBPm GBPm
--------------------------------- ---------------------
Assets
Goodwill and other intangible assets 14 13
Property, plant and equipment 7 4,194 4,442
Right-of-use assets 8 339 379
Interests in associates 6 5
Finance lease receivables 12 14
Deferred tax asset 4 4
Derivative financial instruments 56 29
Total non-current assets 4,625 4,886
Inventories 23 19
Trade and other receivables 90 48
Current tax asset 1 3
Finance lease receivables 1 1
Derivative financial instruments 4 -
Cash and cash equivalents 9 207 252
Total current assets 326 323
Total assets 4,951 5,209
--------------------------------- ---------------------
Liabilities
Pension liabilities 11 (42) (51)
Trade and other payables (408) (333)
Current tax liabilities - (2)
Borrowings 9 (130) (134)
Lease liabilities 8 (53) (50)
Derivative financial instruments - (37)
Total current liabilities (633) (607)
Pension liabilities 11 (22) (92)
Borrowings 9 (1,334) (1,416)
Lease liabilities 8 (428) (463)
Derivative financial instruments (28) (172)
Deferred tax liabilities (354) (346)
Provisions (9) (9)
--------------------------------- ---------------------
Total non-current liabilities (2,175) (2,498)
Total liabilities (2,808) (3,105)
Net assets 2,143 2,104
================================= =====================
Equity
Called up share capital 12 51 51
Share premium account 12 357 356
Capital redemption reserve 3 3
Revaluation reserve 1,009 1,150
Own shares held (5) (3)
Hedging reserve (20) (156)
Translation reserve 15 13
Retained earnings 733 690
Total equity 2,143 2,104
================================= =====================
Group statement of changes in equity
For the 52 weeks ended 24 September 2022
Called Share Capital Own
up premium redemption Revaluation shares Hedging Translation Retained Total
share
capital account reserve reserve held reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- ---------- ----------- ------ ------- ------------- -------- -------
At 26 September
2020 37 28 3 1,117 (3) (240) 14 722 1,678
Loss for the
period - - - - - - - (65) (65)
Other
comprehensive
income/(expense) - - - 33 - 84 (1) 29 145
Total
comprehensive
income/(expense) - - - 33 - 84 (1) (36) 80
Share capital
issued 14 328 - - - - - - 342
Purchase of own
shares - - - - (1) - - - (1)
Release of own
shares - - - - 1 - - (1) -
Credit in respect
of share-based
payments - - - - - - - 3 3
Tax credit on
share-based
payments - - - - - - - 2 2
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
======= ======= ========== =========== ====== ======= ============= ======== =======
Group cash flow statement
For the 52 weeks ended 24 September 2022
2022 2021
52 weeks 52 weeks
Notes GBPm GBPm
---------- ------------------
Cash flow from operations
Operating profit 124 81
Add back/(deduct):
Movement in the valuation of the property portfolio 3 117 (38)
Net profit arising on property disposals 3 (1) (1)
Depreciation of property, plant and equipment 7 93 98
Amortisation of intangibles 4 4
Depreciation of right-of-use assets 8 36 37
Loss on disposal of fixtures, fittings and
equipment - 2
Cost charged in respect of share-based payments 4 3
Past service cost in relation to the defined
benefit pension obligation 11 - 3
Administrative pension costs 11 4 5
Share of associates results (1) (1)
Impairment of finance lease receivables - 2
---------- ------------------
Operating cash flow before movements in working
capital
and additional pension contributions 380 195
(Increase)/decrease in inventories (3) 3
Increase in trade and other receivables (19) (7)
Increase in trade and other payables 42 10
(Decrease)/increase in provisions (1) 1
Additional pension contributions 11 (44) (52)
---------- ------------------
Cash flow from operations 355 150
Interest payments(a) (67) (65)
Interest payments on interest rate swaps(a) (33) (40)
Interest receipts on cross currency swap(a) 1 1
Interest payments on cross currency swap(a) (1) (1)
Other interest paid - lease liabilities (16) (21)
Borrowing facility fees paid - (1)
Interest received 10 1 1
Tax (paid)/received (2) 1
Net cash from operating activities 238 25
Investing activities
Purchases of property, plant and equipment (117) (29)
Purchases of intangible assets (5) (4)
Proceeds from sale of property, plant and equipment 1 1
Finance lease principal repayments received 3 -
Net cash used in investing activities (118) (32)
Financing activities
Issue of ordinary share capital 12 1 342
Purchase of own shares (2) (1)
Repayment of principal in respect of securitised
debt(b) 9 (115) (107)
Principal receipts on currency swap(b) 9 20 17
Principal payments on currency swap(b) 9 (15) (14)
Repayment of liquidity facility - (9)
Repayment of term loan - (100)
Repayment of unsecured revolving credit facilities - (10)
Cash payments for the principal portion of
lease liabilities 9 (48) (41)
Net cash (used in)/from financing activities (159) 77
Net (decrease)/increase in cash and cash equivalents (39) 70
Cash and cash equivalents at the beginning
of the period 9 227 158
Foreign exchange movements 2 (1)
Cash and cash equivalents at the end of the
period 9 190 227
========== ==================
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 International Financial
Reporting Standards (IFRSs) as adopted within the UK 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
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 52 week period ended 24 September 2022. The comparative period
is for the 52 week period ended 25 September 2021. The respective
balance sheets have been drawn up as at 24 September 2022 and 25
September 2021.
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
these financial statements after assessing the impact of identified
principal risks and their possible adverse impact on financial
performance, specifically revenue and cash flows.
The Group's primary source of borrowings is through ten tranches
of fully amortising loan notes with a gross debt value of GBP1.4bn
as at the end of the period. These are secured against the majority
of the Group's property and its future income streams. The
principal repayment period varies by class of note with maturity
dates ranging from 2023 to 2036, with GBP116m amortisation payments
falling due within the going concern period.
The Group also has available a committed unsecured credit
facility of GBP150m which has a maturity date in February 2024. At
the balance sheet date there were no drawings under these
facilities.
Last year the Group launched an Open Offer to shareholders
resulting in an inflow of GBP351m of additional funds, gross of
transaction costs, on 12 March 2021. This significantly enhanced
the financial position of the Group. Further, and contingent on
this equity raise, new debt arrangements were secured by agreement
with the Group's main stakeholders. In summary:
-- The establishment of the GBP150m 3 year unsecured revolving
credit facility due to expire in February 2024, referred to
above.
-- Agreement to a number of covenant waivers and amendments with
Ambac Assurance UK Ltd, as controlling creditor, and HSBC Trustee
(CI), as trustee, running until January 2023 to provide flexibility
and stability to manage the Group's secured debt financing
structure.
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 24 September 2022
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. These tests were waived until January 2022
(two-quarter) and April 2022 (four-quarter) and then set as
transitioning to their full level of a minimum of 1.1 times by
January 2023.
U nsecured facilities were initially measured only against a
liquidity covenant, against which there was substantial headroom,
until the end of Q3 FY22. Following this date further covenants
were introduced relating to the ratio of EBITDAR to rent plus
interest (at a minimum of 1.5 times) and net debt to EBITDA (to be
no more than 3.0 times) based on the performance of the unsecured
estate, both tested on a half-yearly basis.
Notes to the consolidated financial statements (continued)
1. Preparation of preliminary consolidated financial statements
(continued)
Going concern (continued)
In the year ahead the main uncertaint ies are considered to be
the maintenance of growth in sales in the face of pressure on
consumer spending power in an environment of falling real wages,
and the future outlook for cost inflation across the whole of the
cost base but most notably in energy prices, food costs and wages
and salaries. The outlook for these is highly uncertain and
volatile, particularly energy costs in the second half of FY 2023,
and will depend on a number of factors including consumer
confidence, global political developments and supply chain
disruptions and government policy.
The Directors have reviewed t he financing arrangements against
a forward trading forecast in which they have considered the
Group's current financial position. This forecast assumes further
growth in sales beyond pre-pandemic levels and on the prior year
slightly below the level generated in recent months. Costs are also
assumed to continue to increase in line with recent experience
blending at an expected increase of c10% across the cost base of
the business of approximately GBP1.8bn. Under this base case the
Group is able to stay within revised committed facility financial
covenants, albeit with limited headroom, and maintains sufficient
liquidity.
T he 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,
but limited, mitigation activity is taken including lower capital
expenditure on site remodel activity and a flex down of labour
costs in line with reduced sales. In this scenario sales are
assumed to remain in growth but at a level further below current
run rates, and the impact of unmitigated cost inflation is higher
particularly in the areas of food, labour and energy aggregating to
12% of the cost base. In this downside scenario, whilst the Group
retains sufficient liquidity throughout the period based on
existing facilities, covenants would be breached in the fourth
quarter of the year in both secured and unsecured facilities. Under
such a scenario the Directors believe that, on the basis of
previous waivers secured, the strong asset base and longer term
trading prospects, waivers should be forthcoming from main
stakeholders. However this is not within the Group's control and as
a result the Directors cannot conclude that the possibility of an
un-waived breach of covenant is remote.
After due consideration of these factors, the Directors believe
that it remains appropriate to prepare the financial statements on
a going concern basis. However, the circumstances outlined above,
in particular the uncertainty concerning sales and cost inflation
with the resulting possibility of an un-waived covenant breach, and
ultimately the need to renew unsecured facilities on or before
February 2024, indicate the existence of a material uncertainty
related to events or conditions that may cast significant doubt
over the Group's and the Company's ability to realise their assets
and discharge their liabilities in the normal course of business.
The financial statements do not include any adjustments that would
arise from the basis of preparation being inappropriate.
Foreign currencies
The results of overseas operations have been translated into
sterling at the weighted average euro rate of exchange for the
period of GBP1 = EUR1.18 (2021 GBP1 = EUR1.15), where this is a
reasonable approximation to the rate at the dates of the
transactions. Euro and US dollar denominated assets and liabilities
have been translated at the relevant rate of exchange at the
balance sheet date of GBP1 = EUR1.12 (2021 GBP1 = EUR1.17) and GBP1
= $1.09 (2021 GBP1 = $1.37) 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.
Notes to the consolidated financial statements (continued)
1. Preparation of preliminary consolidated financial statements
(continued)
Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9
Financial Instruments, IAS 39 Financial Instruments: Recognition
and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4
Insurance Contracts, IFRS 16 Leases)
The Group has adopted the amendments to IFRS 9, included in
Phase 2 of the Interest Rate Benchmark Reform, in the current
period, which address issues that might affect financial reporting
during the reform of an interest rate benchmark. This includes the
effects of changes to contractual cash flows or hedging
relationships arising from the replacement of an interest rate
benchmark with an alternative benchmark rate.
A number of the Group's financial instruments had LIBOR as their
interest reference rate at the start of the period. During the
period, the Group completed the necessary amendments to transition
its financing arrangements in advance of the discontinuation of
LIBOR as a floating reference rate, replacing LIBOR with a Sterling
Overnight Index Average (SONIA) based rate in respect of sterling
and a Secured Overnight Financing Rate (SOFR) based rate in respect
of US dollars. The amendments in respect of the securitised bonds
were agreed by the Bondholders through a formal consent
solicitation process and bilateral agreements were reached with
securitised swap providers (using amended reference rates
consistent with those agreed under the bonds). All sterling based
facilities and agreements referencing sterling LIBOR transitioned
in the period and now reference SONIA, plus a credit adjustment
spread of 11.93 basis points to maintain an economically equivalent
position, for periods commencing on or after 1 January 2022. The
facilities currently referencing US dollar LIBOR will transition to
SOFR plus 26.161 basis points for periods commencing on or after 1
July 2023. The liquidity facility and the unsecured committed
facility were arranged on a SONIA basis in the prior period, so did
not require any further amendment.
As part of the transition, all of the Group's hedge
relationships have been reviewed and these continue to be highly
effective. Hedge documentation has been updated in accordance with
the reliefs permitted in the amendments to IFRS 9, designating the
new interest reference rate in both the hedged item and the hedging
instrument. As a result of the transition, there has been no impact
on the amounts recognised in the income statement or statement of
other comprehensive income.
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.
In the current and prior periods there has been significant
judgement in the following areas:
-- Going concern assessment - including estimation uncertainty
in the forecasts used for this assessment. Full details are
provided in the going concern review above.
-- Fair value of freehold and long leasehold properties - see note 7
Other areas of judgement are described in each section listed
below:
-- Note 3 Separately disclosed items
-- Note 7 Property, plant and equipment
-- Note 8 Leases
-- Note 11 Pensions
Other sources of estimation uncertainty are described in:
-- Note 7 Property, plant and equipment
-- Note 8 Leases
-- Note 11 Pensions
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
-------------------------- ------------------------------ ------------------------------
2022 2021 2022 2021 2022 2021
52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
GBPm GBPm GBPm GBPm GBPm GBPm
---------- ---------- ---------- ---------- ---------- ----------
Revenue - sales
to third parties 2,117 1,009 91 56 2,208 1,065
Segment
non-current
assets(a) 4,524 4,817 41 36 4,565 4,853
a. Includes balances relating to intangibles, property, plant and
equipment, right-of-use assets, investments in associates and
finance lease receivables.
3. Separately disclosed items
The items identified in the current period are as follows:
2022 2021
52 weeks 52 weeks
Notes GBPm GBPm
--------- ---------
Separately disclosed items
Past service cost in relation to the defined
benefit obligation a - (3)
Costs directly associated with Covid-19 and
the enforced closure of pubs b - (4)
Gaming machine settlement c - 20
Total separately disclosed items recognised
within operating costs - 13
Net profit arising on property disposals 1 1
Movement in the valuation of the property portfolio:
- (Impairment charge)/impairment reversal arising
from the revaluation of freehold and long leasehold
properties d (86) 51
- Impairment of freehold and long leasehold
tenant's fixtures and fittings e - (3)
- Impairment of short leasehold and unlicensed
properties f (9) (2)
- Impairment of right-of-use assets g (22) (8)
Net movement in the valuation of the property
portfolio (117) 38
Total separately disclosed items before tax (116) 52
Tax credit/(charge) relating to above items 22 (11)
Tax charge relating to change in tax rate h - (29)
--------- ---------
22 (40)
Total separately disclosed items after tax (94) 12
========= =========
a. On 20 November 2020, the High Court ruled that pension schemes
will need to revisit individual transfer payments since 17
May 1990 to check if any additional value is due as a result
of guaranteed minimum pensions (GMPs) equalisition. This latest
judgement followed on from the ruling regarding GMPs on 26
October 2018 and requires that schemes make a top-up payment
to any member who exercised their statutory right to transfer
benefits to an alternative scheme. The top-up payment should
be the shortfall between the original transfer payments and
what would have been paid if benefits had been equalised at
the time, with interest in line with bank base rate plus 1%
each year. The past service cost recognised in the prior period
was an estimate of the impact to the Group's schemes as a result
of this ruling.
b. Costs directly associated with the Covid-19 pandemic primarily
relate to the disposal of stock items at site and within distribution
depots that are beyond usable dates as a result of the Government
enforced closure of pubs during periods of local and national
lockdown. These costs are not considered to be part of normal
trading activity.
c. In the prior period, a decision of a First-Tier tribunal in
the case of the Rank Group Plc against HMRC, for the period
post-2005, was given in favour of the taxpayers, with HMRC
subsequently confirming it will not appeal against the decision
and will now pay valid claims. As a result, the Group resubmitted
a claim to HMRC covering the period from 2005 to 2012 for VAT
on gaming machine income. An estimate of the amount receivable,
including interest, of GBP20m was recognised in the prior period.
d. 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.
e. Impairment of freehold and long leasehold tenant's fixtures
and fittings where their carrying values exceed their recoverable
amounts. See note 7 for further details.
f. Impairment of short leasehold and unlicensed properties where
their carrying values exceed their recoverable amounts. See
note 7 for further details.
g. Impairment of right-of-use assets where their carrying values
exceed their recoverable amounts. See note 8 for further details.
h. A deferred tax charge was recognised in the prior period following
the substantive enactment of legislation which increased the
UK standard rate of corporation tax from 19% to 25% from 1
April 2023.
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.
Local Authority grants
Following the outbreak of the Covid-19 global pandemic in early
2020 and the subsequent enforced
closure of the business, the Mitchells & Butlers Group
(MAB), under the Temporary Framework for State
Aid for Covid-19 Reponses (TF), has received a number of
different areas of support from both local and
central Government in the UK and also Germany. During the prior
period, the Group applied for various
Local Authority grants as a result of both local and national
restrictions that required pubs and restaurants
to close. Under these schemes, businesses in the retail,
hospitality and leisure sectors in England and
Germany were entitled to one-off cash grants for each business
impacted. The maximum amount the
Group was able to claim was GBP10.9m as a result of the State
Aid cap. However, following the EU Court
ruling on State Aid aggregation, it has now become clear that
aid provided to a Group via different
countries does not require aggregation for the purposes of the
State Aid cap provided there is sufficient
autonomy between subsidiaries operating in different countries.
As a result, the Group has sufficient
headroom to recognise further support, albeit subject to the
individual caps applicable in both the UK and
Germany. This has resulted in the recognition of an additional
GBP2m of income in the current period.
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. Under this
scheme, the maximum amount the Group was able to claim was
GBP1.3m.
German Government grants
During the prior period, the Group was entitled to receive
Government assistance in Germany as a result of
Covid-19 in relation to the pubs and restaurants that are
operated there. Assistance was received in
relation to staff wages and salaries under Kurzarbeit. In
addition the German Government provided grants
to assist with loss of profits during enforced closure periods
under the November 2020 Support and
December 2020 Support schemes, as well as the Fixed Cost
Bridging Aid scheme. These grants all fell
outside of the Temporary Framework and were therefore excluded
from the State Aid maximum rules.
Following the impact of the Omicron variant in December 2021,
further grant claims have been made in the current period for costs
incurred during periods of significantly lower sales under an
extension of the
Bridging Aid scheme.
Business rates
Businesses in the retail, hospitality and leisure sectors in
England, Scotland and Wales were granted 100% business rates relief
for the 2020/21 rates year, covering the period from 1 April 2020
to 31 March 2021. An additional three months of 100% business rates
relief was granted to cover 1 April 2021 to 30 June 2021. Following
this, in England, business rates were discounted by two-thirds from
1 July 2021 until 31 March 2022, subject to a GBP2m cap. In
Scotland and Wales, there was an extension of 100% rates relief for
hospitality businesses until 31 March 2022.
Apprenticeship incentives
The Group is entitled to claim GBP1,000 for each apprentice
employed, where they are aged 16 to 18, or
under 25 and meet certain other criteria.
As part of its response to the Covid-19 pandemic, the UK
Government introduced a scheme to enable an
employer to receive up to an additional GBP3,000 per apprentice,
where the apprentice commenced
employment between 1 August 2020 and 31 January 2022. The
payment is phased with amounts due in
equal instalments at 90 days and 365 days after employment
commenced and is recognised on receipt of
cash.
4. Government grants (continued)
Coronavirus Job Retention Scheme (CJRS)
Under this scheme, HMRC reimbursed up to 80% of the wages of
certain employees who were
furloughed. The scheme was designed to compensate for staff
costs, so amounts received were recognised in the income statement
over the same period as the costs to which they relate. In the
income statement, operating costs are shown net of grant income
received. The scheme commenced on 20 March 2020 and continued until
30 September 2021. A similar scheme operated in Germany
(Kurzarbeit).
The impact of grants received on the income statement is as
follows:
Government grant scheme Income statement line 2022 2021
impact
52 weeks 52 weeks
GBPm GBPm
--------- ---------
Local Authority Grants
(UK and Germany) Revenue - other 3 11
Grants for loss of profits
in Germany Revenue - other 1 14
Apprenticeship incentives Revenue - other 1 -
Coronavirus Job Retention Operating costs before
Scheme separately disclosed items - 210
Government assistance
for wages and salaries Operating costs before
in Germany (Kuzarbeit) separately disclosed items - 9
Total Government grants
received 5 244
========= =========
In addition to the grants received above, the impact in the
current period of business rates relief received, across all sites
within the UK, is an estimated saving of GBP5m (2021 GBP75m).
The Group has also benefited from a reduction in the rate of VAT
from 20% to 5% on non-alcoholic sales which was introduced by the
UK Government on 15 July 2020 and continued until 30 September
2021. Following this a rate of 12.5% applied for the subsequent six
months until 31 March 2022. The estimated impact of this on food
and drink revenue in the current period is GBP43m (2021
GBP81m).
5. Taxation
Taxation - Group income statement
2022 2021
52 weeks 52 weeks
GBPm GBPm
--------- ---------
Current tax:
* Corporation tax (3) (2)
* Amounts over provided in prior periods 1 4
---- -----
Total current tax (charge)/credit (2) 2
----
Deferred tax:
* Origination and reversal of temporary differences 3 8
* Effect of changes in UK tax rate 4 (29)
- Adjustments in respect of prior periods - (4)
-----
Total deferred tax credit/(charge) 7 (25)
-----
Total tax credit/(charge) in the Group income statement 5 (23)
=====
Further analysed as tax relating to:
Profit/(loss) before separately disclosed items (17) 17
Separately disclosed items 22 (40)
----- -----
5 (23)
===== =====
The standard rate of corporation tax applied to the reported
profit/(loss) is 19.0% (2021 19.0%).
The tax credit (2021 charge) in the Group income statement for
the period is lower than (2021 lower) the standard rate of
corporation tax in the UK. The differences are reconciled
below:
2022 2021
52 weeks 52 weeks
GBPm GBPm
--------- ---------
Profit/(loss) before tax 8 (42)
Taxation (charge)/credit at the UK standard rate
of corporation tax of 19.0% (2021 19.0%) (1) 8
Expenses not deductible (2) (2)
Income not taxable 4 1
Tax credit/(charge) in respect of change in UK tax
rate 4 (29)
Adjustment in respect of prior periods 1 -
Effect of different tax rates of subsidiaries in
other jurisdictions (1) (1)
Total tax credit/(charge) in the Group income statement 5 (23)
========= =========
Taxation for other jurisdictions is calculated at the rates
prevailing in those jurisdictions.
5. Taxation (continued)
2022 2021
52 weeks 52 weeks
GBPm GBPm
--------- ---------
Deferred tax in the Group income statement:
Accelerated capital allowances (12) (13)
Retirement benefit obligations (8) (29)
Unrealised gains on revaluations 23 -
Tax losses - UK (9) 35
Tax losses - Interest restriction 13 -
Share-based payments - 1
Rolled over and held over gains - (19)
Depreciated non qualifying assets - (1)
Right-of-use assets - 1
Total deferred tax credit/(charge) in the Group
income statement 7 (25)
========= =========
Taxation - other comprehensive income
2022 2021
52 weeks 52 weeks
GBPm GBPm
--------- ---------
Deferred tax:
Items that will not be reclassified subsequently
to profit or loss:
* Unrealised losses/gains due to revaluations -
revaluation reserve 46 (117)
* Unrealised losses/gains due to revaluations -
retained earnings (5) 16
* Rolled over and held over gains - retained earnings - (20)
* Remeasurement of pension liability and rate change of
pension liability (9) 24
--------- ---------
32 (97)
--------- ---------
Items that may be reclassified subsequently to profit
or loss:
* Cash flow hedges (45) (4)
Total tax charge recognised in other comprehensive
income (13) (101)
========= =========
2022 2021
52 weeks 52 weeks
GBPm GBPm
----------- ------------
Tax relating to items recognised directly in equity
Deferred tax:
- Tax (charge)/credit related to share-based payments (1) 2
=========== ============
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
25 September 2021 and 24 September 2022.
6. Earnings/(loss) per share
Basic earnings/(loss) per share (EPS) has been calculated by
dividing the profit or loss 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/(loss) per share, the weighted average
number of ordinary shares is adjusted to assume conversion of all
dilutive potential ordinary shares.
Adjusted earnings/(loss) 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/(losses) used for the earnings/(loss) per share
calculations are as follows:
2022 2021
52 weeks 52 weeks
GBPm GBPm
--------- ---------
Profit/(loss) for the period 13 (65)
Separately disclosed items, net of tax 94 (12)
--------- ---------
Adjusted profit/(loss) for the period(a) 107 (77)
========= =========
a. Adjusted profit/(loss) 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.
The number of shares used for the earnings/(loss) per share
calculations are as follows:
2022 2021
52 weeks 52 weeks
million million
--------- ---------
Basic weighted average number of ordinary shares 595 566
Effect of dilutive potential ordinary shares:
- Contingently issuable shares 1 1
Diluted weighted average number of shares 596 567
--------- ---------
2022 2021
52 weeks 52 weeks
pence pence
--------- ---------
Basic earnings/(loss) per share
Basic earnings/(loss) per share 2.2p (11.5)p
Separately disclosed items net of tax per share 15.8p (2.1)p
--------- ---------
Adjusted basic earnings/(loss) per share 18.0p (13.6)p
========= =========
Diluted earnings/(loss) per share
(11.5)
Diluted earnings/(loss) per share 2.2 p p
(13.6)
Adjusted diluted earnings/(loss) per share(a) 18.0 p p
========= =========
a. Adjusted earnings/(loss) 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 24 September 2022, 4,839,607 (2021 800,570) 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 utilises valuation multiples, which are
determined via third-party inspection of 20% of the sites such that
all sites are individually valued approximately every five years;
estimates of 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. Properties are valued as fully operational entities, to
include fixtures and fittings but excluding stock and personal
goodwill. The value of tenant's fixtures and fittings is then
removed from this valuation via reference to its estimated fair
value. Where sites have been impacted by expansionary capital
investment in the preceding twelve months, fair maintainable trade
is taken as the post-investment forecast, as the current period
trading performance includes a period of closure.
Valuation multiples derived via third-party inspections
determine brand standard multiples which are then used to value the
remainder of the non-inspected estate via an extrapolation
exercise, with the output of this exercise reviewed at a high level
by the Directors and the third-party valuer.
Where the value of land and buildings derived purely from a
multiple applied to the fair maintainable trade misrepresents the
underlying asset value, for example, due to low levels of income or
location characteristics, a spot valuation is applied.
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. An impairment loss is recognised whenever the
carrying amount of an asset exceeds its recoverable amount. The
recoverable amount is the higher of fair value less costs to sell
or value in use. Any changes in outlet earnings or cash flows, the
discount rate applied to those cash flows, or the estimate of sales
proceeds could give rise to an additional impairment loss.
Property, plant and equipment can be analysed as follows:
2022 2021
GBPm GBPm
------ ------
At beginning of period 4,442 4,305
Additions 130 43
Net (decrease)/increase from property revaluation (273) 201
Impairment of short leasehold properties (9) (5)
Disposals (4) (3)
Depreciation provided during the period (93) (98)
Exchange differences 1 (1)
At end of period 4,194 4,442
====== ======
7. Property, plant and equipment (continued)
Revaluation of freehold and long leasehold properties
The freehold and long leasehold properties have been valued at
fair value, as at 24 September 2022, using information provided by
CBRE, independent chartered surveyors. The valuation 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.
The fair value has been determined having regard to factors such as
current and future projected income levels. As part of this, CBRE
have taken into account the rebuild in trade following reopening as
a result of Covid-19, current cost inflationary pressures notably
on labour and energy costs, as well as location, quality of the pub
restaurant and recent market transactions in the sector. In the
current period, CBRE have increased the property multiples by
removing the deduction applied in the prior period for the expected
impact of Covid-19. Property multiples have returned to pre-Covid
levels, with some brand multiples exceeding the pre-Covid level,
which is a reflection of the current demand in the freehold
licensed property market.
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 by comparing site
recoverable amount to their carrying values. 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.
Recoverable amount is determined as being the higher of fair
value or value in use. Value in use calculations use forecast
trading performance pre-tax cash flows, for years 1 to 3. These
include steady growth in revenue and cost increases, notably across
energy, labour and food, equivalent to c.10% of the cost base in
year 1, with an easing of inflationary pressure in years 2 and 3,
as recent increases in energy prices are assumed to reduce, albeit
they remain significantly ahead of historical levels. The forecast
cash flows are discounted by applying a pre-tax discount rate of
9.65% (2021 9.60%) and a long-term growth rate of 2.0% from year 4
(2021 2.0%). The long-term growth rate is applied to the net cash
flows and is based on up-to-date economic data points.
The impact of the revaluations/impairments described above is as
follows:
2022 2021
52 weeks 52 weeks
GBPm GBPm
---------------- ----------------
Group income statement
Revaluation deficit charged as an impairment (115) (2)
Reversal of past revaluation deficits 29 53
---------------- ----------------
Total impairment (impairment charge)/reversal
arising from the revaluation (86) 51
Impairment of short leasehold and unlicensed
properties (9) (2)
Impairment of freehold and long leasehold tenant's
fixtures and fittings - (3)
Total impairment of short leaseholds, unlicensed
properties and tenant's fixtures and fittings (9) (5)
Total (impairment charge)/ impairment reversal
recognised in the income statement (95) 46
---------------- ----------------
Group statement of other comprehensive income
Unrealised revaluation surplus 60 154
Reversal of past revaluation surplus (247) (4)
---------------- ----------------
Total movement recognised in other comprehensive
income (187) 150
Net (decrease)/increase in property, plant and
equipment (282) 196
================ ================
7. Property, plant and equipment (continued)
Accounting judgements
Revaluation of freehold and long leasehold properties
The revaluation methodology is determined, with advice from
third-party valuers, incorporating 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.
The emergence of the Omicron variant of Covid-19 in November
2021 negatively impacted trade in the first half of the current
financial period. As a result fair maintainable trade at 24
September 2022 has been determined by adjusting the prior period
fair maintainable trade on the basis of turnover (FMT) and
operating profit margin (FMOP) performance trends over the second
half of the financial period. This adjustment is a matter of
judgement that reflects the extent to which licensed property fair
values are being impacted by performance over this period, as
advised by third-party valuers.
Where sites have been impacted by expansionary capital
investment in the preceding twelve months, management judgement is
used to determine the most appropriate source of site level fair
maintainable trade, as the current period trading performance
includes a period of closure. Fair maintainable trade has been
determined by estimating both FMT and FMOP by reference to
post-investment forecasts and turnover trends post opening.
Brand standard property multiples have been established by CBRE
via third-party inspections of 20% of the freehold and long
leasehold licensed property estate. Market conditions that resulted
in Covid-19 multiple reductions in the prior period are no longer
considered relevant by CBRE due to the strength of the property
market. As a result the average multiple adopted has increased at
24 September 2022.
Impairment review of short leasehold and unlicensed
properties
For the short leasehold property 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
2023 to FY 2025 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.
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). FMT and FMOP are determined at a site level by reference to
both historic and future projected income levels. The valuers also
make reference to market evidence of transaction prices for similar
properties to support the multiples adopted. 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 GBP4,036m (2021 GBP4,277m).
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
As noted in the accounting judgements above, fair maintainable
trade in the prior period was determined by reference to the
trading performance up to March 2020, the point of the first full
lockdown following the emergence of Covid-19, in conjunction with
the previous two years of trading performance. In the current
period, site level fair maintainable trade has been adjusted to
reflect more recent performance, by adjusting fair maintainable
turnover (FMT) and fair maintainable operating profit (FMOP) with
reference to both sales and profit margin trends over periods 7 to
12 of FY22 (13 March 2022 to 27 August 2022).
7. Property, plant and equipment (continued)
Significant accounting estimates (continued)
Revaluation of freehold and long leasehold properties
(continued)
In the current period, fair maintainable trade has declined by
8% as a result of the combined impact of the FMT and FMOP
adjustments made. Judgement has been applied to determine the
adjustments to FMT and FMOP, by assessing the extent that current
trading performance is 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 fair maintainable trade used
as the basis in property valuations decline further in line with
EBITDA trends over the second half of the reporting period, fair
maintainable trade may decline by a further 8%. Assuming multiples
remain stable, and without applying any further judgement on the
resulting property valuation, this would generate an approximate
GBP284m 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 0.3, which is considered to be
within the range of reasonably possible outcomes for future
movements in multiples. It is estimated that a 0.3 change in the
multiple would generate an approximate GBP115m movement in
valuation.
Other sources of estimation uncertainty
Impairment review of short leasehold and unlicensed property and
tenant's fixtures and fittings
The impairment review requires three key sources of estimation
uncertainty in calculating the value in use: the estimation of
forecast cash flows for each site; the selection of an appropriate
discount rate and the selection of an appropriate long-term growth
rate. Both the discount rate and long-term growth rate are applied
consistently to each cash-generating unit.
The carrying value of assets to which these estimates apply is
GBP134m (2021 GBP146m).
Sensitivity analysis
Changes in forecast cash flows, the discount rate or the
long-term growth rate could impact the impairment charge recognised
for short leasehold and unlicensed properties.
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 2023 to FY 2025 that was in place at the balance
sheet date. Management has determined a potential downside scenario
to forecast trading as part of the going concern review discussed
in note 1. This would result in an increase of GBP2m to the
impairment 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 the last two
financial periods, the discount rate used in impairment reviews has
moved by 0.1%. There is no material impact on the impairment charge
to changes to the discount rate within a reasonable range.
Long-term growth rate
The long-term growth applied to the net cash flows in the value
in use calculations is 2.0%. There is no reasonable scenario for
the long-term growth rate under which further impairment
occurs.
8. Leases
Right-of-use assets
Right-of-use assets can be analysed as follows
2022 2021
GBPm GBPm
----- -----
At beginning of period 379 402
Additions 26 25
Impairment (22) (8)
Disposals (9) (1)
Depreciation provided during the period (36) (37)
Foreign currency movements 1 (2)
At end of period 339 379
===== =====
Impairment review of right-of-use assets
Right-of-use assets are reviewed for impairment by comparing
site recoverable amount to their carrying values. Any resulting
impairment relates to sites with poor trading performance, where
the output of the calculation is insufficient to justify their
current net book value.
Recoverable amount is determined as being the higher of fair
value or value in use. Value in use calculations use forecast
trading performance pre-tax cash flows, for years 1 to 3. These
include steady growth in revenue and cost increases, notably across
energy, labour and food, equivalent to c.10% of the cost base in
year 1, with an easing of inflationary pressure in years 2 and 3,
as recent increases in energy prices are assumed to reduce, albeit
they remain significantly ahead of historical levels. The forecast
cash flows are discounted by applying a pre-tax discount rate of
9.65% (2021 9.60%) and a long-term growth rate of 2.0% from year 4
(2021 2.0%). The long-term growth rate is applied to the net cash
flows and is based on up-to-date economic data points.
Impairment review of corporate level assets
In addition to the short leasehold property and right-of-use
asset impairment review performed at a cash-generating unit level,
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 additional
impairment has been recognised in the current period. A sensitivity
analysis has been provided below.
Accounting judgements
Impairment of right-of-use assets
Judgement is required when assessing whether a right-of-use
asset should be impaired. As impairment is considered at a
cash-generating unit level, with this being an individual outlet,
the carrying value used in the impairment test, is the total of the
right-of-use asset value and the value held in property, plant and
equipment. As such, the judgements used in the impairment review
are the same as those described in note 7.
Sources of estimation uncertainty
As noted above, the impairment review of right-of-use assets is
performed in combination with the impairment review of property,
plant and equipment. The three key sources of estimation
uncertainty are described in note 7. They are, the estimation of
forecast cash flows for each site; the selection of an appropriate
discount rate and the selection of an appropriate long-term growth
rate.
The carrying value of assets to which these estimates apply is
GBP339m (2021 GBP379m).
8. Leases (continued)
Sources of estimation uncertainty (continued)
Sensitivity analysis
Changes in forecast cash flows, the discount rate or the
long-term growth rate could materially impact the impairment charge
recognised for right-of-use assets. Sensitivity analysis for short
leasehold properties has been provided in note 7.
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 2023 to FY 2025 that was in place at the balance
sheet date. Management have determined a potential downside
scenario to forecast trading as part of the going concern review
discussed in note 1. This would result in an increase of GBP4m to
the impairment recognised against right-of-use assets and no
further impairment charge at a Group level.
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 the last two
financial periods, the discount rate used in impairment reviews has
moved by 0.1%.
Although considered unlikely, movements in the pre-tax discount
rate beyond 10.35% would result in an impairment of c.GBP40m at
Group level for each 0.1% increment.
Long-term growth rate
The long-term growth applied to the net cash flows in the value
in use calculations is 2.0%. There is no reasonable scenario for
the long-term growth rate under which further impairment occurs,
with an almost 1% reduction required before an impairment is
recognised.
Lease liabilities
A maturity analysis of the undiscounted future lease payments
used to calculate the lease liabilities is shown below.
2022 2021
GBPm GBPm
------ ------
Amounts payable under lease liabilities
Due within one year 68 65
Due between one and two years 42 62
Due between two and three years 47 41
Due between three and four years 43 45
Due between four and five years 38 41
Due between five and ten years 162 166
Due between ten and fifteen 113 121
Due between fifteen and twenty 73 79
Due between twenty and twenty five years 24 32
Due between twenty five and thirty years 12 12
Due after thirty years 80 80
------ ------
Total undiscounted lease liabilities 702 744
Less: impact of discounting (221) (231)
------ ------
Present value of lease liabilities 481 513
====== ======
Analysed as:
Current lease liabilities - amounts due within
twelve months 53 50
Non-current lease liabilities - amounts due
after twelve months 428 463
------ ------
481 513
====== ======
9. Borrowings and net debt
Borrowings can be analysed as follows:
2022 2021
GBPm GBPm
------ ------
Current
Securitised debt(a) 113 110
Unsecured revolving credit facilities(b) - (1)
Overdraft(c) 17 25
Total current 130 134
Non-current
Securitised debt(a) 1,334 1,416
Total borrowings 1,464 1,550
====== ======
a. Stated net of deferred issue costs.
b. As at 24 September 2022 the amount of GBPnil (2021 (GBP1m) 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.
2022 2021
GBPm GBPm
-------- ------------
Analysis by year of repayment
Due within one year or on demand 130 134
Due between one and two years 182 142
Due between two and five years 412 390
Due after five years 740 884
-------- ------------
Total borrowings 1,464 1,550
======== ============
Both the secured debt and unsecured revolving credit facility
are governed by various covenants. Further details of the covenants
are provided in the going concern review in note 1
Net debt
Net debt can be analysed as follows:
2022 2021
GBPm GBPm
-------------- --------------
Cash and cash equivalents 207 252
Overdraft (17) (25)
-------------- --------------
Cash and cash equivalents as presented in
the cash flow statement(a) 190 227
Securitised debt (1,447) (1,526)
Unsecured revolving credit facility - 1
Derivatives hedging securitised debt (b) 59 28
Net debt excluding leases (1,198) (1,270)
Lease liabilities (481) (513)
Net debt including leases (1,679) (1,783)
============== ==============
a. Cash and cash equivalents, in the cash flow statement, are presented
net of an overdraft within a cash pooling arrangement, to which
the Group has a legal right of offset.
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.
9. Borrowings and net debt (continued)
2022 2021
52 weeks 52 weeks
Movement in net debt excluding leases GBPm GBPm
-------------------- ------------------
Net (decrease)/increase in cash and cash equivalents (39) 70
Add back cash flows in respect of other components
of net debt:
Principal repayments on securitised debt 115 107
Principal receipts on cross currency swap (20) (17)
Principal payments on cross currency swap 15 14
Repayment of term loan - 100
Repayment of unsecured revolving credit facilities - 10
Repayment of liquidity facility - 9
Decrease in net debt arising from cash flows 71 293
Movement in capitalised debt issue costs net
of accrued interest (1) 1
Decrease in net debt excluding leases 70 294
Opening net debt excluding leases (1,270) (1,563)
Foreign exchange movements on cash 2 (1)
Closing net debt excluding leases (1,198) (1,270)
==================== ==================
Movement in lease liabilities:
2022 2021
52 weeks 52 weeks
GBPm GBPm
---------- ----------
Opening lease liabilities (513) (541)
Additions(a) (25) (22)
Covid-19 rent concessions(b) - 2
Interest charged during the period (16) (17)
Repayment of principal 48 41
Payment of interest 16 21
Disposals 11 1
Foreign currency movements (2) 2
---------- ----------
Closing lease liabilities (481) (513)
========== ==========
a. Additions to lease liabilities include new leases and lease
extensions or rent reviews relating to existing leases.
b. During the prior period, the Group has reached agreement with
a number of landlords to waive a portion of rent that was due
during periods of enforced pub closure as a result of Covid-19.
10. Finance costs and income
2022 2021
52 weeks 52 weeks
GBPm GBPm
----------- -------------
Finance costs
Interest on securitised debt (94) (98)
Interest on other borrowings (5) (7)
Interest on lease liabilities (16) (17)
Total finance costs (115) (122)
=========== =============
Finance income
Interest receivable - cash 1 2
=========== =============
Net pensions finance charge (note 11) (2) (3)
=========== =============
11. Pensions
Accounting judgements
The calculation of the defined benefit liabilities requires
management judgement to select an appropriate high-quality
corporate bond to determine the discount rate. The most significant
criteria considered for the selection of bonds include the rating
of the bonds and the currency and estimated term of the retirement
benefit liabilities.
In addition, management has used judgement to determine the
applicable rate of inflation to apply to pension increases in
calculating the defined benefit obligation. Details of this are
given below.
Other sources of estimation uncertainty
The calculation of the defined benefit liabilities requires
three key sources of estimation uncertainty in calculating the
value in use: the selection of an appropriate discount rate; the
selection of an appropriate inflation rate; and the selection of
appropriate mortality assumptions.
Measurement of scheme assets and liabilities
MABEPP - buy-in policy transaction
During the period, the Trustees of the MABEPP entered a Bulk
Purchase Agreement (BPA) with Legal and
General Assurance Society Limited. The resulting policy is 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 has been accounted for in
other comprehensive income. The accounting treatment is 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.
Following on from the transaction, the remaining scheduled
contribution payments for the MABEPP are
being paid into a "Blocked Account" from which the funds may be
used by the Trustee or may be returned
to the Company. As a result the payments are no longer
recognised as a minimum funding requirement
and any balance in the Blocked Account has been recognised
within other receivables. The amount recognised as at 24 September
2022 is GBP9m.
11. Pensions (continued)
Actuarial valuation
The actuarial valuations used for IAS 19 (revised) purposes are
based on the results of the latest full actuarial valuation carried
out at 31 March 2019 and updated by the schemes' independent
qualified actuaries to 25 September 2021. Schemes' assets are
stated at market value at 25 September 2021 and the liabilities of
the schemes have been assessed as at the same date using the
projected unit method. IAS 19 (revised) requires that the schemes'
liabilities are discounted using market yields at the end of the
period on high-quality corporate bonds.
The principal financial assumptions have been updated to reflect
changes in market conditions in the period and are as follows:
Main plan Executive Main plan Executive
plan plan
2022 2022 2021 2021
Discount rate 5.3% 5.3% 1.9% 1.9%
Pensions increases -
RPI max 5% 3.2% 3.2% 3.3% 3.3%
Inflation rate - RPI 3.5% 3.5% 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.
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.
2022 2021
52 weeks 52 weeks
Group income statement GBPm GBPm
--------- ---------
Operating profit:
Employer contributions (defined contribution plans) (16) (13)
Administrative costs (defined benefit plans) (4) (5)
--------- ---------
Charge to operating profit before separately disclosed
items (20) (18)
Past service cost - (3)
--------- ---------
Charge to operating profit (20) (21)
Finance costs:
Net pensions finance income on actuarial surplus 8 5
Additional pensions finance charge due to minimum
funding (10) (8)
--------- ---------
Net finance charge in respect of pensions (2) (3)
Total charge (22) (24)
========= =========
2022 2021
52 weeks 52 weeks
Group statement of comprehensive income GBPm GBPm
--------- ---------
Return on scheme assets and effects of changes in
assumptions (161) 19
Movement in pension liabilities recognised due to
minimum funding 202 (10)
--------- ---------
Remeasurement of pension liabilities 41 9
========= =========
11. Pensions (continued)
2022 2021
Group balance sheet GBPm GBPm
------- --------
Fair value of schemes' assets 1,699 2,808
Present value of schemes' liabilities (1,442) (2,438)
------- --------
Actuarial surplus in the schemes 257 370
Additional liabilities recognised due to minimum
funding (321) (513)
------- --------
Total pension liabilities(a) (64) (143)
======= ========
Associated deferred tax asset (note 5) 14 31
======= ========
a. The total pension liabilities of GBP64m (2021 GBP143m) is
presented as a GBP42m current liability (2021 GBP51m) and a GBP22m
non-current liability (2021 GBP92m).
The movement in the actuarial surplus in the period is as
follows:
2022 2021
GBPm GBPm
------ -----
Actuarial surplus at beginning of period 370 302
Interest income 8 5
Return on scheme assets and effects of changes in
assumptions (161) 19
Additional employer contributions 44 52
Past service cost - (3)
Administration costs (4) (5)
-----
At end of period 257 370
====== =====
12. Share capital and share premium
2022 2021
Called up share capital Number of GBPm Number of GBPm
shares shares
------------ ----- ------------ -----
Allotted, called up and
fully paid
Ordinary shares of 8(13/)
(24) p each
At start of period 596,618,849 51 429,201,117 37
Share capital issued(a) 764,514 - 480,126 -
Open offer issued(b) - - 166,937,606 14
At end of period 597,383,363 51 596,618,849 51
a. During the period, the Company issued 764,514 (2021 480,126)
shares at nominal value under share option schemes, for
consideration of GBP65,302 (2021 GBP41,011).
b. On 12 March 2021, the Group completed a fully underwritten
Open Offer share issue to existing shareholders on the basis of 7
shares for every 18 fully paid ordinary shares held. As a result, a
total of 166,937,606 ordinary shares with an aggregate nominal
value of GBP14m were issued for cash consideration of GBP351m.
Transaction costs of GBP9m were incurred which were directly
attributable to the issuance of the new shares, resulting in
GBP328m being recognised in share premium and net cash proceeds of
GBP342m.
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.
12. Share capital and share premium (continued)
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 GBP1m (2021 GBP328m) has been recognised on shares
issued in the period.
13. Financial statements
The preliminary statement of results was approved by the Board
of Directors on 6 December 2022. It does not constitute the Group's
statutory consolidated financial statements for the 52 weeks ended
24 September 2022 or for the 52 weeks ended 25 September 2021. The
financial information is derived from the statutory consolidated
financial statements of the Group for the 52 weeks ended 24
September 2022.
Statutory accounts for 2021 have been delivered to the Registrar
of Companies and those for 2022 will be delivered following the
Company's Annual General Meeting.
The financial information for the 52 weeks ended 25 September
2021 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 52 weeks ended 24
September 2022 will be filed with the Registrar of Companies
following the 2022 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, 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.
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.
APMs used to explain and monitor Group performance include:
APM Definition Source
------------------------- ---------------------------------------------- ------------------------
EBITDA Earnings before interest, tax, depreciation Group income statement
and amortisation.
------------------------- ---------------------------------------------- ------------------------
Adjusted EBITDA Annualised EBITDA on a 52 week basis Group income statement
before separately disclosed items
is used to calculate net debt to EBITDA.
------------------------- ---------------------------------------------- ------------------------
Operating profit Earnings before interest and tax. Group income statement
------------------------- ---------------------------------------------- ------------------------
Adjusted operating Operating profit before separately Group income statement
profit disclosed items.
------------------------- ---------------------------------------------- ------------------------
Like-for-like Like-for-like sales growth reflects Group income statement
sales growth the FY 2022 sales performance directly
against the comparable period in FY
2019 of UK managed pubs, bars and
restaurants that were trading in the
two periods being compared, unless
marketed for disposal. Comparisons
have been made against FY 2019, being
the last full year pre Covid-19.
------------------------- ---------------------------------------------- ------------------------
Like-for-like Like-for-like sales excluding VAT Group income statement
sales excluding benefit reflects like-for-like sales
VAT benefit growth excluding the benefit of the
temporary reduction in the rate of
VAT on food and non-alcoholic drink
sales to 12.5% in the first half of
FY 2022.
------------------------- ---------------------------------------------- ------------------------
Adjusted earnings/(loss) Earnings/(loss) per share using profit Note 6
per share (EPS) before separately disclosed items.
------------------------- ---------------------------------------------- ------------------------
Net debt Net debt comprises cash and cash equivalents, Note 9
cash deposits net of borrowings and
discounted lease liabilities. Presented
on a constant currency basis due to
the inclusion of the fixed exchange
rate component of the cross currency
swap.
------------------------- ---------------------------------------------- ------------------------
Net debt: Adjusted The multiple of net debt including Note 9
EBITDA lease liabilities, as per the balance Group income statement
sheet compared against 52 week EBITDA
before separately disclosed items
which is a widely used leverage measure
in the industry.
------------------------- ---------------------------------------------- ------------------------
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
commences three periods following
the opening of the site.
------------------------- ---------------------------------------------- ------------------------
A. Like-for-like sales
The sales comparisons this year have been compared directly to
the sales in FY 2019 being the last full year pre Covid-19. FY 2020
and 2021 are not considered appropriate comparisons for trading
performance due to the significant disruption caused to trade due
to Covid-19 related restrictions and closures. A comparison to FY
2019 performance is the same approach as taken at FY 2021 and,
although we note its limitations, has been used to give the reader
an insight into performance against the most recent year not to be
impacted by Covid-19. Moving forward into FY 2023 it will become
more meaningful to use FY 2022 as a primary comparator for
like-for-like sales.
Sales of all UK managed sites that were trading in the two
periods being compared, are 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 excluding VAT benefit have been shown to
illustrate the impact 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.
2022 vs.
2022 2019 2019
52 weeks 52 weeks LFL
Source GBPm GBPm %
----------------------- ------------ --------- -----------
Reported revenue Income statement 2,208.3 2,236.5 (1.3)%
Less non like-for-like
sales and income (247.4) (296.0) 16.4%
------------ --------- -----------
Like-for-like sales 1,960.9 1,940.5 1.1%
Less like-for-like sales (38.4) - -
VAT benefit
Like-for-like sales excl. 1,922.5 1,940.5 (0.9)%
VAT benefit
Drink sales
2022 2019 2022 vs.
2019
52 weeks 52 weeks LFL
Source GBPm GBPm %
----------------------- ------------ --------- -----------
Reported drink revenue 956.7 1,024.8 (6.6)%
Less non like-for-like
drink sales (91.0) (122.2) 25.5%
------------ --------- -----------
Drink like-for-like sales 865.7 902.6 (4.1)%
2022 vs.
Food sales 2022 2019 2019
52 weeks 52 weeks LFL
Source GBPm GBPm %
----------------------- ------------ --------- -----------
Reported food revenue 1,166.4 1,136.5 2.6%
Less non like-for-like
food sales (130.1) (151.2) 14.0%
------------ --------- -----------
Food like-for-like sales 1,036.3 985.3 5.2%
------------ --------- -----------
2022 vs.
Other sales 2022 2019 2019
52 weeks 52 weeks LFL
Source GBPm GBPm %
----------------------- ------------ --------- -----------
Reported other revenue 85.2 75.2 13.3%
Less non like-for-like
other sales (26.3) (22.6) (16.4)%
------------ --------- -----------
Other like-for-like sales 58.9 52.6 12.0%
------------ --------- -----------
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
incidence. Excluding these items allows an understanding of the
trading of the Group.
2022 2021 Year-on
52 weeks 52 weeks -year
Source GBPm GBPm %
------------------ --------- --------- --------
Operating profit Income statement 124 81 53.1%
Separately disclosed items Note 3 116 (52) 323.1%
Adjusted operating profit 240 29 727.6%
Reported revenue Income statement 2,208 1,065 107.3%
--------- --------- --------
Adjusted operating margin 10.9% 2.7% 8.2ppts
========= ========= ========
C. Adjusted earnings/(loss) per share
Earnings/(loss) per share using profit/(loss) before separately
disclosed items. Separately disclosed items are those which are
separately identified by virtue of their size or incidence.
Excluding these items allows an understanding of the trading of the
Group.
2022 2021 Year-on
52 weeks 52 weeks -year
Source GBPm GBPm %
------------------ --------- --------- --------
Profit/(loss) for the period Income statement 13 (65) 120.0%
Add back separately disclosed
items Income statement 94 (12) 883.3%
Adjusted profit/(loss) 107 (77) 239.0%
Basic weighted average
number of shares Note 6 595 566 5.1%
Adjusted earnings/(loss)
per share 18.0p (13.6)p 232.4%
========= ========= ========
D. Net Debt: 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 IFRS 16. Adjusted
EBITDA is used for this measure to prevent distortions in
performance resulting from separately disclosed items.
Due to the Covid-19 closure periods in FY 2020 and 2021, we do
not have a representative 52 week EBITDA measure to calculate this
metric for FY 2021 as a comparative.
2022
52 weeks
Source GBPm
---------------------- -----------
Net debt Note 9 1,679
-----------
EBITDA Income statement 374
Add back separately disclosed
items Income statement (1)
Adjusted 52 week EBITDA 373
Net debt: Adjusted EBITDA 4.5
===========
E. 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.
The reduced level of return is not indicative of the quality of
the investment programme which has performed well over recent
years, but due to the reduced trading levels due to Covid-19
restrictions that are captured in the calculation.
Return on expansionary capital
2021 2022 2022 2022
FY18-21 FY19-21 FY22 Total
Source GBPm GBPm GBPm GBPm
------------------- -------- -------- ------ --------
Maintenance and infrastructure 182 112 39 151
Remodel - refurbishment 191 128 60 188
-------- -------- ------ --------
Non-expansionary capital 373 240 99 339
-------- -------- ------ --------
Remodel expansionary 14 7 2 9
Conversions and acquisitions* 55 28 2 30
-------- -------- ------ --------
Expansionary capital
for return calculation 69 35 4 39
-------- -------- ------ --------
Expansionary capital
open < 3 periods pre
year end 23 18 19 37
-------- -------- ------ --------
Total capital Cash flow 465 293 122 415
-------- -------- ------ --------
Adjusted EBITDA Income statement 1,279 857 373 1,230
Non-incremental EBITDA (1,271) (852) (371) (1,223)
Incremental EBITDA 8 5 2 7
-------- -------- ------ --------
Return on expansionary
capital 12% 14% 50% 18%
======== ======== ====== ========
*Conversion and acquisition capital is net of capex incurred for
projects which have been open for less than 3 periods pre year
end
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END
FR GGBDDXXGDGDR
(END) Dow Jones Newswires
December 07, 2022 02:00 ET (07:00 GMT)
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