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Annual Review and Summary Financial Statement 2003 Mitchells & Butlers owns 2,000 high-quality managed pubs in prime locations. A The Horse Shoe Bar Drury Street, Glasgow Turnover up 2% to £1,513m EBITDA flat at £374m Operating profit* down 5% to £275m Profit before tax** down 1% at £199m Net operating cash flow** £241m up £106m Earnings per share** down 0.1p to 18.4p Final dividend per share 5.65p B The Three Stags, Ember Inn Bebington, The Wirral * Before major operating exceptional items. ** On a pro forma basis. Our locations as at 30 September 2003 This table depicts how our UK pubs and pub restaurants are targeted by location or by primary occasion (drinks or food), together with the number of sites for each. Drinks-led Food-led Residential Residential C Tyburn House, Sizzling Pub Co Ember Inns 159 Vintage Inns 203 Castle Vale, Birmingham Sizzling Pub Co 125 Harvester 142 Scream 91 Toby Carvery 74 Arena 57 Innkeeper’s Fayre 24 Unbranded 386 Unbranded 86 City Centre City Centre O’Neill’s 86 All Bar One 49 Goose 41 Browns 15 Edward’s 35 Unbranded 0 D Travellers Rest, Vintage Inn, Flares 32 Caerphilly, Wales Unbranded 352 Contents 1 Our pubs, bars and restaurants 22 Profit and loss 2 Chairman’s statement 22 Cash flow 4 Chief Executive’s review 22 Balance sheet 6 Pubs & Bars 23 Summary Directors’ report 10 Restaurants 23 Corporate governance 14 Our guests 24 Board of Directors 16 Our people 25 Other members of the 18 Community Executive Committee 20 Finance Director’s report 25 Summary remuneration report E Browns 21 Summary financial statement 27 Investor information Orange Grove, Bath 21 Auditors’ statement 28 Financial calendar Our UK pubs, bars and restaurants* F Toby Carvery Washington, Tyne and Wear Scotland 5% A G The Philharmonic Hope Street, Liverpool Northern 4% F North West 8% Yorkshire and Humberside 10% H All Bar One Brindleyplace, Birmingham G B West Midlands 16% East Midlands East Anglia C H 5% 1% Wales 4% D I O’Neill’s I Muswell Hill, London J E Greater London 21% South East South West 21% 5% The above numbers indicate % of Group sales for the year to 30 September 2003 J Golden Retriever, Vintage Inn *We also operate the famous Crown Liquor Saloon in Belfast and bars in Germany. Bracknell, Berkshire Annual Review 2003 1 It is now some eight months since we became established as an independent business. At the time of separation we gave a clear commitment to the creation It is a great pleasure to report Mitchells of shareholder value. & Butlers’ first year-end accounts as an independent company following its separation I believe that these results from Six Continents on 15 April 2003. At the and the return of £500m time of the launch of the Company I outlined the opportunity that I believed would come later this month represent from independence. Firstly, a strategic clarity early evidence of our born from objectives that were simple, well defined and clearly understood by all. Secondly, delivery against this promise. the management focus, greater visibility and improved shareholder accountability that came from that clarity. Lastly, the opportunity, for the first time, for innovative financing evolving our food menus, combined with from our strong cash flow to ensure that the competitive pricing and additional training balance sheet was efficiently constructed and in service and selling skills. These actions, shareholders correctly rewarded. Management along with the good weather we experienced have been liberated and energised by the in July and August, resulted in a significant separation and the business has a new sense improvement in the like-for-like sales trend of identity. Thanks to the dedication and in the second half. commitment of our employees much has been accomplished both structurally and Considerable external cost pressures continue operationally during the year. to affect the business. We have once again responded positively to these challenges both We have undertaken a securitisation of our by aggressively managing our cost base and chairman’s statement chairman’s UK pub and pub restaurant business and by driving operating efficiencies to leverage thereby increased the efficiency of our balance the benefits of scale. sheet enabling the return of £500m of surplus funds to our shareholders. Our aim with the The Board securitisation was to implement the optimal Our independence clearly required changes financial structure to support our strategy at senior management level. Mike Bramley, of owning and developing high take, high Tony Hughes and Karim Naffah joined quality managed pubs in prime locations. Tim Clarke on the Board as Executive Directors; The structure we have put in place will allow Tony and Mike as Managing Directors for us to deliver a progressive dividend policy Restaurants and Pubs & Bars respectively, and to continue to develop and reposition having fulfilled similar operational roles in our estate over time in the interests of our the previous divisional structure; and Karim, shareholders and bondholders. as Finance Director, having been Strategy Director for Six Continents and a member of In the first half of the year we took important the Executive Committee of the Company since steps towards rebalancing the business culture 2000. George Fairweather – Group Finance from one of margin maintenance to one of Director of Alliance UniChem Plc, Sara Weller – profitable like-for-like sales growth through Deputy Managing Director of J Sainsbury plc sales and marketing activity. During the latter and Sir Tim Lankester – formerly a senior part of the year we started to see the results official at the Treasury with significant expertise of this focus on improving consumer choice in the public and private sectors, all joined us by extending our drinks product range and as Non-Executive Directors. I believe that we 2 Mitchells & Butlers now have a complementary blend of retailing, affected the pub industry over the last five years A brief history of financial and public sector skills on the Board are now starting to reverse. In particular, new Mitchells & Butlers which makes us well placed to continue to capacity on the High Street has virtually ceased shape and execute Mitchells & Butlers’ strategy. and investment in existing pubs in residential areas is low. 1898 Employees Mitchells & Butlers, founded Our near 40,000 employees have had to Overall, we expect the impact of the new in 1898, is one of the great contend with a period of incredible change this Licensing Bill on Mitchells & Butlers to be names in licensed retailing year. Their focus, flexibility and professionalism positive although there remains some uncertainty and was at the forefront of the have been critical to the Company emerging about its practical application. We await details creation of the British pub we stronger, leaner and more successful. I am of the Local Authority guidelines due later know today. grateful to all of them for their support. this year to allow us to evaluate more fully the impact on the business. 1961 Current trading and outlook Mitchells & Butlers merged The improvement in sales seen in the second Whilst we remain cautious on the outlook for in 1961 with Bass, Ratcliff half of 2003 has continued into the first eight UK consumer spending, demographic trends and Gretton Ltd to form weeks of 2004 aided by some good weather are favourable with forecast growth among the Bass, Mitchells & Butlers. and major sporting events which we estimated 18 to 25 and 45 plus age groups, two of our Subsequently shortened to account for up to 1.5 percentage points key customer groups. In addition, social trends to Bass PLC. of the improvement. Same outlet (i.e. invested are continuing to strongly favour value for and uninvested) like-for-like sales were up 4.5% money, informal eating out in neighbourhood in the eight weeks to 22 November. Uninvested pubs. We believe our estate and our brands 1990 like-for-like sales were up 2.6%. This and formats are well placed to profitably meet Bass PLC sold under- continuing positive trend has been driven those trends. performing pubs and bought by Mitchells & Butlers’ focus on delivering pubs with higher sales, at high quality amenity and service standards Whilst in the short term therefore the pub the same time developing and increased choice at competitive prices, sector continues to bear some significant cost the estate and increasing improving overall customer value. increases, the positive actions we are taking sales per pub threefold. to drive sales, raise productivity and reduce In addition it built a large Trading in the 70% of the estate in residential costs makes us well placed to mitigate their international hotels business areas has strengthened further with same impact. We are confident that our medium-term and sold its brewing arm. outlet like-for-like sales up 5.7%, 3.8% on business plan and the improving competitive In 2001, Bass PLC was an uninvested basis. Sales have continued prospects for Mitchells & Butlers will underpin renamed Six Continents PLC. to be stronger in the Midlands and the North the positive sales and earnings potential of the than the South. business over the next few years. 2003 The separation of the Trading in our High Street pubs and bars, We believe the results and the return of £500m hotel and retail businesses, where our sales generation activity has been to shareholders before the end of the calendar announced in 2002, has strongest, has seen a sharp improvement with year honour the commitments of the past and led to the rebirth of the same outlet like-for-like sales up 2.3%, 0.6% signpost the potential for future value creation.