Birmingham-based pubs firm Mitchells & Butlers has claimed it is "pulling ahead of the pack" with robust half time performance figures as it plans to convert into a low-tax real estate investment trust (REIT) to fully realise the value of its property assets – as soon as market conditions are suitable.
The owner of the Harvester and All Bar One chains – which has a 43,000-strong workforce – hopes to separate its property from its operating business, allowing it to use the tax-efficient REIT structure and slash its tax bill.
Despite reporting a 5.6 per cent fall in first half pretax profits, down from £89 million to £84 million for the 28 weeks to April 12, chief executive Tim Clarke was in confident mood, telling shareholders: "Against the background of challenging economic conditions, Mitchells & Butlers has performed well with same outlet food sales up 5.1 per cent and significant gains in drinks market share.
"Revenue in the 32 weeks to May 10 has been resilient, with same outlet like-for-like sales of 0.8 per cent. This sales growth has been generated against background of the first winter period of the smoking ban in England and Wales and a continuing volume decline in the on-trade beer market of approximately nine per cent, as well as weakening consumer confidence."
Mr Clarke added that the timing of the group's conversion to REIT status would depend on the pace of recovery in asset-backed debt markets.
"We'll be exploring every opportunity as we see that gradual recovery hopefully taking place over the next few months," he said. Real Estate Investment Trusts enable firms to unlock potential value and increase dividend payouts to shareholders.
Trading in the first four weeks of the second half of the financial year showed like-for-like sales up 3.4 per cebt,
While Fleet Street-based M&B said it was too early to draw any conclusions from the short trading period, it said it had seen a "good customer response" to the launch of its new summer menus.
Unveiling the results of a strategic review, M&B also said it believed it was well-placed to lead growth in the eating-out market, particularly in the value meals sector.
It is actively exploring opportunities for deals in the managed pub sector, as well as working with private equity firms on the funding of potential deals.
At the same time, it will look to realise the value of its estate through individual site sales and smaller package transactions. Such "gold brick" properties often carry strong redevelopment potential.
M&B is looking to revive its fortunes after a failed property deal last year left the group with a £274 million loss.
It has also had to trim aims for a full blown sale to private equity as the credit crunch has left buyout firms lacking in funding, but M&B is persisting with the possibility of selling a minority stake.
Last month it said it was in discussions over the sale of up to 29.9 per cent to private equity at a "material premium" to its current price.
The company added it had agreed to appoint two new board members to represent entrepreneur Robert Tchenguiz, who has a 27 per cent stake in the group.
Mr Tchenguiz has consistently put pressure on the M&B board to realise value from its property assets.
The Government ruled earlier this month that Enterprise Inns, Britain's second biggest pubs group, could convert into a REIT, prompting others in the sector to look to follow suit.
M&B's profit was ahead of market expectations which ranged between £73 million to £81 million. However, turnover was flat at £995 million. M&B is paying an interim dividend of 4.55 pence per share, up 7.1 per cent.
Dresdner Kleinwort said the commitment to extract value through a REIT was likely to see the stock stronger.