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Mitchells & Butlers (UK)

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Mitchells & Butlers is one of the UK's two biggest operators of pubs, bars and restaurants by revenues, although it is dwarfed in terms of outlets by larger tenanted pubs groups such as Enterprise Inns or Punch Taverns. With traditional drinking pubs now in terminal decline in Britain, the group has gradually reinvented itself as a restaurant business. Brands include family friendly Harvester Pubs and Toby Carveries, city bar chain All Bar One and the Browns casual dining chain. However, the group has been repeatedly distracted from its corporate strategy by a series of battles with investors and disastrous attempts at financial speculation. These have led to a succession of different chairmen and chief executives since 2008.

Competitors

See Restaurants & Bars Sector index for other companies. M&B's biggest rival now is Greene King, a combined brewer and pub operator. Following its acquisition of smaller group Spirit in 2015 it became the UK #1 in its sector with 3,060 managed and leased pubs and total revenues of over £2.1bn. Other leading pub groups include Punch Taverns (around 3,800 leased pubs in 2014, and revenues of £448m), Enterprise Inns (5,350 leased and tenanted pubs in 2014, and revenues of £632m), Marston's (another brewer/operator with 1,700 managed and leased outlets in 2014, and revenues of £758m) and JD Wetherspoon (950 mainly managed outlets, and revenues of £1.5bn in 2015).

Competitors

Mitchells & Butlers plc
27 Fleet Street
Birmingham B3 1JP
United Kingdom
Tel: 44 (0) 870 609 3000

Brands & Activities

Mitchells & Butlers' "managed" pubs are wholly-owned outlets in which all staff are employed by the company, which is also responsible for all operating expenses and derives the benefits of all income. (Tenanted pubs on the other hand are those where the company merely leases the premises to a self-employed manager, who is responsible for his or her own income and expenses.) 

The current business was created in 2003 from the spin-off of the portfolio of UK-based leisure retail brands owned by what is now InterContinental Hotels Group, but was previously the Bass Charrington breweries and pubs group. The group has divested a number of outlets over the past few years to focus on restaurants and "dining pubs" with a strong food offering. It agreed to sell its 330 remaining drinks-only pubs in summer 2010, as well as its Hollywood Bowl entertainment business. Since then it has steadily added additional food pubs. In 2010 the group acquired 22 Ha Ha Bar & Grill outlets which rebranded as All Bar One or Browns. This was followed by 173 former Orchid Group outlets in 2014. Some of these have been converted to existing brands; others remain as standalone pubs.

By Autumn 2014 M&B had around 1,775 managed outlets and almost another 60 under lease or franchise. Many outlets in the portfolio are standalone unbranded "classic" pubs operating under individual traditional names (The Crown, The Red Lion, The George etc). However, although they keep their old-style pub name, they are grouped into brand families according to style, location or typical clientele. These are structured into several market types. "Family" comprises Harvester Inns and Toby Carveries family-friendly pub-restaurants; "Special" manages slightly higher-priced Browns restaurants and Miller & Carter steakhouses as well as Vintage Inns and Premium Country Pubs serving better quality food and drink; Ember Inns supply the value-priced "Everyday Social" segment; Crown Carveries, Oaktree Pubs, Sizzling Pubs and Irish bar O'Neill's are grouped as "Heartland"; while "Upmarket Social" houses All Bar One city bars, more stylish Castle urban pubs and traditional Nicholson's pubs as well as German brasserie chain Alex.

Financials

The group struggled for several years under the weight of large debts, and disastrous financial speculation between 2007 and 2009 which resulted in large losses. Reported sales were flat for several years, reflecting the disposal of large parts of the estate as well as the difficult financial environment. There was a modest return to like-for-like growth during 2012. For the year ending Sept 2012, revenues rose 3% to just under £1.89bn. However reported figures since then have remained flat. For the year to 2013 revenues edged up to £1.90bn. Excluding the impact from divested properties the effective comparable increase was 2%. Earnings before interest and other non-operating costs rose 4% to £395m. Pretax profits jumped 80% to £150m. The previous year's figures were dented by a large charge for depreciation of property values.

For the year to Sept 2014, revenues rose 4% to £1.97bn, half of that sum generated by food. Pretax profits slipped to £123m as a result of £49m of exceptional non-cash charges, mainly revaluations of the property portfolio. The group continues to be weighed down by over £2bn of debt. Finance costs for ye 2014 were £132m.

Management

Tim Clarke resigned as chief executive in June 2009 following the group's disastrous attempts to offload its property portfolio. He was replaced by COO Adam Fowle, but he too left the company in Spring 2011, to be replaced on an interim basis by Jeremy Blood, a representative of billionaire investor Joe Lewis, still the biggest shareholder in M&B. Alistair Darby was eventually appointed on a fulltime basis in 2012. But he too stepped down in 2015, and was replaced by Phil Urban, previously COO. Bob Ivell is non-executive chairman. 

Other executives include Tim Jones (finance director), Gary John (property director) and Catriona Kempston (marketing director). Other marketers include Rachel Westwood (advertising & communications manager), Fiona Bentley (head of marketing services), Raymond Santamaria (head of brand marketing) and Sarah Gamble (head of marketing, Harvester).

Mitchells & Butlers is publicly quoted, but has been something of a battleground between two sets of wealthy investors since 2010. Billionaire speculator Joe Lewis controls just under 26.7% of the company's shares through his investment company Piedmont. The Irish racing magnates JP McManus and John Magner jointly own 22.6% through their own fund Elpida, and have an alliance with a third group, Smoothfield, which has just over 4%.

Background

M&B is to all intents and purposes the old Bass pubs business, but a new name was chosen at the time of the spin-off to avoid confusion. The Mitchells & Butlers name was originally created in 1868 by the merger of two family-owned brewery/pub estates in the Midlands owned by William Butler and Henry Mitchell respectively. That enterprise was subsequently swallowed up by the rapid expansion of the Bass Brewery in the 1960s. Mitchells & Butlers merged with Bass in 1961 to form Bass, Mitchells & Butlers Ltd, but the subsequent combination with Charrington consigned the Mitchell and Butler names to history until they were resurrected in 2003.

Industry analysts have long expected Mitchells & Butlers to become the target of a takeover bid and it has repeatedly become a pawn in different sorts of corporate maneuvering. In 2006, the group was targeted by financier Robert Tchenguiz who made an informal bid for the business. No deal was completed, but Tchenguiz ended up with a 25% shareholding in the group. At the end of 2006, M&B agreed terms to transfer its property portfolio into a joint venture with Tchenguiz. However that arrangement later fell through because the mid-2007 credit squeeze prevented the partners from raising sufficient third-party backing to fund the deal. This led to a disastrous financial crunch for M&B. Rather than close out hedges associated with the deal, it gambled that the markets would improve. When they did not, the company was obliged to report a £275m loss on its hedges in January 2008. That figure was almost five times higher than the sum it would have written off had it closed the hedges in July 2007 when the Tchenguiz deal fell though. 

As the effects of the credit crisis snowballed, Tchenguiz was eventually forced to sell his 25% holding in 2008 to billionaire investor Joe Lewis. That move has led to several further years of management turmoil as Lewis has interfered repeatedly in the company's affairs. No less than six different chairmen and three chief executives have come and gone in that period. In Sept 2011, Joe Lewis launched a full takeover bid through his Piedmont holding company, which valued M&B at £1bn. It was initially rejected by the independent members of M&B's board.

Last full revision 30th September 2015

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