Late-night bars sale sees M&B secure £373m

The Harvester and Toby Carvery owner sold 333 "non-core" pubs to private equity firm TDR Capital in the biggest pubs sale for years to concentrate on food-led venues.

M&B, which earns about nine per cent of its revenues in the Yorkshire and Humber region, said it will invest the cash in the "informal eating market where the company's market-leading brands deliver attractive growth prospects".

Following the sale, which needs shareholder approval, M&B will have 1,580 restaurants and food-led pubs plus 500m cash for development.

"There are some serious pressures on the night-time economy that are not going to go away in a hurry," said chief executive Adam Fowle.

"If you look at the dining out market, all the trends are growing."

He said high youth unemployment, together with taxes, the smoking ban and the recession, make the drinks-led, "price sensitive" end of the market a tough place to operate.

Along with most of its rivals, M&B is capitalising on consumers trading down from restaurants by expanding in the UK's 70bn dining out market.

Marston's, which has 2,150 pubs and five breweries, is focusing on its F Plan — food, families, females and forty/fifty somethings.

The sale, which includes 52 student-oriented Scream pubs and 71 music bars and late night venues, will dent earnings at first but M&B hopes to generate better returns by re-investing the proceeds.

Asked if the sale might mean M&B misses out on an upturn in the evening economy, Mr Fowle said: "We might, but the key point is we want to put this money behind our brands that are growing anyway in the recession.

"We've been really clear that we were going to divest these businesses and it was certainly going to be earnings dilutive but that it was right in the long term because these businesses are going to be worth less next year than they are this year."

The non-core pubs portfolio generated operating profits of 35m on 239m sales in the year to the start of April.

Average weekly takings were 14,000, about a third less than the group's core pubs and restaurants.

Food accounted for just 13 per cent of their revenues. The pubs are dotted across the UK, with a third in the south and 38 per cent in the Midlands.

By contrast, managed pubs in M&B's core business had average weekly takings of 21,000, made almost half their revenues from food, and grew operating profits by three per cent annually during the recession.

Earlier this month, M&B sold its Hollywood Bowl chain to rival AMF Bowling for 39m. Last month it also sold the leases of 52 Innkeeper's Lodges to hotel chain Travelodge.

The cash will first be used to take net debt down to 2.01bn. M&B will also convert another 116 Scream pubs, bars and venues into its core brands, which include All Bar One and Vintage Inns.

It will also use the cash to build restaurants at retail parks, plus buy existing pubs.

"We've had no push-back from investors," said Mr Fowle. "I think the investor community are right behind us on this."

Chairman John Lovering added: "I am delighted with the progress being made on reshaping M&B's portfolio... Adam Fowle and the new management team are making excellent progress in accelerating the pace of change throughout the organisation."

Pizza Express and CenterParcs owner TDR Capital expects to complete the purchase by mid November.

TAKING ANALYSTS BY SURPRISE

Analysts said the sale, which completes Mitchells & Butlers' disposal programme, came sooner than they had expected but will eventually improve returns for the group.

"We believe the disposal is dilutive in the short term," said Seymour Pierce analyst Hugh-Guy Lorriman. "However, the company will believe it can reinvest the proceeds for a high return thus making up for this."

M&B laid out its disposal and investment strategy in March.

Paul Hickman, at KBC Peel Hunt, said: "This is a major step, coming faster than most expected, in executing the change strategy articulated by the new chairman, John Lovering.

"It should facilitate the conversion of existing outlets to the six core brands as well as acquisitions of suitable assets at higher returns."