Clarke quits M&B over hedging disaster

Mitchells & Butlers has parted company with its chief executive after a disastrous move into financial hedging wiped more than £450m off the pubs and restaurants company's earnings over two years.

Tim Clarke resigned yesterday as the owner of O'Neill's pubs and Harvester pub restaurants posted a 48 per cent fall in interim pre-tax profits to £44m, dragged down by losses on its derivatives contracts.

The company warned more than a year ago that its hedging attempts had cost it nearly £400m. But yesterday M&B said it had paid another £69m post tax to settle the remaining 30 per cent of its long-term interest rate swaps held against its medium-term borrowings.

Drummond Hall, the chairman of M&B, said: "Tim felt he should offer his resignation as he felt his position had become untenable given that he was chief executive during the time [of the financial hedging]." Mr Hall said large shareholders also felt that Mr Clarke should step down.

M&B is to conduct both an internal and external search for a new chief executive, but in the meantime Adam Fowle, its chief operating officer, who is also a candidate for the top job, will fill the role.

The pub group started using swap contracts to hedge itself against movements in inflation and interest rates in July 2007, when it had been planning a property joint venture with R20, the investment vehicle of its former shareholder and property tycoon Robert Tchenguiz. But after the market moved against its hedging activities, M&B said, in January 2008, it had closed out of its inflation swaps and 70 per cent of its interest swaps at a post-tax cost of £391m, which led to the exit of Karim Naffah, its former finance director.

On a more upbeat note, M&B said that underlying sales since the end of its half year had grown 1.5 per cent, driven by what it called "unprecedented market share gains" in the 16 weeks to 16 May. Over the 28 weeks to 11 April, M&B delivered a 30 per cent uplift in sales at 44 sites it acquired from Whitbread and converted into seven of its own-brands. M&B's interim revenues rose by 2.9 per cent to £1.02bn. M&B's debts stood at £2.6bn at the end of its first half, though it has only drawn on £451m of its £550m unsecured facilities.