M&B scraps dividend until 2010 to tackle debts

Pub chain will restore payment as unsecured bank facility falls below £300m
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The struggling pub group Mitchells & Butlers (M&B) scrapped its final dividend yesterday, as part of a plan to tackle its mountain of debts, and will not reinstate the payout to shareholders for at least two years.

The group, which owns All Bar One, O'Neill's and Vintage Inns, hopes to save £60m a year from the move. It will not reinstate the dividend payment until its unsecured bank facility falls below £300m and a "comfortable level of headroom has been reached".

The medium-term debt, under its three-year facility, currently stands at £475m, and will fall below £300m by December 2010, according to the company. Overall debts are currently at £2.7bn, about £175m lower than in January. "The suspension of dividend payments reflects proactive debt reduction in uncertain markets, not a change in the fundamental long-term prospects of the business," M&B said.

The pub company, headed by Tim Clarke, is also planning to curb its spending next year to help tackle the debt pile. It said capital expenditure is set to fall from £193m this year to £120m in the financial year to September 2009.

M&B added that it was still looking at opportunities to sell off some of its businesses. However it warned that the onset of the credit crunch made a deal much less likely, as the group was not prepared to divest assets "materially below" their fair value. "Our ability to realise to realise cash at acceptable values from the remaining non-core assets, as envisioned in the strategic review, has been significantly impacted by the prevailing conditions in the financial markets in recent months," it said.

Analysts backed the move, and despite initial falls, ended the day almost 7 per cent higher at 148p.

The plan came on the back of a resilient performance by the group during the year to 27 September. It managed to keep revenues flat at £1.9bn, while pre-tax profits fell the expected 13 per cent to £179m from £207m last year.

The group's property portfolio of pubs took a hit as property prices dived this year, down 7 per cent to £4.7bn. The group it added: "We remain highly cautious on the outlook for consumer spending in 2009 as the UK economy slides into recession."

Matthew Gerard, analyst at Investec, said the group had the "right strategy to weather the current market conditions, as shown by the strength of current trading, but obvious positive catalysts are lacking". Like-for-like sales have risen 1 per cent since the end of the group's financial year.

Last month, the property tycoon Robert Tchenguiz sold his 25 per cent share in the pub group to the British billionaire Joe Lewis – who lost about £500m when a bet on Bear Stearns backfired spectacularly this year – for £137m. Mr Tchenguiz first bought a stake in the group in 2006, after he failed to buy it with an offer worth £4.4bn. He attempted to set up a property joint venture with M&B last year but the plan collapsed, losing it £391m.