Mitchells & Butlers FD goes in hedge calamity

Mitchells & Butlers finance director Karim Naffah has quit the company
after a disastrous hedge and the credit crunch led to an extraordinary £274m

The pub company revealed today that as part of a property venture, it had
taken out hedges against interest rates and inflation. But in the course of
carrying out the transaction, the market turned against M&B, leaving it with
only the hedges.

‘At the end of last financial year, an exceptional accounting loss of £155m
post tax was booked in respect of the hedges. The above settlement of the
majority of the hedges results in a further £119m post tax exceptional loss
which will be taken in the current year,’ the company said in

Naffah offered his resignation and the board accepted, it added. The chief
executive also tendered his resignation but was turned down. Jeremy Townsend,
currently deputy finance director, takes over from Naffah.

‘The process was started in mid-July, two weeks before the planned
announcement date of the transaction. This was on the banks’ advice that the
hedging could take some time to execute given the relatively low liquidity of
the inflation swaps market,’ the company said.

‘Whilst the details of the debt package were being finalised with the banks,
there was a material adverse change, with debt market conditions suddenly
deteriorating in late July and the credit-approved debt terms from the banks
were withdrawn. This left Mitchells & Butlers and R20 with hedge instruments
in place but unable to fund the transaction,’ it added.

M&B could have held on to the instruments but decided that it was not a
risk that it should be running.

All of the executive board have forgone their bonuses as a result of the

Further Reading:

the stock exchange announcement

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