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The board said that Jeremy Townsend, currently deputy finance director, will be appointed as finance director.

All executive directors, including Naffah, will forego their 2007 bonus awards in recognition of the large loss suffered by the company from the hedge closure.

Strategic review 

The firm said that following a recent and rapid deterioration in the mark-to-market deficit on the hedges taken out in connection with last year's proposed property joint venture, and with no near-term prospect of debt markets permitting a property-based transaction, it had closed out in cash the hedges no longer required at a cost of £274 million post tax.

The board said it intends to conduct a strategic review for value creation in parallel with the management focus on ensuring continued operational out-performance from the integrated business to capitalise further on the company's position of competitive strength.

In December and early January, the mark-to-market deficit on the hedges continued to be volatile but not materially different from the post-tax loss of £180m previously reported.

The more recent instability in the financial markets, however, led to a further sharp deterioration in the position.

Hedge position 

In these circumstances the board judged that maintaining the hedge position to utilise in a property-based transaction, which was now highly unlikely to occur in the near future, became a risk that could no longer be justified despite the challenge of exiting in an illiquid market.

As a result, the inflation hedges and the interest rate swaps no longer required have been terminated at a total cost of £274 million after tax.

Mitchells & Butlers said that a portion of the interest rate swaps would be retained to cover some £300 million of debt outside the securitisation as this would form part of the company's core long term debt structure.

The board estimated that the latest mark-to-market deficit to income on these swaps was approximately £22 million post tax.

The settlement of the hedges will be funded from a bank facility specifically set up for this purpose and is expected to take the company's balance sheet gearing, on a pro forma basis, to approximately 67 per cent, compared to 61 per cent reported at the year-end.

Victim of the global credit crunch

The additional debt cost resulting from the closure of the hedges is expected to reduce post tax earnings by approximately £13 million in the current financial year, of which £4 million will be incurred in the first half.

At the end of last financial year, an exceptional accounting loss of £155 million post tax was booked in respect of the hedges.

This settlement of the majority of the hedges resulted in a further £119 million post tax exceptional loss which will be taken in the current year.

Mitchells & Butlers (LSE:MAB) said that its management, supported by advisers and the board, had acted professionally and diligently in the preparation of the financial package for the proposed joint venture with R20 and the subsequent retention of the hedge, but had fallen victim to the global credit crunch which began in the midst of the final execution of the transaction.

Nevertheless, in light of the cash loss incurred, the firm’s finance Director Karim Naffah tendered his resignation, which was accepted. The group said that he will leave Mitchells & Butlers “by mutual agreement”.

CEO Tim Clarke also tendered his resignation. This was declined, however, as the board said it believed it is in the best interests of the company that he should continue to lead the operational out-performance of the business.

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