Pubco feels the squeeze on margins as full year profits decline

M&B Harvester

Birmingham pubco Mitchells & Butlers is stressing the positives from a full year performance which shows increased revenues but a reduction in profits.

The business said it was still delivering value for shareholders despite strengthening economic headwinds and the squeeze on consumer spending.

Nevertheless, investors failed to be impressed and the group’s shares dipped in early trading – down by 12% at one stage.

On a statutory basis, pre-tax profit for the year to September 30, 2017 was £77m (FY 2016 £94m), on sales of £2,180m (FY 2016 £2,086m). Basic earnings per share fell from 21.6p last year to 15.1p.

Phil Urban, M&B chief executive, said: “This year, we have continued to make progress on our three priority areas: building a more balanced business; instilling a more commercial culture; and driving an innovation agenda.

“This has resulted in a period of strong operational achievement for Mitchells & Butlers with a sustained return to like-for-like sales growth driving market outperformance. We have also gained agreement with the pensions trustees on future pension contributions which gives clarity to shareholders and pensioners alike.

“Cost headwinds across the industry have adversely affected margins but we continue to work hard to mitigate as much of these as possible through our focus on efficiency and profitable sales growth.

“Overall, we believe that the progress we have made this year positions the company well to deliver long-term shareholder value.”

The group said that during the last year it had made further progress against its three strategic priorities which were introduced to address a period of like for like sales declines and market under-performance.

They are:
–    To build a more balanced business
–    To instil a more commercial culture
–    To drive an innovation agenda

It said initiatives in these areas had been successful in restoring sales growth and mitigating £26m of the inflationary cost headwinds which it faced in the past year.

It added that with inflationary costs continuing into the next financial year, a focus on efficiency remained at the forefront.

The group is embarking on the second phase of initiatives now and said it would provide a further update on these in May.

The group achieved a like-for-like sales growth of 1.8% in the financial year, building on the sales improvement which began in the second half of 2016.

It said that although the final quarter was impacted by disappointing weather, trading since the year end had resulted in strengthened like-for-like sales growth of 2.3% and it is looking to carry this momentum forward.

“As a result of the inflationary cost pressures, adjusted operating profit was down 3.1%, on a 52 week basis, despite the positive sales trajectory,” it added.

Trends within the broader eating out market were said to be mixed, with the restaurant sector overall seeing sales decline but with branded restaurants experiencing growth of 4.5% in 2017.

It said recent data suggested that consumer behaviour was changing, with people eating out less frequently but spending more when they did go out.

In addition, it said that although restaurant supply growth had steadied over the last year the market remained highly competitive and, as a result, levels of discounting appeared to be increasing in some segments of the market.