Mitchells & Butlers reports a drop in annual profits citing cost pressures and competition

 
Courtney Goldsmith
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Like-for-like volumes of food and drink fell for the pub and restaurant operator. (Source: Getty)

Pub and restaurant operator Mitchells & Butlers announced a drop in like-for-like sales as annual profits fell by more than a quarter for the year ended 24 September.

The figures

Like-for-like sales were down on the whole by 0.8 per cent, but the company is progressing toward growth with a rise of 0.5 per cent the last eight weeks' sales.

Like-for-like food volumes fell by 5.7 per cent and drink volumes fell four per cent, pushing total revenue down by about 0.7 per cent to £2.1bn.

Read more: All Bar One owner's share price lifts despite drop in full-year sales

Reported profit before tax dropped to £94m from £126m for the operator of Harvester and All Bar One, largely due to an £88m hit in depreciation, amortisation and movements in the valuation of the property portfolio.

Without the separately disclosed items, profit before tax fell to £181m from £184m, down 1.5 per cent.

Phil Urban, chief executive, said sales growth in the first eight weeks was dampened by the comparative success of last year's Rugby World Cup.

The group's share price fell four per cent to 262.4p in the early hours of trading, and basic earnings per share were down to 21.6p from 25.0p.

Read more: Mitchells & Butlers investors have something to toast

Why it's interesting

Increased competition in the restaurant sector in the year to June 2015 caused business to stall for the operator's mid-market brands.

But the rate of new restaurant openings has slowed since the summer of 2015, and Mitchells & Butlers is eager to win back some market share.

Mitchells & Butlers invested £167m to open eight new sites and make 252 conversions and remodels over the financial year.

Read more: Hangover for Mitchells & Butlers as drinks revenues slide lower

The company said it's too early to predict whether leaving the European Union will affect business, but for the medium to long term it is watching for changes in consumer confidence and behaviour, changes to employment and immigration laws and changes to input costs impacted by the value of sterling.

Cost pressures like the National Living Wage, potential increases to the National Minimum Wage, the impact of exchange rate movements and the review over business rates have also impacted the company's figures.

What Mitchells & Butlers said

Urban said the company has made progress on its three strategic priorities: building a more balanced business, instilling a more commercial culture, and driving an innovation agenda. He added:

This focus is starting to have a positive effect on our sales, with improved performance against a subdued market in recent months through continuation of the momentum we saw start in the second half of last year.

In the next year, as previously announced, we face external cost headwinds, notably from further wage inflation, the recent business rates review and exchange rate movements. We are working hard to mitigate these headwinds wherever possible, both through building on our sales momentum and active management of our cost base.

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