Mitchells & Butlers profits slide amid cost headwinds
- Mitchells & Butlers announced that operating profit fell by £26 million to £98 million
- The company was hit by a near-total lack of Covid-related government support
- Shares of the company were among the biggest fallers on the FTSE 250 Index
Toby Carvery’s parent company saw profits plummet by around a quarter last year due to significant inflationary pressures.
Mitchells & Butlers operating profits fell by £26m to £98m in the 53 weeks ending September as high energy and food costs and a decline in property portfolio valuations hurt the bottom line.
It was further affected by an almost total absence of pandemic-related government support, such as a reduction in business rates and lower VAT for the hospitality sector, which totaled £53 million the previous year.
Profit problems: Toby Carvery owner Mitchells & Butlers revealed annual operating profit has fallen by £26m to £98m
Thereafter, Mitchells & Butlers Shares fell 7.1 per cent to 225.2p early on Thursday afternoon, making them one of the biggest fallers on the FTSE 250 Index.
However, the Birmingham-based company said cost headwinds are easing and costs are expected to reach around £65 million this financial year, even with the upcoming National Living Wage increase.
Phil Urban, CEO of M&B, added: ‘While we remain aware of the pressures facing the UK consumer, the strength of our sales growth combined with a declining cost environment gives us confidence for the financial year ahead.’
The company’s like-for-like sales have risen 7.2 percent since October, after growing 9.1 percent in the previous twelve months, a record performance against the broader market.
M&B’s total turnover rose by almost £300 million to £2.5 billion last year, partly due to the lack of Covid-19 restrictions on hospitality venues.
Trading at central London branches benefited from a recovery in inbound tourists and workers commuting to the office more regularly.
In the second half of the period, comparable sales increased by 9.7 percent, despite a much cooler and wetter summer than average.
Yet the company, which also runs the All Bar One and Harvester chains, has not paid a dividend and net debt remains high at £1.1 billion.
Derren Nathan, head of equity research at Hargreaves Lansdown, warned: ‘With a debt pile of more than £1 billion, it is no surprise that the purse strings have not been loosened to allow for a dividend.
“Given the continued uncertainty about the immediate prospects, it makes sense to prioritize investment in the business and leave some room for promotional activities.”
M&B’s results come a week after the Autumn Statement announced many new measures aimed at helping the UK’s struggling hospitality sector.
Chancellor Jeremy Hunt froze alcohol duty and the small business multiplier and extended the 75 per cent business rates cut for hospitality businesses until 2025.