Pub operator Mitchells & Butlers (MAB) saw profits move marginally ahead in the latter six months of last year to 29 September, a welcome return to growth.
But rising costs of food, drink, salaries and logistics continue to dampen performance overall. Operating profit, after stripping out a handful of one-off factors, slipped from £308m to £303m.
That chimes with fairly lacklustre revenues which were little more than flat at £2.15bn, although they did nudge 1.3% ahead on a like-for-like basis.
SELF HELP INITIATIVES
There are several levers the company is trying to pull to enliven performance down the line. Perhaps the biggest, and most controversial, was its decision late last year to axe dividends in favour of ploughing more investment into its estate.
Removing a steady flow of income is normally a controversial move and it is likely to remain a bone of contention.
Instead of handing cash to shareholders Mitchells & Butlers aims to spruce up its outlets and open new premium sites. It has already started unveiling new sites for All Bar One, Toby Carvery and Miller & Carter chains.
The company spent £101m on refurbishment, expansion and buying new properties last year, although that was down on the £116m previously. It plans to up spending to around £175m to £180m in the current 12 months.
To some degree the company's hands are tied given its large debt pile. Net debt was reduced from £1.75bn to just shy of £1.69bn last year but that is still around four-times earnings before interest, tax, depreciation and amortisation.
Lenders normally get very jittery when debt ratios nudge north of three-times, but Mitchells & Butlers rightly gets more leeway thanks to its £4.4bn worth of owned property.
Canaccord Genuity analyst Nigel Parson says Mitchell & Butler’s focus on refurbishment and debt reduction is the right thing to do, and could eventually drive the share price.
MORE DRINKERS THAN EATERS
Evidently there were more thirsty customers than hungry ones during the period. Like-for-like drinks sales increased 2.6%, no doubt aided by the sweltering past summer. Happily for investors, drinks like-for-likes have continued in the seven weeks since the year end, up 2.2%.
But food revenue is basically flat with customers clearly not drawn to well-known family eateries, including Harvester and Toby Carvery. Like-for-likes nudged just 0.3%, and most of that increase came from modest price increases.
Numis analyst Tim Barratt is reassured by modestly accelerating sales, and adds that if current trends can be maintained the company could meet analysts’ expectations of a £7m increase in earnings this year, implying about £152m, or around 35.6p of earnings per share.
Mitchells & Butlers shares today have risen close on 2% to 272.6p.
