Pub giant Mitchells & Butlers has delivered impressive full-year results with profits surging 20%, even as it braces for a £130 million hit from rising wage and food costs.
Strong Financial Performance
The All Bar One owner reported revenues of £2.7 billion for the year ending 27 September, showing significant growth from £2.61 billion in the previous period. More impressively, the company achieved a 20% year-on-year increase in pre-tax profits, which reached £238 million.
Food and drink sales demonstrated robust growth, rising 4.3% year-on-year. The momentum has continued into the new financial year, with sales growing 3.8% in the first eight weeks - outperforming last year's Christmas trading period.
Mounting Cost Pressures
Despite the strong performance, M&B faces substantial headwinds. The group, which operates popular brands including Toby Carvery, Harvester and Miller & Carter, warned of approximately £130 million in extra costs over the coming year.
The cost increases are primarily driven by April's increases to the national minimum wage and employers' national insurance contributions. The national living wage will rise to £12.71 from April for over-21s, while the minimum wage for 18- to 20-year-olds will increase by 8.5% to £10.85 per hour.
Adding to the pressure, the company is experiencing significant increases in food costs, particularly for meat products. The budget announcement has further compounded these challenges with its above-inflation rise in the minimum wage.
Market Reaction and Industry Context
Investors remained optimistic despite the cost warnings, sending M&B's shares soaring more than 10% - making it the fastest riser on the FTSE 250 index. This confidence reflects the market's approval of the company's strong underlying performance and management's handling of challenging conditions.
Phil Urban, Chief Executive of M&B, acknowledged the difficulties ahead: "As we look to the year ahead, we anticipate increased cost pressures across the sector. However, we remain confident in our ability to manage these challenges."
Meanwhile, the hospitality sector showed mixed fortunes as Premier Inn owner Whitbread saw its shares slump more than 5% following analyst downgrades. Bernstein analysts downgraded Whitbread to 'underperform', citing business rate changes in the budget as a "hammer blow" to the company.
Research revealed that the median increase in rateable value for Premier Inn properties was about 174%, with the Manchester Piccadilly location facing a staggering 385% increase. Bernstein estimates the impact could reach £140 million by the third year.
Citi analysts also downgraded Whitbread, estimating that approximately 110 hotels will be affected by the revaluation, costing about £43 million annually. They suggested the company might need to implement cost-cutting measures and potentially increase prices to offset the higher rates.
The contrasting fortunes of these hospitality giants highlight the complex economic landscape facing UK pub and restaurant chains as they navigate post-pandemic recovery alongside mounting cost pressures.
