M&B: food overtakes drink for first time

Food sales across the retained estate at Mitchells & Butlers (M&B) have overtaken drink sales for the first time.

The managed pub operator reported a 4.2% rise in first half sales (28 weeks to 9 April) across its retained estate to £912m, driven by a 7.5% increase in food sales.

The group said that food was now its largest single product with nearly three quarters of its sales deriving from meals and their directly associated drink sales.

Total drink sales were up 1.7% with drink prices (excluding VAT) up 6.3%. The group said the majority of this price increase was from same product price rises and the remainder through positive mix changes.

It said that drink volumes were down 4.3% as a result of these price changes as well as being partially impacted by the disposal of a number of wet led pubs.

Operating profit across its retained estate for the 28 weeks to 9 April remained flat compared to the previous year, which the company said was due to start-up costs from its brand rollout programme (c.£4m) and the movement of Easter into the second half of its financial year (c.£3m). EBITDA for the period saw a modest increase of 1% to £194m.

The company said that before disposals and including its non-core assets, revenue during the 28 weeks decreased by 8.8% from £1.037bn to £946m, with pre-tax profit down 40.3% to £43m.

For the 33 weeks to 14 May, like-for-like sales at the company's retained estate increased by 3.3%, driven by a 5.5% rise in food sales and a 1.8% climb drink sales.

Re-shaping​

The company said it had finished the first phase of its strategy to reshape its business set out in March last year, which included plans to exit non-core assets and focus on core food-led brands.

It said that £373m sale of wet-led pubs to Stonegate, which completed last November, was a key element of this.

The company said that process for the recruitment of a new chief executive, after the departure of Adam Fowle earlier this year, was progressing well.

It recently added industry veteran Bob Ivell to its board as non-executive director. The group said it would continue to strengthen its board.

The group invested £53m during the period, opening 29 new sites and completing 31 conversions. It said that investment returns on these new sites and conversions were good, with an EBITDA ROI of 19% on all expansionary capital spent in FY10 and FY11.

New sites​

The company also said that there had been "an encouraging early performance" from its new retail park investments and the Ha Ha Bar & Grill acquisition.

It said it expects to spend approximately £75m on expansionary investments during its current financial year, of which c.£50m will be in respect of new site acquisitions. M&B expects this pace to increase in FY12.

The group said it reduced its net debt by nearly £400m during the half year to £1.92bn.

On track​

Jeremy Blood, interim chief executive, said: "Our growth strategy is on track and has delivered a strong trading performance with total sales up 4.2%. Harvester's performance has been particularly good, supported by its new advertising campaign together with its new breakfast and take-away menus.

"We have successfully positioned M&B more firmly within the eating-out market with nearly three quarters of our revenue now generated around eating-out.

"We have a healthy balance sheet and are investing for further growth with 50 new sites being opened this year from our brand rollout. I have been impressed with the depth of skills within the company that gives M&B an excellent growth platform and enables the board to have confidence in the prospects for the business."

Cost challenges​

The company said it believed that challenges lie ahead in respect of input cost inflation from food and energy, "in addition to uncertainty around UK discretionary consumer spending", which will create pressures on its business extending into FY12.

The group said that its had repaid and cancelled a £425m medium term and revolving credit facility on 15 February following the transfer of assets into its securitised estate and subsequent transfer out of funds.