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Mitchells & Butlers profits fall as pub group warns of further Brexit risks

The group, which also owns Harvester, reported a fall in pre-tax profits to £77 million for the year to September 30.


CITY Mitchells

CITY Mitchells

CITY Mitchells

All Bar One owner Mitchells & Butlers has seen its shares plunge after warning it could scrap its next shareholder dividend payout on the back of lower profits and said it faced further risks amid Brexit uncertainty.

The pub group, which also owns Harvester, reported a fall in pre-tax profits to £77 million for the year to September 30, compared to £94 million the previous year.

It comes as the company works to offset a spike in buying costs on the back of the Brexit-hit pound, saying it expects those pressures to continue into the next financial year.

Chief executive Phil Urban said: “Cost headwinds across the industry have adversely affected margins but we continue to work hard to mitigate as much of these as possible through our focus on efficiency and profitable sales growth.”

Mitchells said its efforts have successfully mitigated “£26 million of the inflationary cost headwinds which we faced in the past year”, and announced it was launching a “second phase of initiatives” to try and counter those pressures.

Investors were focused on plans to scrap the next interim dividend amid growing uncertainty, with Mitchells & Butlers saying the decision was “pending assessment at year end of capital allocation and prospects”.


Mitchells and Butlers results

Mitchells and Butlers results

Press Association Images

Mitchells and Butlers results

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The news sent shares down more than 10% at the market open, but the stock later recovered a little to trade down 7%.

The company said there were “unprecedented cost headwinds” facing the industry, as well as “political uncertainty domestically and surrounding the impact of leaving the European Union”.

There are three main areas where Brexit could hurt the business, it explained, including changes to consumer confidence, higher input costs as a result of a weaker sterling exchange rate, and changes to employment and immigration laws.

Pubs are expected to suffer if access to foreign workers is restricted as a result of Brexit, with the British Hospitality Association saying earlier this autumn that around 700,000 of the hospitality sector’s 3.2 million workforce are from the EU.

Rival pub chain Young’s earlier this month said it was concerned that Brexit uncertainty was making it more difficult to attract and retain staff.

Mitchells said: “Without clarity on the terms of exit, the impact of the first two remains relatively unknown and we continue to closely follow developments in these areas.”

Greg Johnson, an analyst at Shore Capital Markets, said that current trading at the pub group was “robust”, consistent with expectations for the company and higher than industry forecasts “due to accelerated investment”.

However, he does not believe it will be enough to offset cost inflation pressures and therefore had already forecast a decline in operating profits for the group.

He said: “With this, it is therefore somewhat strange that the management are guiding to the interim dividend in 2018 being passed; in 2017 Mitchells & Butlers paid an unchanged interim dividend of 2.5p and an unchanged final of 5.0p.

“Therefore, we need to question whether… estimates are a little too aggressive, especially on its ability to recover cost inflation, and hence we may end up lowering estimates post discussions with the company.”