Strong Results Amidst Economic Headwinds
British pub giant Mitchells & Butlers has delivered impressive full-year results, reporting revenues of £2.7 billion for the year ending 27 September, marking a significant increase from £2.61 billion in the previous period. The company, which operates popular chains including All Bar One, Toby Carvery, and Harvester, also announced a 20% year-on-year surge in pre-tax profits, reaching £238 million.
The £130 Million Cost Challenge
Despite these robust figures, M&B has issued a stark warning about mounting cost pressures. The group anticipates facing approximately £130 million in additional costs over the coming year, primarily driven by soaring wage bills and rising food prices.
The cost increases are largely attributed to 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.
Food costs are also contributing to the pressure, with particular increases noted in meat prices. The company's assessment includes the impact of the recent budget announcement, which featured above-inflation rises in the minimum wage.
Market Reaction and Sector Contrast
Investors appeared undeterred by the cost warnings, sending M&B shares soaring more than 10% and making it the fastest riser on the FTSE 250 index. This confidence was bolstered by strong trading performance, with food and drink sales rising 4.3% year-on-year, and maintaining 3.8% growth in the first eight weeks of the new financial year.
In contrast, shares in Premier Inn owner Whitbread slumped more than 5% following analyst downgrades. Bernstein analysts highlighted that business rate changes in the budget represented a "hammer blow" to Whitbread, with some properties facing rateable value increases as high as 385%.
Analysts at Citi estimated that approximately 110 Whitbread hotels will be affected by the revaluation, potentially costing the company around £43 million annually. They projected this could result in a 5% decrease in adjusted profits by 2029.
Leadership Confidence in Navigating Challenges
Phil Urban, Chief Executive of Mitchells & Butlers, acknowledged the challenging landscape while expressing confidence in the company's resilience. "As we look to the year ahead, we anticipate increased cost pressures across the sector," Urban stated. "However, we remain confident in our ability to manage these challenges."
The contrasting fortunes of M&B and Whitbread highlight the varying impacts of government policy changes across the hospitality sector, with pub chains and hotel operators facing different regulatory and cost pressures despite operating in closely related markets.
