Mitchells & Butlers sees profits fall following end of lower hospitality VAT rate
Harvester and Nicholson’s pub owner Mitchells & Butlers sees profits fall amid rising costs and expiration of lower VAT rate for hospitality
- Mitchells & Butlers said its interim pre-tax profits declined by £17m to £40m
- Earnings were depressed by staff salaries and higher food and energy costs
- Absence of pandemic-related restrictions boosted the firm’s sales by 11%
Mitchells & Butlers has reported weaker half-year profits following added inflationary pressures and the end of a temporarily lower VAT rate on hospitality businesses.
The hospitality group, which owns All Bar One and Nicholson’s pubs, along with Harvester and Toby Carvery restaurants, said its pre-tax profits declined by £17million to £40million for the 28 weeks to 8 April, despite a healthy period of consumer spending.
Earnings were depressed by higher staff salaries and the Ukraine war driving up food and energy bills significantly, as well as an absence of government financial support.
Drink to that: Mitchells & Butlers, which owns Nicholson’s and Toby Carvery, said its pre-tax profits declined by £17million to £40million for the 28 weeks to 8 April
In the equivalent period last year, the Birmingham-based firm received a £43million uplift from a 5 per cent VAT rate on food and non-alcoholic drink sales, on top of business rates relief and local authority grants.
But its trading was affected by the Government encouraging Britons to work from home to stop the spread of the Omicron variant, including over the usually busy Christmas season.
The absence of such Covid-related restrictions in the most recent first-half period brought a rebound in commuters and foreign tourists, particularly to the company’s drink-led pubs in Central London.
Sales growth was slowed by successive strikes by workers from ASLEF and the Rail, Maritime and Transport Union, causing the mass cancellation of train services.
But its turnover increased by 11 per cent to £1.3billion, while its like-for-like revenues grew by 8.5 per cent, even amidst a more difficult consumer backdrop.
M&B’s chief executive Phil Urban said: ‘The trading environment for the hospitality sector remains challenging with inflationary costs putting pressure both on the industry’s margins and disposable income of our guests.’
But the group noted that cost headwinds are showing signs of diminishing, with energy prices falling back from their elevated levels and ‘early evidence’ of food price rises beginning to slow.
For the current financial year, it now forecasts inflation will be at the lower end of its previously guided 10 to 12 per cent range.
Trading has also continued to grow solidly, with like-for-like sales in the past six weeks rising by 8.9 per cent, thanks partly to a strong Easter weekend.
Mitchells & Butlers shares ended 2.05 per cent higher at 199.1p on Wednesday and are up approximately 43 per cent over the past six months.
Victoria Scholar, the head of investment at Interactive Investor, said: ‘After shares came under pressure between April 2021 and October 2022 following the mini-budget chaos, the stock has been recovering off the lows.
‘As pandemic-era headwinds shift to the rear-view mirror and hopes grow that inflation will ease this year, Mitchells & Butlers has been staging a recovery.’