MITCHELLS & BUTLERS PLC

LEI no: 213800JHYNDNB1NS2W10

27 November 2024

FULL YEAR RESULTS

(For the 52 weeks ended 28 September 2024)

Highlights

Reported results (FY 2023 53 weeks)

Trading results (FY 2023 on an adjusted 52-week basis for ease of comparison)

Balance sheet and cash flow

Operational highlights

Current trading

Phil Urban, Chief Executive, commented:

"We are delighted by the very strong performance during the year.  Like-for-like sales^a continued to outperform the market^b which, coupled with easing inflationary costs and focus on efficiencies, has resulted in very strong profit recovery.    

We face increased inflationary cost headwinds in the year ahead. However, we shall remain focused on our established Ignite programme of initiatives and our successful capital investment programme, to drive further cost efficiencies and increased sales. Coupled with our market-leading estate and customer offers, we are confident that this will enable us to further grow market share and secure continued long-term outperformance."

Definitions

a - The Directors use a number of alternative performance measures (APMs) that are considered critical to aid the understanding of the Group's performance.  APMs are explained later in this announcement.

b - As measured by the CGA Business Tracker. 

There will be a presentation held today at 8:30am accessible by phone on 020 3936 2999, access code: 778658 and at https://www.netroadshow.com/events/login?show=61f6fdbc&confId=71552 . 

The slides will also be available on the website at www.mbplc.com.The replay will then be available at https://www.mbplc.com/fy2024/analystspresentation.

All disclosed documents relating to these results are available on the Group's website at www.mbplc.com

For further information, please contact:

Note for editors:

Mitchells & Butlers is a leading operator of managed restaurants and pubs. Its portfolio of brands and formats includes Harvester, Toby Carvery, All Bar One, Miller & Carter, Premium Country Pubs, Sizzling Pubs, Stonehouse, Vintage Inns, Browns, Castle, Nicholson's, O'Neill's, Ember Inns, Ego Restaurants and Pesto. In addition, it operates Innkeeper's Collection hotels in the UK and Alex restaurants and bars in Germany. Further details are available at www.mbplc.com and supporting photography can be downloaded at www.mbplc.com/imagelibrary.

CURRENT TRADING AND OUTLOOK

Sales growth remained strong over FY 2024, with consistent market outperformance.  As we move into FY 2025 we expect more normalised levels of sales growth as the inflationary environment eases.  The current underlying run rate of like-for-like sales^a growth, as measured across the first 7 weeks of the new financial year, is 4.0%.

Cost headwinds are now anticipated to total c.£100m this financial year, an increase of just over 5% on our current cost base. Against a benign backdrop of general inflation (including food and drink inputs) by far the most significant increase is now expected to be in relation to labour costs due both to increases in the statutory National Living Wage and in the recently announced increase in employer national insurance contributions, both of which take effect from April 2025.  We anticipate that energy costs this year, of which just over one half have been bought forward, will broadly stabilise overall with no further deflation, as has been seen in FY 2024. 

Notwithstanding future cost increases we feel that the business is in very good shape. Our balance sheet continues to strengthen, with reduced debt and a substantially de-risked pension surplus, and we expect to out-perform the market driving further profit growth in the year ahead.

BUSINESS REVIEW                                   

Persistent inflation over the past two years has put pressure on the hospitality sector as while the worst of the pandemic-related disruptions have eased, rising costs in food supply chains, energy, and labour which followed have impacted margins. Looking forward costs in general are abating, with the notable exception of wages, which continue to rise sharply based on increases both in the statutory National Living Wage and the level of employer national insurance contributions. The resulting widespread and unavoidable increase in prices has made eating out a more considered choice for many households and the culmination of these pressures has been net closures of 1% in the year to June 2024^c.  Despite these pressures, Lumina reported sales growth in the pubs, bars and restaurants market of 1.5% in 2024, with managed groups outperforming and delivering growth of 2.9%. With positive indications of increasing disposable income in recent months as inflationary pressures on households ease^d sales growth for the sector is expected to remain resilient in the year ahead with forecast growth for managed pubs, bars and restaurants of 2.6%, driven by price and spend per head with volumes anticipated to be in low single digit decline.

Against this backdrop total sales across the period were £2,610m reflecting 6.1% growth on FY 2023, on a 52-week basis. Like-for-like sales^a increased by 5.3% with strong performances through the brand portfolio and continued out-performance against the market as a whole. Operating profit, after separately disclosed items, of £300m reflects a notable recovery from last year (FY 2023 £98m) built on this strong sales performance coupled with falling cost inflation. Adjusted operating profit^a of £312m represents a £91m increase in profitability from last year, on a 52-week basis. 

We made a very good start to the year with like-for-like sales^a growth of 7.2% over the first seven weeks. Strong trading over the important festive period then led to an acceleration of like-for-like sales^a growth over the latter half of the quarter to 8.2%, resulting in overall like-for-like sales^a growth for the quarter of 7.7%.

Sales remained strong through the second quarter particularly on key trading dates.  Across the quarter, we recorded like-for-like sales^a growth of 6.1%, comprising drink sales growth of 5.3% and food sales growth of 6.6%, benefitting from the movement of Easter forward from the third quarter in the prior year.

Over the third quarter like-for-like sales^a grew by 3.4%, adversely impacted by the movement of Easter, the easing of the inflationary environment and a period of generally wet weather. In the fourth quarter sales grew by 3.4% having been negatively impacted by riots in city centres during August, as well as an unseasonably cool and wet summer.

Throughout the year we have consistently outperformed the market, as represented by the CGA Business tracker, by c.2ppts.

Overall cost inflation abated through the financial year. Whilst the recent level of statutory National Living Wage increases (effective in April each year) has been relatively high at approximately 10%, other costs have generally returned to more normalised levels and gas and electricity costs in particular have been in deflation. Strong and resilient sales growth combined with effective cost efficiency initiatives and abatement in overall cost inflation has driven a marked increase in profitability.

OUR STRATEGIC PRIORITIES

Our strategic pillars, which provide the foundation for our performance, remain consistent;

-      Build a more balanced business

-      Instil a commercial culture

-      Drive an innovation agenda

We focus on maximising the value generated from our 83% freehold and long leasehold estate, utilising the diversity of our brand portfolio to grow market share across a broad range of consumer occasions, demographics and locations.

Our Ignite programme of work remains at the core of our long-term value creation, with a range of initiatives underway focused on driving sales and delivering cost efficiencies.  During the year we have successfully deployed 'My Account' across multiple brands, providing guests with a single platform to manage their bookings, orders, and offers. This has led to a notable rise in customer engagement, particularly among younger guests, and positions 'My Account' as a key platform for future interactions as customer behaviours evolve. In addition to digital solutions, we remain focused on delivering excellent guest experiences and equipping our managers with the skills to drive the sales of their businesses. A specific focus during the year has been enhancing dish availability, a key consideration in guest experience, using technology to more accurately forecast sales which inform orders and provide guidance to kitchen teams on the optimal volume of food to prepare to satisfy demand. The benefit of these initiatives is reflected in sustained like-for-like sales^a growth across our brand portfolio as well as continued market outperformance on guest review scores, which averaged 4.5 out of 5.

Alongside driving sales, we have a range of initiatives focused on enhancing productivity and efficiency to help mitigate inflationary costs. Driving a reduction in our energy consumption remains a priority, both to improve efficiency and to support our sustainability objectives. During the year we achieved a further 2% reduction in overall energy usage, aided by investment voltage optimisers and solar panel roll-out. After a successful trial we are also now rolling out the use of remote control in-site energy monitoring systems. Remote control of heating, for example, provides a significant opportunity to reduce consumption whilst also relinquishing our managers of one of their many daily tasks, allowing them to focus on guests.

During the year we held a number of events, gathering different cohorts from various levels across the organisation, to generate fresh ideas for the next wave of Ignite initiatives to launch in FY 2025.  These sessions successfully identified numerous new opportunity areas, as well as additional value to be realised through improving the effectiveness of existing work streams.  

Our capital programme continues to deliver value through improving the competitive position of our pubs and restaurants within their local markets. Over the last year, we have completed 195 investment projects comprising 178 remodels, 11 conversions and 6 acquisitions. We are continuing to see strong performances from our investment projects, with remodel returns for projects completed in the year of 37%, and remain focused on re-establishing the target 7-year investment cycle which was interrupted by Covid-19.

In June 2023 we completed the acquisition of the remaining 60% stake in 3Sixty Restaurants Limited, owners of Ego Restaurants, having acquired the initial 40% stake in August 2018. Ego is a collection of Mediterranean-inspired pubs and restaurants where guests can enjoy freshly cooked food, cocktails, cask ales and wine from across the continent. The process of integrating Ego is making good progress, with all sites having now moved onto our systems and processes. During the first half of FY 2024 we are starting to leverage the brand internally and have converted 5 of our existing sites to the Ego offer, with average sales doubling following conversion. We anticipate conversion of a further 5-10 sites in FY 2025. 

In May 2024 we completed the acquisition of Pesto Restaurants. Pesto delivers an Italian tapas offer across its ten strong estate which is designed to create informal social and interactive experiences based on sharing with friends and family. Pesto compliments the Mediterranean theme of Ego and together they provide further diversification of the estate with a low meat offer which appeals to the health-conscious guest.  The consideration payable for the business is partly contingent on its performance over the first year of trading under our ownership, but is not expected to be more than £15m.

PEOPLE

Our people are fundamental to the delivery of great experiences for our guests. As such we are delighted with the progress made across our people measures during the year, which reflects our continuous focus on engagement, recruitment and retention. Engagement scores have continued to improve across all employee groups with record scores in our most recent employee survey. Turnover has also continued to improve, reaching record lows of 64% (FY 2023 81%), meaning that we are retaining our talent, building more experienced teams, and reducing the cost associated with the induction and training process. In addition, our internal succession rates have increased with 61% of General Manager positions filled internally (FY 2023 53%), reflecting our commitment to team member progression and development.

Apprenticeships continue to be an integral part of our retention and succession strategy, with evidence that people who complete apprenticeships are more likely to stay with us and to be promoted. We remain committed to delivering high quality apprenticeship opportunities both to new starters and existing employees and welcomed over 1,600 new joiners to the programme this financial year. We are particularly proud of our culinary apprenticeships, which continue to receive excellent feedback from learners, providing a pipeline of talent to a more challenging area for recruitment, as well as a valuable career opportunity with above industry level enrolment for 19-24-year-olds.  We are delighted that our apprentice programmes were recognised at the December 2023 National Apprenticeship awards, winning the award for Best Large Employer.

SUSTAINABILITY

We are committed to reducing the environmental impact of our business and the Board has challenging targets to drive continued momentum in this area.  We have committed to:

-    Net Zero emissions by 2040, including scope 1, 2 and 3

Progress: During the year we reduced our emissions by 14% from our 2019 baseline year, a year-on-year improvement of 3 ppts. Scope 1 & 2 emissions reduced from the baseline by 18% (FY 2023 13%) driven primarily by the energy consumption reduction initiatives, and the systematic removal of gas from the estate. In the year we have made good progress in our efforts to reduce gas as an energy source with 60 electrified kitchens, and five sites where gas has been fully removed, and replaced by air source heat pumps as an alternative for heating. We have plans to considerably expand this programme in FY 2025.  Scope 3 emissions reduced by 14% with significant progress made in the reduction of emissions associated to the products we buy, including food, as well as transport emissions in our supply chain.

-    Zero operational waste to landfill by 2030

Progress: We now divert over 98% of waste from landfill and are confident of achieving our target ahead of 2030. In addition, we have maintained recycling rates at 59% with enhanced segregation and a focus on engagement and behaviour change in sites.

-    50% reduction in food waste by 2030

Progress: We have successfully reduced our food waste by 23% from our 2019 baseline, with progress both in sites and in the supply chain. We are focused on operational practices to reduce waste, and have effective partnerships in place with Fareshare and Too Good To Go to redistribute unavoidable surplus food.

Our sustainability strategy also has a strong focus on the positive impact we have on people and communities, and we are proud to partner with Social Bite, a homelessness charity. Of particular importance is the Jobs First programme, helping people back to independence through long-term employment opportunities, which to date has employed 26 people from their academy. This year we funded the establishment of a new role within Social Bite, focused solely on placing people impacted by homelessness into Mitchells and Butlers roles and supporting them for the first year of employment.  We see considerable scope to grow this partnership and enhance our positive social impact over the coming years.

FINANCIAL REVIEW

On a statutory basis, profit/(loss) before tax for the financial year was £199m (FY 2023 £(13)m), on sales of £2,610m (FY 2023 £2,503m). 

The Group Income Statement discloses adjusted profit and earnings per share information that excludes separately disclosed items, determined by virtue of their size or nature, to allow a more effective comparison of the Group's trading performance from one period to the next.

Last year, FY 2023, was a 53-week reporting period therefore 52-week results are additionally disclosed for year-on-year comparison purposes.

At the end of the period, the total estate comprised 1,726 sites in the UK and Germany of which 1,654 are directly managed.

Revenue

Total revenue of £2,610m (FY 2023 £2,503m) reflects a strong period of trading driven by sustained like-for-like sales^a growth.

Like-for-like sales^a in the first half increased by 7.0%, comprising an increase in like-for-like food sales^a of 7.7% and of like-for-like drink sales^a of 6.0% driven by strengthening spend per head.  Over the second half like-for-like sales growth was impacted, as expected, by the easing inflationary environment as well as an unseasonably wet and cool summer and riots in some city centres during August.  Volumes of food and drink were in decline of c.1.5% across the year.

The current underlying rate of growth of like-for-like sales^a, as measured over the first 7 weeks of the new financial period, is 4.0%. The subsequent week was adversely impacted by comparison against Black Friday promotional activity last year, a timing difference that reverses a week later, resulting in growth over the first 8 weeks being 2.7%.

Like-for-like sales^a:

Total sales grew by 4.3% against last financial year and by 6.1% on a 52-week basis.

Separately disclosed items

Separately disclosed items are identified due to their nature or materiality to help the reader form a view of overall and adjusted trading.   

Within the context of the overall valuation of the group's freehold and long leasehold land and buildings (as set out in Note 6 to the consolidated financial statements), a £14m reduction in value is recognised relating to valuation and impairment of properties, comprising a £4m increase in value arising from the revaluation of freehold and long leasehold sites, a £17m impairment of right-of-use assets and a £1m impairment of computer software. The £4m tax credit relates to these impairments.

Other separately disclosed items include a net profit arising on property disposals of £2m.  Refer to Note 3 to the consolidated financial statements for comparative information.

Operating profit and margins^a

Adjusted operating profit^a was £312m (FY 2023 £221m), an increase of 41.2% on a 52-week basis.  Adjusted operating margin of 12.0% was 3.0ppts higher than last year driven by strong like-for-like sales^a growth, reduced cost inflation and operating efficiencies. Statutory operating profit was £300m (FY 2023 £98m) with statutory operating profit margin of 11.5% (FY 2023 3.9%).

The aggregate net cost headwind for the financial year was slightly less than 3% of our cost base of c.£2.0 billion, after some offset from deflation in energy prices.  Looking forward, cost headwinds are now anticipated to increase to c.£100m for FY 2025, representing just over 5% on the cost base. Against a generally benign backdrop of general inflation (including food and drink inputs) by far the most significant increase is now expected in relation to labour costs due both to increases in the statutory National Living Wage and in the recently announced increase in employer national insurance contributions, both of which take place from April 2025.  We anticipate that energy costs, of which just over one half have been bought forward, will broadly stabilise overall with no further deflation

Interest

Net finance costs of £99m (FY 2023 £108m) for the financial year were £9m lower than the same period last year. The net pensions finance charge was £2m (FY 2023 £3m). This is anticipated to be a credit of £7m this year, FY 2025, following recognition of the net surplus funding position across the schemes.

Earnings per share

Basic earnings (losses) per share, after the separately disclosed items described above, were 25.0p (FY 2023 earnings (0.7)p), with adjusted earnings per share^a of 26.4p (FY 2023 15.6p on 52-week basis).

The basic weighted average number of shares in the period was 595m and the total number of shares issued at the balance sheet date was 598m.

Cash flow

This was a very strong period of cash generation. EBITDA, before movements in the valuation of the property portfolio increased sharply as a result of an improved trading performance to £444m, which converted to net cash inflow for the period before bond amortisation of £185m (FY 2023 £30m) helped by a number of non-recurring items in the form of the return of historic pensions contributions from escrow, use of tax losses and timing on working capital flows.

After all outgoings, including mandatory bond amortisation of £123m (including net impact of currency swaps), cash inflow was £62m (FY 2023 outflow £86m).

Capital expenditure

Capital expenditure of £154m (FY 2023 £157m, including £3m intangible assets) comprises £152m from the purchase of property, plant and equipment and £2m in relation to the purchase of intangible assets.

Maintenance and infrastructure spend included investment of £9m towards our sustainability ambitions, such as solar panels and electrified kitchen equipment, as well as £4m towards digital and technological improvements. Maintenance and infrastructure spend was slightly lower than prior year due to reduced spend on IT infrastructure and hardware.

During the period we have made good progress on increasing the number of completed investment projects, and we remain committed to resumption of an average seven-year refurbishment cycle across our estate, although supply chain constraints, notably in securing timely planning consent, continue to prove a challenge.

Four freehold sites were acquired in the year comprising new sites in York, Nunthorpe and Fitzrovia and the acquisition of the freehold of a site previously operated as leasehold in Edinburgh. Both of the leasehold acquisitions relate to new Alex sites in Germany.

Pensions

Both the main pensions schemes of the group are now substantially de-risked. The Main Plan completed a full scheme buy-in last year, and the Executive Plan most recently completed a full scheme buy-out late this year. No further employer contributions are therefore being made to either scheme. In the year a return of £35m of historic contributions was made to the group from amounts held in escrow with respect to the Main Plan. A further return of £12m, relating to the monies left in the Executive Plan escrow account, has been received after the balance sheet date. 

One further scheme, remains. This is closed and unfunded and has estimated liabilities of £25m.

Over the course of the year agreement was reached to use any surplus arising in the Main Plan to pay for employer contributions in the defined contribution section of that Plan. As this is a change in the Trustee's agreed use of the surplus compared to prior years the full value of the surplus of £164m is now recognised in this year's accounts as an economic benefit to the company.

Net debt and facilities

On the back of a strong cash performance, net debt^a at the period end reduced to £1,436m, comprised of £989m non-lease liabilities and lease liabilities of £447m (FY 2023 £1,633m comprised of £1,170m non-lease liabilities and lease liabilities of £463m). This represents a multiple of 3.2 times EBITDA over the last year including lease liabilities (2.2 times excluding these liabilities).

Further details of existing debt arrangements and an analysis of net debt can be found in Note 9 to the consolidated financial statements and at https://www.mbplc.com/infocentre/debtinformation/. 

Going Concern

After considering forecasts, sensitivities and mitigating actions available to management and having regard to risks and uncertainties, the Directors have a reasonable expectation that the Group has adequate resources to continue to operate within its borrowing facilities and covenants for a period of at least 12 months from the date of signing the financial statements. Accordingly, the financial statements have been prepared on the going concern basis. Full details are included in Note 1 to the consolidated financial statements.

Director's responsibility statement

We confirm that to the best of our knowledge: 

-      the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and 

-      the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 

This responsibility statement was approved by the Board of Directors on 26 November 2024 and is signed on its behalf by:

Tim Jones

Chief Financial Officer

26 November 2024

Definitions

a - The Directors use a number of alternative performance measures (APMs) that are considered critical to aid the understanding of the Group's performance. Key measures are explained later in this announcement.

b - As measured by the CGA Business Tracker. 

c- CGA Hospitality Market Monitor, August 2024

d - Asda Income Tracker