Mitchells & Butler expects tougher trading in pubs

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The Independent Online

Shares in Mitchells & Butler, the FTSE 100 pub company, rose 6.5 per cent as the group posted better-than-expected first-half profits and said it was confident it could continue stealing market share from competitors over the second half.

Shares in Mitchells & Butler, the FTSE 100 pub company, rose 6.5 per cent as the group posted better-than-expected first-half profits and said it was confident it could continue stealing market share from competitors over the second half.

Brushing aside fears that the pub market has been cooling off in recent weeks - following a profits warning from its rival Whitbread last month - M&B said yesterday its sales growth had continued at a steady rate over the past two months.

But Tim Clarke, the chief executive, conceded: "The outlook for consumer spending has been deteriorating and trading conditions have been more challenging. All other things being equal, we expect the trading environment to be tougher [over the coming months]." He said that the company's impressive first-half profits had come as a direct result of its "sales-driven" strategy, focusing on prising market share from its rivals by providing "quality and value".

The group saw pre-tax profits rise almost 5 per cent on the same period last year, to £86m, driven by a 9 per cent rise in food sales. Although UK beer sales continued to decline across the market as a whole -3 per cent - M&B's rose 2 per cent.

Mr Clarke said the results were pleasing in the light of substantially increased costs over the past six months. Over its 2004-05 financial year, he said the group expects to see an extra £18m in costs - of which £10m came in the first half - due to a rise in the minimum wage, and as a result of energy price hikes.

The group, he said, hoped to benefit from the change in UK licensing laws, adding that the company had begun applying for slightly later licenses at several of its city-centre pubs.

M&B's chief executive said it remained highly cash generative, producing a net cash inflow of £12m in the first half, even after making a £30m payment to the pension fund, and spending a further £22m on share buy-backs. M&B has been one of an increasing number of companies that is taking responsibility for their large pension deficits over the past year. Its deficit is now £122m, almost 30 per cent smaller than a year ago.

After rising as high as 9 per cent in early trading, they closed at 327.5p, giving it a market value of £1.6bn.

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