Mitchells & Butlers profits hit by red tape

Mitchells & Butlers, the pubs group that was spun off from Six Continents earlier this year, yesterday warned that a £17m leap in regulatory costs would put its margins under pressure next year. The warning took the gloss off the company's improving sales trend and knocked its share price.

Tim Clarke, the chief executive, blamed Government red tape for the hike in external costs, which will add £10m to the company's staffing bill after the minimum wage rises again next month. "Our margins are pressured by cost increases but we are looking to offset them by a combination of productivity gains and top line sales growth," Mr Clarke said. M&B's shares fell 4.5p to 238.5p.

M&B said it planned to press ahead with its promotional strategy of cut-price meals and selective discounting after reporting a pick-up in underlying sales. It said like-for-like sales across those outlets that have not been revamped in the past two years fell by just 0.1 per cent in the 19 weeks since 10 May - 3.6 percentage points better than sales reported for the first 32 weeks of its financial year. Where pubs have received investment, like-for-like sales rose by 2 per cent during the same period.

Mr Clarke attributed "three quarters" of the sales recovery to its special offers - such as cheaper "early bird" menus at its Harvester restaurants - and just 25 per cent to the summer heatwave, adding that the hot weather had "negatively" impacted its high street bars.The company said it was on track to hand back £400m to shareholders. Following a securitisation of its estate, investors will receive a special dividend and share consolidation.