M&B reports revenue up 6.6%

By MC Allegra FS

- Last updated on GMT

M&B reports revenue up 6.6%

Related tags: Like-for-like sales, Business

Mitchells & Butlers has reported like-for-like sales up 0.8% for the year to 26 September with revenue up 6.6% to £2.1bn.

It said sales in the first eight weeks of the year are down by 1.3% and like-for-like sales down by 1.6%, which it said reflected an increasingly competitive market.

The FY like-for-like sales were made up of food sales of 1.9% but lower drink sales of -0.4%. The company said food sales growth was driven by increased volumes of 0.8% and average spend per head growth of 1.1%. Drink sales, by contrast, resulted from average spend per head growth of 2.4% offset by volume decline of 2.8%.

During the year the company spent £162m in in capital expenditure, the same figure as 2014, including 14 new site openings and 51 conversions

Adjusted operating margin was 15.6% (FY 2014: 15.9%), which the company said was impacted by the Orchid integration. It said the latter was on track with 41 completed conversions performing well and closure of head office

Chief executive Phil Urban said: “In the last year we have increased our earnings by 9.5%, and I am delighted to announce the resumption of the dividend.

“Since joining Mitchells & Butlers in January I have seen first-hand the potential within the business. The market remains highly competitive but I have identified our key priorities to realise that potential. We will build a more balanced business; instil a more commercial culture; and increase the pace of execution and innovation. We are confident that with this approach we will drive sustained profit growth and enhanced shareholder returns.”

The company said that in order to generate consistent and sustained shareholder value it has identified three priorities, focused on: “building a more balanced business, instilling a more commercial culture, and increasing the pace of execution and innovation”.

The company said that its well established brand portfolio was an area of “great strength for the business, with national presence and enduring guest appeal”.

Urban said: “This is evident from high levels of sales and the strong returns on investment we have generated from converting Orchid sites to our brands. We need to continue to ensure that all of our brands have a clear and targeted proposition, and that they remain relevant to our guests in a dynamic market.”

It said that its must also ensure that it has the appropriate balance of brands, and number of sites within each brand, according to demographics and changing consumer needs.

Urban said: “For example, we have Miller & Carter​: a successful premium brand with only 36 sites but the potential for many more. We also have Harvester​: a mid-market brand with more than 200 sites. The Harvester brand remains powerful, as evidenced by the strong sales seen in our Orchid conversions. However, it is susceptible to new competitors due to its size and positioning. Therefore we need to invest in protecting our more mature established brands and accelerating the expansion of our most successful smaller brands, with a view to having a better balanced business in the longer term to deliver more predictable and sustainable shareholder returns.”

The company said will also instil a “truly commercial edge to our business, with a focus on driving profitable sales day in and day out”. Urban said: “We are not looking to generate higher like-for-like sales at the expense of profitability, and therefore our approach to driving sales must vary according to our different brands and their various life-cycle stages, finding the right balance in each case.

“We have also worked hard on getting back to basics with management targets and performance data, ensuring that our balanced scorecard approach is focused on managing our P&L, and continuing to convert sales to profit. We have installed a sales function to apply a structured approach to maximising opportunities from some of the under-utilised space we have at our disposal.

Urban said that the company recognised the need to increase the pace at which it operated and the speed with which it reacted in a dynamic marketplace. He said: “Simplicity throughout our business is vital. We see the house manager role as critical in our organisation: they need to be leaders, taking ownership for every aspect of their business and every aspect of the customer journey. Our area managers are the front line support to the house managers, and as a wider business we need to be set up to focus fully on supporting these key roles. We are therefore simplifying the business and focusing on clear metrics, to allow our area managers the time to be in their businesses, focusing on the standards of the operation and on truly delighting our guests.”

Addressing the “talent drain” from the company over recent years, Urban said: “We also recognise the need to capitalise on our team of outstanding people, by ensuring we are a company that the best people want to work for. We need to identify those with the most talent and highest potential, and ensure they are offered the right career plans and development paths to remain with the business and take it forward in the long term. We see applying these basic principles as the key to unlocking the potential of the high-quality team we have at our disposal, and to creating a results-orientated culture throughout the business.”

The company said the introduction of the National Living Wage would be an “impactful cost headwind”, adding “with consumers as focused as ever on value and service, we do not believe it will be possible for companies in our sector to simply ‘control’ their way out of the National Living Wage”.

The company said its response would focus on the long-term horizon, harnessing the potential for increased consumer spending through “tactical price opportunities to the extent we feel it is appropriate for certain brands, but also offering our guests the opportunity to trade-up the menu”. It said it would also continually monitor the relevance of its offer.”

Urban said that the company needed to approach innovation with urgency and from all angles: “new product development, the use of technology to improve efficiency, and digital innovation to drive the best engagement with our guests”.

He said: “Given the competitive environment, we will increase the level of trial activity that we undertake, and accelerate the rollout of those which are successful. This will help us to improve the return from our existing assets and to exploit further market opportunities through new product development. In the last year we have invested in our Heartland estate with two new concepts. Sizzling Pizza & Carvery provides an innovative solution to move our Crown Carveries business forward, and Sizzling Pub & Grill is an extension of the existing Sizzling Pubs​ offer. A small number of these formats have been trialled, with results exceeding expectations so far, and we are planning to accelerate the roll-out.”

Urban said that M&B’s guests are increasingly digitally connected in all aspects of their life. “This provides a significant opportunity for us, to communicate with and reach our guests in a variety of new ways, to engage with them with new offers, and to get a deeper understanding of consumer preferences to further drive insight,” he said. “Our focus on innovation is critical for us to maintain our competitive position in a rapidly evolving market.”

At the end of the financial year, the total estate comprised 1,779 managed businesses and 55 franchised businesses, in the UK and Germany.

Related topics: Mitchells & Butlers

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