Mitchells & Butlers H1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 22, 2025
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Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

good morning. We had a strong start to the year, as you can see here. Strong first half. Sales well ahead of the market, up over 4%. That's combined with natural leverage and good cost control to drive an increase in our operating profits of 10.4% at a richer margin, up 70 basis points at 12.4%.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

EPS, which further benefited from interest income, now recognizing the surplus on our pension scheme, was up 23.5% for the half. So so a great start to the year. I'll I'll

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

go through, and I'll look

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

at the various key drivers of that performance. So we start with sales. Set out here the monthly flow of sales through the half year. I'll put that in the context of the preceding six months and the period post the period end as well. Overall, like for likes were up 4.3% with volumes improved to to basically flat.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

Most of you be aware, this this time of year is quite difficult with calendar shifts, Easter, Mother's Day, Valentine's Day, and what have you. So that 4.3 is a little bit understated because it doesn't have an Easter. Probably more meaningful for you. If I look at sales for the whole year to date, so up to last weekend, we've been running at 4.6%. And we've also looked at the last ten weeks.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

So that's that's contrived to Easter in both years and Mother's Day in both years. So it's a sort of clean read for you. If I look at the last ten weeks, we're up 6%. So so underlying rate's somewhere between those two numbers. Both, as I said before, significantly ahead of the market as measured by the CTA business tracker.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

You can see here how that strong sales performance has got ahead of cost headwinds and flowed down to profit, combined with value driven from our capital plan, an increasing allocation to CapEx justified by some very strong returns. We're making over over 35% consistently on our remodel program and our ignite efficiencies, which continue to flow through very strongly. I won't say any more about them because Phil's gonna talk about that in a little bit more depth later on. Now the last few years, we've been talking about cost inflation. Cost headwinds do remain a challenge for us as a sector.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

I would remind you that this chart sets out the gross cost headwind. So it is before any mitigation that we apply to it. It represents the challenge, if you like, that is presented to us that we then take on board. But look at this year, our guidance to you is is basically unchanged. We see we see a headwind of about a hundred million, so 5% of our cost base.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

Labor is the main driver within that, especially national insurance contributions increasing. So that's added 23,000,000 to our cost base on an annualized basis, although it'll only start from the second half of this year. Apart from labor, the cost environment this year is pretty benign, to be honest. We look forward to next year. We're going to annualize on the national insurance and the labor increases in the first half.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

Of course, we'll have a new living wage increase brought in from April. We would expect that to be above the general level of inflation as it has been consistently over the last few years. Energy and other costs, again, pretty well the same as this year, with the exception of food and drink input costs, which is perhaps merging a scenario of slightly higher increases for us. I think meat is gonna be the main driver within that. It's probably no surprise.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

We started to read that in the press. And there will be a lag to correct this just due to the obvious constraints in growing livestock supply, but we don't think it's anything structural. We don't think it's permanent. We think it it will revert after a period of time. And, of course, we're working very hard to to review our offers, to change our offers, and to challenge new supply lines to mitigate as much of that as we possibly can.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

From 2027 onwards, it feels a little brave to stand here and start talking about 2077 cost inflation, but from what we can see now, I would see the overall headwinds ebbing back down, returning to trend, probably somewhere in the region of 90,000,000 cost headwind a year, about 4% of our cost base. So the result was accompanied by a very strong cash flow performance. Although typically, it's important to remember that we have a seasonality to our working capital. You can see that on this chart. So we tend to have an inflow of working capital in the first half.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

Much of that will reverse in the second half. However, beyond that, you know, items of note, we received another £12,000,000 in pension escrow accounts. So that now completes the return of all of the pension amounts that we were holding in escrow. And we still have a surplus of $140,000,000 sitting on our balance sheet. We will get value for that over several years through relief against future contributions in the DC section of that scheme.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

So that represents value for us. CapEx increased by just over 10,000,000. So we managed to gear back up to our our seven year cycle, and we justify an allocation of capital to that area by the strong returns that we're generating, as I said. And lastly, tax paid. As we get relief for losses suffered during COVID, which reduces the actual tax we have to pay, we have about 22,000,000 of value left in that area.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

So that is see us through the second half and and into next year, then I suspect we would have used all of those up. So overall, really strong cash performance, albeit helped a bit by seasonality. It takes our net debt down now to $860,000,000, representing 1.9 times EBITDA if I exclude leases. Now let me step back and put cash flow and debt performance in a slightly wider context. We have had great success over the last ten or fifteen years in reducing our debt from what we consider to be unsustainable levels at that stage.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

And alongside that, you know, it's important to remember, we've also completely transformed the pension funding situation of the group from what was a very large £500,000,000 deficit into a derisked surplus of about a hundred and 40,000,000. So really great progress, but we do remain locked into a very inflexible securitization structure. Most of you have been very familiar with how that works. I've set it out on the chart looking forward. And that structure does mandates the level at which we can degear the business.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

And I think there are two takeaways that that we take from that. The first is despite a declining level of debt, our service commitment remains unchanged at £200,000,000 a year. So just an increasing amount of that is going into capital, but the actual bill we need to meet remains unchanged. So absent any changes in the structure, this ties us into a degearing flight path and does not leave any surplus cash after CapEx. And CapEx, we we have always prioritized, and we will continue to prioritize in this group.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

So we were very clear back in 2017 what our dividend criteria was. We will not draw short term borrowings to fund the dividend. So despite strong trading and despite lower debt, that criteria is not yet met for us under the current capital structure. I think the second takeaway is it is clear at some stage, there will be a reset for this business on its capital structure when we will look to refinance the business and the securitization itself. The question is, when does that arise?

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

When is the right time to do that? The answer, of course, is when it is efficient to do so. At the current time, we have significant break costs and amend costs. We want to adjust the securitization, and they are not justified by any potential benefit from renewed refinancing terms where we're do that. So it makes no sense for us to do it at the current time.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

Over time, these costs will come down, and that will create conditions for a reset in the capital structure. What what they do at that time can only depend on conditions and circumstances at that time, though, in terms of the investment opportunities that face the business at that time, debt market conditions at that time, and the trading outlook that the business is in at that time. So it's only a decision we can make once it once we are executing the transaction. Until then, the sensible thing for us to do as a business is continue to reduce our debts, to grow the equity share of the business, to increase our resilience in what's, let's be honest, has not been easy times recently, and open up further opportunities within our capital structure. So pulling all that together, really strong trading in the first half, both across sales, across profit, across margins.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

Progress has also been reflected across all of our score chart, whether that's cash debt, whether it's return on capital, staff, engagement scores, guest scores as well. And we see the outlook as very positive. We expect to end this year right at the top end of the current consensus. We move into next year. We got some cost headwinds, some cost challenges, but we're up for dealing with those.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

And we feel we have some momentum, particularly on sales, to go through to next year and continue to make value for the group. So with that, I'd like to turn it to Phil.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

Thanks. Now as you've heard, we've had a very strong six months underpinned by having a portfolio of well invested, well managed, and clearly defined brands and offers. Now we've always shared the CGA business tracker with you at these updates, and as you can see here, our outperformance versus the market is, if anything, strengthened over the last six months. We enjoyed a very good festive period, which inevitably is the main driver of half form performance. The very cold weather at the start of 2025 gave us a few difficult weeks, and it took the gloss off our post Christmas sales updates to the market.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

Now we knew that the underlying business was far stronger. So pleasingly, that has come through, undoubtedly helped by the warmer weather that we enjoy just before Easter. Mothering Sunday was also a standout success for us, only ever bettered by the previous two Christmas days. Now this performance, of course, doesn't just happen by itself, but it relies on having a skilled and experienced management delivering proven and trusted offers professionally and in quality environments. Now we're blessed with many great people across the business, and I'm delighted to say that our team turnover has fallen to 56.8% year to date, a record low in the history of the business, which means a far greater level of experience, which can only be positive for for our guests.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

Excuse me. As you can see, over the last decade, we have tracked ahead of the market. However, you can also see that the market as a whole has been remarkably resilient over this time, particularly post COVID, demonstrating that hospitality has always and will always have a large role to play in the fabric of UK society, relying the somewhat negative view of the sector. Now we see no reason for this resilience nor our market outperformance to change, and we believe the fact that we have tracked consistently ahead of the market is due to keeping our brands fresh and relevant and continuously striving to improve on multiple fronts with standing still not being an option for us. Pleasingly, our total volumes were broadly flat year to date, which is the first time we've seen this in many years given the long term sector decline.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

It's worth emphasizing that CGA business tracker also provides contributors with data relating to market subsets, I. E. Restaurants, pub restaurants, pubs, and bars, and the total in aggregate including delivery. As you can see, we have traded ahead of the market in each segment, which bodes well as we're not reliant on any particular brand, and we're in growth in each four segments each of the four segments. The fact that our guest review scores have improved even further year on year to 4.6 out of five is also encouraging because we know there's a direct correlation between the guest scores and like for like sales.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

There's a similar picture when you look at guest sentiment, which is sort of a proxy for Net Promoter Score, where we have tracked consistently ahead of our peers, again evidencing that we are stealing market share. In terms of our brands, there's a familiar feel of the half year, with Nicholson's, Vintage Gins, Castle pubs, Sizzling pubs leading the way. The late night segment remains the toughest part of the market, but we have limited exposure to it. And where we do, those offers also trade well during different dayparts and different occasions. The momentum that we have built up is the result of a systematic way of working, accepting that we have a spirit of continuous improvement in all that we do, driven by what our guests are telling us.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

Our three strategic priorities keep us focused. They are, to remind you, maintaining a balanced portfolio, ensuring that each of the brand formats are kept fresh and relevant, and and by having a seven year cycle to reinvestment, we're continuously raising the average quality of the immunity. Driving a commercial edge to the way we do business ensures that everyone in M and B is wired to listen to guest feedback from a myriad of sources. And by being forensic about how each pound of sales converts to bottom line profit, then we keep the business moving forwards. And finally, by driving an innovative spirit across the company, we encourage all of the team to constantly search for the new and the better, whether that's in terms of technology we use, the way we market the business, or new product and new concept development.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

Now these priorities are driven by pulling the same three levers each year. And, of course, we have a solid track record to prove that the approach works. The first lever is brand management. It's the streaming of our brands, each led by an operations director and brand aligned functional support. The brand focus that this structure gives ensures that we can take the very best of the economies of scales that M and B brings where appropriate to do so, but whilst maintaining the brand specific hallmarks and nuances that makes each brand stand out in its respective markets.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

Pricing and product decisions as well as the service style and training of each of the offers are evolved each year, which ensures that each brand can stay ahead of the competitive competition. The second lever that we pull, Tim touched on, is is capital, capital investment in the business. Now we aspire to have this seven year cycle of remodel or conversion investment across the estate. But there is some flex around this, especially where business is still trading well and where wear and tear doesn't yet justify further investment. And we have a big competitive advantage with stable brands that we own.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

It allows us to take time to reposition a brand if we need to whilst the other brands drive forward, although at the moment, fair to say all brands are doing well. And we're also able to map the estate by location, ensuring we have the optimal spread of our offers in each area. The current capital program is generating a very strong return on investment, with both last year's and this year's remodel programs currently delivering an ROI in excess of 35%. Now this is very important as we pay back within five years and on a seven year reinvestment cycle. It means that the capital program is now a real driver of incremental profit each year.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

We, of course, also have a large maintenance capital program, and we're investing in technology, kitchen equipment, and solar panels on top of day to day requirements. We currently envision spending circa 200,000,000 per annum, excluding acquisitions. The third and final lever that we pull is IGNITE, our ongoing transformation program. Now as I've said before, IGNITE is just a working title to a way of working. We have a natural thirst for continuous improvement, and therefore, we always have between 40 or 50 separate initiatives underway at all times.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

To give you a flavor of some of the things that are currently happening in the business, we have launched an employee app to all of our team that gives them a single portal to access their benefits and payslips as well as to communicate as a brand team. And we believe this will be a game changer for engaging the team behind incentives and calls to actions, and it will increase productivity over time. We've established a new bucket of initiatives looking at the drinks side of the business. This will cover everything from agreeing the the optimal beer font layout in each of our businesses, but also look at things like seller practices and perfect serve again. Now over time, this business is probably over indexed towards the food side of the business, and so we believe by there's a big opportunity from giving the the the drink side of our business this degree of focus.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

We should be fairly quick to make an impact on our bottom line. Similar to drinks, we're also having another look at our approach on the capital program, revisiting the time each project takes, the optimal days for closure and reopening, looking at reopening costs such as training and launch costs, and also looking at those sites falling short of post investment expectations. Our work on how we embrace AI is also progressing well, and we're currently working on how it might help guests on their booking journey, improving the experience and, hopefully, reducing the number of potential leads that don't end up in a booking. On top of the program, we also know that past initiatives that have worked well and which are proven have not necessarily landed everywhere. And so we go back and rebrief them to the businesses or brands that still have an opportunity.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

Ignite is dynamic and ever changing, and we have a batch of new initiatives that will bear fruit over the coming years. On top of this, we continue to make good progress against our sustainability ambitions through the capital investment and behavioral change. We now have a 80 sites with solar panels. We've electrified 74 kitchens and five sites where we've fully removed gas, and this program will continue. In addition to this, we are investing in the Internet of Things, which allows us to remotely control high energy consumption equipment.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

The trial results show there's a huge opportunity to reduce energy consumption without having to ask our teams to do anything. So that's a real win win. We have a focus on changing on-site behavior regarding sustainability. So, for example, improving waste segregation. It requires the winning of parts and minds at across our team.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

And and we provide support for these types of initiatives for a dedicated network of sustainability ambassadors. And we know that our people are passionate about improving the environmental impact of our business, and we're pleased to deliver continued progress in this area with plenty still to come. So we are very happy with the first half performance, but we'd also like to convey how our thinking about the future is evolving. And when I became CEO at the end of twenty fifteen, we were facing a mountain of £2,000,000,000 worth of debt. We had a half a billion funding hole in the pension fund, and the business was trading well behind the market with declining sales and an underinvested estate.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

So Ignite was born without the need for a quick and innovative change to the way we were working. And, of course, it's been very successful, and it really and and our journey and our results, I think, demonstrate that. COVID nineteen threatened to derail progress, but raising $351,000,000 of equity and strong post lockdown trading meant that we were able to weather the storm fairly quickly. In fact, our resilience to major obstacles is probably one of the things we are proudest about and gives us a lot of confidence when we look forward with positivity. Now as of necessity, the last nine years have been defensive and about an existential challenge as we degeared.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

The 200,000,000 per annum amortization has been and remains a burden to the business. Now we need a further 200,000,000 plus for capital investments, and with our tax and lease payments each year, it means we're not yet generating surplus cash. However, we know that in about five years' time, the debt repayment falls to only 70,000,000. So that gives us a backstop date when we know we will be generating surplus cash. This slide and it's a busy slide.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

This slide lays out how we think about the holistic investment case in Mitchells and Butler's and why Mitchells and Butler's is very well placed to be successful in the future. We believe our strong operational track record is second to none with nine consecutive years of market outperformance in a market with proven resilience, and we have a strong and experienced management team. This is underpinned by, I think, undoubtedly the best freeholder state in the industry, which is well invested, generating very strong returns, and with a broad portfolio of brands catering for all occasions. Then as we continue to reduce our debt, we further strengthen the balance sheet and increase the share of equity in the business, increasing our resilience and opening up new options for a new capital structure. And finally, in Ignite, we have a way of working that drives continuous improvements and efficiency across every part of the business, maintaining the positive momentum we've worked so hard to build up.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

Put together, we believe that the business is geared for a bright future. Mitchell's and Butler's is the strongest business in our sector with a consistent and proven track record of delivery. The balance sheet is strengthening further as each year ticks by, and so the company is growing in confidence, we're positive about the future. Yes, there are still hurdles to overcome like employee national insurance contributions and what we believe will be a temporary rise in the cost of stake in 2026, but we have strong momentum. And we believe our strategy will drive accelerating increase in equity value and that M and B is well placed to extend its position as the number one hospitality company in The UK.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

And we'll now be happy to take your questions.

Douglas Jack
Equity Analyst at Peel Hunt

Thank you. Hi. Doctor Shah, Guilhant. I've got three questions, if that's okay. First of all, on the rebrands, you're saying that all the brands are performing well.

Douglas Jack
Equity Analyst at Peel Hunt

Which brands are you targeting for the rebrand program in particular? And how many outlets are you typically rebranding or remodeling each year? Second question was on energy costs and what hedging you've got in place on that. And the third was, you previously suggested that margins could return to pre pandemic levels, which rebids 14.6%. That was a sort of medium term target.

Douglas Jack
Equity Analyst at Peel Hunt

Do you think that's still a possibility given the cost you talked about today?

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

Okay. Thanks, Doug. I'll take the first one too. And so in terms of rebranding, I think we don't tend to view it that way that that this is a brand that we're now gonna convert to other. I think when we when we did Miller and Carter nine, ten years ago, we did have Harvester that was struggling.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

So it was an obvious convert to take Harvesters and convert to Miller and Carter. Today, we're pleased with all that format. So it's not as if we've got any brand in distress. What we tend to do is when we come up to reinvestment, if there's a conversion opportunity, we will run a conversion appraisal against re remodeling the existing and then just make those calls. So it'd be difficult to sort of say there's one brand that will will fulfill that.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

I mean, one of the nice unintended consequences of converting is it makes everyone sharpen their pencil and make sure their brands are doing better, and that's what we've seen. So the whole thing has risen. So it's it's a a nice position to be in. But we map this stage, and we if we've got a density of particular brand, then we'll say, well, actually, it would make sense to convert one of those because all that happens is you get the new brand, and then you displace loyalists to the other ones that are around. So that's what the that's where you're approaching.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

In terms of energy costs, Doug, this year, about 85% of our energy costs are already brought forward. If I look to next year, about 15%. But whilst our energy bill is is just over a hundred million, only about half of that is the variable commodity element within that. Right? So so it's at 85%.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

So so what the materiality of of what could change this year is very, very low. Next year, slightly higher. In in terms of, you know, can we get back above 14% in terms of margin guidance? So, mean, the last few years, it just feels like we've been hit by exogenous cost increases just one after the other. Right?

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

And the the latest being National Insurance, which I think is gonna get reversed, but that's at 23 to our cost base. So I think the answer is not not in the foreseeable future. I mean, we we may in several years' time, and I don't think the margin should really dilute from where we are now. But I think adding a couple of percentage points to it is a is a few years off. I would need to give a period of time on, you know, we don't keep having to to field cost increases.

Tim Barrett
Head - Travel & Leisure research at Deutsche Numis

Tim? Morning. Tim Barrett from Deutsche Numis. Can I ask about cost efficiencies? Obviously, you've done really well there in the past.

Tim Barrett
Head - Travel & Leisure research at Deutsche Numis

That 7,000,000 you showed for the first half, should we annualize that broadly? And what kind of cost efficiency should we pencil in for 2026? And then a more broad question, actually. That quadrant chart of the CGA that you're showing, the outperformance, restaurants and bars are pretty bad markets. Why do you think that is versus pub restaurants, and are you thinking about withdrawing any capital from the tougher bits of the market?

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

So first, the cost efficiency. So we we don't I think we said before, we don't sort of put a lot of time trying to quantify what Ignite has driven because, actually, a lot of initiatives talk to the same thing. But I think in terms of we would expect our efficiencies to continue, and there's sorts of things that will be driving that. We'll always have something around our labor efficiency, better deployment. We'll look at get what we call gap, which is sort of the stock performance in food and drink.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

We'll have an initiative looking at optimizing our buying power, looking at some of the sort of stuff. So a myriad of things that go into that, and it's ever changing depending on which of the Ignite initiatives is getting landed at any one time. But, you know, I I suppose the point I would say around Ignite is it's never gonna stop. There'll always be something, so we we would expect continued momentum on that.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

The what was the other half of the question? The

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

CGA restaurant. Oh, sorry. CGA rep. Yeah. I think bars, we're not I mean, that bar is a broad sector.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

So we we have all by one system there, and that does quite well. But that bar, that late night market is is really painful for people who are in there. So so we wouldn't necessarily restrict capital going in there, but I could imagine, you know, thankfully, we're not overly exposed in there. And in the restaurant segment, you've got a lot of the casual dining, landlocked, retail leisure parts. Again, our brands

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

in there

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

are are are doing relatively well. So we we don't sort of talk about restricting capital necessarily. I think it's important that all parts of the business have a capital program. But, you know, to the previous question, if we have got businesses in there that are underperforming, they may be right for conversion to something else.

Tim Barrett
Head - Travel & Leisure research at Deutsche Numis

Sure. Perfect. Thanks. Yep.

Analyst

Good morning. Vince Ryan here from Goodbody. Two questions for me, please. Firstly, I'm wondering, could you give give us a sense in terms of the incremental buckets of costs that you're talking about for FY '26 around food and beverage specifically? Like, you've mentioned steak.

Analyst

How much of that inflation is transitory versus maybe structurally higher labor costs pass through? And and maybe some of the levers that you pull, like, I know one of your competitors, for example, is pull steaks from their menu. Yeah. You've limited in Miller Miller and Carter potentially, but are there any other quick fixes which you can do to maybe partially offset those inflations? And then secondly, I know it's very small part of the business, but Germany, full full year results of FY '24 results have been quite poor.

Analyst

Any improvement there? Or if not, any thoughts around how strategic that is for the group going forward?

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

Do you wanna take the first one?

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

Yeah. Yeah. Look. I mean, in terms of cost, I'm not I'm not gonna break food and drink down into component because we're about to go into negotiations with other suppliers. So that's that's just commercially sensitive.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

But your so first question is around the reversion. I think if you look at those two bars on the slide, this year goes up to next year. I'd see no reason why that would then revert back to where we were this year. And it and it will as more more livestock will come on stream. The price will come down.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

We'll look at what we can do to mitigate that. Today, we're not we're not gonna pull red meat, but we can look at around the margins of redesigning some of the dishes or reducing the exposure of some brands to to those dishes. But particularly, we'll look at where we source internationally as well. At the moment, about 65 will buy in UK and Ireland. We'll we'll throw that net a little bit wider, look at where we keep the tier and what we

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

What we won't do is is is do anything that damages quality. So I've seen businesses before in the past, thinking about reducing portion sizes and all that. It's a slippery slope. We're not gonna do that. Quality of what we do is paramount.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

In terms of Germany, you're right. I mean, I've been in the company ten years, and it's the first time Germany has had a tough year. Nothing to do with brand. The German German economy has been in a difficult situation, and we think we had a bad summer last year. In fact, we were out in Germany, and the German business, for those who don't know it, does incredibly well through the summer.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

They've these huge terraces that really trade their socks off in summer months. Didn't have a summer. We actually were sitting out there when the heavens opened, and you saw this this Paris with about, I know, 800 people, and they just emptied, and and they had that fun. So I think it's that would be unfair, therefore, say for the Alex team that, you know, suddenly it's become a bad business. It hasn't.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

Helpfully, new governments. So I think there's a renewed optimism or growing optimism across Germany. And VAT rates are due to change in January coming down from 19% on food to 7%. So note to our own government. Have a look at that.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

That sounds very interesting to me. The only thing we're gonna wait for is what they're gonna do with living wage, which will obviously have an impact then. I think, look, you know, should we change the way we think about Germany? No. I mean, no more so than we've done before.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

Germany has never been a drain on our time. It's always been incredibly well run. It's generated good profits. They've had a tough year. We think it will will come back.

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

But like we always do with all our businesses, we'll continue to review, you know, where where they where it fits within within Mitch's buttons.

Tim Jones
Tim Jones
CFO & Director at Mitchells & Butlers

Any more?

Phil Urban
Phil Urban
CEO & Executive Director at Mitchells & Butlers

K. Thank you very much.

Executives
    • Tim Jones
      Tim Jones
      CFO & Director
    • Phil Urban
      Phil Urban
      CEO & Executive Director
Analysts
    • Douglas Jack
      Equity Analyst at Peel Hunt
    • Tim Barrett
      Head - Travel & Leisure research at Deutsche Numis
    • Analyst
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Key Takeaways

  • Strong like-for-like sales growth of 4.3% (up to 6% in recent weeks) drove a 10.4% increase in operating profit and 23.5% EPS growth in H1.
  • Gross cost headwinds of around £100m (5% of cost base), driven mainly by labor (including a £23m national insurance hit) and rising meat prices, are expected to persist into 2026.
  • Robust cash flow and seasonality helped reduce net debt to £860m (1.9× EBITDA) and complete pension escrow returns, leaving a £140m surplus for future contributions.
  • The inflexible securitisation structure mandates a £200m annual debt service, limiting surplus cash and delaying dividend reinstatement until refinancing is justifiable.
  • Ongoing Ignite transformation and a £200m annual capital program, including remodels yielding >35% ROI, continue to deliver efficiency gains and modernise the estate.
AI Generated. May Contain Errors.
Earnings Conference Call
Mitchells & Butlers H1 2025
00:00 / 00:00

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