Mitchells & Butlers H1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 22, 2025

Key Takeaways

  • Sales like-for-like up 4.3% in the half and 6% over the last ten weeks, significantly ahead of the CTA market benchmark.
  • Operating profit rose 10.4% to a margin of 12.4%, while EPS jumped 23.5% aided by interest income and pension surplus recognition.
  • Strong cash generation and disciplined CapEx drove net debt down to £860 million (1.9× EBITDA), with remodel investments delivering over 35% ROI and a £140 million pension surplus on the balance sheet.
  • Cost headwinds of around £100 million (5% of cost base) persist this year, driven by labour (national insurance and living wage) and expected food & drink inflation, notably meat.
  • An inflexible securitisation structure mandates £200 million annual debt servicing and currently restricts surplus cash for dividends until refinancing costs decline and leverage falls further.
AI Generated. May Contain Errors.
Earnings Conference Call
Mitchells & Butlers H1 2025
00:00 / 00:00

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Tim Jones
Tim Jones
CFO 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 is 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%. EPS, which further benefited from interest income, now we are recognizing a surplus on our pension scheme, was up 23.5% for the half. Great start to the year. I will go through and look at the various key drivers of that performance, and we start with sales. Set out here is the monthly flow of sales through the half year. I will put that in the context of the preceding six months and the period post the period end as well. Overall, like-for-likes are at 4.3%, with volumes improved to basically flat.

Tim Jones
Tim Jones
CFO at Mitchells & Butlers

Most of you would be aware 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 'cause 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%. We've also looked at the last 10 weeks. That's contrived to have Easter in both years and Mother's Day in both years. It's a sort of clean read for you. If I look at the last 10 weeks, we're up 6%. So underlying rates somewhere between those two numbers, both, as I said before, significantly ahead of the market as measured by the CGA business tracker.

Tim Jones
Tim Jones
CFO at Mitchells & Butlers

You can see here how that strong sales performance has got ahead of cost headwinds and flowed down to profits, combined with value driven from our capital plan, an increasing allocation to CapEx justified by some very strong returns. We're making 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 'cause Phil Urban gonna talk about that in a 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. 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.

Tim Jones
Tim Jones
CFO at Mitchells & Butlers

Our guidance to you is basically unchanged. We see a head-wind of about GBP 100 million, so about 5% of our cost base. Labor is the main driver within that, especially national insurance contributions increasing. That has added GBP 23 million to our cost base on an annualized basis, although it will only start from the second-half of this year. Apart from labor, the cost environment this year is pretty benign, to be honest. Looking forward to next year, we are going to annualize on the national insurance and labor increases in the first half. Of course, we will 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.

Tim Jones
Tim Jones
CFO at Mitchells & Butlers

Energy and other costs, again, pretty well the same as this year, with the exception of food and drink input costs, which is perhaps emerging as an area of slightly higher increases for us. I think meat is gonna be the main driver within that. It's probably no surprise. 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. We do not think it's anything structural. We do not think it's permanent. We think it will revert after a period of time. Of course, we are working very hard 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 at Mitchells & Butlers

From 2027 onwards, and it feels a little brave to stand here and start talking about 2027 cost inflation. But from what we can see now, I would see the overall head-winds ebbing back down, returning to trend, probably somewhere in the region of GBP 90 million cost headwind a year, about 4% of our cost base. The result was accompanied by a very strong cash flow performance, although it is important to remember that we have a seasonality to our working capital. You can see that on this chart. We tend to have an inflow of working capital in the first half. Much of that will reverse in the second half. However, beyond that, you know, items of note, we received another GBP 12 million from pension escrow accounts. That now completes the return of all of the pension amounts that we were holding in escrow.

Tim Jones
Tim Jones
CFO at Mitchells & Butlers

and we still have a surplus of GBP 140 million 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. That represents value for us. CapEx increased by just over GBP 10 million. We managed to gear back up to 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. Lastly, tax paid, as we get relief for losses suffered during COVID, which reduces the actual tax we have to pay. We have about GBP 22 million of value left in that area. That will see us through the second half and into next year, then I suspect we will have used all of those up. Overall, really strong cash performance, albeit helped a bit by seasonality.

Tim Jones
Tim Jones
CFO at Mitchells & Butlers

It takes our net debt down now to GBP 860 million, representing 1.9x EBITDA by excluded 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 10 years or 15 years in reducing our debt from what we consider to be unsustainable levels at that stage. 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 GBP 500 million deficit into a de-risked surplus of about GBP 140 million. So really great progress. We do remain locked into a very inflexible securitization structure. Most of you would be very familiar with how that works. I've set it out on the chart looking forward. and that structure does mandate the level at which we can de-gear the business.

Tim Jones
Tim Jones
CFO at Mitchells & Butlers

I think there are two takeaways that we take from that. The first is, despite a declining level of debt, our service commitment remains unchanged at GBP 200 million a year. Just an increasing amount of that is going into capital, but the actual bill we need to meet remains unchanged. Absent any changes in the structure, this ties us into a de-gearing flight path, and does not leave any surplus cash after CapEx. CapEx, we have always prioritized and we will continue to prioritize in this group. We were very clear back in 2017 what our dividend criteria was. We will not draw short-term borrowings to fund the dividend. Despite strong trading and despite lower debt, that criteria is not yet met, for us under the current capital structure.

Tim Jones
Tim Jones
CFO at Mitchells & Butlers

I think the second takeaway is it's 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? 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 where we want to adjust the securitization, and they are not justified by any potential benefit from renewed refinancing terms were we to do that. It makes no sense for us to do it at the current time. Over time, these costs will come down, and that will create conditions for a reset in the capital structure.

Tim Jones
Tim Jones
CFO at Mitchells & Butlers

What we 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. It is only a decision we can make once we are executing the transaction. Until then, the sensible thing for us to do as a business is continue to reduce our debt, to grow the equity share of the business, to increase our resilience in what, let's be honest, has not been easy times recently, and open up further opportunities within our capital structure. Pulling all that together, really strong trading in the first half, both across sales, across profit, across margins.

Tim Jones
Tim Jones
CFO 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. 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. We feel we have some momentum, particularly on sales, to go through to next year and continue to make value for the group. With that, I'd like to give it to Phil Urban.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

Thanks.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

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. We've always shared the CGA business tracker with you at these updates. As you can see here, our performance 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-on performance. 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. We knew that the underlying business was far stronger. Pleasingly, that has come through, undoubtedly helped by the warmer weather that we enjoyed just before Easter. Mothering Sunday was also a standout success for us, only ever bettered by the previous two Christmas days.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

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 our guests. 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 U.K. society, relying on the somewhat negative view of the sector.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

Now, we see no reason for this resilience nor our market outperformance to change. 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. It's worth emphasizing that the 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 of the four segments.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

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. 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 Inns, Castle Pubs, and Sizzling Pubs leading the way. The late-night segment remains the toughest part of the market, but we have limited exposure to it. Where we do, those offers also trade well during different day parts and different occasions.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

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. 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. By having a seven-year cycle to reinvestment, we're continuously raising the average quality of the amenity. Driving a commercial edge to the way we do business ensures that everyone in M&B is wired to listen to guest feedback from a myriad of sources. By being forensic about how each pound of sales converts to bottom-line profit, we keep the business moving forwards.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

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. These priorities are driven by pulling the same three levers each year. 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 scale that Mitchells & Butlers brings where appropriate to do so, but whilst maintaining the brand-specific hallmarks and nuances that make each brand stand out in its respective market.

Phil Urban
Phil Urban
CEO 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 competition. The second lever that we pull, Tim Jones touched on, is capital investment in the business. Now, we aspire to have this seven-year cycle of remodel or conversion investment across the estate. There is some flex around this, especially where business is still trading well and where wear and tear does not yet justify further investment. Now, we have a big competitive advantage, with stable brands that we own. 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.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

We are 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%. This is very important as with payback 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. We, of course, also have a large maintenance capital program, and we are investing in technology, kitchen equipment, and solar panels on top of day-to-day requirements. We currently envision spending GBP 200 million excluding acquisitions. The third and final lever that we pull is Ignite, our ongoing transformation program. As I have said before, Ignite is just a working title to a way of working.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

We have a natural thirst for continuous improvement, and therefore we always have between 40 or 50 separate initiatives underway at all times. 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. Now, 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 drink side of the business. This will cover everything from agreeing the optimal beer font layout in each of our businesses, but also look at things like cellar practices and perfect serve game.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

Now, over time, this business is probably over-indexed towards the food side of the business. We believe there is a big opportunity from giving the drink side of our business this degree of focus, which should be fairly quick to make an impact on our bottom line. Similar to drinks, we're also having another look at our approach to the capital program, revisiting the time each product 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 do not end up in a booking.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

On top of the program, we also know that past initiatives that have worked well and which are proven, have not necessarily landed everywhere. We go back and rebrief them to the businesses or brands that still have an opportunity. 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 180 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 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. That's a real win-win. We have a focus on changing onsite behavior regarding sustainability. For example, improving waste segregation. It requires the winning of hearts and minds across our team. We provide support for these types of initiatives through a dedicated network of sustainability ambassadors. Now, 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. We are very happy with the first half performance, but we'd also like to convey how our thinking about the future is evolving. When I became CEO at the end of 2015, we were facing a mountain of GBP 2 billion worth of debt.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

We had a GBP 500,000,000 funding hole in the pension fund, and the business was trading well behind the market with declining sales and an under-invested estate. Ignite was born out of the need for a quick and innovative change to the way we were working. It has been very successful. Our journey and our results, I think, demonstrate that. COVID-19 threatened to derail progress, but raising GBP 351 million 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. Out of necessity, the last nine years have been defensive and about an existential challenge as we degeared.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

The GBP 200 million per annum amortization has been and remains a burden to the business. Now, we need a further GBP 200 million plus for capital investment. 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 GBP 70 million. That gives us a backstop date when we know we will be generating surplus cash. This slide, and it's a busy slide, this slide lays out how we think about the holistic investment case in Mitchells & Butlers and why Mitchells & Butlers 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.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

This is underpinned by, I think, undoubtedly the best freehold estate in the industry, which is well invested, generating very strong returns and with a broad portfolio of brands catering for all occasions. 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. 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. Put together, we believe that the business is geared for a bright future. Mitchells & Butlers is the strongest business in our sector with a consistent improvement track record of delivery.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

The balance sheet is strengthening further as each year ticks by, and so the company is growing in confidence, and 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 steak in 2026, but we have strong momentum, and we believe our strategy will drive an accelerating increase in equity value, and Mitchells & Butlers is well placed to extend, spend its position as the number one hospitality company in the U.K. We will now be happy to take your questions.

Douglas Jack
Douglas Jack
Analyst at Peel Hunt

Thank you. Hi, Douglas Jack, and Peel Hunt. Got three questions if that's okay. First of all, on the rebrands, you're saying that all the brands are performing well. Which, which brands are you targeting, for the rebrand program in particular?

Douglas Jack
Douglas Jack
Analyst at Peel Hunt

How many outlets are you typically rebranding or remodeling each year? The second question was on energy costs and what hedging you have in place on that. The third was, you previously suggested that margins could return to pre-pandemic levels, which rebits 14.6%. That was a sort of medium-term target. Do you think that is still a possibility given the cost you talked about today?

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

Okay, thanks, Douglas Jack. I will take the first one, Tim Jones. In terms of rebranding, I think we do not tend to view it that way, that this is a brand that we are now going to convert to other. I think when we did Miller & Carter nine, 10 years ago, we did have Harvester that was struggling, so it was an obvious convert to take Harvesters and convert to Miller & Carter. Today, we are pleased with all our formats.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

It is not as if we have got any brand in distress. What we tend to do is, when we come up to reinvestment, if there is a conversion opportunity, we will run a conversion appraisal against remodeling the existing and then just make those calls. It would be difficult to sort of say there is one brand that will feed that. 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. That is what we have seen. The whole thing has risen. It is a nice position to be in.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

We map the estate, and if we have got a density of a particular brand, then we will say, 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. That is where we are appreciative.

Tim Jones
Tim Jones
CFO at Mitchells & Butlers

In terms of energy costs, Douglas Jack, this year, about 85% of our energy costs are already brought forward. If I look to next year, about 15%. Whilst our energy bill is just over GBP 100 million, only about half of that is the variable commodity element within that, right? It is at 85%. The materiality of what could change this year is very, very low. Next year is slightly higher.

Tim Jones
Tim Jones
CFO at Mitchells & Butlers

In terms of, you know, can we get back above 14% in terms of margin guidance? I mean, the last few years, it just feels like we've been hit by exogenous cost increases just one after the other, right? The latest being national insurance, which I think is going to get reversed, but that's had 23% to a cost base. I think the answer is not, not in the foreseeable future. I mean, we may in several years' time, and I don't think the margins should really dilute from where we are now, but I think adding a couple of percentage points to it is a few years off. We'd need to give a period of time on, you know, we don't keep having to feel cost increases. Tim Barret.

Tim Barret
Head of Travel and Leisure Research at Deutsche Numis

Morning, Tim Barrett from Deutsche Numis.

Tim Barret
Head of Travel and Leisure Research at Deutsche Numis

Can I ask about cost efficiencies? Obviously, you've done really well there in the past. That GBP 7 million you showed for the first time, should we annualize that broadly? What kind of cost efficiency should we pencil in for 2026? 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? Are you thinking about withdrawing any capital from the tougher bits of the market?

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

First, the cost efficiency. We don't, I think we've 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.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

I think in terms of, we would expect our efficiencies to continue and the sorts of things that will be driving that. We'll always have something around our labor efficiency, better deployment. We'll look at what we call GAP, which is sort of the stock performance and food and drink. We'll have an initiative looking at our, we make optimizing our buying power, looking at some of the sort of, so there's 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. You know, I suppose the point I would say around Ignite is it's never going to stop. There'll always be something. We would expect continued momentum on that. What's the other half of the question?

Tim Barret
Head of Travel and Leisure Research at Deutsche Numis

The CGA restaurant.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

Oh, sorry, CGA rep. Yeah.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

I think bars, we're not, I mean, that bar is a broad sector. We have All Bar One that sits in there, and that does quite well. That bar, that late night market is really painful for the people who are in there. We wouldn't necessarily restrict capital going in there, but I could imagine, you know, thankfully we're not overly exposed in there. In the restaurant segment, you've got a lot of the casual dining, landlocked, retail leisure parks. Again, our brands in there are doing relatively well. 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. 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 Barret
Head of Travel and Leisure Research at Deutsche Numis

Perfect. Thanks.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

Yep.

Fintan Ryan
Equity Research Analyst at Goodbody

Good morning. Fintan Ryan here from Goodbody. Two questions for me, please. First, I wonder, could you give us a sense in terms of the incremental buckets of costs that you're talking about for FY 2026 around food and beverage specifically? Like you've mentioned steak. How much of that incremental inflation is transitory versus maybe structurally higher labor costs pass through? And maybe some of the levers that you pull, like I know one of your competitors, for example, has pulled steaks from their menu.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

Yeah.

Fintan Ryan
Equity Research Analyst at Goodbody

You've limited in Miller & Carter potentially, but you know, are there any other quick fixes what you can do to maybe partially offset those inflations? And then secondly, I know it's a very small part of the business, but Germany, with full year results, FY 2024 results have been quite poor. Any improvement there?

Fintan Ryan
Equity Research Analyst at Goodbody

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

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

Do you want to take the first one, Tim Jones? Yeah.

Tim Jones
Tim Jones
CFO at Mitchells & Butlers

Yeah. Look, I mean, in terms of cost, I'm not going to break food and drink down into component because we're about to go into negotiations with whole after suppliers. That is just commercially sensitive. Your sort of first question around the reversion, I think if you look at those two bars on the slide, this year goes up to next year. I see no reason why that will not then revert back to where we were this year. It will as more livestock will come on stream, the price will come down. We will look at what we can do to mitigate that.

Tim Jones
Tim Jones
CFO at Mitchells & Butlers

to say we're not, we're not going to 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 those dishes. Particularly, we'll look at where we source internationally as well. Right? At the moment, about 65% of what we buy in U.K. and Ireland. We'll throw that net a little bit wider, look at where we can procure them and what we can do.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

What we won't do is do anything that damages quality. I've seen businesses before in the past think about reducing portion sizes and all that. It's a slippery slope. We're not going to do that. Quality of what we do is paramount. In terms of Germany, you're right.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

I mean, I've been in the company 10 years, and it's the first time Germany's had a tough year. Nothing to do with the brand. The German economy has been in a difficult situation. 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. They've got these huge terraces that really trade at some summer months. Didn't have a summer. We actually were sitting out there when the heavens opened, and you saw this terrace with about, I don't know, 800 people in it, just empty. They had that time. I think it would be unfair therefore to say for the Alex team that, you know, suddenly it's become a bad business. It hasn't.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

Helpfully, new government, so I think there is a renewed optimism or a growing optimism across Germany. VAT rates are due to change in January, coming down from 19% on food to 7%. So note to our own government to have a look at that. That sounds very interesting to me. The only thing we've got to wait for is what they're going to do with living wage, which will obviously have an impact there. 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. 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 come back.

Phil Urban
Phil Urban
CEO at Mitchells & Butlers

Like we always do with all our business, we'll continue to review, you know, where it fits within Mitchells & Butlers. Any more? Okay. Thank you very much.

Executives
    • Phil Urban
      Phil Urban
      CEO
    • Tim Jones
      Tim Jones
      CFO
Analysts
    • Douglas Jack
      Analyst at Peel Hunt
    • Tim Barret
      Head of Travel and Leisure Research at Deutsche Numis
    • Fintan Ryan
      Equity Research Analyst at Goodbody
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