UK pub group Mitchells & Butlers warns of hit from energy costs

Mitchells & Butlers, the UK’s largest listed pub group in which Irish billionaires John Magnier and JP McManus have a significant stake, has warned that energy costs will continue to squeeze profit margins despite the government’s multibillion-pound energy support package.

The pub operator, which owns brands including All Bar One, Harvester and Toby Carvery, said on Thursday that its energy bill had nearly doubled over the past three years to £150 million (€170 million) in 2022, and “even with the cap in place” it anticipated a “further increase” next year.

The jump in energy costs is despite efforts to increase energy efficiency across its 1,500-strong estate and the installation of voltage optimisers, which match voltage to the incoming grid supply, reducing energy consumption.

“The trading environment for the hospitality sector remains very challenging, with cost inflation putting increasing pressure on margins, and we are also mindful of the pressures on the UK consumer over the coming months,” said Phil Urban, Mitchells & Butlers chief executive.

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The group’s share price slumped more than 13 per cent to 117p in afternoon trading in London. Analysts at Peel Hunt cut their 2023 forecast in response to Thursday’s trading update, pointing out that sales were “not strong enough to offset higher costs”. They estimate the pub chain’s energy costs are likely to rise to £175 million next year.

Last week, the UK government announced it would cap electricity prices at £211 per MWh and gas prices at £75 per MWh for businesses for the next six months as part of a support package expected to cost tens of billions of pounds.

Mitchells & Butlers’ like-for-like sales in the year to September 24th were up by 1.1 per cent, compared with the same period in 2019. But without government VAT relief, which ended in April, to help hospitality businesses weather the pandemic, full-year sales would have been down 0.9 per cent.

Food sales were up 5.2 per cent compared with 2019 levels but drink sales were down 4.1 per cent.

The company added that it was working hard to “mitigate” cost increases by driving sales growth and implementing cost efficiencies. Along with soaring energy prices, pubs have been hit by rising labour, food and drinks costs.

Despite the British chancellor’s decision to scrap next year’s planned rise in alcohol duty, last week’s budget received a lukewarm reception from the pub industry, which has been pressing for temporary VAT and a business rates reduction to stop a wave of closures when the consumer downturn begins to bite.

Mr Urban told the Financial Times earlier this week that he would have liked to have seen more sector-specific support. “All energy support has done is stop things spiralling further out of control,” he said. — Copyright The Financial Times Limited 2022