M and B CEO short-list down to two

The increasing importance of pies rather than pints at Britain's pubs has been underlined by the interim results of Mitchells and Butlers.

Drink sales in the 28 weeks to April 7th were up 2.2% on a like-for-like (LFL) basis year-on-year (y/y), but in the final 11 weeks of that period were down 0.8% y/y.

At the same time, food sales were up 3.4% in the 28-week period and up 0.9% in the 11 weeks to April 7th. Combined food and drinks sales growth rates for the 11 and 28-week periods were 0.2% and 2.7% respectively.

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Those rates represent a sharp slow-down in growth in recent months as the cash-strapped pubs group runs up against tougher comparative figures from a year ago; previously, the group had reported that in the 17 weeks to January 27th, total LFL sales growth had been 4.4%, with food sales up 5.1% and "wet" sales up 4.3%.

Talking of wet ... April's miserable weather has done the group no favours, and as a result LFL sales growth in the 33 weeks to May 12th fell to 2.0% from 2.7% at the 28-weeks stage.

On the plus side, the group said these rates still mean it is outperforming the market. Demand on key trading days in particular has remained strong, with like-for-like sales up 5.4% over the Valentine's Day weekend and 4.5% over the most recent May Day bank holiday weekend, so with the Jubilee celebrations coming up, Mitchells & Butlers (M&B) is hopeful of a festive pick-up.

Flat profitsOverall, revenue in the Retained Estate - which excludes the 333 non-core pubs offloaded in November 2010 - was up 6.3% to £969m from £912m at the half-way stage last year. Food sales rose 9.4% and drink sales 4.8% y/y.

While the top-line growth story is not too bad, inflationary and regulatory cost pressures continued to put pressure on profits. Operating profit fell 1.7% to £118m from £120m the year before. Before exceptional costs are taken into account, operating profit edged up 1.5% to £138m from £136m a year earlier.

Overall, operating margins (before exceptional items and other adjustments) in the Retained Estate were down 0.7 percentage points to 14.2%.

Ignoring exceptional items, the group's earnings before interest, tax, depreciation and amortisation (EBITDA) edged down to £198m from £199m in the prior year. After taking account of exceptional items, EBITDA slipped to £178m from £183m the year before.

Profit before tax and exceptional items rose £5m to £68m from the year before, but after exceptional charges fell to £42m from £43m at the interim stage in 2011.

Diluted earnings per share on a pre-exceptional items basis rose to 12.4p from 11.2p last year.

Spending and debtTotal capital expenditure in the first half was £90m, £9m lower than in the first half of last year. Securitised debt narrowed to £2.22bn from £2.26bn a year earlier.

As expected, the board is keeping its options open on when it will resume dividend payments. Executive Chairman Bob Ivell was more forthcoming on the search for a Chief Executive Officer (CEO), revealing in the conference call with investors that he has a short-list of two candidates.

The All Bar One and Harvester chains owner has been without a CEO for some time, with many big names in the brewing industry reportedly regarding the position as a poisoned chalice, given the 25.8% stake in the company held by Piedmont, the investment vehicle of billionaire currency trader Joe Lewis, a man not unused to throwing his weight around in the board room.

Piedmont launched what was regarded as a "low-ball" £941m takeover offer for M&B last year, which was duly rejected. With the six-month cooling-off period now expired, Piedmont is free to launch another crack at M&B should it wish.

Ivell said in the conference call that he did not think the company had been unduly handicapped by not having a CEO for so long.

"Despite challenging trading conditions, we remain confident that we can deliver a full year result in line with expectations," Ivell said.

The market appeared not to share that confidence and the shares fell to 240.74p in morning trading, having closed at 246p the night before the results.

JH