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Wed 16th May 2018 - M&B – Miller & Carter, igniting growth, driving digital and remodelling the estate
Phil Urban, chief executive of Mitchells & Butlers (M&B), provides further insight into the company’s strategy and results:

Miller & Carter won’t become ‘monster’ brand: Urban has said Miller & Carter “has another few years of progress” but he is wary of turning it into a “monster brand”. The company has opened its 100th Miller & Carter site – The China House in Plymouth – and Urban said M&B would assess things once it hit the 125 mark. He said: “We have identified a number of sites, mostly Harvesters, that could be Miller & Carter. Obviously we can’t build one next to another so that rules out some sites. There’s no hard and fast rule but I think if you create a monster brand and something happens in that market you are exposed. The next milestone is 125 sites and then we can look at it but I think there’s a couple of years of progress for the brand yet.” Urban said Miller & Carter now made up about 8% of its total estate and “double that in terms of turnover”.

Snow impacts sales by £12m: Urban said the impact of snow earlier in the year had cost M&B about £12m and £8m in operating profit, including increased food wastage and repairs. The impact was exacerbated by heavy snow on Sundays – one of the company’s busiest trading days. Excluding the impact of snow, year to date like-for-likes would be 2.5% instead of the 1.6% growth it saw. Urban pointed out the company had seen like-for-like sales increase 0.5% in the past four weeks compared with last year, which included the Easter period in 2017. Sales growth was driven by increase in spend per item in part reflecting premiumisation of the estate. Urban said: “If you get five or six bouts of good weather it can start to unravel the effect of the snow – and we have started to see that.”

Son of Steak viable for roll-out: Urban revealed its Son of Steak site in Nottingham was taking £20,000 a week, which now made it a viable concept for roll-out. However, he said Son of Steak would remain in incubation while the offer was refined. The company said its Chicken Society concept was also getting “positive customer reaction”, while further ideas were in early stages of development.

Second wave of initiatives: M&B said the first phase (Ignite 1) of initiatives had been stabilising profits and phase two – Ignite 2 – would drive the business forward. There are eight areas of activity – sales and service, labour, stock, external spend, menus and pricing, return on investment, digital marketing, and stock and cash leakage. Sales and service will concentrate on removing unprofitable hours, upselling, underperforming assets and raising site standards. Labour initiatives will centre on improved sales forecasting, and support and training for sites. It said this would not only cut costs but optimise deployment. Stock involves the roll-out of auto-ordering and trial and roll-out of “prep and par” software. The focus on external spend was about leveraging scale, further product rationalisation and reducing maintenance costs. Pricing focus would allow the company to speed menu changes and have more radically tailored pricing for individual sites. The return on investment initiative will look at improved site selection techniques and focus on poor-performing investments. Digital will focus on improving CRM systems, order at table and optimising delivery partnerships. Meanwhile, stock and cash leakage would involve trialling new software to pinpoint weakness in controls and resolve issues speedily. Each one is sponsored by an executive member and led by operations directors. Urban added: “Ignite 2 is Ignite 1 on steroids – we’re going to go harder and deeper with this.”

Remodelling the estate: M&B refurbished 181 sites during the period at a cost of £51m, compared with 24 the previous year when it spent £24m. A total of 26 sites were converted during the period at a cost of £16m, compared with 49 sites the previous year when the company spent £24m. M&B acquired four leasehold sites in the first half of the year at a cost of £3m. The company said the return on investment from remodels was in “excess of 20%”, with sites seeing a 10% uplift in sales. The company has now established a six to seven-year investment cycle, with the estate quality “greatly improved”.

Discounting: Urban said: “We’ve been seeing for a while that it has become more aggressive. We do discounting but not on the scale we have seen from some of our competitors. In the past six months, I don’t think it has become any worse but I don’t think it’s got any better either.”

Digital drive: M&B has seen its net promoter score increase to 61 during the period compared with 56 the previous year. Its social media response rate increased to 90% compared with 64% the year before. The company is now taking 120,000 online bookings a week compared with 80,000 the previous year. Visits to its websites are up 25% to 1.5 million each week. M&B is now offering delivery at 73 sites with Deliveroo and 36 via Just Eat. The company’s apps have had two million downloads, while it is trialling a loyalty programme with its Browns brand.

Cost mitigation on target: The company has mitigated about £7m of the £26m cost headwinds it has forecast and expects to achieve its target by the end of the year, with the Ignite 2 project helping to make inroads. The company anticipated cost levels to continue at a similar level into the next financial year.

People progress: The company said team engagement had improved across all cohorts as measured by its employee survey, which it undertakes twice a year. It has 1,600 apprentices in learning and said it had the largest chef academy in the UK. 

Disposals: The company said only a handful of sites would be disposed of in the financial year with last year’s sale of 79 outlets described as a “one-off”. The company sold four sites in the first half of the year and expects to offload just “two or three” in the second half.

Dividend: As advised, no dividend was declared and the position would be assessed at the end of the financial year. The company said the priority was to maintain the condition and competitiveness of the estate and “protect the balance sheet”.

Outlook: Urban said: “Standing out requires constant evolution on all fronts if we are going to win. We are pleased with the progress we’ve made – more pleased then the market appears to be anyway! We have a strong portfolio of brands and see the business innovating across a number of fronts. The market remains tough but it is still a very big market. The challenge is to capture market share through great offers in great locations with great people.”

Analyst’s view: Goodbody leisure analyst Paul Ruddy said: “Group revenue was up 1% year-on-year to £1,130m (Goodbody: £1,096m). Adjusted Ebit came in at £141m, down 5% year-on-year (Goodbody: £142m). Like-for-like sales in the period were up 1.6% year-on-year (growth adjusted for the impact of snow of 2.5%), against our expectation of +0.9%. In its outlook the group noted trading since the half-year had been strong and, aided by good weather, with like-for-like sales in the 32 weeks to 12 May up 1.4%. Overall this appears a reasonably solid update from M&B. Margins remain under pressure due to cost headwinds and discounting, which is not a new theme but should persist into FY19. In terms of positives, the group continues to outperform the market on like-for-like sales growth as a result of management’s initiatives to improve service and investment in the estate. At first glance we don’t envisage any material changes to forecasts as a result of this update. The stock trades at a discount to others in the sector despite outperformance but the environment remains extremely challenging and we see better opportunities elsewhere. During the period the group opened four new sites and remodelled and converted 220 sites. Net debt came in at £1.7bn, compared with £1.75bn at the end of September. As previously advised the board is not declaring an interim dividend but will assess pay-out at the end of the year based on full-year performance.”

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