M&B Q2 lfls up 3.8%: Mitchells & Butlers has reported like-for-like sales growth in the second quarter of 3.8%, resulting in overall like-for-like sales growth of 1% in the 28 weeks to 9 April, despite the adverse impact of Omicron over the important festive period. The company said it made a “strong start” to the year with like-for-like sales growth of 2.7% over the first eight weeks. The company said: “This encouraging performance continued until early December when concerns first arose around the emergence of the new covid variant, Omicron, leading to calls for further caution in socialising such that, over the seven weeks to early January, like-for-like sales declined by 6% resulting in a decline of 1.5% over the first quarter. Sales strengthened in the second quarter, with the news that the Omicron symptoms were mild, with like-for-like sales growth of 3.8%, bringing first half growth to 1%. Volumes remain in decline of between 10% to 15%, with sales being driven by premiumisation and increases in spend per head. Sales have remained stronger in food-led brands, particularly at the more premium end of the market. At the end of the first half, the rate of VAT on food and non-alcoholic drinks returned to its full rate of 20%. On an underlying basis, excluding the impact of this rate change, sales continued to strengthen in the five weeks since the end of the period, to 2.2%. Food sales continue to outperform drink with like-for-like sales growth of 6.9% over the first half, and with premium brands continuing to perform well, helped by the reduced rate of VAT. We have more recently observed an encouraging trend of recovery in city sites, with like-for-like sales growth of 1.1% during the second quarter, as people begin to return to offices, albeit trading in some areas of London, such as The City, still remains relatively subdued. Drink sales continued to be challenged across the sector and like-for-like sales declined by 6.9% in the first half, with suburban locations seeing the largest declines.” Total revenue for the half year stood at £1.159bn (HY 2021 £219m), while operating profit was £121m (HY 2021 £(132)m loss), and profit before tax of £57m (HY 2021 £(200)m loss). Net debt reduced to £1.253bn (HY 2021 £1.472bn). The company said: “Cost inflation headwinds present a major challenge to the hospitality sector as a whole, most notably in utilities, wages and food. Cost headwinds, based on FY 2019 and on a cost base of £1.8bn, are expected to be in the region of 11.5% for the current year. Equivalent to 3.7% on an annualised basis across the three-year period. Next year, current assumptions indicate an increase of c.6% on a year-on-year basis but high volatility in energy markets could have a material impact. Through accelerated and focused delivery of a new set of Ignite initiatives covering sales, productivity and cost reduction, alongside tight control of the business, we are working hard to mitigate these costs as far as possible. However, there will inevitably be a residual margin impact in the short to medium term. The cost environment has worsened since our last announcement, with the war in Ukraine driving up energy and food prices in particular. At the current time we have bought c.80% of this year’s total energy requirement and c.10% of next year’s. We continue to work hard to offset as much of these additional costs as possible, with our Ignite programme continuing to be an effective method through which to do so. However, the industry as a whole will undoubtedly feel the impact of increased costs in the short to medium term. The pandemic resulted in consumer trends such as home delivery being accelerated and we have expanded our offer to benefit from this growing market. We now have over 1,100 sites live with Just Eat, Uber Eats and Deliveroo and we offer takeaway and click and collect orders directly to guests across a number of brands. Annual delivery and takeaway sales are estimated to rise to c.£45m this financial year.” Phil Urban, chief executive, said: “We are encouraged by the improvement in sales trajectory through the first half of the year, having made progress in each of our markets, with our food-led businesses continuing to lead the way. The trading environment remains difficult. Cost headwinds present a significant challenge to the industry, particularly those costs related to utilities, wages and food. In light of this, our teams have refocused their efforts on driving further efficiency and productivity gains through our Ignite programme. In parallel, we are pushing forward with our capital investment plan which we are pleased to see delivering strong sales uplifts. The fundamental strengths of the business remain, and we are well positioned to continue on our trajectory of recovery following the pandemic.” In the year to date, the company completed 63 investment projects including 57 remodels, three conversions and the acquisition of the freehold of three leasehold sites. It said it was continuing to see strong performance from its investment projects with an average sales uplift of nearly 30% from projects completed since FY 2019.