British pub operator Mitchells & Butlers PLC (LON:MAB) shares lost their fizz as it reported a drop in full year profits as a Brexit-hit pound pushed import costs higher.
The company said the UK’s withdrawal from the European Union may impact business by hurting consumer confidence, causing a spike in inflation and a shortage of workers due to changes in immigration laws.
READ: Mitchells & Butlers sales up nearly 3% in the year-to-date although recent poor weather has impacted drink sales
Higher import prices and labour costs led to a 3.1% decline in adjusted operating profit to £314mln in the year to 30 September 2017, the company said in a statement.
“Cost headwinds across the industry have adversely affected margins but we continue to work hard to mitigate as much of these as possible through our focus on efficiency and profitable sales growth,” said chief executive Phil Urban.
Total revenue inched up 4.5% to £2.1bn with like-for-like sales up 1.8%, compared to a 0.8% drop last year.
Food and drink sales, which contribute about half of the group’s revenue, increased 1.4% and 2.1% respectively.
"This year, we have continued to make progress on our three priority areas: building a more balanced business; instilling a more commercial culture; and driving an innovation agenda,” said Urban.
“This has resulted in a period of strong operational achievement for Mitchells & Butlers with a sustained return to like-for-like sales growth driving market outperformance.”
Pensions deal
During the year, the group made progress on the pensions front by reaching an agreement on the 2016 triennial pensions valuation with the scheme trustees.
The agreed deficit of £451mln as at 31 March 2016 (2013: £572mln) will be funded by an unchanged level of cash contributions of £46mln a year (adjusted for inflation) to 2023.
The total pension liability for the year fell to £292mln from £337mln last year.
Final dividend lowered, interim dividend unlikely
Net cash flow stood at £14mln, compared to outflows of £38mln last year, but the final dividend was lowered to 5.0p from 7.5p due to take up on its scrip dividend alternative.
Mitchells & Butler said it does not expect to declare an interim dividend in the current financial year but will “make an assessment of pay-out at the end of the year based on a full year of trading and development of the sector outlook”.
Shares fell 12.02% to 227p in morning trading.
"We remain concerned about the capex/cash flow profile of the business (especially in light of the decision not to pay a dividend) but recognise the improving, broad-based like-for-like trajectory," said Liberum.
Liberum reiterated a 'sell' rating and target price of 210p.