2nd UPDATE: Mitchells & Butlers Hits Net Profit, 2nd Half Uncertain

U.K. pub group Mitchells & Butlers PLC (MAB.LN) Thursday said it swung to a full-year net profit from a net loss last year, helped by food sales and strong brands, and said current trading is showing signs of improvement.

Like-for-like sales were up 3.2% in the eight weeks to Nov. 21, the company said, adding that it has largely managed to offset a wave of inflationary cost pressures through cost management.

M&B--which owns and operates 2,000 pubs in the U.K. through the chains All Bar One, O'Neill's traditional Irish pubs, Crown Carveries and Harvester--reported a net profit for the 12 months to Sept. 26 of GBP4 million, after a net loss of GBP176 million a year ago.

Food comprises around 41% of sales, with food-related sales making up 65% of the total. Average food sales were up 9% year-on-year.

Chief Executive Adam Fowle said the company's food business benefits from economies of scale, sharp price points, good pub brands and retailing skills.

The robust report was welcomed by investors, and the stock rose 2.4% at market open, before retreating in a broadly lower London market. At 0956 GMT, the shares were down 1.1% or 3 pence at 254p. They've gained almost 80% since the start of the year on the company's resilient performance, though they're still only half the level they were two years ago.

M&B is trading "exceptionally well" relative to its peers, according to Astaire Securities, which rates the stock a buy. It says M&B outperformed the market in food by 10% and drink by 6% in volume terms.

Astaire analyst Mark Brumby said that, although the trading outlook remains uncertain, "the pub is not dead and M&B is a winner."

The company's GBP72 million worth of disposals during the year helped cut net debt by GBP135 million to GBP2.6 billion. It expects to reduce the figure further by GBP100 million in the current year.

It plans to build two new pubs this year and four next year, and is looking for acquisitions, expressing an interest in "big suburban pubs and pubs in smart areas.".

U.K. pub closures are now running at about 50 a week, according to The British Beer and Pub Association (BBPA). But operators who manage their own pubs, such as M&B and J.D. Wetherspoon PLC (JDW.LN), are much better equipped to deal with the downturn than those who lease their pubs to individual landlords like Enterprise Inns PLC (ETI.LN)and Punch Taverns PLC (PUB.LN), due to their direct control of prices and costs.

M&B said pretax profit for the year before exceptional items fell 24% to GBP134 million from GBP176 million, but still beat market expectations which hovered around GBP125 million. Full year revenue rose 2.6% to GBP1.96 billion.

Company Web site: http://www.mbplc.com

-By Quentin Fottrell, Dow Jones Newswires; +353-1-676-2189; quentin.fottrell@dowjones.com

J D Wetherspoon (PK) (USOTC:JDWPY)
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