November 20, 2019 / 8:09 AM / 23 days ago

UPDATE 2-Pub operator M&B reports strong FY profits; shares rally

* Wage raise could lead to price increases -CEO

* Has stockpiled non-perishable foods

* Shares hit a 4-1/2-year high after FY results beat expectations (Adds shares, CEO comments on wages, Brexit plans)

By Tanishaa Nadkar

Nov 20 (Reuters) - Mitchells & Butlers delivered slightly better-than-expected full-year profits on Wednesday as strong sales for both food and drinks offset rising costs, sending the restaurant and pub operator’s shares to multi-year highs.

The results came as the company said it had stocked up on non-perishable items and found alternatives for ingredients used in salads and garnishes to protect against any delay in supplies of fresh foods due to Brexit at its 1,700 UK restaurants and pubs.

A report on the worst-case scenario post Brexit released by the British government pointed to potential problems snarling up cross-Channel trade routes and disrupting fresh food imports.

Countries in the European Union provide 86% of lettuces and 70% of tomatoes, according to the British Retail Consortium (BRC).

“I think the one area for food that no one’s got an answer for are perishables. So salads items, if there’s a delay at borders, there’s nothing you can do about that,” Chief Executive Phil Urban told Reuters.

The comments came after the pub group reported adjusted operating profit of 317 million pounds ($409.37 million) for the year ended Sept. 28, compared to 303 million pounds last year.

Barclays analysts said the numbers beat consensus expectations, sending shares up 5.7% to 472 pence at 1126 GMT to the top of the midcap index.

The stock was also boosted by speculation about possible sector dealmaking after the recent takeovers of rivals Greene King and Ei Group, RBC analysts said.

The owner of All Bar One, Toby Carvery, Harvester, and Browns brands relied on beer for the bulk of its sales in the 1980s, but now around half of its total sales come from food.

Like other British pub operators, Mitchells & Butlers has had to cope with higher costs, most notably from increased wage and property costs, following Britain’s vote to leave the European Union. Across its business, 13% of its staff are non-British EU nationals.

“Ultimately, if costs increase you would see prices rise ... You’ll now see price increases pretty consistently,” Urban said, adding the wage rises will not lead to any job cuts.

He said he does not expect the timing of next month’s general election to interfere with Christmas parties and sales.

“The election drags people out of their houses. The chances are they might hop in for a drink or a meal so it’s probably good news,” he said.

$1 = 0.7744 pounds Reporting by Tanishaa Nadkar and writing by Noor Zainab Hussain in Bengaluru; Editing by Shailesh Kuber and James Drummond

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