Hospitality firms face a "major challenge" from higher energy and staff costs as they seek to rebuild following the pandemic, bar and pub operator Mitchells & Butlers has warned.
The company behind brands such as Harvester and All Bar One reported a second year in a row of annual losses though said in recent weeks sales had recovered to pre-pandemic levels.
It said demand seen since venues reopened should help it return to profitability but that higher costs – partly blamed on Brexit – would "inevitably" take their toll on financial performance.
Mitchells said it faced the likelihood of short-term supply chain issues and profit margins looked set to be lower than before the pandemic due to "notable" inflation in food and utility charges and labour costs, as pay is hiked for roles where applicants are now harder to find.
The group, which employs more than 40,000 people across 1,700 sites, was forced to announce 1,300 job cuts last year as reduced trade put its finances under strain.
Results for the company, whose brands also include Toby Carvery and the Miller & Carter steak house chain, showed a pre-tax loss of £42m for the year to 25 September, narrowing from the £123m loss a year earlier.
Sales were down by 9.6% on pre-pandemic levels from two years before with venues closed or subject to restrictions for much of the period and traditional drinking-focused pubs in large city centres worst hit.
Trading recovered towards the end of the period and in the eight weeks since has been 2.7% up on 2019 – thanks to higher spending per head even as volumes of food and drink sold remained lower.
"However, cost headwinds present a major challenge to the hospitality sector as a whole, most notably in utilities and employment costs," the company said.
While it was working hard to keep a lid on these, it said "there will inevitably be a residual impact on the current financial year’s performance".
Chief executive Phil Urban said: "Despite the inevitable challenges faced by our business over the past year we are now well positioned to regain the momentum previously built as we come out of the pandemic.
"The trading environment remains challenging and cost headwinds continue to put pressure on the sector."
The company said that in the short term "cost pressures are expected to be higher than average due principally to recent escalations in energy costs".
It added: "Brexit remains an important event for the market and has created risks for the sector, principally around the supply and cost of products and workforce shortages."
Shares rose 6%.
Richard Hunter, head of markets at Interactive Investor, said: "There is clearly some light at the end of the tunnel and MAB is already seeing the benefits of unrestricted trading.
"The market consensus of the shares as a strong buy indicates a willingness for some to see the current glass as being half-full."
© Sky News 2021