Britain's biggest regional brewer, Wolverhampton and Dudley Breweries, said on Wednesday its annual results would meet expectations and was confident about the year ahead as it continues to revamp the traditional pub.
The brewer of Banks's and Pedigree beers and owner of over 1,600 pubs, which fought off a hostile bid from rival Pubmaster last year, said like-for-like sales in its 488 managed pubs rose 3.0 per cent in the 52 weeks to 28 September.
But, it also said higher tax, pension and insurance costs would add around £2.5 million (€3.98 million) to its cost base in the current financial year, leading some analysts to consider trimming their profit forecasts.
Pub and brewing stocks have come back into fashion since the bursting of the technology bubble, as investors focus on their steady returns despite the economic downturn.
But W&D has been held back as it revamps its key managed pub business, and particularly its struggling Pitcher & Piano chain which has been hit hard by the downturn in London tourism.
So while its shares have outperformed the FTSE All Share index by 32 per cent since the start of the year, they have lagged rivals such as Greene King, Enterprise Inns, Scottish & Newcastle and Punch.
W&D, whose pubs are mostly based in the English Midlands, said like-for-like sales at its 32 Pitcher & Piano outlets, which it failed to sell last year, rose in the fourth quarter.
Chief executive Ralph Findlay also told Reuters that new Bostin Local pubs - spacious, contemporary-style versions of the traditional 'local' - were performing particularly well.
The firm currently has around 50 Bostin Locals and plans to increase the estate to around 200 by the end of 2004.
Findlay played down the rise in tax, pension and insurance costs for the current financial year, saying it would be more than offset by savings from concentrating its brewing operations at two sites from four.
"We will have improved our operating margins this year and we anticipate improving our operating margins again next year," he said in a telephone interview.
Nevertheless Greg Feehely, an analyst at Old Mutual Securities, said he might shave his profit forecast of £75.6 million for the current financial year. He kept his forecast of £74.5 million for the year ended 30 September.
W&D also disappointed some investors by declining to say whether it would return any more cash to shareholders. As part of its strategy to fend off Pubmaster's 513p-per-share hostile bid, the firm pledged to return up to £200 million by April 2003. So far it has handed back £126 million, excluding normal dividend payments. "We're not ruling anything in, and we're not ruling anything out," Findlay said.