We delivered 4.3% like-for-like sales growth and 5.8% operating profit growth, despite the impact of Employees' National Insurance, which hit the second half by an unexpected GBP 11 million. With the lowest team turnover the company has ever seen, the highest team engagement percentage, the highest guest review scores we've ever had, a strong safety record, and the highest ever Return On Investment from our remodel program, it feels like the business is sort of set up for whatever challenges may lie ahead. We are confident with a strong balance sheet, we have a very bright future ahead of us. We accept we have a tough year ahead given our exposure to the currently very high red meat costs, but in Ignite our capital program, we are working hard to mitigate for this.
In any case, this will be temporary and should not take the gloss off the underlying trajectory, the health of the business, and as 2030-2031 gets ever closer, now nearer than COVID-19 is, when we see our debt-to-service costs drop by GBP 130 million per annum, the business is very well placed to capitalize on any opportunities that may arise. I'll now hand over to Tim to take you through last year's results before I return to talk in more detail about where we are as a business and where we are heading.
Thanks, Phil. Good morning, everybody. Let me start with the income statement. This year represented good growth, building further on what was a very, very strong bounce-back performance in the prior year. We maintained our sales outperformance to the sector throughout the year. We managed cost headwinds of about GBP 100 million, including a late GBP 11 million impact to the second half from National Insurance contributions, to deliver an operating profit of GBP 330 million. That is an increase of 5.8% at a slightly richer margin, up 20 basis points. If you look further down the P&L, you can also see the benefits of our deleveraged signing to come through as well. Firstly, with reduced interest costs on our securitization structure, and secondly, through Pension Funding, which is now from a deficit that has moved into a de-risked surplus.
With the impact of that as well, that drove a 17% growth in EPS over the year. A very, very strong year, successful year for us. If we look at sales, they've remained strong and well ahead of the sector throughout the year on volumes that were broadly flat. I think that reflects our well-operated and strong, stable brands and sites. We think the last eight weeks was a little bit adversely impacted by concern and uncertainty built up ahead of Wednesday's Autumn Budget. Despite that, we still managed to strengthen our sales performance against Q4 of last year with a like-for-like growth of 3.8%. We now, of course, move into the most important part, the important festive season, for which all indications are positive.
Much of this presentation, we're naturally going to focus on what we're doing today and future prospects for the business, but I'll take a quick look back at last year and what drove our trading performance to that GBP 330 million operating profit. We continue to invest in our offers, in our estate, and we're getting very strong returns from that in excess of 35%. You can see the impact of that on this chart. Like-for-like sales growth of 4.3%, combined with efficiencies largely delivered under our Ignite program, to allow us to overcome a GBP 100 million cost headwind, leading to an increase in operating profit to GBP 330 million at a richer margin of 12.2%. Looking forward to this year as a whole, costs remain a concern for the sector.
We've set out here what we expect the pre-mitigation cost headwind that we'll face this year to be, and it does include certainly our preliminary assessment of the impact of Wednesday's Autumn Budget. Now, we talk to the interim a lot about food costs, notably red meat, and they are a particular challenge for us at the moment. We don't expect that to be structural. That is, we would expect those costs will revert and lower in time, and we are mitigating as much as we can through adapting our purchase arrangements, but there will be a larger component than normal this year of the cost inflation that we face. Labor, of course, is always our biggest cost. We will annualize on very steep increases that were announced last year. If you remember last year, living wage went up 6.7%.
We had a GBP 23 million cost increase in national insurance contributions, so we got an Annualization Impact on that. Plus, in the second half of this year, we'll have the impact of the recently announced increase in the living wage of 4.1%, with a little bit of further catch-up for the under-21s. Other costs, including energy, are more normalized. We wrap that all together. That's about a GBP 130 million cost headwind before mitigation, about 6% of our cost base. That's above trends. We would say that's the top of the range. If we look forward to 2027-2028, I would hope that that starts to come down. The result was accompanied by very strong cash flow, albeit helped by some non-recurring items. We had a refund from our Executive Pension Plans Escrow arrangement. This follows on from a very large refund from the main plans escrow last year.
We have now had all monies that were held in Escrow have been returned to us. That's done. CapEx increased to GBP 181 million, as we strive to get back on our seven-year remodel cycle. We're not there yet. On the basis of strong returns, we're very keen to keep investing in our estate. We would expect that level of CapEx to increase this year, probably to GBP 210 million, something like that, and possibly with further upside on that if we can identify freehold site acquisitions. We've been benefiting from offset of COVID tax losses, reducing our cash tax paid. Those are largely run-outs. We've got GBP 6 million left as we go into the current year, so you'll see our cash tax start to increase.
Overall cash flow, GBP 146 million generated from the business, which is lessened with a surplus flow of GBP 16 million after paying for bond amortization. That strong cash flow continues the path of strengthening the business's balance sheet. We increased the valuation of our freehold estate properties by nearly 4%, based on strong trading performances across those, and you have seen the impact of that. Pensions has come a very, very long way from the days only a few years ago where we had a GBP 400 million deficit. We were having to put GBP 50 million a year in to service that. We are now in significant surplus, and that surplus is largely de-risked. We have one scheme that has moved into buyout, so it is gone. Our main plan is in buy-in, so it is sort of de-risked and close to going, and we have one very small unfunded scheme.
We will start to get real value for that surplus through offsetting it against DC contributions that we would otherwise have to pay through cash flow, and we will be able to do that, we reckon, going forward at about the rate of GBP 10 million a year. The end net debt is now down to GBP 843 million, if I exclude leases, which is 1.8 times EBITDA, and our Net Asset Value increases to GBP 4.76 per share. We have been, just to put this in context, very successful in reducing debt in a business a few years ago that we felt was over-levered. Gearing has been managed down from well over four times 10 years ago to under two times today, and we have had success, as I mentioned before, in transforming our pension position as an additional part of that.
The valid question is, where do we go from here? We are tied into a large and inflexible debt structure with the securitization, and that has significant break costs if we want to change it. We would currently estimate those to be about GBP 45 million. With that in mind, we believe that it's right to continue on the deleveraged journey to enhance the group through both improving our resilience in uncertain times and creating value through a transfer to equity. Of course, the board will continue to monitor this, and break costs will decline over time, which will impact economics and will open up a number of options. We do not expect that to be in the near term, and it is certainly not on the current agenda. Let me wrap up before I hand over to Phil.
I think a really good year on year financial performance in sales, in profits, in margin, and in cash. We have also supported that by making progress across the board, across all of our main strategic objectives, and Phil is going to take you through those. We face the future with a fair amount of optimism. We think we are in good shape. We think we are dealing very well with what we can control, and we have a high degree of confidence in our ability to continue to outperform the market. I will hand you back to Phil now.
Thanks, Tim. Today I'm going to say a little bit about current trading before focusing mainly on reminding you who we are, what it is we've been trying to do and which we continue to do, and a painted picture of the future where Mitchells & Butlers is going to be in an incredibly strong position. Now, we finished last year with 4.3% like-for-like sales growth, which was our ninth straight year of market outperformance as measured by the CGA business track, as you see on the slide. Given the uncertainty caused by speculation over this week's budget, we've been pleased with the way this year has begun, with the last nine weeks running at 3.8% like-for-like, and again, tracking way ahead of the market average.
We've launched new menus across the brands and taken blended food and drink price of circa 3.2% during this period, so that will have helped. However, it has to be said that the lack of clarity on what the Chancellor would do in our budget would have spooked the consumer, and this will have adversely impacted the sector and our trade. Internally, we are never fazed by the short-term trends and market issues, as what is important is the underlying trajectory of the business, and in this regard, the company is very well placed with strong momentum and with a very bright future. In terms of our brands, last year we saw the wet-led businesses lead the way, with Vintage Inns, Nicholson's, Sizzling Pubs, Ember Inns, and Castle Pubs finishing at the top of our scorecard.
However, once again, we were pleased with progress across the board and particularly proud about managing to absorb the unwelcome and, in our view, unfair changes to Employers' National Insurance Contributions, which disproportionately impacted the hospitality and retail sectors. For us, that was a GBP 23 million annual cost, GBP 11 million of which impacted last year. The fact that we managed to still grow our profit is a very credible performance. Looking at this year, we have the remaining GBP 12 million of the Employee National Insurance Contributions as an incremental cost to absorb and a 30% rise in the cost of steak and beef, which, when you run one of the nation's biggest steakhouse brands and the much-loved Toby Carvery, is a disproportionate challenge for us. However, this will be a one-year impact.
The steak prices won't move up by another 30% next year and, in truth, should show some deflation, whereupon I would expect the business to move forward strongly. Now, we're working hard to mitigate for what is circa GBP 130 million of cost increases this year, which compares to circa GBP 90 million in a normal year, and we back ourselves to do this, but we will not take short-term decisions that damage the long-term prospects of our brands. We are happy with where we are, confident about what we're doing, and excited by what we believe will be a very strong future. I would now like to spend the rest of this update explaining this in a little bit more detail.
Let me start by reminding you about who we are and what we are and why Mitchells & Butlers is unquestionably one of the strongest hospitality businesses in the sector. Now, we are blessed with a very high-quality estate, 84% of which is freehold or long leasehold, with very strong locations, many of which are prominent and landlocked, thus prohibiting direct competition from ever being developed on their doorsteps and covering most of the U.K. Of course, we also have a small business in Germany too. We have 1,631 managed businesses with circa 17 proven brand formats, all of which are constantly being refreshed and refined based upon quality guest insight. Of course, we have all bases covered with rural, suburban, city, and town centre locations, wet-led and food-led brands, value through to premium offers, sport, entertainment, and a whole range of dining experiences.
We have over 1,000 rooms, a strong machines business, and also a strong and growing delivery business too. We appeal to regulars, workforce, families, and tourists alike, and there is an interesting stat that 81% of the population lives within five miles of an M&B business. With average weekly turnover of GBP 31,200 per business and Average Annual EBITDA of GBP 385,000, we run the most successful large-scale pub restaurant businesses in the U.K. Now, we aim to position each of these businesses at the premium end of their respective markets, and we put a lot of focus and effort into constantly improving their product ranges, the theatre and service and guest propositions, and the quality and provenance of what we offer.
To help execute this ambition, we developed a new food innovation centre in Warsaw three years ago, giving our development chefs the environment to constantly evolve our offers, keeping them at the forefront of U.K. hospitality. Now, over the last ten years, we've also invested heavily in technology, giving us a market-leading position in this space too. We've implemented new E-pass, Order-at-table apps, Kitchen IQ, Digital stock-taking, order-to-order, Prep & Par, Tried and the Basic Standards app, The Employee app, proprietary booking engines, and our new label rostering system. The list goes on and on. Each one of these has helped drive sales or improve our efficiency, and we believe there's still a lot more to be taken from the investments made to date.
However, this year, we'll see our new HR and Payroll system being implemented and a new CRM system, Guest 360, which will step-change our ability to converse with and better understand our guests. Our guest databases have grown this year, and we now have consent to contact 13.9 million guests through our programs. We recognize that to succeed in hospitality, it requires great service at all times, and that depends on having a great team of people. That is why we place such great emphasis on our engagement scores and why we invest so much into our Chef Academy, our award-winning apprenticeship programs, and into our digital learning and development platform, affectionately known as MAVL, or M&B Learning. Having the lowest team turnover on record means that we are retaining our talent, and therefore the experience of our team must be growing.
I'm confident to say that the M&B team is second to none with the abundance of professionalism, passion, experience, and energy. We systematically invest in our business, with GBP 210 million being earmarked for this year on the core business before acquisitions. Now, we aim to invest in every business on an average seven-year cycle, and when we do invest, we ensure we cover the whole operation, including externals, restrooms, back of house, etc. Now, with payback from investment being within five years, it means we can be confident of driving real returns for the business, and it means the average quality of our amenity is always improving. Each brand has an appointed lead designer, and they work with the operations directors and our marketing team to create environments that best represent our brand propositions.
The designs stay fresh and evolve through each cycle, using the latest color palettes and soft furnishings to maintain appeal. Because we've been doing this for the last ten years, we no longer have many sites that are allowed to deteriorate to such an extent that reputation starts to get damaged. Now, we don't see many competitors matching this approach, and we know that where estates have been allowed to be under-invested over a long period, it takes a lot of time and investment to break the back of a backlog of schemes, and it can be very costly in the short term. Our remodel Return On Investment sits at an all-time high of circa 35%, which covers 199 projects, so this is a robust statistic.
As you know, for the last ten years, we have evolved Ignite, which started ten years ago as a transformation program with an urgent need to turn the business around, but has since evolved into an ongoing way of working that promotes constant improvement in all that we do. With the benefit of ten years of experience, Ignite has now ingrained as just a part of how we operate. At any one time, there are 40-50 separate initiatives in play, each driving incremental profit directly or indirectly. As importantly, Ignite has also cemented our organizational culture by breaking down departmental silos that existed, as it encourages people from across the business to work together, whereas their day jobs might never create that opportunity. Ignite is here to stay.
It is as powerful as it has ever been, and I think its impact on the business will just get stronger and stronger. Now, as you know, we have now Tim Jones here, our CFO, has decided to retire in the middle of next year. Tim has made an outstanding contribution to the company. He wrote that bit, but, and has been a massive support to me personally over the last ten years. Now, whilst a tough act to follow, we are delighted to have appointed Emma Harris, who will be joining us from Marks & Spencer, bringing a wealth of retail experience on top of her financial pedigree. Emma and Tim will have an ample opportunity to have a detailed handover, and I would expect the transition to take place seamlessly.
Building a team that will take this company forward over the next five to ten years is one of my personal objectives, and I would argue that we already have a track record of being able to do just that whilst continuing to drive the business forward. We haven't shouted about it, but over the last three years, we've seen several retirements from the executive committee, and we've handled those changes well, and the business has not missed a beat, which highlights just how robust our ways of working are and the quality and depth of our management talent, with a capital program and Ignite, our transformation program, continuing to be the engine room for the business.
Moving on to our financial strategy, we have always made it very clear that we believe degearing is the prudent and right path for the business right now, and given the rocky path of recent years, we're very pleased to have done so. Of course, we've managed to reduce our Net Debt down from GBP 2 billion ten years ago to GBP 843 million today, and the pension deficit of GBP 500 million is now in surplus, so we've made good progress. We've also made it very clear that we will not consider paying a dividend until we are confident in being able to do so sustainably out of surplus cash. Given the GBP 200 million debt service cost and the GBP 210 million plus of capital program on top of tax and running costs, we are not there yet.
Even last year, the sudden impact of the Chancellor's change to Employees' National Insurance Contributions wiped GBP 23 million off our annual profit with one stroke of the Chancellor's pen, illustrating that certainty of profit level is still fragile. As Tim has just taken you through, were we to try and break the securitization now, there would be costs that would leak value, and we see no point in doing that. Looking further forwards, the right capital structure in the future will depend a lot upon the path which we choose to take with regards to expansion or cementing what we do today. Our aim is to put Mitchells & Butlers in a position to lead the hospitality sector for the next ten years and beyond and to have as many strategic options open to it as possible when the debt service costs fall away.
Given our strong and strengthening balance sheet, we believe we're very well placed to take a lead role in any industry consolidation if we choose to and to develop out remaining asset opportunities that we have across the estate. If we still have surplus cash above investment requirements, we would return it to shareholders at that time. We have delivered another year of progress despite the changes to Employees' National Insurance Contributions, and we feel we've maintained our momentum. We've outperformed the market on sales growth for nine straight years. We have the highest guest review scores we've ever had, the lowest team turnover we've ever seen, and the highest team engagement we've ever recorded.
Our remodel program is delivering the strongest Return On Investments I've ever seen in my career, and in Ignite, we have a very special way of working that ensures we never become complacent and that we seek out constant improvement. We have the best brands in the industry. We have the best portfolio of largely freehold properties, and the fact degearing is accelerating, our balance sheets are becoming stronger and stronger. The U.K. hospitality sector is resilient, and let's face it, it has had to be in recent years. When the market starts to recognize this and starts taking a more positive view of it, then Mitchells & Butlers will be viewed undoubtedly as the strongest company in the sector with a very bright future. Thank you, and we will now be happy to take your questions.
Okay. Yeah, Douglas Jack at Peel Hunt. Three questions, if that's all right.
First one is, in terms of the brands being reformatted, which ones are generating the best returns? Second one would be, in terms of the budget and the business rates, which was a bit confusing, what's the impact to you in terms of the changes to business rates from the budget? The third one is, there is any pricing response needed from the budget, or is it as expected?
Yeah, I can probably take all three of those. In terms of the brands, I think returns on investment tends to mirror brands that are doing well. When your wet-led businesses do, your ROIs get stronger, and if the food-led ones do, likewise. No great surprise that those brands I listed out are the ones with the stronger returns. Nicholson's and Vintage Inns had very good returns.
Actually, we were delighted with Return On Investment right across all brands, hence the record level of ROI. Really, really strong remodel program. There is a reason for that, probably partly also because we are investing at a time others are not, so we are starting to get a bigger impact. Pleased across the board on our remodel program. Business rates, yeah, it is probably the most complex thing to try and get a handle on because you have to work through multipliers and new values, but it is probably a marginal increase for us. It is certainly not a giveaway for the sector, but neither is it a big issue to us.
In terms of pricing, the pricing we took at the start of this year was done so with a view that the budget would bring what the budget has brought, so we have not got any further price to put through.
Thanks, Jamie Rollo from Morgan Stanley. Just a few questions on the sort of capital allocation point, please. How do you define near-term? Secondly, what sort of suddenly brought this change in language about sort of why now? Thirdly, I know it is probably too early, but any sort of idealistic preference of buybacks versus dividends? I can squeeze one more in. When might you be resuming restricted payments, do you think? When can you resume those?
The easy one is the last one. I do not have to take them sequentially. We are now out of Cash Trap Securitization, so we are already able to make internal dividend payments. Do you want me to take it? Yeah. I mean, near-term means it's not soon. I'm loath to give you a time, and maybe I will, but I don't want it to be interpreted as he said that, so they are going to reset it all at that point, right? I don't see near-term being anything within two years. That doesn't mean we're going to do something in two years' time, but I want to be very clear on that. Why now? I think it's quite a valid debate to be having with investors and potential investors. We've been really successful at leveraging our debt down, and we've been able to do that in a sort of channeled basis.
We have now got to the point where we have probably one of the strongest balance sheets in the sector, and options are opening up for us. It is right that we start having a debate about how the board looks and what the board chooses to do. Why now is we think it's become a current topic, and it's something we want to communicate very clearly on so that when people are looking at M&B, they can decide whether they agree with how the board views the world or how they want to view the world. It's just trying to be transparent. I've really no idea whether we do share buybacks or dividends, to be honest. Because we're quite thinly traded, because obviously there's a 57% investment, we're not actually able to do share buybacks under MAR regulations.
We probably estimate around about GBP 25 million a year at the moment is the maximum we could do. Any Share Buyback Program would be little more than symbolic rather than any meaningful return on capital. You could do a tender offer versus you're into huge sums to make that economic right. I don't know. We haven't decided that yet, but share buybacks would not be meaningful.
I mean, if I could just comment on your second question, Jamie, which is why now, why we, it's strange. We get asked on our roadshows, so we just felt actually we should reiterate what we feel we've always said. We don't really feel this is something new. We're just feeling we are restating what we've always said because we are increasingly asked about it.
It does not feel like new rhetoric to us, but just being we feel we have been very straightforward on what we are trying to do and why we are doing it, and we have just restated it today. Tim.
Good morning. Tim Barrett at Deutsche Numis. I had a couple of things on the Waterfall Chart, the cost Waterfall Chart. Quickly on food and beverage, can you say how much you are hedged on that? Is it the worst case that you think you have got in that chart? A boring one on business rates again, but it feels like ratable values have gone up quite a bit from the last three years. Is it simply that you qualify for the lower multiplier, and then it all nets out into quite a nice neutral position?
I can take the latter one then. Yes, basically that. I think up 20%, but then multipliers have come down. It is a marginal increase for us, a minor increase, whereas we were not benefiting from the full relief because we are a big company. It was capped, so that is why it is not impacted as much as some. I think the frustration you are seeing from the sector is it was positioned by the Chancellor as being this big help to industry, and it is certainly not that. It is certainly less than U.K. hospitality thought might be coming our way. It is certainly not as good as that.
Food, we are about 45% brought forward or contracted, if you like, for this year. That is lower than it would normally be at this point of the year. It would normally be somewhere between 55-60%. The reason is because what we have been able to do is get quarterly contracts.
Producers are not really prepared to do annual contracts. That is where we are. Is it worst case? I mean, I will be surprised if it is worse than we have got here. That does not mean we would expect there to be significant upsides for either, but I think it is probably a pretty reasonable standard where we will end up.
Thank you. How about Drink?
Drink would be much more brought forward at the moment because you have multi-year contracts anyway, which you do not have with food. We have got some wine and some spirits to agree this year, but I would guess we are probably 80-85% brought forward, something like that. Thank you very much.
Thank you anyway for the mic. Anna Barnfather, Panmure Liberum. Just looking, obviously with the cost headwinds, looking at the scope for mitigation, and you have done very well.
I'm just sort of thinking if you can give us any guidance on how much you might be able to mitigate. If I look back at history, I mean, on the slide you've shown, GBP 100 million last year and GBP 20 million of mitigation. Is that a good starting point in terms of percentage?
Yeah, it is. GBP 130 million this year, and I think the mitigation will be higher, but probably proportionately so. It's a third of this much again or something like that.
Yeah, with some conservatism in there in terms of the 6%.
Yeah, on the cost base, yeah.
That's true. That's Ignite. There's no silver bullet. That's why you have 40 or 50 things going on, each one contributing, and that's what gets you your GBP 20 million. A little bit here and a little bit there.
There's no one lever to pull that can sort of give you that sort of level of saving.
Thank you. Just one other question on sort of acquisitions, because obviously your leverage is now, I think, probably one of the lowest on a pre-lease basis. Sort of reading into what you said on capital allocation, are acquisitions kind of moving higher up your agenda and thinking?
I think we've always said that we'll be opportunistic to acquisitions. We're interested in good freehold estate, but so is everybody else. When they come to market, they're usually quite hotly contested, and we won't overpay. We don't have to do it. I suppose it's fair to say that over the last 10 years, we've always been opportunistic. That sort of willingness is growing as we sort of come through this.
We sort of know it's an easier thing for us to look at. We are certainly taking a good look at quality assets to come to market. At the moment, there's mainly things you see in the market, mainly leasehold, which are far less of interest to us. I would think going forward, it's something that we would certainly look to find the right assets. Again, we do not have to do that. We have plenty of opportunities within our own estate to still invest. If we find the right number of assets and we have the brands fit, then yeah, we would be interested in doing that.
That is everything. Thank you very much for your time. Apologies. It's a Friday. Thank you.