Mitchells & Butlers pub group says costs start to ease

HY operating profit down almost 17%

*

Says ahead of previous forecast for short and medium term

*

Shares up 0.5%

May 17 (Reuters) - British pub and restaurant group Mitchells & Butlers PLC reported a fall in half-year profits on Wednesday and said supply chain costs were still a challenge but had begun to ease.

Shares in the FTSE 250 company, which were down as much as 3.7% in early trade, reversed course to rise 0.5% at 0900 GMT, while the index traded down 0.5%.

Elevated costs have challenged the UK's hospitality industry as it slowly recovers from the impact of COVID-19 lockdowns.

"There are indications that cost inflation headwinds across the supply chain are starting to abate, although they continue to present a challenge in the near-term," the company said in a statement.

The company based in Birmingham, central England, posted an almost 17% fall in adjusted operating profit for the half year ended on April 8 from the previous year to 100 million pounds, including government support.

Still, the 125-year old pub group said it was ahead of its prior expectations for the short and the medium term.

Given the retreat in energy prices from peaks hit last year, the company said early evidence suggested that cost increases in other areas, notably food, would soon start to slow.

After record food price increases in Britain, costs are not expected to fall to pre-COVID levels, but there are signs of some deflation in the pub group's cost base, CEO Phil Urban said in an interview with Reuters.

Last year, the pub group initiated plans to cut electricity use and put chemical additives into its heating systems to reduce gas consumption.

Sales growth in the most recent six weeks was at 8.9% on a like-for-like basis from a year ago, the group said.

Peers Marston's and J D Wetherspoon also reported strong sales in recent weeks, which included the May Bank holiday weekend and the Coronation weekend. (Reporting by Radhika Anilkumar in Bengaluru; editing by Uttaresh Venkateshwaran and Barbara Lewis)