Mitchells & Butlers (M&B), the pub operator that owns the All Bar One and Harvester chains, has reported resilient trading in the last few weeks of its financial year, but admitted that it would have to accelerate sales growth in order to match this year's profits.

The company, which has been the subject of persistent bid speculation, reported a 1.3 per cent rise in like-for-like sales in the nine weeks to September 20, a slight acceleration on the previous 10 weeks, but conceded that substantial cost increases were having a big impact.

It said that over the past year regulatory costs had risen by £16 million, although this had been offset by a £20 million reduction in fixed and variable costs. Food inflation was restricted to 3 per cent.

However, the company gave warning that in the coming year alcohol duty would rise by £9 million and staff costs by £11 million, while commodity and energy costs were proving "highly volatile and unpredictable".

Tim Clarke, chief executive, said that, despite continued cost cutting and staff productivity improvements, M&B would need to grow like-for-like sales by 3 per cent in the coming year in order to achieve similar operating profits to this year.

He said the group's ability to hit that target would be helped by the passing of the anniversary of the smoking ban and further market share gains, but much would depend on the degree to which consumer confidence weakened further.

"It's impossible to predict how those factors will counterbalance each other," he said. "It's a challenge and it's up to us to respond to it, as we have done in the past few years."

M&B said that, despite the tough trading environment, profits this year would be in line with the board's expectations. It is scheduled to report full-year figures for the year to September 27 on November 26.

The group's strategy, in the light of falling beer consumption, has been to concentrate on its food sales. In the nine weeks to September 20, like-for-like sales grew by 1.3 per cent at its pubs, with food sales up 3.6 per cent and drink sales up 0.3 per cent.

The wash-out weather even spurred a rise in spending on bowling and indoor machines.

Food sales growth slowed thanks to a drop-off in trade at its Harvester chain as young families with mortgages in the South-East opted to stay at home. Mr Clarke said management was "on the case" and would relaunch the Harvester menu to put greater emphasis on value for money.

However, drink sales returned to growth after the company won market share from rivals. While the wider beer market was down 9 per cent, M&B reported a 7.8 per cent jump in cask ale sales. Mr Clarke said this was "part of a general consumer trend towards quality products with provenance".

He claimed the improvement was also, in part, due to the ability of management to focus on operations rather than spending their time dealing with fallout from January's £391 million hedging loss.

Mr Clarke said the company continued to look at the possibility of becoming a tax-efficient real estate investment trust while its advisors at Citigroup were still looking at ways of realising value from its bowling and lodge businesses.

Net debt fell from £2.9 billion to £2.75 billion during the year thanks to strong cashflows and £100 million of disposal proceeds and analysts are forecasting a fall to about £2.6 billion in the coming year.

Shares of M&B, which have been the subject of short selling, fell by 17p - or more than 6 per cent - to 255.5p.

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