Mitchells & Butlers (M&B), the All Bar One and Harvester operator, is expected to exhibit the scars of the toughest trading period in its history today by reporting a slump in first-half profits of almost 50 per cent.

The pubs group, which suffered a £391 million hedging loss last year after it was forced to scrap a controversial property joint venture with Robert Tchenguiz, is also tipped to report a sharp rise in the book loss on the remaining portion of that hedge.

M&B, which declined to make any comment before today’s interim figures, had been rumoured to be considering a rights issue to bolster its balance sheet. However, it is thought to have ruled out such a move for now, possibly after discussion with large shareholders, such as Joe Lewis, the Bahamas-based billionaire, who has a 25 per cent stake.

Analysts said that while M&B was likely to have benefited from the general pickup in trading in recent weeks, on the back of improving consumer confidence and the better weather, this will have been offset by the impact of the heavy snow experienced in February. It is expected to report a rise in like-for-like sales of just over 1 per cent in the period since January 24 – marginally ahead of the 1 per cent increase achieved in the previous nine weeks – amid market share gains in both food and drink, although its performance is likely to lag that of JD Wetherspoon, its rival.

M&B’s use of promotions to boost trade – the average price of a meal is under £6 – is likely to have hurt margins. Julian Easthope, an analyst at Barclays Capital, forecasts a 47 per cent fall in profit before tax to £44 million in the 28 weeks to April 11, from flat revenues of about £993 million.

The group continues to be hit hard by cost inflation. At the end of January it predicted a £20 million increase this year in regulatory expenses – mainly duty and minimum wage rises – and £30 million of food and energy rises, although these would be mitigated by cost savings of £20 million.

Geof Collyer, the Deutsche Bank analyst, believes that today’s numbers should represent a low point for the group, which was spun off from the old Bass brewing empire six years ago. He said: “The first half is likely to be the worst period of trading and pretax profits that M&B will have ever reported in any guise.”

Again, there will be no dividend as M&B focuses on reducing its net debt of £2.5 billion. Its immediate challenge is refinancing the £600 million debt facility that expires in December 2010, although it has already cut the sum outstanding to £460 million and expects to have reduced it to at least £250 million by the due date. It is forecast to beat its full-year target of selling up to £70 million of assets. Much of the short-term debt was taken out to cover last year’s £391 million hedging loss, which led to the exit of Karim Naffah, its finance director, and sparked an abortive merger approach from Punch Taverns.

It still has a £255 million interest-rate hedge, used to fix some of its bank debt, which in September was in its books as a £42 million liability. Morgan Stanley said last week that this liability could have ballooned to as much as £100 million.

M&B will also confirm that it has completed the conversion to its own formats of the 44 pub-restaurants acquired last September via an asset swap with Whitbread.

Further evidence of the tough trading climate will come tomorrow when Marston’s, the brewer and pub operator, reports a sharp fall in half-year pretax profits. Numis Securities is forecasting a 20 per cent decline to £28 million, although in recent weeks Marston’s managed pub division has produced a rise in like-for-like sales of more than 3 per cent, helped by food promotions and strong cask ale sales.

Shares in M&B closed down 13¼p last night at 261¼p.

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