Birmingham-based pubs group Mitchells & Butlers yesterday said that stronger-than-expected demand for pub food had helped it post improved annual profits.

The Fleet Street company, headed by chief executive Tim Clarke, said pretax profits for the year to September 30 climbed 10.1 per cent, from #189 million to #208 million. Turnover increased 5.5 per cent, up from #1.63 million to #1.72 billion.

M&B, which owns the All Bar One and Harvester chains of pub restaurants, said customers are now visiting its outlets for pub grub – rather than just a pint – as it benefits from the growing eating out market.

Food sales increased by 7.3 per cent, compared to an average of four per cent at UK restaurants. Drink sales rose by 3.2 per cent.

M&B also sounded a positive note about current trading for the seven weeks to November, with like-for-like sales ahead by 4.5 per cent.

Its pub carveries are now selling 2,500 meals per week – 12 per cent more than last year – while there had been a good performance at Harvester, Toby and Ember Inns.

The growth in food sales had also encouraged a boost at the bar, especially wine.

"Over the past 12 months, we have extended our leadership of the fast growing eating out market," said Mr Clarke. "Our strategy of offering high quality amenity and good value food and drink is generating sustained sales growth."

M&B said its experience of the smoking ban in Scotland so far showed that its bigger pubs capable of selling more food were likely to benefit, but admitted its smaller beer-led hostelries could suffer.

A similar ban is due to be introduced in England and Wales next year, but the company has already made 200 outlets non-smoking and said it had hit sales by less than one per cent.

Mr Clarke said that a full year was needed to ascertain the full effect of the smoking ban, but then expects to see a "significant" uplift.

He added that across the UK some 40 per cent of consumers visit pubs at least once a month to eat out, while 70 per cent regularly visit pubs.

"The opportunity is there to capture huge numbers of people who have been put off by tobacco smoke," he said.

M&B operates around 2,200 outlets and comprises the pick of the former Bass and Allied Domecq estates. Its chains also include Vintage Inns and Scream.

The group said it was progressing well with converting the 239 pub restaurants it bought from Whitbread in July. While Mr Clarke did not rule out further acquisitions, he said M&B was focused on delivering its targets.

"We have always been active in enriching the mix through disposals," added Mr Clarke, saying the group has "pretty much completed" its repositioning.

Meanwhile, the company is investigating the potential benefit of Real Estate Investment Trusts (REITs), new style investment vehicles due to be introduced in January.

Finance director Karim Naffah said the tax benefits offered by REITs had to be weighed against the disadvantages of splitting the group into two separate companies – a property company and a pub operator.

"Clearly it is not without its challenges, but the potential benefits are substantial," said Mr Naffah. "We will spend the next few months looking at this intensively and seeing how companies that convert settle into the market."

He added the company expects to provide an update on its plans at its interim results announcement in May. Mitchells & Butlers declared a final dividend of 8.6 pence, taking the total dividend for the year to 12.25 pence, a 14 per cent increase on last year.

Analysts at Merrill Lynch said: "While results are in-line, in our view there remains plenty of longer-term earnings per share upside through the Whitbread conversions and the benefits of a smoking ban on Mitchells & Butlers' increasingly food-driven pub model."