annual report and accounts 2018 - mitchells & butlers · 2016 2015 2014 2,152 2,141 2,086 2,101...

Annual report and accounts 2018

20182017**201620152014

2,1522,1412,0862,1011,970

20182017**201620152014

303308318328313

20182017**201620152014

34.134.434.935.732.6

20182017201620152014

1307794

126123

Strategic report

1 WelcometoMitchells&Butlers 10 Chairman’sstatement 12 Mitchells&Butlersataglance 14 ChiefExecutive’sbusinessreview 18 Ourmarkets 20 Ourbusinessmodel 22 Ourstrategicpriorities 24 Ourstrategyinaction 30 Keyperformanceindicators 32 Corporatesocialresponsibility 38 Risksanduncertainties 43 Financialreview

Governance

47 Chairman’sintroductiontogovernance 48 BoardofDirectors 50 Directors’report 56 Directors’responsibilitiesstatement 57 Corporategovernancestatement 64 AuditCommitteereport 68 ReportonDirectors’remuneration

Financial statements

93 Independentauditor’sreporttothemembersofMitchells&Butlersplc

100 Groupincomestatement101 Groupstatementofcomprehensive

income102 Groupbalancesheet103 Groupstatementofchangesinequity104 Groupcashflowstatement105 Notestothefinancialstatements142 Fiveyearreview143 Companyfinancialstatements145 NotestotheCompanyfinancial

statements

Other information

148 Alternativeperformancemeasures151 Shareholderinformation

Financial highlights

Contents

Revenue (£m)

£2,152m

Adjusted* earnings per share (pence)

34.1p

* TheDirectorsuseanumberofalternativeperformancemeasures(APMs)thatareconsideredcriticaltoaidunderstandingoftheGroup’sperformance.Keymeasuresareexplainedonpages148to150ofthisreport.

** FY2017wasa53weekyear.Adjusted2017performanceisthereforepresentedona52weekcomparablebasis.***Includesseparatelydiscloseditems.

Adjusted* operating profit (£m)

£303m

Financial reviewSeepages43to45

Profit before tax (£m)***

£130m

Non-financial information statement

TheGrouphascompliedwiththerequirementsofs414CBoftheCompaniesAct2006byincludingcertainnon-financialinformationwithintheStrategicreport.Thiscanbefoundasfollows:

• Businessmodelonpages20to21.

• Informationregardingthefollowingmatterscanbefoundonthefollowingpages:

− Environmentalmattersonpage37.− Employeesonpages35to36.− Socialmattersonpages32to37.− Respectforhumanrightsonpage37.− Anti-corruptionandanti-briberymatters

onpage62.

• Whereprincipalriskshavebeenidentifiedinrelationtoanyofthematterslistedabove,thesecanbefoundonpages38to42,includingadescriptionofthebusinessrelationships,productsandserviceswhicharelikelytocauseadverseimpactsinthoseareasofrisk,andadescriptionofhowtheprincipalrisksaremanaged.

• AllkeyperformanceindicatorsoftheGroup,includingthosenon-financialindicators,areonpages30to31.

• TheFinancialreviewsectiononpages43to45includes,whereappropriate,referencesto,andadditionalexplanationsof,amountsincludedintheaccounts.

Welcome to Mitchells & Butlers

Through their hard work, our teams create fantastic guest experiences every day. Here are just a few of them…

Wearealeadingoperatorofmanagedrestaurantsandpubs.OurstrongportfolioofbrandsandformatsincludesHarvester,TobyCarvery,AllBarOne,Miller&Carter,PremiumCountryPubs,SizzlingPubs,Stonehouse,VintageInns,Browns,Castle,Nicholson’s,O’Neill’sandEmberInns.Inaddition,weoperateInnkeeper’sLodgehotelsintheUKandAlexrestaurantsandbarsinGermany.

Ourfocusonourthreepriorityareasofbuildingamorebalancedbusiness;instillingamorecommercialculture;anddrivinganinnovationagendahascontinuedtomovethebusinessforwardoverthefinancialyear.Theimplementationofthesecondwaveofinitiativesfromourtransformationprogrammehasresultedinsustainedlike-for-likesalesgrowth,continuedmarketoutperformance1andareturntoadjustedprofitgrowthinthesecondhalfdespiteEastermovingintothefirsthalf.

1. AsmeasuredbytheCofferPeachbusinesstracker.

Annual report and accounts 2018 Mitchells & Butlers plc 1

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Miller & Carter, RickmansworthBeefisalabourofloveatMiller&Carter.Weputeverythingintopursuingtheperfectsteak,fromthefieldtothebutcher’sblocktothegrill,soonlythefinest,mostflavoursomecutsmakeyourplate.

Thisrestaurant,nestledinthecharmingsuburbofRickmansworth,reopenedasaMiller&Carterin2017andprovidestheperfectsettingtoescapethehustleandbustleofeverydaylifewiththeaddedcharmofaworkingmill.

More customer feedback

Mitchells & Butlers plc Annual report and accounts 20182

“ The birthday lunch was a great success – full of food, fun… AND a delicious slice of cake.”


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The Colney Fox, St AlbansVintageInnshasgoteverythingyouneedfromacountrypub;burninglogfiresinthewinter,andbeautifulbeergardensinthesummer.

TheColneyFox,StAlbanswaspreviouslycalledTheWatersplashHotelinthe1940sand50s,avenuecompletewithrestaurantandswimmingpool.Nowrestoredandrenamed,TheColneyFoxisstillfullofheritageandtraditionwhilstalsobenefitingfromrecentlyrenovated,comfortableandcharacterfulB&BInnkeeper’sLodgehotelrooms.



“ Having passed our exams there was only one thing left to do. Celebrate!”


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Browns, WindsorBrownsisperfectforcasualdiningorforthosespecialoccasions.Togetherwithabustlingbrasserieatmosphereandapassionateteam,there’sauniquerestaurantexperiencethatyou’lllove.

Browns,Windsorisanelegant,spaciousbuildingwithincredibleviewsacrosstheThamesfromthefrontandthemightyWindsorCastlefromtheback.You’llfindadelightfuloutdoorbalconywithcomfysofas,perfecttoenjoyanalfrescolunchasyousitbackandwatchtheboats(andworld)goby.



“ I walked in as a friend and left a fairy godmother.”


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Horniman’s at Hays, LondonNicholson’shasbeendelightingguestssince1873byofferingdeliciousfoodanddrinkaccompaniedbyafriendlywelcome.ItproudlyservesclassicBritishpubdishesorseasonalspecialsalongsideanunrivalledcollectionofcaskalesandanexcitingrangeofpremiumginsinhistoriccitycentrepubs.

Horniman’sislocatedintheheartofcentralLondon,onthebanksoftheThames.It’sminutesfromTowerBridge,TheShard,andLondonBridge,whilsttheTowerofLondon,TheClinkMuseum,HMSBelfast,andthebustlingBoroughMarket,areonlyashortwalkaway.


8 Mitchells & Butlers plc Annual report and accounts 2018

“ Friday lunchtime with my mates is such a laugh. It signals the start of my weekend…”


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Chairman’s statement

Iamconvincedthatwehavetherightelementsinplacetocontinuetogrowlong-termshareholdervalue.Bob Ivell Chairman

Well placed to deliver continued outperformance1


2018

2017

2016

2015

2014

1,687

1,695

1,768

1,779

1,775

2018

2017

2016

2015

2014

24.5

23.7

22.7

22.6

23.2

2018

2017

2016

2015

2014

51

51

51

51

51

Number of managed sites (at year end)

1,687

Average weekly sales per pub (£k)

£24.5k

Food sales as a % of total sales

51%

Operational highlightsTheperformanceofthebusinessintheyearhasbeenveryencouragingwithsustainedlike-for-likesalesagrowth;continuedoutperformanceofthemarket1andareturntoadjustedoperatingprofitagrowthinthesecondhalf.

Thishasbeenachievedagainstthebackdropofincreasedlong-termsupplyintheeatingoutmarketandanunprecedentedlevelofcostheadwindswhichhaveresultedinseveralCVAsandclosuresamongstourcompetitorsduringtheperiod.

Theresponseofourteamhasbeenexemplary,withrealmomentumbeingcreatedbytheirsingle-mindedfocusonthedeliveryofourstrategicprioritiesandthesecondwaveofourtransformationalactivity.IwouldliketorecordtheBoard’sthankstoourover44,000employees,whosespiritedresponsetotheexternalpressureswhilstdelightingourguestsandcontinuouslyimprovingourprocesses,hasbeenthecriticalelementinourstrongperformance.

Aspreviouslyoutlined,attheFY2017yearend,theBoardassessedthepotentialforadividendpayoutbasedontheyear’stradingandthesectoroutlook.Weweretransparentaboutourcriteriaformakingthisassessment,namelythatmaintenanceoftheconditionandcompetitivenessoftheexistingestatewasofprimaryimportanceforthelong-termhealthofthebusinessandthatwewouldavoidanystructural,orpermanent,increaseintheuseofshort-termfacilitiestofunddividends.Havingconductedthisassessmentithasbeendecidedthatafullyeardividendwillnotbepaidtoshareholdersthisyear;wewillkeepthisunderreviewdependingonperformanceandoutlook.

Onastatutoryreportingbasisprofitbeforetaxandearningspersharegrewagainstlastyear,albeitthesemeasuresareimpactedbyseparatelydiscloseditems.

InSeptember,StuartGillilandinformedtheBoardofhisintentiontostepdownfromtheBoardtoconcentrateonhisothernon-executiveroles.HavingjoinedtheBoardinMay2013,hebecameSeniorIndependentDirectorinFebruary2015andhasplayedakeyroleinthesuccessfuldevelopmentofthebusinessasavaluable,supportiveandextremelyhelpfulmemberofourBoard.IwouldliketowishhimeverysuccessinhisotherBoardroles.Theprocessofidentificationandrecruitmentofareplacementisunderway,followingwhichanannouncementwillbemadeaboutbothStuart’sleavingdateandhisreplacement.ThisislikelytobeconcludedbytheendofDecember2018.IremainpleasedwiththecompositionandbalanceofskillsoftheBoard.

Ourstrategyisbearingfruitwithlike-for-likesalesagrowthandmarketoutperformance1despitemacro-economicuncertainty.Iamconvincedthereforethatwehavetherightelementsinplacetocontinuetogrowlong-termshareholdervalue.

Bob Ivell Chairman

Business reviewSeepages14to17

1. AsmeasuredbytheCofferPeachbusinesstracker.a. TheDirectorsuseanumberofalternativeperformancemeasures(APMs)thatare

consideredcriticaltoaidtheunderstandingoftheGroup’sperformance.Keymeasuresareexplainedonpages148to150ofthisreport.


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Mitchells & Butlers at a glance

Ifyou’relookingforadrinkorabitetoeatyou’llfindaMitchells&Butlersbrandthat’sperfectforyou.Weoperaterestaurants,barsandpubsallovertheUKandGermanyandworkhardtoofferourcustomersagreatchoiceofqualityfoodanddrink,fastandfriendlyserviceandexcellentvalueformoney.Oursuccessisbasedoninnovation,listeningtocustomerfeedbackandensuringourpassionatestaffarethebesttrainedintheindustry.

Brands for all occasions

Alex 41 sitesIfyou’reoutinaGermancitycentre,

theseclassicbarsaretheperfectplacestostopforabeerandabitetoeat.

All Bar One 56 sitesFromcocktailstoawell-chosenbottleofwine

oranexcellentmeal,you’llfindsomethingtosuityouinourstylishcitybars.

Browns 25 sitesSincethefirstBrownsopenedin1973,

it’sbeenprovidingdeliciousfoodanddrinkandsuperbserviceinbeautifulsurroundings.

Castle 113 sitesIfyoulikeaplacewithrealpersonality,pullupachairinoneofoururbanpubs

servingthebestdraughtbeerandgreatfood.

Ember Inns 148 sitesRelaxedandwelcomingsuburbanpubs.

Weservethebestcaskalesandclassicpubfoodwithatwist,instylishenvironments.

Harvester 194 sitesAwelcomingplaceforfamiliestospend

timetogether,havefunandsharethepleasureofgood,honestfood.

{

High Street 81 sitesOurHighStreetpubsaretheperfectplacefordecentfoodandqualitybeer–andat

pricesthatputotherpubstoshame.

Miller & Carter 105 sitesWeputeverythingintopursuingthe

perfectsteakatMiller&Cartersoonlythefinestcutsmakeittoyourplate.

Nicholson’s 77 sitesYoucanreallyrelaxatthesetraditionalcityandtowncentrepubsthathavebeenloved

sinceourfirstpubopenedin1873.

O’Neill’s 32 sitesBarswhereyoureallyfeelathome–whetherforafewroundswithmates

oraspotoflunchwithcolleagues.

Premium Country Pubs 127 sitesOurtraditionalpubshavebeenstylishly

refurbishedtomakethemtheperfectplacetofindacosycornerandtaketimeout.

Stonehouse 106 sitesAlongsideourtraditionalcarvery,weserve

uphandmadepizzasmadewithfreshdough;aswellasburgersandpubclassicsatagreatprice.

Suburban 238 sitesWhatunitesthesepubsisunbeatablevalue

formoney,generosity,andbig-heartedservice.ManyofthesepubsareSizzlingPubandGrills.

Toby Carvery 158 sitesWelayonafeastoftender,slow-cookedmeats,eightlotsofvegincludingcrispy,

ruffledroastiesandallthetrimmings.

Vintage Inns 186 sitesWemanagesomeofthebestcountrypubs

intheUK,allofferingmodernpubfoodandoutstandingdrinks.


Value

Premium

Food ledDrink led

A diverse portfolio of brands

Alex

All Bar One

Browns

Castle

Ember InnsHarvester

Miller & Carter

Nicholson’s

O’Neill’s

Premium Country Pubs

Stonehouse

Suburban

Toby Carvery

Vintage Inns

High Street


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Chief Executive’s business review

Continued trading above the market average1 and a return to profit growtha Iampleasedwiththemomentumwehavebuiltandwiththeactivitythatisunderwayinthebusiness.Phil Urban Chief Executive

IhavebeenCEOforthreeyearsnowandoverthatperiodwehaveundergonealotofchangebothinternallyandintheexternalenvironment,withthecostheadwindswhichcontinuetoimpactthesectorandmorerecentlyCompanyVoluntaryArrangements(CVAs)andclosuresincasualdining.

WhenIjoinedthebusiness,wewereinsustainedlike-for-likesalesdeclineandthebusinesswasunderperformingonanumberofmetricswhicharekeytothesuccessofahospitalitycompany.Therefore,weembarkedonanewstrategywhichfocusedonaddressingtheissueswithinthebusinessandthesefellintothreestrategicprioritieswhichIdiscussindetaillaterinthisreview.

InFebruary2016,welaunchedaprogrammeofworkcalledIgnitedesignedtomeetthesepriorities,whosefirstobjectivewastogetthebusinessbackintosustainedsalesgrowthandaheadofthemarket,atargetweachievedover18monthsagoandhavemaintainedsince.

Thesecondobjectivewasthentostabiliseprofitsand,althoughFY2018adjustedprofitbeforetaxafinished£5mdownagainstlastyear,ourperformanceinthesecondhalf,andtheknowledgethatthereweresomeexceptionaleventsinthefirsthalf,givesmeconfidencetosaythatwearenowachievingthataspiration.

Ourthirdobjectiveistoreturnthisbusinesstosustainedprofitgrowth,whichwillbenomeanfeatgiventhemacroenvironmentIdescribelater,butthatisexactlywhywehaveembarkedonourIgnite2programmeofwork.Theapproachwehavetakenrecognisesthatthereisnosilverbullettogrowingbusinesses,butinsteaditistheincrementalgainsmadeacrossseveralfrontsthatcanbringsuccess.Ignite2isaprogrammeofworkwithanumberofdifferentworkstreams,groupedundereightbroadheadings,eachledbyoneofourExecutiveDirectorsandafunctionalexpert.Wehavealsosetupaprojectofficeandagovernanceroutine,toensurethatweallremainfocusedonextractingasmuchvalueaswecanfromtheprogramme.

Someoftheworkstreamshavealreadyseentheirinitiativesimplementedandvaluestartaccruing,whereasothersarefarlongerterm,mayrequirenetinvestmentthisyear,andshouldstartpayingbackfromFY2020andbeyond.

Thereviewthatfollowsupdatesyouonourprogressintheyearagainstthethreestrategicpriorities;outlinesourcurrentviewofthemarketinwhichweoperate;summarisesourcorporatesocialresponsibilityvalues;detailsourfinancialperformanceinFY2018andupdatesyouonourprioritiesforFY2019.

Overall,Iampleasedwiththemomentumwehavebuiltandwiththeactivitythatisunderwaywithinthebusiness.Wecontinuetotradeaheadofthemarketaverage1,andoursecondhalfadjustedprofitaperformancegivesusconfidencethatthebusinesshasstabilised.However,thespectreofanuncertainBrexitoutcome,andpoliticalinstability,meansthatweremaincautiousabouttheshort-andmedium-termfuture.


Duringtheyearwehavemaintainedastrongtradingperformance,investinginourestateandmitigating£28mofcostinflationwhilstmaintainingqualityforourguests.

Forasecondconsecutiveyearlike-for-likesalesagrowthoutperformedthemarket.Weachievedlike-for-likesalesagrowthof1.3%inthefinancialyeardespiteextendedperiodsofsnow,unusuallyhotweatherinthesummerandEngland’sprolongedsuccessintheFIFAWorldCup.Thelastreportedperiodoflike-for-likesalesagrowthof2.2%wasfreefromone-offeventsand,sincetheyear-end,like-for-likesalesahavecontinuedtogrowat2.2%.Totalsalesgrewby0.5%ona52weekbasisimpactedbydisposalsmadeintheprioryear.

Profitabilityinthefirsthalfwasnegativelyimpactedbysnowinparticular,resultinginadeclineof£8magainstlastyear.However,inthesecondhalf,adjustedoperatingprofitagrewby£3m,despiteEastershiftingintothefirsthalf,asthemomentumfromourstrategicinitiativescontinuedtogatherpace.

Adjustedoperatingprofitaof£303mwasdown1.6%year-on-yearona52weekbasis.Onastatutorybasisprofitbeforetaxof£130mgrewagainstlastyearimpactedbyseparatelydiscloseditems.

Our strategic priorities

WehavemaintainedourstrategicapproachwiththreepriorityareasfocusedonrepositioningtheCompanytoastrongercompetitiveposition:

• Buildamorebalancedbusiness

• Instilamorecommercialculture

• Driveaninnovationagenda

Wecontinuedtomakestrongprogressacrossthesethreestrategicprioritiesovertheyearresultinginsustainedlike-for-likesalesgrowthaaheadofthemarketandgrowthinadjustedoperatingprofitainthesecondhalfofthefinancialyear.

Build a more balanced businessOurestatecomprises1,750pubs,barsandrestaurants,ofwhichmorethan80%arefreeholdorlong-leasehold.Ourfocusinthisareaistooptimisethebalanceofbrandsacrosstheestateinordertocreatelong-termvalue.Duringtheyear,wecontinuedtoimprovethequalityoftheestatethroughpremiumisationandamenityupgrades.

Wecompleted232remodelsandconversionsinFY2018(FY2017252)andremainoncoursetodeliverasixtosevenyearcycleofinvestment,fromtheeleventotwelveyearcycleofpreviousyears.Inordertomaximisetheprofitupliftfollowinginvestmentwithinthefinancialyear,wecompletedmoreprojectsinthefirsthalfthaninpreviousyears.Thein-yearbenefitfromthis,coupledwithsavingsmadeincostsrelatingtoclosure,was£3m.ConversionsremainfocusedontheexpansionofMiller&Carter,whichnowconsistsof105sitesandcontinuestoperformstronglybothintermsofsalesgrowthandreturns.

Wecontinuedtoenhancetheamenityofsitesthroughourremodelprogramme.Remodelprojectsprovidearefreshedenvironmentforsiteswhichremainwithinthesamebrand,givingtheopportunitybothtodelightexisting,andattractnew,guests.Theremodelprogrammeprovidesavehiclethroughwhichbrandscancontinuetoevolveandinnovateinthehighlycompetitivemarketinwhichweoperate.

Instil a more commercial cultureWehavemadeprogressindevelopingamorecommercialcultureacrossthebusinessoverrecentyears,witharelentlessfocusonprofitabilityessentialinthecurrentenvironment.Ourcentralisedprocurementprocessallowsustoleverageourscaleandduringtheyearwemitigated£6mofinflationarycostsacrossfood,drinkandlogistics.Inaddition,centralisedpricingchangeshavegeneratedabenefitof£5mthroughbenchmarkingagainstlocalcompetitors,eventspricingandmenupsychology.

Labourremainsthemostsignificantcosttothebusinessandimprovingefficiencywithoutcompromisingonqualityisaconstantfocus.LastyearwerolledoutnewsoftwareacrossallofourUKbusinesstohelpmanagerstomoreeffectivelydeploylabourthroughmoreaccuratesalesforecasting,schedulingrecommendationsandelectronictimemanagement.Wehaveseenthebenefitofembeddingthissoftwarewithin-yearcostmitigationof£8m.Wewillcontinuetofindadditionalefficiencybenefitsbyfocusingonbestpracticeuseofthesoftware.

Ourfocusononlineinteractionwithguestscontinueswiththeirincreasinguseofourdigitalplatforms,suchasappsandonlinefeedback.Lastyearweintroducedreputation.com–afeedbackconsolidationtoolwhichenablesmanagerstorespondtocommentsfrommultiplesourcesthroughonesystem.Throughthistoolwenowrespondto93%ofallonlinefeedbackandwecontinuetoseethebenefitsofthepersonalinteractionthisplatformenablesfortheguest.Inaddition,itallowsustogatherconsumerinsighttoevolveourbrandsinlinewithconsumerdemands.Sincetheyearendwehaveincreasedtheaveragefeedbackscoreacrosstheestateto4outof5reflectingthehardworkundertakeninthisarea.

Our strategySeepages22to23


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Drive an innovation agendaTechnologicaldevelopmentsareconstantlychangingthewayconsumersbehaveandourdigitalstrategyisdesignedtoenableustobenefitfromthosechangesandtosatisfyguests’changingneeds.Amobilepaymentoptionisavailableinallofourbrands,allowinggueststopaytheirbillontheirmobiledevice.Inaddition,wecontinuetorefineourorderattablefacilitywhereguestscanorderfoodanddrinkfromtheirmobiledeviceattheirtableratherthanhavingtoqueueatthebar.ThisfacilityiscurrentlyontrialinseveralO’Neill’ssitesandtheresultsshowbothademandfor,andabenefitfrom,introducingthistechnologyacrossmoreofthebusiness.AsaresultofthissuccessfultrialweplantorolloutthetechnologyfurtheracrossO’Neill’sandtofouradditionalbrandsduringFY2019.

Digitaldevelopmentprovidesuswiththeopportunitytobetterunderstandandenhanceourguests’experiences.Anexampleofthisisfreewirelesschargingstationswhichwehavetrialledinaselectionofourcitycentrelocationswithextremelypositiveguestfeedback.Wehavealsodevelopedourcustomerrelationshipmanagementplatformwhichenablesmoretargetedandpersonalisedcommunicationwithguests,theresultofwhichhasbeenincreasedconversionstobookings.

IgniteIgniteistheinternalnameusedforourfocusedprogrammeofworkunderpinningthelonger-termstrategy.ThefirstphaseofIgnitelaunchedinFY2016andfocusedprimarilyonreturningthebusinesstosustainedlike-for-likesalesagrowth.Havingachievedthisaim,workbeganonIgnite2,asecondwaveofinitiativeswhichcontinuethefocusonsalesgrowthandalsoincorporatemoreefficiencyandcost-savingworkstreamsaimedatimprovingprofitabilityinthefaceofindustry-widecostheadwinds.Thissecondwaveofinitiativesrequiredanin-depth,cross-functionalanalysisofprocessesand,inordertocoordinatethiswork,aprojectofficehasbeensetuptosupportandgovernthevariousworkstreams.Thisfocuswillensurethatthemaximumvaluecanbeextractedfromtheprogrammeofwork.Severalinitiativesarealreadyinplacewithinthebusinessandaredeliveringvalue,whereasothersarelonger-termprojectswhichwillrequireinvestmentduringthefinancialyeartobegindeliveringreturnsfromFY2020.

ExamplesofliveIgnite2initiativesincludetheformationofacentralexpertlabourdeploymentteamwhovisitsiteswhichareperformingbelowtherequiredlabourschedulingaccuracy.Thisteamprovidespracticalsupportandsystemexpertiseandtheresulthasbeenamaterialimprovementinperformanceofthe210sitesvisitedintheyear.

Chief Executive’s business review continued

%ofsales1 Scotland 5%2 NorthWest 9%3 NorthEast 3%4 YorkshireandHumberside 8%5 WestMidlands 14%6 EastMidlands 5%7 Wales 4%8 EastofEngland 7%9 SouthWest 7%10SouthEast(excludingLondon) 15%11London 23%

Revenue by region (FY 2018)


People

Wehaveafantasticteamofover44,000peopleacrossthebusinesswhoarecrucialtotheall-importantexperienceswhichguestshavewithus.Attracting,trainingandretaininghigh-qualitystaffismoreimportantthaneveranddespitethenumerousinitiativeswehaveintroducedoverthecourseofthefinancialyear,wearepleasedthatourmanagementlevelturnoverhasimprovedby2.6ppts.Thisisparticularlyimportantduringaperiodofchangeasmanagersprovidestabilitytotheteamsonsite.Ourkitchenmanagementturnoverhasreducedby3.1pptssincelastyearwhichisreassuringinlightofthechallengesthatanychangesinthefreemovementoflabourresultingfromBrexitmightbring.Overallstaffturnoverhasincreasedby2ppts,drivenbyhourlypaidstaff,reflectingtheheightenedcompetitivenessofthissectorofthelabourmarket.Engagementscoreshavealsoimprovedacrossallcohortsovertheyear.Intermsoftraining,weareproudoftheworkwehavedoneonourapprenticeschemewhichwebelievewillprovideexcellentfuturetalenttoourorganisation.Wearedelightedtonowhave1,800apprenticestakingpartinourschemeswhichrangefromfrontandbackofhouserolesinourpubsandrestaurantstocorporaterolesinourheadoffice.

Current trading and outlook

Inthefirstsevenweeksofthenewfinancialyearlike-for-likesalesahavegrownby2.2%.

AreturntoadjustedoperatingprofitagrowthinthesecondhalfofthelastfinancialyearwasasignificantmilestonefortheCompany.Withlike-for-likesalesagrowthconsistentlyaheadofthemarketandourfocusonefficiencyinitiatives,weareconfidentthatweareaddressingtheelementsofperformancewhicharewithinourcontrol.However,themarketinwhichweoperateremainschallengingandahighlevelofmacrouncertaintiesremain.Wewillremainfocusedonmaintainingastrongbalancesheetandreducingournetdebtwhilstpositioningthebusinesstogeneratelong-termshareholdervalue.

Phil Urban Chief Executive

Wehavealsointroducedenhancementstoourbookingplatformsbyreducingthenumberofstepsaguestneedstotaketobookatablewhichhasimprovedourbookingconversions.Inaddition,wehaveintroducedtherecommendationofalternativevenueswhenthereisnoavailabilityattheselectedsite.Take-upofalternativesitebookingsequatestoc.13,000bookingsperyear.

Followingasuccessfultrial,wehave,fromthestartofFY2019,removedcashexpenditureforsundryexpensessuchasflowers,taxis,emergencyfoodpurchasesetc.fromourbusinesses;theaimsofthisaretoincreasevisibilityandthereforecontroloverexpensesofthisnatureandalsotoidentifyopportunitiestoleverageourscaletoachieveabetterpricefortheseitems.Wehavealsointroducedaninterrogativesoftwaretoolwhichanalysesalltransactionaltilldataandidentifiespatternsofbehaviourwhichrequirefurtherinvestigation.Wehaveateamofpeopletrainedinthesoftwarewhosupportourmanagersinthentakingactionifrequired.

Longer-termprojectsincludeasystemupdateandchangeofprocessesaroundourstockmanagement.Lastfinancialyearweupdatedourstocksystem,acomplicatedprojectwhichimpactedeachofourbusinesses,anumberofcentralteamsandalsorequiredthecooperationofoursuppliers.Thebenefitsofthesystemupgradearesignificant;itallowsustoautomatetaskswithinthebusinesswhichcurrentlytakeupalargeamountofmanagementtime.Forexample,remotecountingwillfacilitatebarcodescanstocktakingwhichwillsignificantlyreducetheamountoftimetakentoperformastockcountandwillautomaticallyloadtheresultsintothesystem.Prepandparisatoolwhichwillaidkitchenstaffwithidentifyingwhattoprepareforeachsessionofthedaybasedonsitespecifictradingpatternsandforecasts.Thissystem,particularlywhenusedincombinationwithauto-ordering,willhelptoreducewasteandinstancesofmenuitemsbeingunavailable,improvingguestexperience.

Asdigitaldevelopmentsgatherpace,itisimportanttoensurethatwearewellpositionedforfuturedevelopments.Therefore,weareundertakingasignificantpieceofworktoconsolidateourdataontooneplatformwhichallowsintegrationintothird-partytechnologies.Thisworkwillprovidethefoundationforfastadoptionoffuturedigitaldevelopmentopportunities.

TheIgniteprogrammeofworkisdesignedtoencouragethechallengeofboundariesonmanyfronts,andwehavebeenexploringopportunitiestoworkwiththirdpartiesasawaytoaccelerateinnovation.WehaveenteredintoaformalagreementwithEgoRestaurants,whoalreadysuccessfullyoperatetheirMediterraneanofferinafewofoursiteswithintheleaseholdestate,investinginthebrand’sparentcompanyandagreeingapipelineofoursitestofacilitatethegrowthoftheproposition.FurthertothiswewillopenthefirstMiller&CartersiteinGermany,supportedbytheAlexteam,in2019whichprovidesuswithanopportunitytotestanothermarketgiventhesuccessofthebrandintheUK.

1. AsmeasuredbytheCofferPeachbusinesstracker.a. TheDirectorsuseanumberofalternativeperformancemeasures(APMs)thatare

consideredcriticaltoaidtheunderstandingoftheGroup’sperformance.Keymeasuresareexplainedonpages148to150ofthisreport.


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The external environment

Theeatingoutindustryhasfacedanumberofchallengesoverrecentyears.ThenumberofrestaurantsintheUKincreasedby11%overthepastfiveyears,outstrippingdemandgrowthandresultinginpressureonsalespersiteacrossthesector.Overthesameperiod,thesectorhascontinuedtofacestrongcostheadwindswiththecombinedresultofthesetwofactorsbeinganumberofCVAsandbusinessclosuresamongstourcompetitorsinthepastyear.InthetwelvemonthstoSeptember2018,thenumberofrestaurantsinoperationintheUKfellby1.0%reflectingthecompetitivepressureinthishighlyfragmentedsector.

FromademandperspectivetherehavebeenseveraleconomicfactorsimpactingconsumerconfidenceincludingBrexit,politicaluncertaintyandlimitedgrowthinrealwages.Despitethis,turnoverintheeatingoutmarketasawholecontinuestogrow,withforecastgrowthof1.5%in2018indicatingthatleisurespendiscurrentlybeingprotectedtosomeextentbyconsumers.Markettrendssuggestthatconsumersareeatingoutlessfrequentlybutspendingmorewhentheydo,supportingourstrategyofpremiumisationandfocusonprovidingopportunitiesforgueststo‘tradeup’menus.

TheimpactofBrexitremainsuncertain.Asidefrommacro-economicconsequences,thespecificareasofmaterialimpactforourbusinessareincreasesincostsandreductionofavailabilityofgoods,andimplicationsofrestrictionsonthefreemovementoflabour.OnexitoftheEU,costofgoodswouldbeimpactedbychangesintermsoftradeandthereforetariffs,additionalbordercontrolsandfluctuationsinthevalueofsterling.Fromanemploymentperspective,atatimewhenunemploymentlevelsareata40-yearlow,anyrestrictiononthefreemovementoflabourwouldhaveamaterialimpactonboththecostoflabourandaccesstotalent.Currentlyacrossourbusiness,13%ofstaffarenon-BritishEUnationals,withtheproportionfluctuatingbygeographicregion.Weremainclosetotheseissueswhilstweawaitfurtherdetails.

Outperforming in a challenging economic and political environment

Our markets

Markettrendssuggestthatconsumersareeatingoutlessfrequentlybutspendingmorewhentheydo,supportingourstrategyofpremiumisationandfocusonprovidingopportunitiesforgueststo‘tradeup’menus.


2,500

2,000

1,500

1,000

500

0

-500

-1,000 2015 20172016 2018

70

50

40

30

20

10

60

0 2016 2017 2018 2019

Actual Estimated

Net UK restaurant openings (MAT)Source:CGAOutletIndex.

Mitchells & Butlers inflationary costs £m

UK eating out marketSource:MCAEatingOutintheUKReport2018.

Our risks and uncertaintiesSeepages38to42

Mitchells&Butlersshareofmarket

£2bn £57bnTurnover


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Our business model

Value proposition

Wecreatevalueforourstakeholdersthroughthedeliveryofqualityeatinganddrinkingexperiences.Lastyear,weserved120millionmealsand386milliondrinksacrossourbrands,providinguswiththeopportunitytoengagewithguestsonadailybasis.

Guestexperienceisacriticalelementofourbrands’offers.Weuseafeedbackconsolidationtool,reputation.com,toprovideuswiththeinsighttocontinuouslyevolveourofferstosuitourguests’needs.

Inthelongterm,weaimtomaximisetheopportunityfromtheseguestexperiencesthroughourlargelyfreehold-backedestate,theteamsofpeopleworkingwithinthebusiness,andthehigh-qualitypracticeswhichweadopt.

Estate

Intotalweown1,750pubs,barsandrestaurants,ofwhichover80%areownedunderafreeholdorlongleasehold.TheestateispredominantlyUK-based,andisnationwidealthoughmostheavilyconcentratedinLondonandtheSouthEast,theWestMidlandsandtheNorthWest.WealsohavesitesinGermanywithinourAlexbrandportfolio.

Thisarrayofhigh-qualitylocations,matchedwithourdiversebrandportfolio,enablesustomatchtherightconcepttotherighttradingasset,aswellasofferingastrongpipelineforfutureconversions.Ourpropertyhasavalueof£4.4bnasattheendofFY2018,offeringastableandlong-termopportunityforvaluecreation.

People

Wehavemorethan44,000employeesacrossourpubs,barsandrestaurantsandinourRetailSupportCentre,whoarecriticaltodeliveringoutstandingexperiencestoourguests.Ourpeopleincludethosewithstrongbusinessandsectorexperience,aswellasnewandenthusiasticyoungtalentwhowelooktodevelopthroughourapprenticeshipprogrammes.Adoptingastructuredapproachtorecruitment,drivinghighlevelsofengagementwithourexistingteamsandofferingdevelopmentandlearningopportunitiesarekeyelementsofourpeoplestrategy.

Practices

Practicesreferstothewaysinwhichweoperateinthebestwaytogeneratevaluethroughoutthebusiness.Thisencompassesouruseofscaleforpurchasingandoperationalefficiency;sharingofideasbetweensimilarbrandsandconceptswithintheportfolio;adherencetothehighestoperationalstandards;andanincreasinguseoftechnologytoenhanceguestexperiences.WecontinuouslystrivetomoveforwardinalloftheseareasinordertomaximisethevalueoftheCompany.

Creating value for our stakeholdersThroughthepeoplewhoworkforus,ourwell-investedfreeholdestateandthehigh-qualitypracticesweadopt,ourbrandsdelightourguestsagainandagain,creatingvalueforallourstakeholders.


Building a more balanced businessSeepages24to25

Driving an innovation agendaSeepages28to29

Instilling a more commercial cultureSeepages26to27

Brands

For shareholders

Total shareholder return Seepage87

For the environment

Corporate social responsibility Seepages32to37

For suppliers


For employees


Guests

PeopleWehavemorethan

44,000employeesacrossourpubs,barsandrestaurantsandinourRetailSupportCentre,whoarecritical

todeliveringoutstandingexperiencestoourguests.

EstateIntotalweown1,750

pubs,barsandrestaurants,ofwhichover80%are

ownedunderafreeholdorlongleasehold.

PracticesPracticesreferstothewaysinwhichweoperateinthebestwaytogeneratevaluethroughoutthebusiness.

Creating value

Ourbusinessmodelcreatessustainablevalue

forourstakeholders.


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Our strategic priorities

Maximising returnsOurstrategyaimstodeliverlong-termsustainableshareholdervaluethroughorganicgrowth.Ourpriorityistomaximisethereturngeneratedfromourexistingassets,throughensuringwehaveabalancedestate;instillingamorecommercialculture;anddrivinganinnovationagenda.

1. Build a more balanced business

Rationale

• Togeneratemaximumvaluefromourestateoflargelyfreehold-backedproperties.

• Toensureweareexposedtotherightmarketsegmentsbyhavingthecorrecttradingbrandorconceptineachoutlet,basedonlocation,sitecharacteristicsandlocaldemographics.

• Tomaintaintheamenityleveloftheestatesuchthatweoperatesafelyandremaincompetitivetoguests,alongsidemeetingcashflowcommitments.

FY 2018 progress

• Maintainedlevelofinvestmentincapitalactivityat£171m.

• Completed239capitalprojectsintheyear,maintainingasixtosevenyearinvestmentcycle.

• ContinuedinvestmentingrowthbrandMiller&Carterwith105sitesnowopen.

• CompletedmoreprojectsinH1thaninpreviousyearswithlessclosureweeksresultingin£3min-yearbenefit.

• Acquiredsevensitesanddisposedoffivesiteswhichdidnotfitintoourestatestrategy.

FY 2019 priorities

• Focusonenhancingassetvaluethroughremodellingorconvertingsiteswherewebelieveincreasedvaluecanbeunlocked.

• Makefurtherselectiveacquisitionswherewefeeltheyaddvaluetotheestate,anddisposalswherewefeelwehaveextractedmaximumvalue.

• Furtherexploreinvestmentopportunitieswiththirdparties.

Link to key risks

1A,2A Risks and uncertainties Seepages38to42

Link to KPIs

2,3,4,5 Key performance indicators Seepages30to31


2. Instil a more commercial culture

Rationale

• Toensurewefocusonthedeliveryofprofitablesales.

• Toengageourteamsindeliveringoutstandingguestexperiences.

• Toactquicklyanddecisivelytoremaincompetitiveinourfast-changingmarketplace.

FY 2018 progress

• Mitigationof£28moffood,drinkandlogisticscostheadwindsthroughcontinuedefficiencysavings.

• Generated£5mbenefitfromcentralisedpricingchanges.

• Newlabourrosteringsystemfullyembedded,allowingmanagerstoimprovesalesforecastingandenhancedeploymentoflabourresultinginan£8min-yearbenefit.

• Teamformedtosupportsitesperformingbelowrequiredlabourschedulingaccuracy.

• Furtheradvancesinguestengagementwithsocialmediaresponserateof93%(FY201783%)andnetpromoterscorealsoup3percentagepoints.

• Systemupdateandchangeofprocessesaroundourstockmanagement.

• Removalofcashexpenditureforsundryexpensestrialledtoincreasevisibility,controlandidentifyscalepurchasingopportunities.

FY 2019 priorities

• Fullyrolloutandembedthenewstockauto-orderingsystem,improvingcontrolthroughareductioninwaste,fewerstockoutagesandamoreefficientstocktakeprocess.

• Removalofallunprofitablehoursthroughoutthebusiness.

• Increasespendperheadthroughtailoredpricing,menupsychologyandupselling.

• Continuetoleveragescalethroughcentralprocurementandrolloutofcashexpenditureremovalacrossallbusinesses.

Link to key risks

1A,1B,2A,2D,2G Risks and uncertainties Seepages38to42

Link to KPIs

1,2,3,5 Key performance indicators Seepages30to31

3. Drive an innovation agenda

Rationale

• Toensurethatourbrandsandformatsremainfreshandrelevantwithintheirmarketsegments.

• Toleveragetheincreasingroletechnologycanplayinimprovingefficiencyandguestexperience.

• Toexecuteadigitalstrategytoengagewithconsumersacrossavarietyofplatforms.

• Tofacilitatenewproductandconceptdevelopment.

FY 2018 progress

• Expandedourinvolvementwithdeliverypartners,131sitesarenowlivewithDeliverooorJustEat.

• ContinuedtobringguesttechnologytothecustomerthroughorderandpayattableaswellastheinstallationofwirelesschargingpadsinsomeofourAllBarOnebusinesses.

• Increasedthesophisticationofourcustomerrelationshipmanagementcapability,withtheabilitytotargettherightcustomerswiththerightoffersthroughourdigitalchannels.

FY 2019 priorities

• Consolidatealldataontooneplatformtofacilitateincreaseduseoftechnologywithinourbusiness.

• Furtherdevelopguestloyaltyinitiativesandextendrollouttomorebrands.

• RolloutourorderattabletechnologyacrossmoreO’Neill’ssitesandtofouradditionalbrands.

• Continuetoevolveanddevelopallofourbrandsandconcepts.

Link to key risks

1A,2B,2C Risks and uncertainties Seepages38to42

Link to KPIs

2,3,5 Key performance indicators Seepages30to31


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Our strategy in action


Building a more balanced businessWeaimtogeneratemaximumvaluefromourestatebyensuringwehavetherightbrandintherightlocation.Duringtheyearweinvested£171mincapitalactivity,completingatotalof239projectsaswellasinvestinginthemaintenanceandinfrastructureofourbusinesses.WecontinuedthepremiumisationofourestatethroughinvestmentinMiller&Carterwhichsawafurther21sitesopenintheyear,takingthebrandto105restaurantsintotal.

Thismeanswehavekeptpacewithouraimtoinvestineachofoursiteseverysixtosevenyears,ensuringweupgradeandmaintainthelookandfeelinanevermorecompetitivemarket.Ourreturnsfromthisinvestmentarestrongtoo,withreturnoncapitalaof27%onourremodelprojectsand23%onourconversionandacquisitionprojectscompletedintheyear.

Asadirectresultofourtransformationprogramme,wesuccessfullycompletedmoreprojectsinthefirsthalfoftheyearthanpreviouslyresultinginanincreaseinthenumberoftradingweekspostinvestment.This,inadditiontoareductioninthetimeandcostassociatedwithclosure,deliveredatotalin-yearbenefitof£3m.

Inthecomingyear,wewillmaintainthisinvestmentcycleandlooktounlockfurthervaluefromourexistingassetsthroughourremodelprogramme.


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Instilling a more commercial cultureEngagedpeoplewiththerightskillsandmeanstobothdelightguestsanddeliverprofitablegrowthremainessentialtoourstrategy.Withunrelentingexternalcostpressures,weareequippingourmanagerswiththetoolstodeliverefficiencieswithinthebusiness.Theseefficienciesincludeenhancedlabourdeploymentthroughanewrosteringsystem,improvedstockcontrolandreducedpettycashspendthroughgreateraccesstocentralsuppliers.

Labourremainsourmostsignificantcost.ThenewrosteringsystemhelpsourGeneralManagersmoreeffectivelydeploylabourthroughbettersalesforecasting,schedulingrecommendationsandelectronictimemanagement.Theembeddingofthissoftwarehasalreadyresultedinanin-yearcostmitigationof£8m.Thenextstage,identifiedbyoneofourIgniteworkstreams,wastheformationofateamoflabourschedulingexpertswhoworkwiththesitesthatneedfurthersupporttoextractthebenefitfromthesystem.210siteshavebeenvisitedthisyearbytheteamreleasinganannualisedcostbenefitof£1.5m.

Ourguestfocus,aidedbyourfeedbackconsolidationtool,reputation.com,hasalsocontinuedtoimprovewithnetpromoterscoregrowingbythreepointsduringtheyear,againstthebackdropoflike-for-likesalesgrowthandmarketoutperformance.




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Driving an innovation agendaDeliveringourdigitalstrategyisstillattheforefrontofourfocusaswecontinuetobringtechnologytotheguestexperiencethroughourbrandapps,orderandpayattablefacilities,andtheinstallationofwirelesschargingpads.WehavealsoincreasedourfooddeliverycapabilityintheyearacrossDeliverooandJustEat,with131sitesnowliveacrossoneofthetwoplatforms.

Ourcustomerrelationshipmanagementcapabilityhasincreasedinsophisticationaswearenowabletotargetspecificgroupsofcustomersthroughdigitalchannelsbytailoringmessagesandofferstobettermeettheneedsofindividuals.

Inaddition,oneofourIgniteteamsidentifiedimprovementstoourbookingplatformswhichhavebeenintroduced.Theseincludereducingthenumberofstepsaguestneedstotaketobookatableon-lineresultinginimprovedbookingconversions;andofferingalternativevenuerecommendationswhenthereisnoavailabilityattheinitiallyselectedsite.Weestimatethatthishasresultedinanannualisedfigureofaround13,000additionalbookingconversions.


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2018

2017

2016

2015

2014

84

82

86

82

83

2018

2017

2016

2015

2014

62

59

51

65

63

Key performance indicators

2. Net promoter score Definition

Thenetpromoterscoreforapub,barorrestaurantisdefinedasthepercentageofresponseswherewescore9or10outof10,lessthepercentageofresponseswherewescore0to6outof10basedonthequestion“howlikelyareyoutorecommendthispubtoafriendand/orrelative?”

FY 2018 performance

NetpromoterscoreforFY2018was62whichhasincreasedfromascoreof59inFY2017.

Theimprovementinthescorehasbeendrivenbyacontinuedimprovementinguestcarestandardsaswellasourfocusonpersonalisedresponsestoguestfeedbackwith93%ofallsocialmediacommentsbeingrespondedto(FY201783%).

1. Staff turnover Definition

Thenumberofleaversinourretailbusinesses,expressedasapercentageofaverageretailemployees.Thislike-for-likemeasureexcludessitemanagement.

FY 2018 performance

Retailstaffturnoverincreasedby2pptsto84%withtheincreasebeingdrivenbyhourlypaidteammembersreflectingtheheightenedcompetitivenessofthissectorofthelabourmarket.

Despitethis,turnoveracrossallmanagementcohortsimprovedfromtheprioryear,whichisimportantforoverallstabilitygoingforward.

Wemeasureourperformanceagainstourstrategythroughfivekeyperformanceindicators.WehavemadeachangetotheKPIsusedtomeasurethebusinessperformanceinthecurrentfinancialyear,replacingadjustedEPSwithadjustedoperatingprofit.ThechangewasmadetoalignKPIsmorecloselywiththechangesdetailedintheremunerationreporttolong-termincentivemeasures.

Measuring performance

84%

62

Link to strategy

1,2,3


Link to strategy

2


%


2018

2017

2016

2015

2014

1.3

1.8

-0.8

0.8

0.6

2018

2017

2016

2015

2014

16

18

20

18

16

2018

2017

2016

2015

2014

303

314

318

328

313

5. Adjusted operating profita Definition

OperatingprofitbeforeseparatelydiscloseditemsassetoutintheGroupIncomeStatement.Separatelydiscloseditems(asdetailedinnote2.2ofthefinancialstatements)arethosewhichareseparatelydisclosedbyvirtueoftheirsizeorincidence.ExcludingtheseitemsallowsabetterunderstandingofthetradingoftheGroup.

FY 2018 performance

Adjustedoperatingprofitafortheyearof£303mwas1.6%downontheprioryearona52weekbasis.Howeverinthesecondhalf,adjustedoperatingprofitgrewby1.9%,despiteEastershiftingintothefirsthalf,asthemomentumfromourstrategicinitiativescontinuestogatherpace.

4. Return on expansionary capitala Definition

Expansionarycapitalincludesinvestmentsmadeinnewsitesandinvestmentinexistingassetsthatmateriallychangestheguestoffer.ReturnoninvestmentismeasuredbyincrementalsiteEBITDAfollowinginvestmentexpressedasapercentageofreturngeneratingcapital.Returnoninvestmentismeasuredforfouryearsfollowinginvestment.

FY 2018 performance

TheEBITDAreturnonallconversionandacquisitioncapitalinvestedoverthelastfouryearswas16%(FY201718%).Thisisduetoahigherproportionofexpansionarycapitalbeingspentonourfood-ledbrands,whichweremoreimpactedbytheextremeweatherinFY2018.Projectssincethestartofthemostrecentfinancialyeargeneratedareturnof23%.

3. Like-for-like salesa Definition

ThesalesthisyearcomparedtothesalesinthepreviousyearofallUKmanagedsitesthatweretradinginthetwoperiodsbeingcompared,expressedasapercentage.

FY 2018 performance

Like-for-likesalesaroseby1.3%inFY2018.ThissalesperformancewasnegativelyimpactedbyextremeweatherandtheWorldCupbutremainedconsistentlyaheadofthemarketwhenmeasuredagainsttheCofferPeachbusinesstracker.

1.3%

16%

£303m

Link to strategy

1,2,3


Link to strategy

1,2,3


Link to strategy

1


a. TheDirectorsuseanumberofalternativeperformancemeasures(APMs)thatareconsideredcriticaltoaidunderstandingoftheGroup’sperformance.Keymeasuresareexplainedonpages148to150ofthisreport.

%

%

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Food and drink•WehavecommittedtoPublicHealthEngland’sSugarReduction

programmeforourfamilybrandsHarvester,TobyCarvery,SizzlingPubsandStonehouse.

• WeareanationalsponsorofBestBarNone,anaccreditationschemepromotingresponsiblemanagement.

• 98%ofourbusinesseshavebeenratedgoodorverygoodforfoodhygiene.

• Brownscontinuestoserve100%BritishRedTractorFarmAssuredbeefthroughitsIntegratedBeefSupplyProgramme.

• 100%ofourshelloneggsareproducedfromfreerangehens.

Food sourcing

Wehavearesponsibilitytoourgueststoensurethatthefoodwesourcehasbeenproducedinasustainableandethicalmanner,havingdueregardforhighstandardsofanimalwelfare.

OurSourcingPolicyhasbeendevelopedtoensurethattheprocurementofallmeat,poultryandfinfishusedwithinourbusinessiscarriedoutinaccordancewiththeCompany’sethicalstandardsthatoperateacrossallourbrands.Workingcloselywithoursuppliers,weaimtooptimiseanimalwelfarestandardstomeetbusinessneedsandsatisfyguestrequirements.

Guestinsightresearchthatweconductedhashighlightedkeyareasthatmattertoourguestsintermsofanimalwelfare,environmentalimpactandsocialequity.OurSourcingPolicyaddressestheseissuesandconfirmsourapproachtotheachievementoftheoptimalstandardspossibleforeachofourbrands.Ledbyacross-functionalteam,reportingdirectlytotheExecutiveCommittee,theSourcingPolicycontinuestoevolveandisreviewedonaregularbasis,toincorporateanychangesinlegislation,procurementpoliciesorbusinessneeds.

Our key achievements in FY 2018: • Brownscontinuestoserveguestswith100%BritishRedTractorFarm

Assuredbeef,producedthroughtheirveryownBrownsIntegratedBeefSupplyprogramme.ThisinitiativetakescalvesfromknownRedTractorFarmAssureddairyfarms,whicharerearedonspecialistcalfunits,throughtothefinishingstageonselectedassuredfarms,contractedtosupplyMitchells&Butlers.Inrecognitionofthegreatqualitybeefproducedfromthisscheme,BrownshaswonSilverandBronzeawardsattheWorldSteakChallengein2017and2018.

• UpdatestotheFarmAnimalWelfareandSourcingPolicyhavebeensharedwithourcorefoodsuppliersattheCompany’sannualfoodanddrinksupplierconference,mostrecentlyheldinApril2018.

• TheMitchells&ButlersAntibioticsPolicyhasbeenupdatedtoprohibittheprophylacticuseofantibiotics.

• Wearegatheringdatafromalloursupplierswhoprocureeggs,liquideggsoreggderivativesforinclusionwithinourproducts,toascertaintheproductionsysteminplaceforlayinghens.TheinformationgatheredallowsMitchells&Butlerstoassesshowwecanprogresstoa100%cagefreestatusforlayinghens.ThisassistsMitchells&Butlersindeliveringitsobjectiveofextendingtheprocurementofshelloneggsfromcagefreehens,toincludeeggproducts,andtocompletethistransitionby2025,subjecttoproductavailabilityandcommercialnegotiations.

• Mitchells&ButlerscontinuestoengagewithCompassioninWorldFarming(CIWF)andFarmAnimalInvestmentRiskandReturn(FAIRR)onmattersrelatingtowelfareandantibioticusage,aswellasholdingpreliminarymeetingswithTheHumaneSocietyandtheNationalFarmersUniononoursourcingstrategy.

• AfterattendingtheCIWFforumontheBetterChickenCommitment,Mitchells&ButlersisholdingfurthermeetingswithitspoultrysuppliersandCIWF,toassesstheimpactofthisinitiativeoncurrentproductionmodels.

MoredetailsonourfoodSourcingPolicycanbefoundatwww.mbplc.com/responsibility/goodfood

Corporate social responsibility

Brands people trust


SaltOverthreeyearsago,ourbrandsreplacedstandardsaltusedinsaltshakersontables,andtoseasonfoodbackofhouse,withamineralsaltwhichcontains15%lesssodiumthanstandardsaltandwhichishighinmagnesium.ThischangehashelpedusdeliveronourcommitmenttotheGovernmentResponsibilityDealpledgetosupportandenableconsumerstoreducetheirdietarysaltintake.

SugarWecontinuetoengageactivelywithPublicHealthEngland(PHE)andoursupplierstomeetthesugarreductiontargetssetbyPHEin2017.ThisyearwehavereportedourYearOnedataandareworkingtowardsafurthersugarreductioninourtopsellingdessertsfor2019.

ThisyearwehavecommittedtoPublicHealthEngland’sSugarReductionProgrammeforourfamilybrandsHarvester,TobyCarvery,SizzlingPubsandStonehouse.Wearefocusingonreducingsugarinsomeofourhighersugardessertsthroughdishreformulation.Whilstwemakethesechangesweaimtosupportourcustomersinmakinghealthierchoicesbyprovidingachoiceofdishes,includinglowersugarandcalorieoptions,andbyprovidingnutritionalinformationonmanyofourbrandwebsites.

Thisyear,inlinewiththeintroductionoftheGovernmentSoftDrinksSugarLevy,wehaveproactivelyreducedthenumberofsugaryproductsinoursoftdrinksrangesandintroducedadditionalhealthiersoftdrinkchoices.Workingcloselywithoursuppliers,wehavereplacedmanyaddedsugarsoftdrinkswithnewlowandnosugarreformulations.Over90%ofoursoftdrinksareexemptfromthelevy.Wewillcontinuetoofferourguestschoicefromaselectionofsoftdrinks.Whereourproductsincurthelevy,wewillpassitontothecustomer,toencourageconsumerstowardshealthieralternatives.

NutritionWecontinuetolookforthemosteffectivewaytopresentnutritionalinformationtoourguestsacrossourportfolioofbrands.Byusingourguestinsighttounderstandbetterourguests’preferencesandpriorities,wecandevelopournutritionalmessagingtoensureitremainseffective.Webelieveourfocusshouldbeoncommunicatingaboutingredients,healthycookingtechniquesandthefreshnessofourfoodaswellasprovidinghealthieroptionstoenableourgueststomakeinformedchoiceswheneatingwithus.

WepublishthenutritionalinformationforourmenusonourwebsitesforAllBarOne,EmberInns,Harvester,PremiumCountryPubs,TobyCarvery,SuburbanPubsandVintageInns.Forexample,thisyearwelaunchedspecificmenusinAllBarOneforVeganuaryandawellnesscampaign.

WehaveinvestedsignificantlyintechnicalprocessesandsystemstoincorporatetherequirementsofRegulation(EU)No.1169/2011ontheprovisionoffoodinformationtoconsumers.Wefollowbothregulatoryandbestpracticeadvice,toensuretheinformationisasaccurateaspossibleandhelpsourguestsmakethemostinformedchoicetosuittheirdietaryneedsandpreferences.

ItisamandatoryrequirementforallsupplierstoMitchells&Butlerstoprovidenutritionalinformationforeveryfoodproduct,andtofollowCompanypolicyontheprovisionofaccuratenutritiondata.Thisenablesourchefstohavethedetailrequiredtodesignandimprovedishesthatmeetthespecificnutritionalrequirementsofourguests.

AllergensWearecommittedtoensuringthatcustomerswhosufferfromallergiesareprovidedwiththeinformationtheyneedtomakeaninformedchoiceaboutthesuitabilityofthefoodweservefortheirowncircumstances.Weprovideallergeninformationonourbrandwebsitesandincludefilterstohelpcustomersfindthedisheswhichdonotcontainanyfilteredallergens.Wecontinuallyreviewourservicecycleandretailstafftrainingonallergenstoimprovethecustomerexperience.


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Mitchells&ButlersisfullyengagedwiththeFoodStandardsAgencyandsupportstheRegulatingOurFutureinitiative.WecontinuetoremaininvolvedwiththeFoodStandardsAgencyandtheirdevelopmentandshapingofthefutureofregulationandfoodsafetyenforcementinEngland,WalesandNorthernIreland.

TheCompanysupportsthedevelopmentoftheUKHospitalityAssuredCateringSchemeandwishestoseearobust,fairandsustainablyfundedschemethatinformsFoodHygieneRatingsstandards.

Health and safetyThewell-beingofallemployeesandguestsisofparamountconcerntoMitchells&Butlers.ThecontinuouscycleofimprovementshasbeenmaintainedandwecontinuetodeliveranindustryleadingRIDDOR(ReportingofInjuries,DiseasesandDangerousOccurrencesRegulations)positioninrespectofourguestsandouremployees.

Serving alcohol responsiblyTheresponsibleoperationofourpubsandrestaurantsiscentraltothecultureofourbusiness.OurAlcoholandSocialResponsibilityPolicyhasnowbeeninplaceforoveradecade,andlaysdownbestpracticeaboutservingalcoholresponsiblyinEnglandandWales,andScotland,includingteamtraining,responsiblepricingandpromotions.

Mitchells&ButlersoperatestheChallenge21policyinallourbusinessesacrossEnglandandWales(andaChallenge25policyinourScottishbusinesses).Thepolicyrequiresthatanyguestattemptingtobuyalcoholwhoappearsundertheageof21,or25inScotland,mustprovideanacceptableformofproofofageIDtoconfirmthattheyareover18,beforetheycanbeserved.Thispolicyformspartofourregulartrainingforouremployeesontheirresponsibilitiesforservingalcohol.

Westronglysupportlocal‘Pubwatch’schemesandcrimepreventioninitiativesandaimtoparticipatefullyinthedrivetopromoteresponsibledrinking.ItisCompanypolicyforallmanagerstojoinandsupportalocal‘Pubwatch’schemeifoneexists.WealsoactivelysupportourmanagersinparticipatinginlocalBestBarNoneschemesandareanofficialsponsorofBestBarNonenationally.BestBarNoneisanationalawardschemesupportedbytheHomeOfficeaimedatpromotingresponsiblemanagementandoperationofalcohollicensedpremises.

WeareamajorfunderofDrinkawareTrust,theaimofwhichistopromoteresponsibledrinkingbyfindinginnovativewaystochallengethenationaldrinkingculture.Inturn,thishelpsreducealcoholmisuseandminimisealcohol-relatedharm.

Signposting healthier optionsInpartnershipwithCampdenBRI,anindependentfoodanddrinksresearchservice,wedevelopedaguidetohelppositionourbrandsasleadersintheindustryforhealthieroptionsandtoenableguestcommunicationthatisontrend,truthful,substantiatedandlegallycompliant.

Severalofourbrandshaveincreasedtheirrangeofhealthieroptions,andsupportedthesewithnutritionalandhealthinformation,tomakethemeasilyidentifiabletothehealth-consciousguest.ExamplesincludeTobyCarvery’ssignpostingofarangeofmenuoptionswhicharelowinsaturatedfatandcontain500caloriesorfewer,andAllBarOne’srangeofcalorie-controlledoptions,withtheenergycontentpublishedonthemenucopy,whilstdisheshighinprotein,omega-3and‘lighter’optionsarealsosignposted.

Responsibility Deal partnership WearecommittedpartnersoftheGovernment’sResponsibilityDeal,whichisnowundertheremitofPublicHealthEngland,andremainfocusedondeliveringourpledgesrelatingtoartificialtransfatsandsaltreduction.

Children’s menusInresponsetothegrowingconcernoverchildhoodobesity,wedevelopedourownChildren’sFoodStandardsthatwereimplementedacrossallbrandsfromSpring2016.Wecontinuetooptimiseourchildren’sofferandupdatedthestandardswithnewpublichealthguidancefollowingtheGovernment’sChildhoodObesityPlan.

ThestandardsincorporatebestpracticeandrecommendationsfromleadinghealthcharitiessuchasTheSoilAssociationandhavebeendevelopedinconsultationwiththeSchoolFoodStandards,GovernmentBuyingStandardsandestablisheddietaryrecommendationsforchildren.

Food safety

WeplacegreatimportanceontheFoodHygieneRatingsScoresofourpubs,barsandrestaurantsandwehavemadeacommitmenttoincreasethenumberofourbusinessesthatachievea4or5-starFoodHygieneRating,takingazero-toleranceapproachtoanythingbelow.Itispleasingthatattheyearend,98%ofoursiteswereratedeithergoodorverygoodforfoodhygiene,afurtherimprovementonourstrongperformancelastyear.

Corporate social responsibility continued


Mitchells&Butlersisawell-balancedbusinessandoverallthereisabroadlyevensplitbetweenmalesandfemalesacrossouremployeebase.Ourgenderpaygapisprimarilyaresultoftherebeingagreaterproportionofmeninseniormanagementroles,aswellasinrolesthatattracthighersalariesorbonuspayments.

The2018reductioninthemeanpaygapispredominantlyduetoincreasesinbasepayratesforhourlypaidretailteammembers,wherethereisahigherproportionoffemaleemployees.Thepayincreasesapplicabletothisgroupwerehigherinpercentagetermsthanformoreseniorsalariedrolesandaccountedfor0.4%oftheoverallreduction.Theremainingreductioninthepaygapisduetotheimpactofleaversandjoinerswithfemalesjoiningathigherpayratesthanthoseleaving.

Toensurewecontinueourfocusoncreatingadiverseworkforcewehavebeenworkingonseveralinitiatives:

• WehaveestablishedaDiversityandInclusionSteeringGrouptodevelop,promoteandmonitorouroveralldiversityandinclusionagenda;

• Wearereviewingourbusinesspractices,policiesandprocedurestofurtherenhanceflexibilityandinclusivityintheworkplace;

• WehavehostedaCareers&DevelopmentMarketplaceforourRetailSupportCentrecolleaguestoensureweareempoweringouremployeestounderstandandexplorethejobrolesandtrainingopportunitiesavailabletothem;and

• Wehavedevelopedouremployeevalueproposition,knownasourPeoplePromise,tosupportourwiderrecruitmentstrategy.ThePeoplePromiseisanexplanationofwhatisuniqueandspecialaboutMitchells&Butlers’offeringasanemployer,basedonfeedbackandinsightsfromouremployeesaboutwhattheyvaluethemost.

OurfullGenderPayGapreportcanbefoundat:www.mbplc.com/investors/businessconduct/genderpaygapreporting

Diversity Wearecommittedtoprovidingequalopportunitiesforallofouremployees.OuremployeeDiversityPolicyensuresthateveryemployee,withoutexception,istreatedequallyandfairlyandthatallemployeesareawareoftheirresponsibilities.

Thepolicyconfirmsthattherewillbenodirectorindirectdiscriminationinrespectofage,disability,religiousbelief,gender,sexualorientation,race,colour,maritalstatus,politicalbeliefornationality,oranyothercategorydefinedbylawinallaspectsofemploymentincludingrecruitment,promotion,andopportunitiesfortraining,payandbenefits.

ThefollowingtablesetsoutourdiversitybalanceasbetweenmenandwomenattheendofFY2018.

Men Women

Directors 10 1Otherseniormanagers 26 10Allemployees 21,434 23,252

Reward and recognitionWeacknowledgetheimportanceofrewardsandhowimportantthesetoolsareinrecognisingthehardworkanddedicationofourpeople.Pickaperk,ourbenefitsplatform,continuestobepopularwithouremployees,withaspendondiscountedgoodsof£1.92minFY2018,anincreaseof£310kfromthepreviousyear.

Manyofouremployeescontinuetoratethe‘DinewithUs’programmeastheirfavouritebenefit,wheretheycanaccesstheiremployeediscountdigitallywhentheyeatinoneofourbusinesses.Thisremainsat33%fortheemployeeanduptofiveoftheirguests.

People•NamedBestPlacetoWorkatHRDistinctionAwards.

• WesawanalltimehighinMitchells&Butlers’YourSayemployeeengagementsurveywithengagementscoresimprovingorbeingsustainedacrossallsurveygroups.

• AtMitchells&ButlersGrouplevel,ouroverallmedianGenderPayGaphasreducedto4.7%,fromthe5.2%levelwereportedlastyear.

• WinnerofBestYouthEngagementandEmploymentcategoryatHRExcellenceAwards.

• Wecelebratedour1,000thapprenticecompletingtheprogramme.

Asoneofthelargestmanagedpubs,barsandrestaurantcompaniesintheUK,wehaveahugerangeofcareeropportunitiesonoffer.Throughourpeoplestrategywestrivetoattract,developandretainthebesttalent.Everythingwedoasabusinessisbuiltontheenthusiasmandprofessionalismofourpeople.

Listening to our people Ourannualemployeeengagementsurvey‘YourSay’isanintegralpartofourcalendar.Itenablesouremployeestosharetheirviewsanddemonstrateshowmuchwevaluetheirfeedback.

Thisyearwesawanall-timehighinourresults,withengagementscoresimprovingorbeingsustainedacrossallsurveygroups.WecontinuetoseeahugestepforwardinhowmuchouremployeesseeourPRIDE(Passion,Respect,Innovation,DriveandEngagement)valuesarelivingacrossMitchells&Butlers.Ourcolleaguesalsotoldusthattheyvalueflexibility,worklifebalance,beingavaluedmemberoftheirrespectiveteams,andworkinginafunandfriendlyenvironmentasimportantfactorsindrivingengagement.Followingthesurvey,employeesineachbusinessordepartmentcreateanactionplanspecifictotheirteamresults.

Gender pay gap AtMitchells&Butlersweworkhardtoensurethateveryoneacrosstheorganisationistreatedequally.Weremaincommittedtoattractingandretainingtheverybesttalentandbelieveincreatingjobopportunitiesforeveryoneregardlessofgender.Asaresult,wecontinuetobuildaculturethatvaluesourdifferencesandembracesthemasstrengths,todriveourbusinessforwardandnurtureaworkplacewhereourpeoplecanloveeverymoment.

AtMitchells&ButlersGrouplevel,ouroverallmedianGenderPayGaphasreducedto4.7%,fromthe5.2%levelwereportedlastyear.Wehaveameanpaygapof7.4%versuslastyear’sgapof8.1%,bothofthesefigurescomparingfavourablywiththenationalaveragemedianpaygapwhichstandsat18.4%andthenationalaveragemeanpaygapof17.4%.


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Over14,000employeeshavereceivedanawardrecognisingtheirservicetothebusiness.Awardsaremadetoemployeesforachievingservicemilestonesbetweenoneyearand45years.Aroundafurther1,700havebeenrecognisedacrosstheyearwithspecific,adhocacknowledgementsfortheircontributionforajobwelldone.

Duringtheyear,ourRewardteamhasbeenfocusingondevelopingandbroadeningourWellbeingprogramme.SeveralmembersoftheRewardteamcompletedtheMentalHealthatWorkFirstAidcourseandworkisongoingtodevelopthisinitiativethroughoutthewiderbusiness.Additionally,wearedevelopingaWellbeingHubatourRetailSupportCentreasaspaceforemployeestouseforavarietyofactivitiessuchasabookswap,peacefulspaceandmindfulness.OurHealthAgeprogrammewillberolledoutfurthertohelpsupportouremployeesunderstandtheirown‘healthage’andprovideproactiveinformationfortheemployeestomakechangestotheirdietandlifestyleiftheywish.Finally,wehavelaunchedabenefitwithNeyber,whoprovidefinancialwellbeingsupporttoouremployees.

Nurturing and developing young talentWehavecontinuedtoexpandoursuccessfulapprenticeprogrammesoverthelastyear.Inadditiontoofferingapprenticeshipsnationwideinthemajorityofourmanagedpubs,barsandrestaurants,wehaveextendedourprogrammestoincludeintermediateandhigher-levelapprenticeshipsinourRetailSupportCentreforourcorporateemployees.Wehavedevelopedaseriesoflearningpathways,whichmeanourapprenticescangainanationallyrecognisedqualification,transferablecareerskillsalongsideonandoffthejobtraining.Hospitalityisoneofthefewindustrieswhereyoucanveryquicklyprogressfromanapprenticeshipintoamanagementrole,therebyhelpingusdevelopatalentpipelineandapprenticeshipschemetosupportourbusinesstodayandforfutureyears.

Inrecognitionofourapprenticeactivityanditsimpact,theCompanywasrecognisedbywinningaBritishInstituteofInnkeepingNationalInnovationandTrainingAwardandtheBestYouthEngagementandEmploymentcategoryattheHRExcellenceandHRDistinctionAwards.

OurChefs’Academyisourprimaryapprenticeshipprogrammetodevelopculinaryskillsanditcontinuestogrowinbothreachandreputation.Intotal,222chefshavecommencedtheirlearninginFY2018makingChefs’AcademyoneofthelargestworkshopsupportedcommischefapprenticeshipschemesintheUK.Nowinitssecondyearofdelivery,thebusinessisfeelingthebenefitsoftheprogramme,withmanygraduatesalreadybeingpromotedintoKitchenManagerorHeadChefrolesandwithanumberbeingawardeddivisionalaccoladessuchasHeadChefoftheYear.ThebusinesshasalsonowlaunchedanAdvancedChefs’Academyprogrammewhichaimstofurtherdevelopculinaryskillsandalsofocusesonthemanagerialandleadershipcapabilitiesneededtorunahighlyprofessionalandsuccessfulkitchen.Ofthetotalnumberoflearnerstartersthisyear,39havecommencedthisadvancedprogramme.

Inaddition,afurther800youngpeoplehavejoinedourbusinessonhospitalityapprenticeshipsthisyearandover1,200ofourcurrentemployeeshaveenrolledontooneoftheapprenticeshipopportunitiesopentothem.Wearealsodelightedtoseeover625employeessuccessfullycompletetheirfirstapprenticeshipin2018andwecelebratedour1,000thapprenticecompletingtheprogramme.Mitchells&Butlersnowhasc.1,800activeapprenticeswithintheorganisationandweareaspiringtoaddafurther3,000apprenticeshipstartersin2019.

Mitchells&ButlersnowoffersapprenticeshipopportunitiesfromLevel2throughtoLevel7,whichallowsa16-year-oldschoolleavertojoinusonanintermediateapprenticeshipandprogressthrougharangeofqualificationsculminatinginaBA(Hons)degree.

Weunderstandthatthereisnotonelearningpathwaywhichfitsalland,therefore,weareconfidentthatweofferatruealternativetoatraditionalacademicroute;andthatwehavethebuildingblocksinplacetohelpproduceourleadersofthefuture.

Communities•Overathreeyearpartnershipwehaveraisedover£34,000

forBirminghamChildren’sHospital.

• OnArmedForcesDayTobyCarverydonatedover6,270mealstomilitarypersonnel.

•AllBarOnedonatedover£49,000tohomelesscharity,Shelter.

Wearecommittedtobeingagoodneighbourandaresponsiblecontributortosociety,locallyandnationally,bysupportingourcommunities.Wesupportouremployeesandbusinessesacrossaspectrumofcharitableactivitiesandfundraising,enablingustobuildstrongrelationshipswithourguests,ourcolleaguesandourneighbourswhilegivingbacktothecommunitiesinwhichwetrade.

Employee donations programmeTheemployeedonationsprogrammehelpsindividualMitchells&Butlers’employees(andretiredemployees)supportapersonalcharityeventorchallengeoftheirchoice.Thisyearwehavedonatedaround£14,000throughthisinitiative,toalargenumberoflocalandnationalcausesincludingAidan’sElephants,MIND,BritishHeartFoundation,MacmillanCancer,Shelter,MSUK,Alzheimer’sSocietyandmanymore.

Payroll Giving Wehavere-launchedourPayrollGivingprogrammewithanewprovider,whichenablesemployeestodonatetotheirchosencharitydirectfromtheirpay.TheCompanyhascommittedtopayingtheadministrationfeetoprocesseachemployee’sdonation,soeachcharitygetsthebenefitofthefulldonationamount.Employeesreceivetaxreliefonthedonation.

Big hearted brands, proud to serve those who serveInJune,TobyCarveryshoweditssupportforthearmedforcesbyofferingallmilitarypersonnelafreecarverymealonArmedForcesDay.Theofferwasopentoallmilitarypersonnel,fromservingtroopsandreservestoveteransandcadetsandover6,270mealsweredonatedbyTobyCarveryteamsacrossthecountry.

AgaintheRNLIandNicholson’spubsjoinedforcestopromotethecharity’sRespecttheWatercampaign.Nicholson’shelpedtospreadthesafetymessagesaswellasdonating50pfromeveryOceanFish&Chipsdishsold,totheRNLItogenerateover£35,000offundraisingforthecharity.

Corporate social responsibility continued


Withmillionsofpeopleeveryyearstrugglingwithbadhousingorhomelessness,AllBarOnehasbeenworkingwithSheltersince2016tohelpsupportthecharity’sworkofferingadvice,supportandlegalservices.AllBarOnesupportedShelterbydonating50pfromeveryspecialShelterdishsoldonitsChristmasandBreakfastmenus.Thishasresultedinover£49,000beingraisedforSheltersofar.

Onceagain,wesupportedtheRoyalBritishLegionPoppyAppealsellingpoppiestoraisefundsforthousandsofservingandex-Servicepeople.TobyCarveryhasalsomadetheRoyalBritishLegionitsofficialcharitypartnerandhaveraisedover£38,000viadonating25pfromeveryJamandCoconutSpongepuddingsold.

Support for Birmingham Children’s HospitalOverthepastthreeyearstheRetailSupportCentreSocialCommitteehasorganisedaseriesoffundraisingeventsforBirminghamChildren’sHospital.Moneyhasbeenraisedthroughaskydive,amudrun,abseils,legwaxing,andcakesales.OverthecourseofourthreeyearpartnershipMitchells&Butlershasraisedover£34,000.

Licensed Trade CharityMitchells&ButlersisasupporteroftheLicensedTradeCharity–anorganisationthatsupportshundredsofpub,barandbrewerypeoplefacingcrisiswithpractical,emotionalandfinancialsupport.TheCompanysupportsanumberofthecharity’sinitiativesincludingemployeestakingontelephonebefriendingroles,aservicesetuptoeasetheisolationfeltbysomeformerhospitalityindustrystaff.ThisyearwehavealsostartedworkingwiththecharityasourproviderofourEmployeeAssistanceProgrammecalled‘TimeToOpenUp’whichisaconfidential24/7helplineandprovidessupportwitharangeofpracticaladviceandservices.

Our environment

Wesuccessfullymanageourenergy,wasteandwaterinawaywhichiscosteffectivetothebusinessandreducesourimpactontheenvironment.

Waste managementWecontinuetodrivesuccessfullyourwastedisposalstrategy,focusedonreducing,re-usingandeffectivelyrecyclingthewastegeneratedbyourrestaurantsandpubs.Thiscapturesrecyclingcardboard,glass,foodandcookingoil.

Plastic strawsWehaveremovedplasticstrawsfromserviceinourrestaurantsandpubsandonlyprovideastrawifaguestrequestsone.Asadirectresultwehaveseenourstrawusagedropbyapproximately50%duringFY2018.Wehavealsosourcedanon-plasticstrawmadefrompaperandbamboopulpthatisbeingphasedinacrosstheestateandwilleventuallyreplaceallplasticstraws.

Energy efficiency Ourwholeestateisfittedwithenergyefficientlighting.Thishashelpedustomakeconsiderablesavingsonenergyconsumptionaswellasimprovinglightinglevelsforourguests.

Smartmetersareinstalledinalmostallourbusinesses,alongwithheatrecoveryunitswhichhavebeenfittedinanumberofourcellars.Thishasnotonlyallowedtherecoveryofheat,butalsoreducedmaintenancecostsbyallowingotherequipmentinthecellarstooperateincoolerconditions.Wealsousefreecellaraircoolingsystems,whichdrawincoolairfromoutsidewhentemperaturesdropbelow8˚Candturnoffthetraditionalcellarcoolingprocess,savingahugeamountofenergyeveryday.

Thisyearwehavefocusedonenhancingthereportingofourconsumptionofgasandelectricityallowingustobettermonitorandreduceenergyconsumption.Eachsitereceivesaweeklyreportoutlininghalfhourlyenergyconsumptionfromthepreviousweek,enablingourmanagerstomakeinformeddecisionsonhowtobestmanagetheirenergyusage.

Inaddition,wearecurrentlyrollingoutnewgasandelectricitymetersacrosstheestatetoensurethatwehaveaccurateconsumptiondata,againtohelpinformourdecisionsonreducingourenergyconsumption.

Manyofourkitchensusetechnologytocontrolourextractionandairsupplyfanstoensurethattheyalwaysrunatthelowestspeedtominimiseenergyusage.Wehaveaddedsmartheatingcontrolstocompatiblesitesthatallowforbettertimeandtemperaturecontrolofourbusinesses,demonstratinghowthereductionofourconsumptionofenergyisnowafundamentalpartofoureverydaybusiness.

Energy consumptionAprogrammeofworkhascommencedtodriveagreaterfocusonreducingtheconsumptionofelectricityandgasacrosstheestate.Reportingofconsumptionatoutletlevelhasbeenenhancedandtimeslotanalysisisdrivingafocuson‘outoftradinghours’wastage.

Alongsidethis,aspecialistthird-partyexperthasbeenengagedtoscopeoutaco-ordinatedprogrammeofactivitylookingacrossthekeyinfluencersofenergyconsumption,i.e.thepub(fabricandplant);controlsandmaintenance;sitepersonnelandpractices,andmanagementandincentiveschemes.Itisanticipatedthisprogrammewillcoverathreetofiveyearperiod.

Tax strategyTheaimoftheCompanytaxstrategyistomanagethetaxaffairsoftheGroupasefficientlyaspossibletosupportthecommercialobjectivesoftheGroup.Wemanageourtaxaffairsinaccordancewiththeletterandspiritofthelaw,whilstseekingtominimisethetaxpaidbytheGroup.Weseektomaintainstrongcompliancecontrolsandoperateapolicyofopenandtransparentdialoguewiththerelevanttaxauthorities.Thefullstrategycanbefoundatwww.mbplc.com/investors/businessconduct/taxstrategy

Modern slavery Mitchells&Butlershasazero-toleranceapproachtoanyformofmistreatmentofpeopleandiscommittedtooperatingandconductingitsbusinessinsuchawaythathumanrightsarerespectedandprotected.Thefullstatementcanbefoundatwww.mbplc.com/investors/businessconduct/modernslaverystatement


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Risks and uncertainties

ThissectionhighlightsthetoptenprincipalrisksanduncertaintiesthataffecttheCompany,togetherwiththekeymitigatingactivitiesinplacetomanagethoserisks.

ThisdoesnotrepresentacomprehensivelistofalloftherisksthattheCompanyfaces,butfocusesonthosethatarecurrentlyconsideredtobemostrelevant.

Keeping risk under control


Overview

Riskmanagementiscriticaltotheproperdischargeofourcorporateresponsibilitiesandtothedeliveryofshareholdervalue.Riskisattheheartofeverythingwedoasanorganisation.Therefore,theprocessforidentifyingandassessingrisksandopportunitiesforimprovementsisanintegralandinseparablepartofthemanagementskillsandprocesseswhichareatthecoreofourbusiness.

ThereisaformallyestablishedRiskCommitteeinplacewhichcontinuestomeetonaquarterlybasistoreviewthekeyrisksfacingthebusiness.KeyrisksidentifiedarereviewedandassessedbytheRiskCommitteeintermsoftheirlikelihoodandimpactandrecordedontheGroup’s‘KeyRiskHeatMap’,inconjunctionwithassociatedagreedriskmitigationplans.TheprocessesthatareusedtoidentifyandmanagerisksaredescribedintheInternalControlandRiskManagementstatementonpages62and63.

Managementsupport,involvementandenforcementisfundamentaltothesuccessofourriskmanagementframeworkandeachmemberoftheExecutiveCommitteetakesresponsibilityforthemanagementofthespecificrisksassociatedwiththeirfunction.OurGroupriskregisterclearlyoutlinesthealignmentofeachkeyrisktoanExecutiveCommitteememberandidentifiesan‘actionowner’,toensureresponsibilitiesareformallyaligned.

Therefore,thereisarobustandtransparentprocessinplacetoprovideanappropriatelevelofdirectionandsupportintheidentification,assessmentandmanagementofthoseaspectsofthebusinesswhichhavethepotentialtodamageseriouslyourfinancialposition,ourshareholdervalue,ourresponsibilitiestoourstaffandguests,ourreputationandourrelationshipswithkeystakeholders.

.

1. Market risksRisk category and description Controls/mitigating activities MovementA. Declining sales performance

This risk falls into three main categories:

Sales:Thereisariskthatdecliningsales,concernsaroundconsumerconfidence,increasedpersonaldebtlevels,squeezesondisposableincomeandrisinginflationindividually,togetherorincombinations,mayadverselyaffectourmarketshareandprofitability,reducingheadroomagainstsecuritisationtests.

Consumer and market insight:IfMitchells&Butlersfailstomanageanddevelopitsexisting(andnew)brandsinlinewithconsumerneedsandmarkettrendsduetofailuretoobtainorusesufficientinsightinatimelymanner,thismayleadtoadeclineinrevenuesandprofits.

Pricing and market changes:Ifpricechangesarenotintelligentlyappliedduetoalackofappreciationofmarketsensitivitiesandelasticities,thismayresultindecreasedrevenueandprofitparticularlyinrelationtoexceptionaldry/hotsummerweatherandextremecold/snowconditions.

• Rightteamandstructureinplace.Brandalignmentensurestherightresearchgetsdoneandisactedon.

• Daily,weeklyandperiodicsalesreporting,monitoringandscrutinyactivityisinplace.

• OurEatDrinkSharepanelprovidesrobust,quickandcost-effectiveresearch.Thisisourownpanelof27,000Mitchells&Butlersguestswhomwecanuseforresearchpurposesforquickandcost-effectiveinsights.

• Primaryresearchinpartnershipwithbrand/categoryteams.• Workingwithsupplierstotapintotheirresearch.• Eachbrandhasitsownpricingstrategy.• Pricepromotionsareinlinewiththeagreedstrategy.• SalestrainingforManagement.• Consumer/insight-ledinnovationprocessanddevelopment

fornewbrands.• Reduceguestcomplaintsbyimprovingthelocalmanagement

ofsocialmediaresponses(e.g.TripAdvisorresponses).• Increaseddigitalmarketingactivityincludingnewloyaltyapps.• Increasedactivityfromtakeawayanddeliveryofferings.• Onlineguestsatisfactionsurveytocollectguestfeedback.Thisfeedback,

togetherwiththeresultsofresearchstudies,ismonitoredandevaluatedbyadedicatedguestinsightteamtoensurethattherelevancetoguestsoftheCompany’sbrandsismaintained.

Risk decreasing

Our three lines of defence1st• ExecutiveCommittee• Leadershipgroup/management• Internalcontrolsandprocesses• Internalpoliciesandprocedures• Training

2nd• Financialauthoritylimits• RiskManagementprocesses• AuditCommittee• RiskCommittee• HealthandSafetyTeam• Technologyspecialists• Legalsupport

3rd• GroupAssurance• OperationalPracticesTeam


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1. Market risks continued

Risk category and description Controls/mitigating activities MovementB. Cost of goods – price increases

Food:Thepriceofgoodsincreasesduetochangesindemand,legislation,exchangeratesand/orproductioncostsanduncertaintyofsupply,leadingtodecreasedprofits.

Drinks:Thepriceofdrinksgoodsincreasesduetochangesindemand,legislation,exchangeratesandproductioncosts,leadingtodecreasedprofits.

Goodsnotforresale:Increasesinthepriceofgoodsnotforresaleandutilitiescostsasaresultofincreasesinglobaldemandanduncertaintyofsupplyinproducingnationscanhaveasignificantimpactonthecostbase,consequentlyimpactingmargins.

Brexit: GiventhatinFY2019,thetransitionperiodfortheUKtoexitfromtheEUwillcommence(notingthatc.30%offoodspendissourcedfromEUcountries),theoverallriskandimpactofadditionalcostsishigher.Inaddition,thereisanincreasingriskofsourcingcertainproductsgiventheexpecteddelaysatportsfollowingexitfromtheEU.OnexitoftheEU,costofgoodswouldbeimpactedbychangesintermsoftradeandthereforetariffs,additionalbordercontrolsandfluctuationsinthevalueofsterling.

Overall,priceincreasesaremitigatedasMitchells&Butlersleveragesitsscaletodrivecompetitivecostadvantageandcollaborateswithsupplierstoincreaseefficienciesinthesupplychain.ThefragmentednatureofthefoodsupplyindustryintheworldcommoditymarketsgivestheCompanytheopportunitytosourceproductsfromanumberofalternativesuppliersinordertodrivedowncost.Considerationhasbeengiventopotentialareassuchassupplychainrisk(e.g.customscontrolsonimports),labourriskandeconomicdisruption.Keymitigatingactivitiesforfoodanddrinkaredetailedbelow:

Food: • AFoodProcurementStrategyisinplace.• Fullreviewshavebeencarriedoutonkeycategoriestoensureoptimum

valueisachievedineachcategory.• Afullrangereviewwascompletedin2017ensuringthecorrectnumber

ofproducts/suppliers.Thisisregularlyreviewed.• Regularreportingofcurrentandprojectedinflation.• Goodrelationshipswithkeysuppliers.

Drinks:• Eachdrinkscategoryhasaclearlydefinedstrategicsourcingplan

toensureCompanyscaleisleveraged,supplybaseisrationalisedandconsumerneedsaremet.

• Goodrelationshipswithkeysuppliers.• Suppliercollaborationprogrammesareinplace.• PlansinplacetomitigateSugarTax.

RiskisincreasingmainlyduetothedevaluationofthepoundfollowingtheEUreferendum,changesinGovernmentpolicy(raisingtheriskofpunitivedutychanges)andtheintroductionoftheSugarTaxin2018.BrexitriskshavebeenconsideredindetailduringFY2018andmitigatingplanscontinuetobedeveloped.

BuyingaheadtomitigatetheincreasingriskofalackofavailabilityofproductsuponexitfromtheEU.

Risk increasing

2. Operational risksRisk category and description Controls/mitigating activities MovementA. People planning and development

Mitchells&Butlershasastrongguestfocusandsoitisimportantthatitisabletoattract,retain,developandmotivatethebestpeoplewiththerightcapabilitiesthroughouttheorganisation.Thereisariskthat,withouttherightpeople,ourcustomerservicelevelswouldbeaffected.

TherearealargenumberofEUworkerswithintheGroup,particularlyinLondonandtheSouthEast.Therefore,theoverallriskisincreasingastheUKapproachesitsexitfromtheEU.Anyrestrictiononthefreemovementoflabourwouldhaveamaterialimpactonboththecostoflabourandaccesstotalent.

• TheCompanymakessignificantinvestmentintrainingtoensurethatitspeoplehavetherightskillstoperformtheirjobssuccessfully.

• Furthermore,anemployeesurveyisconductedannuallytoestablishemployeesatisfactionandengagementandthisiscomparedwithothercompanies,aswellasprevioussurveys.Whereappropriate,changesinworkingpracticesaremadeinresponsetothefindingsofthesesurveys.

• Remunerationpackagesarebenchmarkedtoensurethattheyremaincompetitiveandatalentreviewprocessisusedtoprovidestructuredsuccessionplanning.

• TheapprenticeshipprogrammewillalsoassistinmitigatingagainsttheincreasingriskinrelationtoEUworkers.

Risk increasing

(specificallyinLondon/SouthEast)

Risks and uncertainties continued


2. Operational risks continued

Risk category and description Controls/mitigating activities MovementB. Business continuity and crisis management

Mitchells&ButlersreliesonitsfoodanddrinksupplychainandthekeyITsystemsunderlyingthebusinesstoserveitsguestsefficientlyandeffectively.Supplychaininterruption,ITsystemfailureorcrisessuchasterroristactivityorthethreatofdiseasepandemicmightrestrictsalesorreduceoperationaleffectiveness.

• TheCompanyhasinplacecrisisandcontinuityplansthataretestedandrefreshedregularly.TheCompany’sthird-partyback-upfacility,forRetailSupportCentreemployees,hasbeensuccessfullytestedtoensurecriticalbusinesssystemsareabletofunctionintheeventofadisaster.

• Inaddition,duringFY2018,departmentalBusinessContinuityPlanshavebeenrevised,updatedandreviewedbytheRiskCommittee.

• DuringFY2018,twokeydepartmentstookpartinatestofourthird-partyoff-siteback-upfacility.Thistestwasasuccessandidentifiedsomekeylearningstoimprovetheoverallservice,allofwhichwereimplemented.

No movement

C. Information security and disaster recovery

Thereisariskthatinadequatedisasterrecoveryplansandinformationsecurityprocessesareinplacetomitigateagainstasystemoutage,orfailuretoensureappropriateback-upfacilities(coveringkeybusinesssystemsandtherecoveryofcriticaldata)andlossofsensitivedata.

Increasingriskofcyber-attacks.

Riskofnon-compliancewithGDPR.

• InFY2018afurtherreviewofcybersecuritywasperformedinordertohighlightanygapsandaddressanychallenges.Asaresult,anumberoffurtherimprovementshavebeenmadetoaddressauditactions.

• Inaddition,controlsinclude:− TheworkcarriedoutbytheGroup’scross-functionalInformation

SecuritySteeringGroup.− GroupAssuranceITcontrolsreviews.− Implementationandrevisionofappropriatecybersecuritygovernance

policiesandprocedures.− Ongoingsecurityawarenessinitiativescontinuetobeundertaken.− Aregularcycleofpenetrationtesting.− AneffectiveimplementationofabusinesswideGlobalDataProtection

Regulationcomplianceprogramme,includingtrainingofallrelevantemployeesandcontractors.

− Increasedfocusonprotectingthebusinessagainstpotentialcyber-attackshasresultedintheimplementationofadditionalcontrolstomitigateagainstsuchrisks.

− Systems,processesandcontrolshavebeenreviewedandupdatedtoensureGDPRcompliance.

Risk increasing

D. Wage cost inflation

ThereisariskthatincreasedcostsassociatedwithfurtherincreasestotheNationalLivingWagemayadverselyimpactuponoveralloperationalcosts.

• AdetailedreviewoftherisksassociatedwiththeNationalLivingWagehasbeencompleted.Thisreviewhasbeenundertakenatastrategiclevelandseekstoensurethatappropriatemitigatingactionsareinplace,someofwhichareinrelationtohowtheGroupcarefullymanagesproductivityandefficiencyacrosstheestate.

• WehavesuccessfullyimplementedanewTimeandAttendancesystemtoimprovethemanagementcontrolsandreportingofstaffhours.

Risk increasing

E. Borrowing covenants

Therearerisksthatborrowingcovenantsarebreachedbecauseofcircumstancessuchas:

i. Achangeintheeconomicclimateleadingtoreducedcashinflows;or

ii. Amaterialchangeinthevaluationofthepropertyportfolio.

Theoverallriskhasincreasedintheyearduetoincreasedtradingandcostpressureswhichcouldessentiallydrivereducedheadroom.

• TheCompanymaintainsheadroomagainsttheserisks.ThefinanceteamconductsdailycashforecastingwithperiodicreviewsattheTreasuryCommittee,theroleofwhichincludeensuringthattheBoardTreasuryPolicyisadheredto,monitoringitsoperationandagreeingappropriatestrategiesforrecommendationtotheBoard.

• Inaddition,regularforecastingandtestingofcovenantcomplianceisperformedandfrequentcommunicationismaintainedwiththeSecuritisationTrustee.

• Annualpropertyvaluation.• Detailedassessmentwithinthelong-termviabilitystatement.

Risk increasing

F. Pension fund deficit

Thematerialvalueofthepensionfunddeficitremainsarisk.

• TheCompanyhasmadesignificantadditionalcontributionstoreducethefundingdeficit.InJuly2017,theCompanyreachedagreementonthetriennialvaluationoftheGrouppensionschemesasat31March2016,withafundingshortfallof£451m(March2013valuation£572mshortfall).

• TheCompanywillcontinuetopaycashcontributions(of£48mp.a.indexed)to2023,withanadditionalpaymentof£13mintoescrowin2024shouldsuchfurtherfundingberequiredatthattime.

No movement


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2. Operational risks continued

Risk category and description Controls/mitigating activities MovementG. Failure to operate safely and legally

Amajorhealthandsafetyfailurecouldleadtoillness,injuryorlossoflifeorsignificantdamagetotheCompany’sorabrand’sreputation.

• Mitchells&Butlersmaintainsarobustprogrammeofhealthandsafetychecksbothwithinitsrestaurants,pubsandbarsandthroughoutthesupplychain.

• ThededicatedSafetyAssuranceteamusesanumberoftechnicalpartnersincludingfoodtechnologists,microbiologistsandallergenspecialiststoensurethatourfoodproceduresaresafe.

• Regularindependentauditsoftradingsitesareperformedtoensurethatproceduresarefollowedandthatappropriatestandardsaremaintained.

• Ifabusinessisidentifiedasunderperformingintermsofhealthandsafetystandards,itwouldbeimmediatelytargetedforimprovement.

• TheCompanyhasPrimaryAuthorityPartnershipswithWestminsterCityCouncilfortheprovisionofassuredadviceon,amongstotherthings,safetyissuesandwithHampshireFireServicefortheprovisionofsupportandguidanceonfiresafetyrisks.

• FoodsuppliersarerequiredtomeettheBritishRetailConsortiumGlobalStandardforFoodSafetyandaresubjecttoregularsafetyandqualityaudits.

• Comprehensivehealthandsafetytrainingprogrammesareinplace.

No movement

H. Food supply chain safety

Maliciousoraccidentalcontaminationinthesupplychaincouldleadtofoodgoodsforresalebeingunfitforhumanconsumptionorbeingdangeroustoconsume.Thiscouldleadtorestrictionsinsupplywhichinturncausesanincreaseincostofgoodsandreducedsalesduetoconsumerfearsandphysicalharmtocustomers/employees.

Allergensarebecominganincreasedriskwithintheindustry.

• Mitchells&ButlershasaSafetyAssuranceteamandusesanumberoftechnicalpartnersincludingfoodtechnologists,foodsafetyexperts,microbiologists,allergyconsultants,tradingstandardsspecialistsandnutritionists.

• Mitchells&Butlersusesarobustsystemofdetailedproductspecifications.• Allfoodproductsareriskratedusingstandardindustrydefinitions

andassessmentofthewaytheproductsareusedinMitchells&Butlers’kitchens.Suppliersarethenriskratedaccordingtotheirproducts.

• Eachfoodsupplierisauditedatleastonceperannuminrespectofsafetyandadditionallyinresponsetoanyseriousfoodsafetycomplaintorincident.

• Arobustresponsehasbeentakentomanageallergensandtheassociateddatawithinthemenucyclecoupledwithacontinuousreviewinplacetoensurecontrolsremainappropriate.

Risk increasing

Long-term viability statement

Assessment of prospectsTheGroup’sstrategyprovideslong-termdirectionandconsiderstheviabilityofthebusinessmodelgivenprevailingmarketandeconomicconditions.TheDirectors’subsequentassessmentoflonger-termprospectshasbeenmadetakingaccountofthecurrentfinancialposition,compliancewithcovenants,strategy,thebudgetplanningprocessandthekeyrisksanduncertainties,asdetailedwithintheAnnualReport.

Assessment periodThreeyearsisdeemedanappropriateperiodofassessmentasitalignswiththeGroup’splanninghorizoninafast-movingmarketsubjecttoeconomicandpoliticaluncertaintiesandissupportedbythreeyearforecastsasapprovedbytheBoardinSeptember2018.Thisperiodalsoalignswiththetriennialprocessofpensionsvaluations,akeyconsiderationinrespectoffuturecashflows.

Assessment of viabilityInaccordancewithProvisionC2.2ofthe2016UKCorporateGovernanceCode,theDirectorshaveundertakenanassessment,includingsensitivityanalyses,oftheprospectsoftheGroupforaperiodofthreeyearstoSeptember2021.

ThecurrentfundingarrangementsoftheGroupconsistof£1.8bnoflong-termsecuritiseddebtand£150mofunsecuredcommittedbankfacilities.Thesecuritiseddebtamortisesonascheduledprofileoverthenext18yearsand,whilsttheunsecuredfacilitiesexpireinDecember2020,refinancingisbelievedtoremainwithinthedebtcapacityofthebusiness.Secureddebtcovenantsaretestedquarterlybothonanannualandahalfyearbasis.Unsecuredfacilitycovenantsaretestedtwiceyearlyonanannualbasis.Nosignificantchangestothecapitalstructureareassumed.

Thethreeyearplantakesaccountoftheprevailingeconomicoutlook,capitalallocationdecisionsandofsignificantcostheadwindsthatareexpectedtorecureachyearalongsideplannedmitigatingactivitytomanagesuchcosts,principallydriventhroughtheIgniteprogrammeofinitiatives.TheresilienceofthisplanisassessedthroughapplicationofasignificantbutplausibledownsidesensitivityanalysisfocusedinparticularontheimpactofthefollowingPrincipalRisksdescribedintheAnnualReport:DecliningSalesPerformance,CostofGoodsPriceIncreasesandWageCostInflation(includingcombinationsofthesefactors).CompliancewithfinancialcovenantsonbothsecureddebtandunsecuredfacilitiesisassessedforboththePlananddownsidesensitivities.

Viability statementTheDirectorshavethereforeconcluded,basedupontheextentofthefinancialplanningassessment,sensitivityanalysis,potentialmitigatingactionsandcurrentfinancialpositionthatthereisareasonableexpectationthattheGrouphasadequateresourcesandwillbeabletocontinueinoperationandmeetallitsliabilitiesastheyfalldueoverthethreeyearperiodofassessment.

Risks and uncertainties continued


Financial review

Onastatutorybasis,profitbeforetaxfortheyearwas£130m(FY2017£77m),onsalesof£2,152m(FY2017£2,180m).Tim Jones Finance Director

Our financial and operating performance

TheGroupIncomeStatementdisclosesadjustedprofitandearningspershareinformationthatexcludeseparatelydiscloseditemstoallowabetterunderstandingofthetradingoftheGroup.Separatelydiscloseditemsarethosewhichareseparatelyidentifiedbyvirtueoftheirsizeorincidence.

FY2017wasa53weekperiod.Inordertofacilitatecomparisonoftradingperformancearestated52weeksummaryofadjustedperformanceisdetailedbelow.Allyear-on-yeargrowthratesinthefinancialreviewareprovidedonaconsistent52weekbasis.

Statutory Adjusteda

FY 2018 £m

FY 2017 53 weeks

£mFY 2018

£m

FY 2017 52 weeks

£ma

Revenue 2,152 2,180 2,152 2,141Operatingprofit 255 208 303 308Profitbeforetax 130 77 178 180Earningspershare 24.5p 15.1p 34.1p 34.4pOperatingprofitmargin 11.8% 9.5% 14.1% 14.4%

Attheendoftheperiod,thetotalestatecomprised1,750sitesintheUKandGermanyofwhich1,687aredirectlymanaged.


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Earnings per share

Basicearningspershare,aftertheseparatelydiscloseditemsdescribedabove,were24.5p(FY201715.1p).Theincreaseoverlastyearreflectsareductionintheaggregatechargerelatingtoseparatelydiscloseditems.Adjustedearningspershareawere34.1p,0.9%lowerthanlastyear.Theweightedaveragenumberofsharesintheperiodof425mhasincreasedduetotheissueofsharesasscripdividends.Thetotalnumberofsharesissuedatthebalancesheetdateis428m.

Cash flow and net debt

Thecashflowstatementbelowexcludesthenetmovementonunsecuredrevolvingfacilitiesof£(6)m(FY2017£(25)m).

FY 2018 £m

FY 2017 £m

Operatingcashflowbeforeadjusteditems,movementsinworkingcapitalandadditionalpensioncontributions 427 433Costchargedinrespectofshare-basedpayments (3) (2)Administrativepensioncosts (2) (2)EBITDAbeforeseparatelydiscloseditemsa 422 429Workingcapitalmovement 7 (10)Pensiondeficitcontributions (48) (46)Cash flow from operations before adjusted items 381 373Cashflowfromadjusteditems (2) –Capitalexpenditure (171) (169)Interest (119) (121)Tax (20) (26)Disposalsandother 6 46Investmentinassociates (5) –Cash flow before adjusted items 70 103Mandatorybondamortisation (82) (77)Net cash flow before dividends (12) 26Dividend (7) (12)Net free cash flowa (19) 14

Thebusinessgenerated£422mofEBITDAbeforeseparatelydiscloseditems.Capitalexpenditureof£171mwasmarginallyhigherthantheprioryearduetoincreasedtechnologyspendof£10mpartiallyoffsetbyalowercapitalcostperprojectdrivenbyadecreasedproportionofconversionprojects.Disposalincomerelatedtothesaleoffivesitesintheyear.Investmentinassociatesof£5mrelatedtotwoinvestmentsmadeduringtheyear.

Aftercapitalexpenditure,disposalsincome,investmentinassociates,interestandtax,£70mofcashflowwasgeneratedbythebusiness.Thecashdividendpaymentof£7mislowerthanlastyearasnointerimdividendwasdeclared.

Netdebtof£1,688mattheyearend(FY2017£1,750m),represented4.0timesadjustedEBITDAaona52weekbasis(FY20174.2times).

Changes in accounting policies

Therehavebeennochangesinaccountingpoliciesintheperiod.

Revenue

TheGroup’stotalrevenuesof£2,152mwere0.5%higherthanlastyear,withgrowthinlike-for-likesalesaandthebenefitofnewsiteopeningspartiallyoffsetbydisposalsmadeintheprioryear.

Totallike-for-likesalesagrewby1.3%withfoodsalesaupby0.3%anddrinksalesaby2.6%reflectinginparttheextendedwarmweatherinthesecondhalf.Averagespendperitemonfoodwasup5.9%,andaveragedrinkspendup4.9%,followingsomestrengtheningofpricesandtheincreasingpremiumisationoftheestate.

Like-for-like salesa growth:Weeks 1–32*

FY 2018Weeks 33–52

FY 2018Weeks 1–52

FY 2018

Food 1.0% (0.6)% 0.3%Drink 1.9% 3.5% 2.6%Total 1.4% 1.2% 1.3%

* Weeks1–32presentedtoadjustformovementofEasterintofirsthalf.

Separately disclosed items

Separatelydiscloseditemsareidentifiedduetotheirnatureormaterialitytohelpthereaderformabetterviewofoverallandadjustedtrading.

A£28mchargewasrecognisedrelatingtothedownwardvaluationmovementsonselectedsitesinthepropertyportfolioresultingfromtherevaluation(FY2017£51m).

A£15mchargeforimpairmentofshortleaseholdsandunlicensedproperties(FY2017£17m)wasrecognisedasaresultofourannualreviewofassetcarryingvalues.

A£6mchargewasrecognisedrelatingtothelegalcostsassociatedwithongoinglegalproceedingsbetweenMitchells&ButlersPensionsLimitedandtheCompanyregardingtherateofinflationwhichshouldbeappliedtopensionincreasesforcertainsectionsofthemembershipoftheMitchells&ButlersPensionsPlan.

Operating margins and profita

Thebusinesscontinuestofaceinflationarycostpressureswhichhavedrivenayear-on-yearadjustedoperatingmarginareduction.Increasesfortheyearhaveinparticularimpactedlabour,energy,propertycosts,andfoodanddrinkcosts.Adjustedoperatingmarginsaforthefullyearwere0.3pptslowerthanlastyearat14.1%.

Adjustedoperatingprofitaof£303mwas1.6%lowerthanlastyearasaresultoftheinflationarycostpressuresoutlinedabove,partiallyoffsetbylike-for-likesalesagrowthandmitigatingcostreductions.

Interest

Netfinancecostsof£125mforthefullyearwere£3mlowerthanlastyearona52weekbasisa,reflectingthereductioninGroupsecuritisedborrowings.

Thefullyearpensionsfinancechargefornextyearisexpectedtobe£7m.

Financial review continued


Pensions

TheCompanycontinuestomakepensionsdeficitpaymentsaspartofthetriennialpensionsvaluationasagreedwiththeschemes’Trusteeat31March2016,whichshowedanassetfundingshortfallatthattimeof£451m.Thedeficitwillbefundedbycashcontributionsof£48mperannumindexedto2023,aspertheagreementreachedin2013.

In2024anadditionalpaymentof£13mwillbemadeintoescrow,shouldsuchfurtherfundingberequiredatthattime.

TheMitchells&ButlersPensionPlanTrustDeedandRulesprovidethatitisamatterfortheCompanytodeterminetherateofinflationwhichshouldbeappliedtopensionincreasesforcertainsectionsofthemembershipinexcessoftheguaranteedminimumpensionsandtheCompanyhasinstructedtheTrusteetoapplyCPI(subjecttocertaincaps)inrespectofsuchincreases.TheTrusteebelievesthatthispowerwasincorrectlyvestedintheCompanyintheTrustDeedandRulesin1996and,despiteitbeingreflectedinfurtherversions,hasmadeanapplicationtocourtforthesevariousTrustDeedsandRulestoberectified.ItistheBoard’sbeliefthattheCompanyholdsthepowertofixsuchaninflationindexandtheCompanyisthereforecontestingthatapplication.Thehearingisexpectedtobeheldinlate2019.TheactuarialsurplusasdeterminedunderIAS19(revised)hascontinuedtobecalculatedusingRPI,pendingfinalresolutionofthematter.Leavingallotherprincipalfinancialassumptionsconstant,theimpactofthischangeonthedefinedbenefitobligationasmeasuredunderIAS19(revised)isestimatedtobe£150m.However(underIFRIC14)anadditionalliabilityisrecognisedsuchthatthetotalbalancesheetpositionreflectsthescheduleofcontributionsagreedbytheCompany,extendingto2023.AssuchshouldtheCompanybesuccessfulincontestingtheapplicationtherewillbenonecessarymovementinthetotalbalancesheetposition.Legalfeesassociatedwiththeseproceedingsof£6mhavebeenrecognisedasseparatelydiscloseditems.

Capital allocation policy and dividends

TheCompanyhascapitalallocationobligationsnotablyinrespectofdebtserviceandpensionfundcontributionsafterwhichinvestmentintheestateanddistributiontoshareholderscanbeconsidered.Subsequentcapitalallocationdecisionsaremadeprimarilytoprotecttheongoingandfuturehealthofthebusinessand,aspreviouslystated,whenassessingdividendstheBoardwouldnotexpecttoseeastructural,orpermanent,increaseintheuseofshort-termfacilities.

Giventhiscapitalallocationframeworkcombinedwiththeuncertainoutlook,theBoarddoesnotproposeafinaldividendfortheyear

TheBoardkeepsitsdividendpolicyunderreviewasappropriateinthecontextofitscapitalallocationpolicies,capitalstructure,andinherentvisibilityontrading.

TheStrategicreportonpages1to45wasapprovedbytheBoardon21November2018andsignedonitsbehalfbyTimJones,FinanceDirector.

Tim Jones Finance Director

Capital cash expenditure

Capitalexpenditureof£171mcomprises£167mfrompurchaseofproperty,plantandequipmentand£4minrelationtopurchaseofintangibleassets.

Maintenanceandinfrastructurecapexof£70mwas£17mhigherthantheprioryeardueprimarilytoinvestmentinsystemsandtechnologyof£10m.

Returngeneratingcapitalof£101mdecreasedduetothereducedproportionofconversionprojectsandincreasednumberofremodelswhichrequirelowerspendperproject.Duringtheyearwecompleted232remodelsandconversions(FY2017252sites)andopenedsevennewsites(FY201713sites).AcquisitionswereprimarilyfocusedonpremiumisationwiththeopeningoffournewMiller&Cartersites,twonewAllBarOnesandoneTobyCarvery.

Thereturnonexpansionarycapitalaacrossallconversionandacquisitionprojectsoverthepastfouryearswas16%(FY201718%),withincreasingreturnscomingthroughfrommorerecentprojects.Acrossprojectscompletedintheyearthereturnwas23%.Recentremodelperformance,forprojectscompletedinFY2018,hasalsobeenencouraging,deliveringreturnsof27%aandsalesupliftsinexcessof10%.

FY 2018 FY 2017

£m No. £m No.

Maintenance and infrastructure 70 53

Remodels–refurbishment 63 188 42 143Remodels–expansionary 7 13 14 31Conversions 21 31 39 78Acquisitions–freehold 7 2 3 1Acquisitions–leasehold 3 5 18 12Total return generating capital expenditure 101 239 116 265Total capital expenditure 171 169

TheGroupcapitalexpenditureisexpectedtobeslightlyhighernextyear,intherangeof£175mto£180m.

Property

Inlinewithourpropertyvaluationpolicy,aredbookvaluationofthefreeholdandlongleaseholdestatehasbeencompletedinconjunctionwiththeindependentpropertyvaluer,CBRE.Inaddition,theGrouphasconductedanimpairmentreviewonshortleaseholdandunlicensedproperties.Theoverallpropertyportfoliovaluationhasdecreasedby£48m(FY2017increaseof£2m)reflectinga£43mseparatelydisclosedchargeintheincomestatementanda£5mdecreaseintherevaluationreserve.

a. TheDirectorsuseanumberofalternativeperformancemeasures(APMs)thatareconsideredcriticaltoaidtheunderstandingoftheGroup’sperformance.Keymeasuresareexplainedonpages148to150ofthisreport.


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annual report and accounts 2018 - mitchells & butlers · 2016 2015 2014 2,152 2,141 2,086 2,101...

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