annual report and accounts 2018 - mbplc.com · annual report and accounts 2018mitchells &...

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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In this section

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

Governance


OneofthekeyrolesfortheBoardofDirectorsatMitchells&Butlersistoprovideleadershipformorethan44,000employeesandmaintainthehighestpossiblestandardsofcorporategovernance.Indoingso,dueregardispaidtotheFinancialReportingCouncil’sreportofJuly2016‘CorporateCultureandtheRoleofBoards’,inparticulartheneedtoalignvaluesandincentives,andtheassessmentandmeasurementofcompanyculture.TheBoardalsoregularlyconsiderstheneedfordiversityassetoutintheDaviesReportof2011andthefollowupHampton-AlexanderReviewpublishedinNovember2016.

TheBoardcontinuestomonitordevelopmentsincorporategovernanceandreportingregulations.TheStrategicReportonpages1to45includestheGroup’sstrategy,progressandperformancefortheyear.

DuringtheyeartheBoardasawholehascontinuedtoworktogethertoimplementtheCompany’sstrategyinacohesiveway.OurbroadrangeofBoardtalentcoversavarietyofprofessionalskillsandourdiversegroupofNon-ExecutiveDirectorscontinuetobringmuchexperienceandchallengetotheBoard.InSeptember2018,weannouncedthatStewartGilliland,whojoinedtheBoardasaNon-ExecutiveDirectorinMay2013andwasappointedasSeniorIndependentDirectorinFebruary2015,hadinformedtheBoardofhisintentiontostepdownfromtheBoardinordertoconcentrateonhisotherrolesoutsidetheGroup.TheBoardhasalreadycommencedaprocessofidentificationandrecruitmentofareplacementforStewartfollowingwhichitwillconfirmthedateforhimtostepdownandmakeanappropriateannouncement.ThisislikelytobebytheendofDecember2018.Myfocuscontinuestobeonmaintainingastrongteam,withabroadrangeofprofessionalbackgroundsandskillstodrivefurtherimprovementswherepossible.

InlinewiththebestpracticerecommendationsoftheUKCorporateGovernanceCode,lastyearwecommittedtocarryingoutanexternallyfacilitatedreviewoftheBoard’seffectiveness.Theresultsofthe2018externallyfacilitatedreviewcanbefoundonpage63.

Chairman’s introduction to governance

Dear fellow shareholder It gives me great pleasure to update you on our progress in corporate governance over the past year.

TheremainderofthisreportcontainsthenarrativereportingrequiredbytheUKCorporateGovernanceCode,theListingRulesandtheDisclosureGuidanceandTransparencyRules.Ihopethatyoufindthisreporttobeinformativeandhelpfulinrelationtothisimportanttopic.

Wearecommittedtomaintaininganactivedialoguewithallourshareholders,andwecontinuetoofferourinstitutionalinvestorsaccesstokeyseniormanagementandourInvestorRelationsteamviaourInvestorRoadshowprogramme.IwouldliketoencourageshareholderstoattendourAnnualGeneralMeeting,detailsofwhicharesetoutintheseparateNoticeofAGMsentoutwiththisAnnualReport.TheuseofourRetailSupportCentreinBirminghamasavenueforourAGMhasprovedtobeasuccess(aswellasacostsaving)andsoweintendtousethesamefacilityforthe2019AGMandwelookforwardtowelcomingyou,whereIhopeyouwilltaketheopportunityofmeetingourExecutiveandNon-ExecutiveBoardDirectors.

Ilookforwardtotheyearahead,confidentintheknowledgethattheCompanyisledbyahighlycompetent,professionalandmotivatedteam.Ialsolookforwardtothesupportofyou,ourshareholders,asourseniormanagementteamcontinuestofocusondrivingfutureprofitgrowthandcreatingadditionalshareholdervalue.

Bob Ivell Chairman

For the Company’s latest financial information goto:www.mbplc.com/investors


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Bob Ivell Non-Executive Chairman RNM Aged66AppointedtotheBoardinMay2011,Bobhasover30yearsofextensivefoodandbeverageexperiencewithaparticularfocusonfood-led,managedrestaurants,pubsandhotels.HeiscurrentlyNon-ExecutiveChairmanofCarpetrightplc,aNon-ExecutiveDirectorofCharlesWellsLimitedandPresidentofTheAssociationofLicensedMultipleRetailers.HewaspreviouslySeniorIndependentDirectorofAGARangemasterGroupplcandBritvicplc,andamainBoardDirectorofS&NplcasChairmanandManagingDirectorofitsScottish&Newcastleretaildivision.HehasalsobeenChairmanofRegentInns,ParkResortsandDavidLloydLeisureLimited,andwasManagingDirectorofBeefeaterRestaurants,oneofWhitbread’spubrestaurantbrands,andaDirectorofTheRestaurantGroup.BobisChairoftheNominationCommitteeandoftheMarketDisclosureCommittee.

Ron RobsonDeputy Chairman AN

Aged55AppointedasDeputyChairmaninJuly2011,RonisaManagingDirectorofTavistockGroup,ChiefExecutiveofUltimateFinanceGroup,ChairmanofAvenueInsurancePartnersandaNon-ExecutiveDirectorofTottenhamHotspurLimited.HewaspreviouslyChiefFinancialOfficerofTamarCapitalPartnersandGroupFinanceDirectorofKenmore,bothpropertyinvestmentandmanagementgroups.From2005to2008hewasGroupFinanceDirectorofTheBelhavenGroupplc,alistedpubretailing,brewinganddrinkdistributiongroup.PriortothatheheldanumberofseniorfinancerolesincludingGroupFinanceDirectorofalistedshippingandlogisticsgroup,andtrainedasaCharteredAccountantwithArthurAndersen.RonisanominatedshareholderrepresentativeofPiedmontInc.

Colin RutherfordIndependent Non-Executive Director ARNM

Aged59AppointedasanindependentNon-ExecutiveDirectorinApril2013,ColiniscurrentlyChairmanofBrookgateLimitedandTeachersMediaplc.HeisalsoaNon-ExecutiveDirectorofEvofemBiosciencesInc.andRenaissanceServicesSAOGamongsthisotheractivities.HewasformerlyExecutiveChairmanofMAMFundsplcandEuroSalesFinanceplcandhasservedasaDirectorofvariousotherpublicandprivatecompaniesintheUKandoverseas.ColinisamemberoftheInstituteofCharteredAccountantsofScotlandandhasdirectlyrelevantcorporatefinanceexperienceinboththeleisureandhospitalityindustries.ColinisChairmanoftheAuditCommittee,andservesonallotherindependentgovernancecommittees.

Imelda WalshIndependent Non-Executive Director ARN

Aged54AppointedasanindependentNon-ExecutiveDirectorinApril2013,ImeldaisaNon-ExecutiveDirector,andChairoftheRemunerationCommitteesofFirstGroupplcandAstonMartinLagondaGlobalHoldingsplc.ShewasaNon-ExecutiveDirector,andsubsequentlyChairoftheRemunerationCommittee,ofWilliamHillplcfrom2011to2018,Mothercareplcfrom2013to2016,andSainsbury’sBankplcfrom2006to2010.ShehasheldseniorExecutiverolesatJSainsburyplc,whereshewasGroupHRDirectorfromMarch2004toJuly2010,BarclaysBankplcandCoca-Cola&SchweppesBeveragesLimited.ImeldaisChairoftheRemunerationCommittee.

Phil UrbanChief Executive ME Aged55PhiljoinedMitchells&ButlersinJanuary2015asChiefOperatingOfficerandbecameChiefExecutiveinSeptember2015.PhilwaspreviouslyManagingDirectoratGrosvenorCasinos,adivisionofRankGroupandChairmanoftheNationalCasinoForum.Priortothat,hewasManagingDirectorforWhitbread’sPubRestaurantdivision,andforScottish&NewcastleRetail’sRestaurantsandAccommodationDivision.PhilhasanMBAandisaqualifiedmanagementaccountant(CIMA).

Tim JonesFinance Director ME

Aged55TimwasappointedFinanceDirectorinOctober2010.PriortojoiningtheCompany,heheldthepositionofGroupFinanceDirectorforInterserveplc,asupportservicesgroup.Previously,hewasDirectorofFinancialOperationsatNovarplcandheldseniorfinancialrolesbothintheUKandoverseasinthelogisticscompany,Exelplc.TimisamemberoftheInstituteofCharteredAccountantsinEnglandandWalesandobtainedanMAinEconomicsatCambridgeUniversity.

Board of Directors Knowledgeandexperience


Keith BrowneNon-Executive Director Aged49AppointedasaNon-ExecutiveDirectorinSeptember2016,KeithisarepresentativeofElpidaGroupLimited,asignificantshareholderinMitchells&Butlers.KeithobtainedaBachelorofCommerceDegreefromUniversityCollegeDublin,qualifiedasacharteredaccountantin1994andsubsequentlygainedanMBAfromUniversityCollegeDublin.AfterjoiningKPMGCorporateFinancein1996,hebecameapartnerinthefirmin2001andHeadofCorporateFinancein2009.HeretiredfromthepartnershiptooperateasanIndependentConsultantin2011.

Dave CoplinIndependent Non-Executive Director ARN

Aged48AppointedasanindependentNon-ExecutiveDirectorinFebruary2016,DaveistheCEOandfounderofTheEnvisionersLimitedandwasformerlytheChiefEnvisioningOfficerforMicrosoftLimited,andisanestablishedthoughtleaderontheroleoftechnologyinourpersonalandprofessionallives.Forover25yearshehasworkedacrossarangeofindustriesandcustomermarketplaces,providingstrategicadviceandguidancearoundtheroleandoptimisationoftechnologyinthemodernsocietybothinsideandoutsideoftheworldofwork.

Stewart GillilandSenior Independent Director ARN

Aged61AppointedasanindependentNon-ExecutiveDirectorinMay2013andasSeniorIndependentDirectorinFebruary2015.StewartwasChiefExecutiveOfficerofMullerDairy(UK)Limiteduntil2010andpriortothatheldseniormanagementpositionsinInBevSA,InterbrewUKLimitedandWhitbreadplc.HeiscurrentlyChairmanofC&CGroupplcandCuriousDrinksLimitedandaNon-ExecutiveDirectorofTescoplcandNature’sWayFoodsLimited.

Eddie IrwinNon-Executive Director ARN Aged59AppointedasaNon-ExecutiveDirectorinMarch2012,EddieisanomineeofElpidaGroupLimited,asignificantshareholderinMitchells&Butlers.EddieisFinanceDirectorofCoolmore,aleadingthoroughbredbloodstockbreederwithoperationsinIreland,theUSAandAustraliaandaNon-ExecutiveDirectorofGroveLtd,theholdingcompanyofBarchesterHealthcareLimited.HegraduatedfromUniversityCollegeDublinwithaBachelorofCommerceDegreeandheisaFellowofboththeAssociationofCharteredCertifiedAccountantsandtheInstituteofCharteredSecretariesandAdministrators.

Josh LevyNon-Executive Director R

Aged28AppointedaNon-ExecutiveDirectorinNovember2015,JoshisanominatedshareholderrepresentativeofPiedmontInc.,asignificantshareholderinMitchells&Butlers.JoshisanInvestmentAnalystatTavistockGrouphavingpreviouslyworkedintheInvestmentBankingDivisionofInvestecBank.JoshholdsanMScandaBA(Hons)fromtheUniversityofNottingham.

Key to Committee membershipA AuditCommitteeR RemunerationCommitteeN NominationCommitteeM MarketDisclosureCommitteeE ExecutiveCommittee


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Share capital

TheCompany’sissuedordinarysharecapitalasat29September2018comprisedasingleclassofordinarysharesofwhich428,310,823shareswereinissueandlistedontheLondonStockExchange(30September2017422,548,604shares).TherightsandobligationsattachingtotheordinarysharesoftheCompanyarecontainedwithintheCompany’sArticlesofAssociation.Oftheissuedsharecapital,noshareswereheldintreasuryandtheCompany’semployeesharetrustsheld1,885,130shares.Detailsofmovementsintheissuedsharecapitalcanbefoundinnote4.7tothefinancialstatementsonpage139.EachsharecarriestherighttoonevoteatgeneralmeetingsoftheCompany.ThenoticeoftheAnnualGeneralMeetingspecifiesdeadlinesforexercisingvotingrightsinrelationtotheresolutionstobeputtotheAnnualGeneralMeeting.

Allissuedsharesarefullypaidupandcarrynoadditionalobligationsorspecialrights.TherearenorestrictionsontransfersofsharesintheCompany,orontheexerciseofvotingrightsattachedtothem,otherthanthosewhichmayfromtimetotimebeapplicableunderexistinglawsandregulationsandundertheArticlesofAssociation.Inaddition,pursuanttotheListingRulesoftheFinancialConductAuthority,DirectorsandcertainofficersandemployeesoftheGrouprequirethepriorapprovaloftheCompanytodealintheordinarysharesoftheCompany.

ParticipantsintheShareIncentivePlan(‘SIP’)maycompleteaFormofInstructionwhichisusedbyEquinitiSharePlanTrusteesLimited,theSIPTrustee,asthebasisforvotingontheirbehalf.

Duringtheyear,shareswithanominalvalueof£34,816wereallottedunderall-employeeschemesaspermittedunderSection549oftheCompaniesAct2006,andshareswithanominalvalueof£457,374wereallottedpursuanttotheScripDividendScheme.Nosecuritieswereissuedinconnectionwitharightsissueduringtheyear.

TheCompanyisnotawareofanyagreementsbetweenshareholdersthatrestrictthetransferofsharesorvotingrightsattachedtotheshares.

InterestsoftheDirectorsandtheirimmediatefamiliesintheissuedsharecapitaloftheCompanyasattheyearendareonpage86intheReportonDirectors’remuneration.

Dividends

Nofinaldividendwillbepaidinrespectoftheyearended29September2018(FY2017finaldividendof5p).Nointerimdividendwaspaidduringtheyear(FY2017interimdividendof2.5p).

The Board’s responsibilities in respect of the Company include:• Determiningtheoverallbusinessandcommercialstrategy

• IdentifyingtheCompany’slong-termobjectives

• Reviewingtheannualoperatingbudgetandfinancialplansandmonitoringperformanceinrelationtothoseplans

• Determiningthebasisoftheallocationofcapital

• ConsideringallpolicymattersrelatingtotheCompany’sactivitiesincludinganymajorchangeofpolicy

For the Company’s latest financial informationgoto:www.mbplc.com/investors

TheDirectorspresenttheirreportontheaffairsoftheGroupandtheauditedfinancialstatementsforthe52weeksended29September2018.TheBusinessreviewoftheCompanyanditssubsidiariesisgivenonpages14to17which,togetherwiththeCorporategovernancestatementandAuditCommitteereport,areincorporatedbyreferenceintothisreportand,accordingly,shouldbereadaspartofthisreport.

DetailsoftheGroup’spolicyonaddressingrisksaregivenonpages38to42and62and63,anddetailsaboutfinancialinstrumentsareshowninnote4.4tothefinancialstatements.ThesesectionsincludeinformationabouttrendsandfactorslikelytoaffectthefuturedevelopmentandperformanceoftheGroup’sbusinesses.TheCompanyundertakesnoobligationtoupdateforward-lookingstatements.

KeyperformanceindicatorsfortheGroup’sbusinessesaresetoutonpages30and31.

Thisreporthasbeenpreparedundercurrentlegislationandguidanceinforceattheyearenddate.Inaddition,thematerialcontainedonpages1to45reflectstheDirectors’understandingoftherequirementtoprovideaStrategicreport.

Thisreporthasbeenpreparedfor,andonlyfor,themembersoftheCompanyasabody,andnootherpersons.TheCompany,itsDirectors,employees,agentsoradvisersdonotacceptorassumeresponsibilitytoanyotherpersontowhomthisdocumentisshownorintowhosehandsitmaycomeorwhobecomesawareofitandanysuchresponsibilityorliabilityisexpresslydisclaimed.

Areas of operation

ThroughoutFY2018theGrouphadactivitiesin,andoperatedthrough,pubs,barsandrestaurantsintheUnitedKingdomandGermany.

Directors’ report


TheCompany’stwolargestshareholders,PiedmontInc.andElpidaGroupLimited,havenominatedrepresentativesontheBoard.Piedmont’sappointmentrightsareformalisedintheDeedofAppointmentreferredtointhisreportbutthereisnoequivalentagreementinplacebetweentheCompanyandElpida.TheElpidarepresentativeswereappointedwiththeapprovaloftheBoardinMarch2012andSeptember2016.TheBoardhascarefullyconsideredwhetheritwouldbeappropriatetoenterintoaformalagreementwithElpidathatissimilartotheexistingagreementbetweentheCompanyandPiedmont.HavingtakenintoaccounttheFinancialReportingCouncil’sreportofAugust2014‘TowardsClear&ConciseReporting’andtheviewsexpressedpreviouslybycertainoftheinvestorrepresentativebodies,theBoardconsidersthatsuchanagreementwouldbemerelyoneofformratherthansubstanceandnotintheinterestsofshareholdersgenerally.Asaresult,theBoarddoesnotproposecurrentlythattheCompanyshouldenterintosuchanagreementwithElpida,andElpidahasnot,todate,soughtsuchanagreement.TheBoardconsidersthattheCompanyisactinginaccordancewithgoodgovernanceprinciplesinworkingwithoursignificantlong-termshareholderstowardsourcommongoalsandtheachievementoftheCompany’sstrategy,withcontinuedstabilityatBoardlevel.

Directors’ indemnity

AspermittedbytheArticlesofAssociation,eachoftheDirectorshasthebenefitofanindemnity,whichisaqualifyingthird-partyindemnityasdefinedbySection234oftheCompaniesAct2006.TheindemnitywasinforcethroughoutthetenureofeachDirectorduringthelastfinancialyear,andiscurrentlyinforce.TheCompanyalsopurchasedandmaintainedthroughoutthefinancialyearDirectors’andOfficers’liabilityinsuranceinrespectofitselfanditsDirectors.NoindemnityisprovidedfortheCompany’sauditor.

Articles of Association

TheArticlesofAssociationmaybeamendedbyspecialresolutionoftheshareholdersoftheCompany.

Conflicts of interest

TheCompany’sArticlesofAssociationpermittheBoardtoconsiderand,ifitseesfit,authorisesituationswhereaDirectorhasaninterestthatconflicts,ormaypossiblyconflict,withtheinterestsoftheCompany(‘SituationalConflicts’).TheBoardhasaformalsysteminplaceforDirectorstodeclareSituationalConflictstobeconsideredforauthorisationbythoseDirectorswhohavenointerestinthematterbeingconsidered.IndecidingwhethertoauthoriseaSituationalConflict,thenon-conflictedDirectorsarerequiredtoactinthewaytheyconsiderwouldbemostlikelytopromotethesuccessoftheCompanyforthebenefitofallshareholders,andtheymayimposelimitsorconditionswhengivingauthorisation,orsubsequently,iftheythinkthisisappropriate.TheBoardbelievesthatthesystemsithasinplaceforreportingandconsideringSituationalConflictscontinuetooperateeffectively.

Interests in voting rights

Asat29September2018,theCompanywasawareofthefollowingsignificantholdingsofvotingrights(3%ormore)initsshares:

Shareholder Ordinary shares% of

share capital*

PiedmontInc. 116,234,517 27.14 DirectholdingElpidaGroupLimited 100,840,659 23.54 DirectholdingStandardLifeAberdeenplc 47,103,182 10.99 IndirectholdingSmoothfieldHoldingLimited 19,021,589 4.44 Directholding

* Basedonthetotalvotingrightsfigureasat29September2018of428,310,823shares.

Thefollowingchangestookplacebetween30September2018and21November2018:

StandardLifeAberdeenplcnotifiedtheCompanyon5October2018thatitsholdinghaddecreasedto44,739,657shares(10.45%),andagainon7November2018thatitsholdinghaddecreasedto42,780,803shares(9.99%).

Directors

DetailsoftheDirectorsasat21November2018andtheirbiographiesareshownonpages48and49.TheDirectorsat29September2018andtheirinterestsinsharesareshownonpage86.TherewerenochangestotheBoardofDirectorsduringtheyearnorsubsequenttotheyearend,uptothedateofthisreport.InSeptember2018,theCompanyannouncedthatStewartGillilandhadinformedtheBoardofhisintentiontostepdownfromtheBoardandthisislikelytotakeplacebytheendofDecember2018.

TheCompanyisgovernedbyitsArticlesofAssociationandtheCompaniesAct2006andrelatedlegislationinrelationtotheappointmentandremovalofDirectors.ThepowersoftheCompany’sDirectorsaresetoutintheCompany’sArticlesofAssociation.

InaccordancewiththeCompany’sArticlesofAssociation(whichareinlinewithbestpracticeguidanceoftheUKCorporateGovernanceCode)alltheDirectors,withtheexceptionofStewartGilliland,willretireattheAGMandwillofferthemselvesforre-election.

UnderaDeedofAppointmentbetweenPiedmontInc.andtheCompany,PiedmontInc.hastherighttoappointtwoshareholderDirectorstotheBoardwhilstitowns22%ormoreoftheissuedsharecapitaloftheCompany,andtherighttoappointoneshareholderDirectortotheBoardwhilstitownsmorethan16%oftheCompanybutlessthan22%.IntheeventthatPiedmontInc.ownslessthan16%oftheCompanyanysuchshareholderDirectorswouldberequiredtoresignimmediately.


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Employment policies

TheGroupemployedanaverageof44,802peopleinFY2018(FY201745,891).Throughitsdiversitypolicy,theCompanyseekstoensurethateveryemployee,withoutexception,istreatedequallyandfairlyandthatallemployeesareawareoftheirresponsibilities.

Ourpoliciesandproceduresfullysupportourdisabledcolleagues.Wetakeactivemeasurestodosovia:

• arobustreasonableadjustmentpolicy;

• disability-specificonlineresources(accessibleviatheGroup’sonlinerecruitmentsystem);and

• processestoensurecolleaguesarefullysupported.

TheGroupisresponsivetotheneedsofitsemployees.Assuch,shouldanyemployeeoftheGroupbecomedisabledduringtheirtimewithus,wewillactivelyretrainthatemployeeandmakereasonableadjustmentstotheirenvironmentwherepossible,inordertokeeptheemployeewiththeGroup.ItisthepolicyoftheGroupthatthetraining,careerdevelopmentandpromotionofdisabledpersonsshould,asfaraspossible,beidenticaltothatofotheremployees.

Employee engagement

Mitchells&Butlersengageswithitsemployeescontinuouslyandinanumberofwaystosuittheirdifferentworkingpatterns.Thisincludes:

• linemanagerbriefings;

• communicationsforumsandroadshowsheldbyfunctionsorbrandsacrosstheCompany;

• adedicatedintranetfortheRetailSupportTeam;

• ‘Mable’,theM&Bonlinelearningsystem;

• emailnewsalerts;

• focusgroups;

• weeklybulletins–specificallytargetedatretailhousemanagersandmobileworkers;

• employeesocialmediagroups;and

• amonthlymagazineposter,FrontlineNews,fortheretailestate.

DetailsofthefinancialandeconomicfactorsaffectingtheperformanceoftheCompanyaresharedwithallemployeesattheappropriatetimeusingthemethodslistedabove.

WeprovideopportunitiesforemployeestogivetheirfeedbacktotheCompanyinanumberofways,fromteamorshiftmeetingsinrestaurants,barsandpubsandengagementsurveysforallemployeestotheMitchells&ButlersannualBusinessForum.BusinessForumrepresentativescollectquestionsfromemployeesacrosstheCompanyandputthemtomembersoftheExecutiveCommittee.ThequestionsandanswersarepublishedinFrontlineNewsandonline.

EngagementwithMable(theMitchells&Butlerslearningenvironment)hasgrownsignificantlysincelaunchinJuly2017drivenbyourabilitytocreateanddeliverqualityonlinetrainingin-house.InthelastyearwehaveaddedonlinetrainingforeachbrandfoodmenuchangeanddrinkstrainingforseasonalproductsisnowdeliveredviaMable’ssocialpages.

Developmentprogrammesforallretailteamnowincorporateliveonlineclassroomsdeliveredviainteractivewebinarwithover46,000learnersattendingoneofthe2,400workshopsledbyourretailtrainingteam.

TheSTARskillstrainingprogrammeisacomprehensivelearningresourceonMableforallnewretailteam.85%ofusersreturnfrequentlytothesite.

Related party transactions

InternalcontrolsareinplacetoensurethatanyrelatedpartytransactionsinvolvingDirectorsortheirconnectedpersonsarecarriedoutonanarm’s-lengthbasisandareproperlyrecorded.

Change of control provisions

TherearenosignificantagreementswhichcontainprovisionsentitlingotherpartiestosuchagreementstoexerciseterminationorotherrightsintheeventofachangeofcontroloftheCompany.

TherearenoprovisionsintheDirectors’oremployees’serviceagreementsprovidingforcompensationforlossofofficeoremploymentoccurringbecauseofatakeover.

ThetrusteeoftheCompany’sSIPwillinviteparticipantsonwhosebehalfitholdssharestodirectithowtovoteinrespectofthoseshares,and,ifthereisanofferforthesharesorothertransactionwhichwouldleadtoachangeofcontroloftheCompany,participantsmaydirectittoaccepttheofferoragreetothetransaction.ThetrusteeoftheMitchells&ButlersEmployeeBenefitTrustmay,havingconsultedwiththeCompany,voteorabstainfromvotinginrespectofanysharesitholdsoracceptorrejectanofferrelatingtosharesinanywayitseesfit,anditmaytakealloranyofthefollowingmattersintoaccount:thelong-terminterestsofbeneficiaries,thenon-financialinterestsofbeneficiaries,theinterestsofbeneficiariesintheircapacityasemployeesorformeremployees,theinterestsoffuturebeneficiariesandconsiderationsofalocal,moral,ethical,environmentalorsocialnature.

TherulesofcertainoftheCompany’sshareplansincludeprovisionswhichapplyintheeventofatakeoverorreconstruction,assetoutbelow.

Provisions which apply in the event of a takeover or reconstruction

Share plan Provision in the event of a takeover

2013PerformanceRestrictedSharePlan

Awardsvestproratatoperformanceandtimeelapsedandlapsesixmonthslater

2013ShortTermDeferredIncentivePlan

Bonussharesmaybereleasedorexchangedforsharesinthenewcontrollingcompany

2013SharesavePlan Optionsmaybeexercisedwithinsixmonthsofachangeofcontrol

ShareIncentivePlan Freesharesmaybereleasedorexchangedforsharesinthenewcontrollingcompany

Directors’ report continued


Going concern

Thefinancialstatementswhichappearonpages92to147havebeenpreparedonagoingconcernbasis.TheDirectorshavereviewedtheGroup’sobjectives,policiesandprocessesformanagingitscapital;itsfinancialriskmanagementobjectives;itsfinancialinstrumentsandhedgingactivities;anditsexposurestocreditriskandliquidityrisk.TheGroup’sfinancingisbasedonsecuritiseddebtandunsecuredbankfacilitiesand,withinthiscontext,arobustreviewhasbeenundertakenofprojectedperformanceagainstallfinancialcovenants.AsaresultofthisreviewtheDirectorshaveareasonableexpectationthattheGrouphasadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.Seesection1ofthefinancialstatementsonpage105fortheCompany’sgoingconcernstatement,andpage42fortheCompany’slong-termviabilitystatement.

Annual General Meeting

ThenoticeconveningtheAnnualGeneralMeetingiscontainedinacircularsenttoshareholderswiththisreportandincludesfulldetailsoftheresolutionsproposed.

Auditor

DeloitteLLPhasexpresseditswillingnesstocontinueinofficeasauditoroftheCompanyanditsreappointmentwillbeputtoshareholdersattheAGM.

Events after the balance sheet date

Assetoutinnote5.3totheGroupfinancialstatementsonpage142,on26October2018theHighCourtprovidedarulingregardingguaranteedminimumpensions(GMPs)equalisation.ThatcourtcasedidnotinvolvetheCompanyoritspensionschemesbut,unlessreversedonappeal(astowhichitisnotclearasatthedateofthisreportwhethertherewillbeanappeal)itwillapplytotheCompanyanditsGroupandGMPsenjoyedbymembersoftheGroup’spensionschemes.Thecourtruledthatpensionsprovidedtomemberswhohadcontracted-outoftheirschememustberecalculatedtoensurepaymentsreflecttheequalisationofstatepensionagesinthe1990s.TherulingconfirmedthemethodofequalisingGMPsthatistobeapplied.Thecourtalsoruledthattrusteesareobligedtomakearrearspaymentstomembersandsimpleinterestonthearrearsshouldbepaidat1%abovethebaserate.MoredetailsofhowthisrulingmayimpacttheCompanyaresetoutinnote5.3tothefinancialstatements.

Therearenootherpost-balancesheeteventstoreport.

Disclosure of information to auditor

Havingmadetherequisiteenquiries,sofarastheDirectorsareaware,specificallythosewhoareaDirectoratthedateofapprovaloftheAnnualReport,thereisnorelevantauditinformation(asdefinedbySection418(3)oftheCompaniesAct2006)ofwhichtheCompany’sauditorisunawareandeachDirectorhastakenallstepsthatoughttohavebeentakentomakethemselvesawareofanyrelevantauditinformationandtoestablishthattheCompany’sauditorisawareofthatinformation.

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

Mitchells&ButlersiskeentoencouragegreateremployeeinvolvementintheGroup’sperformancethroughshareownership.ItoperatestwoHMRCapprovedall-employeeplans,whicharethe2013SharesavePlanandtheShareIncentivePlan(whichincludesPartnershipshares).TheCompanyalsooperatestwootherplansonaselectivebasis,whicharethe2013PerformanceRestrictedSharePlanandthe2013ShortTermDeferredIncentivePlan.FurtherdetailsontheplansaresetoutintheReportonDirectors’remuneration.

Duringtheyear,theCompanyhasremainedwithinitsheadroomlimitsfortheissueofnewsharesforshareplansassetoutintherulesoftheaboveplans.TheCompanyusesanemployeebenefittrusttoacquiresharesinthemarketwhenappropriatetosatisfyshareawardsinordertomanageheadroomundertheplanrules.NosharesintheCompanywerepurchasedbytheemployeebenefittrustduringFY2018.

Political donations

TheCompanymadenopoliticaldonationsduringtheyearandintendstomaintainitspolicyofnotmakingsuchpayments.Itwill,however,asaprecautionarymeasuretoavoidinadvertentbreachofthelaw,seekshareholderauthorityatits2019AGMtomakelimiteddonationsorincurlimitedpoliticalexpenditure,althoughithasnointentionofusingtheauthority.

Funding and liquidity risk

InordertoensurethattheGroup’slong-termfundingstrategyisalignedwithitsstrategicobjectives,theTreasuryCommitteeregularlyassessesthematurityprofileoftheGroup’sdebt,alongsidetheprevailingfinancialprojectionsandthreeyearplan.ThisenablesittoensurethatfundinglevelsareappropriatetosupporttheGroup’splans.

ThecurrentfundingarrangementsoftheGroupconsistofthesecuritisednotesissuedbyMitchells&ButlersFinanceplc(andassociatedliquidityfacility)and£150mofunsecuredcommittedbankfacilities.Furtherinformationregardingthesearrangementsisincludedinnote4.2tothefinancialstatementsonpage126.Thetermsofthesecuritisationandthebankfacilitiescontainanumberoffinancialandoperationalcovenants.CompliancewiththesecovenantsismonitoredbyGroupTreasury.

TheGrouppreparesarollingdailycashforecastcoveringasixweekperiodandanannualcashforecastbyperiod.TheseforecastsarereviewedandusedtomanagetheinvestmentandborrowingrequirementsoftheGroup.Acombinationofcashpoolingandzerobalancingagreementsisinplacetoensuretheoptimumliquiditypositionismaintained.CommittedfacilitiesoutsideofthesecuritisationaresizedtoensurethattheGroupcanmeetitsmedium-termanticipatedcashflowrequirements.


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Greenhouse gas (‘GHG’) emissions statement

TheGroupgeneratesGHGemissionsthroughoutitsestateofbarsandrestaurantsforheating,cooling,lightingandcateringincludingtherefrigerationandpreparationoffoodanddrink.

GHGemissionsper£mturnoverwerereducedby10.8%duringthe2017/18taxyearincomparisonto2016/17inresponsetoacontinuedfocusonengagingstaffonenergyefficiencyandthroughinvestmentacrossourbusiness.

Assessment parameters

Assessment year 2017/18taxyear.

Consolidation approach Financialcontrol.

Boundary summary Allbarsandrestaurantseitherownedorunderoperationalcontrolduringthe2017/18taxyearwereincluded.

Scope GeneralclassificationsofgreenhousegasemissionsscopesbasedontheGHGprotocolandISO14064-1:2006withinthecontextoftheGroup’soperationsareasfollows:

Scope 1–directgreenhousegasemissionsfromsourcesthatareownedorcontrolledbytheGroup,e.g.fuelcombustionofvaryingtypes,occursduringkitchenactivityandtogenerateheatinganddomestichotwatermostcommonlythroughnaturalgridsuppliedgas,butalsosomeLPG(LiquefiedPetroleumGas)andoil.Realfiresfuelledbylogsorcoalarealsousedtosupplementcustomercomfortandenhanceambience.

Scope 2–GHGemissionsfromthegenerationofpurchasedelectricityusedduringkitchenactivityandforlighting,heatingandcooling.

Scope 3–indirectemissionsasaconsequenceoftheactivitiesoftheGroup,butoccurringfromsourcesnotownedorcontrolledbytheGroup.

ThisassessmentfocusesonScope1and2emissionsonly(Scope3isoptionalunderthecurrentregulations).

Consistency with the financial statements Scope1and2emissionsarereportedforthe2017/18and2016/17taxyearstoretainconsistencywithreportingofourcarbonemissionsundertheCarbonReductionCommitment(‘CRC’)EnergyEfficiencyScheme.

Scope1and2emissionsfromsiteswith‘landlordsupplies’arenotincludedintheCRCsubmission.

Franchisesitesareexcludedastheyareresponsibleforarrangingandpayingfortheirownenergy.

AlexsitesinGermanyareincluded.EmissionsarebasedonUKaverageemissionsmultipliedbythenumberofAlexsites.

Exclusions Scope 1–Vehiclefleetemissionsareexcludedastheyhavebeencalculatedtoaccountfor<1%totalemissionswhichfallsbelowthematerialitythreshold.

Scope 1–Fugitiveemissionswithinrefrigerationandcoolingequipmentarenotincludedasdetailedrecordsarenotyetheld.

Outside of scope–Logsare‘outsideofscope’becausetheScope1impactofthesefuelshasbeendeterminedtobeanet‘0’.However,theCO2evalueoflogshasbeencalculatedtobe<1%andwouldbeexcludedinanycaseasthisfallsbelowthematerialitythreshold.

Emission factor data source AllcarbonemissionfactorsusedareconsistentwithdetailsprovidedintherespectiveCarbonReductionCommitmentsubmissions.

Assessment methodology DefraEnvironmentalGuidelines2013.

Materiality threshold Allemissiontypesestimatedtocontribute>1%oftotalemissionsareincluded.

Intensity threshold EmissionsarestatedintonnesCO2eper£mrevenue.ThisintensityratioputsemissionsintocontextgiventhescaleoftheGroup’sactivitiesandenablescomparisonwithprioryearperformance.

Target Emissionsduringthe2016/17taxyearareprovidedforcomparativepurposes.

Itshouldbenotedthatthe2016/17emissionshavebeenre-calculatedwithelectricitytransmissionanddistributionlossesremovedasthesearenowclassedasScope3emissions.

Directors’ report continued


2016/17 2017/18 Change from previous year

Greenhouse gas emissions source (tCO2e) (tCO2e/£m) (tCO2e) (tCO2e/£m) (tCO2e) (tCO2e/£m)% movement in tCO2e/£m

Scope1 95,993 45.4 90,021 41.2 (5,972) (4.2) (9.3%)Scope2 163,960 77.6 149,721 68.5 (14,239) (9.1) (11.7%)Statutory total (Scope 1 & 2)* 259,953 123.0 239,742 109.7 (20,211) (13.3) (10.8%)

* StatutorycarbonreportingdisclosuresrequiredbyCompaniesAct2006.

Modern Slavery Act 2015

InaccordancewiththerequirementsoftheModernSlaveryAct,theBoardhasapprovedandtheCompanyhasaccordinglypublisheditscompliancestatementonitswebsite.Thiscanbeaccessedatwww.mbplc.com

ByorderoftheBoard

Greg McMahon Company Secretary and General Counsel

21November2018


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The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

CompanylawrequirestheDirectorstopreparesuchfinancialstatementsforeachfinancialyear.UnderthatlawtheDirectorsarerequiredtopreparetheGroupfinancialstatementsinaccordancewithInternationalFinancialReportingStandards(IFRSs)asadoptedbytheEuropeanUnionandArticle4oftheIASRegulationandhavealsochosentopreparetheparentcompanyfinancialstatementsinaccordancewithFinancialReportingStandard101‘ReducedDisclosureFramework‘.UndercompanylawtheDirectorsmustnotapprovethefinancialstatementsunlesstheyaresatisfiedthattheygiveatrueandfairviewofthestateofaffairsoftheCompanyandoftheprofitorlossoftheCompanyforthatperiod.

Inpreparingtheparentcompanyfinancialstatements,theDirectorsarerequiredto:

• selectsuitableaccountingpoliciesandthenapplythemconsistently;

• makejudgementsandaccountingestimatesthatarereasonableandprudent;

• statewhetherFinancialReportingStandard101ReducedDisclosureFrameworkhasbeenfollowed,subjecttoanymaterialdeparturesdisclosedandexplainedinthefinancialstatements;and

• preparethefinancialstatementsonthegoingconcernbasisunlessitisinappropriatetopresumethattheCompanywillcontinueinbusiness.

InpreparingtheGroupfinancialstatements,InternationalAccountingStandard1requiresthatDirectors:

• properlyselectandapplyaccountingpolicies;

• presentinformation,includingaccountingpolicies,inamannerthatprovidesrelevant,reliable,comparableandunderstandableinformation;

• provideadditionaldisclosureswhencompliancewiththespecificrequirementsinIFRSsareinsufficienttoenableuserstounderstandtheimpactofparticulartransactions,othereventsandconditionsontheentity’sfinancialpositionandfinancialperformance;and

• makeanassessmentoftheCompany’sabilitytocontinueasagoingconcern.

TheDirectorsareresponsibleforkeepingadequateaccountingrecordsthataresufficienttoshowandexplaintheCompany’stransactionsanddisclosewithreasonableaccuracyatanytimethefinancialpositionoftheCompanyandenablethemtoensurethatthefinancialstatementscomplywiththeCompaniesAct2006.TheyarealsoresponsibleforsafeguardingtheassetsoftheCompanyandhencefortakingreasonablestepsforthepreventionanddetectionoffraudandotherirregularities.

TheDirectorsareresponsibleforthemaintenanceandintegrityofthecorporateandfinancialinformationincludedontheCompany’swebsite.LegislationintheUnitedKingdomgoverningthepreparationanddisseminationoffinancialstatementsmaydifferfromlegislationinotherjurisdictions.

Weconfirmthattothebestofourknowledge:

• thefinancialstatements,preparedinaccordancewiththerelevantfinancialreportingframework,giveatrueandfairviewoftheassets,liabilities,financialpositionandprofitorlossoftheCompanyandtheundertakingsincludedintheconsolidationtakenasawhole;

• theStrategicreportincludesafairreviewofthedevelopmentandperformanceofthebusinessandthepositionoftheCompanyandtheundertakingsincludedintheconsolidationtakenasawhole,togetherwithadescriptionoftheprincipalrisksanduncertaintiesthattheyface;and

• theAnnualReportandfinancialstatements,takenasawhole,arefair,balancedandunderstandableandprovidetheinformationnecessaryforshareholderstoassesstheCompany’spositionandperformance,businessmodelandstrategy.

ThisresponsibilitystatementwasapprovedbytheBoardofDirectorson21November2018andissignedonitsbehalfby:


21November2018

Directors’ responsibilities statement


TheBoardiscommittedtohighstandardsofcorporategovernance.IamdelightedtobeabletoreportthattheBoardconsidersthattheCompanyhascompliedthroughouttheyearended29September2018withalltheprovisionsandbestpracticeguidanceoftheCodeexceptthoseinrespectofBoardcompositionandtheconstitutionofBoardCommittees.Thiscorporategovernancestatementaddressesthesmallnumberofareaswhere,forreasonsspecifictoMitchells&Butlers,therearedivergencesfromtheCodeasdescribedbelow.

TheAuditCommitteereportandNominationCommitteereportwhicharesetoutonpages64to67andpage60respectivelyoftheAnnualReportalsoformpartofthiscorporategovernancestatementandtheyshouldallbeconsideredtogether.

TheBoardrecognisestheimportanceofgoodcorporategovernanceincreatingasustainable,successfulandprofitablebusinessanddetailsaresetoutinthisstatementoftheCompany’scorporategovernanceproceduresandapplicationoftheprinciplesoftheCode.Thereare,however,asmallnumberofareaswhere,forreasonsspecificallyrelatedtotheCompany,thedetailedprovisionsoftheCodewerenotfullycompliedwithinFY2018.Theseareasarekeptunderregularreview.AfundamentalaspectoftheCodeisthatitcontainsbestpracticerecommendationsinrelationtocorporategovernanceyetacknowledgesthat,inindividualcases,thesewillnotallnecessarilybeappropriateforparticularcompanies.Accordingly,theCodespecificallyrecognisestheconceptof‘ComplyorExplain’inrelationtodivergencesfromtheCode.

Compliance with the Code

Exceptforthematterswhichareexplainedbelow(inlinewiththe‘ComplyorExplain’concept),theCompanycompliedfullywiththeprinciplesandprovisionsoftheCodethroughoutthefinancialyearinrespectofwhichthisstatementisprepared(andcontinuestodosoasatthedateofthisstatement).

Explanation for non-compliance with parts of the CodeDuringtheyear,therewerethreedivergencesfromfullcompliancewiththeCodeassetoutbelowbyreferencetospecificparagraphsintheCode:

B.1.2 (Composition of the Board), C.3.1 and D.2.1 Constitution of CommitteesDuringtheyear,CodeProvisionB.1.2,whichrequiresthatatleasthalfoftheBoardbemadeupofindependentNon-ExecutiveDirectors(excludingtheChairman),wasnotcompliedwith.Accordingly,thishadconsequentialimplicationsonthecompositionoftheAuditandRemunerationCommittees.TherewerenochangesinBoardcompositionduringFY2018.InSeptember2018,theCompanyannouncedthatStewartGillilandhadinformedtheBoardofhisintentiontostepdownfromtheBoardandtheBoardhascommencedaprocessofidentificationandrecruitmentofareplacement.

WhiletheBoarddoesnotcomplyfullywiththerequirementforatleasthalfofitsmemberstobeindependent,itrecognisesandvaluesthepresenceofrepresentativesofitsmajorshareholdersontheBoardandwelcomestheinterestshownbythemintheCompanyasawhole.TheBoardwillcontinuetoworkcloselywiththerepresentativesofitsmajorshareholderstofurthertheinterestsoftheCompany.

Bob Ivell Chairman

Thiscorporategovernancestatementsetsoutourreporttoshareholdersonthestatusofourcorporategovernancearrangements.TheBoardisresponsibleforensuringthattheactivitiesoftheMitchells&ButlersGroupanditsvariousbusinessesareconductedincompliancewiththelaw,regulatoryrequirementsandrules,goodpractices,ethicallyandwithappropriateandpropergovernanceandstandards.Thisincludesreviewinginternalcontrols,ensuringthatthereisanappropriatebalanceofskillsandexperiencerepresentedontheBoardandcompliancewiththeUKCorporateGovernanceCode(the‘Code’),whichisissuedbytheFinancialReportingCouncilandwhichisavailableatwww.frc.org.uk,andformaintainingappropriaterelationswithshareholders.

TheCompanyisreportingagainstthe2016editionoftheCode.ArevisedCodewaspublishedInJuly2018,whichwillbecomeeffectiveforaccountingperiodsbeginningonorafter1January2019.Thekeychangesbetweenthe2016and2018Codesare:

• enhancedboardengagementwiththeworkforceandwiderstakeholders;

• aclearbusinessstrategyalignedwithahealthycorporatecompanyculture;

• ahigh-qualityanddiverseboardcomposition;and

• proportionateexecutiveremunerationthatsupportsthelong-termsuccessofthebusiness.

TheBoardwillexaminecurrentpracticesinrelationtotherequirementsofthe2018Codeandwillreportinrelationtothemattheappropriatetime.

The latest financial information for Mitchells & Butlers and its group of companies is included in the 2018 Annual Report and Accounts (of which this corporate governance statement forms part) and which is available online at: www.mbplc.com/investors

Corporate governance statement


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ThepossibilityofappointingafurtherindependentNon-ExecutiveDirectorremainsamatterfortheNominationCommitteetoreviewandisconsideredregularly.ThroughoutFY2018,theCompanyhad(andcontinuestohave)fullyfunctioningNomination,AuditandRemunerationCommitteesasrequiredbytheCode.TheAuditandRemunerationCommitteesarenotfullycompliantwiththerelevantprovisionsofparagraphsC.3.1andD.2.1oftheCodeinthattheyincludethepresenceofrepresentativesofmajorshareholders.Nevertheless,theBoardvaluesthecontributionofthoseshareholderrepresentativesonthoseCommittees,doesnotconsiderthistobeanimpedimenttogoodgovernanceandlooksforwardtocontinuingtoworkwiththemonmattersaffectingtheGroupanditsactivitiesinthefuture.

TheinformationrequiredbyDisclosureGuidanceandTransparencyRule(‘DGTR’)7.1issetoutintheAuditCommitteereportonpages64to67.TheinformationrequiredbyDGTR7.2issetoutinthiscorporategovernancestatement,otherthanthatrequiredunderDGTR7.2.6whichissetoutintheDirectors’reportonpages50to55.

Board composition

TheBoardstartedandendedtheyearwithelevenDirectorsandthetableoppositeliststhecompositionoftheBoardduringtheyear.

The Board

TheBoardisresponsibletoallstakeholders,includingitsshareholders,forthestrategicdirection,developmentandcontroloftheGroup.Itapprovesstrategicplansandannualcapitalandrevenuebudgets.ItreviewssignificantinvestmentproposalsandtheperformanceofpastinvestmentsandmaintainsanoverviewandcontroloftheGroup’soperatingandfinancialperformance.ItmonitorstheGroup’soverallsystemofinternalcontrols,governanceandcomplianceandensuresthatthenecessaryfinancial,technicalandhumanresourcesareinplacefortheCompanytomeetitsobjectives.OurwebsiteincludesascheduleofmatterswhichhavebeenreservedforthemainBoard.

DuringFY2018thereweretenscheduledBoardmeetings.TherewerealsofourmeetingsoftheAuditCommittee,sixmeetingsoftheRemunerationCommitteeandtwomeetingsoftheNominationCommittee.ThetableoppositeshowsattendancelevelsattheBoardandCommitteemeetingsheldduringtheyear;thenumbersinbracketsconfirmhowmanymeetingseachDirectorwaseligibletoattendduringtheyear.

FullattendancewasrecordedforallDirectorsinrespectofallBoardandCommitteemeetingsduringFY2018,butwhereDirectorsareunabletoattendameeting(whetheroftheBoardoroneofitsCommittees),theyareprovidedwithallthepapersandinformationrelatingtothatmeetingandareabletodiscussissuesarisingdirectlywiththeChairmanoftheBoardorChairoftherelevantCommittee.Inaddition,theBoardmembersmeetmoreinformallyapproximatelyfourtimesayearandtheChairmanandtheNon-ExecutiveDirectorsmeetwithouttheExecutiveDirectorstwiceayear.

TherearetenBoardmeetingscurrentlyplannedforFY2019.

TheCompanySecretary’sresponsibilitiesincludeensuringgoodinformationflowstotheBoardandbetweenseniormanagementandtheNon-ExecutiveDirectors.TheCompanySecretaryisresponsible,throughtheChairman,foradvisingtheBoardonallcorporategovernancemattersandforassistingtheDirectorswiththeirprofessionaldevelopment.Thisincludesregularcorporategovernanceandbusinessissuesupdates,aswellastheuseofoperationalsitevisitsandtheprovisionofexternalcourseswhererequired.TheCompanySecretaryfacilitatesacomprehensiveinductionfornewlyappointedDirectors,tailoredtoindividualrequirementsandincludingguidanceontherequirementsof,andDirectors’dutiesinconnectionwith,theCodeandtheCompaniesAct2006aswellasotherrelevantlegislation.InFY2018,

theCompanySecretaryalsoco-ordinatedtheexternallyfacilitatedperformanceevaluationoftheBoard,detailsoftheoutputofwhicharesetoutatpage63.TheappointmentandremovaloftheCompanySecretaryisamatterreservedfortheBoard.

Attendance levels at Board and Committee meetings

BoardAudit

CommitteeRemuneration

CommitteeNomination Committee

Directors who served during the yearBobIvell 10(10) n/a 6(6) 2(2)KeithBrowne 10(10) n/a n/a n/aDaveCoplin 10(10) 4(4) 6(6) 2(2)StewartGilliland 10(10) 4(4) 6(6) 2(2)EddieIrwin 10(10) 4(4) 6(6) 2(2)TimJones 10(10) n/a n/a n/aJoshLevy 10(10) n/a 6(6) n/aRonRobson 10(10) 4(4) n/a 2(2)ColinRutherford 10(10) 4(4) 6(6) 2(2)PhilUrban 10(10) n/a n/a n/aImeldaWalsh 10(10) 4(4) 6(6) 2(2)

DirectorsThefollowingwereDirectorsoftheCompanyduringtheyearended29September2018:

Date

appointedDate of

change of role

Directors who served during the yearBobIvell IndependentNon-

ExecutiveDirector1 09/05/11 14/07/11InterimChairman1 14/07/11 26/10/11ExecutiveChairman 26/10/11 12/11/12Non-ExecutiveChairman 12/11/12 –

KeithBrowne2 Non-ExecutiveDirector 22/09/16 –DaveCoplin IndependentNon-

ExecutiveDirector 29/02/16 –StewartGilliland IndependentNon-

ExecutiveDirector 23/05/13 –SeniorIndependentDirector 02/02/15 –

EddieIrwin2 Non-ExecutiveDirector 21/03/12 –JoshLevy3 Non-ExecutiveDirector 13/11/15 –TimJones FinanceDirector 18/10/10 –RonRobson3 Non-ExecutiveDirector 22/01/10 –

DeputyChairman 14/07/11 –ColinRutherford IndependentNon-

ExecutiveDirector 22/04/13 –PhilUrban ChiefExecutive 27/09/15 –ImeldaWalsh IndependentNon-

ExecutiveDirector 22/04/13 –

1. Independentwhileintherolespecified.2. NominatedshareholderrepresentativeofElpidaGroupLimited.3. NominatedshareholderrepresentativeofPiedmontInc.

Corporate governance statement continued


Atthestartandendoftheyear,theBoardwasmadeupoftenmaleandonefemalemembers.TherewerenochangestotheBoardduringtheyear.

TheExecutiveDirectorshaveservicecontracts,detailsofwhichareontheCompany’swebsitewww.mbplc.com.TheChairmanandeachoftheNon-ExecutiveDirectorshavelettersofappointment.CopiesoftherespectiveservicecontractsorlettersofappointmentofallthemembersoftheBoardareavailableontheCompany’swebsite.Inaddition,theyareavailableforinspectionattheregisteredofficeoftheCompanyduringnormalbusinesshoursandattheplaceoftheAnnualGeneralMeetingfromatleast15minutesbeforeanduntiltheendofthemeeting.

AlltheCompany’sDirectorsarerequiredtostandforannualre-electionattheCompany’sAnnualGeneralMeetinginaccordancewiththeCompany’sArticlesofAssociation.TheexceptiontothisisStewartGillilandwhoplanstostepdownfromtheBoardbytheendofDecember2018andconsequentlywillnotbestandingforre-electionattheAGMinJanuary2019.Theirbiographicaldetailsasat21November2018aresetoutonpages48and49,includingtheirmaincommitmentsoutsidetheCompany.

TheExecutiveDirectorsmaybepermittedtoacceptoneexternalNon-ExecutiveDirectorappointmentwiththeBoard’spriorapprovalandaslongasthisisnotlikelytoleadtoconflictsofinterest.AsatthedateofthisAnnualReport,neitheroftheExecutiveDirectorsheldanysuchexternaldirectorship.

Division of responsibilities between Chairman and Chief ExecutiveInaccordancewithprovisionA.2.1oftheCode,therolesofChairmanandChiefExecutiveshouldnotbeexercisedbythesameindividual.

ThedivisionofresponsibilitiesbetweentheChairmanandtheChiefExecutiveareclearlyestablishedandsetoutinwritingandagreedbytheBoard.Inparticular,ithasbeenagreedinwritingthattheChairmanshallberesponsibleforrunningtheBoardandshallprovideadviceandassistancetotheChiefExecutive.HealsochairstheNominationCommittee,isamemberoftheRemunerationCommitteeandattends,byinvitation,meetingsoftheAuditCommittee.HealsochairstheMarketDisclosureCommittee,thePropertyCommitteeandthePensionsCommittee.

ItisalsoagreedinwritingthattheChiefExecutivehasresponsibilityforallaspectsoftheGroup’soverallcommercial,operationalandstrategicdevelopment.HechairstheExecutiveCommittee(detailsofwhichappearonpage61)andattendstheNomination,RemunerationandAuditCommitteebyinvitation,notnecessarilyfortheentiretyofsuchmeetingsdependinguponthesubjectmatter.HeisalsoamemberoftheMarketDisclosureCommittee,thePropertyCommitteeandthePensionsCommittee.

AllotherExecutiveDirectors(currentlyjusttheFinanceDirector)andallothermembersoftheExecutiveCommitteereporttotheChiefExecutive.

ChairmanTheUKCorporateGovernanceCodeprovidesthattheChairmanshould,onappointment,meettheindependencecriteriasetoutinprovisionB.1.1ofthatCode.BobIvellmettheseindependencecriteriaonappointment.

BobIvellwasappointedtotheroleofExecutiveChairmanon26October2011onthedepartureofthethenChiefExecutiveandrevertedtotheroleofNon-ExecutiveChairmanon12November2012.

TheChairmanensuresthatappropriatecommunicationismaintainedwithshareholders.HeensuresthatallDirectorsarefullyinformedofmattersrelevanttotheirroles.

Chief ExecutivePhilUrbanwasappointedChiefExecutiveon27September2015.HehasresponsibilityforimplementingthestrategyagreedbytheBoardandfortheexecutivemanagementoftheGroup.

Senior Independent DirectorStewartGillilandwasappointedtotheroleofSeniorIndependentDirectoron2February2015.HewillbesteppingdownfromtheBoardbytheendofDecember2018andwillnotbesubmittedforre-electionatthe2019AGM.TheBoardhascommencedaprocessofidentificationandrecruitmentofareplacement.

TheSeniorIndependentDirectorsupportstheChairmaninthedeliveryoftheBoard’sobjectivesandensuresthattheviewsofallmajorshareholdersandstakeholdersareconveyedtotheBoard.StewartGillilandisavailabletoallshareholdersshouldtheyhaveanyconcernsifthenormalchannelsofChairman,ChiefExecutiveorFinanceDirectorhavefailedtoresolvethem,orforwhichsuchcontactisinappropriate.

TheSeniorIndependentDirectoralsomeetswithNon-ExecutiveDirectors,withouttheChairmanpresent,atleastannually,andconductstheannualappraisaloftheChairman’sperformanceandprovidesfeedbacktotheChairmanontheoutputsofthatappraisal.

Non-Executive Directors TheCompanyhasexperiencedNon-ExecutiveDirectorsonitsBoard.BobIvellwasconsideredtobeindependentuponhisappointmenton9May2011inthathewasfreefromanybusinessorotherrelationshipwiththeCompanywhichcouldmateriallyinfluencehisjudgementandhecontinuestorepresentastrongsourceofadviceandindependentchallenge.SincehisappointmentasChairmanon14July2011theindependencetest,assetoutintheCode,isnolongerapplicabletohiscurrentposition.

RonRobsonandJoshLevywereappointedtotheBoardasrepresentativesofoneoftheCompany’slargestshareholders,PiedmontInc.,andwerethereforenotregardedasindependentinaccordancewiththeCode.

EddieIrwinandKeithBrownewereappointedtotheBoardasrepresentativesofanotheroftheCompany’slargestshareholders,ElpidaGroupLimitedandwerethereforenotregardedasindependentinaccordancewiththeCode.

TherearecurrentlyfourindependentNon-ExecutiveDirectorsontheBoard:StewartGilliland,ColinRutherford,ImeldaWalshandDaveCoplin.

Otherthantheirfees,andreimbursementoftaxableexpenseswhicharedisclosedonpage80,theNon-ExecutiveDirectorsreceivednoremunerationfromtheCompanyduringtheyear.ThebasefeeforNon-ExecutiveDirectorswillincreaseby2%to£53,000perannumandthefeepaidtoNon-ExecutiveDirectorsforchairingaCommitteeorfortheroleofSeniorIndependentDirectorwillincreaseto£13,000perannum,bothchangestotakeeffectfrom1January2019.

WhenNon-ExecutiveDirectorsareconsideredforappointment,theBoardtakesintoaccounttheirotherresponsibilitiesinassessingwhethertheycancommitsufficienttimetotheirprospectivedirectorship.Onaverage,theNon-ExecutiveDirectorsspendtwotothreedayspermonthonCompanybusiness,butthismaybemoredependingonthecircumstancesfromtimetotime.


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Board information and trainingAllDirectorsarebriefedbytheuseofcomprehensivepaperscirculatedinadvanceofBoardmeetingsandbypresentationsatthosemeetings,inadditiontoreceivingminutesofpreviousmeetings.TheirunderstandingoftheGroup’sbusinessisenhancedbybusinessspecificpresentationsandoperationalvisitstotheGroup’sbusinesses.Separatestrategymeetingsandmeetingswithseniorexecutivesandrepresentativesofspecificfunctions,brandsorbusinessunitsarealsoheldthroughouttheyear.

ThetrainingneedsofDirectorsareformallyconsideredonanannualbasisandarealsomonitoredthroughouttheyearwithappropriatetrainingbeingprovidedasrequired,includingcorporatesocialresponsibilityandcorporategovernanceaswellastheenvironmentalimpactsoftheCompany’sactivities.

Committees

EachBoardCommitteehaswrittentermsofreferenceapprovedbytheBoard,whichareavailableontheCompany’swebsite.ThosetermsofreferenceareeachreviewedannuallybytherelevantCommitteetoensuretheyremainappropriate.

Audit CommitteeDetailsoftheAuditCommitteeanditsactivitiesduringtheyearareincludedintheAuditCommitteereportonpages64to67whichisincorporatedbyreferenceintothisstatement.

Remuneration CommitteeDetailsoftheRemunerationCommitteeanditsactivitiesduringtheyearareincludedintheReportonDirectors’remunerationonpages68to91.

Nomination CommitteeTheNominationCommitteeisresponsiblefornominating,fortheapprovaloftheBoard,candidatesforappointmenttotheBoard.ItisalsoresponsibleforsuccessionplanningfortheBoardandtheExecutiveCommitteeandreviewingtheoutputoftheBoardeffectivenessreview.TheBoardhasagreedtosetoutadetailedBoardsuccessionplanandthatwillbeconsideredbytheNominationCommitteeinFY2019.

Duringtheyear,theNominationCommitteeconsideredthecompositionoftheBoardand,followingtheyearend,hasassessedtheoutcomeoftheexternallyfacilitatedBoardeffectivenessreviewwhichwascarriedoutduringthefinancialyearnowreportedon.Moredetailsoftheconclusionsofthatreviewareonpage63.TheNominationCommitteeagreestheimportanceofhavingdiversityontheBoard,includingfemalerepresentationandindividualswithdifferentexperiences,skillsetsandexpertise,soastomaintainanappropriatebalancewithintheCompanyandontheBoard.

Diversity and Inclusion Steering Group and Board Diversity PolicyTheCompanyhasaDiversityandInclusionSteeringGroupwhichexaminestheimplementationofdiversitywithintheGroup.

TheBoardhasapprovedaBoardDiversityPolicy.Thekeystatementandobjectivesofthatpolicyareasfollows:

Statement:TheBoardrecognisesthebenefitsofdiversity.Diversityofskills,background,knowledge,internationalandindustryexperience,andgender,amongstmanyotherfactors,willbetakenintoconsiderationwhenseekingtoappointanewDirectortotheBoard.Notwithstandingtheforegoing,allBoardappointmentswillalwaysbemadeonmerit.

Objectives:• TheBoardshouldensureanappropriatemixofskillsandexperience

toensureanoptimumBoardandefficientstewardship.AllBoardappointmentswillbemadeonmeritwhiletakingintoaccountindividualcompetence,skillsandexpertisemeasuredagainstidentifiedobjectivecriteria(includingconsiderationofdiversity).

• TheBoardshouldensurethatitcomprisesDirectorswhoaresufficientlyexperiencedandindependentofcharacterandjudgement.

• TheNominationCommitteewilldiscussandagreemeasurableobjectivesforachievingdiversityontheBoardwithdueregardbeinggiventotherecommendationssetoutintheDaviesReport,theHampton-AlexanderReviewandtheUKCorporateGovernanceCode2016.Thesewillbereviewedonanannualbasis.

Progress against the policy:TheBoardcontinuestomonitorprogressagainstthispolicy.IntermsofBoarddiversity,theproportionofwomenontheBoardwas9%asattheyearended29September2018.Anyfutureappointmentswillalwaysbemadeonmeritandwillcontinuetotakeintoaccountdiversity,notonlyintermsofgender,butalsointermsoftheappropriatemixofskillsandexperience.

DetailsoftheMitchells&ButlersDiversityPolicy,whichappliestodiversityinrelationtoemployeesoftheMitchells&ButlersGroup,canbefoundinthecorporatesocialresponsibilitysectiononpages32to37.

AdetaileddescriptionofthedutiesoftheNominationCommitteeissetoutwithinitstermsofreferencewhichcanbeviewedatwww.mbplc.com/investors/businessconduct/boardcommittees/

ThefollowingweremembersoftheNominationCommitteeduringtheyear:

Appointment date

Member at 29/09/18

BobIvell(Chair) 11/07/13 YDaveCoplin 29/02/16 YStewartGilliland 11/07/13 YEddieIrwin 11/07/13 YRonRobson 11/07/13 YColinRutherford 11/07/13 YImeldaWalsh 11/07/13 Y

Duringtheyear,theCompanycompliedwithprovisionB.2.1oftheCodeastheNominationCommitteecomprisedamajorityofindependentNon-ExecutiveDirectors.



Market Disclosure Committee

TheEUMarketAbuseRegulation(MAR)whichtookeffectinJuly2016,broughtaboutsubstantialchangesrelatingtoannouncementsofmaterialinformationabouttheCompanyanditsaffairs,andrelatingtodealingsinsharesorothersecuritiesbyDirectorsandotherseniormanagers,includingtightercontrolsonpermitted‘dealings’duringclosedperiodsandthehandlingofinformationrelatingtotheCompany.MARrequirescompaniestokeepalistofpeopleaffectedandthepreviouscomplianceregimeandtimeframewereenhanced.

Asaresult,aformalstandingCommitteeoftheBoardwasestablished,calledtheMarketDisclosureCommittee,whichcomprisestheChairman,theChiefExecutive,theFinanceDirectorandanindependentNon-ExecutiveDirector,currentlyColinRutherford.

Executive Committee

TheExecutiveCommittee,whichischairedbytheChiefExecutive,consistsoftheExecutiveDirectorsandcertainotherseniorexecutives,namelyGaryJohn(GroupPropertyDirector),SusanMartindale(GroupHRDirector),GregMcMahon(CompanySecretaryandGeneralCounsel),ChrisHopkins(CommercialandMarketingDirector)andSusanChappell,NickCrossleyandDennisDeare(allDivisionalDirectors).

TheExecutiveCommitteemeetsatleasteverysixweeksandhasday-to-dayresponsibilityfortherunningoftheGroup’sbusiness.ItdevelopstheGroup’sstrategyandannualrevenueandcapitalbudgetsforBoardapproval.ItreviewsandrecommendstotheBoardanysignificantinvestmentproposals.ThisCommitteemonitorsthefinancialandoperationalperformanceoftheGroupandallocatesresourceswithinthebudgetsagreedbytheBoard.Itconsidersemploymentissues,ensurestheGrouphasanappropriatepooloftalentanddevelopsseniormanagementmanpowerplanningandsuccessionplans.Anoteoftheactionsagreedby,andtheprincipaldecisionsof,theExecutiveCommitteearesuppliedtotheBoardforinformationinorderthatBoardmemberscankeepabreastofoperationaldevelopments.

PhilUrbanhasultimateresponsibilityforemploymentrelatedissuesandhealsooverseesmattersrelatingtohumanrightsincludingtheimplementationoftheModernSlaveryActthroughouttheGroup.

General Purposes Committee

TheGeneralPurposesCommitteecomprisesanytwoExecutiveDirectorsoranyoneExecutiveDirectortogetherwithaseniorofficerfromanagreedandrestrictedlistofseniorExecutives.ItisalwayschairedbyanExecutiveDirector.Itattendstobusinessofaroutinenatureandtoadministrativematters,theprinciplesofwhichhavebeenagreedpreviouslybytheBoardoranappropriateCommittee.

Property Committee

ThePropertyCommitteereviewspropertytransactionswhichhavebeenreviewedandrecommendedbythePortfolioDevelopmentCommittee,withouttheneedforsubmissionoftransactionstothefullBoard.ThePropertyCommitteeagreestotheoverallstrategicdirectionforthemanagementoftheGroup’spropertyportfolioonaregularbasisandmaydecidethataparticulartransactionshouldbereferredtotheBoardforconsiderationorapproval.ThePropertyCommitteecomprisesBobIvell(CommitteeChair),PhilUrban,TimJones,JoshLevy,KeithBrowne,ColinRutherford,StewartGillilandandGaryJohn.

Portfolio Development Committee

TheexecutivereviewofpropertytransactionsandcapitalallocationtosignificantpropertymatterssuchassiteremodelandconversionplansandtheCompany’srealestatestrategyiscarriedoutbythePortfolioDevelopmentCommittee.ThisisnotaformalBoardCommitteebutcomprisestheChiefExecutive,theFinanceDirector,theGroupPropertyDirectorandtheCompanySecretaryandGeneralCounsel.Ithasdelegatedauthoritytoapprovecertaintransactionsuptoagreedfinanciallimitsand,abovethoseauthoritylevels,itmakesrecommendationstotheBoardorthePropertyCommittee.

Pensions Committee

TheBoardhasestablishedaPensionsCommitteetosuperviseandmanagetheCompany’srelationshipwithitsvariouspensionschemesandtheirtrustees.

ThePensionsCommitteemembersareBobIvell(CommitteeChair),ColinRutherford,ImeldaWalsh,TimJones,PhilUrban,KeithBrowneandJoshLevy.

ThroughoutFY2018,theworkofthePensionsCommitteefocusedprimarilyonthediscussionswiththeTrusteeoftheMitchells&ButlersPensionPlaninrelationtoapplicationofaninflationlinkedincreasetopensionsinOctober2018inthecontextoftheCompany’sinstructiontotheTrusteetoapplyaCPI-relatedincreaseassetoutinnote4.5oftheGroupfinancialstatements,andoftheTrustee’sapplicationtocourtforrectificationoftheTrustDeedandRulesofthatplanasreferredtoatnote4.5ofthosefinancialstatements.

Treasury Committee

ThetreasuryoperationsoftheMitchells&ButlersGroupareoperatedonacentralisedbasisunderthecontroloftheGroupTreasurydepartment.AlthoughnotaformalBoardCommittee,theTreasuryCommittee,whichreportstotheFinanceDirectorbutissubjecttooversightfromtheAuditCommitteeand,ultimately,theBoard,hasday-to-dayresponsibilityfor:

• liquiditymanagement;

• investmentofsurpluscash;

• funding,cashandbankingarrangements;

• interestrateandcurrencyriskmanagement;

• guarantees,bonds,indemnitiesandanyfinancialencumbrancesincludingchargesonassets;and

• relationshipswithBanksandothermarketcounterpartiessuchascreditratingagencies.

TheTreasuryCommitteealsoworkscloselywiththefinancialaccountingdepartmenttoreviewtheimpactofchangesinrelevantaccountingpracticesandtoensurethattreasuryactivitiesaredisclosedappropriatelyintheCompany’saccounts.

TheBoarddelegatesthemonitoringoftreasuryactivityandcompliancetotheTreasuryCommittee.Itisresponsibleformonitoringtheeffectivenessoftreasurypoliciesandmakingproposalsforanychangestopoliciesorinrespectoftheutilisationofnewinstruments.TheapprovaloftheBoard,oradesignatedcommitteethereof,isrequiredforanysuchproposals.


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Independent advice

MembersoftheBoardmaytakeindependentprofessionaladviceinthefurtheranceoftheirdutiesandtheBoardhasagreedaformalprocessforsuchadvicetobemadeavailable.MembersoftheBoardalsohaveaccesstotheadviceandservicesoftheCompanySecretaryandGeneralCounsel,theCompany’slegalandotherprofessionaladvisersanditsexternalauditor.ThetermsofengagementoftheCompany’sexternaladvisersanditsexternalauditorareregularlyreviewedbytheCompanySecretaryandGeneralCounsel.

Code of Ethics

TheCompanyhasimplementedbusinessconductguidelinesdescribingthestandardsofbehaviourexpectedfromthoseworkingfortheCompanyintheformofacodeofethics(the‘EthicsCode’).TheEthicsCodewasreviewedandre-communicatedtoallemployeesinFY2018toensureitwaskeptclearlyinfocus.Itsaimistopromotehonestandethicalconductthroughoutourbusiness.TheEthicsCoderequires:

• compliancewithallapplicablerulesandregulationsthatapplytotheCompanyanditsofficersincludingcompliancewiththerequirementsoftheBriberyAct2010;

• theethicalhandlingofactualorapparentconflictsofinterestbetweeninternalandexternal,personalandprofessionalrelationships;and

• thatanyhospitalityfromsuppliersmustbeapprovedinadvancebyappropriateseniormanagement,withapresumptionagainstitsacceptance.

TheCompanytakesazerotoleranceapproachtobriberyandhasdevelopedanextensiveBriberyPolicywhichisincludedintheEthicsCode.TheEthicsCoderequiresemployeestocomplywiththeBriberyPolicy.

TheCompanyalsooffersanindependentlyadministered,confidentialwhistleblowinghotlineforanyemployeewishingtoreportanyconcernthattheyfeelwouldbeinappropriatetoraisewiththeirlinemanager.Allwhistleblowingallegationsarereportedto,andconsideredby,theExecutiveCommitteeandasummaryreport(withdetailsofanymajorconcerns)issuppliedto,andconsideredby,theAuditCommitteeateachmeeting.

TheBoardtakesregularaccountofsocial,environmentalandethicalmattersconcerningtheCompanythroughregularreportstotheBoardandpresentationstotheBoardatitsstrategymeetings.TheCompany’scompliancestatementinrelationtotheModernSlaveryActcanbeviewedontheCompany’swebsitewww.mbplc.com

Directors’trainingincludesenvironmental,socialandgovernance(‘ESG’)mattersandtheCompanySecretaryisresponsibleforensuringthatDirectorsaremadeawareofandreceiveregulartraininginrespectoftheseimportantareas.TheChiefExecutive,PhilUrban,isultimatelyresponsibleforESGmatters.

TheBoardisresponsiblefortheCompany’sinternalriskmanagementsystem,inrespectofwhichmoredetailscanbefoundinthe‘Risksanduncertainties’sectionofthisreport,andinthefollowingsectionofthisstatement.

Internal control and risk management

TheBoardhasoverallresponsibilityfortheGroup’ssystemofinternalcontrolandriskmanagementandforreviewingitseffectiveness.Inordertodischargethatresponsibility,theBoardhasestablishedtheproceduresnecessarytoapplytheCodefortheyearunderreviewandtothedateofapprovaloftheAnnualReport.SuchproceduresareinlinewiththeFinancialReportingCouncil’s‘GuidanceonRiskManagement,InternalControlandRelatedFinancialandBusinessReporting’andareregularlyreviewedbytheAuditCommittee.

ThekeyfeaturesoftheGroup’sinternalcontrolandriskmanagementsystemsinclude:

• Processes,includingmonitoringbytheBoard,inrespectof:

i. financialperformancewithinacomprehensivefinancialplanning,accountingandreportingframework;

ii. strategicplanachievement;iii. capitalinvestmentandassetmanagementperformance,with

detailedappraisal,authorisationandpost-investmentreviews;andiv. consumerinsightdataandactionstoassesstheevolutionof

brandsandformatstoensurethattheycontinuetobeappealingandrelevanttotheGroup’sguests.

• Anoverallgovernanceframeworkincluding:

i. clearlydefineddelegationsofauthorityandreportinglines;ii. acomprehensivesetofpoliciesandproceduresthatemployees

arerequiredtofollow;andiii. theGroup’sEthicsCode,inrespectofwhichanannual

confirmationofcomplianceissoughtfromallcorporateemployees.

• TheRiskCommittee,asub-committeeoftheExecutiveCommittee,whichassiststheBoard,theAuditCommitteeandtheExecutiveCommitteeinmanagingtheprocessesforidentifying,evaluating,monitoringandmitigatingrisks.TheRiskCommittee,whichcontinuestomeetquarterly,ischairedbytheCompanySecretaryandGeneralCounselandcomprisesExecutiveCommitteemembersandothermembersofseniormanagementfromacross-sectionoffunctions.Itsprimaryresponsibilitiesareto:

i. advisetheExecutiveCommitteeontheCompany’soverallriskappetiteandriskstrategy,takingaccountofthecurrentandprospectiveoperating,legal,macroeconomicandfinancialenvironments;

ii. advisetheExecutiveCommitteeonthecurrentandemergingriskexposuresoftheCompanyinthecontextoftheBoard’soverallriskappetiteandriskstrategy;

iii. promotethemanagementofriskthroughouttheorganisation;iv. reviewandmonitortheCompany’scapabilityandprocesses

toidentifyandmanagerisks;v. considertheidentifiedkeyrisksfacedbytheCompanyand

newandemergingrisksandconsidertheadequacyofmitigationplansinrespectofsuchrisks;and

vi. wheremitigationplansareinadequate,recommendimprovementactions.

TheGroup’srisksidentifiedbytheprocessesthataremanagedbytheRiskCommitteearedescribedin‘Risksanduncertainties’onpages38to42.MoredetailsoftheworkoftheRiskCommitteeareincludedintheAuditCommitteereportonpages64to67.

• Examinationofbusinessprocessesonariskbasisincludingreportsfromtheinternalauditfunction,knownasGroupAssurance,whichreportsdirectlytotheAuditCommittee.



TheGroupalsohasinplacesystems,includingpoliciesandprocedures,forexercisingcontrolandmanagingriskinrespectoffinancialreportingandthepreparationofconsolidatedaccounts.Thesesystems,policiesandprocedures:

• governthemaintenanceofaccountingrecordsthat,inreasonabledetail,accuratelyandfairlyreflecttransactions;

• requirereportedinformationtobereviewedandreconciled,withmonitoringbytheAuditCommitteeandtheBoard;and

• providereasonableassurancethattransactionsarerecordedasnecessarytopermitthepreparationoffinancialstatementsinaccordancewithInternationalFinancialReportingStandards(‘IFRS’)orUKGenerallyAcceptedAccountingPractice,asappropriate.

InaccordancewiththeCode,duringtheyeartheAuditCommitteecompleted(andreportedtotheBoarditsconclusionsinrespectof)itsannualreviewoftheeffectivenessoftheGroup’sriskmanagementandinternalcontrolsystems,includingfinancial,operationalandcompliancecontrols.Thesystemofinternalcontrolisdesignedtomanage,ratherthaneliminate,theriskoffailuretoachievebusinessobjectivesand,assuch,itcanonlyprovidereasonableandnotabsoluteassuranceagainstmaterialmisstatementorloss.Inthatcontext,intheopinionoftheAuditCommittee,thereviewdidnotindicatethatthesystemwasineffectiveorunsatisfactoryandtotheextentthatweaknessesininternalcontrolswereidentified,theAuditCommitteeconfirmedthatnecessaryremedialactionplanswereinplace.TheAuditCommitteeisnotawareofanychangetothisstatusuptothedateofapprovalofthisAnnualReport.

Withregardtoinsuranceagainstrisk,itisnotpracticabletoinsureagainsteveryrisktothefullestextent.TheGroupregularlyreviewsboththetypeandamountofexternalinsurancethatitbuyswithguidancefromanexternalindependentbroker,bearinginmindtheavailabilityofsuchcover,itscostandthelikelihoodandmagnitudeoftherisksinvolved.

Shareholder relations

TheBoardrecognisesthatitisaccountabletoshareholdersfortheperformanceandactivitiesoftheCompany.TheCompanyregularlyupdatesthemarketonitsfinancialperformance,atthehalfyearandfullyearresultsinMayandNovemberrespectively,andbywayofotherannouncementsasrequired.ThecontentoftheseupdatesisavailablebywebcastontheCompany’swebsite,togetherwithgeneralinformationabouttheCompanysoastobeavailabletoallshareholders.TheCompanyhasaregularprogrammeofmeetingswithitslargershareholderswhichprovidesanopportunitytodiscuss,onthebasisofpubliclyavailableinformation,theprogressofthebusiness.

Onamoreinformalbasis,theChairman,ChiefExecutiveandtheFinanceDirectorregularlyreporttotheBoardtheviewsoflargershareholdersabouttheCompany,andtheotherNon-ExecutiveDirectorsareavailabletomeetshareholdersonrequestandareofferedtheopportunitytoattendmeetingswithlargershareholders.ThevotingrightsofPiedmontInc.andElpidaGroupLimitedaresetoutintheDirectors’reportonpage51.

TheAGMprovidesausefulinterfacewithshareholders,manyofwhomarealsoguestsinourpubs,barsandrestaurants.AllproxyvotesreceivedinrespectofeachresolutionattheAGMarecountedandthebalanceforandagainst,andanyvoteswithheld,areindicated.

Board effectiveness evaluation and Chairman’s evaluation and appraisal

Duringtheyear,theBoardcarriedoutaBoardEffectivenessReviewwhichwasfacilitatedbyMrsFfionHagueofIndependentBoardEvaluation.MrsHaguecarriedoutdetailedinterviewsoftheBoardmembersandpresentedherconclusionstoameetingofthewholeBoard.TheBoardhasconsideredthoseconclusionscarefullyandnoted,inparticular,thatthefeedbackwasthattheBoardwasperformingwellwithagoodmixofskillsandexperienceandthatBoardmeetingsallowforgooddebateanddiscussion.TheprincipalCommitteesoftheBoardwerealsonotedtobeworkingwell.Asregardsareasforfurtherdevelopment,theBoardhasagreedthatitwillreviewitscompositionanddevelopamoreformalsuccessionplanforboththeBoardandtheseniorleadershipgroupwithcontinuedfocusongenderandethnicdiversity.ThatplanispresentlybeingpreparedforformalconsiderationbytheNominationCommitteeandthefullBoard.TheBoardhasalsoagreedtoimprovethedegreeofformalityarounditsPensionsCommitteeandNominationCommitteesothattheyarebroughtmoreinlinewiththeAuditCommitteeandtheRemunerationCommittee.TheBoardhasalsonotedandagreedtoreviewandupdateitslonger-termstrategicplan,buildingontheoutputsofthebusinessimprovementactivitiesreferredtointheChiefExecutive’sReportonpage14.ThefinalrecommendationsrelatetoclarifyingandsimplifyingsomeoftheBoard’sregularreportsandthesearebeingimplementedduringthecurrentfinancialyear.

TheannualappraisaloftheChairman’sperformancewasconductedbytheSeniorIndependentDirector,StewartGilliland,withtheindependentNon-ExecutiveDirectors(withouttheChairmanpresent)andtheconclusionsfedbacktotheChairman.TheprincipalconclusionsofthatreviewwerethatMrIvell’sperformanceremainshighlyconstructiveandthatthelevelofMrIvell’sinvolvementwasofbenefittotheCompanynotingthattherelationshipbetweentheChairmanandCEOiscritical.AnnualreviewsoftheChairman’sperformancewillcontinuetobeconductedasrequiredbytheCode.Further,asindicatedabove,theBoardEffectivenessReviewincludedanassessmentoftheChairmanandhisfulfilmentofhisrole.

Going concern

TheDirectors’statementastothestatusoftheCompanyasagoingconcerncanbefoundonpage53.


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Effectiveness of internal controls and Group assurance and risk function

TheaboveeffortsprovidedtheCommitteewithaclearanddetailedunderstandingoftheprincipaloperationsatalllevelsovertheyear.TheCommitteecontinuedtofocusonchallengingtheeffectivenessoftheGroup’sinternalcontrols,therobustnessoftheGroupAssuranceandRiskManagementprocessesandinassessingtheimportanceof,andactingasrequiredupon,allreportedinformationreceivedfromourexternalandinternalauditorsandthird-partyadvisers.

Weremaincommittedtomaintaininganopenandconstructivedialoguewithourshareholdersonauditmatters.Therefore,ifyouhaveanycommentsorquestionsonanyelementofthereport,pleaseemailmyself,careofAdrianBrannan,GroupRiskDirector,[email protected]

Membership and remit of the Audit Committee

ThemainpurposeoftheAuditCommitteeistoreviewandmaintainoversightofMitchells&Butlers’corporategovernance,particularlywithrespecttofinancialreporting,internalcontrolandriskmanagement.TheAuditCommittee’sresponsibilitiesalsoinclude:

• reviewingtheprocessesfordetectingfraud,misconductandinternalcontrolweaknesses;

• reviewingtheeffectivenessoftheGroupAssurancefunction;and

• overseeingtherelationshipwiththeexternalandinternalauditors.

AtthedateoftheAnnualReport,theAuditCommitteecomprisesfourindependentNon-ExecutiveDirectors:ColinRutherford(Chair),ImeldaWalsh,StewartGillilandandDaveCoplin,andtwofurtherNon-ExecutiveDirectorsnominatedbysubstantialshareholders,RonRobsonandEddieIrwin.InaccordancewithCodeprovisionC.3.1theBoardconsidersthatColinRutherfordhassignificant,recentandrelevantfinancialexperience.BiographiesofallofthemembersoftheAuditCommittee,includingasummaryoftheirrespectiveexperience,appearonpages48and49.

FollowingtheappointmentofthreeIndependentNon-ExecutiveDirectorsinAprilandMay2013,Committeememberswereappointedwitheffectfrom11July2013,andrevisedtermsofreferencewereestablished,inordertocomplywithCoderequirements.ThosetermsofreferencearereviewedbytheCommitteeannually.

TheAuditCommitteecontinuedtomeetquarterlyduringFY2018.Ineachcase,appropriatepapersweredistributedtotheCommitteemembersandotherinvitedattendees,including,whereandtotheextentappropriate,representativesoftheexternalauditfirmandtheinternalGroupAssurancefunction.

Whenappropriate,theAuditCommitteeaugmentstheskillsandexperienceofitsmemberswithadvicefrominternalandexternalauditprofessionals,forexample,onmatterssuchasdevelopmentsinfinancialreporting.AuditCommitteemeetingsarealsoattended,byinvitation,byothermembersoftheBoardincludingtheChairman,theChiefExecutiveandtheFinanceDirector,theCompanySecretaryandGeneralCounsel,theGroupRiskDirectorandrepresentativesoftheexternalauditor,DeloitteLLP.TheAuditCommitteealsomeetsprivatelynotlessthantwiceayear,withoutanymemberofmanagementpresent,inrelationtoauditmatters,withtheexternalauditor.

TheremunerationofthemembersoftheAuditCommitteeissetoutintheReportonDirectors’remunerationonpage80.

Colin Rutherford Chairman of the Audit Committee

IntroductionfromtheAuditCommitteeChairmanIamdelightedtopresent,onbehalfoftheBoard,thereportofitsAuditCommitteeforthefinancialyearended29September2018.OverthepastyearwecontinuedtohavethebenefitofspendingvaluabletimewithourGroupRiskDirectorandthosekeyindividualsthroughouttheGroup,whocollectivelyprovideanappreciationandrigorousinsightintohowourGroupfunctionsandreports.TheseinteractionsareextremelyvaluableandtheCommitteeisgratefulfortheinstructiontheyprovide.TheseactivitiesalsosignificantlyassisttowardsthepromotionandefficientexecutionoftheCommittee’soversightrole.

Engagement with auditors and third parties

TheCommitteecontinuedtoengageformally,regularlyandatanappropriatelevelofdetailwithourexternalauditors,internalauditors(alsoexternallyresourced)andotherthird-partyadvisersasnecessary.ThishasenabledtheCommitteetomaintainanappropriateunderstandingofhowourauditorsandthird-partyadvisersinteractwithourassuranceandriskfunction.InturnthisenabledtheseessentialreportingauthoritiestoprovidecomprehensivecoverageoverthewholeauditprocessandhashelpedaugmentourCommittee’sconfidenceintheirrespectiveandcollectivefieldworkconclusions.

ItisalsoimportanttonoteourCommittee’sroleinoverseeingthewell-consideredprovisionofadequateresourcesbytheGroup,towardsensuringthatanyadditionalnon-auditservicesrequiredovertheyearwereobtained,wherenecessary,andindealingwiththeincreasingroleoftheFinancialReportingCouncil(FRC)anditsevolvingreportingrequirements.

Audit Committee report


Summary terms of reference

AcopyoftheAuditCommittee’stermsofreferenceispubliclyavailablewithintheInvestorsectionoftheCompany’swebsite:www.mbplc.com/pdf/audit_committee_terms.pdf

TheAuditCommittee’stermsofreferencewereapprovedbytheCommitteeandadoptedbytheplcBoardin2013.Thosetermsofreferencespecificallyprovidethattheywillbereviewedannually.TheyhavebeenreviewedandupdatedasappropriateeachyearsinceandnochangeswerefelttobeneededinFY2018.Atthetimeofre-adoptionoftheCompany’sCorporateGovernanceComplianceStatementinJuly2016,asupdatedtoreflectchangesrequiredtogiveeffecttotheintroductionoftheMarketAbuseRegulation(MAR),anychangestotheCompany’sgovernancearrangementstoreflecttherequirementsofMARwereintroduced.OtherthanthoseMAR-relatedamendments,whichrelatedtoconsequentialchangestoregulatoryreferences(e.g.theUKLA’sDisclosureandTransparencyRulesarenowknownastheDisclosureGuidanceandTransparencyRules),therehavebeennomaterialchangestotheseTermsofReferencesincethelastreviewin2015.Accordingly,inFY2018nomaterialchangesweremadetothetermsofreferenceoftheAuditCommittee,andtheworkoftheAuditCommitteeiskeptunderreviewwiththeexpectationthatanysuchmatterswhichcometolightareincludedinthereviewscheduledforFY2019.

TheAuditCommitteeisauthorisedbytheBoardtoreviewanyactivitywithinthebusiness.Itisauthorisedtoseekanyinformationitrequiresfrom,andrequiretheattendanceatanyofitsmeetingsof,anyDirectorormemberofmanagement,andallemployeesareexpectedtoco-operatewithanyrequestmadebytheAuditCommittee.

TheAuditCommitteeisauthorisedbytheBoardtoobtain,attheCompany’sexpense,outsidelegalorotherindependentprofessionaladviceandsecuretheattendanceofoutsiderswithrelevantexperienceandexpertise,ifitconsidersthisnecessary.

TheChairoftheAuditCommitteereportstothesubsequentBoardmeetingontheCommittee’sworkandtheBoardreceivesacopyoftheminutesofeachmeeting.

TheroleandresponsibilitiesoftheAuditCommitteeareto:

• reviewtheCompany’spublicstatementsoninternalcontrol,riskmanagementandcorporategovernancecompliance;

• reviewtheCompany’sprocessesfordetectingfraud,misconductandcontrolweaknessesandtoconsidertheCompany’sresponsetoanysuchoccurrence;

• reviewmanagement’sevaluationofanychangeininternalcontrolsoverfinancialreporting;

• reviewwithmanagementandtheauditor,CompanyfinancialstatementsrequiredunderUKlegislationbeforesubmissiontotheBoard;

• establish,reviewandmaintaintheroleandeffectivenessoftheinternalauditfunction,knownasGroupAssurance,whoseobjectiveistoprovideindependentassuranceovertheGroup’ssignificantprocessesandcontrols,includingthoseinrespectoftheGroup’skeyrisks;

• assumedirectresponsibilityfortheappointment,compensation,resignation,dismissalandtheoverseeingoftheauditor,includingreviewoftheexternalaudit,itscostandeffectiveness;

• pre-approvenon-auditworktobecarriedoutbytheexternalauditorandthefeestobepaidforthatworktogetherwiththemonitoringoftheexternalauditor’sindependence;

• overseetheprocessfordealingwithcomplaintsreceivedbytheGroupregardingaccounting,internalaccountingcontrolsorauditingmattersandanyconfidential,anonymoussubmissionbyemployeesofconcernsregardingquestionableaccountingorauditingmatters;and

• adoptandoverseeaspecificCodeofEthicsforallcorporateemployeeswhichisconsistentwiththeCompany’soverallstatementofbusinessethics.

Key activities of the Audit Committee

AuditmattersarereviewedatquarterlyAuditCommitteemeetingsthroughouttheyearatwhichdetailedreportsarepresentedforreview.TheAuditCommitteecommissionsreportsfromexternaladvisers,theGroupRiskDirectororCompanymanagement,eitherafterconsiderationoftheCompany’smajorrisksorinresponsetodevelopingissues.Duringtheyear,inordertofulfiltherolesandresponsibilitiesoftheAuditCommittee,thefollowingmatterswereconsidered:

• thesuitabilityoftheGroup’saccountingpoliciesandpractices;

• halfyearandfullyearfinancialresults;

• thescopeandcostoftheexternalaudit;

• theauditor’shalfyearandfullyearreports;

• reappointmentandevaluationoftheperformanceoftheauditor,includingrecommendationstotheBoard,forapprovalbyshareholders,onthereappointmentoftheCompany’sauditorandontheapprovaloffeesandtermsofengagement;

• non-auditworkcarriedoutbytheauditorandtrendsinthenon-auditfeesinaccordancewiththeCommittee’spolicytoensurethesafeguardingofauditindependence;

• theco-ordinationoftheactivitiesandtheworkprogrammesoftheinternalandexternalauditfunctions;

• thearrangementsinrespectofGroupAssuranceincludingitsresourcing,externalsupport,thescopeoftheannualinternalauditplanforFY2018regardingthelevelofachievementandthescopeoftheannualinternalauditplanforFY2019;

• periodicinternalcontrolandassurancereportsfromGroupAssurance;

• theGroup’sriskmanagementframeworkfortheidentificationandcontrolofmajorrisks,itsriskandassurancemitigationplanandtheannualassessmentofeffectivenessofcontrols;

• compliancewiththeCompany’sCodeofEthics;

• corporategovernancedevelopments;

• thestatusofmateriallitigationinvolvingtheGroup;and

• reportsonallegationsmadeviatheGroup’swhistleblowingproceduresandtheeffectivenessoftheseproceduresincludingasummaryofreportsreceivedduringFY2018.


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TheprincipalobjectivesoftheinternalauditplanforFY2018were,andremainforFY2019:

• toprovideconfidencethatexistingandemergingkeyrisksarebeingmanagedeffectively;

• toconfirmthatcontrolsovercorebusinessfunctionsandprocessesareoperatingasintended(‘coreassurance’);and

• toconfirmthatmajorprojectsandsignificantbusinesschangeprogrammesarebeingadequatelycontrolled.

DuringFY2018,17auditreportswereissuedbytheGroupAssurancefunctionandreviewedbytheBoardortheAuditCommittee.Internalauditrecommendationsarecloselymonitoredthroughtoclosureviaaweb-basedrecommendationtrackingsystem,introducedinFY2013andupdatedinFY2018,whichhassignificantlyimprovedtheoverallmonitoringofinternalauditrecommendationstoensurethesearesuccessfullyimplementedinatimelymanner.AsummaryofthestatusoftheimplementationofinternalauditrecommendationsismademonthlytotheExecutiveCommitteeandquarterlytotheAuditCommittee.

InFY2018,acomprehensivetenderprocesswasundertakenregardingtheco-sourcedGroupAssurancefunction.PwCweresuccessfullyre-appointedbaseduponoverallmeritandqualityoftheteam,toprovideGroupAssuranceauditservicestoM&Bforafurthertwo-years.

Risk management framework

Asdisclosedinthe‘Riskanduncertainties’sectiononpages38to42theRiskCommitteecontinuestomeetonaquarterlybasistoreviewthekeyrisksfacingthebusiness.MembershipoftheRiskCommittee,whichincludesrepresentationfromeachofthekeybusinessfunctions,isdetailedbelow:

• CompanySecretaryandGeneralCounsel(Chairman)

• GroupFinanceDirector

• CommercialandMarketingDirector

• DivisionalDirector(Operations)

• GroupHRDirector

• DirectorofBusinessChange&Technology

• GroupRiskDirector

• HeadofLegal

Keyrisksidentifiedarereviewedandassessedonaquarterlybasisintermsoftheirlikelihoodandimpact,withintheGroup’s‘KeyRiskHeatMap’,inconjunctionwithassociatedriskmitigationplans.Inaddition,theRiskCommitteereviewincludesanassessmentofthematerialrelevanceofemergingrisksandthecontinuedrelevanceofpreviouslyidentifiedrisks.DuringFY2018,RiskCommitteemeetingscontinuedtoincludeacross-functional,detailedreviewoftheGroup’skeyrisks.Thisprocess,whichwasintroducedinFY2016,continuestoprovetobeeffectiveandaddsvaluetothecontinueddevelopmentandprogressionoftheGroup’sapproachtoevaluatingnewandexistingrisks,supportedbyrobustmitigationplans.

ActionsarisingfromRiskCommitteemeetingsarefollowedupbytheGroupRiskDirector.TheAuditCommitteereviewstheRiskCommitteeminutes,inadditiontoundertakingaquarterlyreviewoftheGroup’s‘KeyRiskHeatMap’.

Disclosure of significant issues considered

TheAuditCommitteehasreviewedthekeyjudgementsappliedinthepreparationoftheconsolidatedfinancialstatements,whicharedescribedintherelevantaccountingpoliciesanddetailednotestothefinancialstatementsonpages92to147.

TheAuditCommittee’sreviewincludedconsiderationofthefollowingkeyaccountingjudgements:

• Property,plantandequipmentvaluation–theassumptionsusedbymanagementtovaluethelongleaseholdandfreeholdestateincludingestimatedfairmaintainabletradinglevels,brandmultiplesanduseofspotvaluationstoensureaconsistentvaluationmethodologyisinplace.Shortleaseholdbuildings,unlicensedlandandbuildingsandfixtures,fittingsandequipmentareheldatcostlessdepreciationandimpairment.Therevaluationmethodologyisdeterminedbyusingmanagementjudgement,withadvicetakenfromthird-partyvaluers;

• Valuationofonerousleaseprovisions–determinationofwhetheralossisunavoidablerequiresareasofjudgementwhichincludeconsiderationofpotentialfutureinvestmentdecisions,localconditionswhichmaybeimpactingoncurrentperformanceandtheopportunitytosurrenderaleasebacktothelandlord;

• Pensiondeficit–thepensionliabilityissensitivetotheactuarialassumptionsappliedinmeasuringfuturecashoutflows.TheuseofassumptionssuchasthediscountrateandinflationwhichhaveanimpactonthevaluationofthedefinedbenefitpensionschemehasbeenassessedbytheAuditCommittee.Themostsignificantcriteriaconsideredfortheselectionofbondsincludetheratingofthebondsandthecurrencyandestimatedtermoftheretirementbenefitliabilities.Managementhaveusedjudgementtodeterminetheapplicablerateofinflationtoapplytopensionincreasesincalculatingthedefinedbenefitobligation;

• Covenants–theheadroomonthecovenantswithinthesecuritisedestate,togetherwithanevaluationofthemitigatingoptionsavailabletomanagement(toensurethereisreasonableassurancethatshouldacovenantbeclosetobeingbreached,managementhavefurtheractionsthatcouldbeundertakentopreventsuchabreachoccurring),havebeenreviewedindetailbymanagementandassessedbytheAuditCommittee;and

• Separatelydiscloseditems–judgementisusedtodeterminethoseitemswhichshouldbeseparatelydisclosedtoallowabetterunderstandingoftheadjustedtradingperformanceoftheGroup.Thisjudgementincludesassessmentofwhetheranitemisofsufficientsizeorofanaturethatisnotconsistentwithnormaltradingactivities.

Effectiveness of internal audit

TheAuditCommitteeisresponsibleformonitoringandreviewingtheeffectivenessoftheCompany’sinternalauditfunction.TheAuditCommitteemeetsregularlywithmanagementandwiththeGroupRiskDirectorandtheinternalauditor,toreviewtheeffectivenessofinternalcontrolsandriskmanagementandreceivesreportsfromtheGroupRiskDirectoronaquarterlybasis.

TheannualinternalauditplanisapprovedbytheAuditCommitteeandkeptunderreviewonamonthlybasis,bytheGroupRiskDirector,inordertoreflectthechangingbusinessneedsandtoensurenewandemergingrisksareconsidered.TheAuditCommitteeisinformedofanyamendmentsmadetotheauditplanonaquarterlybasis.TheFY2018internalauditplanwasdevelopedthroughareviewofformalriskassessments(inconjunctionwiththeRiskCommitteeandtheGroup’sExecutiveCommittee)togetherwithconsiderationoftheGroup’skeybusinessprocessesandfunctionsthatcouldbesubjecttoaudit.AsimilarapproachhasbeenemployedinrelationtotheFY2019internalauditplan.

Audit Committee report continued


Confidential reporting

TheGroup’swhistleblowingpolicyenablesstaff,inconfidence,toraiseconcernsaboutpossibleimproprietiesinfinancialandothermattersandtodosowithoutfearofreprisal.DetailsofthepolicyaresetoutintheCompany’sCodeofEthics.TheAuditCommitteereceivesquarterlyreportsonwhistleblowingincidentsandremainssatisfiedthattheproceduresinplacearesatisfactorytoenableindependentinvestigationandfollowupactionofallmattersreported.NomajorissueshavebeenreportedinFY2018(majorissuesbeingdefinedforthispurposeasmattershavingafinancialimpactofgreaterthan£100k).

External auditor appointment

DeloitteLLPwasappointedastheauditorin2011,followingaformaltenderprocess.TheAuditCommitteehasconsideredtheguidanceinrelationtorotationincludingtheproposedtransitionruleswhichwillbeconsideredwhenrecommendingtheappointmentoftheauditorinfutureyears.Themostrecentauditpartnerrotationtookplacein2016wherebyJohnCharltonbecametheleadAuditPartner.TheCompanyhascompliedthroughoutthereportingyearwiththeprovisionsofTheStatutoryAuditServicesforLargeCompaniesMarketInvestigation(MandatoryUseofCompetitiveTenderProcessesandAuditCommitteeResponsibilities)Order2014.UnderthetermsofthatOrder,theCommitteeexpectstocarryoutacompetitiveaudittenderbynolaterthan2020inrespectofthefinancialyearendingin2021toensurethecontinuedobjectivity,independenceandvalueformoneyofthestatutoryaudit.Itmaychoosetodosoatanearliertime.

TheAuditCommitteeconsidersthattherelationshipwiththeauditorisworkingwellandissatisfiedwithitseffectivenessandhasnotconsidereditnecessarytorequireDeloitteLLPtore-tenderfortheexternalauditwork.TherearenocontractualobligationsrestrictingtheCompany’schoiceofauditor.

External auditor’s independence

Theexternalauditorshouldnotprovidenon-auditserviceswhereitmightimpairtheirindependenceorobjectivitytodoso.TheAuditCommitteehasestablishedapolicytosafeguardtheindependenceandobjectivityoftheGroup’sauditorassetoutbelow.ThatpolicyhasbeenreviewedinFY2018andacopyofitisappendedtotheAuditCommittee’stermsofreferenceandisavailableontheCompany’swebsite.Pursuanttothatpolicythefollowingserviceshavebeenpre-approvedbytheAuditCommitteeprovidedthatthefeesforsuchservicesdonotexceedinanyyearmorethan70%oftheaverageauditfeepaidtothatauditfirmoverthepastthreeyears:

• auditservices,includingworkrelatedtotheannualGroupfinancialstatements,andstatutoryaccounts;and

• certainspecifiedtaxservices,includingtaxcompliance,taxplanningandtaxadvice.

Acquisitionandvendordue-diligencemayonlybeprovidedifitisspecificallyapprovedbytheCommitteeonacasebycasebasisinadvanceoftheengagementcommencing.Anyotherworkforwhichmanagementwishestoutilisetheexternalauditormustbeapprovedasfollows:

• serviceswithfeeslessthan£50,000maybeapprovedbytheFinanceDirector;and

• engagementswithfeesover£50,000falltobeapprovedbytheAuditCommitteeoritsChair.

TheAuditCommitteeremainsconfidentthattheobjectivityandindependenceoftheauditorarenotinanywayimpairedbyreasonofthenon-auditserviceswhichtheyprovidetotheGroup.

ThatpolicyalsoincludesanextensivelistofserviceswhichtheauditfirmmaynotprovideormayonlyprovideinverylimitedcircumstanceswheretheCompanyandtheauditfirmagreethattherewouldbenoimpactontheimpartialityoftheauditfirm.Detailsoftheremunerationpaidtotheauditor,andthesplitbetweenauditandnon-auditservices,aresetoutinnote2.3ofthefinancialstatementsonpage112.

External audit annual assessment

TheAuditCommitteeassessesannuallythequalification,expertise,resourcesandindependenceoftheGroup’sauditorandtheoveralleffectivenessoftheauditprocess.TheFinanceDirector,CompanySecretaryandGeneralCounsel,AuditCommitteeChairmanandGroupRiskDirectormeetwiththeauditortodiscusstheaudit,significantrisksandanykeyissuesincludedontheAuditCommittee’sagendaduringtheyear.

Fair, balanced and understandable statement

OneofthekeygovernancerequirementsoftheGroup’sfinancialstatementsisforthereportandaccountstobefair,balancedandunderstandable.Therefore,uponreviewofthefinancialstatements,theAuditCommitteeandtheBoardhaveconfirmedthattheyaresatisfiedwiththeoverallfairness,balanceandclarityoftheAnnualReport,whichisunderpinnedbythefollowing:

• formalminutesoftheyearendworkinggroupcomprisedofrelevantinternalfunctionalrepresentativesandappropriateexternaladvisers;

• clearguidancebeingissuedtoallcontributorstoensureaconsistentapproach;and

• formalreviewprocessesatalllevelstoensuretheAnnualReportisfactuallycorrect.

Colin Rutherford Chairman of the Audit Committee

21November2018

The Going Concern and Long-Term Viability Statements canbefoundonpages105and42respectively.


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Imelda Walsh Chair of the Remuneration Committee

DearfellowshareholderIampleasedtopresenttheDirectors’remunerationreportinrespectofthefinancialyear,whichendedon29September2018.

Background and business context

Forthesecondyearinarow,like-for-likesalesahavebeenaheadofthemarketwithgrowthof1.3%,whichwouldhavebeenstrongerbutfortheimpactofseveralboutsofsnowoverthewinter,theprolongedhotweatherthissummerandEngland’sextendedruninthefootballWorldCup.ThewiderangeofbrandsandoffersthatmakeuptheMitchells&Butlersportfoliomeansthatwhenthereareunusualorunexpectedevents,thesecanimpactbothpositivelyandnegatively.Forexample,thesummerheatwaveandWorldCupweregreatforourmoredrinks-ledpubsbutnotsogoodforourcarverybusinesses(TobyCarveryandStonehouse).

Ourstrategicprioritiesremainunchanged;tobuildabalancedbusiness,instilamorecommercialcultureanddriveaninnovationagenda.Around240capitalinvestmentprojectswerecompletedduringtheyearandonceagainthemainfocusoftheconversionprogrammewasMiller&Carter,whichnowhasover100sitesandisconsistentlydeliveringstrongreturns.Theremodelprogrammedemonstrateshowourbrandscancontinuetoevolveandinnovate,inaverycompetitiveconsumerenvironment.

Ourcommercialculturehashadapositiveimpactonmitigatingmanyofthecostheadwindsweface.Consumerexpectations,everywhere,continuetoincreaseandguestsaremorewillingtoprovidefeedbackontheirexperiences.ImmediateaccesstosocialmediafeedbackthroughReputation.comallowsourmanagerstoseeallonlinereviewsfortheirbusinessononeplatformandtointeractdirectlywithguests.

Inafast-movingconsumerenvironment,innovationissomethingthatguestsexpect,andtechnologyplaysafundamentalrolebyenablingustoidentifyopportunitiestoimprove.Allofourbrandsofferafacilitytopayviaanappandtheabilitytoorderfoodanddrinkatthetableisnowontrialinanumberofbusinesses,withencouragingfeedbackfromguests.

Lastyear,IexplainedthatPhilUrban,ourCEOwasdevelopingaprogramme,Ignite2,tofurtherimprovesalesandincreaseefficienciesandduring2018theindividualplanswhichmakeuptheIgniteprogrammeweredeveloped,resultinginanumberofworkstreams.Examplesoftheseincludeimprovedsalesforecasting,whichwillsupportamoreefficientschedulingofemployees,theremovalofcashexpenditurefromthebusinessenablingcoststobebettercontrolledandpurchasingpowermaximisedand,theintroductionofsoftwarethatcanidentifypotentiallyfraudulentactivity.Inaddition,ourbookingplatformandprocesseshavebeenstreamlinedtoreducethenumberofstepsneededtocompleteabookingandtoallowthesuggestionofanalternativeMitchells&Butlersvenuewhentheguest’sfirstchoiceisnotavailable.

Peopleareessentialtooursuccessandconsistentlygreatguestexperiencesrelyonateamofhighlyengagedpeople.Engagementscoreshaveagainimprovedduring2018reachingtheirhighesteverlevelfortheretailteam.Wehaveprovenstronglinksbetweenhighlevelsofengagement,guestsatisfactionand,inturn,salesperformanceanditwasalsoencouragingthattheturnoverofretailmanagementemployeesfellduringtheyear.However,retailteammemberturnoverincreasedby2pptsandthishasbeenpredominantlyseeninbusinessesintheSouthEastandLondonwherethereisahigherproportionofemployeesfromtheEuropeanUnion.Theendoffreedomofmovement,whentheUKleavestheEuropeanUnion,islikelytohaveanadverseimpactonallhospitalitybusinessesresultinginashortageoftalent,particularlyinkitchenroles.Forthisreason,ourapprenticeshipprogrammeisnowmoreimportantthaneverandtherearenowc.1,800teammemberstakingpartacrossarangeofroles.

Adjustedoperatingprofitaof£303mwas1.6%lowerthanlastyearona52weekbasis.Profitabilityinthefirsthalfwasnegativelyimpactedbysnowinparticular,resultinginadeclineof£8magainstlastyear.However,inthesecondhalf,adjustedoperatingprofitagrewby£3m,despiteEastershiftingintothefirsthalf,asthemomentumfromourstrategicinitiativescontinuedtogatherpaceandthesummerheatwavehavingamixedimpactacrossourportfolioofbusinesses.Tradinginthenewfinancialyearhasalsostartedstronglywithlike-for-likeasalesgrowthof2.2%.

Report on Directors’ remuneration


2018 remuneration

Annual bonus For2018theannualbonusplanhadfourelements:AdjustedOperatingProfit(hereafterreferredtoasOperatingProfita),GuestHealth,EmployeeEngagementandFoodSafety.TheplanmeasuresreflecttheoverallbusinessscorecardaligningallemployeesfromExecutiveDirectorsthroughtoRetailManagementemployees.

Operating ProfitIndeterminingtheOperatingProfittargetrange,theCommitteetookintoconsiderationarangeoffactorsincludingthegeneralandsectoroutlook,thecontinuingsignificantcostheadwindsofc.£60mperannumandthebenefitslikelytoberealisedoverthefinancialyearfromtheIgniteprogramme.Thetargetwassetbroadlyinlinewiththe2017outturn(£308mona52weekbasis)andmarketconsensus.ThelevelofperformancerequiredforamaximumawardrequiredasignificantlevelofperformanceaheadoftheboththeCompany’sbusinessplanandmarketexpectations.

TheCommitteealsotookthedecisiontoincreasethethresholdlevelofOperatingProfitrequiredtotriggerthenon-financialelementsfrom95%oftargetto97.5%oftarget.

TheGroupdeliveredanOperatingProfitof£303m,whichwas99%oftheperformancerequiredforanon-targetaward,resultinginapayoutof28%ofsalary(outof70%)forExecutiveDirectors.TheCommitteereflectedonwhetherthisrepresentedagoodperformancefortheyearandalsoversustheprioryearandconcludedthatitdid,giventheunprecedentedcostchallengesandourcontinuingoutperformanceversuscompetitors1.

Non-financial measures – 30% (out of 100%)Guest Health (0% out of 15%) For2018anewmethodofmeasuringGuestHealthwasintroducedwhichcomprisedacombinationofthreeelements,NetPromoterScore(‘NPS’),acombinedsocialmediascoreandguestcomplaints.

• TheNPStargetwassetat61,afurtherimprovementonthe2017outturnof59.Goodprogresshasbeenmadeacrossanumberofourbrandsandtheoverallscorefortheyearwasaheadoftargetat62.1.

• Thetargetforthecombinedsocialmediascore(reputation.com)wassetat4.0.Toachievethistheoverallaveragereviewscoreacrossthebusiness,combiningTripAdvisor,FacebookandGoogle,neededtoaverage4.0.Achievingthislevelofreviewscoreswouldhaverepresentedanoutstandingperformance,buttheactualresultfelljustshortofthisambitioustargetat3.93.

• Theguestcomplaintsmetricmeasurestheproportionofcomplaintsreceivedforevery1,000mealsserved.Thetargetforthismeasurewassetat0.67,withtheoveralloutcomeof0.70justmissingtherequiredlevelofperformance,butagainanimprovementontheprioryear.

DespitegoodprogressbeingmadeacrossallthreeelementsoftheGuestHealthmeasure,nobonuswaspayableinrespectofthismeasure.

Employee engagement (6.3% out of 10%)Aclearcorrelationhasbeenestablishedbetweenemployeeengagementandguestsatisfaction,which,inturn,hasapositiveimpactonsalesperformance.Twosurveysareheldeachyear.

InJune,employeesareinvitedtoprovidefeedbackthroughacomprehensivesurvey,YourSay,andthisissupplementedbyashorter‘pulse’surveyinFebruary.Overall,aroundtwo-thirdsofemployeesparticipateprovidingvaluableandrobustinsightintoemployeesatisfaction.

Theengagementtargetfor2018wasbasedonacombinedscore,withagreaterweightingplacedonthemorecomprehensiveYourSaysurvey.Thefinaloutcomewasacombinedscoreof78.9,whichrepresentedthehighesteveremployeeengagementscore,abovethelevelofperformancerequiredforanon-targetpayment,butbelowthatrequiredforamaximumpayment.

Asaresult,apayoutequivalentto6.3%(outof10%),wasawardedtoExecutiveDirectorsunderthiselement.

Food safety (5% out of 5%) Foodsafetywillalwaysbeapriorityforthebusiness,whichiswhyameasurewasintroducedthatisbasedonthenumberofbusinessesthatachieveeithera4or5ratingintheindependentlyoperatedNationalFoodHygieneRatingSystem(‘NFHRS’).Thestretchingtargetsetfor2018wasfor96.9%ofbusinessestoachieveascoreofeither4or5overtheyearandtheactualresultwasthat98%ofbusinessesachievedthislevel.Asaresult,Mitchells&Butlerswassecondintheleaguetableforlargepubandrestaurantsacrossthecountryover2018.

Asanadditionalcheck,theCommitteehasalsotakenintoaccountoverallworkplacesafetywhichagainhasbeenstronginallareas.

Thestructureforthiselementissuchthatpayoutisbasedentirelyonachievingthetargetset,thereforeapayoutequivalentto5%wastriggeredagainstthiselement.

Final bonus outcomeIndeterminingtheoverallfinalbonusoutcome,theCommitteeconsideredthewiderperformanceoftheGroupaspartofanoverallqualityofearningsassessmentandwassatisfiedthattheoutcomewasconsistentwithourperformanceovertheyearandthereforethebonusawardedtoExecutiveDirectorsis39.3%ofsalary.Asaresult,paymentsof£200,034and£167,283willbemadetoPhilUrbanandTimJonesrespectively.

Inlinewithourpolicy,halfofthebonusawardwillbedeferredintosharesundertheShortTermDeferredIncentivePlan(‘STDIP’),whichwillbereleasedintwoequalamountsafter12and24months,andsharesmustberetaineduntiltherelevantshareholdingguidelinehasbeenmet.

1. AsmeasuredbytheCofferPeachbusinesstracker,theUK’sleadingsalestrackerforpubsandrestaurants.


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Report on Directors’ remuneration continued

Performance Restricted Share Plan (‘PRSP’)The2016–18PRSPawardhadtwoequallyweightedelements:growthinadjustedearningspershare(‘EPS’a)andtotalshareholderreturn(‘TSR’).OvertheperformanceperiodEPSgrowthwas(1.5%)p.a.whichwasbelowthethresholdlevelofperformancerequiredforvestingof4%p.a.TSRperformancewasbelowthemedianthresholdrequiredforvestingandasaresult,bothelementsoftheawardlapsed.

Inmystatementlastyear,IoutlinedtheCommittee’sintentiontotakesometimetoconsiderthemostappropriatemeasuresandtargetsforfuturePRSPawards,giventheuncertainmarketandtheworkongoingtofullydeveloptherangeofIgniteinitiatives.

HavingconsideredthechallengesthebusinessfacesandtheimportancetheBoardplacesonimprovingcashgeneration,theCommitteeagreedthatagreaterfocusoncashflowwasappropriate.Thisisanimportantareaoffocusgiventhesignificanceoftwofixedchargesoncashflowwhichneedtobecoveredbeforeothermorediscretionaryspend;namelypensiondeficitcontributionsunderthecurrenttriennialagreement(2016)andmandatorybondamortisation.

TheCommitteeconsideredanumberofoptionsforthemeasurementofcashflowandconcludedthatadefinitionof‘OperatingCashFlowbeforeadjusteditems,movementsinworkingcapitalandadditionalpensioncontributions’bestmetourobjectivesofdefiningacashflowmeasurethatwasunderstood,easytomonitorandcommunicate,andalignedtooperationaldelivery.Thisdefinitionissetoutinourcashflowstatementonpage104.

CapitalExpenditure,workingcapitalandpensioncontributionshavebeenexcludedfromthedefinition.TheCommitteefeltthatthebestwaytotakeintoaccounttheseelementswasaspartoftheoverallqualityofearningsassessmentundertakenattheendoftheperformanceperiod.Furtherdetailonthespecificapproachtothequalityofearningsassessmentcanbefoundonpage83.

Thresholdvestingforthispartoftheawardwillrequirearound2%p.a.growthinlike-for-likesalesandthedeliveryoffurthercostefficiencies,reversingtherecentdeclineinprofitand,onanearningsequivalentbasis,resultinginacompoundannualgrowthinAdjustedEPSaofapproximately2.5%p.a.FullvestingcanonlybeachievedifmanyormostofthenewprogrammeofIgniteinitiativesaresuccessfullyimplemented,resultinginsignificantmarketoutperformanceandstrongyear-on-yeargrowthinOperatingProfitincludinganequivalentcompoundannualgrowthinAdjustedEPSaofapproximately5.5%p.a.

TheCommitteebelievedthattheretentionofTSRwasimportant,asitallowsshareholderstoassesstheperformanceofMitchells&Butlersagainstdirectcompetitorsatatimewhenperformanceacrosstheindustryisquitepolarised.Therefore,Mitchells&Butlers’performanceforthe2018–20awardwillbecomparedagainstasubsetofRestaurants&BarscompaniescomprisingEIGroup,GreeneKing,Marston’s,TheRestaurantGroup,JDWetherspoonandWhitbread.

ThresholdvestingwillrequireMitchells&Butlers’performancetobeequaltothemedianofthepeergroup,andmaximumvestingwillrequireanoutperformanceofthemedianof8.5%p.a.withstraight-linevestingbetweenmedianandmaximum.TheCommitteebelievesan8.5%p.a.outperformancefactorforfullvestingisstretching.

Followingconsultationwithourmajorshareholders,anawardwasmadeinJuly2018underthePRSPinrespectofthe2018–20performanceperiod,with75%oftheawardbasedonOperatingCashFlowand25%onrelativeTSR.BothOperatingCashflowandrelativeTSRwillbemeasuredoverathreeyearperformanceperiodandanyshareswhichvestwillbesubjecttoafurthertwoyearholdingperiod.

Fulldetailsoftheawardaresetoutonpage84.

Remuneration policy and changes to the UK Corporate Governance Code Ourremunerationpolicywasapprovedatthe2018AGM,with97%ofshareholdersvotinginfavourofthenewpolicy.Nochangesareproposedforthisyear.

TheCommitteeiscognisantoftheforthcomingchangestotheCorporateGovernanceCodeandotherreportingregulationsandhasbeguntopreparefortheirintroduction.ForthelasttwoyearswehavepublishedourCEOpayratioandwelcometheclaritythenewcodebringstothecalculationandwewilladoptacode-compliantmethodologyfromthisreportonwards.Wehavealsotakentheopportunitytosetouttheimpactofa50%increaseinsharepriceonLTIPvesting.

WehavealsointroducedanewsectiontothereportwhichdemonstrateshowexecutiveremunerationlinkstotheoverallstrategyandtherelationshipbetweenexecutiveremunerationandthatofotheremployeesacrosstheGroup.Weanticipatethatthissectionofthereportwillevolveanddevelopovertimeandwillaligntotheaimsofthenewcode.


Approach for FY 2019

Salary Witheffectfrom1January2019,PhilUrban’ssalarywillincreaseby2%to£520,000andTimJones’salarywillalsoincreaseby2%to£435,000.PhilUrban’ssalaryhasnotincreasedsincehisappointmentinSeptember2015andTimJones’salarywaslastincreasedinJanuary2015.Theseincreasesarebroadlyinlinewiththoseapplicabletoothersalariedemployeesinthegroup.

Annual bonus Nochangesareproposedtotheannualbonusstructurefor2019.

OperatingProfit(70%)

• HalfofthebonusopportunitywillbepayableforachievingademandingOperatingProfittarget.Thethresholdatwhichbonuswillbegintoaccruewillagainbesetat95%oftargetandfullpaymentofthiselementwillrequireverystrongperformance,abovecurrentmarketconsensus.

Theremaining30%oftheannualbonusplanwillbeallocatedagainstthebusinessscorecardasfollows:

• 15%forGuestHealth(NPS;combinedsocialmediascoresandguestcomplaints)

• 10%forEmployeeEngagement

• 5%forFoodSafety

Thenon-financialelementsareonlypayableifathresholdlevelofprofitisachieved.For2019thiswillagainbesetat97.5%oftheOperatingProfittarget.

Inlinewithourestablishedpractice,theCommitteewillconsidertheoverallperformanceoftheCompany,notjusttheoutcomeofeachindividualmeasure.

.

2019–21 PRSPAPRSPawardisduetobemadeinrespectofthe2019–21performanceperiod.TheCommitteehasreviewedtheperformanceconditionandconcludedthattheperformancemeasuresshouldremainunchangedfromtheJuly2018award,withtwoindependentelements,OperatingCashFlow(75%weighting)andrelativeTSR(25%weighting).

Insettingthetargetrangefor2019–21theCommitteehasconsideredtheongoingcostheadwindsthatthebusinesscontinuestoface,alongwiththepotentialbenefitsflowingfromIgniteinitiativesinthecomingyears.TheconclusionofthisreviewisthattheOperatingCashFlowtargetrangewillhaveathresholdsetat£1,332mandmaximumat£1,362m,whichrepresentsanincreaseatboththresholdandmaximum.TheCommitteeconsidersthistobeastretchingtargetrangeinthecircumstances.Onanearningsequivalentbasis,theadjustedEPStargetrangewillbebetween4.5%and7%,again,afurtherprogressiononthe2018–20PRSPtargets.

ThecurrentTSRcomparatorgroupcomprisessixpeercompanies(EIGroup,GreeneKing,Marston’s,TheRestaurantGroup,JDWetherspoonandWhitbread).FollowingtheannouncementoftheforthcomingsaleofCostaCoffeebyWhitbreadtoCoca-Cola,theCommitteehasfurtherreviewedtheconstituentsofthisgroup.OncetheCostasalehasconcludedtheresidualWhitbreadbusinesswillbeprimarilyahotelsbusiness,andthereforetheCommitteehasdecidedthat,goingforward,Whitbreadshouldnotformpartofthegroup.ThresholdvestingwillagainrequireMitchells&Butlers’performancetobeequaltothemedianofthepeergroup,andmaximumvestingrequiresanoutperformanceofthemedianof8.5%p.a.withstraight-linevestingbetweenmedianandmaximum.

InwhathasbeenanotherbusyyearfortheCommittee,IwouldliketothankmycolleaguesfortheirengagementandcommitmentandtheeffortsofthosewhohavesupportedtheCommitteeduringthepastyear.

Ifyouhaveanycommentsorquestionsonanyelementofthereport,pleaseemailme,careofCraigProvett,DirectorofCompensation&Benefits,[email protected]


21November2018

ThisreporthasbeenpreparedonbehalfoftheBoardandhasbeenapprovedbytheBoard.ThereporthasbeenpreparedinaccordancewiththeCompaniesActdisclosureregulations(theLargeandMedium-sizedCompaniesandGroups(AccountsandReports)(Amendment)Regulations2013)(the‘Regulations’).



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FY 2018 annual bonusTheannualbonuswasbasedontwoelements:70%onOperatingProfitand30%onnon-financialscorecardmeasures.

Target ActualBonus outcome

(% of salary)

OperatingProfit 306 303 28GuestHealth 0

NPS 61 62.1SocialMedia 4.0 3.93Complaints 0.67 0.70

EmployeeEngagement 78.5 78.9 6.3Safety 96.9 98.0 5

Bonuspaymentsequivalentto39.3%ofbasesalarywillbemadetoExecutiveDirectors(£200,034inrespectofPhilUrbanand£167,283inrespectofTimJones).Halfofthebonusawardwillbedeferredintoshareswhichwillbereleasedintwoequalamountsafter12and24months.

FY 2018 PRSP vestingThePRSPawardsgrantedinJune2016hadaperformanceperiodendingon29September2018.50%oftheawardwasbasedonrelativeTSRperformanceand50%onEPSgrowth.

Target range Actual % vesting

TotalShareholderReturnrelativetopeergroup

Mediantoupperquartile Belowmedian Nil

CompoundannualadjustedEPSgrowth 4%to8%CAGR (1.5%)p.a. Nil

TSRperformancewasbelowmedianandEPSgrowthof(1.5%)p.a.overtheperiodwasbelowthethreshold,thereforenopartoftheawardvested.

Executive Remuneration at a glanceThissectionbrieflyhighlightsperformanceandremunerationoutcomesforFY2018,andourapproachforFY2019.MoredetailcanbefoundintheAnnualReportonremunerationonpages78to91.Fulldetailsoftheremunerationpolicycanbefoundonthembplc.comwebsite.

FY 2018 single figure remuneration for Executive DirectorsBasic

salaries £000

Taxable benefits

£000

Short-term incentives

£000

Pension-related benefits

£000

Long-term incentives

£000Other £000

Total remuneration

£000

2018 2018 2018 2018 2018 2018 2018

PhilUrban 509 16 200 89 – 5 819TimJones 425 16 167 75 – 5 688Total 934 32 367 164 – 10 1,507

ThesinglefiguretablesetsoutpaymentsmadetoExecutiveDirectorsinrespectofFY2018,includingbasesalary,annualbonusearnings,long-termincentives,paymentsmadeinlieuofpensioncontributionsandtaxablebenefitssuchascompanycarandhealthcarecover.Moredetailisprovidedinrelationtothe2018annualbonusschemeandlong-termincentiveschemeoutcomesbelowandafullversionofthesinglefiguretableforallDirectorscanbefoundonpages79and80.



https://www.mbplc.com/pdf/remuneration_policy.pdf

Fixed componentsSalary

On1January2019PhilUrban’ssalarywillincreaseby2%to£520,000andTimJones’willalsoincreaseby2%to£435,000.ThisisthefirstincreasesincePhilUrban’sappointmenton27September2015andTimJones’lastincreasewason1January2015.

Benefits and pension

Apensioncontribution(orcashequivalent)of20%ofsalarywillcontinuetoapply.

Variable componentsAnnual bonus

Nochangetopotentialquantum–100%ofsalary. Business scorecard measures

Measures will be: Operating Profit Guest HealthEmployee

EngagementFood

Safety

Award levels(unchanged)

Measures and targets

Halfofanybonuspayablewillbedeferredintheformofsharesandreleasedinequalpartsafter12and24months.

PRSP

Share ownership guidelines

Directorsarerequiredtoretainallvestedshares(netoftax)untiltheshareownershipguidelineismet.Thisappliestovesteddeferredbonussharesaswellassharesvestingfromanylong-termincentiveplans.

Themeasuresforthe2019–21cycleareunchanged,with75%oftheawardbasedonOperatingCashFlowand25%onrelativeTSR.

Atwo-yearholdingperiodappliesforalllong-termincentiveawardsmadefrom2018onwards.

Phil Urban ChiefExecutive £520,000 +2%

Tim Jones FinanceDirector £435,000 +2%

Phil Urban ChiefExecutive 200% salary

AllotherExecutiveDirectors 150% salary

Phil Urban ChiefExecutive 200% salary

Tim Jones FinanceDirector 140% salary

Threshold Target Range Maximum

25% of this element vests 100% of this element vests

£1,332m Operating Cash Flow £1,362m

Median Total Shareholder Return Median +8.5% p.a.

70% 15% 10% 5%

Approach for FY 2019

Components of remunerationTheremunerationpackagefortheExecutiveDirectorscomprisesbothfixedandvariableelementsconsistentwithourremunerationprinciples.

Fixed

Salary

+ Benefits and pension

= Fixed total

Variable

Annual bonus

+ PRSP and shares

= Fixed total


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ThisnewsectionofthereportsetsoutthebroadercontextforremunerationexplaininghowexecutiverewardlinkstoMitchells&Butlers’threestrategicprioritiesandalsobetweenexecutivepayandremunerationacrosstheGroup.Itisanticipatedthatthissectionwillevolveovertime,buildingonbestpracticeandaligningwiththenewcorporategovernancerequirements.

Mitchells & Butlers’ remuneration principles Shareholder alignment

Ahighproportionofrewardisdeliveredintheformofequity,ensuringExecutiveshavestrongalignmentwithshareholders.

Competitive

Providingrewardthatpromotesthelong-termsuccessofthebusinesswhilstenablingtheattraction,retentionandmotivationofhigh-calibreseniorExecutives.

Performance-linked

AsignificantpartofanExecutive’srewardislinkedtoperformancewithaclearlineofsightbetweenbusinessoutcomesandthedeliveryofshareholdervalue.

Straightforward

Theremunerationstructureissimpletounderstandforparticipantsandshareholdersandisalignedtothestrategicprioritiesofthebusiness.

Remuneration context



Alignment of Executive pay to strategy ThetablebelowsetsouthowthethreestrategicprioritiesofthebusinessaligntoExecutiveremunerationforExecutiveDirectors:

Strategic priority Link to Executive remunerationBuilding a more balanced business

Strongcashflowandoperatingperformancesupportsthedeliveryandsustainabilityofthecapitalplanandestateoptimisation.

OperatingCashFlowisthemaincomponentoftheLTIP.OperatingProfitdeliveryisthemaincomponentoftheannualbonusplan.

Amorebalancedbusinessdeliversbrandsandfoodanddrinkoffersinanenvironmentthatguestswanttoenjoy.

TheGuestHealthelementoftheannualbonusplanprovidesastrongindicatorofthesuccessofeachbusinessandthereisaclearcorrelationbetweenstrongGuestHealthperformanceandsalesperformance.

High-qualityengagedteamsarefundamentaltothesuccessofanybusiness.

TheengagementelementoftheannualbonusplanmeasureshowourteamsfeelaboutworkingforMitchells&Butlers,andinturntheservicetheyprovidetoguests.

Instilling a more commercial culture

Acommercialcultureimprovescontrols,efficiency,purchasingandpricing,drivingbothimprovedcashflowandoperatingperformance.


Commercialdecisionsmustbeguestfocusedandbenefitfromtheinputofcustomerfeedback.

TheGuestHealthquicklydemonstrateswheredecisionsarerightorwrongandExecutivesareincentivisedtoreact.

Developingandevolvingacommercialculturerequireshighlevelsofemployeeengagementandbusinessawarenessthroughoutthebusiness.

Theemployeeengagementelementoftheannualbonusplansupportsandunderpinsthedevelopmentofculture.

Driving an innovation agenda

Innovationatsmallandlargescaleisanengineforimprovedsalesandthereforecashandprofitgeneration.


Guests’expectationscontinuetoincrease,demandinghigherstandardsofserviceanddigitalcapability.

TheGuestHealthelementoftheannualplanprovidesvaluableactionablefeedbackandincentivisesaction.

Innovationinvolveschangeanddeliveryofchangerequiresstrongemployeeengagement.

Theemployeeengagementelementoftheannualbonusplanincentivisesactiontomaintainandimproveemployeeengagement.

Illustrations of the application of remuneration policyAkeyprincipleoftheGroup’sremunerationpolicyisthatvariableshort-andlong-termrewardshouldbelinkedtothefinancialperformanceoftheGroup.ThechartsbelowshowthecompositionoftheremunerationoftheChiefExecutiveandFinanceDirectoratminimum,on-targetandmaximumlevelsofperformanceinFY2019.Thechartsalsoshowtheimpactofa50%increaseinsharepriceontheLTIPoutcome.

Chief Executive £000 Finance Director £000

3,000

2,500

2,000

1,500

1,000

500

0 Minimum

Fixed pay

100.0% 44.6%

18.2%

37.2%

28.6%

23.8%

47.6%

23.1%

19.2%

19.2%

38.5%

On-target Maximum Maximum plus 50% Share Price Gain

Short-term incentives Long-term incentives Share Price Gain

625

1,400

2,705

2,185

3,000

2,500

2,000

1,500

1,000

500

0 Minimum

Fixed pay

100.0% 50.2%

20.8%

29.0%

33.5%

27.7%

38.8%

28.0%

23.2%

16.3%

32.5%

On-target Maximum Maximum plus 50% Share Price Gain

Short-term incentives Long-term incentives Share Price Gain

526

1,049

1,875

1,570


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Theperformancescenariosdemonstratetheproportionofmaximumremunerationwhichwouldbepayableinrespectofeachremunerationelementateachoftheperformancelevels.Indevelopingthesescenarios,thefollowingassumptionshavebeenmade:

Minimum

Onlythefixedelementsofremunerationarepayable.Thefixedelementconsistsofbasesalary,benefitsandpension.Basesalaryisthesalaryeffectivefrom1January2019.BenefitsarebasedonactualFY2018figuresandincludecompanycar,healthcareandtaxableexpenses.Pensionisthecashallowanceand/orCompanypensioncontributionpayableinrespectofbasesalaryfrom1January2019.

On-target

Inadditiontotheminimum,thisreflectstheamountpayableforon-targetperformanceundertheshort-andlong-termincentiveplans:

• 50%ofmaximum(50%ofbasesalaryfortheChiefExecutiveandFinanceDirector)ispayableundertheshort-termincentiveplan;and

• 50%oftheaward(100%ofbasesalaryfortheChiefExecutiveand70%ofbasesalaryfortheFinanceDirector)ispayableunderthelong-termincentiveplan.

Maximum

Inadditiontotheminimum,maximumpaymentisachievedunderboththeshort-andlong-termincentiveplanssuchthat:

• 100%ofbasesalaryispayableundertheshort-termincentiveplanfortheChiefExecutiveandFinanceDirector;and

• 200%ofbasesalaryfortheChiefExecutiveand140%ofbasesalaryfortheFinanceDirectorispayableunderthelong-termincentiveplan.

Share Price Gain

Thisshowstheimpacta50%increaseinthesharepricewouldhaveontheLTIPoutcome.

Remuneration below Executive Director level ThetablebelowdemonstrateshowthekeyelementsofExecutivepayalignwiththewiderworkforce:

Base pay Bonus Long-term incentives All-employee share plans

Executive Directors Paybroadlyaroundmid-marketlevels.

Overall,increases(inpercentageterms)consistentacrossallsalariedemployeegroups.

Bonusschemesforallschemesaligntothebusinessscorecard.

Themajorityofbonusopportunityislinkedtofinancialperformance.

Measuresandtargetsforlong-termincentiveplansconsistentforallparticipants.

Allemployeescanparticipateinanyoftheall-employeeshareschemes,subjecttoqualifyingservice,buildingastakeinthebusiness.

Executive Committee

Senior management

Support Centre

Retail managers

Retail team members

Paysetinlinewithmarketrequirementsandcloselymonitored.

Basepayformanyemployeesisaheadofthestatutoryminimums.

Manyemployeesbenefitfromtipandservicecharge,anditisMitchells&Butlers’policytopass100%oftheseearningsontoemployees.

Ourpayapproachisaimedatprovidingregularandpredictableearningsthroughcompetitivebasepayforourretailteammembers.Thisisvaluedmorehighlythanvariablepayelementsforretailteammembersandisinlinewithour‘competitive’and‘straightforward’remunerationprinciples.



Pay ratios and gender pay

ThetablebelowsetsouttheCEOpayratioatthemedian,25thand75thpercentiles.

CEO pay ratio

Financial year P25 (lower quartile) P50 (median) P75 (upper quartile)

2018 61:1 58:1 52:1

Moredetailinrelationtothepayratiocalculationcanbefoundonpage89.

ThetablebelowprovidesasummaryofGenderPaydatafortheGroup.

2018%

2017%

MeanPayGap 7.4 8.1MedianPayGap 4.7 5.2MeanBonusGap 38.5 27.6MedianBonusGap 29.2 20.6

AtaGrouplevelthepaygaphasreducedoverallonbothmeasuresandthemedianpaygapcomparesveryfavourablytothenationalaverageof18.4%.MoredetailinrelationtoGenderPaycanbefoundaspartofCSRsectionofthereportonpage35.

More than just pay

Ouremployeesarefundamentaltothedeliveryofgreatguestexperiences.Foroveradecade,MitchellsandButlershassoughttheviewsofemployeesthroughourannual‘YourSay’employeeengagementsurvey.Whatthissurveyconsistentlytellsusisthatwhilstpayisaveryimportantelementoftheoverallemployeevalueproposition,thereareotherfactorsthatarealsoimportanttoouremployees.Overthepastyear,theCompanyhastakenthetimetounderstandinmoredetailwhattheseotherfactorsare,developingwhatisknowninternallyasour‘PeoplePromise’.IndevelopingourPeoplePromisewehaveidentifiedthatallemployeesvaluecareerprogression,fairreward,theneedtobechallengedandfeelsafeandsecure;thisistheminimumexpectation.Inadditiontothesecoreneeds,employeesalsovaluetheflexibilityandconveniencethatworkingforMitchells&Butlersbrings,thesenseoffamilythatcomesfromworkinginourbusinessesandthevarietyandfunthatacareerinhospitalitycanprovide.Webelievethatdeliveringagainsttheseareasforourpeoplewillfurtherimproveemployeeengagementandhasresultedinanumberofinitiativesthisyear.Forexample,anewappisontrialthatwillallowemployeestoswapshiftswithotherseasily;investmentcontinuesinoure-learningsystemthatenablesemployeestodevelopon-jobinaconvenientandflexibleway,andanumberofpolicieshavebeenreviewedtobemoreflexibleandfamilyfocused.

Workforce engagement

WhilstnotspecificallyconsultedonExecutiveremuneration,feedbackfromemployeesisgatheredinanumberofwaysthroughtheyearasshownintheillustrationbelow:

Employee survey

OutcomesreviewedbytheRemunerationCommittee

andtakenintoaccountwhensettingremunerationpolicy,

ifappropriate.

CEO roadshows

TheCEOandFDholdregularroadshowsthatallowbothsupportcentrecolleagues

andGeneralManagerstheopportunitytoengage

withseniorleadersandprovidefeedback.

Employee forum

Electedrepresentativeshavedirectaccesstothe

ExecutiveCommitteeandforExecutiveremuneration

matters,theRemunerationCommitteechair.

Overview of pay and policy decisions

TheCommitteeisupdatedonemployeetermsand

conditionsandmadeawareofsignificantchanges

topoliciesandotherpayrelatedmatters.

Remuneration Committee

TheCommitteeisregularlyupdatedthroughouttheyearonpayandconditionsapplyingtoGroupemployees.WheresignificantchangesareproposedtoemploymentconditionsandpolicieselsewhereintheGroup,thesearehighlightedfortheattentionoftheCommitteeatanearlystage.TheCommitteetakesintoaccountthebasepayreviewbudgetapplicabletootheremployeesandiscognisantofchangestotheNationalLivingWageandtheNationalMinimumWagewhenconsideringthepayofExecutiveDirectors.TheCommitteeconsidersabroadrangeofreferencepointswhendeterminingpolicyandpaylevels;theseincludeexternalmarketbenchmarksaswellasinternalreferencepoints.Anysuchreferencepointsaresetinanappropriatecontextandarenotconsideredinisolation.

Asmentionedabove,allemployeesareinvitedtotakepartinourannual‘YourSay’employeeengagementsurveyinwhichtheyhaveanopportunitytoprovideanonymousfeedbackonawiderangeoftopicsofinterestorconcerntothem.TheCommitteereviewstheresultsofthesurveyandanysignificantconcernsoverremunerationwouldbeconsideredseparatelybytheCommitteeand,ifappropriate,takenintoaccountwhendeterminingtheremunerationpolicyanditsimplementation.Inaddition,eachyearanemployeeforumisheld,whichgivestheopportunityforemployeestoaskquestionsofseniormanagement,viaelectedrepresentatives.Goingforward,theRemunerationCommitteeChairwillattendtheforumonanannualbasistorespondtoanyquestionsraisedbyemployeerepresentativesconcerningourapproachtoExecutivepay.


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ThissectiondetailstheremunerationpayabletotheExecutiveandNon-ExecutiveDirectors(includingtheChairman)forthefinancialyearended29September2018andsetsouthowweintendtoimplementourremunerationpolicyforthe2019financialyear.Thisreport,alongwiththeChair’sannualstatement,willbesubjecttoasingleadvisoryvoteattheAGMon22January2019.

Committee terms of referenceTheCommittee’stermsofreferencewerelastreviewedin2016andareavailableonourwebsite.Theywillbereviewedagainearlyin2019totakeaccountoftherevisedCorporateGovernanceCode.

TheCommittee’smainresponsibilitiesinclude:

• determiningandmakingrecommendationstotheBoardontheCompany’sExecutiveremunerationpolicyanditscost;

• takingaccountofallfactorsnecessarywhendeterminingthepolicy,theobjectiveofwhichshallbetoensuretheremunerationpolicypromotesthelong-termsuccessoftheCompany;

• determiningtheindividualremunerationpackagesoftheExecutiveDirectorsandotherseniorExecutives(includingalldirectreportstotheCEO),andtheCompanyChairman;

• havingregardtothepayandemploymentconditionsacrosstheCompanywhensettingtheremunerationofindividualsundertheremitoftheCommittee;and

• aligningExecutiveDirectors’interestswiththoseofshareholdersbyprovidingthepotentialtoearnsignificantrewardswheresignificantshareholdervaluehasbeendelivered.


Annual report on remuneration

Committee membership and operation

Committeemembersandtheirrespectiveappointmentdatesaredetailedinthetablebelow.

Name Date of appointment to the Committee

ImeldaWalsh(Chair)* 11July2013ColinRutherford* 11July2013StewartGilliland* 11July2013BobIvell 11July2013EddieIrwin 11July2013DaveCoplin* 29Feb2016JoshLevy 20July2017

* IndependentNon-ExecutiveDirectors.

Committee activity during the year

TheCommitteemetsixtimesduringtheyearandkeyagendaitemsincludedthefollowing:

October 2017 • 2018annualbonusarrangements• LongTermIncentivePlanreview• Remunerationpolicyreview• Genderpay• Employeeengagement

November 2017 • Remunerationpolicy• 2017annualbonusoutcome• 2015–17LTIPoutcome• Confirmationof2018bonustargets• ExecutiveCommitteemembers’salaryreview• Directors’expenses

March 2018 • Genderpay• Updateonemploymentmattersacross

theGroup• 2018–20LTIPproposalandtimetable• All-employeeshareschemes

April 2018 • 2018–20LTIPproposal• Genderpayupdate

May 2018 • 2018–20LTIP–confirmationoftargetsandinvestorconsultationtimetable

September 2018 • 2019annualbonusarrangements• 2019–21LTIPstructure• Updateonemploymentconditionsacross

theGroup,includingemployeeengagement• ChangestotheUKCorporateGovernanceCode


Advice to the Committee

TheCommitteereceivedadvicefromNewBridgeStreet(‘NBS’),atradingnameofAonPlc,untilJune2018.FromJune2018theCommitteereceivedadvicefromPwConaninterimbasispendingtheoutcomeofacompetitivetenderprocess.BothNBSandPwCaresignatoriestotheRemunerationConsultantsGroupCodeofConductandanyadvicereceivedisgovernedbythatCode.TotalfeespayableinrespectofremunerationadvicetotheCommitteeinthereportingyeartotalled£75,9621(NBS£68,762andPWC£7,200).AonPlcprovidedadviceonapotentialinsuranceproduct,butnofeeshavebeenpaidinrespectofsuchadviceinFY2018.

AdvicewasalsoreceivedfromtheCompany’slegaladvisers,FreshfieldsBruckhausDeringerLLP,ontheoperationoftheCompany’semployeeshareschemesandoncorporategovernancematters.CliffordChanceLLPalsoprovidedadviceinrelationtopensionschemes.

TheCommitteeissatisfiedthattheadvicereceivedfromitsadviserswasobjectiveandindependent.

MembersofmanagementincludingSusanMartindale,theGroupHRDirectorandCraigProvett,theDirectorofCompensation&Benefits,areinvitedtoattendmeetingsonremunerationmatterswhereappropriate.Theyarenotpresentwhenmattersaffectingtheirownremunerationarrangementsaredecided.TheCompanyChairmandoesnotattendBoardorCommitteemeetingswhenhisremunerationisunderreview.PhilUrbanandTimJoneswerepresentatmeetingswheretheCompany’slong-andshort-termincentivearrangementsandshareschemeswerediscussed.However,eachdeclaredaninterestinthemattersunderreview.1. FeesareshownnetofVAT.20%VATwaspaidontheadvisers’feesshownabove.

Statement of voting at AGM

AtthelastAGM(heldon23January2018),theresolutionontheDirectors’remunerationpolicyandtheAnnualreportonremunerationreceivedthefollowingvotesfromshareholders:

Votes cast Votes fora % Votes against % Votes withheldb

Directors’remunerationpolicy 368,083,115 357,056,085 97.00 11,027,030 3.00 244,331Annualreportonremuneration 366,642,591 365,544,870 99.71 1,097,721 0.29 1,702,855

a. The‘For’voteincludesthosegivingtheCompanyChairmandiscretion.b. Avotewithheldisnotavoteinlawandisnotcountedinthecalculationofthevotes‘For’or‘Against’theresolution.

Votes‘For’and‘Against’areexpressedasapercentageofvotescast.

Pay outcomes

Thetablesandrelateddisclosuressetoutonpages79to86onDirectors’remuneration,deferredannualbonusshareawards(‘STDIP’),PRSPshareoptions,ShareIncentivePlanandpensionbenefitshavebeenauditedbyDeloitteLLP.

Directors’ remuneration

ThetablesbelowsetoutthesinglefigureremunerationreceivedbytheExecutiveDirectorsandtheNon-ExecutiveDirectorsduringthereportingyear.Detailsofperformanceundertheannualbonusplanaresetoutonpages80to82.

Executive Directors

Basic salaries £000

Taxable benefitsa £000


£000

Pension related benefitsb

£000


£000Otherf £000

Total remuneration

£000

2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 20182017

(53 wk)

PhilUrbanc 509 518 16 11 200 146 89 91 – – 5 4 819 770TimJonesc 425 434 16 13 167 122 75 76 – – 5 3 688 648Sub-totalExecutiveDirectors 934 952 32 24 367 268 164 167 – – 10 7 1,507 1,418


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Non-Executive Directors

Fees £000

Taxable benefitsd £000


£000

Pension related benefitsb

£000


£000Other £000

Total remuneration

£000

2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 20182017

(53 wk)

BobIvell 284 290 3 4 – – – – – – – – 287 294RonRobson 52 53 0 0 – – – – – – – – 52 53StewartGilliland 62 63 1 1 – – – – – – – – 63 64EddieIrwin 52 53 0 0 – – – – – – – – 52 53ColinRutherford 62 138e 2.5 1 – – – – – – – – 64.5 139ImeldaWalsh 62 63 0 0 – – – – – – – – 62 63JoshLevy 52 53 0 1 – – – – – – – – 52 54DaveCoplin 52 53 1 1 – – – – – – – – 53 54KeithBrowne 52 53 0 0 – – – – – – – – 52 53Sub-totalNon-ExecutiveDirectors 730 819 7.5 8 – – – – – – – – 737.5 827TotalExecutiveDirectorsandNon-ExecutiveDirectors 1,664 1,771 39.5 32 367 268 164 167 – – 10 7 2,244.5 2,245

Note:All2017figuresareshownona53weekbasis.a. Taxablebenefitsfortheyearcomprisedcarallowance,healthcareandtaxableexpenses.b. BasedonthevalueofsupplementspaidinlieuofcontributionstotheCompanyScheme.c. ThebasesalaryforPhilUrbanis£510,000andforTimJones£426,500.Thefiguressetoutaretheactualsalariesreceivedoverthefinancialyear,whichhad364days.d. TaxablebenefitsforNon-ExecutiveDirectorsincludecashpaymentsmadeoraccountedforbytheCompanyrelatingtothereimbursementofexpenses(andthevalueofpersonaltax

onthoseexpenses).e. ThisamountincludestheadditionalfeeapprovedbytheBoardandpaidinrespectoftheworkcarriedoutbyMrRutherfordinleadingtheCompany’sdiscussionswiththetrusteeof

theCompany’stwodefinedbenefitschemeswhichresultedintheagreementofthe2016triennialvaluationsofthoseschemesasdescribedmorefullyonpage45oftheAnnualReport.f. IncludestheawardoffreesharesandthevalueofthediscountappliedtoSharesaveoptionsawardedduringtheyear.

Annual performance bonus and STDIP

TheannualbonusandSTDIPoperateassetoutinourremunerationpolicywhichisavailableontheCompany’swebsite.Detailsofthemeasuresandtargetsapplyingtothe2018planaresetoutbelow:

Threshold – 95% of Target(% of salary payable)

Target(% of salary payable)

Maximum – 103% of Target(% of salary payable)

Outcome(% of salary payable)

AdjustedOperatingProfita(70%)

£290.7m(0%)

£306m(35%)

£315.2m(70%)

£303m(28%)

Target Calculation of outcome (% of salary payable)Outcome

(% of salary payable)

GuestHealth(15%) NetPromoterScore(‘NPS’) 61 Eachelementisscored1ifbetterthantarget,

0ifontarget,and-1ifbelowtarget.

• Ifthesumofthesescoresis+3thanmaximumbonusispaid.(15%)

• Ifthesumofthesescoresis+1or+2thenanon-targetpaymentwouldbemade.(7.5%)

• Ifthesumofthesescoresis0thenthresholdbonusispaid.(3.75%)

62.1(0%)

SocialMediaScore 4.0 3.9(0%)

ComplaintsRatio 0.67 0.70(0%)

Threshold (% of salary payable)

Target(% of salary payable)

Maximum(% of salary payable)


EmployeeEngagement(10%)*

77(2.5%)

78.5(5%)

80(10%)

78.9(6.3%)

Target (% of salary payable)


FoodSafety(5%)

96.9%(5%)

98.0%(5%)

* Payoutisonastraight-linebasisbetweenpoints.



Operating ProfitIndeterminingtheOperatingProfittargetrangetheCommitteetookintoconsiderationarangeoffactorsincludingthegeneralandsectoroutlook,thecontinuingsignificantcostheadwindsandtheoverallbenefitslikelytoberealisedoverthefinancialyearfromtherangeofinitiativesputinplaceaspartoftheIgniteprogramme.Thesecostheadwindscontinuetorunatc.£60mperyearandincludefurtherfoodanddrinkinflation,labourandenergycostsandtheongoingimpactofchangestothewayinwhichbusinessratesarecalculated.Thetargetwassetbroadlyinlinewiththe2017outturn(£308mona52weekbasis)andmarketconsensus.ThelevelofperformancerequiredforamaximumawardrequiredasignificantlevelofperformanceaheadofboththeCompany’sbusinessplanandmarketexpectations.

Salesintheyearwere£2,152mandlike-for-likesalesincreasedby1.3%,buildingonthe1.8%increaseseenin2017,andconsistentlyabovethemarketoverall(asmeasuredbytheCofferPeachbusinesstracker)2.TheOperatingProfitoutcomeof£303mrepresentedaresilientandcredibleperformanceovertheyear,whichwasimpactedbyunusualweatherconditions.Therewereseveralboutsofsnowoverthewinterandtheextendedperiodofhotweather,whichcombinedwithEngland’sextendedrunintheWorldCup,impactedonsalesandprofitbothpositivelyandnegatively.Forexample,ourPubsdivisionbenefitedfromthegoodweatherandtheWorldCup,whereasourCarverybusinesseslostanumberofkeytradingdaystosnowandthenwereimpactedbythehotweatheroverthesummer.DisposalsattheendofFY17alsocontributeda£4mdeclineinprofits.

TheOperatingProfitoutcomeof£303mwas99%oftheperformancerequiredforanon-targetawardresultinginapayoutequivalentto28%ofsalary(outof70%)forExecutiveDirectors.

TheCommitteecarefullyreflectedonwhethertheproposedlevelofpayoutrepresentedagoodperformancefortheyearandalsotheoutcomeversustheprioryear.TheCommitteeconcludedthatitdidgiventheunprecedentedcostchallenges,whicharesettocontinue,andourcontinuingoutperformanceversuscompetitorsasmeasuredindependently.2. TheCofferPeachbusinesstrackeristheUK’sleadingsalestrackerforpubsandrestaurants.

Non-financial measures – 30% (out of 100%) Guest Health (0% out of 15%)For2018anewmethodofmeasuringGuestHealthwasintroducedwhichcomprisedacombinationofthreeelements,NetPromoterScore(‘NPS’),acombinedsocialmediascoreandguestcomplaints.ThisroundedassessmentensuresthatGuestHealthismeasuredcomprehensivelyanddoesnotrelyonasinglemeasure.

• TheNPStargetwassetat61,afurtherimprovementonthe2017outturnof59.Goodprogresswasbeenmadeacrossanumberofourbrandsandtheoverallscorefortheyearwasaheadoftargetat62.1.

• Thetargetforthecombinedsocialmediascore(reputation.com)wassetat4.0.Toachievetheoverallaveragereviewscoreacrossthebusiness,combiningallreviewsfromTripAdvisor,FacebookandGoogle,neededtoaverage4.0.Achievingthiswouldhaverepresentedanoutstandingperformancebuttheactualresultfelljustshortofthisambitioustargetat3.93.

• Theguestcomplaintsmetricmeasurestheproportionofcomplaintsreceivedforevery1,000mealsserved.Thetargetforthismeasurewassetat0.67,withtheoveralloutcomeof0.70justmissingtherequiredlevelofperformance,butagainanimprovementontheprioryear.

DespitegoodprogressbeingmadeacrossallthreeelementsoftheGuestHealthmeasure,nobonuswaspayableforthispartastheoverallcombinedGuestHealthscoreisbelowthedemandingtargetsetbytheCommittee.

Employee engagement (6.3% out of 10%)Aclearcorrelationhasbeenestablishedbetweenemployeeengagementandguestsatisfaction,whichinturnhasapositiveimpactonsalesperformance.Twosurveysareheldeachyear.

InJuneemployeesareinvitedtoprovidefeedbackthroughacomprehensivesurvey,YourSay,andthisissupplementedbyashorter‘pulse’surveyinFebruary.Overallaroundtwo-thirdsofemployeescontributeprovidingvaluableandrobustinsightintoemployeesatisfaction.

Theengagementtargetfor2018wasbasedonacombinedscoreacrossbothsurveys,withagreaterweightingplacedonthemorecomprehensiveYourSaysurvey.Theoveralloutcomewasacombinedscoreof78.9,whichrepresentedthehighesteveremployeeengagementscore,abovethelevelofperformancerequiredforanon-targetpayment,butbelowthatrequiredforamaximumpayment.

Asaresult,apayoutequivalentto6.3%(outof10%),wasawardedtoExecutiveDirectorsunderthiselement.


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Food safety (5% out of 5%) Foodsafetywillalwaysbeapriorityforthebusiness,whichiswhyameasurewasintroducedthatisbasedonthenumberofbusinessesthatachieveeithera4or5ratingintheindependentlyoperatedNationalFoodHygieneRatingSystem(‘NFHRS’).Thestretchingtargetsetfor2018wasfor96.9%ofbusinessestoachieveascoreofeither4or5overtheyearandtheactualresultwasthat98%ofbusinessesachievedthislevelofperformance.Asaresult,Mitchells&Butlerswassecondintheleaguetableforlargepubandrestaurantgroupsacrossthecountryover2018.

Asanadditionalcheck,theCommitteehasalsotakenintoaccountoverallworkplacesafetywhichagainhasbeenstronginallareas.

Thestructureforthiselementissuchthatpayoutisbasedentirelyonachievingthetargetset,thereforeapayoutequivalentto5%wastriggeredagainstthiselement.

Final bonus outcomeIndeterminingtheoverallfinalbonusoutcome,theCommitteeconsideredthewiderperformanceoftheGroupaspartofanoverallqualityofearningsassessmentandwassatisfiedthattheoutcomewasconsistentwithourperformanceovertheyearandthereforethetotalbonusawardedtoExecutiveDirectorsis39.3%ofsalaryresultinginbonuspaymentsof£200,034and£167,283toPhilUrbanandTimJonesrespectively.

Inlinewithourpolicy,halfofthebonusawardwillbedeferredintosharesundertheShortTermDeferredIncentivePlan(‘STDIP’),whichwillbereleasedintwoequalamountsafter12and24months,andsharesmustberetaineduntiltherelevantshareholdingguidelinehasbeenmet.

Long-term incentives vesting during the year

DuringFY2016shareawardsweremadetoPhilUrbanandTimJones,underthetermsofthePRSPtothevalueof200%and140%oftheirrespectivebasesalaries.Theperformanceconditionhadtwoindependentelements;compoundannualadjustedEPSgrowthandTSRperformanceagainstagroupofsectorpeers,measuredoverthethreeyearperformanceperiodending29September2018.

Thetablebelowsummarisesperformanceagainsteachelementoftheperformanceconditions.

2016–18 PRSP – performance conditions Threshold (25%) to Maximum (100%) Range** Actual % vesting

TotalShareholderReturnrelativetopeergroup*(50%weighting) Mediantoupperquartile Belowmedian NilCompoundannualadjustedEarningsPerShare(‘EPS’)growth(50%weighting) 4%to8%CAGR (1.5%)p.a. Nil

* ComprisingtheconstituentsoftheFTSEAllShareTravelandLeisureindex.ThebasepointfortheTSRcalculationwasthefirstthreemonthsfollowingtheappointmentofPhilUrbanasCEO.

** Betweenthresholdandmaximum,vestingundereachmeasureisonastraight-linebasis.Belowthresholdtheawardwilllapse.

The2016–18PRSPmeasuresperformanceoverathree-yearperiod.Sincetheawardwasmade,thewelldocumentedcostheadwindsfacingthebusinesshaveimpactedonearnings.Increasesinbusinessrates,labourcosts,increasinginputscostsafterthereferendumresultsannouncement,combiningwithanuncertaineconomicoutlook,significantlyimpactedtheabilityofthebusinesstogrow.InthiscontexttheoverallresultisaresilientperformancebutasEPSfellbelowthethresholdlevelofgrowthrequired,andTSRperformancefellbelowthemedianperformanceofthecomparatorgroup,theFY2016planawardslapsedinfull.



Long-term incentive awards made in FY 2018

Asweexplainedinlastyear’sreport,during2018afullreviewoftheLTIPstructurewasundertaken.TheCommitteeconcludedthisreviewinJunefollowingaconsultationwithmajorshareholders.Detailsofthechangesandrationalearesetoutbelow.

Operating Cash Flow – 75% of the award HavingconsideredcarefullythechallengesthebusinessfacesandtheimportancetheBoardplacesonimprovingcashgeneration,theCommitteeagreedtoincludeameasurethatcoveredcashflow.Cashflowisanimportantareaoffocusgiventhesignificanceoftwofixedcharges,whichneedtobecoveredbeforeothermorediscretionaryspend,namelypensiondeficitcontributionsunderthecurrenttriennialagreementandmandatorybondamortisationwithintheexistingsecuritisation.

Neitherofthesesubstantialoutflowsresultsinadirectchargetotheincomestatement,buttheydosignificantlyinfluenceGroupdecisionsconcerningcapitalallocation,short-termborrowingsanddividendstoshareholders,whichmustbeassessedpredominantlyonacashratherthanonanearningsbasis.

TheCommitteeconsideredanumberofoptionsforthemeasurementofcashflowandconcludedthatthefollowingdefinitionbestmeetsourobjectivesofdefiningacashflowmeasurethatiswellunderstood,easytomonitorandcommunicate,andalignedtooperationaldelivery;‘OperatingCashFlowbeforeadjusteditems,movementsinworkingcapitalandadditionalpensioncontributions’.Thisdefinitionissetoutinourreportedcashflowstatementonpage104.

Workingcapitalandpensioncontributionswereexcludedfromthedefinition.WorkingcapitalcanbevolatileastheCompany’syear-enddatemovesandcanthereforebeimpactedbysignificantVAT,rent,ratesandpayrollpaymentsfallingeithersideofthisdate.TheCommitteeisawarethatworkingcapitalactionscanalsoprovideabenefittovestingoutcomes.AthreeyearcumulativemeasurewillreducethelikelihoodofbothpositiveandnegativeimpactsbutathoroughreviewoftheGroup’sworkingcapitalpositionattheendoftheperformanceperiodwillbeundertakenaspartoftheoverallqualityofearningsassessmentwhenfinalisingthevestingoutcome.Pensioncontributionsforthethirdyearareuncertainandwilldependontheoutcomeofthenexttriennialreview.

TheCommitteealsoconsideredhowcapitalexpenditureshouldbetreated,giventheimportanceofthecapitalplantoourstrategicaims.Overathreeyearperiod,itmaybeappropriatetoincreaseordecreasecapitalexpenditure,dependingonthecircumstancesatthetime.Ifcapitalexpenditurewasdeductedfromcashflow,thendiscretionarydecisionstakeninrelationtocapitalexpenditurecouldimpactvestingoutcomes.TheCommitteefeltthatthebestapproachwastoreviewthelevelofcapitalexpenditureand,specifically,thereturnonexpansionarycapital(acurrentKPI)overtheperiod,again,asapartoftheoverallqualityofearningsassessment.

Thresholdvestingforthispartoftheawardwillrequirearounda2%p.a.growthinlike-for-likesalesaandthedeliveryoffurthercostefficiencies,reversingtherecentdeclineinprofits.OnanearningsequivalentbasisthresholdvestingwouldresultincompoundannualgrowthinAdjustedEPSaofapproximately2.5%p.a.Fullvestingofthiselementcanonlybeachievedifmanyormostofthenewprogrammeofinitiativesaresuccessfullyimplementedleadingtosignificantmarketoutperformanceandstrongyear-on-yeargrowthinOperatingProfit,resultinginanequivalentcompoundannualgrowthinAdjustedEPSaofapproximately5.5%p.a.

Overall,theCommitteeconsideredthattherangesetfromthresholdtomaximumwasdemanding,giventhesignificantcostheadwindstheCompanyisfacedwith.


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Rationale for the retention of TSR as a performance measureTheCommitteebelievedthattheretentionofTSRasameasurewasimportantasitallowsshareholderstoassesstheperformanceofMitchells&Butlersagainstdirectcompetitorsatatimewhenperformanceacrosstheindustryisquitepolarised.

However,theCommitteeconsidereditmoreappropriatetocompareMitchells&Butlers’performanceagainstasubsetofRestaurants&Bars,andtheCommitteeidentifiedsixpeercompaniestoformtheTSRpeergroupforthe2018–20award–EIGroup,GreeneKing,Marston’s,TheRestaurantGroup,JDWetherspoonandWhitbread.

ThresholdvestingwillrequireMitchells&Butlers’performancetobeequaltothemedianofthepeergroup,andmaximumvestingwillrequireanoutperformanceofthemedianof8.5%p.a.,withstraight-linevestingbetweenmedianandmaximum.TheCommitteebelievesan8.5%p.a.outperformancefactorforfullvestingisstretching.Itisequaltothehistoricaveragegapbetweenmedianandupperquartileofthegroupusinghistoricthree-yearreturnsoverthelastsixyears.

TheTSRelementoftheawardisalsosubjecttoasharepriceunderpinandawardsmayonlybeexercisedwheretheMitchells&Butlerssharepricehasequalledorexceededthesharepriceatthedateofawardwithinsixmonthsofthevestingdate.Ifthisconditionisnotmet,thentheTSR-relatedawardswilllapse.

Summary of investor consultation Priortomakingtheawardsmajorinvestorswereconsultedontheaboveproposals,coveringaround90%oftheissuedsharecapital,alongwiththemajorinstitutionaladvisers(TheInvestmentAssociation,ISSandGlassLewis).Overall,investorsweregenerallysupportiveoftheproposalswithsomeinvestorsaskingfurtherquestionsinrelationtothestretchinthetargetrangeforOperatingCashFlow.IntheCommittee’sviewthetargetrangewasmoredemandingthanconsensus(usingEPSandOperatingProfitcomparators)atthetimethetargetrangewassetand,giventhesignificantcostheadwindswhichMitchells&Butlersfacedovertheperformanceperiodandtheuncertainconsumerbackdrop,shareholdersgenerallyacceptedthattherangelookeddemanding.Wealsohadapositivereactiontotheclarityandassuranceweprovidedinrelationtothequalityofearningsassessmentthatwillbeundertakenpriortoconfirmingvesting.TheCommitteehasinthepastdemonstratedawillingnesstomakeadjustmentsbasedonthecircumstancesataparticulartime.Forexample,in2016thePRSPawardwasadjustedtoensurethattherewasnopotentialbenefittoExecutiveDirectorsasaresultofthefallintheMitchells&ButlerssharepricefollowingtheoutcomeofthereferendumonthemembershipoftheEuropeanUnion.

Followingtheconclusionoftheconsultationprocess,anawardwasmadetotheChiefExecutiveandtheFinanceDirectorinJuly2018.75%oftheawardisbasedonOperatingCashFlowand25%onRelativeTSR,withbothOperatingCashFlowandRelativeTSRmeasuredoverathreeyearperformanceperiodandanyshareswhichvest,subjecttoafurthertwoyearholdingperiod.

Threshold vesting target* Maximum vesting target*

1.OperatingCashFlow(75%oftheaward) £1,306m(25%vests) £1,336m(100%vests)2.TotalShareholderReturn(‘TSR’)relative

toapeergroupofcomparatorcompanies** (25%oftheaward)

25%willvestformatchingthemedianofthegroup

100%willvestforTSRperformancethatexceedsthemedianby8.5%p.a.

* Betweenthresholdandmaximum,vestingundereachmeasureisonastraight-linebasis.Belowthresholdtheawardwilllapse.** ComprisingofEIGroup,GreeneKing,Marston’s,TheRestaurantGroup,JDWetherspoonandWhitbread.

OptionsthatvestundertheTSRelementoftheperformanceconditionmayonlybeexercisedwherethesharepricehasequalledorexceededthesharepriceatthedateofgrantonatleastonedaywithinsixmonthsfollowingthevestingdate.Ifthisconditionisnotmet,thenthevestedoptionwilllapse.

TheOperatingCashFlowandTSRconditionsaremeasuredoverthreeyearsfromthestartofthefinancialyearinwhichtheyaregranted.FulldetailsofawardsmadetoExecutiveDirectorsunderthePRSParesetoutbelow:

Nil Cost Options

awardedduring the

year to 29/09/18

Basisof award

(% of basic annual salary)

Awarddate

Marketprice per

share used to determine the

award(p)*

Actual/planned vesting

date

Latest lapse date

Face value**

£

Executive DirectorsPhilUrban 393,517 200 03/07/18 259.2 Nov2020 Nov2022 1,019,996TimJones 230,361 140 03/07/18 259.2 Nov2020 Nov2022 597,096Total 623,878

* MarketpriceistheMMQonthedaypriortotheawardbeingmade.** Facevalueisthemaximumnumberofsharesthatwouldvest(excludinganydividendsharesthatmayaccrue)iftheperformancemeasure(asdescribedabove)ismetinfull,

multipliedbythemiddlemarketquotationofaMitchells&Butlersshareonthedaytheawardwasmade(259.2p).

Theaggregateoptionpriceofeachawardis£1.PerformancemeasurementunderthePRSP,whichisnotre-tested,isreviewedandcertifiedbytheCompany’sauditor.



All-employee SIP and Sharesave

ThetablesbelowshowtheawardsmadetoDirectorsundertheSharesaveschemeandthefreeshareelementoftheSIPduringtheyear.

Sharesave

Shares awarded

during the year

1/10/17 to 29/09/18

Award date

Option price

(p)

Earliest exercise

date

Last expiry

date

DirectorPhilUrban 7,317 20/06/18 246 1/10/21 31/3/22TimJones 7,317 20/06/18 246 1/10/21 31/3/22Total 14,634

SIP

Shares awarded

during the year

1/10/17 to 29/09/18

Award date

Market price per share at award

(p)

Normal vesting

date

Market price per share at normal

vesting date (p)

Lapsed during period

DirectorPhilUrban 1,322 20/06/18 262.2 20/06/21 n/a n/aTimJones 1,127 20/06/18 262.2 20/06/21 n/a n/aTotal 2,449

Directors’entitlementsunderthePartnershipShareelementoftheSIParesetoutaspartoftheDirectors’intereststableonpage86.

PRSP, STDIP and other share awards

ThetablebelowsetsoutdetailsoftheExecutiveDirectors’outstandingawardsunderthePRSP,STDIPandSharesave(SAYE).

Name of Director Scheme

Number of shares at

30 September 2017

Granted during the

period Date of grant

Lapsed during the

period

Exercised during the

period

Number of shares at

29 September 2018

Date from which

exercisable Expiry date

Phil Urban PRSP2015–17ab 61,738 – Jan2015 61,738 – – Nov2017 Nov2019

PRSP2016–18ac 381,022 – June2016 – – 381,022 Nov2018 Nov2020

PRSP2017–19a 397,970 – Nov2016 – – 397,970 Nov2019 Nov2021

PRSP2018–20d – 393,517 July2018 – – 393,517 Nov2020 Nov2022

STDIP2017 – 28,639 Dec2017 28,639 Dec2018e Dec2019SAYE2015 4,972 – June2015 – – 4,972 Oct2018 Mar2019SAYE2018 – 7,317 June2018 7,317 Oct2021 Mar2022

Total 845,702 429,473 61,738 – 1,213,437Tim Jones PRSP

2015–17a 161,856 – Nov2014 161,856 – – Nov2017 Nov2019PRSP

2016–18ac 223,048 – Jun2016 – – 223,048 Nov2018 Nov2020PRSP

2017–19a 232,968 Nov2016 – – 232,968 Nov2019 Nov2021PRSP

2018–20d – 230,361 July2018 – – 230,361 Nov2020 Nov2022STDIP2017 – 23,950 Dec2017 – – 23,950 Dec2018e Dec2019SAYE2015 2,486 – June2015 – – 2,486 Oct2018 Mar2019SAYE2018 – 7,317 June2018 7,317 Oct2021 Mar2022

Total 620,358 261,628 161,856 – 720,130

a. 50%ofthisPRSPawardissubjecttoaTSRconditionandtheother50%issubjecttoadjustedEPSgrowthtargets.b. SharesawardedtoPhilUrbanonjoiningtheCompanyasChiefOperatingOfficerinJanuary2015.c. The2016–18planwilllapseinNovember2018.d. 75%ofthisPRSPawardissubjecttoanOperatingCashFlowtargetandtheremaining25%issubjecttoaTSRcondition.e. Sharesreleasedintwoequaltranches,12and24monthsaftergrant.Dateshownisfirstreleasedate.


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Update on forecast performance of other PRSP awards

2017–19 PRSPWithoneperformanceyearremaining,thepositioncouldchangebutspecificallyinrelationtotheEPSmeasure,thesignificantadditionalcostchallengesandamoredetailedassessmentofthetimingandimpactofinvestment,resultinaforecastlevelofvestingbelowthethresholdlevel.

Directors’ interestsExecutiveDirectorsareexpectedtoholdMitchells&Butlerssharesinlinewiththeshareholdingguidelinesetoutintheremunerationpolicyreport.

ThisrequirestheChiefExecutivetoaccumulateMitchells&Butlerssharestothevalueofaminimumof200%ofsalary(150%ofsalaryforotherExecutiveDirectors)throughtheretentionofsharesarisingfromshareschemes(onanetoftaxbasis)orthroughmarketpurchases.PhilUrban’sshareholdingat29September2018was48.7%ofhisbasicannualsalary(2017,24.9%)andTimJones’shareholdingwas57.6%ofhisbasicannualsalary(201745.2%)andasaresulttheshareholdingguidelineisnotmet.

TheinterestsoftheDirectorsintheordinarysharesoftheCompanyasat29September2018and30September2017areassetoutbelow:

Wholly owned shares without performance

conditionsa

Shares with performance

conditions

Unvested options/awards without

performance conditionsb

Unvested options/ awards with performance conditionsc

Vested but unexercised

optionsTotal

shares/options

2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017

Executive Directors PhilUrban 97,024 53,042 – – 40,928 4,972 1,172,509 840,730 – – 1,310,461 898,744TimJones 95,944 80,461 – – 33,753 2,486 686,377 617,872 – – 816,074 700,819Non-Executive DirectorsBobIvell 12,006 12,006 – – – – – – – – 12,006 12,006RonRobson – – – – – – – – – – – –StewartGilliland 11,000 11,000 – – – – – – – – 11,000 11,000EddieIrwin 31,560 30,974 – – – – – – – – 31,560 30,974ColinRutherford – – – – – – – – – – – –ImeldaWalsh 7,500 7,500 – – – – – – – – 7,500 7,500DaveCoplin 2,042 2,000 – – – – – – – – 2,042 2,000JoshLevy – – – – – – – – – – – –KeithBrowne – – – – – – – – – – – –Total 257,076 196,983 – – 74,681 7,458 1,858,886 1,458,602 – – 2,190,643 1,663,043

a. IncludesFreeSharesandPartnershipSharesgrantedundertheSIP.b. OptionsgrantedundertheSharesaveasdetailedinthetableonpage85anddeferredbonusawardsgrantedundertheSTDIP.c. OptionsgrantedunderthePRSPasdetailedinthetableonpage84.

Directors’shareholdings(shareswithoutperformanceconditions)includesharesheldbypersonscloselyassociated.

TheaboveshareholdingsarebeneficialinterestsandareinclusiveofDirectors’holdingsundertheShareIncentivePlan(bothFreeShareandPartnershipShareelements).

PhilUrbanacquired105sharesandTimJonesacquired106sharesunderthePartnershipShareelementoftheShareIncentivePlanbetweentheendofthefinancialyearand21November2018.TherehavebeennochangesintheholdingsofanyotherDirectorssincetheendofthefinancialyear.

NoneoftheDirectorshasabeneficialinterestinthesharesofanysubsidiaryorindebenturestocksoftheCompanyoranysubsidiary.

Themarketpricepershareon29September2018was264.0pandtherangeduringtheyearto29September2018was231.4pto283.1ppershare.

TheExecutiveDirectorsasagroupbeneficiallyown0.06%oftheCompany’sshares.



Fees for external directorships

Noexternalnon-executivedirectorshipswereheldbyeitherExecutiveDirectorduringtheyearto29September2018.

Payment for loss of office

Nopaymentsforlossofofficeweremadeintheyearended29September2018.

Payments to past Directors

NopaymentsweremadetoanypastDirectorsintheyearended29September2018.

TSR performance graph

TheCompany’sTSRperformanceforthelastninefinancialyearsisshownbelowagainsttheFTSE250index.TheFTSE250indexhasbeenchosentoshowTSRperformanceastheCompanyisamemberoftheFTSE250.

Total shareholder return from September 2009 to September 2018 (rebasedto100)

300

250

200

150

100

50

0 2009

Mitchells & Butlers plc

2010 2011 2012 2013 2014 2015 2016 20182017

FTSE 250 TSR comparator group Source: Datastream (Thomson Reuters)

Thisgraphshowsthevalue,by29September2018,of£100investedinMitchells&Butlersplcon26September2009,comparedwiththevalueof£100investedintheFTSE250andtheconstituentsofthe2018–20TSRcomparatorgrouponthesamedate.


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CEO earnings history

Year ended 25/09/10 24/09/11 29/09/12 28/09/13 27/09/14 26/09/15 24/09/16 30/09/17 29/09/18

Phil UrbanSinglefigureremuneration(£000) – – – – – – 613 770 819Annualbonusoutcome(%ofmax) – – – – – – – 28 39LTIPvestingoutcome(%ofmax) – – – – – – – –Alistair Darby –Singlefigureremuneration(£000) – – – 982a 642 878 – –Annualbonusoutcome(%ofmax) – – – 71.0 – – – –LTIPvestingoutcome(%ofmax) – – – n/a n/a 19.0 – –Bob Ivell –Singlefigureremuneration(£000) – – 557 69b – – – –Annualbonusoutcome(%ofmax) – – n/ac n/ac – – – –LTIPvestingoutcome(%ofmax) – – n/ac n/ac – – – –Jeremy Blood –Singlefigureremuneration(£000) – 397 50 – – – – –Annualbonusoutcome(%ofmax) – –d n/ac – – – – –LTIPvestingoutcome(%ofmax) – n/ac – – – – – –Adam Fowle –Singlefigureremuneration(£000) 1,315 483e – – – – – –Annualbonusoutcome(%ofmax) 87.6 16.0 – – – – – –LTIPvestingoutcome(%ofmax) 16.2 24.2 – – – – – –

a. AlistairDarbyformallytookupthepositionofCEOon12November2012followingashortperiodofinductionandhandover.ThefigureshownreflectsthedateofhisappointmenttotheBoard(8October2012).

b. Figureshownisuptoandincluding11November2012asBobIvellremainedExecutiveChairmantothisdate.c. TheDirectorwasnotaparticipantintheplan.d. JeremyBloodwasnotaparticipantintheshort-termincentiveplan;atthediscretionoftheBoardapaymentof£100,000wasmadeinrespectofhiscontributionasInterimChiefExecutive.

Thispaymentisincludedinthesingleremunerationfigure(£397,000)above.Earningsexcludethefeepayablefortheperiod26September2010to14March2011duringwhichMrBloodservedasaNon-ExecutiveDirector.

e. Earningsdisclosedareto15March2011whenMrFowlesteppeddownasCEO.

Change in remuneration of the CEO

Salary (£) Taxable benefits (£) Bonus (£)

2018 2017 % Change 2018 2017 % Change 2018 2017 % Change

CEO 510,000 510,000 0 15,557 15,134 2.8 200,034 145,546 37.4Salariedemployees 32,383 31,572 2.6 728 704 3.4 2,449 2,739 (10.6)

ThechangeinCEOremunerationiscomparedtothechangeinaverageremunerationofallfull-timesalariedemployees,whichincludeshousemanagers,assistantmanagersandkitchenmanagersemployedinourbusinesses.

Salariedemployeeswithpart-yearserviceineitherFY2017orFY2018havebeenexcludedfromthecomparisonfigures.Retailstaffemployeeshavebeenexcludedfromthecomparatorgroupastheyarehourlypaid,largelyparttimeanddonotparticipateinanybonusplans.TheCEOfiguresdonotincludeLTIPawardsorpensionbenefitsthataredisclosedinthesinglefiguretable.



CEO pay ratios

ForthelasttwoyearsMitchells&ButlershasdisclosedthepayratiobetweentheCEOandthemedianpayofotheremployees,reflectingemergingbestpractice.TheGovernmenthasnowintroducedlegislationthatwillrequireallquotedcompanieswithmorethan250employeestopublishtheratiooftheirCEO’spay,usingthesinglefigurefortotalCEOremunerationtothatofthemedian,25thand75thpercentiletotalremunerationoffull-timeequivalentemployees.WhilstthislegislationdoesnotrequireMitchells&Butlerstocomplyuntilthe2020AnnualReporttheCommitteefeelsthatitisimportanttocontinuetotakealeadinthisarea,asitprovidesahelpfulopportunitytodemonstratethelinkbetweenCEOpayinthecontextofoverallworkforceremuneration.ThetablebelowsetsouttheCEOpayratioatthemedian,25thand75thpercentile.

CEO pay ratio

Financial year P25 (lower quartile) P50 (median) P75 (upper quartile)

2018 61:1 58:1 52:1

Thelowerquartile,medianandupperquartileemployeeswerecalculatedbasedonfull-timeequivalentbasepaydataasat29September2018.ThiscalculationmethodologywasselectedasthedatawasfelttobethemostaccuratewayofidentifyingthebestequivalentsofP25,P50andP75.

TheemployeepaydatahasbeenreviewedandwearesatisfiedthatitfairlyreflectstherelevantquartilesgiventheverylargeproportionofhourlypaidteammembersemployedbyMitchells&Butlers(c.86%ofthetotalworkforce).Thethreerepresentativeemployeesusedtocalculatethepayratiosarehourlypaidandthebasepayelementswerecalculatedusingafull-timeequivalenthourlyworkingweekof35hours.Hourlypaidemployeesdonotparticipateintheannualbonusplanorlong-termincentiveplanandinmostcasesdonothaveanytaxablebenefits.Employeepaydoesnotincludeearningsfromtipsandservicecharge,fromwhichmanyemployeesbenefit.ItisMitchells&Butlers’policytopassallearningsfromtipsandservicechargestoemployees.

Paydetailsfortheindividualsaresetoutbelow:

CEO P25 (lower quartile) P50 (median) P75 (upper quartile)

Salary 508,603 13,432 14,177 15,616Totalpay 819,045 13,432 14,177 15,616

Themedianpayratiosreportedin2016and2017werecompletedusingadifferentmethodologythatcalculatedactualpayandbenefitsoverthefinancialyearforallemployeeswhohadbeenemployedforthefullfinancialyear.Thismethodologyisnotcompliantwiththenewregulations,butoverallthemedianpayratioisbroadlyinlinewithprioryearsat63:1in2017and44:1in2016,ayearinwhichnobonuswaspaidtotheCEO.

Inassessingourpayratioversuslikelyratiosfromindustrypeers,webelievethatwearetowardsthelowerendoftherangebutnotethatannualandlong-termincentivepaymentshavevariedconsiderablyamongstthisgroup.Inourcase,theCEOsinglefigurecomprisesfixedpay,taxablebenefits,pensionbenefitsandbonusonly,giventhatnolong-termincentivevestedinrespectofperformanceinFY2018,orinanyoftheprioryears.Wealsorecognisethatratioswillbeinfluencedbylevelsofemployeepay,andinthehospitalitysector,despitesignificantincreasesoverthepastyear,employeepaywillbelowerthaninmanyothersectorsoftheeconomy.

Relative importance of spend on pay £m

700

500

400

300

200

100

600

0 Wages and salaries*

FY 2018

625620

1671604647

198197

12

Principal taxes** Pension deficit contributions Debt service Cash Dividend and Share Buy Back

FY 2017 * From note 2.3, Accounts, excludes share-based payments. ** Business Rates, Corporation Tax, Employers NI.

-0.8%

-4.2%

+2.2%

-0.5%

-100%

Figuresshownforwagesandsalariesconsistofallearnings,includingbonus.InFY2018,£2m(0.3%)waspaidtoExecutiveandNon-ExecutiveDirectors(2017£2m(0.3%)).

Thefallinwagesandsalariesandprincipaltaxesareprimarilyaresultofdisposalsmadein2017.


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Details of service contracts and letters of appointment

DetailsoftheservicecontractsofExecutiveDirectorsaresetoutbelow.

Director Contract start date Unexpired termNotice period

from Company Minimum notice

period from DirectorCompensation on change of control

PhilUrbana 27/09/15 Indefinite 12months 6months NoTimJones 18/10/10 Indefinite 12months 6months No

a. PhilUrbanbecameChiefExecutiveandjoinedtheBoardon27September2015.Hiscontinuousservicedatestartedon5January2015,thedateonwhichhejoinedtheCompanyasChiefOperatingOfficer.

Non-Executive DirectorsNon-ExecutiveDirectors,includingtheCompanyChairman,donothaveservicecontractsbutserveunderlettersofappointmentwhichprovidethattheyareinitiallyappointeduntilthenextAGMwhentheyarerequiredtostandforelection.InlinewiththeCompany’sArticles,allDirectors,includingNon-ExecutiveDirectors,willstandforre-electionatthe2019AGM(withtheexceptionofStewartGillilandwhointendstostepdownfromtheBoardbeforethen).ThisisalsoinlinewiththerecommendationssetoutinparagraphB.7.1oftheUKCorporateGovernanceCode.Non-ExecutiveDirectors’appointmentsareterminablewithoutnoticeandwithnoentitlementtocompensation.Paymentoffeeswillceaseimmediatelyontermination.

RonRobsonandJoshLevywereappointedtotheBoardpursuanttothetermsofthePiedmontDeedofAppointment,informationonwhichissetoutonpage51.

CopiesoftheindividuallettersofappointmentforNon-ExecutiveDirectorsandtheservicecontractsforExecutiveDirectorsareavailableattheRegisteredOfficeoftheCompanyduringnormalbusinesshoursandonourwebsite.Copieswillalsobeavailabletoshareholderstoviewatthe2019AGM.

Implementation of remuneration policy in FY 2019

Executive Directors’ salary reviewSalaryincreasestakeeffectfrom1January2019and,fromthisdate,PhilUrban’ssalarywillbeincreasedto£520,000(2%)andTimJones’salarywillbeincreasedto£435,000(2%).PhilUrban’ssalaryhasnotincreasedsincehisappointmentinSeptember2015andTimJones’salarywaslastincreasedinJanuary2015.TheseincreasesarebroadlyinlinewiththoseapplicabletoothersalariedemployeesintheGroupandfollowanextendedperiodduringwhichExecutiveDirectors’salarieshavenotbeenincreased.

Annual performance bonusThemaximumbonusopportunitywillremainat100%ofsalaryfortheChiefExecutiveandFinanceDirectorwith70%ofbonustobebasedonOperatingProfitandtheremaining30%onnon-profitelementslinkedtothebusinessscorecard.

Weighting Details

OperatingProfit 70% Bonuswillbegintoaccrueatthresholdwithhalfofthebonuspayableforon-targetperformance,reflectingthedemandingnatureofthetargetssetbytheCommittee.Fullpaymentwillrequireverystrongperformance,wellinexcessofcurrentmarketconsensus.

GuestHealth 15% GuestHealthwillcomprisethreemeasures,eachwithanequalweighting:

• NPS–awell-establishedmeasureofGuestHealth,willcontinuetobeassessedinFY2019.

• Social media–Themonitoringtoolenablesallsocialmediareviews,includingTripAdvisor,FacebookandGoogle,tobecombinedintoasinglereviewscore.

• Guest complaints–Therehasbeenanincreasedfocusonimprovingthespeedatwhichguestcomplaintsareresolved,alongsideacommitmenttoreducingtheoverallnumberofcomplaintsreceived.

CombiningNPSwithanassessmentofsocialmediareviewsandguestcomplaintsprovidesamoreholisticreviewofGuestHealth.Toachieveamaximumpayment,performancewillneedtoexceedtargetonatleasttwoelements,andbeattargetorbetter,forthethirdelement.

Employeeengagement 10% Mitchells&Butlershasmeasuredemployeeengagementforanumberofyears,andaclearcorrelationhasbeenestablishedbetweenemployeeengagementandguestsatisfaction,whichinturnhasapositiveimpactonsales.Forthisreason,theCommitteehasdecidedtoincludeemployeeengagementinthebonusscheme.

FoodSafety 5% FoodsafetywillalwaysbeakeypriorityandincludingameasurebasedontheproportionofourbusinessesthatachieveahighNationalFoodHygieneRatingSchemescorereflectsourcontinuedfocusonthesafeoperationofourbusinesses.Anagreedfoodsafetyscoremustbeachievedforthispartofthebonustopayoutand,asanadditionalcheck,overallworkplacesafetywillalsobetakenintoaccountwhendeterminingtheoutcome.

Thenon-financialelementswillonlybecomepayableifacertainlevelofOperatingProfithasbeenachieved.For2019,thiswillremainat97.5%oftarget,whichisaheadofthethresholdrequiredforpaymentundertheOperatingProfitmeasure.

TherewillalsobeachangetothemethodusedtocalculateNPS.Previouslyitwascalculatedona‘BusinessWeighted’basiswhereeachpuborrestaurantcarriedthesameweightirrespectiveofbusinesssizeandthenumberofresponses.Goingforwardscoreswillbecalculatedona‘ResponseWeighted’basiswherethescoretreatsallresponsesasequallyimportant,i.e.largerbusinesseswithmoreresponseswillhavearelativelygreaterbearingontheoverallscorethantheydonow,thereforeprovidingabetterrepresentationofguestsatisfactionandperformanceaseachindividualguestresponsecarriesthesameweighting.



TheCommitteewillcontinuetoconsidertheoverallperformanceoftheCompany,notjusttheoutcomeofeachindividualmeasure.Allbonustargetsareconsideredtobecommerciallysensitiveandwillnotbedisclosedinadvance.However,retrospectivedisclosureoftargetsandperformanceagainstthemwillbeprovidedinnextyear’sDirectors’remunerationreport.

ThebonusstructureforallManagersacrossMitchells&Butlersislinkedtotheabovebusinessscorecard.

Performance Restricted Share Plan (PRSP) 2019–21

TheCommitteehasconcludedthattheperformancemeasuresshouldremainunchangedfromtheJuly2018award,withtwoindependentelements,OperatingCashFlow(75%weighting)andrelativeTSR(25%weighting).

Insettingthetargetrangefor2019–21,theCommitteehasconsideredtheongoingcostheadwindsthatthebusinesscontinuestoface,theupwardpressureonfoodanddrinkinflation,alongwiththepotentialbenefitsflowingfromtheIgniteinitiativesoverthecomingyears.TheconclusionofthisreviewisthattheOperatingCashFlowtargetrangewillhaveathresholdsetat£1,332mandmaximumat£1,362m,whichrepresentsanincreaseatboththresholdandmaximum.

Onanearningsequivalentbasis,theadjustedEPSatargetrangewillbebetween4.5%and7%,againafurtherprogressiononthe2018–20PRSPtargets.

ThecurrentTSRcomparatorgroupcomprisessixpeercompanies(EIGroup,GreeneKing,Marston’s,TheRestaurantGroup,JDWetherspoonandWhitbread).FollowingtheannouncementoftheforthcomingsaleofCostaCoffeebyWhitbreadtoCoca-ColatheCommitteehasfurtherreviewedtheconstituentsofthisgroup.OncetheCostasalehasconcluded,theresidualWhitbreadbusinesswillbeprimarilyahotelsbusinessandthereforetheCommitteehasconcludedthat,goingforward,Whitbreadshouldnotformpartofthepeergroup.TheremovalofWhitbreadfromthepeergroupreducesthenumberofconstituentstofiveandtheCommitteehasconsideredcarefullyifWhitbreadcouldbereplacedbyanalternativecompany.Havingtakenallfactorsintoaccount,theCommitteehasconcludedthatthemostappropriateapproachistocontinuewiththeslightlysmallercomparatorgroup,asthisresultsinawellmatchedgroupmakingitmorelikelythatanyoutperformancewillbelinkedtomanagementandCompanyaction.

Asummaryoftheperformancemeasuresandtargetsaresetoutinthetablebelow:

Threshold vesting target* Maximum vesting target*

1.OperatingCashFlow(75%oftheaward) £1,332m(25%vests) £1,362m(100%vests)2.TotalShareholderReturn(‘TSR’)relative

toapeergroupofcomparatorcompanies** (25%oftheaward)

25%willvestformatchingthemedianofthegroup

100%willvestforTSRperformancethatexceedsthemedianby8.5%p.a.

* Betweenthresholdandmaximum,vestingundereachmeasureisonastraight-linebasis.Belowthresholdtheawardwilllapse.** ComprisingEIGroup,GreeneKing,Marston’s,TheRestaurantGroupandJDWetherspoon.

Non-Executive Directors’ fee review

TheChairman’sandNon-ExecutiveDirectorfeewerelastreviewedinJanuary2015.TheChairmanhasindicatedthathedoesnotwishtohavehisfeeincreasedatthistime.Asdetailedinthecorporategovernancesectionofthisreport,thebasefeeforNon-ExecutiveDirectorswillincreaseby2%to£53,000perannumandthefeepaidtoNon-ExecutiveDirectorsforchairingaCommitteeorfortheroleofSeniorIndependentDirectorwillincreaseto£13,000perannum.


21November2018



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In this section

93 Independentauditor’sreporttothemembersofMitchells&Butlersplc

100 Groupincomestatement101 Groupstatementofcomprehensiveincome102 Groupbalancesheet103 Groupstatementofchangesinequity104 Groupcashflowstatement

Notestothefinancialstatements105 Section1–Basisofpreparation109 Section2–Resultsfortheyear

109 2.1Segmentalanalysis109 2.2Separatelydisclosedforms111 2.3Revenueandoperatingcosts113 2.4Taxation115 2.5Earningspershare

116 Section3–Operatingassetsandliabilities116 3.1Property,plantandequipment120 3.2Workingcapital121 3.3Provisions122 3.4Goodwillandotherintangibleassets124 3.5Associates

125 Section4–Capitalstructureandfinancingcosts125 4.1Netdebt126 4.2Borrowings127 4.3Financecostsandrevenue128 4.4Financialinstruments133 4.5Pensions137 4.6Share-basedpayments139 4.7Equity

141 Section5–Othernotes141 5.1Relatedpartytransactions141 5.2Subsidiariesandassociates142 5.3Eventsafterthebalancesheetdate142 5.4Fiveyearreview

143 Mitchells&ButlersplcCompanyfinancialstatements145 NotestotheMitchells&ButlersplcCompanyfinancialstatements

Financial statements


Report on the audit of the financial statements

OpinionInouropinion:

• thefinancialstatementsofMitchells&Butlersplc(the‘Company’)anditssubsidiaries(the‘Group’)giveatrueandfairviewofthestateoftheGroup’sandoftheCompany’saffairsasat29September2018andoftheGroup’sprofitforthe52weeksthenended;

• theGroupfinancialstatementshavebeenproperlypreparedinaccordancewithInternationalFinancialReportingStandards(IFRSs)asadoptedbytheEuropeanUnion;

• theCompanyfinancialstatementshavebeenproperlypreparedinaccordancewithUnitedKingdomGenerallyAcceptedAccountingPractice,includingFinancialReportingStandard101‘ReducedDisclosureFramework’;and

• thefinancialstatementshavebeenpreparedinaccordancewiththerequirementsoftheCompaniesAct2006and,asregardstheGroupfinancialstatements,Article4oftheIASRegulation.

Wehaveauditedthefinancialstatementswhichcomprise:

• theGroupincomestatement;

• theGroupstatementofcomprehensiveincome;

• theGroupandCompanybalancesheets;

• theGroupandCompanystatementsofchangesinequity;

• theGroupcashflowstatement;

• therelatednotes1to5ofGroupfinancialstatements;and

• therelatednotes1to10oftheCompanyfinancialstatements

ThefinancialreportingframeworkthathasbeenappliedinthepreparationoftheGroupfinancialstatementsisapplicablelawandIFRSsasadoptedbytheEuropeanUnion.ThefinancialreportingframeworkthathasbeenappliedinthepreparationoftheCompanyfinancialstatementsisapplicablelawandUnitedKingdomAccountingStandards,includingFRS101‘ReducedDisclosureFramework’(UnitedKingdomGenerallyAcceptedAccountingPractice).

Basis for opinionWeconductedourauditinaccordancewithInternationalStandardsonAuditing(UK)(ISAs(UK))andapplicablelaw.Ourresponsibilitiesunderthosestandardsarefurtherdescribedintheauditor’sresponsibilitiesfortheauditofthefinancialstatementssectionofourreport.

WeareindependentoftheGroupandtheCompanyinaccordancewiththeethicalrequirementsthatarerelevanttoourauditofthefinancialstatementsintheUK,includingtheFinancialReportingCouncil’s(the‘FRC’s’)EthicalStandardasappliedtolistedpublicinterestentities,andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeserequirements.Weconfirmthatthenon-auditservicesprohibitedbytheFRC’sEthicalStandardwerenotprovidedtotheGrouportheCompany.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.

Summary of our audit approach

Key audit matters Thekeyauditmattersthatweidentifiedinthecurrentyearwere:

• Valuationofthepubestate• Onerousleaseprovisions• Compliancewithdebtcovenants

Materiality Thematerialitythatweusedforthegroupfinancialstatementswas£8.8mwhichisapproximately5%ofprofitbeforetaxbeforeseparatelydiscloseditems.

Scoping AfullscopeaudithasbeenperformedinrespectoftheUKbusiness,consistentwith2017.

Significant changes in our approach Therehasbeenanewkeyauditmatteridentifiedinrelationtocompliancewithdebtcovenants.Therehavebeennootherchangesinthekeyauditmattersincludedinourauditreportsince2017.ThisisconsistentwiththefactthattheoperationsoftheGrouparelargelyunchangedfromthepreviousyear.

Independent auditor’s report to the members of Mitchells & Butlers plc


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Independent auditor’s report to the members of Mitchells & Butlers plc continued

Conclusions relating to going concern, principal risks and viability statementGoing concernWehavereviewedtheDirectors’statementinSection1tothefinancialstatementsaboutwhethertheyconsidereditappropriatetoadoptthegoingconcernbasisofaccountinginpreparingthemandtheiridentificationofanymaterialuncertaintiestotheGroup’sandCompany’sabilitytocontinuetodosooveraperiodofatleasttwelvemonthsfromthedateofapprovalofthefinancialstatements.

WearerequiredtostatewhetherwehaveanythingmaterialtoaddordrawattentiontoinrelationtothatstatementrequiredbyListingRule9.8.6R(3)andreportifthestatementismateriallyinconsistentwithourknowledgeobtainedintheaudit.

Weconfirmthatwehavenothingmaterialtoreport,addordrawattentiontoinrespectofthesematters.

Principal risks and viability statementBasedsolelyonreadingtheDirectors’statementsandconsideringwhethertheywereconsistentwiththeknowledgeweobtainedinthecourseoftheaudit,includingtheknowledgeobtainedintheevaluationoftheDirectors’assessmentoftheGroup’sandtheCompany’sabilitytocontinueasagoingconcern,wearerequiredtostatewhetherwehaveanythingmaterialtoaddordrawattentiontoinrelationto:

• thedisclosuresonpages38to42thatdescribetheprincipalrisksandexplainhowtheyarebeingmanagedormitigated;

• theDirectors’confirmationonpage39thattheyhavecarriedoutarobustassessmentoftheprincipalrisksfacingtheGroup,includingthosethatwouldthreatenitsbusinessmodel,futureperformance,solvencyorliquidity;or

• theDirectors’explanationonpage42astohowtheyhaveassessedtheprospectsoftheGroup,overwhatperiodtheyhavedonesoandwhytheyconsiderthatperiodtobeappropriate,andtheirstatementastowhethertheyhaveareasonableexpectationthattheGroupwillbeabletocontinueinoperationandmeetitsliabilitiesastheyfalldueovertheperiodoftheirassessment,includinganyrelateddisclosuresdrawingattentiontoanynecessaryqualificationsorassumptions.

WearealsorequiredtoreportwhethertheDirectors’statementrelatingtotheprospectsoftheGrouprequiredbyListingRule9.8.6R(3)ismateriallyinconsistentwithourknowledgeobtainedintheaudit.

Weconfirmthatwehavenothingmaterialtoreport,addordrawattentiontoinrespectofthesematters.

Key audit matters

Keyauditmattersarethosemattersthat,inourprofessionaljudgement,wereofmostsignificanceinourauditofthefinancialstatementsofthecurrentperiodandincludethemostsignificantassessedrisksofmaterialmisstatement(whetherornotduetofraud)thatweidentified.Thesemattersincludedthosewhichhadthegreatesteffecton:theoverallauditstrategy;theallocationofresourcesintheaudit;anddirectingtheeffortsoftheengagementteam.

Thesematterswereaddressedinthecontextofourauditofthefinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.

TherehasbeenanewkeyauditmatteridentifiedintheyearinrespectofcompliancewiththeEBITDAtodebtservicerestrictedpaymenttest.Giventhechallengesintheindustrywithhighlevelsofcompetitionandinflationarycostpressures,thereremainsariskthattheGroupdoesnotachievetherequiredlevelofprofittomeettheEBITDAtodebtservicerestrictedpaymenttest.


Key audit matter description How the scope of our audit responded to the key audit matter Key observations

Valuation of the pub estateAssetoutinsection3.1thevalueoftheestateis£4,230m(2017£4,230m).

Freehold and long leaseholdTheaccountingpolicyadoptedandjudgementsusedaredescribedinsection3.1tothefinancialstatements.

Thisisconsideredtobeakeyauditmatterduetothejudgementsinherentwithinthevaluationexerciseandtherangeofacceptablejudgements.Thetotalnetbookvalueofrevaluedpropertiesasat29September2018is£4,230m(2017£4,230m).Therevaluationexerciseperformedintheyearhasresultedinanetdecreaseof£33mversuscarryingvalue(2017£23m),whichincludesanimpairmentchargeof£28m(2017£51m)recognisedintheincomestatement.TheGroup’saccountingpolicysetsoutthatthemarketvalueisdeterminedusingfactorssuchasestimatedfairmaintainabletradinglevelsandestimatedmultipleswhicharederivedforeachoftheGroup’stradingbrands.Approximately20%ofthefreeholdandlongleaseholdestatehasbeeninspectedbytheGroup’sexternalvaluers,withtheresultoftheinspectioninformingthebrandstandardmultipleswhicharethenextrapolatedacrosstheremainderoftheestate.

Inspecificcircumstanceswherethisapproachdoesnotfairlyrepresenttheunderlyingvalueoftheproperty,forexampleifasiteislossmaking,aspotvaluationisapplied.

Wheresiteshavebeenimpactedbyexpansionarycapitalinvestmentinthepreceding12months,thevaluationofthosepropertiesisheldatthe30September2017valuationpluscapitalexpenditurelessdepreciationin2018.Sitesthathavebeenopenformorethanthreeperiods(2017threeperiods)arereviewedforimpairment.

Short leaseholdTheaccountingpolicyadoptedandjudgementsusedaredescribedinsection3.1tothefinancialstatements.

Thetotalvalueofshortleaseholdpropertiesasat29September2018is£156m(2017£170m).Judgementsinrelationtoexpectedtradinglevels,whetherthesitehasthepotentialtobeturnedaroundanddiscountratesareappliedwhencalculatingshortleaseholdpropertyimpairments.TheGrouprecordedanimpairmentchargeof£15m(2017£17m)intheyear.

Weworkedwithourpropertyvaluationspecialistsandmanagement’sexternaladviserstochallengethemethodologyandunderlyingassumptionsusedinthefreeholdandlongleaseholdpubestatevaluation.Thisincluded:

• confirmingtheappropriatenessoftheestimatedFMTbeingusedtovaluetheproperties;

• obtainingevidencetosupporttheappropriatenessofthevaluationsoftheinspectedestatewhenbenchmarkedtotransactionactivityinthelicensedretailpropertymarket;

• testingtheapplicationofthemultiplederivedfromthevaluationofinspectedpropertiestotherestoftheestate;

• completingaretrospectivereviewofthevaluationofsitessubjecttoexpansionarycapitalinvestmentintheprioryeartoidentifythesuccessofreturnsoninvestment;

• reviewingtheappropriatenessandcompletenessofanyspotvaluationsmade;and

• obtainingevidencetosupportthefutureprojectedincomeusedintheimpairmentreviewsforsiteswhichhavebeenimpactedbyexpansionarycapitalinvestmentinthepreceding12months.

Additionallywe:

• assessedthedesignandimplementationandtestedtheoperatingeffectivenessofcontrolsinrelationtothevaluationofthefreeholdandlongleaseholdestate.

Weareinagreementwiththemethodologychosenandtheassumptionsadoptedtorevaluethepubestateandconcludethereappearstobenobiasinthevaluation.Themultiplesadoptedacrosstheestatearewithinareasonablerange.Weconcurthatthevaluationsaresuitableforinclusioninthefinancialstatements.


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Valuation of the pub estate continuedFocus areasGiventheamountscapitalisedandtheriskassociatedacrossthefreehold,longleaseholdandshortleaseholdsiteswehavefocusedourproceduresontheassessmentmadebymanagementof:

• theappropriatenessofthefairmaintainabletradinglevelsandbrandmultipleassumptionsappliedtothefreeholdandlongleaseholdestateonasitebysitebasis;

• thevaluationoffreeholdandlongleaseholdsitesimpactedbyexpansionarycapital,challengingtheneedforanyimpairmentofproperty,plantandequipmentrequiredatanindividualoutletlevel;and

• therequirementforanyimpairmentinrespectoftheproperty,plantandequipmentheldintheshortleaseholdestateatanindividualoutletlevel.

Inaddition,duetothelevelofsubjectivejudgementsinvolvedinrespectofmultipleandfairmaintainabletradeassumptionswhichareinherentlyuncertain,wehaveidentifiedapotentialriskoffraudinthiskeyauditmatter.

Wechallengedtheassumptionsusedbymanagementwithintheimpairmentreviewsperformedfortheshortleaseholdestateandfreeholdandlongleaseholdsitesimpactedbyexpansionarycapital.Thisincluded:

• obtainingevidencetosupportmanagement’sassertionthatshortleaseholdpropertiescanbesuccessfullyturnedaroundwherepropertieshavenotbeenimpairedduetomanagement’sexpectationthattheperformanceofthepropertieswillimprove.Thisincludedobtainingevidencetosupportmanagement’sturnaroundplansandperformanceofaretrospectivereviewconsideringthesuccessofhistoricturnaroundplans;

• obtainingevidencetosupportmanagement’sexpectedperformanceofsitespostinvestmentofexpansionarycapitalandaretrospectivereviewofprioryearsiteswhereexpansionarycapitalwasincurred;

• testingtheintegrityoftheinformationusedwithinthemodelbyagreeinginputsbacktosourcedataincludinghistoricalresultsandleaseterms;and

• assessingtheappropriatenessofthediscountratethroughrecalculationandperformingsensitivityanalysis.

Additionally,weassessedthedesignandimplementationandtestedtheoperatingeffectivenessofcontrolsinrelationtotheshortleaseholdimpairmentreview.

Onerous Lease Provisions Assetoutinsection3.3,propertyprovisionsare£43m(2017£42m)ofwhich£41.9m(2017£41.9m)relatestoonerousleaseprovisions.Theaccountingpolicyforprovisionsissetoutinsection3.3.

Loss-makingshortleaseholdpropertiesarereviewedbymanagementtodeterminewhetheranonerousleaseprovisionisrequired.Judgementsinrelationtoexpectedtradinglevels,theappropriateleasetermoverwhichtoprovide,thepotentialopportunitytoexittheleasesearlyandtheappropriatediscountratetouseareappliedwhenassessingthelevelofonerousleaseprovisionrequired.Thereforewehaveidentifiedapotentialriskoffraudinthiskeyauditmatter.

Focus areasGiventhesizeoftheleaseholdestatethereisariskthatwhereasiteisunderperformingthecashflowsmaynotbeadequatetocoverfutureleaseobligations,resultingintherequirementforanonerousleaseprovisionfortheunavoidablecashflow.Wefocusedonthecompletenessoftheonerousleaseprovisionbyassessingthejudgementsusedinarrivingattheleveloftheprovisionforeachsite.Furthermore,wealsofocusedonsiteswhereaturnaroundorexitplanisinplace.

Weperformedthefollowingprocedurestorespondtothekeyauditmatter:

• weassessedtheappropriatenessoftheclassificationofpropertyprovisionsprovidedintheperiodasabeforeseparatelydisclosediteminaccordancewithIAS1PresentationofFinancialStatements;

• wecheckedthatallleaseholdsiteswereconsideredinmanagement’sprocesstoidentifysiteswhichwerepotentiallysubjecttoonerousleases;

• whereonerousleaseprovisionshavenotbeenrecognised,despitehistoricalresultsindicatingthataprovisionmayberequired,weobtainedevidencetosupportmanagement’sassertionthatpropertiescanbesuccessfullyturnedaround.Thisincludedassessingthesuccessofpreviousactionsundertakenbymanagementtoturnaroundsimilarsites;

• wetestedasampleoflossmakingshortleaseholdandunlicensedpropertiestocreateanexpectationoftheappropriatelevelofonerousleaseprovisionforeachpropertywithinoursampleandcomparedourexpectationwiththelevelofonerousleaseprovisionforeachproperty;

• weassessedtheappropriatenessofforecastEBITDAstakingintoconsiderationthecostsavingandsalesopportunitiesidentifiedbymanagementfollowingabenchmarkingexercise;

• wetestedtheintegrityoftheinformationusedwithintheonerousleaseprovisioncalculationbyagreeinginputsbacktosourcedataincludinghistoricalresults,andrentalcommitments;and

• weassessedtheappropriatenessoftheriskfreediscountrateusedthroughcomparisontoappropriateexternalbenchmarks.

Additionallyweassessedthedesignandimplementationandtestedtheoperatingeffectivenessofcontrolsinrelationtothecalculationoftheonerousleaseprovision.

WeagreethatthelevelofonerousleaseprovisioniswithinareasonablerangeandthatthepresentationofthemovementsinonerousleaseprovisionisinaccordancewithIAS1.




Compliance with debt covenants TheprimarysourceofborrowingsfortheGrouparesecuredloannotesof£1,784mat29September2018.ThisdebtissecuredonthemajorityofthepropertiesownedbytheGroup(propertiesheldwithinasubsidiaryCompanyMitchells&ButlersRetailLimited).TheGroupalsohas£150mofunsecuredcreditfacilities.Therearecovenantsattachedtoboththesecuredloannotesandtheunsecuredrevolvingcreditfacilities.

Givenchallengesintheindustrywithhighlevelsofcompetition,inflationarycostpressuresandincreasinguncertaintiesaroundBritainexitingfromtheEuropeanUnion,weidentifiedthattheforecastingofEBITDAduringthelong-termviabilityperiodissubjecttosignificantjudgementsandestimates.

ThekeyriskidentifiedistheGroup’sabilitytomeettheforecastedEBITDAoverthelonger-termviabilityperiodforthefinancialcovenantsattachedtothesecuredloannotes.ThistestismeasuredateachquarterenddateforMitchells&ButlersRetailLimited.

DebtcovenantsarefurtherdisclosedwithinNote4.2oftheGroupFinancialStatements,aswellasbeingdisclosedintheLong-TermViabilityStatement.

Weperformedthefollowingprocedurestorespondtothekeyauditmatter:

• assessedthedesignandimplementationofcontrolsinrelationtothemanagementreviewofBudgetandcovenantscalculations;

• reviewedmanagement’sgoingconcernandlonger-termviabilityassessment,bychallengingmanagementtounderstandthekeydriversformingthebasisoftheEBITDAforecastsandchallengingtheassumptionsusedinthebasecasescenariousingindustryforecasts,historicalperformanceandourunderstandingofthebusiness;

• challengedtheappropriatenessofthereasonablypossiblesensitivitiesusedinmanagement’sdownsidescenariooverthelonger-termviabilityperiod;

• reviewedandchallengedmanagement’skeyassumptionsbyreferencetoindependentindustrysourcesandrelevantsupportingevidenceandsensitisingtheimpactthesehaveonmanagement’sassessmentoftheprofitability;

• consideredthefeasibilityofthemitigatingactionsthatmanagementhaveattheirdisposalshouldthefinancialcovenanttestbeclosetobeingbreached;and

• reviewedthedisclosuresongoingconcernandlonger-termviabilitytoconfirmthattheyareconsistentwiththeknowledgewehaveacquiredduringthecourseofourauditandtoconfirmthatthedisclosuresareconsistentwiththeoverallrequirementfortheAnnualReporttobefair,balancedandunderstandable.

Wehaveconsideredreasonablypossibledownsidescenariosandwehaveidentifiedthatadequateheadroomexists.Furthermore,weareinagreementthatshouldacovenantbeclosetobeingbreached,managementhavefurtheractionsthatcouldbeundertakeninordertopreventsuchabreachoccurring.Therefore,weconcurwiththemanagementassumptionsmadeinrelationtogoingconcernandlong-termviabilityoftheGroupandtheresultingdisclosuresincludedinthelong-termviabilitystatement.

Our application of materiality

Wedefinematerialityasthemagnitudeofmisstatementinthefinancialstatementsthatmakesitprobablethattheeconomicdecisionsofareasonablyknowledgeablepersonwouldbechangedorinfluenced.Weusematerialitybothinplanningthescopeofourauditworkandinevaluatingtheresultsofourwork.

Basedonourprofessionaljudgement,wedeterminedmaterialityforthefinancialstatementsasawholeasfollows:

Group financial statements Company financial statementsMateriality £8.8m(2017£8.75m) £8.5m(2017£8.7m)

Basis for determining materiality

Approximately5%(20175%)ofprofitbeforetaxadjustedfornetprofitarisingonpropertydisposals,movementsinthevaluationofthepropertyportfolioandshortleaseholdimpairmentandseparatelydisclosedpensionlegalcosts.Adjusteditemsrelatetoseparatelydiscloseditemsinnote2.2(2017profitbeforetaxadjustedfornetprofitarisingonpropertydisposals,movementsinthevaluationofthepropertyportfolioandshortleaseholdimpairmentandtheseparatelydisclosedonerousleaseprovisioncharge).

Parentcompanymaterialityequatesto0.4%ofnetassets,whichiscappedat97%ofGroupmateriality.

Rationale for the benchmark applied

ProfitbeforetaxbeforeseparatelydiscloseditemsisakeymeasureusedbytheGroupinreportingitsresultstoallowabetterunderstandingoftheadjustedtradingoftheGroupandisalsoakeymeasureconsideredbyusersoftheaccounts.

Theparentcompanydoesnottradeorexistforprofitgeneratingpurposessomaterialityhasbeendeterminedusingnetassets.

Group materiality £9m

Component materiality range £8m

Audit Committee reporting threshold £0.44m

Adjusted PBT £178m


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WeagreedwiththeAuditCommitteethatwewouldreporttotheCommitteeallauditdifferencesinexcessof£440,000(2017£437,500),aswellasdifferencesbelowthatthresholdthat,inourview,warrantedreportingonqualitativegrounds.WealsoreporttotheAuditCommitteeondisclosuremattersthatweidentifiedwhenassessingtheoverallpresentationofthefinancialstatements.

An overview of the scope of our audit

OurGroupauditwasscopedbyobtaininganunderstandingoftheGroupanditsenvironment,includingGroup-widecontrols,andassessingtherisksofmaterialmisstatementattheGrouplevel.Basedonthatassessment,weperformedafullscopeauditinrespectoftheUKretailoperatingbusinesswhichaccountsfor99%(201799%)oftheGroup’stotalassets,96%(201797%)ofrevenueand96%(201798%)ofoperatingprofit.ThisauditworkwasperformeddirectlybytheGroupauditengagementteam,whoalsotestedtheconsolidationprocess.GiventherelativesizeoftheGermanbusiness(‘ALEX’)weconsidertheUKbusinessprovidessufficientauditassuranceovertheGroupbalances.Thisapproachisconsistentwith2017.Attheparententitylevelwealsotestedtheconsolidationprocess,aswellastheparentbalancesheettoparentcompanymateriality.

Inrespondingtotheassessedrisksofmaterialmisstatement,theauditengagementteamsoughttoplacerelianceontheoperatingeffectivenessoftheGroup’scontrolsinrelationtorevenue,foodanddrinkexpenditure,property,plantandequipment,onerousleaseprovisionsandvaluationofthepubestate.

OurauditworkontheUKbusinesswasexecutedatlevelsofmaterialityapplicabletoeachindividualentitywhichwerelowerthanGroupmaterialityandrangedfrom£1to£8.5m(2017£0.27mto£8.7m).

Full audit scope

Review at group level

Revenue 96% 4%Profitbeforetax 96% 4%Netassets 99% 1%

Other information

TheDirectorsareresponsiblefortheotherinformation.TheotherinformationcomprisestheinformationincludedintheAnnualReport,otherthanthefinancialstatementsandourauditor’sreportthereon.

Ouropiniononthefinancialstatementsdoesnotcovertheotherinformationand,excepttotheextentotherwiseexplicitlystatedinourreport,wedonotexpressanyformofassuranceconclusionthereon.

Inconnectionwithourauditofthefinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.

Ifweidentifysuchmaterialinconsistenciesorapparentmaterialmisstatements,wearerequiredtodeterminewhetherthereisamaterialmisstatementinthefinancialstatementsoramaterialmisstatementoftheotherinformation.If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthatfact.

Inthiscontext,mattersthatwearespecificallyrequiredtoreporttoyouasuncorrectedmaterialmisstatementsoftheotherinformationincludewhereweconcludethat:

• Fair, balanced and understandable–thestatementgivenbytheDirectorsthattheyconsidertheAnnualReportandfinancialstatementstakenasawholeisfair,balancedandunderstandableandprovidestheinformationnecessaryforshareholderstoassesstheGroup’spositionandperformance,businessmodelandstrategy,ismateriallyinconsistentwithourknowledgeobtainedintheaudit;or

• Audit Committee reporting–thesectiondescribingtheworkoftheAuditCommitteedoesnotappropriatelyaddressmatterscommunicatedbyustotheAuditCommittee;or

• Directors’ statement of compliance with the UK Corporate Governance Code–thepartsoftheDirectors’statementrequiredundertheListingRulesrelatingtotheCompany’scompliancewiththeUKCorporateGovernanceCodecontainingprovisionsspecifiedforreviewbytheauditorinaccordancewithListingRule9.8.10R(2)donotproperlydiscloseadeparturefromarelevantprovisionoftheUKCorporateGovernanceCode.

We have nothing to report in respect of these matters.

Responsibilities of Directors

AsexplainedmorefullyintheDirectors’responsibilitiesstatement,theDirectorsareresponsibleforthepreparationofthefinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview,andforsuchinternalcontrolastheDirectorsdetermineisnecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Inpreparingthefinancialstatements,theDirectorsareresponsibleforassessingtheGroup’sandtheCompany’sabilitytocontinueasagoingconcern,disclosingasapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlesstheDirectorseitherintendtoliquidatetheGrouportheCompanyortoceaseoperations,orhavenorealisticalternativebuttodoso.

Auditor’s responsibilities for the audit of the financial statements

Ourobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditor’sreportthatincludesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithISAs(UK)willalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements.

Detailsoftheextenttowhichtheauditwasconsideredcapableofdetectingirregularities,includingfraudaresetoutbelow.

AfurtherdescriptionofourresponsibilitiesfortheauditofthefinancialstatementsislocatedontheFRC’swebsiteat:www.frc.org.uk/auditorsresponsibilities.Thisdescriptionformspartofourauditor’sreport.

Extent to which the audit was considered capable of detecting irregularities, including fraud

Weidentifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror,andthendesignandperformauditproceduresresponsivetothoserisks,includingobtainingauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.

Identifying and assessing potential risks related to irregularitiesInidentifyingandassessingrisksofmaterialmisstatementinrespectofirregularities,includingfraudandnon-compliancewithlawsandregulations,ourproceduresincludedthefollowing:

• enquiringofmanagement,GroupAssurance,in-houselegalcounsel,includingtheCompanySecretaryandGeneralCounsel,andtheAuditCommittee,includingobtainingandreviewingsupportingdocumentation,concerningtheGroup’spoliciesandproceduresrelatingto:

− identifying,evaluatingandcomplyingwithlawsandregulationsandwhethertheywereawareofanyinstancesofnon-compliance;

− detectingandrespondingtotherisksoffraudandwhethertheyhaveknowledgeofanyactual,suspectedorallegedfraud;

− theinternalcontrolsestablishedtomitigaterisksrelatedtofraudornon-compliancewithlawsandregulations;


• discussingamongtheengagementteamandinvolvingrelevantinternalspecialists,includingtax,pensions,ITandpropertyspecialistsregardinghowandwherefraudmightoccurinthefinancialstatementsandanypotentialindicatorsoffraud.Aspartofthisdiscussion,weidentifiedpotentialforfraudinthefollowingareas:valuationofpubestate,onerousleaseprovisionsandcompliancewithdebtcovenants;and

• obtaininganunderstandingofthelegalandregulatoryframeworkthattheGroupoperatesin,focusingonthoselawsandregulationsthathadadirecteffectonthefinancialstatementsorthathadafundamentaleffectontheoperationsoftheGroup.ThekeylawsandregulationsweconsideredinthiscontextincludedtheUKCompaniesAct,ListingRules,pensionslegislation,andtaxlegislation.

Audit response to risks identifiedAsaresultofperformingtheabove,weidentifiedvaluationofthepubestate,onerousleaseprovisionsandcompliancewithdebtcovenantsaskeyauditmatters.Thekeyauditmatterssectionofourreportexplainsthemattersinmoredetailandalsodescribesthespecificproceduresweperformedinresponsetothosekeyauditmatters.

Inadditiontotheabove,ourprocedurestorespondtorisksidentifiedincludedthefollowing:

• reviewingthefinancialstatementdisclosuresandtestingtosupportingdocumentationtoassesscompliancewithrelevantlawsandregulationsdiscussedabove;

• enquiringofmanagement,theAuditCommitteeandin-houselegalcounselconcerningactualandpotentiallitigationandclaims;

• performinganalyticalprocedurestoidentifyanyunusualorunexpectedrelationshipsthatmayindicaterisksofmaterialmisstatementduetofraud;

• readingminutesofmeetingsofthosechargedwithgovernanceandreviewingGroupAssurancereports;and

• inaddressingtheriskoffraudthroughmanagementoverrideofcontrols,testingtheappropriatenessofjournalentriesandotheradjustments;assessingwhetherthejudgementsmadeinmakingaccountingestimatesareindicativeofapotentialbias;andevaluatingthebusinessrationaleofanysignificanttransactionsthatareunusualoroutsidethenormalcourseofbusiness.

Wealsocommunicatedrelevantidentifiedlawsandregulationsandpotentialfraudriskstoallengagementteammembers,includinginternalspecialists,andremainedalerttoanyindicationsoffraudornon-compliancewithlawsandregulationsthroughouttheaudit.

Report on other legal and regulatory requirements

Opinions on other matters prescribed by the Companies Act 2006InouropinionthepartoftheDirectors’remunerationreporttobeauditedhasbeenproperlypreparedinaccordancewiththeCompaniesAct2006.

Inouropinion,basedontheworkundertakeninthecourseoftheaudit:

• theinformationgivenintheStrategicreportandtheDirectors’reportforthefinancialyearforwhichthefinancialstatementsarepreparedisconsistentwiththefinancialstatements;and

• theStrategicreportandtheDirectors’reporthavebeenpreparedinaccordancewithapplicablelegalrequirements.

InthelightoftheknowledgeandunderstandingoftheGroupandoftheCompanyandtheirenvironmentobtainedinthecourseoftheaudit,wehavenotidentifiedanymaterialmisstatementsintheStrategicreportortheDirectors’report.

Matters on which we are required to report by exceptionAdequacy of explanations received and accounting recordsUndertheCompaniesAct2006wearerequiredtoreporttoyouif,inouropinion:

• wehavenotreceivedalltheinformationandexplanationswerequireforouraudit;or

• adequateaccountingrecordshavenotbeenkeptbytheCompany,orreturnsadequateforouraudithavenotbeenreceivedfrombranchesnotvisitedbyus;or

• theCompanyfinancialstatementsarenotinagreementwiththeaccountingrecordsandreturns.


Directors’ remunerationUndertheCompaniesAct2006wearealsorequiredtoreportifinouropinioncertaindisclosuresofDirectors’remunerationhavenotbeenmadeorthepartoftheDirectors’remunerationreporttobeauditedisnotinagreementwiththeaccountingrecordsandreturns.


Other mattersAuditor tenureFollowingtherecommendationoftheAuditCommittee,wewereappointedbytheBoardon10February2011toauditthefinancialstatementsforthe52weeksending24September2011andsubsequentfinancialperiods.Theperiodoftotaluninterruptedengagementincludingpreviousrenewalsandreappointmentsofthefirmiseightyears,coveringtheyearsending24September2011to29September2018.

Consistency of the audit report with the additional report to the Audit CommitteeOurauditopinionisconsistentwiththeadditionalreporttotheAuditCommitteewearerequiredtoprovideinaccordancewithISAs(UK).

Use of our report

ThisreportismadesolelytotheCompany’smembers,asabody,inaccordancewithChapter3ofPart16oftheCompaniesAct2006.OurauditworkhasbeenundertakensothatwemightstatetotheCompany’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthantheCompanyandtheCompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.

John Charlton FCA (Senior Statutory Auditor)

ForandonbehalfofDeloitteLLPStatutoryAuditorLondon,UnitedKingdom

21November2018


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Group income statement Forthe52weeksended29September2018

201852 weeks

201753 weeks

Notes

Before separately disclosed

items £m

Separately disclosed

itemsa

£mTotal

£m

Before separately disclosed

items£m

Separately disclosed

itemsa

£mTotal

£m

Revenue 2.1,2.3 2,152 – 2,152 2,180 – 2,180Operatingcostsbeforedepreciation,amortisationandmovementsinthevaluationofthepropertyportfolio 2.2,2.3 (1,730) (6) (1,736) (1,751) (35) (1,786)Netprofitarisingonpropertydisposals 2.2,2.3 – 1 1 – 1 1EBITDAb 422 (5) 417 429 (34) 395Depreciation,amortisationandmovementsinthevaluationofthepropertyportfolio 2.2,2.3 (119) (43) (162) (115) (72) (187)Operating profit/(loss) 303 (48) 255 314 (106) 208Financecosts 4.3 (119) – (119) (125) – (125)Financerevenue 4.3 1 – 1 1 – 1Netpensionsfinancecharge 4.3,4.5 (7) – (7) (7) – (7)Profit/(loss) before tax 178 (48) 130 183 (106) 77

Tax(charge)/credit 2.2,2.4 (33) 7 (26) (37) 23 (14)

Profit/(loss) for the period 145 (41) 104 146 (83) 63Earnings per ordinary share –Basic 2.5 34.1p 24.5p 34.9p 15.1p –Diluted 2.5 34.0p 24.4p 34.8p 15.0p

a. Separatelydiscloseditemsareexplainedandanalysedinnote2.2.b. Earningsbeforeinterest,tax,depreciation,amortisationandmovementsinthevaluationofthepropertyportfolio.

Thenotesonpages105to142formanintegralpartofthesefinancialstatements.

Allresultsrelatetocontinuingoperations.


Group statement of comprehensive income Forthe52weeksended29September2018

Notes

201852 weeks

£m

201753 weeks

£m

Profit for the period 104 63Items that will not be reclassified subsequently to profit or loss:Unrealised(loss)/gainonrevaluationofthepropertyportfolio 3.1 (5) 74Remeasurementofpensionliability 4.5 5 8Taxrelatingtoitemsnotreclassified 2.4 – (13)

– 69Items that may be reclassified subsequently to profit or loss:Exchangedifferencesontranslationofforeignoperations – 1Cashflowhedges: –Gainsarisingduringtheperiod 4.4 16 60 –Reclassificationadjustmentsforitemsincludedinprofitorloss 4.4 34 53Taxrelatingtoitemsthatmaybereclassified 2.4 (8) (19)

42 95Other comprehensive income after tax 42 164Total comprehensive income for the period 146 227



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Group balance sheet 29September2018

Notes2018

£m2017

£m

AssetsGoodwillandotherintangibleassets 3.4 11 10Property,plantandequipment 3.1 4,426 4,429Leasepremiums 1 1Interestsinassociates 3.5 5 –Deferredtaxasset 2.4 63 110Derivativefinancialinstruments 4.4 44 41Total non-current assets 4,550 4,591Inventories 3.2 26 24Tradeandotherreceivables 3.2 56 53Othercashdeposits 4.1 120 120Cashandcashequivalents 4.1 122 147Derivativefinancialinstruments 4.4 4 2Assetsheldforsale 3.1 – 1Total current assets 328 347Total assets 4,878 4,938LiabilitiesPensionliabilities 4.5 (49) (47)Tradeandotherpayables 3.2 (302) (297)Currenttaxliabilities (9) (3)Borrowings 4.2 (233) (235)Derivativefinancialinstruments 4.4 (37) (43)Total current liabilities (630) (625)Pensionliabilities 4.5 (200) (245)Borrowings 4.2 (1,744) (1,827)Derivativefinancialinstruments 4.4 (207) (249)Deferredtaxliabilities 2.4 (285) (324)Provisions 3.3 (43) (42)Total non-current liabilities (2,479) (2,687)Total liabilities (3,109) (3,312)Net assets 1,769 1,626

EquityCalledupsharecapital 4.7 37 36Sharepremiumaccount 4.7 26 26Capitalredemptionreserve 4.7 3 3Revaluationreserve 4.7 1,197 1,202Ownsharesheld 4.7 (1) (1)Hedgingreserve 4.7 (202) (244)Translationreserve 4.7 14 14Retainedearnings 695 590Total equity 1,769 1,626


ThefinancialstatementswereapprovedbytheBoardandauthorisedforissueon21November2018.

Theyweresignedonitsbehalfby:



Calledup share

capital£m

Sharepremiumaccount

£m

Capitalredemption

reserve£m

Revaluationreserve

£m

Ownshares

held£m

Hedgingreserve

£m

Translationreserve

£m

Retainedearnings

£m

Totalequity

£m

At 24 September 2016 35 27 3 1,142 (1) (338) 13 527 1,408Profitfortheperiod – – – – – – – 63 63Othercomprehensiveincome – – – 61 – 94 1 8 164Total comprehensive income – – – 61 – 94 1 71 227Creditinrespectofshare-basedpayments – – – – – – – 2 2Dividendspaid – – – – – – – (12) (12)Revaluationreserverealisedondisposalofproperties – – – (1) – – – 1 –Scripdividendrelatedshareissue 1 (1) – – – – – – –Taxonshare-basedpaymentstakendirectlytoequity – – – – – – – 1 1At 30 September 2017 36 26 3 1,202 (1) (244) 14 590 1,626Profitfortheperiod – – – – – – – 104 104Othercomprehensive(expense)/income – – – (4) – 42 4 42Total comprehensive (expense)/income – – – (4) – 42 – 108 146Sharecapitalissued – 1 – – – – – – 1Creditinrespectofshare-basedpayments – – – – – – – 3 3Dividendspaid – – – – – – – (7) (7)Revaluationreserverealisedondisposalofproperties – – – (1) – – – 1 –Scripdividendrelatedshareissue 1 (1) – – – – – – –At 29 September 2018 37 26 3 1,197 (1) (202) 14 695 1,769

Group statement of changes in equity Forthe52weeksended29September2018


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Group cash flow statement Forthe52weeksended29September2018

Notes

201852 weeks

£m

201753 weeks

£m

Cash flow from operationsOperatingprofit 255 208Addback:adjusteditems 2.2 48 106Operatingprofitbeforeadjusteditems 303 314Addback:Depreciationofproperty,plantandequipment 2.3 116 113Amortisationofintangibles 2.3 3 2Costchargedinrespectofshare-basedpayments 4.6 3 2Administrativepensioncosts 4.5 2 2Operating cash flow before adjusted items, movements in working capital and additional pension contributions 427 433(Increase)/decreaseininventories (1) 1Increaseintradeandotherreceivables (1) (20)Increaseintradeandotherpayables 4 7Decreaseinprovisions – (2)Additionalpensioncontributions 4.5 (48) (46)Cash flow from operations before adjusted items 381 373Cashflowfromadjusteditems (2) –Interestpaid (120) (122)Interestreceived 1 1Taxpaid (20) (26)Net cash from operating activities 240 226Investing activitiesPurchasesofproperty,plantandequipment (167) (166)Purchasesofintangibleassets (4) (3)Proceedsfromsaleofproperty,plantandequipment 5 46Acquisitionofinvestmentinassociates 3.5 (5) –Net cash used in investing activities (171) (123)Financing activitiesIssueofordinarysharecapital 1 –Dividendspaid(netofscripdividend) 4.7 (7) (12)Repaymentofprincipalinrespectofsecuritiseddebt 4.1 (82) (77)Netmovementonunsecuredrevolvingcreditfacilities 4.1 (6) (25)Net cash used in financing activities (94) (114)Net decrease in cash and cash equivalents (25) (11)Cashandcashequivalentsatthebeginningoftheperiod 147 158Cash and cash equivalents at the end of the period 4.1 122 147



General information

Mitchells&Butlersplc(theCompany)isapubliclimitedcompanylimitedbysharesandisregisteredinEnglandandWales.TheCompany’ssharesarelistedontheLondonStockExchange.TheaddressoftheCompany’sregisteredofficeisshownonpage142.

TheprincipalactivitiesoftheCompanyanditssubsidiaries(theGroup)andthenatureoftheGroup’soperationsaresetoutintheStrategicreportonpages1to45.

Mitchells&Butlersplc,alongwithitssubsidiaries(together‘theGroup’)isrequiredtoprepareitsconsolidatedfinancialstatementsinaccordancewithInternationalFinancialReportingStandards(IFRSs)asadoptedbytheEuropeanUnionandinaccordancewiththeCompaniesAct2006.

TheGroup’saccountingreferencedateis30September.TheGroupdrawsupitsfinancialstatementstotheSaturdaydirectlybeforeorfollowingtheaccountingreferencedate,aspermittedbysection390(3)oftheCompaniesAct2006.Theperiodended29September2018includes52tradingweeksandtheperiodended30September2017includes53tradingweeks.

Thefinancialstatementshavebeenpreparedonthehistoricalcostbasisasmodifiedbytherevaluationofproperties,pensionobligationsandfinancialinstruments.

TheGroup’saccountingpolicieshavebeenappliedconsistently.

Basis of consolidation

TheconsolidatedfinancialstatementsincorporatethefinancialstatementsofMitchells&Butlersplc(‘theCompany’)andentitiescontrolledbytheCompany(itssubsidiaries).

ControlisachievedwhentheCompany:

• hasthepowerovertheinvestee;

• isexposed,orhasrights,tovariablereturnfromitsinvolvementwiththeinvestee;and

• hastheabilitytouseitspowertoaffectsitsreturns.

TheCompanyreassesseswhetherornotitcontrolsaninvesteeiffactsandcircumstancesindicatethattherearechangestooneormoreofthethreeelementsofcontrollistedabove.

WhentheCompanyhaslessthanamajorityofvotingrightsofaninvestee,itconsidersthatithaspowerovertheinvesteewhenthevotingrightsaresufficienttogiveitthepracticalabilitytodirecttherelevantactivitiesoftheinvesteeunilaterally.TheCompanyconsidersallrelevantfactsandcircumstancesinassessingwhetherornottheCompany’svotingrightsinaninvesteearesufficienttogiveitpower,including:

• thesizeoftheCompany’sholdingofvotingrightsrelativetothesizeanddispersionofholdingsoftheothervoteholders;

• potentialvotingrightsheldbytheCompany,othervoteholdersorparties;

• rightsarisingfromothercontractualarrangements;and

• anyadditionalfactsandcircumstancesthatindicatethattheCompanyhas,ordoesnothave,thecurrentabilitytodirecttherelevantactivitiesatthetimethatdecisionsneedtobemade,includingvotingpatternsatthepreviousshareholders’meetings.

ConsolidationofasubsidiarybeginswhentheCompanyobtainscontroloverthesubsidiaryandceaseswhentheCompanylosescontrolofthesubsidiary.Specifically,theresultsofthesubsidiariesacquiredordisposedofduringtheyearareincludedintheconsolidatedincomestatementfromthedatetheCompanygainscontroluntilthedatewhentheCompanyceasestocontrolthesubsidiary.

ThefinancialstatementsofthesubsidiariesarepreparedforthesamefinancialreportingperiodastheCompany.Intercompanytransactions,balancesandunrealisedgainsandlossesontransactionsbetweenGroupcompaniesareeliminatedonconsolidation.

Going concern

TheGroup’sbusinessactivities,togetherwiththefactorslikelytoaffectitsfuturedevelopment,performanceandpositionaresetoutintheStrategicreportonpages1to45.ThefinancialpositionoftheGroup,itscashflows,liquiditypositionandborrowingfacilitiesarealsodescribedwithintheFinancereview.

Inaddition,note4.4tothefinancialstatementsincludestheGroup’sobjectives,policiesandprocessesformanagingitscapital;itsfinancialriskmanagementobjectives;detailsofitsfinancialinstrumentsandhedgingactivities;anditsexposurestocreditriskandliquidityrisk.Ashighlightedinnote4.2tothefinancialstatements,theGroup’sfinancingisbaseduponsecuritiseddebtandunsecuredborrowingfacilities.

TheDirectorshave,atthetimeofapprovingthefinancialstatements,areasonableexpectationthattheCompanyandtheGrouphaveadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.Thustheycontinuetoadoptthegoingconcernbasisofaccountinginpreparingthefinancialstatements.

Foreign currencies

Transactionsinforeigncurrenciesarerecordedattheexchangeratesrulingonthedatesofthetransactions.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedintothefunctionalcurrencyattherelevantratesofexchangerulingatthebalancesheetdate.Foreignexchangedifferencesarisingontranslationarerecognisedintheincomestatement.Non-monetaryassetsandliabilitiesaremeasuredatcostusingtheexchangerateonthedateoftheinitialtransaction.

Theconsolidatedfinancialstatementsarepresentedinpoundssterling(roundedtothenearestmillion),beingthefunctionalcurrencyoftheprimaryeconomicenvironmentinwhichtheparentandmostsubsidiariesoperate.Onconsolidation,theassetsandliabilitiesoftheGroup’soverseasoperationsaretranslatedintosterlingattherelevantratesofexchangerulingatthebalancesheetdate.Theresultsofoverseasoperationsaretranslatedintosterlingataverageratesofexchangefortheperiod.ExchangedifferencesarisingfromthetranslationoftheresultsandtheretranslationofopeningnetassetsdenominatedinforeigncurrenciesaretakendirectlytotheGroup’stranslationreserve.Whenanoverseasoperationissold,suchexchangedifferencesarerecognisedintheincomestatementaspartofthegainorlossonsale.

Theresultsofoverseasoperationshavebeentranslatedintosterlingattheweightedaverageeurorateofexchangefortheperiodof£1=€1.13(2017£1=€1.16),wherethisisareasonableapproximationtotherateatthedatesofthetransactions.EuroandUSdollardenominatedassetsandliabilitieshavebeentranslatedattherelevantrateofexchangeatthebalancesheetdateof£1=€1.12(2017£1=€1.13)and£1=$1.30(2017£1=$1.34)respectively.

Notes to the financial statements Section1–Basisofpreparation


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Notes to the financial statements Section1–Basisofpreparationcontinued

Recent accounting developments

TheInternationalAccountingStandardsBoard(IASB)andInternationalFinancialReportingInterpretationsCommittee(IFRIC)haveissuedthefollowingstandardsandinterpretationswhichhavebeenadoptedbytheGroupinthesefinancialstatementsforthefirsttime:

Accounting standard Requirement Impact on financial statements

Amendments to IAS 7: Disclosure Initiative

TheGrouphasadoptedtheamendmentstoIAS7forthefirsttimeinthecurrentyear.Theamendmentsrequireanentitytoprovidedisclosuresthatenableusersofthefinancialstatementstoevaluatechangesinliabilitiesarisingfromfinancingactivities,includingbothcashandnon-cashchanges.TheGroup’sliabilitiesarisingfromfinancingactivitiesconsistofborrowings(note4.2)andcertainderivatives(note4.4).Reconciliationsbetweentheopeningandclosingbalancesoftheseitemsareprovidedinnote4.1and4.4respectively.Consistentwiththetransitionprovisionsoftheamendments,theGrouphasnotdisclosedcomparativeinformationfortheprioryear.

Apartfromtheadditionaldisclosuresinnotes4.1and4.4,theapplicationoftheseamendmentshashadnoimpactontheGroup’sconsolidatedfinancialstatements.

Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses

TheGrouphasadoptedtheamendmentstoIAS12forthefirsttimeinthecurrentyear.Theamendmentsclarifyhowanentityshouldevaluatewhethertherewillbesufficientfuturetaxableprofitsagainstwhichitcanutiliseadeductibletemporarydifference.

TheapplicationoftheseamendmentshashadnoimpactontheGroup’sconsolidatedfinancialstatementsastheGroupalreadyassessesthesufficiencyoffuturetaxableprofitsinawaythatisconsistentwiththeseamendments.

Annual Improvements to IFRSs: 2014 to 2016 Cycle

TheGrouphasadoptedtheamendmentstoIFRS12includedintheAnnualImprovementstoIFRSs2014to2016Cycleforthefirsttimeinthecurrentyear.TheotheramendmentsincludedinthispackagearenotyetmandatorilyeffectiveandtheyhavenotbeenearlyadoptedbytheGroup.IFRS12statesthatanentityneednotprovidesummarisedfinancialinformationforinterestsinsubsidiaries,associatesorjointventuresthatareclassified(orincludedinadisposalgroupthatisclassified)asheldforsale.

TheamendmentshadnoimpactontheGroup’sconsolidatedfinancialstatements.

TheIASBandIFRIChaveissuedthefollowingstandardsandinterpretationswhichcouldimpacttheGroup,withaneffectivedateforfinancialperiodsbeginningonorafterthedatesdisclosedbelow:

Accounting standard Effective date

IFRS 15 Revenue from Contracts with Customers 1January2018

IFRS 9 Financial Instruments 1January2018

IFRS 2 (amendments) Classification and Measurement of Share-based Payment Transactions

1January2018

IAS 40 (amendments) Transfer of Investment Property 1January2018

Annual Improvements to IFRSs: 2014–2016 Cycle 1January2018

IFRIC 22 Foreign Currency Transactions and Advanced Consideration

1January2018

IFRIC 23 Uncertainty over Income Tax Treatments 1January2019(subjecttoEUapproval)

Amendments to IAS 28 Long-term Interest in Associates and Joint Ventures

1January2019(subjecttoEUapproval)

Annual Improvements to IFRSs 2015-2017 Cycle 1January2019(subjecttoEUapproval)

Amendments to IAS 19 Employee Benefits: Plan Amendment, Curtailment or Settlement

1January2019(subjecttoEUapproval)

TheDirectorsdonotexpectthattheadoptionofthestandardslistedabovewillhaveamaterialimpactonthefinancialstatementsoftheGroupinfutureperiods.AreviewoftheimpactofIFRS15andIFRS9hasbeenperformedasdescribedbelow.Beyondthis,itisnotpracticabletoprovideareasonableestimateoftheeffectofthesestandardsuntiladetailedreviewhasbeencompleted.


Impact of adoption of IFRS 15

IFRS15RevenuefromContractswithCustomersreplacesIAS18Revenueandiseffectiveforfinancialperiodsbeginningonorafter1January2018.ItappliestotheGroupforthe52weeksending28September2019.IFRS15hasbeenintroducedtoprovideasingle,comprehensiveframeworkforrevenuerecognition.ThecoreprincipleofIFRS15isthatanentityshouldrecogniserevenuetodepictthetransferofgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.Specifically,thestandardintroducesafive-stepapproachtorevenuerecognition:

Step1:Identifythecontractwithacustomer

Step2:Identifytheperformanceobligationsinthecontract

Step3:Determinethetransactionprice

Step4:Allocatethetransactionpricetotheperformanceobligationsinthecontract

Step5:Recogniserevenuewhentheentitysatisfiesaperformanceobligation

IFRS15isnotexpectedtohaveamaterialimpactontheGroupwhenitisadopted,asthemajorityoftheGroup’srevenueisinrelationtothesaleoffoodanddrinkwithinpubsandrestaurants,forwhichtheconsiderationisknownandtheperformanceobligationsaresatisfiedatthepointofsale.


IFRS9FinancialInstrumentsreplacesIAS39FinancialInstruments:RecognitionandMeasurementandiseffectiveforfinancialperiodsstartingonorafter1January2018.ItappliestotheGroupforthe52weeksending28September2019.IFRS9hasbeenintroducedtoaddresssomeofthecomplexitycontainedwithinIAS39butalsointroducestheconceptofearlierrecognitionofcreditlossesonloansandreceivables.

TheadoptionofIFRS9isnotexpectedtohaveamaterialimpactonanyreportedbalancesinthefinancialstatements,asfollowingassessmentbymanagement,therearenofinancialassetsthatwillrequireachangeintreatment.TheGroupwillberequiredtoupdateitshedgingdocumentationtoreflecttherequirementsofIFRS9.However,therewillbenochangetotheeffectivenessoftheGroup’scashflowhedges.Inaddition,theremaybeminoramendmentstodisclosureswithinthefinancialstatements.

ThefollowingstandardwillhaveamaterialimpactontheGroupwhenitbecomeseffective.

Accounting standard Effective date

IFRS 16 Leases ThestandardreplacesIAS17Leaseswhenitbecomeseffectiveforaccountingperiodsbeginningonorafter1January2019.TheGroupcurrentlyexpectstoadoptIFRS16forthe52weekperiodending26September2020.


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IFRS16requireslesseestorecognisearight-of-useassetandacorrespondingliabilityforallleasesexceptforlowvalueassetsorwheretheleasetermis12monthsorless.

Theright-of-useassetisinitiallymeasuredatcostandsubsequentlymeasuredatcostlessaccumulateddepreciationandimpairmentlosses.Theleaseliabilityisinitiallymeasuredatthepresentvalueoftheleasepaymentsthatarenotpaidatthatdate.Subsequently,theleaseliabilityisadjustedforinterestandleasepayments,aswellastheimpactofleasemodifications.Asaresultofthischange,theincomestatementwillincludedepreciationoftheright-of-useassetandinterestontheliability,ratherthantherentalexpenserecognisedunderIAS17.Followingtransition,anyunusedonerousleaseprovisionwilltransitiontobecomeaprovisionforimpairmentofright-of-useassets.

Furthermore,theclassificationofcashflowswillalsobeimpactedasoperatingleasepaymentsunderIAS17arepresentedasoperatingcashflows;whereasundertheIFRS16model,theleasepaymentswillbesplitintoaprincipalandaninterestportionwhichwillbepresentedasfinancingandoperatingcashflowsrespectively.

AccountingrequirementsforlessorsissubstantiallyunchangedfromIAS17.

IFRS16willbeeffectivefortheGroupfortheyearendingSeptember2020.TheGroupcurrentlyhasoperatingleasecommitmentsof£670masdisclosedinnote2.3.ApreliminaryassessmentindicatesthatthesearrangementswillmeetthedefinitionofaleaseunderIFRS16andhencetheGroupwillrecognisearightofuseassetandcorrespondingliabilities,unlesstheyqualifyforlowvalueorshort-termexemption.Therightofuseassetwillbedepreciatedonastraight-linebasisoverthelifeofthelease.Interestwillberecognisedontheleaseliability,resultinginahigherinterestexpenseintheearlieryearsoftheleaseterm.ThetotalexpenserecognisedintheIncomeStatementoverthelifeoftheleasewillbeunaffectedbythenewstandard.Therewillbenoimpactoncashflows,althoughthepresentationoftheGroupcashflowstatementwillchangesignificantly,withanincreaseincashflowsfromoperatingactivitiesbeingoffsetbyanincreaseincashflowsfromfinancingactivities.

TheGrouphasestablishedaworkinggrouptoensurewetakeallthenecessarystepstocomplywiththerequirementsofIFRS16.Theworkinggroupincludesouroutsourcepartnerswhomanageestateactivityaswellaskeymembersofourfinanceandpropertyteams.Workhasalreadycommencedtocollaterelevantdata,reviewavailablesystemsolutionsandagreerelevantaccountingpolicies.

Giventhenumberofleasesandhistoricaldatarequirementstoadoptthefullyretrospectiveapproach,theGroupintendstoapplythemodifiedretrospectiveapproach,withassetsequaltoliabilities,attransition.Thisapproachwillnotrequirerestatementofcomparativeinformation.

GiventhecomplexitiesofIFRS16andthesensitivitytokeyassumptionssuchasdiscountrates,itisnotyetpracticabletofullyquantifytheeffectofIFRS16onthefinancialstatementsoftheGroup.

Critical accounting judgements and estimates

Thepreparationoftheconsolidatedfinancialstatementsrequiresmanagementtomakejudgements,estimatesandassumptionsintheapplicationofaccountingpoliciesthataffectreportedamountsofassets,liabilities,incomeandexpense.

Estimatesandjudgementsareperiodicallyevaluatedandarebasedonhistoricalexperienceandotherfactorsincludingexpectationsoffutureeventsthatarebelievedtobereasonableunderthecircumstances.Actualresultsmaydifferfromtheseestimates.DetailsoftheGroup’scriticalaccountingjudgementsandestimatesaredescribedwithintherelevantaccountingpolicysectionineachofthenotestothefinancialstatements.

Criticaljudgementsaredescribedineachsectionlistedbelow:

• Note2.2Separatelydiscloseditems

• Note3.1Property,plantandequipment

• Note3.3Provisions

• Note4.5Pensions

Criticalestimatesaredescribedin:

• Note3.1Property,plantandequipment

• Note3.3Provisions

Notes to the financial statements Section1–Basisofpreparationcontinued


Notes to the financial statements Section2–Resultsfortheyear

2.1 Segmental analysis

Accounting policiesOperating segmentsIFRS8OperatingSegmentsrequiresoperatingsegmentstobebasedontheGroup’sinternalreportingtoitsChiefOperatingDecisionMaker(CODM).TheCODMisregardedastheChiefExecutivetogetherwithotherBoardmembers.TheGrouptradesinonebusinesssegment(thatofoperatingpubsandrestaurants)andtheGroup’sbrandsmeettheaggregationcriteriasetoutinParagraph12ofIFRS8.Economicindicatorsassessedindeterminingthattheaggregatedoperatingsegmentssharesimilareconomiccharacteristicsincludeexpectedfuturefinancialperformance;operatingandcompetitiverisks;andreturnoninvestedcapital.

ThedisclosuresetoutintheAnnualReportandAccountsfor2017includedsegmentalinformationfortheretailoperatingbusinessandpropertybusiness,withaninternalrentchargebeingleviedagainsttheGroup’sretailoperatingunitsbythepropertybusiness.Withastableestate,theinternalrentchargeisnolongerusedbytheCODMasanindicatorofperformanceasmovementsinthischargeareinsignificant.Thebusinessisfocusedondeliveryofsalesgrowthandcontrolofshort-termcostswithinitstradingpubs,inordertomaximisereturnfromitsexistingestate.

TheCODMusesEBITDAandprofitbeforeinterestandadjusteditems(operatingprofitpre-adjustments)asthekeymeasuresoftheGroup’sresultsonanaggregatedbasis.

Geographical segmentsSubstantiallyalloftheGroup’sbusinessisconductedintheUnitedKingdom.Inpresentinginformationbygeographicalsegment,segmentrevenueandnon-currentassetsarebasedonthegeographicallocationofcustomersandassets.

Geographical segmentsUK Germany Total

201852 weeks

£m

201753 weeks

£m

201852 weeks

£m

201753 weeks

£m

201852 weeks

£m

201753 weeks

£m

Revenue–salestothirdparties 2,071 2,100 81 80 2,152 2,180Segmentnon-currentassetsa 4,428 4,430 10 10 4,438 4,440

a. Includesbalancesrelatingtointangibles,property,plantandequipmentandnon-currentleasepremiums.

2.2 Separately disclosed items

Accounting policyInadditiontopresentinginformationonanIFRSbasis,theGroupalsopresentsadjustedprofitandearningspershareinformationthatexcludesseparatelydiscloseditemsandtheimpactofanyassociatedtax.AdjustedprofitabilitymeasuresarepresentedexcludingseparatelydiscloseditemsaswebelievethisprovidesbothmanagementandinvestorswithusefuladditionalinformationabouttheGroup’sperformanceandsupportsamoreeffectivecomparisonoftheGroup’stradingperformancefromoneperiodtothenext.Adjustedprofitandearningspershareinformationisusedbymanagementtomonitorbusinessperformanceagainstbothshorter-termbudgetsandforecastsbutalsoagainsttheGroup’slonger-termstrategicplans.

Separatelydiscloseditemsarethosewhichareseparatelyidentifiedbyvirtueoftheirsizeorincidenceandincludemovementsinthevaluationofthepropertyportfolioasaresultoftheannualrevaluationexercise,impairmentreviewofshortleaseholdandunlicensedproperties,legalcostsassociatedwiththedisputeinrelationtothedefinedbenefitpensionschemeandmaterialmovementsintheonerousleaseprovision.

Critical accounting judgements JudgementisusedtodeterminethoseitemswhichshouldbeseparatelydisclosedtoallowabetterunderstandingoftheadjustedtradingperformanceoftheGroup.Thisjudgementincludesassessmentofwhetheranitemisofsufficientsizeorofanaturethatisnotconsistentwithnormaltradingactivities.

Separatelydiscloseditemsareidentifiedasfollows:

• One-offlegalcostsassociatedwiththeongoingcourtcasebetweentheCompanyandtheTrusteeoftheDefinedBenefitPensionschemeinrelationtotherateofinflationappliedtopensionincreasesforcertainsectionsofthemembership.Thesecostswouldpreventyear-on-yearcomparabilityoftheGroup’stradingifnotseparatelydisclosed.

• Onerousleaseprovision–thisprovisioniscalculatedonasitebysitebasis,withthemajorityoftheadditionsforthepriorperiodbeingdisclosedseparately.Thispriorperiodincreasewastheresultofafullreviewofestatestrategyandanupdatetothediscountrateappliedincalculatingtheprovision.Duetothesizeoftheresultingincreaseintheprovision,thiswasdisclosedseparately.

• Profit/(loss)arisingonpropertydisposals–propertydisposalsaredisclosedseparatelyastheyarenotconsideredtobepartofadjustedtradeperformanceandthereisvolatilityinthesizeoftheprofit/(loss)ineachaccountingperiod.

• Movementinthevaluationofthepropertyportfolio–thisisdisclosedseparately,duetothesizeandvolatilityofthemovementinpropertyvaluationeachperiod,whichcanbepartlydrivenbymovementsinthepropertymarket.ThismovementisalsonotconsideredtobepartoftheadjustedtradeperformanceoftheGroupandwouldpreventyear-on-yearcomparabilityoftheGroup’stradingperformanceifnotseparatelydisclosed.


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Notes to the financial statements Section2–Resultsfortheyearcontinued

2.2 Separately disclosed items continued

Theitemsidentifiedinthecurrentperiodareasfollows:

Notes

201852 weeks

£m

201753 weeks

£m

Adjusted itemsLegalcostsassociatedwiththedefinedbenefitpensionscheme a (6) –Onerousleaseprovisionadditions b – (35)Totaladjusteditemsrecognisedwithinoperatingcosts (6) (35)Netprofitarisingonpropertydisposals 1 1Movementinthevaluationofthepropertyportfolio(seenote3.1): –Impairmentarisingfromtherevaluation c (28) (51) –Impairmentofshortleaseholdandunlicensedproperties d (15) (17) –Impairmentofassetsheldforsale e – (4)Netmovementinthevaluationofthepropertyportfolio (43) (72)Total adjusted items before tax (48) (106)Taxcreditrelatingtoaboveitems 7 23Total adjusted items after tax (41) (83)

a. ThereareongoinglegalproceedingsbetweentheCompany(asprincipalemployer)andMitchells&ButlersPensionsLimited(asTrustee)forwhichcostshavebeenincurredbothbytheCompanyandbytheTrusteebutwhichtheCompanyhasagreedtopay.ThelegalproceedingsareinrelationtotheMitchells&ButlersPensionPlan(MABPP),wherebytheTrustDeedandRulesprovidethatitisamatterfortheCompanytodeterminetherateofinflationwhichshouldbeappliedtopensionincreasesforcertainsectionsofthemembershipinexcessofguaranteedminimumpensions,theCompanyhasinstructedtheTrusteetoapplyCPI(subjecttocertaincaps)inrespectofsuchincreases.TheTrusteebelievesthatthispowerwasincorrectlyvestedintheCompanyintheTrustDeedandRulesoftheMABPPin1996and,despiteitbeingreflectedinfurtherversionsoftheTrustDeedandRules,hasmadeanapplicationtocourtforthosevariousTrustDeedsandRulestoberectified.ItistheBoard’sbeliefthattheCompanyholdsthepowertofixsuchaninflationindexandtheCompanyisthereforecontestingthatapplication.Thehearingisexpectedtobeheldinlate2019.

b. Duringthepriorperiod,areviewofestatestrategyinrelationtomanagedleaseholdsiteswascompleted,withspecificfocusonthechallengesaroundloss-makingsitesandthoselocatedonretailandleisureparks.Thelosseswereconsideredtobeunavoidablefortheremainingcommittedleaseterm.Inaddition,thediscountrateappliedinthecalculationwasalsoupdated.Asaresult,theonerousleaseprovisionincreasedsignificantlywiththemajorityofthisincreaserecognisedasaseparatelydisclosediteminthepriorperiod.Thenetmovementintheonerousleaseprovisioninthecurrentperiodhasbeenincludedwithinadjustedprofitasitisimmaterial.Seenote3.3forfurtherdetails.

c. ImpairmentarisingfromtheGroup’srevaluationofitspubestatewherethecarryingvaluesofthepropertiesexceedtheirrecoverableamount.Seenote3.1forfurtherdetails.d. Impairmentofshortleaseholdandunlicensedpropertieswheretheircarryingvaluesexceedtheirrecoverableamount.Seenote3.1forfurtherdetails.e. Impairmentrecognisedonreclassificationofproperty,plantandequipmenttoassetsheldforsale.


2.3 Revenue and operating costs

Accounting policiesRevenue recognitionRevenueisthefairvalueofgoodssoldandservicesrenderedtothirdpartiesaspartoftheGroup’stradingactivities,afterdeductingsales-basedtaxes,couponsanddiscounts.

Revenue – goods and services ThemajorityofrevenuecomprisesfoodandbeveragessoldintheGroup’sbusinesses.Thisrevenueisrecognisedatthepointofsaletothecustomer.

Operating leases – Group as lessorRentalincomeisreceivedfromunlicensedandleasedoperations.Incomefromtheseoperatingleasesisrecognisedonastraight-linebasisoverthetermofthelease.

Operating profitOperatingprofitisstatedafterchargingadjusteditemsbutbeforeinvestmentincomeandfinancecosts.

Supplier incentives Supplierincentivesandrebatesarerecognisedwithinoperatingcostsastheyareearned.Theaccruedvalueatthereportingdateisincludedinotherreceivables.

Operating leases – Group as lessee Leasesinwhichsubstantiallyalltherisksandrewardsofownershipareretainedbythelessorareclassifiedasoperatingleases.Paymentsmadeunderoperatingleasesandsub-leasesarechargedtotheincomestatementonastraight-linebasisovertheperiodofthelease.Leaseincentivesarerecognisedasaliabilityandasubsequentreductionintherentalexpenseovertheleasetermonastraight-linebasis.

Premiumspaidonacquiringanewleasearespreadonastraight-linebasisovertheleaseterm.Suchpremiumsareclassifiedinthebalancesheetascurrentornon-currentleasepremiums,withthecurrentportionbeingtheelementwhichrelatestothefollowingperiod.

TheGroup’spolicyistoaccountforlandheldunderbothlongandshortleaseholdcontractsasoperatingleases,sinceithasnoexpectationthattitlewillpassonexpiryoftheleasecontracts.

Revenueisanalysedasfollows:

201852 weeks

£m

201753 weeks

£m

Goods 2,142 2,169Services 10 11

2,152 2,180

Revenuefromservicesincludesrentreceivablefromunlicensedpropertiesandleasedoperationsof£9m(2017£10m).

Operatingcostsareanalysedasfollows:

201852 weeks

£m

201753 weeks

£m

Rawmaterialsandconsumablesrecognisedasanexpensea 564 573Changesininventoryoffinishedgoodsandworkinprogress (1) 1Employeecosts 676 682Hireofplantandmachinery 23 24Propertyoperatingleasecosts 63 62Othercosts 405 409Operatingcostsbeforedepreciation,amortisationandmovementsinthevaluationofthepropertyportfolio 1,730 1,751Otheradjusteditems(note2.2) 6 35

1,736 1,786Netprofitarisingonpropertydisposals (1) (1)Depreciationofproperty,plantandequipment(note3.1) 116 113Amortisationofintangibleassets(note3.4) 3 2Netmovementinthevaluationofthepropertyportfolio(note3.1) 43 72Depreciation,amortisationandmovementsinthevaluationofthepropertyportfolio 162 187Total operating costs 1,897 1,972

a. Supplierincentivesareincludedasareductiontotherawmaterialsandconsumablesexpense.Thesearenotdisclosedseparatelyasthevalueisimmaterial.


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2.3 Revenue and operating costs continued

Employee costs2018

52 weeks£m

201753 weeks

£m

Wagesandsalaries 620 625Share-basedpayments(note4.6) 3 2Totalwagesandsalaries 623 627Socialsecuritycosts 45 48Pensions(note4.5) 8 7Totalemployeecosts 676 682

Theaveragenumberofemployeesincludingpart-timeemployeeswas43,777retailemployees(201744,893)and1,025supportemployees(2017998).

Informationregardingkeymanagementpersonnelisincludedinnote5.1.DetailedinformationregardingDirectors’emoluments,pensions,long-termincentiveschemeentitlementsandtheirinterestsinshareoptionsisgivenintheReportonDirectors’remunerationonpages68to91.

Operating leasesOperating lease commitments – Group as lesseeThevastmajorityoftheGroup’sleasesareindustrystandardUKpuborcommercialpropertyleaseswhichprovideforperiodicrentreviewstoopenmarketvalueandenjoystatutoryrightstorenewalonexpiry.Generallytheydonotcontainconditionsrelatingtorentescalation,rightstopurchase,concessions,residualvaluesorothermaterialprovisionsofanunusualnature.

Totalfutureminimumleaserentalpaymentsundernon-cancellableoperatingleasesareasfollows:

2018£m

2017£m

Duewithinoneyear 55 54Betweenoneandfiveyears 196 199Afterfiveyears 419 440

670 693

Operating lease receivables – Group as lessorTheGroupleasesasmallproportionofitsunlicensedpropertiestotenants.Themajorityofleaseagreementshavetermsof50yearsorlessandareclassifiedasoperatingleases.Wheresubletarrangementsareinplace,futureminimumleasepaymentsandreceiptsarepresentedgross.

Totalfutureminimumleaserentalreceiptsundernon-cancellableoperatingleasesareasfollows:

2018£m

2017£m

Duewithinoneyear 8 8Betweenoneandfiveyears 26 27Afterfiveyears 45 45

79 80

Auditor remuneration2018

52 weeks£m

201753 weeks

£m

FeespayabletotheGroup’sauditorforthe: –auditoftheconsolidatedGroupfinancialstatements 0.1 0.1 –auditoftheCompany’ssubsidiariesfinancialstatements 0.3 0.3Totalauditfees 0.4 0.4Otherfeestoauditor: –auditrelatedassuranceservices 0.1 0.1Totalnon-auditfees 0.1 0.1

Auditor’sremunerationof£0.3m(2017£0.3m)waspaidintheUKand£0.1m(2017£0.1m)waspaidinGermany.


2.4 Taxation

Accounting policiesCurrent taxTheincometaxexpenserepresentsboththeincometaxpayable,basedonprofitsfortheperiod,anddeferredtaxandiscalculatedusingtaxratesenactedorsubstantivelyenactedatthebalancesheetdate.Taxableprofitdiffersfromnetprofitasreportedintheincomestatementbecauseitexcludesitemsofincomeorexpensewhicharenottaxable.Incometaxisrecognisedintheincomestatementexceptwhenitrelatestoitemsthatarechargedorcreditedinothercomprehensiveincomeordirectlyinequity,inwhichcasetheincometaxisalsochargedorcreditedinothercomprehensiveincomeordirectlyinequity.

Deferred taxDeferredtaxisthetaxexpectedtobepayableorrecoverableondifferencesbetweenthecarryingamountofassetsandliabilitiesinthefinancialstatementsandthecorrespondingtaxbasesusedinthecomputationoftaxableprofitsandisaccountedforusingthebalancesheetliabilitymethod.Deferredtaxliabilitiesaregenerallyrecognisedforalltaxabletemporarydifferencesanddeferredtaxassetsarerecognisedtotheextentthatitisprobablethattaxableprofitswillbeavailableagainstwhichdeductibletemporarydifferencescanbeutilised.

Deferredtaxliabilitiesarerecognisedfortaxabletemporarydifferencesarisingoninvestmentsinsubsidiariesandassociates,exceptwheretheGroupisabletocontrolthereversalofthetemporarydifferenceanditisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.Deferredtaxassetsarisingfromdeductibletemporarydifferencesassociatewithsuchinvestmentsandinterestsareonlyrecognisedtotheextentthatitisprobablethattherewillbesufficienttaxableprofitsagainstwhichtoutilisethebenefitsofthetemporarydifferencesandtheyareexpectedtoreverseintheforeseeablefuture.

Thecarryingamountofdeferredtaxassetsisreviewedateachbalancesheetdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitswillbeavailabletoallowallorpartoftheassettoberecovered.

Deferredtaxiscalculatedatthetaxratesthatareexpectedtoapplyintheperiodwhentheliabilityissettledortheassetrealisedbasedontaxlawsandratesthathavebeensubstantivelyenactedatthebalancesheetdate.Theamountofdeferredtaxrecognisedisbasedontheexpectedmannerofrealisationorsettlementofthecarryingamountofassetsandliabilities.

Taxation – income statement2018

52 weeks£m

201753 weeks

£m

Currenttax: –UKcorporationtax (28) (20) –Amountsoverprovidedinpriorperiods 2 3Totalcurrenttaxcharge (26) (17)Deferredtax: –Originationandreversaloftemporarydifferences – 7 –Adjustmentsinrespectofpriorperiods – (4)Totaldeferredtaxcredit – 3Totaltaxchargedintheincomestatement (26) (14)Furtheranalysedastaxrelatingto:Profitbeforeadjusteditems (33) (37)Adjusteditems 7 23

(26) (14)

Thestandardrateofcorporationtaxappliedtothereportedprofitis19.0%(201719.5%).TheapplicableratehaschangedfollowingthesubstantiveenactmentoftheFinance(No.2)Act2015on18November2015,whichreducedthemainrateofcorporationtaxfrom20%to19%from1April2017.

Thetaxchargeintheincomestatementfortheperiodishigher(2017lower)thanthestandardrateofcorporationtaxintheUK.Thedifferencesarereconciledbelow:

201852 weeks

£m

201753 weeks

£m

Profitbeforetax 130 77TaxationchargeattheUKstandardrateofcorporationtaxof19.0%(201719.5%) (25) (15)Expensesnotdeductible (4) (4)Incomenottaxable 2 9Adjustmentsinrespectofpriorperiods 2 (1)Effectofdifferenttaxratesofsubsidiariesoperatinginotherjurisdictions (1) (1)Effectofdifferentratesfordeferredtaxandcorporationtax – (2)Totaltaxchargeintheincomestatement (26) (14)

Taxationforotherjurisdictionsiscalculatedattheratesprevailinginthosejurisdictions.


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2.4 Taxation continued

201852 weeks

£m

201753 weeks

£m

Deferred tax in the income statement:Acceleratedcapitalallowances 1 5Retirementbenefitobligations (6) (6)Rolledoverandheldovergains – 4Depreciatednon-qualifyingassets 1 1Unrealisedgainsonrevaluations 5 7Taxlosses–UK (2) (6)Taxlosses–overseas 1 (2)Totaldeferredtaxcreditintheincomestatement – 3

Taxation – other comprehensive income2018

52 weeks£m

201753 weeks

£m

Deferredtax:Itemsthatwillnotbereclassifiedsubsequentlytoprofitorloss: –Unrealisedlosses/(gains)duetorevaluations–revaluationreserve 1 (13) –Unrealisedgainsduetorevaluations–retainedearnings – 1 –Remeasurementofpensionliability (1) (1)

– (13)Itemsthatmaybereclassifiedsubsequentlytoprofitorloss: –Cashflowhedges: –Gainsarisingduringtheperiod (3) (10) –Reclassificationadjustmentsforitemsincludedinprofitorloss (5) (9)

(8) (19)Totaltaxchargerecognisedinothercomprehensiveincome (8) (32)

Tax relating to items recognised directly in equity2018

52 weeks£m

201753 weeks

£m

Deferredtax: –Taxcreditrelatedtoshare-basedpayments – 1

Taxation – balance sheet Thedeferredtaxassetsandliabilitiesrecognisedinthebalancesheetareshownbelow:

2018£m

2017£m

Deferred tax asset:Retirementbenefitobligations(note4.5) 43 50Derivativefinancialinstruments 42 50Taxlosses–UK 6 8Taxlosses–overseas 1 –Share-basedpayments 2 2Totaldeferredtaxasset 94 110Deferred tax liability:Acceleratedcapitalallowances (31) (32)Rolledoverandheldovergains (112) (112)Unrealisedgainsonrevaluations (170) (176)Depreciatednon-qualifyingassets (3) (4)Totaldeferredtaxliability (316) (324)Total (222) (214)


Deferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttooffsetincometaxassetsandincometaxliabilitiesandwhenitistheintentiontosettlethebalancesonanetbasis.Deferredtaxassetsandliabilitieshavebeenoffsetanddisclosedinthebalancesheetasfollows:

2018£m

2017£m

Deferredtaxasset 63 110Deferredtaxliability (285) (324)Netdeferredtaxliability (222) (214)

Unrecognised tax allowancesAtthebalancesheetdatetheGrouphadunusedtaxallowancesof£87minrespectofunclaimedcapitalallowances(2017£80m)availableforoffsetagainstfutureprofits.

Adeferredtaxassethasnotbeenrecognisedontaxallowanceswithavalueof£15m(2017£14m)becauseitisnotcertainthatfuturetaxableprofitswillbeavailableinthecompanywherethesetaxallowancesaroseagainstwhichtheGroupcanutilisethesebenefits.Thesetaxcreditscanbecarriedforwardindefinitely.

Factors which may affect future tax chargesTheFinanceAct2016wassubstantivelyenactedon15September2016andreducedthemainrateofcorporationtaxfrom19%to17%from1April2020.Theeffectofthesechangeshasbeenreflectedintheclosingdeferredtaxbalancesat30September2017and29September2018.

2.5 Earnings per share

Basicearningspershare(EPS)hasbeencalculatedbydividingtheprofitorlossfortheperiodbytheweightedaveragenumberofordinarysharesinissueduringtheperiod,excludingownsharesheldbyemployeesharetrusts.

Fordilutedearningspershare,theweightedaveragenumberofordinarysharesisadjustedtoassumeconversionofalldilutivepotentialordinaryshares.

Adjustedearningsperordinaryshareamountsarepresentedbeforeadjusteditems(seenote2.2)inordertoallowabetterunderstandingoftheadjustedtradingperformanceoftheGroup.

Profit£m

BasicEPS

pence perordinary

share

DilutedEPS

pence perordinary

share

52 weeks ended 29 September 2018:Profit/EPS 104 24.5p 24.4pAdjusteditems,netoftax 41 9.6p 9.6pAdjustedprofit/EPSa 145 34.1p 34.0p

53 weeks ended 30 September 2017:Profit/EPS 63 15.1p 15.0pAdjusteditems,netoftax 83 19.8p 19.8pAdjustedprofit/EPSa 146 34.9p 34.8p

a. AdjustedprofitandadjustedEPSarealternativeperformancemeasures(APMs)andareconsideredcriticaltoaidunderstandingoftheGroup’sperformance.Thesemeasuresareexplainedonpages148to150ofthisreport.

Theweightedaveragenumberofordinarysharesusedinthecalculationsaboveareasfollows:

201852 weeks

m

201753 weeks

m

ForbasicEPScalculations 425 418Effectofdilutivepotentialordinaryshares: –Contingentlyissuableshares 2 1FordilutedEPScalculations 427 419

At29September2018,2,746,844(20173,124,559)othershareoptionswereoutstandingthatcouldpotentiallydilutebasicEPSinthefuturebutwerenotincludedinthecalculationofdilutedEPSastheyareanti-dilutivefortheperiodspresented.


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Notes to the financial statements Section3–Operatingassetsandliabilities

3.1 Property, plant and equipment

Accounting policiesProperty, plant and equipmentThemajorityoftheGroup’sfreeholdandlongleaseholdlicensedlandandbuildingsarerevaluedannuallyandarethereforeheldatfairvaluelessdepreciation.

Shortleaseholdbuildings(leaseswithanunexpiredleasetermoflessthan50years),unlicensedlandandbuildingsandfixtures,fittingsandequipmentareheldatcostlessdepreciationandimpairment.

Alllandandbuildingsaredisclosedasasingleclassofassetwithintheproperty,plantandequipmenttable,aswedonotconsidertheshortleaseholdandunlicensedbuildingstobematerialforseparatedisclosure.

Non-currentassetsheldforsaleareheldattheircarryingvalueortheirfairvaluelesscoststosellwherethisislower.

DepreciationDepreciationischargedtotheincomestatementonastraight-linebasistowriteoffthecostlessresidualvalueovertheestimatedusefullifeofanassetandcommenceswhenanassetisreadyforitsintendeduse.Expectedusefullivesandresidualvaluesarereviewedeachyearandadjustedifappropriate.

Freeholdlandisnotdepreciated.

Freeholdandlongleaseholdbuildingsaredepreciatedsothatthedifferencebetweentheircarryingvalueandestimatedresidualvalueiswrittenoffover50yearsfromthedateofacquisition.Theresidualvalueoffreeholdandlongleaseholdbuildingsisreassessedeachyearandisestimatedtobeequaltothefairvaluedeterminedintheannualvaluationandthereforenodepreciationchargeisrecognised.

Shortleaseholdbuildings,andassociatedfixtures,fittingsandequipment,aredepreciatedovertheshorteroftheestimatedusefullifeandtheunexpiredtermofthelease.

Fixtures,fittingsandequipmenthavethefollowingestimatedusefullives:

Informationtechnologyequipment 3to7years

Fixturesandfittings 3to20years

Atthepointoftransfertonon-currentassetsheldforsale,depreciationceases.Shouldanassetbesubsequentlyreclassifiedtoproperty,plantandequipment,thedepreciationchargeiscalculatedtoreflectthecumulativechargehadtheassetnotbeenreclassified.

DisposalsProfitsandlossesondisposalofproperty,plantandequipmentarecalculatedasthedifferencebetweenthenetsalesproceedsandthecarryingamountoftheassetatthedateofdisposal.

RevaluationTherevaluationutilisesvaluationmultiples,whicharedeterminedviathird-partyinspectionof20%ofthesitessuchthatallsitesareindividuallyvaluedapproximatelyeveryfiveyears;estimatesoffairmaintainabletrade(FMT);andestimatedresalevalueoftenant’sfixturesandfittings.Propertiesarevaluedasfullyoperationalentities,toincludefixturesandfittingsbutexcludingstockandpersonalgoodwill.Thevalueoftenant’sfixturesandfittingsisthenremovedfromthisvaluationviareferencetoitsassociatedresalevalue.Wheresiteshavebeenimpactedbyexpansionarycapitalinvestmentintheprecedingtwelvemonths,FMTistakenasthelowerofthepostinvestmentforecastortheprioryearFMT,asthecurrentyeartradingperformanceincludesaperiodofclosure.

Valuationmultiplesderivedviathird-partyinspectionsdeterminebrandstandardmultipleswhicharethenusedtovaluetheremainderofthenon-inspectedestateviaanextrapolationexercise,withtheoutputofthisexercisereviewedatahighlevelbytheDirectorsandthethird-partyvaluer.

Wherethevalueoflandandbuildingsderivedpurelyfromamultipleappliedtothefairmaintainabletrademisrepresentstheunderlyingassetvalue,forexample,duetolowlevelsofincomeorlocationcharacteristics,aspotvaluationisapplied.

Surpluseswhicharisefromtherevaluationexerciseareincludedwithinothercomprehensiveincome(intherevaluationreserve)unlesstheyarereversingarevaluationadjustmentwhichhasbeenrecognisedintheincomestatementpreviously;inwhichcaseanamountequaltoamaximumofthatrecognisedintheincomestatementpreviouslyisrecognisedinincome.Wheretherevaluationexercisegivesrisetoadeficit,thisisreflecteddirectlywithintheincomestatement,unlessitisreversingapreviousrevaluationsurplusagainstthesameasset;inwhichcaseanamountequaltothemaximumoftherevaluationsurplusisrecognisedwithinothercomprehensiveincome(intherevaluationreserve).

ImpairmentShortleaseholdandunlicensedpropertiesarereviewedonanoutletbasisforimpairmentifeventsorchangesincircumstancesindicatethatthecarryingamountmaynotberecoverable.Animpairmentlossisrecognisedwheneverthecarryingamountofanoutletexceedsitsrecoverableamount.Therecoverableamountisthehigherofanoutlet’sfairvaluelesscoststosellandvalueinuse.Anychangesinoutletearnings,orcashflows,thediscountrateappliedtothosecashflows,ortheestimateofsalesproceedscouldgiverisetoanadditionalimpairmentloss.

Whereanimpairmentlosssubsequentlyreverses,thecarryingamountoftheassetisincreasedtotherevisedestimateofitsrecoverableamount,butonlysothattheincreasedcarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendeterminedhadnoimpairmentlossbeenrecognisedfortheassetinpriorperiods.Areversalofanimpairmentlossisrecognisedasincomeimmediately.Animpairmentreversalisonlyrecognisedwherethereisachangeintheestimatesusedtodeterminerecoverableamounts,notwhereitresultsfromthepassageoftime.


Critical accounting judgementsTherevaluationmethodologyisdeterminedusingmanagementjudgement,withadvicefromthird-partyvaluers.TheapplicationofavaluationmultipletothefairmaintainabletradeofeachsiteisconsideredthemostappropriatemethodfortheGrouptodeterminethefairvalueoflicensedlandandbuildings.Wheresiteshavebeenimpactedbyexpansionarycapitalinvestmentintheprecedingtwelvemonths,managementjudgementisusedtodeterminethemostappropriateFMT.TheFMTistakenasthelowerofthepostinvestmentforecastortheprioryearFMT,asthecurrentyeartradingperformanceincludesaperiodofclosure.

Critical accounting estimatesTheapplicationofthevaluationmethodologyrequirestwocriticalaccountingestimates;theestimationofvaluationmultiples,whicharedeterminedviathird-partyinspections;andanestimateoffairmaintainabletrade,includingreferencetohistoricandfutureprojectedincomelevels.AsensitivityanalysisofchangesinvaluationmultiplesandFMT,inrelationtothepropertiestowhichtheseestimatesapply,isprovidedonpage118.Thecarryingvalueofpropertiestowhichtheseestimatesapplyis£4,230m(2017£4,230m).

Whenareviewforimpairmentisconductedforshortleaseholdproperties,therecoverableamountisdeterminedbasedonvalueinusecalculations.Thevalueinusecalculationrequirestwocriticalaccountingestimates;theestimationoffuturecashflows,includingreferencetohistoricalandfutureprojectedincomelevels;andtheselectionofanappropriaterisk-adjusteddiscountrate.Asensitivityanalysisofchangesinfuturecashflowsanddiscountrate,inrelationtothepropertiestowhichtheseestimatesapply,isprovidedonpage118.Thecarryingvalueofpropertiestowhichtheseestimatesapplyis£156m(2017£170m).

Property, plant and equipmentProperty,plantandequipmentcanbeanalysedasfollows:

Land and buildings

£m

Fixtures, fittings and equipment

£mTotal

£m

Cost or valuationAt24September2016 3,934 1,107 5,041Additions 43 120 163Disposalsa (7) (73) (80)Transferstoassetsheldforsale (30) (25) (55)Revaluation/(impairment) 13 (11) 2At30September2017 3,953 1,118 5,071Additions 39 125 164Disposalsa (12) (123) (135)Revaluation/(impairment) (41) (7) (48)At 29 September 2018 3,939 1,113 5,052

Accumulated depreciationAt24September2016 77 541 618Providedduringtheperiod 6 107 113Disposalsa (5) (72) (77)Transferstoassetsheldforsale – (12) (12)At30September2017 78 564 642Providedduringtheperiod 6 110 116Disposalsa (10) (122) (132)At 29 September 2018 74 552 626

Net book valueAt 29 September 2018 3,865 561 4,426 At30September2017 3,875 554 4,429At24September2016 3,857 566 4,423

a. Includesassetswhicharefullydepreciatedandhavebeenremovedfromthefixedassetregister.

Certainassetswithanetbookvalueof£43m(2017£44m)ownedbytheGrouparesubjecttoafixedchargeinrespectofliabilitiesheldbytheMitchells&ButlersExecutiveTop-UpScheme(MABETUS).

Includedwithinproperty,plantandequipmentareassetswithanetbookvalueof£3,788m(2017£3,808m),whicharepledgedassecurityforthesecuritisationdebtandoverwhichtherearecertainrestrictionsontitle.

Costat29September2018includes£18m(2017£10m)ofassetsinthecourseofconstruction.


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Notes to the financial statements Section3–Operatingassetsandliabilitiescontinued

3.1 Property, plant and equipment continued

Revaluation of freehold and long leasehold propertiesThefreeholdandlongleaseholdpropertieshavebeenvaluedatfairvalue,asat29September2018usinginformationprovidedbyCBRE,independentcharteredsurveyors.ThevaluationwascarriedoutinaccordancewiththeRICSValuation–GlobalStandards2017whichincorporatetheInternationalValuationStandardsandtheRICSValuation–ProfessionalStandardsUKJanuary2014(revisedApril2015)(the‘RedBook’)assumingeachassetissoldasafullyoperationaltradingentity.Thefairvaluehasbeendeterminedhavingregardtofactorssuchascurrentandfutureprojectedincomelevels,takingaccountoflocation,qualityofthepubrestaurantandrecentmarkettransactionsinthesector.

Sensitivity analysisChangesineithertheFMTorthemultiplecouldmateriallyimpactthevaluationofthefreeholdandlongleaseholdproperties.TheaveragemovementinFMTofrevaluedpropertiesinrecentyearsis1.0%.Itisestimatedthat,giventhemultipliereffect,a1.0%changeintheFMTofthefreeholdorlongleaseholdpropertieswouldgenerateanapproximate£37mmovementintheirvaluation.

Multiplesaredeterminedatanindividualbrandlevel.Theaveragemovementinweightedaverageofallbrandmultiplesinrecentyearsis0.1.Itisestimatedthata0.1changeinthemultiplewouldgenerateanapproximate£42mmovementinvaluation.

Impairment review of short leasehold and unlicensed propertiesShortleaseholdandunlicensedproperties(comprisinglandandbuildingsandfixtures,fittingsandequipment)whicharenotrevaluedtofairmarketvalue,arereviewedforimpairmentbycomparingsitevalueinusecalculationstotheircarryingvalues.Thevalueinusecalculationusesforecasttradingperformancecashflows,whicharediscountedbyapplyingapre-taxdiscountrateof7.5%(20177.0%).Anyresultingimpairmentrelatestositeswithpoortradingperformance,wheretheoutputofthevalueinusecalculationisinsufficienttojustifytheircurrentnetbookvalue.

Sensitivity analysisTheGrouphasperformedasensitivityanalysisontheimpairmenttestsforitsshortleaseholdpropertiesusingvariousreasonablypossiblescenarios.Itisestimatedthata5.0%declineintheEBITDAoftheshortleaseholdpropertieswouldgenerateanapproximate£1mincreaseintheimpairmentcharge.

Itisalsoestimatedthat0.5%increaseinthediscountratewouldnotresultinasignificantincreasetotheimpairmentcharge.Themovementof0.5%isconsideredreasonable,giventhatthediscountratehasincreasedby0.5%inthecurrentperiod.

Currentyearvaluationshavebeenincorporatedintothefinancialstatementsandtheresultingrevaluationadjustmentshavebeentakentotherevaluationreserveorincomestatementasappropriate.Theimpactoftherevaluations/impairmentsdescribedaboveisasfollows:

201852 weeks

£m

201753 weeks

£m

Income statementRevaluationlosschargedasanimpairment (89) (109)Reversalofpastimpairments 61 58Totalimpairmentarisingfromtherevaluation (28) (51)Impairmentofshortleaseholdandunlicensedproperties (15) (17)Impairmentofassetsheldforsale – (4)

(43) (72)Revaluation reserveUnrealisedrevaluationsurplus 171 210Reversalofpastrevaluationsurplus (176) (136)

(5) 74Net (decrease)/increase in property, plant and equipment (48) 2

ThevaluationtechniquesareconsistentwiththeprinciplesinIFRS13andusesignificantunobservableinputssuchthatthefairvaluemeasurementofeachpropertywithintheportfoliohasbeenclassifiedasLevel3inthefairvaluehierarchy.

Thekeyinputstovaluationonproperty,plantandequipmentareasfollows:

29 September 2018Number of pubs

Land and buildings

£m


£m

Net book valuea

£m

Freeholdproperties 1,336 3,507 428 3,935 Longleaseholdproperties 95 259 36 295 Totalrevaluedproperties 1,431 3,766 464 4,230 Shortleaseholdproperties 77 79 156 Unlicensedproperties 14 2 16 Othernon-pubassets 3 3 6 Assetsunderconstruction 5 13 18 Totalproperty,plantandequipment 3,865 561 4,426


30 September 2017Number of pubs

Land and buildings

£m


£m

Net book valuea

£m

Freeholdproperties 1,339 3,512 426 3,938Longleaseholdproperties 95 256 36 292Totalrevaluedproperties 1,434 3,768 462 4,230Shortleaseholdproperties 86 84 170Unlicensedproperties 14 2 16Othernon-pubassets 1 2 3Assetsunderconstruction 6 4 10Totalproperty,plantandequipment 3,875 554 4,429

a. Thecarryingvalueoffreeholdandlongleaseholdpropertiesbasedontheirhistoricalcost(ordeemedcostattransitiontoIFRS)is£2,635mand£186mrespectively(2017£2,625mand£188m).

Thetablesbelowshow,byclassofasset,thenumberofpropertiesthathavebeenvaluedwithineachFMTandmultiplebanding:

Valuation multiple applied to FMT

29 September 2018Over 12

times10 to 12

times8 to 10

times6 to 8 times

Under 6 times Total

NumberofpubsineachFMTincomebanding:<£200kpa 48 6 166 170 10 400£200kto£360kpa – 12 311 138 15 476>£360kpa 3 54 414 65 19 555

51 72 891 373 44 1,431

Valuation multiple applied to FMT

30 September 2017Over 12

times10 to 12

times8 to 10

times6 to 8 times

Under 6 times Total

NumberofpubsineachFMTincomebanding:<£200kpa 46 11 153 190 12 412£200kto£360kpa – 11 315 141 13 480>£360kpa 2 52 406 59 23 542

48 74 874 390 48 1,434

Year-on-yearmovementsinvaluationmultiplesaretheresultofchangesinpropertymarketconditions.Theaverageweightedmultipleis8.6(20178.5).

Inadditiontotheabove,premiumspaidonacquiringanewleaseareclassifiedseparatelyinthebalancesheet.At29September2018anamountof£1m(2017£1m)wasincludedinthebalancesheet.

Assets held for sale2018

£m2017

£m

Properties – 1

InaccordancewithIFRS5,propertiescategorisedasheldforsaleareheldatthelowerofbookvalueandfairvaluelesscoststosell.

During2017,£43mofpropertieswereclassifiedasheldforsale.Animpairmentof£4mwasrecognisedpriortoreclassification.Subsequently,£42mofpropertiesweresold,leaving£1mremainingasheldforsaleatthebalancesheetdate.

During2018,theremaining£1mofpropertiesweresold.

Capital commitments2018

£m2017

£m

Contractsplacedforexpenditureonproperty,plantandequipmentnotprovidedforinthefinancialstatements 24 23


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3.2 Working capital

Inventories

Accounting policyInventoriesarestatedatthelowerofcostandnetrealisablevalue.Costiscalculatedusingtheweightedaveragemethod.

Inventoriescanbeanalysedasfollows:

2018£m

2017£m

Goodsheldforresale 26 24

Trade and other receivables

Accounting policyTradeandotherreceivablesarerecognisedandcarriedatoriginalcostlessanallowanceforanyuncollectableamounts.

Tradeandotherreceivablescanbeanalysedasfollows:

2018£m

2017£m

Tradereceivables 7 5Otherreceivables 14 15Prepayments 35 33Totaltradeandotherreceivables 56 53

Allamountsfallduewithinoneyear.

Tradeandotherreceivablesarenon-interestbearingandareclassifiedasloansandreceivablesandarethereforeheldatamortisedcost.Tradeandotherreceivablespastdueandnotimpairedareimmaterialandthereforenofurtheranalysisispresented.TheDirectorsconsiderthatthecarryingamountoftradeandotherreceivablesapproximatelyequatestotheirfairvalue.

Creditriskisconsideredinnote4.4.

Trade and other payables

Accounting policyTradeandotherpayablesarerecognisedatamortisedcost.

Tradeandotherpayablescanbeanalysedasfollows:

2018£m

2017£m

Tradepayables 83 80Othertaxationandsocialsecurity 64 70Accruedcharges 103 102Otherpayables 52 45Totaltradeandotherpayables 302 297

Currenttradeandotherpayablesarenon-interestbearing.TheDirectorsconsiderthatthecarryingamountoftradeandotherpayablesapproximatelyequatestotheirfairvalue.


3.3 Provisions

Accounting policyProvisionsarerecognisedwhentheGrouphasapresentlegalorconstructiveobligationasaresultofpastevents;itismorelikelythannotthatanoutflowofresourceswillberequiredtosettletheobligation;andtheamountcanbereliablyestimated.ProvisionsaremeasuredusingtheDirectors’bestestimateoftheexpenditurerequiredtosettletheobligationatthebalancesheetdateandarediscountedtopresentvaluewheretheeffectismaterial.

Onerouspropertyprovisionsrepresenttheexpectedunavoidablelossesononerousandvacantpropertyleasesandcomprisethelowerofthenetrentpayableortheoperatinglossafterrentalcosts.Theprovisioniscalculatedonasitebysitebasiswithaprovisionbeingmadefortheremainingcommittedleaseterm,wherealeaseisconsideredtobeonerous.Othercontractualdilapidationscostsarealsorecordedasprovisionsasappropriate.

Critical accounting judgementsDeterminationofwhetheralossisunavoidablerequiresareasofjudgementsuchasconsiderationofpotentialfutureinvestmentdecisions,localconditionswhichmaybeimpactingoncurrentperformance.

Critical accounting estimatesInrelationtoonerouspropertyprovisions,estimatesarerequiredindeterminingthefutureEBITDAperformanceofeachsiteandthepotentialtoexitleasesearlierthantheexpirydate.Asensitivityanalysisofchangesintheseestimatesisprovidedbelow.Thevalueofprovisionstowhichtheseestimatesapplyis£43m(2017£42m).

ProvisionsTheprovisionforunavoidablelossesononerouspropertyleaseshasbeensetuptocoverrentalpaymentsofvacantorloss-makingproperties.Paymentsareexpectedtocontinueonthesepropertiesforperiodsof1to25years.

Provisionscanbeanalysedasfollows:

Property leases

£m

At24September2016 9Releasedintheperioda (1)Providedintheperiodb 36Unwindingofdiscount 1Utilisedintheperiod (3)At30September2017 42Releasedintheperioda (6)Providedintheperiodb 11Unwindingofdiscount 1Utilisedintheperiod (5)At 29 September 2018 43

a. Releasesinthepriorperiodprimarilyrelatedtopropertydisposals.Releasesinthecurrentperiodprimarilyrelatetoimprovementinperformanceofmanagedproperties.b. Duringthepriorperiod,afullreviewofestatestrategyinrelationtomanagedleaseholdpropertieswascompleted,withspecificfocusonthechallengesaroundloss-makingsitesand

thoselocatedonretailandleisureparks.Withlowerfootfallonmanyoftheseparksandthecontinueduncertaineconomicoutlook,alongsideincreasedcostpressuressuchaslivingwage,businessratesreview,apprenticeshiplevy,sugartaxandfoodpriceinflation,anumberofshortleaseholdsiteswereconsideredtobechallengedwhenstrivingtoachieveabreak-evenprofitperformance.Asaresult,thelosseswereconsideredunavoidablefortheremainingcommittedleasetermformanagedproperties.Inaddition,thediscountrateappliedinthecalculationwasupdated.Asaresultofthesechanges,a£35mincreaseintheprovisionwasincludedasaseparatelydiscloseditem(seenote2.2).Theremainingincreaseof£1mwasrecognisedwithinadjustedprofit,asthisrepresentedunavoidablelossesonunlicensedproperties.

Sensitivity analysisTheGrouphasperformedasensitivityanalysisontheonerousleaseprovisioncalculationusingvariousreasonablypossiblescenarios.Itisestimatedthata5%declineinthefutureEBITDAperformanceofthesitesincludedintheprovisionwouldgenerateanadditionalprovisionof£1m.Itisalsoestimatedthat,shouldallleaseswithmorethan10yearsremainingonthecommittedleasetermbeexitedtwoyearsaheadofexpiry,theprovisionwouldreduceby£1m.


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3.4 Goodwill and other intangible assets

Accounting policiesBusiness combinations and goodwillAcquisitionsofsubsidiariesandbusinessesareaccountedforusingtheacquisitionmethod.TheconsiderationforeachacquisitionismeasuredattheaggregateofthefairvaluesofassetsgivenandliabilitiesincurredorassumedbytheGroupinexchangeforcontroloftheacquiree.Acquisition-relatedcostsarerecognisedintheincomestatementasincurred.

Attheacquisitiondate,theidentifiableassetsacquiredandtheliabilitiesassumedarerecognisedattheirfairvalueattheacquisitiondate,exceptthat:

• deferredtaxassetsorliabilitiesandliabilitiesorassetsrelatedtoemployeebenefitarrangementsarerecognisedandmeasuredinaccordancewithIAS12IncomeTaxesandIAS19EmployeeBenefits(revised)respectively;and

•assets(ordisposalgroups)thatareclassifiedasheldforsaleinaccordancewithIFRS5Non-CurrentAssetsHeldforSaleandDiscontinuedOperationsaremeasuredinaccordancewiththatstandard.

Intangibleassetsacquiredinabusinesscombinationandrecognisedseparatelyfromgoodwillareinitiallyrecognisedattheirfairvalueattheacquisitiondate.

Goodwillismeasuredastheexcessofthesumoftheconsiderationtransferred,theamountofanynon-controllinginterestsintheacquiree,andthefairvalueoftheacquirer’spreviouslyheldequityinterestintheacquireeoverthenetoftheidentifiableassetsacquiredandtheliabilitiesassumedattheacquisitiondate.If,afterreassessment,thenetoftheidentifiableassetsacquiredandliabilitiesassumedattheacquisitiondateexceedsthesumoftheconsiderationtransferred,theamountofanynon-controllinginterestsintheacquireeandthefairvalueoftheacquirer’spreviouslyheldinterestintheacquiree,theexcessisrecognisedimmediatelyintheincomestatementasabargainpurchase.

WhentheconsiderationtransferredbytheGroupinabusinesscombinationincludesassetsorliabilitiesresultingfromacontingentconsiderationarrangement,thecontingentconsiderationismeasuredatitsacquisitiondatefairvalueandincludedaspartofthecontingentconsiderationtransferredinabusinesscombination.Changesinfairvalueofthecontingentconsiderationthatqualifyasmeasurementperiodadjustmentsareadjustedretrospectively,withcorrespondingadjustmentsagainstgoodwill.Measurementperiodadjustmentsareadjustmentsthatarisefromadditionalinformationobtainedduringthe‘measurementperiod’(whichcannotexceedoneyearfromtheacquisitiondate)aboutfactsandcircumstancesthatexistedattheacquisitiondate.

Thesubsequentaccountingforchangesinthefairvalueofcontingentconsiderationthatdonotqualifyasmeasurementperiodadjustmentsdependsonhowthecontingentconsiderationisclassified.Contingentconsiderationthatisclassifiedasequityisnotre-measuredatsubsequentreportingdatesanditssubsequentsettlementisaccountedforwithinequity.Contingentconsiderationthatisclassifiedasanassetoraliabilityisre-measuredatsubsequentreportingdates,atfairvalue,withthecorrespondinggainorlossbeingrecognisedintheincomestatement.

Whenabusinesscombinationisachievedinstages,theGroup’spreviously-heldinterestsintheacquiredentityisre-measuredtoitsacquisitiondatefairvalueandtheresultinggainorloss,ifany,isrecognisedintheincomestatement.Amountsarisingfrominterestsintheacquireepriortotheacquisitiondatethathavepreviouslybeenrecognisedinothercomprehensiveincomearereclassifiedtoprofitorloss,wheresuchtreatmentwouldbeappropriateifthatinterestweredisposedof.

Iftheinitialaccountingforabusinesscombinationisincompletebytheendofthereportingperiodinwhichthecombinationoccurs,theGroupreportsprovisionalamountsfortheitemsforwhichtheaccountingisincomplete.Thoseprovisionalamountsareadjustedduringthemeasurementperiod,oradditionalassetsorliabilitiesarerecognised,toreflectnewinformationobtainedaboutfactsandcircumstancesthatexistedasoftheacquisitiondatethat,ifknown,wouldhaveaffectedtheamountsrecognisedasofthatdate.

Goodwillisnotamortised,butisreviewedforimpairmentannuallyormorefrequentlyifeventsorchangesincircumstancesindicatethatthecarryingvaluemaybeimpaired.Forthepurposeofimpairmenttesting,goodwillisallocatedtoeachoftheGroup’scash-generatingunitsexpectedtobenefitfromthesynergiesofthecombination.Theimpairmentreviewrequiresmanagementtoconsidertherecoverablevalueofthebusinesstowhichthegoodwillrelates,basedoneitherthefairvaluelesscoststosellorthevalueinuse.Valueinusecalculationsrequiremanagementtoconsiderthenetpresentvalueoffuturecashflowsgeneratedbythebusinesstowhichthegoodwillrelates.Fairvaluelesscoststosellisbasedonmanagement’sestimateofthenetproceedswhichcouldbegeneratedthroughdisposingofthatbusiness.Iftherecoverableamountofthecash-generatingunitislessthanthecarryingamountoftheunit,theimpairmentlossisallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtotheunitandthentotheotherassetsoftheunitprorataonthebasisofthecarryingamountofeachassetintheunit.Animpairmentlossisrecognisedimmediatelyintheincomestatementandisnotsubsequentlyreversed.

Ondisposalofasubsidiary,theattributableamountofgoodwillisincludedinthedeterminationoftheprofitorlossondisposal.

Computer softwareComputersoftwareandassociateddevelopmentcosts,whicharenotanintegralpartofarelateditemofhardware,arecapitalisedasanintangibleassetandamortisedonastraight-linebasisovertheirusefullife.Theperiodofamortisationrangesbetweenthreeandsevenyearswiththemajoritybeingfiveyears.


Intangible assetsIntangibleassetscanbeanalysedasfollows:

Goodwill£m

Computer software

£mTotal

£m

CostAt24September2016 7 11 18Additions – 3 3At30September2017 7 14 21Additions – 4 4Disposals – (2) (2)At 29 September 2018 7 16 23

Accumulated amortisation and impairmentAt24September2016 5 4 9Providedduringtheperiod – 2 2At30September2017 5 6 11Providedduringtheperiod – 3 3Disposals – (2) (2)At 29 September 2018 5 7 12

Net book valueAt 29 September 2018 2 9 11 At30September2017 2 8 10At24September2016 2 7 9

Therearenointangibleassetswithindefiniteusefullives.Allamortisationchargeshavebeenexpensedthroughoperatingcosts.

Goodwillhasbeentestedforimpairmentonasite-by-sitebasisusingforecastcashflows,discountedbyapplyingapre-taxdiscountrateof7.5%(20177.0%).Forthepurposesofthecalculationoftherecoverableamount,thecashflowprojectionsbeyondthetwoyearperiodinclude0.0%(20172.0%)growthperannum.


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3.5 Associates

Accounting policiesAnassociateisanentityoverwhichtheGrouphassignificantinfluenceandthatisneitherasubsidiarynoraninterestinajointventure.Significantinfluenceisthepowertoparticipateinthefinancialandoperatingpolicydecisionsoftheinvesteebutisnotcontrolorjointcontroloverthosepolicies.

Theresults,assetsandliabilitiesofassociatesareincorporatedinthesefinancialstatementsusingtheequitymethodofaccounting,exceptwhentheinvestmentisclassifiedasheldforsale,inwhichcaseitisaccountedforinaccordancewithIFRS5Non-currentAssetsHeldforSaleandDiscontinuedOperations.

Undertheequitymethod,aninvestmentinanassociateisaccountedforusingtheequitymethodfromthedateonwhichtheinvesteebecomesanassociate.Onacquisitionoftheinvestmentinanassociate,anyexcessofthecostoftheinvestmentovertheGroup’sshareofthenetfairvalueoftheidentifiableassetsandliabilitiesoftheinvesteeisrecognisedasgoodwill,whichisincludedwithinthecarryingamountoftheinvestment.IfafterreassessmenttheGroup’sshareofthenetfairvalueoftheidentifiableassetsandliabilitiesareinexcessofthecostoftheinvestment,thisisrecognisedimmediatelyinprofitorlossintheperiodinwhichtheinvestmentisacquired.

TherequirementsofIAS36ImpairmentofAssetsareappliedtodeterminewhetheritisnecessarytorecogniseanyimpairmentlosswithrespecttotheGroup’sinvestmentinanassociate.Whennecessary,theentirecarryingamountoftheinvestment(includinggoodwill)istestedforimpairmentinaccordancewithIAS36asasingleassetbycomparingitsrecoverableamount(higherofvalueinuseandfairvaluelesscostsofdisposal)withitscarryingamount.Anyimpairmentlossrecognisedformspartofthecarryingamountoftheinvestment.AnyreversalofthatimpairmentlossisrecognisedinaccordancewithIAS36totheextentthattherecoverableamountoftheinvestmentsubsequentlyincreases.

TheGroupdiscontinuestheuseoftheequitymethodfromthedatewhentheinvestmentceasestobeanassociate,orwhentheinvestmentisclassifiedasheldforsale.WhentheGroupretainsaninterestintheformerassociateandtheretainedinterestisafinancialasset,theGroupmeasurestheretainedinterestatfairvalueatthatdateandthefairvalueisregardedasitsfairvalueoninitialrecognitioninaccordancewithIAS39.Thedifferencebetweenthecarryingamountoftheassociateatthedatetheequitymethodwasdiscontinued,andthefairvalueofanyretainedinterestandanyproceedsfromdisposingofapartinterestintheassociateisincludedinthedeterminationofthegainorlossondisposaloftheassociate.Inaddition,theGroupaccountsforallamountspreviouslyrecognisedinothercomprehensiveincomeinrelationtothatassociateonthesamebasisaswouldberequiredifthatassociatehaddirectlydisposedoftherelatedassetsorliabilities.Therefore,ifagainorlosspreviouslyrecognisedinothercomprehensiveincomebythatassociatewouldbereclassifiedtoprofitorlossonthedisposaloftherelatedassetsorliabilities,theGroupreclassifiesthegainorlossfromequitytoprofitorlosswhentheequitymethodisdiscontinued.

WhentheGroupreducesitsownershipinterestinanassociatebuttheGroupcontinuestousetheequitymethod,theGroupreclassifiestoprofitorlosstheproportionofthegainorlossthathadpreviouslybeenrecognisedinothercomprehensiveincomerelatingtothatreductioninownershipinterestifthatgainorlosswouldbereclassifiedtoprofitorlossonthedisposaloftherelatedassetsorliabilities.

WhenaGroupentitytransactswithanassociateoftheGroup,profitsandlossesresultingfromthetransactionswiththeassociatearerecognisedintheGroup’sconsolidatedfinancialstatementsonlytotheextentofinterestsintheassociatethatarenotrelatedtotheGroup.

ThenatureoftheactivitiesofalloftheGroup’sassociatesistradinginpubsandrestaurants,whichareseenascomplementingtheGroup’soperationsandcontributingtotheGroup’soverallstrategy.

Associatescanbeanalysedasfollows:

£m

At24September2016and30September2017 –Acquisitions* 5At 29 September 2018 5

* Acquisitionsintheperiodrelatetothesharespurchasedin3SixtyRestaurantsLimitedandFatboyPubCompanyLimited.Detailsoftheseassociatesareprovidedinnote5.2.

Duringtheperiod,aputandcalloptionagreementwasenteredinto,whichallowstheCompanytoacquiretheremaining60%sharecapitaloftheassociate,3SixtyRestaurantsLimited,atanypointintimeafterthreeyearsfromtheinitialpurchasedate.Theinitial40%investmentwaspurchasedon1August2018for£4m.Thecurrentshareholdersalsohavetheoptiontoselltheremaining60%totheCompany,subjecttoanumberofconditions.



Notes to the financial statements Section4–Capitalstructureandfinancingcosts

4.1 Net debt

Accounting policyCash and cash equivalentsCashandcashequivalentscomprisecashatbankandinhandandothershort-termhighlyliquiddepositswithanoriginalmaturityatacquisitionofthreemonthsorless.Cashheldondepositwithanoriginalmaturityatacquisitionofmorethanthreemonthsisdisclosedasothercashdeposits.Inthecashflowstatement,cashandcashequivalentsareshownnetofbankoverdraftsthatarerepayableondemand.

Net debt2018

£m2017

£m

Cashandbankbalances 122 147Cashandcashequivalents 122 147Othercashdeposits 120 120Securitiseddebt(note4.2) (1,830) (1,909)Liquidityfacility(note4.2) (147) (147)Revolvingcreditfacilities(note4.2) – (6)Derivativeshedgingsecuritiseddebta(note4.2) 47 45

(1,688) (1,750)

a. RepresentstheelementofthefairvalueofcurrencyswapshedgingthebalancesheetvalueoftheGroup’sUS$denominatedA3Nloannotes.Thisamountisdisclosedseparatelytoremovetheimpactofexchangemovementswhichareincludedinthesecuritiseddebtamount.

Movement in net debt2018

52 weeks£m

201753 weeks

£m

Net decrease in cash and cash equivalents (25) (11)Addbackcashflowsinrespectofothercomponentsofnetdebt:Repaymentofprincipalinrespectofsecuritiseddebt 82 77Netmovementonunsecuredrevolvingfacilities 6 25Decrease in net debt arising from cash flows 63 91Movementincapitaliseddebtissuecostsnetofaccruedinterest (1) (1)Decrease in net debt 62 90Openingnetdebt (1,750) (1,840)Closing net debt (1,688) (1,750)

Thenetdebtmovementforthe52weeksended29September2018isrepresentedby:

At 30 September

2017 £m

Cash flow movements

in the period £m

Non-cash movements

in the period £m

Fair value movements

£m

At 29 September

2018 £m

Cashandcashequivalents 147 (25) – – 122 Othercashdeposits 120 – – – 120 Securitiseddebt* (1,909) 82 (3) – (1,830)Liquidityfacility* (147) – – – (147)Revolvingcreditfacilities* (6) 6 – – – Derivativeshedgingsecuritiseddebt* 45 – – 2 47 Net debt (1,750) 63 (3) 2 (1,688)

* Liabilitiesarisingfromfinancingactivities.

Thenetdebtmovementforthe53weeksended30September2017isrepresentedby:

At 24 September

2016 £m

Cash flow movements

in the period £m

Non-cash movements

in the period £m

Fair value movements

£m

At 30 September

2017 £m

Cashandcashequivalents 158 (11) – – 147Othercashdeposits 120 – – – 120Securitiseddebt* (1,995) 77 9 – (1,909)Liquidityfacility* (147) – – – (147)Revolvingcreditfacilities* (31) 25 – – (6)Derivativeshedgingsecuritiseddebt* 55 – – (10) 45Net debt (1,840) 91 9 (10) (1,750)

* Liabilitiesarisingfromfinancingactivities.


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Notes to the financial statements Section4–Capitalstructureandfinancingcostscontinued

4.2 Borrowings

Accounting policy Borrowings,whichincludetheGroup’ssecuredloannotes,arestatedinitiallyatfairvalue(normallytheamountoftheproceeds)netofissuecosts.Thereaftertheyarestatedatamortisedcostusinganeffectiveinterestbasis.Financecosts,whicharethedifferencebetweenthenetproceedsandthetotalamountofpaymentstobemadeinrespectoftheinstruments,areallocatedoverthetermofthedebtusingtheeffectiveinterestmethod.Borrowingcostsarenotattributedtotheacquisitionorconstructionofassetsandthereforenocostsarecapitalisedwithinproperty,plantandequipment.

Borrowingscanbeanalysedasfollows:

2018£m

2017£m

CurrentSecuritiseddebta,b 86 82Liquidityfacility 147 147Unsecuredrevolvingcreditfacilities – 6Totalcurrent 233 235Non-current Securitiseddebta,b 1,744 1,827Totalborrowings 1,977 2,062

a. Furtherdetailsoftheassetspledgedassecurityagainstthesecuritiseddebtaregivenonpage117.b. Statednetofdeferredissuecosts.

2018£m

2017£m

Analysis by year of repaymentDuewithinoneyearorondemand 233 235Duebetweenoneandtwoyears 142 130Duebetweentwoandfiveyears 328 307Dueafterfiveyears 1,274 1,390Totalborrowings 1,977 2,062

Securitised debtOn13November2003,theGrouprefinanceditsdebtbyraising£1,900mthroughasecuritisationofthemajorityofitsUKpubsandrestaurantsownedbyMitchells&ButlersRetailLimited(‘MABRetail’).On15September2006theGroupcompletedafurtherdebt(‘tap’)issuetoborrowanadditional£655mandrefinance£450mofexistingdebtatlowercost.

Theloannotesconsistof10tranchesasfollows:

Principal outstanding

Tranche

Initial principal

borrowed£m Interest

Principalrepayment

period(all by instalments)

Effectiveinterest

rate%

29 September2018

£m

30 September2017

£mExpected

WALa

A1N 200 Floating 2011to2028 6.21b 131 142 6yearsA2 550 Fixed–5.57% 2003to2028 6.01 240 258 6yearsA3N 250 Floating 2011to2028 6.29b 165c 177c 6yearsA4 170 Floating 2016to2028 5.97b 150 159 6yearsAB 325 Floating 2020to2032 6.28b 325 325 10yearsB1 350 Fixed–5.97% 2003to2023 6.12 102 119 3yearsB2 350 Fixed–6.01% 2015to2028 6.12 312 327 7yearsC1 200 Fixed–6.47% 2029to2030 6.56 200 200 11yearsC2 50 Floating 2033to2034 6.47b 50 50 15yearsD1 110 Floating 2034to2036 6.68b 110 110 17years

2,555 1,785 1,867

a. Expectedweightedaveragelife(WAL)assumesnoearlyredemptioninrespectofanyloannotes.b. Aftertheeffectofinterestrateswaps.c. A3NnotesareUS$noteswhichareshownastranslatedtosterlingatthehedgedswaprate.Valuesattheperiodendspotrateare£212m(2017£222m).Thereforetheexchangedifference

ontheA3Nnotesis£47m(2017£45m).


ThenotesaresecuredonthemajorityoftheGroup’spropertyandfutureincomestreamstherefrom.Allofthefloatingratenotesarehedgedusinginterestrateswapswhichfixtheinterestratepayable.

Interestandmarginispayableonthefloatingratenotesasfollows:

Tranche Interest Margin

A1N 3monthLIBOR 0.45%A3N 3monthUS$LIBOR 0.45%A4 3monthLIBOR 0.58%AB 3monthLIBOR 0.60%C2 3monthLIBOR 1.88%D1 3monthLIBOR 2.13%

Theoverallcashinterestratepayableontheloannotesis6.2%(20176.1%)aftertakingaccountofinterestratehedgingandthecostoftheprovisionofafinancialguaranteeprovidedbyAmbacinrespectoftheClassAandABnotes.

Thesecuritisationisgovernedbyvariouscovenants,warrantiesandeventsofdefault,manyofwhichapplytoMitchells&ButlersRetailLimited,theGroup’smainoperatingsubsidiary.Theseincludecovenantsregardingthemaintenanceanddisposalofsecuritisedpropertiesandrestrictionsonitsabilitytomovecash,bywayofdividendsforexample,tootherGroupcompanies.At29September2018,Mitchells&ButlersRetailLimitedhadcashandcashequivalentsof£54m(2017£97m).Ofthisamount£1m(2017£1m),representingdisposalproceeds,washeldondepositinanaccountoverwhichthereareanumberofrestrictions.Theuseofthiscashrequirestheapprovalofthesecuritisationtrusteeandmayonlybeusedforcertainspecifiedpurposessuchascapitalenhancementexpenditureandbusinessacquisitions.

ThecarryingvalueofthesecuritiseddebtintheGroupbalancesheetisanalysedasfollows:

2018£m

2017£m

Principaloutstandingatbeginningofperiod 1,911 1,998Principalrepaidduringtheperiod (82) (77)Exchangeontranslationofdollarloannotes 3 (10)Principaloutstandingatendofperiod 1,832 1,911Deferredissuecosts (5) (6)Accruedinterest 3 4Carryingvalueatendofperiod 1,830 1,909

Liquidity facilityUnderthetermsofthesecuritisation,theGroupholdsaliquidityfacilityof£295mprovidedbytwocounterparties.Asaresultofthedecreaseincreditratingofoneofthecounterparties,theGroupwasobligedtodrawthatcounterparty’sportionofthefacilityduringthe52weeksended27September2014.Theamountdrawnat29September2018is£147m(2017£147m).ThesefundsarechargedunderthetermsofthesecuritisationandarenotavailableforuseinthewiderGroup.

Thefacility,whichisnotavailableforanyotherpurpose,issizedtocover18months’debtservice.

Unsecured revolving credit facilitiesTheGroupholdsthreeunsecuredcommittedrevolvingcreditfacilitiesof£50meach,anduncommittedrevolvingcreditfacilitiesof£15m,availableforgeneralcorporatepurposes.Theamountdrawnat29September2018is£nil(2017£6m).Allcommittedfacilitiesexpireon31December2020.

4.3 Finance costs and revenue

201852 weeks

£m

201753 weeks

£m

Finance costsInterestonsecuritiseddebt (114) (120)Interestonotherborrowings (4) (4)Unwindingofdiscountonprovisions(note3.3) (1) (1)Totalfinancecosts (119) (125)Finance revenueInterestreceivable–cash 1 1Net pensions finance charge (note 4.5) (7) (7)


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4.4 Financial instruments

Accounting policiesFinancialassetsandfinancialliabilitiesarerecognisedintheGroup’sbalancesheetwhentheGroupbecomesapartytothecontractualprovisionsoftheinstrument.

Financial assetsAllfinancialassetsarerecognisedorderecognisedonatradedatewherethepurchaseorsaleofafinancialassetisunderacontractwhosetermsrequiredeliveryofthefinancialassetwithinthetimeframeestablishedbythemarketconcerned.Financialassetsareinitiallymeasuredatfairvalue,plustransactioncosts,exceptforthosefinancialassetsclassifiedasatfairvaluethroughprofitorloss,whichareinitiallymeasuredatfairvalue.

Financialassetsareclassifiedintothefollowingspecifiedcategories:financialassets‘atfairvaluethroughprofitorloss’(FVTPL);derivativeinstrumentsindesignatedhedgeaccountingrelationships;‘held-to-maturity’investments;‘available-for-sale’(AFS)financialassets;and‘loansandreceivables’.Theclassificationdependsonthenatureandpurposeofthefinancialassetsandisdeterminedatthetimeofinitialrecognition.

Impairment of financial assetsFinancialassets,otherthanthoseatFVTPL,areassessedforindicatorsofimpairmentateachbalancesheetdate.Financialassetsareimpairedwherethereisobjectiveevidencethat,asaresultofoneormoreeventsthatoccurredaftertheinitialrecognitionofthefinancialasset,theestimatedfuturecashflowsoftheinstrumenthavebeenaffected.

Forcertaincategoriesoffinancialassets,suchastradereceivables,assetsthatareassessednottobeimpairedindividuallyare,inaddition,assessedforimpairmentonacollectivebasis.ObjectiveevidenceofimpairmentforaportfolioofreceivablescouldincludetheGroup’spastexperienceofcollectingpayments,anincreaseinthenumberofdelayedpaymentsintheportfoliopasttheagreedcreditperiod,aswellasobservablechangesinnationalorlocaleconomicconditionsthatcorrelatewithdefaultonreceivables.

Forfinancialassetscarriedatamortisedcost,theamountoftheimpairmentisthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows,discountedatthefinancialasset’soriginaleffectiveinterestrate.

Thecarryingamountofthefinancialassetisreducedbytheimpairmentlossdirectlyforallfinancialassetswiththeexceptionoftradereceivables,wherethecarryingamountisreducedthroughtheuseofanallowanceaccount.Whenatradereceivableisconsidereduncollectable,itiswrittenoffagainsttheallowanceaccount.Subsequentrecoveriesofamountspreviouslywrittenoffarecreditedagainsttheallowanceaccount.Changesinthecarryingamountoftheallowanceaccountarerecognisedinprofitorloss.

If,inasubsequentperiod,theamountoftheimpairmentlossdecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringaftertheimpairmentwasrecognised,thepreviouslyrecognisedimpairmentlossisreversedthroughprofitorlosstotheextentthatthecarryingamountoftheinvestmentatthedatetheimpairmentisreverseddoesnotexceedwhattheamortisedcostwouldhavebeenhadtheimpairmentnotbeenrecognised.

Financial liabilitiesFinancialliabilitiesareclassifiedaseither‘borrowingsatamortisedcost’or‘otherfinancialliabilities’.

Theborrowingsaccountingpolicyisprovidedinnote4.2.Otherfinancialliabilitiesareinitiallymeasuredatfairvalue,netoftransactioncosts.

Derecognition of financial assets and liabilitiesTheGroupderecognisesafinancialassetonlywhenthecontractualrightstothecashflowsfromtheassetexpire,orwhenittransfersthefinancialassetandsubstantiallyalltherisksandrewardsofownershipoftheassettoanotherentity.IftheGroupdoesnotretainsubstantiallyalltherisksandrewardsofownershipbutcontinuestocontrolatransferredasset,theGrouprecognisesitsretainedinterestintheassetandanassociatedliabilityforamountsitmayhavetopay.IftheGroupretainssubstantiallyalltherisksandrewardsofownershipofatransferredfinancialasset,theGroupcontinuestorecognisethefinancialassetandalsorecognisesacollateralisedborrowingfortheproceedsreceived.

TheGroupderecognisesfinancialliabilitieswhen,andonlywhen,theGroup’sobligationsaredischarged,cancelledorexpired.Thedifferencebetweenthecarryingamountofthefinancialliabilitydischargedandtheconsiderationpaidandpayableisrecognisedinprofitorloss.

Effective interest methodTheeffectiveinterestmethodisamethodofcalculatingtheamortisedcostofadebtinstrumentandofallocatingfinancechargesovertherelevantperiod.Theeffectiveinterestrateistheratethatexactlydiscountsestimatedfuturecashflows(includingallfeesandpointspaidorreceivedthatformanintegralpartoftheeffectiveinterestrate,transactioncostsandotherpremiumsordiscounts)overtheexpectedlifeofthedebtinstrument,orwhereappropriate,ashorterperiod,tothenetcarryingamountoninitialrecognition.Financechargesarerecognisedonaneffectiveinterestbasisforalldebtinstruments.

Derivative financial instruments and hedge accountingTheGroupusesinterestrateandcurrencyswapcontractstohedgeitsexposuretochangesininterestratesandexchangerates.ThesecontractsaredesignatedascashflowhedgesandhedgeaccountingisappliedwherethenecessarycriteriaunderIAS39FinancialInstruments:RecognitionandMeasurementaremet.Derivativefinancialinstrumentsarenotusedfortradingorspeculativepurposes.

Derivativefinancialinstrumentsareinitiallymeasuredatfairvalueonthecontractdate,andarere-measuredtofairvalueatsubsequentreportingdates.Fairvalueiscalculatedasthepresentvalueoftheestimatedfuturecashflowsataratethatreflectsthecreditriskofvariouscounterparties.

Changesinthefairvalueofderivativeinstrumentsthataredesignatedandeffectiveashedgesofhighlyprobablefuturecashflowsarerecognisedinequity.Thecumulativegainorlossistransferredfromequityandrecognisedintheincomestatementatthesametimeasthehedgedtransactionaffectsprofitorloss.Theineffectivepartofanygainorlossisrecognisedintheincomestatementimmediately.


Movementsinthefairvalueofderivativeinstrumentswhichdonotqualifyforhedgeaccountingarerecognisedintheincomestatementimmediately.

Hedgeaccountingisdiscontinuedwhenthehedginginstrumentexpiresorissold,terminated,ornolongerqualifiesforhedgeaccounting.Atthatpoint,thecumulativegainorlossinequityremainsinequityandisrecognisedinaccordancewiththeabovepolicywhenthetransactionaffectsprofitorloss.Ifthehedgedtransactionisnolongerexpectedtooccur,thecumulativegainorlossrecognisedinequityisrecognisedintheincomestatementimmediately.

Financial risk managementFinancialriskismanagedbytheGroup’sTreasuryfunction.TheGroup’sTreasuryfunctionisgovernedbyaBoardApprovedTreasuryPolicyStatementwhichdetailsthekeyobjectivesandpoliciesfortheGroup’streasurymanagement.TheTreasuryCommitteeensuresthattheTreasuryPolicyisadheredto,monitorsitsoperationandagreesappropriatestrategiesforrecommendationtotheBoard.TheTreasuryPolicyStatementisreviewedannually,withrecommendationsforchangemadetotheBoard,asappropriate.TheGroupTreasuryfunctionisoperatedasacostcentreandistheonlyareaofthebusinesspermittedtotransacttreasurydeals.Itmustalsobeconsultedonotherrelatedmatterssuchastheprovisionofguaranteesorthefinancialimplicationsofcontractterms.

AnexplanationoftheGroup’sfinancialinstrumentriskmanagementobjectivesandstrategiesissetoutbelow.

ThemainfinancialriskswhichimpacttheGroupresultfromfundingandliquidityrisk,creditrisk,capitalriskandmarketrisk,principallyasaresultofchangesininterestandcurrencyrates.Derivativefinancialinstruments,principallyinterestrateandforeigncurrencyswaps,areusedtomanagemarketrisk.Derivativefinancialinstrumentsarenotusedfortradingorspeculativepurposes.

Funding and liquidity riskInordertoensurethattheGroup’slong-termfundingstrategyisalignedwithitsstrategicobjectives,theTreasuryCommitteeregularlyassessesthematurityprofileoftheGroup’sdebt,alongsidetheprevailingfinancialprojections.ThisenablesittoensurethatfundinglevelsareappropriatetosupporttheGroup’splans.

ThecurrentfundingarrangementsoftheGroupconsistofthesecuritisednotesissuedbyMitchells&ButlersFinanceplc(andassociatedliquidityfacility)alongwiththreecommittedunsecuredrevolvingcreditfacilitiesof£50meach.Thetermsofthesecuritisationandtherevolvingcreditfacilitiescontainvariousfinancialcovenants.CompliancewiththesecovenantsismonitoredbyGroupTreasury.TheGroupalsohasuncommittedrevolvingcreditfacilitiesof£15m.

TheGrouppreparesarollingdailycashforecastcoveringasixweekperiodandanannualcashforecastbyperiod.TheseforecastsarereviewedonadailybasisandareusedtomanagetheinvestmentandborrowingrequirementsoftheGroup.Acombinationofcashpoolingandzerobalancingagreementsareinplacetoensuretheoptimumliquiditypositionismaintained.TheGroupmaintainssufficientcashbalancesorcommittedfacilitiesoutsidethesecuritisationtoensurethatitcanmeetitsmedium-termanticipatedcashflowrequirements.

Thematuritytablebelowdetailsthecontractualundiscountedcashflows(bothprincipalandinterest)fortheGroup’sfinancialliabilities,aftertakingintoaccounttheeffectofinterestrateswaps.

Withinone year

£m

One to two years

£m

Two to three years

£m

Three to four years

£m

Four to five years

£m

More than five years

£mTotal

£m

29 September 2018a

Fixedrate:Securitiseddebtb (195) (198) (201) (201) (200) (1,687) (2,682)Floatingrate:Liquidityfacility (147) – – – – – (147)Tradeandotherpayables (302) – – – – – (302)

30 September 2017a

Fixedrate:Securitiseddebtb (194) (193) (197) (199) (199) (1,879) (2,861)Floatingrate:Liquidityfacility (147) – – – – – (147)Tradeandotherpayables (297) – – – – – (297)

a. Assumesnoearlyredemptioninrespectofanyloannotes.b. Includestheimpactofthecashflowhedges.


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4.4 Financial instruments continued

Credit riskTheGroupTreasuryfunctionentersintocontractswiththirdpartiesinrespectofderivativefinancialinstrumentsforriskmanagementpurposesandtheinvestmentofsurplusfunds.TheseactivitiesexposetheGrouptocreditriskagainstthecounterparties.Tomitigatethisexposure,GroupTreasuryoperatespoliciesthatrestricttheinvestmentofsurplusfundsandtheenteringintoofderivativetransactionstocounterpartiesthathaveaminimumcreditratingof‘A’(long-term)and‘A1’/‘P1’/‘F1’(short-term).CounterpartiesmayalsoberequiredtopostcollateralwiththeGroup,wheretheircreditratingfallsbelowapredeterminedlevel.Theamountthatcanbeinvestedortransactedatvariousratingslevelsisrestrictedunderthepolicy.Tominimisecreditriskexposureagainstindividualcounterparties,investmentsandderivativetransactionsareenteredintowitharangeofcounterparties.TheGroupTreasuryfunctionreviewscreditratings,aspublishedbyMoody’s,Standard&Poor’sandFitchRatings,currentexposurelevelsandthemaximumpermittedexposureatgivencreditratings,foreachcounterpartyonadailybasis.AnyexceptionsarerequiredtobeformallyreportedtotheTreasuryCommitteeonafour-weeklybasis.

IncludedinotherreceivablesareamountsduefromcertainGroupsuppliers.Includedintradeandotherpayablesattheperiodendareamountsduetosomeofthesesuppliers.ThisreducestheGroup’screditexposure.

TheGroup’screditexposureatthebalancesheetdatewas:

2018£m

2017£m

Cashandcashequivalents 122 147Othercashdeposits 120 120Tradereceivables 7 5Otherreceivables 14 15Derivatives 48 43

Capital managementTheGroup’scapitalbaseiscomprisedofitsnetdebt(analysedinnote4.1)plustotalequity(disclosedonthefaceoftheGroupbalancesheet).Theobjectiveistomaintainacapitalbasewhichissufficientlystrongtosupporttheongoingdevelopmentofthebusinessasagoingconcern,includingtheamenity,andcashflowgenerationofthepubestate.Bykeepingdebtandheadroomagainstitsdebtfacilitiesatanappropriatelevel,theGroupensuresthatitmaintainsastrongcreditposition,whilstmaximisingvalueforshareholdersandadheringtoitscovenantsandotherrestrictionsassociatedwithitsdebt(seenote4.2).Inmanagingitscapitalstructure,fromtimetotimetheGroupmayrealisevaluefromnon-coreassets,buybackorissuenewshares,initiateandvaryitsdividendpaymentsandseektovaryoracceleratedebtrepayments.TheGroup’spolicyistoensurethatthematurityofitsdebtprofilesupportsitsstrategicobjectives.TheBoardconsidersthelatestcovenantcompliance,headroomprojectionsandprojectedbalancesheetpositionsperiodicallythroughouttheyear,basedontheadviceoftheTreasuryCommitteewhichmeetsonafour-weeklybasis.TheTreasuryCommitteeischairedbytheGroupTreasurerandmonitorsTreasuryperformanceandcompliancewithBoard-approvedpolicies.TheGroupFinanceDirectorisalsoamemberoftheCommittee.

Totalcapitalatthebalancesheetdateisasfollows:

2018£m

2017£m

Netdebt(note4.1) 1,688 1,750Totalequity 1,769 1,626Totalcapital 3,457 3,376

Market riskTheGroupisexposedtotheriskthatthefairvalueoffuturecashflowsofitsfinancialinstrumentswillfluctuatebecauseofchangesinmarketprices.Marketriskcomprisesforeigncurrencyandinterestraterisk.

Foreign currency riskTheGroupfacescurrencyriskintwomainareas:

AtissuanceoftheClassA3Nfloatingratenotes,theGroupenteredintoacrosscurrencyinterestrateswaptomanagetheforeigncurrencyexposureresultingfromboththeUS$principalandinitialinterestelementsofthenotes.TheA3Nnoteshaveacarryingvalueof£212m(2017£222m)andformpartofthesecuritiseddebt(seenote4.2).

Sensitivity analysis Furthertothestep-upontheA3Nnoteson15December2010,theGrouphasadditionalforeigncurrencyexposureasaresultoftheincreaseinUS$financecosts.Amovementof10%intheUS$exchangeratewouldhavea£nil(2017£nil)impactonthereportedGroupprofitanda£21m(2017£22m)impactonthereportedGroupnetassets.

TheGrouphasnosignificantprofitandlossexposureasaresultofretranslatingmonetaryassetsandliabilitiesatdifferentexchangerates.AstheGroupispredominantlyUKbasedandacquiresthemajorityofitssuppliesinsterling,ithasnosignificantdirectcurrencyexposurefromitsoperations.


Interest rate riskTheGrouphasamixtureoffixedandfloatinginterestratedebtinstrumentsandmanagesthevariabilityincashflowsresultingfromchangesininterestratesbyusingderivativefinancialinstruments.Wherethenecessarycriteriaaremet,theGroupminimisesthevolatilityinitsfinancialstatementsthroughtheadoptionofthehedgeaccountingprovisionspermittedunderIAS39.TheinterestrateexposureresultingfromtheGroup’s£1.9bnsecuritisationislargelyfixed,eitherasaresultofthenotesthemselvesbeingissuedatfixedinterestrates,orthroughacombinationoffloatingratenotesagainstwhicheffectiveinterestrateswapsareheld,whichareeligibleforhedgeaccounting.

Sensitivity analysis ThesensitivityanalysisbelowhasbeencalculatedbasedontheGroup’sexposuretointerestratesforbothderivativeandnon-derivativeinstrumentsasatthebalancesheetdate.A1%movementisusedwhenreportinginterestrateriskinternallytokeymanagementpersonnelandrepresentsmanagement’sassessmentofthereasonablypossiblechangeininterestrates.

Forfloatingrateliabilities,whicharenothedgedbyderivativeinstruments,theanalysishasbeenpreparedassumingthattheliabilityoutstandingatthebalancesheetdatewasoutstandingforthewholeperiod.Forinterestincometheanalysisassumesthatcashandcashequivalentsandothercashdepositsthatwereheldininterestbearingaccountsatthebalancesheetdatewereheldforthewholeperiod.

TheGroup’ssensitivitytoa1%movementininterestratesisdetailedbelow:

2018£m

2017£m

Interestincomea 2 2Interestexpenseb (1) (2)Profitimpact 1 –Derivativefinancialinstruments(fairvalues)c 76 86Totalequity 77 86

a. Representsinterestincomeearnedoncashandcashequivalentsandothercashdeposits(thesearedefinedinnote4.1).b. TheelementofinterestexpensewhichisnotmatchedbypaymentsandreceiptsundercashflowhedgeswhichwouldotherwiseoffsettheinterestrateexposureoftheGroup.c. Theimpactontotalequityfrommovementsinthefairvalueofcashflowhedges.

Derivative financial instrumentsCash flow hedgesChangesincashflowhedgefairvaluesarerecognisedinthehedgingreserveinequitytotheextentthatthehedgesareeffective.Thecashflowhedgesdetailedbelowhavebeenassessedasbeinghighlyeffectiveduringtheperiodandareexpectedtoremainhighlyeffectiveovertheremainingcontractlives.

Duringtheperiodagainof£16m(2017gainof£60m)oncashflowhedgeswasrecognisedinequity.Alossof£34m(2017lossof£53m)wasrecycledfromequityandincludedintheGroupincomestatementfortheperiod.

Cash flow hedges – securitised borrowingsAt29September2018,theGroupheldten(2017ten)interestrateswapcontractswithanominalvalueof£931m(2017£963m),designatedasahedgeofthecashflowinterestrateriskof£931m(2017£963m)oftheGroup’sfloatingrateborrowings,comprisingtheA1N,A3N,A4,AB,C2andD1loannotes.

Thecashflowsonthesecontractsoccurquarterly,receivingafloatingrateofinterestbasedonLIBORandpayingafixedrateof4.8483%(20174.8558%).Thecontractmaturitydatesmatchthoseofthehedgeditem.Theteninterestrateswapsareheldonthebalancesheetatfairmarketvalue,whichisaliabilityof£244m(2017£292m).

At29September2018theGroupheldone(2017one)crosscurrencyinterestrateswapcontract,withanominalvalueof£165m(2017£177m),designatedasahedgeofthecashflowinterestrateandcurrencyriskoftheGroup’sA3NfloatingrateUS$276m(2017US$297m)borrowings.Thecrosscurrencyinterestrateswapisheldonthebalancesheetatafairvalueassetof£48m(2017£43m).

Thecashflowsonthiscontractoccurquarterly,receivingafloatingrateofinterestbasedonUS$LIBORandpayingafloatingrateofinterestatLIBORinsterling.

Thecashflowsarisingfrominterestrateswappositionsonthesamecounterpartymaybesettledasanetposition.Thecrosscurrencyinterestrateswapisheldunderaseparateagreementandcashmovementsforthisinstrumentaresettledindividually.


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4.4 Financial instruments continued

Fair values of derivative financial instrumentsThefairvaluesofthederivativefinancialinstrumentsweremeasuredat29September2018andmaybesubjecttomaterialmovementsintheperiodsubsequenttothebalancesheetdate.Thefairvaluesofthederivativefinancialinstrumentsarereflectedonthebalancesheetasfollows:

Derivative financial instruments – fair value

Non-currentassets

£m

Currentassets

£m

Currentliabilities

£m

Non-currentliabilities

£mTotal

£m

Cash flow hedges: –Interestrateswaps – – (37) (207) (244) –Crosscurrencyswap 44 4 – – 4829 September 2018 44 4 (37) (207) (196)30September2017 41 2 (43) (249) (249)

Reconciliation of movements in derivative valuesThetablebelowdetailschangesintheGroup’sderivatives,includingbothcashandnon-cashchangeswhereappropriate.ChangesintheGroup’sborrowingsaredisclosedinthenetdebtreconciliationinnote4.1.

At 24 September

2016£m

Fair value adjustments

£m

At 30 September

2017£m

Fair value adjustments

£m

At 29 September

2018£m

Cashflowhedges (351) 102 (249) 53 (196)Total derivatives (351) 102 (249) 53 (196)

Thefairvalueandcarryingvalueoffinancialassetsandliabilitiesbycategoryisasfollows:

2018 2017

Bookvalue

£m

Fairvalue

£m

Bookvalue

£m

Fairvalue

£m

Financial assets: –Cashandcashequivalents 122 122 147 147 –Othercashdeposits 120 120 120 120 –Derivativeinstrumentsindesignatedhedgeaccountingrelationships 48 48 43 43 –Loansandreceivables 21 21 20 20Financial liabilities: –Borrowingsatamortisedcost (1,977) (1,939) (2,062) (2,076) –Derivativeinstrumentsindesignatedhedgeaccountingrelationships (244) (244) (292) (292) –Tradingandotherpayables (302) (302) (297) (297)

(2,212) (2,174) (2,321) (2,335)

Thevarioustranchesofthesecuritiseddebthavebeenvaluedusingperiodendquotedofferprices.Asthesecuritiseddebtistradedonanactivemarket,themarketvaluerepresentsthefairvalueofthisdebt.ThefairvalueofinterestrateandcurrencyswapsistheestimatedamountwhichtheGroupcouldexpecttopayorreceiveonterminationoftheagreements.Theseamountsarebasedonquotationsfromcounterpartieswhichapproximatetotheirfairmarketvalueandtakeintoconsiderationinterestandexchangeratesprevailingatthebalancesheetdate.Otherfinancialassetsandliabilitiesareeithershort-terminnatureortheirbookvaluesapproximatetofairvalues.


Fair value of financial instrumentsThefairvalueoftheGroup’sderivativefinancialinstrumentsiscalculatedbydiscountingtheexpectedfuturecashflowsofeachinstrumentatanappropriatediscountratetoa‘marktomarket’positionandthenadjustingthistoreflectanynon-performanceriskassociatedwiththecounterpartiestotheinstrument.

IFRS13FinancialInstrumentsrequirestheGroup’sderivativefinancialinstrumentstobedisclosedatfairvalueandcategorisedinthreelevelsaccordingtotheinputsusedinthecalculationoftheirfairvalue:

• Level1instrumentsusequotedpricesastheinputtofairvaluecalculations;

• Level2instrumentsuseinputs,otherthanquotedprices,thatareobservableeitherdirectlyorindirectly;

• Level3instrumentsuseinputsthatareunobservable.

ThetablebelowsetsoutthevaluationbasisoffinancialinstrumentsheldatfairvaluebytheGroup:

Fair value at 29 September 2018Level 1

£mLevel 2

£mLevel 3

£mTotal

£m

Financial assets:Currencyswaps – 48 – 48Financial liabilities:Interestrateswaps – (244) – (244)

– (196) – (196)

Fair value at 30 September 2017Level 1

£mLevel 2

£mLevel 3

£mTotal

£m

Financial assets:Currencyswaps – 43 – 43Financial liabilities:Interestrateswaps – (292) – (292)

– (249) – (249)

4.5 Pensions

Accounting policyRetirementanddeathbenefitsareprovidedforeligibleemployeesintheUnitedKingdomprincipallybytheMitchells&ButlersPensionPlan(MABPP)andtheMitchells&ButlersExecutivePensionPlan(MABEPP).Theseplansarefunded,HMRCapproved,occupationalpensionschemeswithdefinedcontributionanddefinedbenefitsections.Thedefinedbenefitsectionoftheplansisnowclosedtofutureserviceaccrual.Thedefinedbenefitliabilityrelatestothesefundedplans,togetherwithanunfundedunapprovedpensionarrangement(theExecutiveTop-UpScheme,orMABETUS)inrespectofcertainMABEPPmembers.Theassetsoftheplansareheldinself-administeredtrustfundsseparatefromtheCompany’sassets.

Inaddition,Mitchells&ButlersplcalsoprovidesaworkplacepensionplaninlinewiththeWorkplacePensionsReformRegulations.ThisautomaticallyenrolsalleligibleworkersintoaQualifyingWorkplacePensionPlan.

AstheCompanydonothaveanunconditionalrighttorecoveranysurplusfromthepensionplans,IFRIC14requirestheminimumfundingliabilitytoberecognised,whereitisinexcessoftheactuarialliability.Assuch,thetotalpensionliabilityrecognisedinthebalancesheetinrespectoftheGroup’sdefinedbenefitarrangementsisthegreateroftheminimumfundingrequirements,calculatedasthepresentvalueoftheagreedscheduleofcontributions,andtheactuarialcalculatedliability.Theactuarialliabilityisthepresentvalueofthedefinedbenefitobligation,lessthefairvalueoftheschemeassets.Thecostofprovidingbenefitsisdeterminedusingtheprojectedunitcreditmethodasdeterminedannuallybyqualifiedactuaries.Thisisbasedonanumberoffinancialassumptionsandestimates,thedeterminationofwhichmaybesignificanttothebalancesheetvaluationintheeventthatthisreflectsagreaterdeficitthanthatsuggestedbythescheduleofminimumcontributions.

Thereisnocurrentservicecostasalldefinedbenefitschemesareclosedtofutureaccrual.Thenetpensionfinancecharge,calculatedbyapplyingthediscountratetothepensiondeficitorsurplusatthebeginningoftheperiod,isshownwithinfinanceincomeorexpense.Theadministrationcostsoftheschemearerecognisedwithinoperatingcostsintheincomestatement.

Remeasurementcomprisingactuarialgainsandlosses,theeffectofminimumfundingrequirements,andthereturnonschemeassetsarerecognisedimmediatelyinthebalancesheetwithachargeorcredittothestatementofcomprehensiveincomeintheperiodinwhichtheyoccur.

CurtailmentsandsettlementsrelatingtotheGroup’sdefinedbenefitplanarerecognisedintheincomestatementintheperiodinwhichthecurtailmentorsettlementoccurs.

Forthedefinedcontributionarrangements,thechargeagainstprofitisequaltotheamountofcontributionspayableforthatperiod.

Critical accounting judgements Thecalculationofthedefinedbenefitliabilityrequiresmanagementjudgementtoselectanappropriatehigh-qualitycorporatebondtodeterminethediscountrate.Themostsignificantcriteriaconsideredfortheselectionofbondsincludetheratingofthebondsandthecurrencyandestimatedtermoftheretirementbenefitliabilities.

Inaddition,managementhaveusedjudgementtodeterminetheapplicablerateofinflationtoapplytopensionincreasesincalculatingthedefinedbenefitobligation.Detailsofthisaregivenbelow.


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4.5 Pensions continued

Measurement of scheme assets and liabilitiesActuarial valuationTheactuarialvaluationsusedforIAS19(revised)purposesarebasedontheresultsofthelatestfullactuarialvaluationcarriedoutat31March2016andupdatedbytheschemes’independentqualifiedactuariesto29September2018.Schemeassetsarestatedatmarketvalueat29September2018andtheliabilitiesoftheschemeshavebeenassessedasatthesamedateusingtheprojectedunitmethod.IAS19(revised)requiresthattheschemeliabilitiesarediscountedusingmarketyieldsattheendoftheperiodonhigh-qualitycorporatebonds.

InrelationtotheMABPP,theTrustDeedandRulesprovidethatitisamatterfortheCompanytodeterminetherateofinflationwhichshouldbeappliedtopensionincreasesforcertainsectionsofthemembershipinexcessofguaranteedminimumpensionsandtheCompanyhasinstructedtheTrusteetoapplyCPI(subjecttocertaincaps)inrespectofsuchincreases.TheTrusteebelievesthatthispowerwasincorrectlyvestedintheCompanyintheTrustDeedandRulesoftheMABPPin1996and,despiteitbeingreflectedinfurtherversions,hasmadeanapplicationtocourtforthosevariousTrustDeedsandRulestoberectified.ItistheBoard’sbeliefthattheCompanyholdsthepowertofixsuchaninflationindexandtheCompanyisthereforecontestingthatapplication.Thehearingisexpectedtobeheldinlate2019.TheactuarialsurplusasdeterminedunderIAS19(revised)hascontinuedtobecalculatedusingRPI,pendingfinalresolutionofthematter.TheapplicablerateofCPIat29September2018is2.2%.Leavingallotherprincipalfinancialassumptionsconstant,theimpactofthischangeonthedefinedbenefitobligationasmeasuredunderIAS19(revised)isestimatedtobe£150m.However(underIFRIC14)anadditionalliabilityisrecognisedsuchthatthetotalbalancesheetpositionreflectsthescheduleofcontributionsagreedbytheCompany,extendingto2023.AssuchshouldtheCompanybesuccessfulincontestingtheapplicationtherewillbenonecessarymovementinthetotalbalancesheetposition.

Theprincipalfinancialassumptionshavebeenupdatedtoreflectchangesinmarketconditionsintheperiodandareasfollows:

2018 2017

Main planExecutive

plan Main planExecutive

plan

Discountrate* 2.9% 2.9% 2.7% 2.7%Pensionsincreases–RPImax5% 3.0% 3.0% 3.1% 3.1%Inflationrate–RPI 3.2% 3.2% 3.2% 3.2%

* ThediscountrateisbasedonayieldcurveforAAcorporateratedbondswhichareconsistentwiththecurrencyandestimatedtermofretirementbenefitliabilities.

Themortalityassumptionswerereviewedfollowingthe2016actuarialvaluation.Asummaryoftheaveragelifeexpectanciesassumedisasfollows:

2018 2017

Main planyears

Executive plan

yearsMain plan

years

Executive plan

years

Malememberaged65(currentlifeexpectancy) 21.2 23.9 21.2 23.8Malememberaged45(lifeexpectancyat65) 23.0 25.6 22.9 25.5Femalememberaged65(currentlifeexpectancy) 23.6 26.0 23.6 25.9Femalememberaged45(lifeexpectancyat65) 25.5 27.9 25.4 27.8

Minimum funding requirementsTheresultsofthe2016actuarialvaluationshowedafundingdeficitof£451m,usingamoreprudentbasistodiscounttheschemeliabilitiesthanisrequiredbyIAS19(revised).TheCompanyhassubsequentlyagreedrecoveryplansforboththeExecutiveandMainschemesinordertoclosethefundingdeficitinrespectofitspensionliabilities.Thenewrecoveryplansshowanunchangedlevelofcashcontributionswithnoextensiontotheagreedpaymentterm(£45mperannumindexedwithRPIfrom1April2016subjecttoaminimumincreaseof0%andmaximumof5%,until31March2023).UnderIFRIC14,anadditionalliabilityisrecognised,suchthattheoverallpensionliabilityattheperiodendreflectsthescheduleofcontributionsinrelationtoaminimumfundingrequirement,shouldthisbehigherthantheactuarialdeficit.

Theemployercontributionsexpectedtobepaidduringthefinancialperiodending28September2019amountto£49m.

In2024,anadditionalpaymentof£13mwillbemadeintoescrow,shouldsuchfurtherfundingberequiredatthattime.Thisisacontingentliabilityandisnotreflectedinthepensionsliabilityasitisnotcommitted.


Sensitivity to changes in actuarial assumptionsThesensitivitiesregardingprincipalactuarialassumptions,assessedinisolation,thathavebeenusedtomeasuretheschemeliabilitiesaresetoutbelow.

Increase or (decrease) in actuarial surplus

Decrease or (increase) in total pension liability

2018£m

2017£m

2018£m

2017£m

0.1%increaseindiscountrate 37 41 1 10.1%increaseininflationrate (34) (36) (1) (1)Additionalone-yeardecreasetolifeexpectancy 72 77 1 1

Thesensitivityanalysispresentedabovemaynotberepresentativeoftheactualchangeinthedefinedbenefitobligationasitisunlikelythatthechangesinassumptionswouldoccurinisolationofoneanotherassomeoftheassumptionsmaybecorrelated.Inpresentingtheabovesensitivityanalysis,thepresentvalueofthedefinedbenefitobligationhasbeencalculatedusingtheprojectedunitcreditmethodattheendofthereportingperiod,whichisthesameasthatappliedincalculatingthedefinedbenefitobligationliabilityrecognisedinthestatementoffinancialposition.

Therehavebeennochangesinthemethodsandassumptionsusedinpreparingthesensitivityanalysisfrompriorperiods.

Principal risks and assumptionsThedefinedbenefitschemesarenotexposedtoanyunusual,entityspecificorschemespecificrisksbuttherearegeneralrisks:

Inflation–themajorityoftheplans’obligationsarelinkedtoinflation.Higherinflationwillleadtoincreasedliabilitieswhichispartiallyoffsetbytheplansholdinginflationlinkedgiltsandotherinflationlinkedassets.

Interest rate–Theplans’liabilitiesaredeterminedusingdiscountratesderivedfromyieldsonAA-ratedcorporatebonds.Adecreaseincorporatebondyieldswillincreaseplanliabilitiesthoughthiswillbepartiallyoffsetbyanincreaseinthevalueofthebondsheldbytheplans.

Mortality–Themajorityoftheobligationsaretoprovidebenefitsforthelifeofthemembersandtheirpartners,soanyincreaseinlifeexpectancywillresultinanincreaseintheplans’liabilities.

Asset returns–Assetsheldbythepensionplansareinvestedinadiversifiedportfolioofequities,bondsandotherassets.Volatilityinassetvalueswillleadtomovementsinthenetdeficit/surplusreportedintheconsolidatedbalancesheetfortheplanswhichinadditionwillalsoimpactthepensionfinancechargeintheconsolidatedincomestatement.

Amounts recognised in respect of defined benefit schemesThefollowingamountsrelatingtotheGroup’sdefinedbenefitanddefinedcontributionarrangementshavebeenrecognisedintheGroupincomestatementandGroupstatementofcomprehensiveincome:

Group income statement2018

52 weeks£m

201753 weeks

£m

Operatingprofit:Employercontributions(definedcontributionplans) (8) (7)Administrativecosts(definedbenefitplans) (2) (2)Chargetooperatingprofitbeforeadjusteditems (10) (9)Financecosts:Netpensionsfinanceincome/(charge)onactuarialsurplus/(deficit) 5 (4)Additionalpensionsfinancechargeduetominimumfunding (12) (3)Netfinancechargeinrespectofpensions (7) (7)Totalcharge (17) (16)

Group statement of comprehensive income2018

52 weeks£m

201753 weeks

£m

Returnonschemeassetsandeffectsofchangesinassumptions 114 337Movementinpensionliabilityrecognisedduetominimumfunding (109) (329)Remeasurementofpensionliability 5 8


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4.5 Pensions continued

Group balance sheet2018

£m2017

£m

Fairvalueofschemeassets 2,404 2,390Presentvalueofschemeliabilities (2,068) (2,219)Actuarialsurplusintheschemes 336 171Additionalliabilityrecognisedduetominimumfunding (585) (463)Totalpensionliabilitya (249) (292)Associateddeferredtaxasset 43 50

a. Thetotalpensionliabilityof£249m(2017£292m)isrepresentedbya£49mcurrentliability(2017£47m)anda£200mnon-currentliability(2017£245m).

Themovementinthefairvalueoftheschemes’assetsintheperiodisasfollows:

Scheme assets

2018£m

2017£m

Fairvalueofschemeassetsatbeginningofperiod 2,390 2,381Interestincome 63 53Remeasurementgain: –Returnonschemeassets(excludingamountsincludedinnetfinancecharge) 23 3Additionalemployercontributions 48 46Benefitspaid (118) (91)Administrationcosts (2) (2)Atendofperiod 2,404 2,390

Changesinthepresentvalueofdefinedbenefitobligationsareasfollows:

Defined benefit obligation

2018£m

2017£m

Presentvalueofdefinedbenefitobligationatbeginningofperiod (2,219) (2,587)Interestcost (58) (57)Benefitspaid 118 91Remeasurementlosses: –Effectofchangesindemographicassumptions – 139 –Effectofchangesinfinancialassumptions 100 164 –Effectofexperienceadjustments (9) 31Atendofperioda (2,068) (2,219)

a. Thedefinedbenefitobligationcomprises£33m(2017£34m)relatingtotheMABETUSunfundedplanand£2,035m(2017£2,185m)relatingtothefundedplans.

Theweightedaveragedurationofthedefinedbenefitobligationis20years(201720years).

ThemajorcategoriesandfairvaluesofassetsoftheMABPPandMABEPPschemesattheendofthereportingperiodareasfollows:

2018£m

2017£m

Cashandequivalents 111 18Equityinstruments 626 730Debtinstruments: –Bonds 1,513 1,512 –Realestatedebt 76 90 –Infrastructuredebt 95 73 –Securedincomedebt 80 – –Absolutereturnbondfunds 202 200 –Giltrepurchasetransactions (303) (245)Gold 8 4Forwardforeignexchangecontracts (4) 8Fairvalueofassets 2,404 2,390


Theactualinvestmentreturnachievedontheschemeassetsovertheperiodwas4.3%(20172.2%),whichrepresentedagainof£86m(2017£56m).

Virtuallyallequityinstruments,bondsandgoldhavequotedpricesinactivemarketsandareclassifiedasLevel1instruments.Absolutereturnbondfunds,giltrepurchasetransactionsandforwardforeignexchangecontractsareclassifiedasLevel2instruments.RealestatedebtandinfrastructuredebtareclassifiedasLevel3instruments.

Inthe52weeksended29September2018theGrouppaid£7m(2017£7m)inrespectofthedefinedcontributionarrangements,withanadditional£2m(2017£1m)outstandingasattheperiodend.

At29September2018theMABPPowed£1m(2017£2m)totheGroupinrespectofexpensespaidonitsbehalf.Thisamountisincludedinotherreceivablesinnote3.2.

4.6 Share-based payments

Accounting policyTheGroupoperatesanumberofequity-settledshare-basedcompensationplans,whereby,subjecttomeetinganyrelevantconditions,employeesareawardedsharesorrightsovershares.Thecostofsuchawardsismeasuredatfairvalue,excludingtheeffectofnonmarket-basedvestingconditions,onthedateofgrant.Theexpenseisrecognisedonastraight-linebasisoverthevestingperiodandisadjustedfortheestimatedeffectofnonmarket-basedvestingconditionsandforfeitures,onthenumberofsharesthatwilleventuallyvestduetoemployeesleavingtheemploymentoftheGroup.FairvaluesarecalculatedusingeithertheBlack-Scholes,BinomialorMonteCarlosimulationmodelsdependingontheconditionsattachedtotheparticularsharescheme.

SAYEshareoptionsgrantedtoemployeesaretreatedascancelledwhenemployeesceasetocontributetothescheme.Thisresultsinanacceleratedrecognitionoftheexpensethatwouldhavearisenovertheremainderoftheoriginalvestingperiod.

Schemes in operation Thenetchargerecognisedforshare-basedpaymentsintheperiodwas£3m(2017£2m).

TheGrouphadfourequity-settledshareschemes(2017four)inoperationduringtheperiod;thePerformanceRestrictedSharePlan(PRSP);SharesavePlan;ShareIncentivePlan(SIP)andShortTermDeferredIncentivePlan(STDIP).

Thevestingofallawardsoroptionsisgenerallydependentuponparticipantsremainingintheemploymentofaparticipatingcompanyduringthevestingperiod.FurtherdetailsoneachschemeareprovidedintheReportonDirectors’remunerationonpages68to91.

Thefollowingtablessetoutweightedaverageinformationabouthowthefairvalueofeachoptiongrantwascalculated:

2018 2017

Performance RestrictedShare Plan

SharesavePlan

Performance RestrictedShare Plan

SharesavePlan

Valuationmodel Monte Carlo and Binomial Black-Scholes

MonteCarloandBinomial Black-Scholes

Weightedaverageshareprice 259.2p 264.2p 246.1p 231.0pExercisepricea – 246.0p – 221.0pExpecteddividendyieldb – 1.97% – 2.94%Risk-freeinterestrate 0.68% 0.86% 0.34% 0.31%Volatilityc 32.5% 31.0% 32.0% 29.43%Expectedlife(years)d 2.4 4.0 3.5 4.10Weightedaveragefairvalueofgrantsduringtheperiod 224.2 61.3 182.4 42.8

a. TheexercisepriceforthePerformanceRestrictedSharePlanis£1perparticipatingemployee.b. TheexpecteddividendyieldfortheSharesavePlanhasusedhistoricaldividendinformation.FordetailsontheGroup’scurrentdividendpolicyrefertotheFinancialreviewonpage45.

TheexpecteddividendyieldforthePerformanceRestrictedSharePlanoptionsiszeroasparticipantsareentitledtoDividendAccruedSharestothevalueofordinarydividendspaidorpayableduringthevestingperiod.

c. TheexpectedvolatilityisdeterminedbycalculatingthehistoricalvolatilityoftheCompany’ssharepricecommensuratewiththeexpectedtermoftheoptionsandshareawards.d. Theexpectedlifeoftheoptionsrepresentstheaveragelengthoftimebetweengrantdateandexercisedate.

ThefairvalueofawardsundertheShortTermDeferredIncentivePlanandtheShareIncentivePlanareequaltothesharepriceonthedateofawardasthereisnopricetobepaidandemployeesareentitledtoDividendAccruedSharestothevalueofordinarydividendspaidorpayableduringthevestingperiod.Theassumptionssetoutabovearethereforenotrelevanttotheseschemes.ThefairvalueofoptionsgrantedundertheShareIncentivePlanduringtheperiodwas264.2p(2017231.0p).


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4.6 Share-based payments continued

Thetablesbelowsummarisethemovementsinoutstandingoptionsduringtheperiod.

Number of sharesWeighted average

exercise price

2018m

2017m

2018p

2017p

Sharesave planOutstandingatthebeginningoftheperiod 4.1 3.6 264.1 297.0Granted 1.3 1.8 246.0 221.0Exercised (0.1) (0.1) 182.2 249.0Forfeited (0.8) (0.8) 257.3 296.8Expired (0.4) (0.4) 323.5 302.6Outstandingattheendoftheperiod 4.1 4.1 256.0 264.1Exercisableattheendoftheperiod – 0.5 – 291.1

TheoutstandingoptionsfortheSAYEschemehadanexercisepriceofbetween221.0pand362.0p(2017between182.0pand362.0p)andtheweightedaverageremainingcontractlifewas2.8years(20173.0years).Thenumberofforfeitedsharesintheperiodincludes545,646(2017615,998)cancellations.

SAYEoptionswereexercisedonarangeofdates.Theaveragesharepricethroughtheperiodwas258.4p(2017251.1p).

Number of shares

2018m

2017m

Share Incentive PlanOutstandingatthebeginningoftheperiod 1.7 1.5Granted 0.4 0.5Exercised (0.2) (0.2)Forfeited (0.1) (0.1)Outstandingattheendoftheperiod 1.8 1.7Exercisableattheendoftheperiod 0.8 0.8

OptionsundertheShareIncentivePlanarecapableofremainingwithintheSIPtrustindefinitelywhileparticipantscontinuetobeemployed.

Number of shares

2018m

2017m

Performance Restricted Share PlanOutstandingatthebeginningoftheperiod 5.2 4.1Granted 2.2 2.1Forfeited (0.2) (0.1)Expired (1.1) (0.9)Outstandingattheendoftheperiod 6.1 5.2Exercisableattheendoftheperiod – –

TheexercisepriceforthePerformanceRestrictedSharePlanis£1perparticipatingemployee,thereforetheweightedaverageexercisepricefortheseoptionsis£nil(2017£nil).

Optionsoutstandingat29September2018hadanexercisepriceof£nilandaweightedaverageremainingcontractuallifeof3.2years(20173.3years).



4.7 Equity

Accounting policiesOwn sharesThecostofownsharesheldinemployeesharetrustsandintreasuryaredeductedfromshareholders’equityuntilthesharesarecancelled,reissuedordisposedof.Wheresuchsharesaresubsequentlysoldorreissued,thefairvalueofanyconsiderationreceivedisalsoincludedinshareholders’equity.

DividendsDividendsproposedbytheBoardbutunpaidattheperiodendarenotrecognisedinthefinancialstatementsuntiltheyhavebeenapprovedbyshareholdersattheAnnualGeneralMeeting.Interimdividendsarerecognisedwhenpaid.

Scripdividendsarefullypaidupfromthesharepremiumaccount.Theyareaccountedforasanincreaseinsharecapitalforthenominalvalueofthesharesissued,andaresultingreductioninsharepremium.

Called up share capital

2018Number of shares £m

2017Number of shares £m

Allotted, called up and fully paidOrdinarysharesof813/24peachAtstartofperiod 422,548,604 36 413,624,294 35Sharecapitalissueda 5,762,219 1 8,924,310 1At end of period 428,310,823 37 422,548,604 36

a. UnderthetermsoftheCompany’sscripdividendscheme,shareholdersareabletoelecttoreceiveordinarysharesinplaceofbothinterimandfinaldividends.Thishasresultedintheissueof5,354,617newfullypaidordinarysharesinrelationtothefinaldividendforthe53weeksended30September2017(20178,506,296).Therewasnointerimdividenddeclaredinthecurrentperiod.Inaddition,theCompanyissued407,602(2017418,014)sharesduringtheperiodundershareoptionschemesforaconsiderationof£nil(2017£nil).

Alloftheordinarysharesrankequallywithrespecttovotingrightsandrightstoreceiveordinaryandspecialdividends.Therearenorestrictionsontherightstotransfershares.

DetailsofoptionsgrantedundertheGroup’sshareschemesarecontainedinnote4.6.

Dividends2018 2017

Cash dividend

£m

Settled via scrip

£m

Total dividend

£m

Cash dividend

£m

Settled via scrip

£m

Total dividend

£m

Declared and paid in the periodFinaldividendof5.0ppershare–53weeksended30September2017 7 14 21 – – –Interimdividendof2.5ppershare–53weeksended30September2017 – – – 8 3 11Finaldividendof5.0ppershare–52weeksended24September2016 – – – 4 17 21

7 14 21 12 20 32

Thefinaldividendof5.0pperordinarysharedeclaredinrelationtothe53weeksended30September2017wasapprovedattheAnnualGeneralMeetingon23January2018andwaspaidtoshareholderson6February2018.ShareholderswereabletoelecttoreceiveordinarysharescreditedasfullypaidinsteadofthecashdividendunderthetermsoftheCompany’sscripdividendscheme.Ofthe£21mfinaldividend,£14mwasintheformoftheissueofordinarysharestoshareholdersoptingintothescripalternative.Themarketvaluepershareatthedateofpaymentwas264.4ppershare,resultingintheissueof5millionnewshares,fullypaidupfromthesharepremiumaccount.Thenominalvalueofthe5millionsharesissuedinrelationtothefinalscripdividendsis£1m.


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4.7 Equity continued

Share premium accountThesharepremiumaccountrepresentsamountsreceivedinexcessofthenominalvalueofsharesonissueofnewshares.Sharepremiumof£1mhasbeenrecognisedonsharesissuedintheperiod(2017£nil).

Capital redemption reserveThecapitalredemptionreservemovementaroseontherepurchaseandcancellationbytheCompanyofordinarysharesduringpriorperiods.

Revaluation reserveTherevaluationreserverepresentstheunrealisedgaingeneratedonrevaluationofthepropertyestatewitheffectfrom29September2007.Itcomprisestheexcessofthefairvalueoftheestateoverdeemedcost,netofrelateddeferredtaxation.

Own shares heldOwnsharesheldbytheGrouprepresentthesharesintheCompanyheldbytheemployeesharetrusts.

Duringtheperiod,theemployeesharetrustsacquirednoshares(2017nil)andsubscribedfor296,144(2017353,025)sharesatacostof£nil(2017£nil)andreleased159,956(2017188,586)sharestoemployeesontheexerciseofoptionsandothershareawardsforatotalconsiderationof£nil(2017£nil).The1,885,130sharesheldbythetrustsat29September2018hadamarketvalueof£5m(30September20171,748,942sharesheldhadamarketvalueof£5m).

TheCompanyhasestablishedtwoemployeesharetrusts:

Share Incentive Plan (SIP) TrustTheSIPTrustwasestablishedin2003topurchasesharesonbehalfofemployeesparticipatingintheCompany’sShareIncentivePlan.Underthisscheme,eligibleemployeesareawardedfreeshareswhicharenormallyheldintrustforaholdingperiodofatleastthreeyears.AfterfiveyearsthesharesmaybetransferredtoorsoldbytheemployeefreeofincometaxandNationalInsurancecontributions.TheSIPTrustbuysthesharesinthemarketorsubscribesfornewlyissuedshareswithfundsprovidedbytheCompany.Duringtheholdingperiod,dividendsarepaiddirectlytotheparticipatingemployees.At29September2018,thetrustees,EquinitiSharePlanTrusteesLimited,held1,847,623(20171,698,880)sharesintheCompany.Oftheseshares,583,410(2017553,839)sharesareunconditionallyavailabletoemployees,245,415(2017272,341)shareshavebeenconditionallyawardedtoemployees,982,143(2017842,954)shareshavebeenawardedtoemployeesbutarestillrequiredtobeheldwithintheSIPTrustandtheremaining36,655(201729,746)sharesareunallocated.

Employee Benefit Trust (EBT)TheEBTwasestablishedin2003inordertosatisfytheexerciseorvestingofexistingandfutureshareoptionsandawardsundertheExecutiveShareOptionPlan,PerformanceRestrictedSharePlan,ShortTermDeferredIncentivePlanandtheSharesavePlan.TheEBTpurchasessharesinthemarketorsubscribesfornewlyissuedshares,usingfundsprovidedbytheCompany,basedonexpectationsoffuturerequirements.DividendsarewaivedbytheEBT.At29September2018,thetrustees,SanneFiduciaryServicesLimited,wereholding37,507(201750,062)sharesintheCompany.

Hedging reserveThehedgingreservecomprisestheeffectiveportionofthecumulativenetchangeinthefairvalueofcashflowhedginginstrumentsrelatedtohedgedfuturecashflows.

Translation reserveThetranslationreserveisusedtorecordexchangedifferencesarisingfromthetranslationofthefinancialstatementsofforeignsubsidiaries.

Retained earningsTheGroup’smainoperatingsubsidiary,Mitchells&ButlersRetailLimited,hadretainedearningsunderFRS101of£2,199mat29September2018(2017£2,157m).Itsabilitytodistributethesereservesbywayofdividendsisrestrictedbythesecuritisationcovenants(seenote4.2).



5.1 Related party transactions

Key management personnelEmployeesoftheMitchells&ButlersplcGroupwhoaremembersoftheBoardofDirectorsortheExecutiveCommitteeofMitchells&Butlersplcaredeemedtobekeymanagementpersonnel.ItistheBoardwhohaveresponsibilityforplanning,directingandcontrollingtheactivitiesoftheGroup.

CompensationofkeymanagementpersonneloftheGroup:

201852 weeks

£m

201753 weeks

£m

Short-termemployeebenefits 4 4

MovementsinshareoptionsheldbytheDirectorsofMitchells&ButlersplcaresummarisedintheReportonDirectors’remuneration.

5.2 Subsidiaries and associates

SubsidiariesTransactionsbetweentheCompanyanditssubsidiaries,whicharerelatedparties,havebeeneliminatedonconsolidation.

Mitchells&Butlersplcisthebeneficialownerofalloftheequitysharecapital,eitheritselforthroughsubsidiaryundertakings,ofthefollowingcompanies:

Name of subsidiary Country of incorporation Country of operation Nature of business

Principal operating subsidiariesMitchells&ButlersRetailLimited EnglandandWales UnitedKingdom LeisureretailingMitchells&ButlersRetail(No.2)Limited EnglandandWales UnitedKingdom LeisureretailingHaHaBar&GrillLimited EnglandandWales UnitedKingdom LeisureretailingOrchidPubs&DiningLimited EnglandandWales UnitedKingdom LeisureretailingALEXGaststättenGesellschaftmbH&CoKG Germany Germany LeisureretailingMidco1Limited EnglandandWales UnitedKingdom PropertyleasingcompanyMitchells&Butlers(Property)Limited EnglandandWales UnitedKingdom PropertymanagementMitchells&ButlersLeisureRetailLimited EnglandandWales UnitedKingdom ServicecompanyMitchells&ButlersGermanyGmbHa Germany Germany ServicecompanyMitchells&ButlersFinanceplc EnglandandWales UnitedKingdom FinancecompanyStandardCommercialPropertyDevelopmentsLimited EnglandandWales UnitedKingdom PropertydevelopmentOther subsidiariesMitchells&ButlersHoldings(No.2)Limiteda EnglandandWales UnitedKingdom HoldingcompanyMitchells&ButlersHoldingsLimited EnglandandWales UnitedKingdom HoldingcompanyMitchells&ButlersLeisureHoldingsLimited EnglandandWales UnitedKingdom HoldingcompanyMitchells&ButlersRetailHoldingsLimited EnglandandWales UnitedKingdom HoldingcompanyOldKentuckyRestaurantsLimited EnglandandWales UnitedKingdom TrademarkownershipBedeRetailInvestmentsLimited EnglandandWales UnitedKingdom Non-tradingLastbrewLimited EnglandandWales UnitedKingdom Non-tradingMitchells&Butlers(IP)Limited EnglandandWales UnitedKingdom Non-tradingMitchells&ButlersAcquisitionCompany EnglandandWales UnitedKingdom Non-tradingMitchells&ButlersRetailPropertyLimiteda EnglandandWales UnitedKingdom Non-tradingMitchellsandButlersHealthcareTrusteeLimited EnglandandWales UnitedKingdom HealthcaretrusteeStandardCommercialPropertyInvestmentsLimited EnglandandWales UnitedKingdom Non-tradingStandardCommercialPropertySecuritiesLimited EnglandandWales UnitedKingdom Non-tradingTempleCircusDevelopmentsLimited EnglandandWales UnitedKingdom Non-tradingALEXGaststättenImmobiliengesellschaftmbH Germany Germany PropertymanagementALLBARONEGaststättenBetriebsgesellschaftmbH Germany Germany LeisureretailingALEXAlsterpavillonImmobilienGmbH&CoKG Germany Germany PropertymanagementALEXAlsterpavillonManagementGmbH Germany Germany ManagementcompanyALEXGaststättenManagementGmbH Germany Germany ManagementcompanyPLAN-BARGastronomieEinrichtungsGmbH Germany Germany Non-tradingBrownsRestaurant(Brighton)Limited EnglandandWales UnitedKingdom DormantBrownsRestaurant(Bristol)Limited EnglandandWales UnitedKingdom DormantBrownsRestaurant(Cambridge)Limited EnglandandWales UnitedKingdom DormantBrownsRestaurant(London)Limited EnglandandWales UnitedKingdom DormantBrownsRestaurant(Oxford)Limited EnglandandWales UnitedKingdom Dormant

Notes to the financial statements Section5–Othernotes


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Name of subsidiary Country of incorporation Country of operation Nature of business

BrownsRestaurantsLimited EnglandandWales UnitedKingdom DormantCrownhillEstates(Derriford)Limited EnglandandWales UnitedKingdom DormantEastLondonPubs&RestaurantsLimited EnglandandWales UnitedKingdom DormantMitchells&ButlersLeaseCompanyLimited EnglandandWales UnitedKingdom DormantIntertain(Dining)Limited EnglandandWales UnitedKingdom DormantLander&CookLimitedb EnglandandWales UnitedKingdom Dormant

a. ShareshelddirectlybyMitchells&Butlersplc.b. Incorporatedon3January2018.

TheregisteredofficeforcompaniesoperatingintheUnitedKingdomis27FleetStreet,Birmingham,B31JP.

TheregisteredofficeforcompaniesoperatinginGermanyisAdolfstrasse16,65185Wiesbaden.

AssociatesDetailsoftheCompany’sassociates,heldindirectly,areasfollows.Sharesintheseassociateshavebeenacquiredintheperiod.

Name of associate Registered office

Country of incorporation and

operationCountry of operation

Nature of business

Proportion of ownership interest %

Proportion of voting power

interest %

3SixtyRestaurantsLimited

1stFloorStGeorgesHouse,StGeorgesRoad,Bolton,BL12DD

EnglandandWales UnitedKingdom Leisureretailing 40 40

FatboyPubCompanyLimited

AmpneyHouse,FalconClose,Quedgeley,Gloucester,GL24LS

EnglandandWales UnitedKingdom Leisureretailing 25 25

5.3 Events after the balance sheet date

On26October2018theHighCourtprovidedarulingregardingguaranteedminimumpensions(GMPs)equalisation.Thecourtruledthatpensionsprovidedtomemberswhohadcontracted-outoftheirschememustberecalculatedtoensurepaymentsreflecttheequalisationofstatepensionagesinthe1990s.TherulingconfirmedthattherearefourmethodsofequalisingGMPthatarelawfulinprinciple,butimportantlyemployerscandirecttrusteestoapply‘methodC’i.e.providethebetterofmaleorfemalecomparatorpensionseachyear,subjecttoaccumulatedoffsetting.Thecourtalsoruledthattrusteesareobligedtomakearrearspaymentstomembersandsimpleinterestonthearrearsshouldbepaidat1%abovethebaserate.

ThisrulingwillimpacttheGroup’sactuarialsurplus/(deficit),asitwillleadtoanincreaseinpensionobligations,howeveritshouldbenotedthatduetotherecognitionofanadditionalliabilityinrelationtominimumfunding,therewillbenochangetothereportedpensionpositiononthebalancesheet.AstheTrustee’shavenotpreviouslyattemptedtoequaliseGMPs,therulingistreatedasanon-adjustingevent.

Giventhedateoftherulingandcomplexityofapplication,itisnotcurrentlypracticaltoestimatetheimpactontheactuarialsurplus/(deficit)andincomestatement.

5.4 Five year review

201852 weeks

£m

201753 weeks

£m

201652 weeks

£m

201552 weeks

£m

201452 weeks

£m

Revenue 2,152 2,180 2,086 2,101 1,970Operating profit before adjusted items 303 314 318 328 313Adjusteditems (48) (106) (87) (58) (49)Operating profit 255 208 231 270 264Financecosts (119) (125) (126) (130) (132)Financerevenue 1 1 1 1 1Netpensionsfinancecharge (7) (7) (12) (15) (10)Profit before taxation 130 77 94 126 123Taxexpense (26) (14) (5) (23) (30)Profit for the period 104 63 89 103 93Earnings per shareBasic 24.5p 15.1p 21.6p 25.0p 22.6pDiluted 24.4p 15.0p 21.6p 24.9p 22.5pAdjusted(Basic)a 34.1p 34.9p 34.9p 35.7p 32.6p

a. Adjustedearningspershareisstatedafterremovingtheimpactofadjusteditemsasexplainedinnote2.2.

5.2 Subsidiaries and associates continued

Notes to the financial statements Section5–Othernotescontinued


Notes2018

£m2017

£m

Non-current assetsInvestmentsinsubsidiaries 5 1,474 1,474Deferredtaxasset 9 48 56

1,522 1,530Current assetsTradeandotherreceivables 6 739 828Cashandcashequivalents 14 1

753 829Current liabilitiesPensionliabilities 4 (49) (47)Borrowings 8 (28) (28)Tradeandotherpayables 7 (288) (419)

(365) (494)Non-current liabilitiesPensionliabilities 4 (200) (245)Net assets 1,710 1,620

EquityCalledupsharecapital 10 37 36Sharepremiumaccount 26 26Capitalredemptionreserve 3 3Ownsharesheld (1) (1)Retainedearnings 1,645 1,556Total equity 1,710 1,620

TheCompanyreportedprofitforthe52weeksended29September2018of£89m(53weeksended30September2017£121m).

ThefinancialstatementswereapprovedbytheBoardandauthorisedforissueon21November2018.

Theyweresignedonitsbehalfby:


Theaccountingpoliciesandthenotesonpages145to147formanintegralpartofthesefinancialstatements.

RegisteredNumber:04551498

Mitchells & Butlers plc Company financial statementsCompany balance sheet 29September2018


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Sharecapital

£m

Sharepremium

£m

Capitalredemption

reserve£m

Ownshares

held£m

Retainedearnings

£m

Totalequity

£m

At 24 September 2016 35 27 3 (1) 1,438 1,502Profitaftertaxation – – – – 121 121Remeasurementofpensionliability – – – – 8 8Deferredtaxonremeasurementofpensionliability – – – – (1) (1)Totalcomprehensiveincome – – – – 128 128Creditinrespectofemployeeshareschemes – – – – 2 2Dividendspaid – – – – (12) (12)Scripdividendrelatedshareissue 1 (1) – – – –At 30 September 2017 36 26 3 (1) 1,556 1,620Profitaftertaxation – – – – 89 89Remeasurementofpensionliability – – – – 5 5Deferredtaxonremeasurementofpensionliability – – – – (1) (1)Totalcomprehensiveincome – – – – 93 93Sharecapitalissued – 1 – – – 1Creditinrespectofemployeeshareschemes – – – – 3 3Dividendspaid – – – – (7) (7)Scripdividendrelatedshareissue 1 (1) – – – –At 29 September 2018 37 26 3 (1) 1,645 1,710

Theretainedearningsaccountiswhollydistributableafterthedeductionforownshares.

Company statement of changes in equity Forthe52weeksended29September2018


1. Basis of preparation

Basis of accountingThesefinancialstatementswerepreparedinaccordancewithFinancialReportingStandard101‘ReducedDisclosureFramework’asissuedbytheFRC.

AspermittedbyFRS101,theCompanyhastakenadvantageofthedisclosureexemptionsavailableunderthatstandardinrelationtoshare-basedpayments,financialinstruments,presentationofacashflowstatement,standardsnotyeteffective,impairmentofassetsandrelatedpartytransactions.Whererequired,equivalentdisclosuresaregivenintheconsolidatedfinancialstatements.

Thefinancialstatementshavebeenpreparedunderthehistoricalcostconvention.TheCompany’saccountingpolicieshavebeenappliedonaconsistentbasistothosesetoutintherelevantnotestotheconsolidatedfinancialstatements.Therehavebeennochangestopoliciesduringtheperiod.ThecriticaljudgementsandestimatesoftheCompanyareconsideredalongsidethoseoftheGroup.ThekeycriticaljudgementoftheCompanyisrelatedtotheselectionofthediscountrateandinflationrateassumptionsusedinthecalculationofthedefinedbenefitpensionliabilitydescribedinnote4.5oftheconsolidatedfinancialstatements.ThekeycriticalestimatesfortheCompanyaretheestimateoffuturecashflowsandtheselectionofdiscountrateintheinvestmentimpairmentreviewdescribedinnote5.

Foreign currenciesTransactionsinforeigncurrenciesarerecordedattheexchangeratesrulingonthedatesofthetransactions.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedintosterlingattherelevantratesofexchangerulingatthebalancesheetdate.

2. Profit and loss account

Profit and loss accountTheCompanyhasnotpresenteditsownprofitandlossaccount,aspermittedbySection408oftheCompaniesAct2006.

TheCompanyrecordedaprofitaftertaxof£89m(2017£121m),lessdividendsof£7m(2017£12m).Dividendsaredisclosedinnote4.7oftheconsolidatedfinancialstatements.

Audit remunerationAuditor’sremunerationforauditservicestotheCompanywas£22,000(2017£22,000).ThisisbornebyanotherGroupcompany,asareanyothercostsrelatingtonon-auditservices(seenote2.3totheconsolidatedfinancialstatements).

3. Employees and Directors

201852 weeks

201753 weeks

Averagenumberofemployees,includingpart-timeemployees 2 2

EmployeesofMitchells&ButlersplcconsistofExecutiveDirectorswhoareconsideredtobethekeymanagementpersonneloftheCompany.

Detailsofemployeebenefitsandpost-employmentbenefits,includingshare-basedpayments,areincludedwithintheReportonDirectors’remunerationonpages68to91.Thechargerecognisedforshare-basedpaymentsintheperiodis£nil(2017£nil).

4. Pensions

Accounting policyTheaccountingpolicyforpensionsisdisclosedintheconsolidatedfinancialstatementsinnote4.5.

Pension liabilityAt29September2018theCompany’spensionliabilitywas£249m(2017£292m).Ofthisamount,£49m(2017£47m)isacurrentliabilityand£200m(2017£245m)isanon-currentliability.

TheCompanyisthesponsoringemployeroftheGroup’spensionplans.InformationconcerningthepensionschemearrangementsoperatedbytheCompanyandassociatedcurrentandfuturecontributionsiscontainedwithinnote4.5totheconsolidatedfinancialstatementsonpages133to137.

Thepensionamountsanddisclosuresincludedinnote4.5totheconsolidatedfinancialstatementsareequivalenttothoseapplicablefortheCompany.

Notes to the Mitchells & Butlers plc Company financial statements


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5. Investments in subsidiaries

Accounting policyTheCompany’sinvestmentsinGroupundertakingsareheldatcostlessprovisionforimpairment,exceptforthoseamountsdesignatedasbeinginafairvaluehedge.

Critical accounting estimatesTheapplicationoftheimpairmentmethodologyrequirestwocriticalaccountingestimates;theforecastofcashflowsandtheselectionofanappropriatediscountrate.Asensitivityanalysisofchangesincashflowsandthediscountrateinrelationtotheinvestmentstowhichtheseestimatesapply,isprovidedbelow.

Shares in subsidiary

undertakings£m

CostAt24September2016 3,104Exchangedifferences 1Additionsa 248At 30 September 2017 3,353Exchangedifferences –At 29 September 2018 3,353

ProvisionAt24September2016 1,879Impairment –At 30 September 2017 1,879Impairment –At 29 September 2018 1,879

Net book valueAt 29 September 2018 1,474

At30September2017 1,474

At24September2016 1,225

a. Additionsinthepriorperiodof£248mrelatetoacapitalcontribution,intheformofaloanwaiver,providedtoasubsidiarycompanywithintheMitchells&ButlersplcGroup.Theintercompanyloanwastestedforimpairmentpriortotheloanwaiver,withnoimpairmentrequired.

Mitchells&ButlersplcisthebeneficialownerofalloftheequitysharecapitalofcompanieswithintheGroup,eitheritselforthroughsubsidiaryundertakings.Inaddition,theCompanyhasindirectinvestmentsinassociatecompaniesthroughsubsidiaryundertakings.Seenote5.2oftheconsolidatedfinancialstatementsforafulllistofsubsidiariesandassociates.

Investmentshavebeentestedforimpairmentusingforecastcashflows,discountedbyapplyingapre-taxdiscountrateof7.7%(20177.5%).Forthepurposesofthecalculationoftherecoverableamount,thecashflowprojectionsinclude0.0%(20170.0%)ofgrowthperannum.

Sensitivity analysisTheCompanyhasperformedasensitivityanalysisontheimpairmenttestsforitsinvestmentsinsubsidiariesusingvariousreasonablypossiblescenarios.Itisestimatedthatneithera0.5%increaseinthediscountratenora5%reductioninfuturecashflowswouldgenerateanimpairmentcharge.

6. Trade and other receivables

2018£m

2017£m

Amountsowedbysubsidiaryundertakings 739 828

Amountsowedbysubsidiaryundertakingsarerepayableondemand.Interestisnotchargedonallbalances.Whereinterestischarged,itischargedatmarketrate,basedonwhatcanbeachievedoncorporatedeposits.

Notes to the Mitchells & Butlers plc Company financial statements continued


7. Trade and other payables

2018£m

2017£m

Amountsowedtosubsidiaryundertakingsa 283 416Accruedcharges 4 –Otherpayables 1 3

288 419

a. Amountsowedtosubsidiaryundertakingsarerepayableondemand.Interestisnotchargedonallbalances.Whereinterestischarged,itischargedatmarketrate,basedonwhatcanbeachievedoncorporatedeposits.

8. Borrowings

Accounting policy Theaccountingpolicyforborrowingsisdisclosedintheconsolidatedfinancialstatementsinnote4.2.

Borrowingscanbeanalysedasfollows:

2018£m

2017£m

CurrentBankoverdraft 28 28Totalborrowings 28 28

Unsecured revolving credit facilityTheCompanyholdsuncommittedcreditfacilitiesof£15m.Theamountdrawnat29September2018is£nil(2017£nil).

9. Taxation

Accounting policyTheaccountingpolicyfortaxationisdisclosedintheconsolidatedfinancialstatementsinnote2.4.

Deferred tax assetMovementsinthedeferredtaxassetcanbeanalysedasfollows:

£m

At24September2016 66Chargedtoincomestatement–pensions (6)Chargedtoincomestatement–taxlosses (3)Chargedtoothercomprehensiveincome–pensions (1)At30September2017 56Chargedtoincomestatement–pensions (6)Chargedtoincomestatement–taxlosses (1)Chargedtoothercomprehensiveincome–pensions (1)At 29 September 2018 48

Analysedastaxtimingdifferencesrelatedto:

2018£m

2017£m

Pensions 43 50Taxlossesa 5 6

48 56

a. Taxlossesarisingin2008whicharenowrecoverablebyoffsetagainstotherincome.

Furtherinformationonthechangestotaxlegislationareprovidedinnote2.4totheconsolidatedfinancialstatements.

10. Equity

Called up share capitalDetailsoftheamountandnominalvalueofallotted,calledupandfullypaidsharecapitalarecontainedinnote4.7totheconsolidatedfinancialstatements.

DividendsDetailsofthedividendsdeclaredandpaidbytheCompanyarecontainedinnote4.7totheconsolidatedfinancialstatements.


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Alternative performance measures

TheperformanceoftheGroupisassessedusinganumberofAlternativePerformanceMeasures(APMs).

TheGroup’sresultsarepresentedbothbeforeandafterseparatelydiscloseditems.AdjustedprofitabilitymeasuresarepresentedexcludingseparatelydiscloseditemsaswebelievethisprovidesbothmanagementandinvestorswithusefuladditionalinformationabouttheGroup’sperformanceandsupportsamoreeffectivecomparisonoftheGroup’stradingperformancefromoneperiodtothenext.AdjustedprofitabilitymeasuresarereconciledtounadjustedIFRSresultsonthefaceoftheincomestatementwithdetailsofseparatelydiscloseditemsprovidedinnote2.2.

TheGroup’sresultsarealsodescribedusingothermeasuresthatarenotdefinedunderIFRSandarethereforeconsideredtobeAPMs.TheseAPMsareusedbymanagementtomonitorbusinessperformanceagainstbothshorter-termbudgetsandforecastsbutalsoagainsttheGroup’slonger-termstrategicplans.

APMsusedtoexplainandmonitorGroupperformanceinclude:

APM Definition Source

EBITDA Earningsbeforeinterest,tax,depreciationandamortisation. GroupincomestatementAdjustedEBITDA AnnualisedEBITDAona52weekbasisbeforeseparatelydiscloseditems

isusedtocalculatenetdebttoEBITDA.Groupincomestatement

EBITDAbeforeadjusteditems EBITDAbeforeseparatelydiscloseditems. GroupincomestatementOperatingprofit Earningsbeforeinterestandtax. GroupincomestatementAdjustedoperatingprofit Operatingprofitbeforeseparatelydiscloseditems. GroupincomestatementLike-for-likesalesgrowth Like-for-likesalesgrowthreflectsthesalesperformanceagainstthecomparable

periodintheprioryearofUKmanagedpubs,barsandrestaurantsthatweretradinginthetwoperiodsbeingcompared,unlessmarketedfordisposal.

Groupincomestatement

Adjustedearningspershare(EPS) Earningspershareusingprofitbeforeseparatelydiscloseditems. Note2.5Netdebt:AdjustedEBITDA Themultipleofnetdebtasperthebalancesheetcomparedagainst52week

EBITDAbeforeseparatelydiscloseditemswhichisawidelyusedleveragemeasureintheindustry.

Note4.1Groupincomestatement

Freecashflow Calculatedasnetmovementincashandcashequivalentsbeforethemovementonunsecuredrevolvingcreditfacilities.

Cashflowstatement

Returnoncapital Returngeneratingcapitalincludesinvestmentsmadeinnewsitesandinvestmentinexistingassetsthatmateriallychangestheguestoffer.ReturnoninvestmentismeasuredbyincrementalsiteEBITDAfollowinginvestmentexpressedasapercentageofreturngeneratingcapital.Returnoninvestmentismeasuredforfouryearsfollowinginvestment.Measurementcommencesthreeperiodsfollowingtheopeningofthesite.

A. Like-for-like sales

ThesalesthisyearcomparedtothesalesinthepreviousyearofallUKmanagedsitesthatweretradinginthetwoperiodsbeingcompared,expressedasapercentage.Thiswidelyusedindustrymeasureprovidesbetterinsightintothetradingperformancethantotalrevenuewhichisimpactedbyacquisitionsanddisposals.

Source

201852 weeks

£m

201753 weeks

£mYear-on-year

%

Reportedrevenue Incomestatement 2,152 2,180 (1.3)Adjustfor53rdweek SeeAPMG – (39)Lessnonlike-for-likesales (187) (202)Like-for-like sales 1,965 1,939 1.3

Drink and food sales growth FY 2018

Source

201852 weeks

£m

201752 weeks

£mYear-on-year

%

Drinklike-for-likesales 917 894 2.6Foodlike-for-likesales 999 996 0.3Otherlike-for-likesales 49 49 –Total like-for-like sales 1,965 1,939 1.3

Source

20197 weeks

£m

20187 weeks

£mYear-on-year

%

Revenue 276.7 268.5 3.1Lessnonlike-for-likesales (26.5) (23.7)Like-for-like sales 250.2 244.8 2.2


B. Adjusted operating profit

OperatingprofitbeforeseparatelydiscloseditemsassetoutintheGroupIncomeStatement.Separatelydiscloseditemsarethosewhichareseparatelyidentifiedbyvirtueoftheirsizeorincidence(seenote2.2).ExcludingtheseitemsallowsabetterunderstandingofthetradingoftheGroup.

Source

201852 weeks

£m

201753 weeks

£mYear-on-year

%

Operatingprofit Incomestatement 255 208 22.6Addbackseparatelydiscloseditems Note2.2 48 106Adjustmentfor53rdweek SeeAPMG – (6)Adjusted operating profit 303 308 (1.6)Reportedrevenue52weeks SeeAPMG 2,152 2,141 0.5Adjusted operating margin 14.1% 14.4% (0.3)ppts

C. Adjusted earnings per share

Earningspershareusingprofitbeforeseparatelydiscloseditems.Separatelydiscloseditemsarethosewhichareseparatelyidentifiedbyvirtueoftheirsizeorincidence.ExcludingtheseitemsallowsabetterunderstandingofthetradingoftheGroup.

Source

201852 weeks

£m

201753 weeks

£mYear-on-year

%

Profitfortheperiod Incomestatement 104 63 65.1Addbackseparatelydiscloseditems Incomestatement 41 83Adjustmentfor53rdweek SeeAPMG – (2)Adjustedprofit 145 144 0.7Weightedaveragenumberofshares Note2.5 425 418 Adjusted earnings per share 34.1p 34.4p (0.9)

D. Net debt: Adjusted EBITDA

Themultipleofnetdebtasperthebalancesheetcomparedagainst52weekEBITDAbeforeseparatelydiscloseditemswhichisawidelyusedleveragemeasureintheindustry.AdjustedEBITDAisusedforthismeasuretopreventdistortionsinperformanceresultingfromseparatelydiscloseditems.

Source

201852 weeks

£m

201753 weeks

£m

Netdebt Note4.1 1,688 1,750EBITDA Incomestatement 417 395Lessseparatelydiscloseditems Incomestatement 5 34Adjustedfor53rdweek SeeAPMG – (8)Adjusted52weekEBITDA 422 421Net debt: Adjusted EBITDA 4.0 4.2

E. Free cash flow

Freecashflowexcludesthecashmovementonunsecuredrevolvingcreditfacilitiesandispresentedtoallowunderstandingofthecashmovementsexcludingshort-termdebt.

Source

201852 weeks

£m

201753 weeks

£m

Netdecreaseincashandcashequivalents Cashflowstatement (25) (11)Netmovementonunsecuredrevolvingcreditfacilities Cashflowstatement 6 25

(19) 14

F. Second half adjusted operating profit

Source

201852 weeks

£m

201752 weeks

£mYear-on-year

%

Firsthalfadjustedoperatingprofit Interimstatement 141 149 (5.4)Secondhalfadjustedoperatingprofit 162 159 1.9Adjusted operating profit 303 308 (1.6)


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G. FY 2017 52 week reconciliation

FY2017wasa53weekperiodandthereforepresentationofa52weekbasisprovidesbettercomparability.

Source2017

52 weeks2017

Week 532017

53 weeks

Revenue Incomestatement £2,141m £39m £2,180mEBITDA Incomestatement £387m £8m £395mAdjustedoperatingprofit Incomestatement £308m £6m £314mAdjustedPBT Incomestatement £180m £3m £183mProfitfortheperiod Incomestatement £61m £2m £63mAdjustedEPS Incomestatement 34.4p 0.5p 34.9pNetfinancecosts Incomestatement £128m £3m £131m

H. Return on capital

Returngeneratingcapitalincludesinvestmentsmadeinnewsitesandinvestmentinexistingassetsthatmateriallychangestheguestoffer.ReturnoninvestmentismeasuredbyincrementalsiteEBITDAfollowinginvestmentexpressedasapercentageofreturngeneratingcapital.Returnoninvestmentismeasuredforfouryearsfollowinginvestment.Measurementofreturncommencesthreeperiodsfollowingtheopeningofthesite.

Return on expansionary capital

Source

2017 FY 2014–17

£m

2018 FY 2015–17

£m

2018 FY 2018

£m

2018 Total

£m

Maintenanceandinfrastructure 333 216 70 286Remodel–refurbishment 130 107 63 170Non-expansionarycapital 463 323 133 456Remodelexpansionary 27 27 7 34Conversionsandacquisitions* 158 139 27 166Expansionary capital for return calculation 185 166 34 200Expansionarycapitalopen<3periodspreyearend 12 9 4 13Totalcapital Cashflow 660 498 171 669AdjustedEBITDA Incomestatement 1,714 1,292 422 1,714Non-incrementalEBITDA (1,680) (1,268) (414) (1,682)IncrementalEBITDA 34 24 8 32Returnonexpansionarycapital 18% 14% 23% 16%

* Conversionandacquisitioncapitalisnetofcapexincurredforprojectswhichhavebeenopenforlessthanthreeperiodspreyearend.

Return on remodel capital

SourceFY 2018

£m

Capitalinvestment Cashflow 171Non-remodelcapitalinvestment (108)Remodelcapitalinvestment 63AdjustedEBITDA Incomestatement 422Non-incrementalEBITDA (405)IncrementalEBITDA 17ROI 27%

Alternative performance measures continued


Shareholder information

Contacts

Registered office27FleetStreetBirminghamB31JPTelephone01214984000

Registrar

EquinitiAspectHouseSpencerRoadLancingWestSussexBN996DA

FromtheUK:Telephone03713842065*

Fromnon-UKjurisdictions:Telephone+441214157088*

Forthosewithhearingloss,atextphoneisavailableon03713842255*forUKcallerswithcompatibleequipment.

http://www.mbplc.com/investors/contacts/* Linesareopen8.30amto5.30pm(UKtime),MondaytoFriday,excludingpublicholidays

inEngland&Wales.

Key dates

These dates are indicative only and may be subject to change. For the current status visit the financial calendar on our website at www.mbplc.com/investors

AnnualGeneralMeeting 22January2019Announcementofinterimresults May2019Pre-closetradingupdate September20192019finalresultsannouncement November2019


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Our brands Mitchells & Butlers online

Allofourpopularbrandshavetheirownwebsites,helpingourcustomerstofindtheinformationtheyneedstraightaway.Latestfoodanddrinkmenus,newsandoffers,emailnewsletters,onlinebookingsanddetailsofnewopeningsareallavailable.

Alexwww.dein-alex.de

All Bar Onewww.allbarone.co.uk@allbarone

Brownswww.browns-restaurants.co.uk@BrownsBrasserie

Castlewww.mbplc.com/findapub

Ember Innswww.emberinns.co.uk@EmberInns

Harvesterwww.harvester.co.uk@HarvesterUK

Innkeeper’s Lodgewww.innkeeperslodge.com@InnkeepersLodge

Miller & Carterwww.millerandcarter.co.uk@MillerandCarter

Nicholson’swww.nicholsonspubs.co.uk@Nicholsonspubs

O’Neill’swww.oneills.co.uk@ONeillsPubs

Premium Country Pubswww.mbplc.com/findapub

Sizzling Pubswww.sizzlingpubs.co.uk@SizzlingPubs

Stonehouse Pizza & Carverywww.stonehouserestaurants.co.uk@stonehousepizza

Toby Carverywww.tobycarvery.co.uk@tobycarvery

Vintage Innswww.vintageinn.co.uk@Vintage_Inns

Mitchells & Butlers’ comprehensive website gives you fast, direct access to a wide range of Company information.

• DownloadableAnnualReportandAccounts

• Latestinvestornewsandpressreleases

• Brandnewsandoffers

• Responsibilitypoliciesandreview

• Findalocalrestaurantorpub

• Signupforlatestnews

To find out more go to www.mbplc.com


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Mitchells & Butlers plc 27FleetStreetBirminghamB31JPTel:+44(0)1214984000

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