annual review and summary financial statement 2007 · 25 finance director’s report 27 summary...

Mitchells & Butlers plcAnnual review and summary financial statement 2007

PurposeMitchells & Butlers has a high quality, well located pub estate, focused on the long-term growth in the informal, value for money, eating and drinking-out markets. Our operational and investment strategy is delivering better choice and value to our customers and generatingprofitable sales growth which is increasing our property values as well as our investment returns – all to the benefit of shareholders.

Contents

2 Group at a glance4 Chairman’s statement6 Summary operating and

financial review6 Chief Executive’s review24 Corporate social responsibility25 Finance Director’s report27 Summary financial statement28 Board of Directors29 Executive Committee30 Directors’ report30 Corporate governance report31 Remuneration report35 Shareholder information36 Glossary37 Key brands

Front cover: The White HorseMetro ProfessionalsParsons Green, London

This page: The Trout InnPremium Country DiningWolvercote, Oxford

1

Operational highlights

£18,500Average weekly sales per pub

+5.1%Same outlet like-for-like food sales

+2.2%Same outlet like-for-like drinks sales

107millionMeals served this year

Financial highlights

+10.1%Revenue £1,894m

+11.0%Operating profit £343m (before exceptional items)

+21.2%Earnings per share 35.5p (before exceptional items)

+16.3%Dividend 14.25p

2

Group at a glance Mitchells & ButlersAnnual review and summary financial statement 2007

Mitchells & Butlers’ know-howOur proven expertise at every level, combinedwith a pub estate of exceptional quality inprime locations, continues to deliver on ourstrategy of driving profitable volume growthand creating shareholder value.

Increasingproperty

values

Consumer relevance and format evolution

Our people

Know-how

Valueand volume

strategy

Increasing property valuesThrough the successfulimplementation of our operationaland investment strategy we are ableto generate further uplifts in assetvalues within our high quality freeholdestate for the benefit of shareholders.

Acquired Sites >> pg 23

Our peopleKey to the successful operation ofour pubs is our ability to recruit, trainand retain the best people. We offerpexperience is not essential; howeverpersonality and a passion forcustomer service are critical.

Cask ale training >> pg 18

Value and volume strategyOur operational strategy is to focuson value and volume: improving thevalue we offer our customers leads to higher volumes and improvedproductivity. These gains, along withbetter purchasing terms, enable us to reduce costs and then reinvest the margin gains in further quality and value.

Pub & Carvery >> pg 15

Consumer relevance and format evolutionWe strive to anticipate, identify andrespond to changing demographicprofiles and consumer expectationsby evolving our brands and formats.

Sizzling Pub Co. >> pg 10

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Mitchells & ButlersAnnual review and summary financial statement 2007

6%

3%

1%

-2%

-1%

-4%

0%

-4%

Food

Wine &soft drinks

Beer &cider

Spirits

MAB same outlet like-for-like volume growthEstimated market volume growth based on BBPA/AC Neilsen/ONS

ResidentialThe majority of our pubs have primelocations in residential areas and aretherefore well positioned to take advantageof the growth in eating-out as well asincreasing our drinks market share.

75%of sales

11,392pubs

45%food sales mix

3.1%same outlet like-for-like sales growth

Positioned for successWith 3% of the pubs in the UK, we have a 10% share of pub market sales.This has been achieved through a strategicpositioning of the estate to attractive areas of the market, which has driven our growth, particularly in food.

£18.5k2007: Average weekly sales per pub(1998: £9.9k)

37%2007: Food sales mix(1998: 22%)

107m2007: No. of main meals sold per annum(1998: 41m)

High StreetWe have successfully evolved our brandsand formats on the High Street over a number of years and this has continuedto bear fruit, seeing strong growth in a competitive market.

25%of sales

457pubs

116%food sales mix

3.0%same outlet like-for-like sales growth

Existing Sites Acquired SitesNew Acquisitions

Growth and investmentWe have invested a total of £253m in ourpubs over the year. This has enabled usto develop, evolve and maintain our highquality estate, with significant returns on investment, whilst further improvingour relative value proposition in light of the level of investment in the overallon-trade pub market.

£1.1bnOver £1.1bn* UK expansionaryinvestment over the last 16 years

20%20%* return on investments in the core estate over the last two years

20%c.20% sales uplift from converted Acquired Sites

* Excludes the Acquired Sites

Investments in FY 2007 Our marketThe pub market is estimated to be worthover £19bn per annum. It has benefitedover the last ten years from the growthin the popularity of eating-out, withapproximately a third of total householdfood expenditure now made outside thehome. This is in contrast to the moretraditional pub market of draught beer,which has declined, down 27% involume since 1998.

Against this background, our strategyhas proved exceptionally successful,driving market share gains in all key categories.

White WebbsToby CarveryEnfield

The FlaskMetro ProfessionalsHighgate, London

Profitable market share gains

4

Chairman’s statement Mitchells & ButlersAnnual review and summary financial statement 2007

Mitchells & Butlers’ results this year reflecta strong financial performance and we arepleased with the operational developmentacross the business. The executive teamhave been particularly effective in growingsales and profits despite some significanteconomic and cost challenges, whilst alsorapidly implementing the conversion ofthe high quality Whitbread sites acquiredin July 2006. We have extended ourleadership of the eating-out marketserving 107 million meals and generatedsignificant drinks market share gains. As a result, revenues have risen by 10%,operating profits by 11% and earnings pershare before exceptional items by 21%.

This performance has enabled the Boardto recommend a final dividend paymentof 10.0p per share, taking the totalordinary dividend for the year to 14.25p,an increase of 16.3%. This payment isadditional to the Special Dividend of £486mpaid to shareholders in October 2006 and reflects the strong growth in earningsper share, as well as our commitment to a progressive policy for dividends.

Since our foundation in 2003 the Board has had an absolute commitment to the creation and delivery of value to shareholders whether through organicgrowth, investment in the business forhigh returns, the pursuit of value creativeacquisitions, or a return to shareholders by way of dividends and share buybacks.

With this guiding principle in mind, and recognising that a consistently highervaluation is placed by property investorson our estate than is valued within the

Delivering shareholder valueSince our foundation in 2003, the Board has had an absolutecommitment to the creation anddelivery of value to shareholderswhether through organic growth,investment in the business for high returns, the pursuit of valuecreative acquisitions, or a return to shareholders by way of dividendsand share buybacks.Roger Carr, Chairman

The Old Bull & BushPremium Country DiningHampstead, London

Roger CarrChairman

5


current integrated model, the Board hasbeen investigating options for capturingthe value of the property estate forshareholders on a sustainable basis.

To that end, after a competitive process,substantial progress was made in thesummer on negotiating a joint venturetransaction with R20 (the investmentvehicle of Robert Tchenguiz). In the final stage of this transaction, we enteredinto hedging agreements which were afundamental bank requirement to securethe necessary financing arrangements for the joint venture and to achieveappropriate ratings from ratingsagencies. However, the sudden andunprecedented collapse of world debtmarkets rendered the joint ventureundeliverable but left the hedgingarrangements in place. Driven by a mostunusual mix of inflation and interest rate expectations, combined with limitedliquidity, the cost of the hedges at theyear end, although not a cash item, hadrisen to £155m after tax. The hedgingarrangements have been retained as theBoard remains committed to a propertybased refinancing which would utilisethem, once debt markets have recovered.The Board will continue to balance theassessment of risk with potential reward of this policy.

Whilst the Board’s focus has been on theestablishment of a property joint venture,alternative property based refinancingstructures remain under consideration. In this context, the Board has received a proposal from R20 in respect of ademerged Real Estate Investment Trust

(‘REIT’) structure, which includes R20procuring a fixed price underwriting forin the region of 25% of the REIT equity.The attractiveness and feasibility of thisproposal is being explored. A REITstructure would have to meet the Board’srequirement for an appropriate balance to optimise the value of both demergedcompanies as independent entities.

The Board will continue to reviewalternative structures that woulddemonstrably create value from theproperty, whilst providing an attractivelong-term business model for theoperating company.

In view of the focus on Mitchells & Butlers’real estate, we considered it was importantto establish a current value of our freeholdand long leasehold properties and werequested Colliers CRE to update ourvaluation as at 29 September 2007. Therevised value of the estate in our books at £5bn represents a net increase of £1.1bn compared to the historicalaccounting basis and provides a solid andup to date foundation for judging the assetstrength of the Group in turbulent times.

Because pubs are specific use assets, it is the operational success of the businesswhich has been the primary factor ingrowing the value of our freehold propertyand which has also enabled us to returnover £1.1bn in cash to shareholders since demerger in 2003, over and aboveordinary dividends. This performance has been driven by our operational teams,who I believe are collectively the best inthe industry. I would like to thank them all for their perseverance, flexibility andhard work during the year.

There has been one change to the Board announced during the second halfof the year. Tony Hughes, 59, steppeddown as Managing Director, Restaurantson 1 October 2007 since when he hasbeen assisting in the handover of his roleand the further development of foodcapabilities in the business. He will retirefrom the Board of the Company on 31 December 2007. He is succeeded by Adam Fowle, previously ManagingDirector for the Acquired Sites andBusiness Development. Adam has some 20 years experience in licensed retailing,having joined Mitchells & Butlers in 1985.He was previously Managing Director of the Pubs & Bars division, becoming a Retail Director at Sainsbury’s for twoyears. He rejoined Mitchells & Butlers in 2005.

I welcome Adam to the Board and would like to thank Tony for hisexceptional contribution to the Companyover the last 12 years. His vision and drive have been instrumental in thedevelopment of our highly successful pub restaurant brands. I wish him everyhappiness in his retirement.

Looking forward, 2008 will undoubtedlybe a more challenging year, with theuncertain outlook for consumer confidenceand the first year of the smoking ban.However, I am confident that a clearmanagement strategy for competitive out-performance based on high qualitybrands, excellent sites and strongoperating skills will underpin thecontinuing progress of the Company.

Reinvest marginin quality/value

Staff training, scheduling, incentives

Capacitymanagementof productivity

Supply chainefficiency

Reducecosts

Increasevolume

Increasebuying power

Increasevalue

Value and volume cycleThe success of our value andvolume strategy means that wecan reinvest gross margin andour labour productivity andpurchasing gains to provideour customers with even betterquality and value.

6

Summary operatingand financial reviewChief Executive’s review


Continued market out-performanceOur good results this year reflect ourleadership position in the growingcasual eating-out market and ourcontinued drinks market sharegains. Our average weekly sales permanaged pub are up 6% to £18.5k,well over three times that of theaverage UK pub, and we arenow serving a total of 107 millionmeals a year.Tim Clarke, Chief Executive

Strategic reviewMitchells & Butlers has delivered anotherstrong trading performance this year.Like-for-like sales have grown 3%, drivenby our continued focus on value, service,range and amenity. Operating profitgrowth of 11% to £343m, beforeexceptional items, has been generated byour efficient conversion of sales increasesinto profits growth, through furtherimprovements in employee productivity,purchasing gains and effective costcontrols. Earnings per share for the year,before exceptional items, are up 21.2% at 35.5p. This is a result of the tradingperformance, together with thecontribution from the former Whitbreadpub restaurants (the ‘Acquired Sites’), a significant development projectcompleted by Standard CommercialProperty Developments Limited (‘SCPD’)and the share consolidation thataccompanied the Special Dividend in the early part of the year.

This strong performance has beendelivered against a background ofincreasingly challenging market conditionsin the second half of the year. A softeningin consumer confidence, particularlypronounced in the mid-market, driven byconsecutive rises in interest rates, growinginflation pressures and an increased taxburden, was exacerbated by the volatilityin the global financial markets. Inaddition, industry growth was limited by asummer of prolonged poor weather.

Travellers RestSizzling Pub Co.Caversham, Reading

Tim ClarkeChief Executive

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These conditions have resulted in amarket where we have seen the increasingimportance of food, soft drinks and wine against the decline in beer andmachine income.

However, in the long term, the market forvalue for money eating and drinking outcontinues to grow. Our same outlet like-for-like food volumes increased by 6% inthe year against a pub food market up 3%,driven by key social changes such as theincrease in the number of women in work,the number of single households and thegrowth of an affluent retired population.Since 1990, the proportion of adultsvisiting pubs at least monthly has risenfrom 59% to 72%. There has been amarked increase in the growth of lessfrequent customers since the turn of thecentury, who, attracted by the wideningappeal of pubs and the strengthened food offers, are increasingly visiting to eat.The same period saw a decline in peoplevisiting the pub solely to drink, with those visiting at least three times a weekdropping by more than half to 8% of the adult population.

These long-term trends are likely to bereinforced by the smoking ban as new andlapsed customers, previously discouragedby tobacco smoke, become regular pub-goers. Our experience so far suggests thatlarge pubs, with the capability to servehigh volumes of good food at attractiveprices, will benefit from a ban on smoking.

Mitchells & Butlers is well-placed to capture this long-term growth. Our successful strategy of offering ourcustomers an ever-wider choice of goodvalue food and drink in a high quality,welcoming environment has enabled us to achieve good sales growth for a fourthconsecutive year and positions us well tomake further market share gains in a moredifficult market during the year ahead.

Our emphasis on innovation to developour brands and formats and our offers to keep pace with fast-changing consumerexpectations, and our relentless drive to improve our scale efficiencies combineto ensure our customers enjoy the greatestpossible choice, quality and value. Our employees, recruited for their talentand personality, are trained and motivatedto deliver excellent customer service. In essence, our proven operationalexpertise at every level, combined with a pub estate of exceptional quality inprime locations, continues to deliver onour strategy of driving profitable volumegrowth and creating shareholder value.

The strength of these strategic levers canbe seen in the results we have achieved in the conversion programme on the sitesacquired last year from Whitbread, ofwhich 172 have been completed so far.Despite the substantial impact of the poor summer weather, particularly ondestination pub restaurants, sales haveincreased by approximately 20% and weare confident of achieving the 30% salesuplift targets in FY 2009, as indicated at the time of acquisition.

Thus we believe we have a long-term,sustainable growth model which willenable us to continue to gain market share despite the more uncertain outlookfor next year.

Market Well positioned to capture the ongoinggrowth in eating-out as well as tocontinue to take drinks market share.

Strategic processOur strategic decisions are made at Board level to focus operational effort in the primary growth areas of the market to maximise short and long-term value for our shareholders

Outputs

Financial Driving both EPS and dividend growth,and to invest for high returns.

PeopleSuccessfully recruiting, training andretaining the right people with theright personalities.

Driving food volume growth through improving the quality and value offered to our customers.Improving the quality and range of draught beerssold and their price relative to competitors.

Strong sales and profits growth despite £8m of regulatoryand £14m of closure and pre-opening costs. Investment plans for all Acquired Sites prior to acquisition,speedy programme to be completed ahead of schedule.

Comprehensive in-house training ensures that everyyear, thousands of retail managers and employeescomplete the required professional qualifications topursue their careers with us.

5.1% same outlet food sales growth

2.2% same outlet drinks sales growth

21.2% EPS growth*

20% incremental ROI**

70% internal succession rate to role of assistant manager

Area Example initiatives

* Pre-exceptionals** On expansionary capital in the core estate over the last two years

Creating pubs people want to visitPeople come to our pubs to have a great time. They also find good quality food and drink, a vibrant,friendly atmosphere and a high quality décor.

The Prince RegentMetro ProfessionalsCentral London

10

Sizzling Pub Co.Key to the success of our strategy to date has been our focus on leveragingthe growth in food to attract customersto our pubs, thereby increasing highermargin, ancillary drinks sales tomaximise profitability. We also aim to reinforce the link between food anddrink through our marketing activityand sales promotions.

Sizzling Pub Co. (‘SPC’) was establishedin 2001 with only a few pubs initiallytrading under the format but this year it celebrated its 200th opening. Sited insuburban locations, SPC pubs offer theirlocal communities quality and value formoney food and drinks in comfortablesurroundings alongside friendly service.

Fundamental to the market out-performance of SPC is the format’sability to attract an increasing number of customers into its pubs through its great value food offer, to makeincremental, full-price drinks sales to these customers. Thus its currentoffer of two main meals for £6 from2.30pm to 6.00pm Monday to Friday has seen the number of meals sold in this time-slot grow to 16,000 per week over the last two years. The value food offer combined with otherpromotional activities such as weeklyquiz nights, music and sports events is also successful in driving repeat visits by guests.

Travellers RestSizzling Pub Co.Caversham, Reading

Our experts

Tessa Brand managerCommunity pubs, Marketing team

Tara Category ProcurementmanagerDrinks Purchasing team

Kevin Menu Development managerFood Development team

Keeping pace with changeWe constantly evolve our brandsto suit changing consumer needs.This year, we have refreshed ourO’Neill’s brand with a new, widermenu and a targeted investmentprogramme. Average weekly foodsales have increased this year byover 20% across 68 sites.

25%Our own label wine has grown significantly and now represents around 25% of overall wine sales

11


The eating-out market, now accountingfor approximately a third of the totalhousehold expenditure on food in the UK, has grown steadily for many years.However, it is only now at levels achievedin the US over thirty years ago. The pub,with its informal, relaxed atmosphere andvariety of value for money casual diningoffers is well placed to capture an evengreater proportion of the growth in thismarket, which has been accelerated by the smoking ban now in place for all UKpubs and restaurants.

For over a decade, Mitchells & Butlers has focused on developing a range ofoffers to meet consumers’ tastes, buildingon consumer insight techniques to investstrategically to evolve these offers to addincremental value to the sites we own aswell as those we acquire. We believe wehave the leading portfolio of brands andformats in the industry.

We have successfully widened the appeal of the pub to capture new areas of growth in eating-out at both the higherand lower scales of consumer affluence but continuous innovation within ouroffers is critical in order to keep pace with the constantly rising expectations of customers as to food quality, the rangeof drinks on offer and the standards of amenity and service. Our continuousinvestment in each of these areas is alsovital in widening the gap between ouramenity, product range and value formoney and that of the competition,further improving our overall customervalue proposition and our market sharegains relative to the rest of the on-trade.In total this year, we invested £253mmaintaining and upgrading our pubs.

Focus on menu development has enabledus to offer guests more variety, fromsharing ‘small plate’ dishes in Ember Innsor hand-cut Maris Piper chips in ourMetro Professionals format. Cornerstone,our successful community pub format, hasintroduced its Best of British range whichincludes choices such as liver and onionsor ham hock in a West Country scrumpysauce. We have developed fresh dishesthat are healthier and tastier, with a widertaste profile and better provenance – forexample, organically farmed Shetlandsalmon features on the new Vintage Innsmenu. Vegetarian options are also nowavailable across all our pubs.

The improved quality, choice and value of our food offers has broadened ourcustomer base, attracting women, familiesand older guests as well as new pubvisitors. A widening customer base,attracted by the food we offer, has enabledus to boost associated sales of highermargin drink sales. Innovation in therange of drinks we offer has been key to this success and we have seen our same outlet like-for-like drinks sales growby 2.2% for the year. Our contractualfreedom to source an increasing numberof products from a variety of producershas allowed us to extend the choice forour customers across all drinks categories,including new premium products and ourown label products offering great value.We have focused on enhancing servequality, for example through our glycolcooling system, which improves the serveconsistency for the dispense of draughtproducts, both beer and wine. Our ownlabel wine has grown to around 25% of wine sales and we have draught winedispense in some 630 pubs. Draught wine sales now account for almost 10% of total wine sales.

Targeted marketing campaigns and pointof sale material, together with seasonalpromotions, have communicated our newdishes and new drink ranges effectively toour customers. Very popular annual caskale festivals run across our Nicholson’s and Ember Inns businesses while All Bar One is holding a ‘Favourites Festival’,showcasing a unique range of beers and ciders from around the world andproviding recommendations to customerson combining these beers with theinternational tapas sharing plates available.

In soft drinks we have extended the rangeof fresh fruit juices, cordials and mineralwaters. The improved choice for customersin these categories within our Pubs & Barsdivision successfully drove sales growth of16% from June to the year end, despite thepoor summer weather.

We have installed branded coffee offerssuch as Costa, Illy and Segafredo in almost1,200 pubs which is proving popular with our customers – coffee sales volumeshave increased by 23% in the year. Theintroduction of branded coffee has workedparticularly well where we have also takenadvantage of the change in licensing lawand the smoking ban to broaden thereason for and time of visit to the pub. For example, we have opened forbreakfast in a number of city centrebusinesses such as selected Browns andNicholson’s sites, which have seenencouraging results so far.

Overall, drinks volume growth hasexperienced a slow down, with the on-trade beer market down 5% and the soft drinks and wine market down 2%,However, the strong growth in our foodvolumes and our drinks retailing skillshave enabled us to make substantialmarket share gains in each of thesecategories.

The extension of the quality of our drinksoffers into non-traditional lines will alsoadd further to the attraction of our pubsto new and light users.

Summary operating and financial review (continued)

The Old ContemptiblesClassic PubBirmingham

23%Coffee sales volumes up by 23%

2.2%Like-for-like drinks sales up by 2.2%

40Across the Company, we now stock over 40 draught lagers compared to only five draught lagers in our pubs 10 years ago.

Value and volumeThe success of our value and volume strategy meansthat we can reinvest gross margin and our labourproductivity and purchasing gains to provide ourcustomers with even better quality and value.

O’Neill’sEuston RoadLondon

14



For more than a decade, Mitchells &Butlers has undertaken a strategicrepositioning of its estate to exploit thegrowth areas of the market. Through keyacquisitions of significant pub estates, as well as individual sites with large sales,our businesses are now spread across GreatBritain. At the same time there has been amove away from the historic concentrationof pubs in the industrial areas of the Northand the Midlands to achieve a higherweighting in the more affluent and fastergrowing areas of the country. As a result,75% of our pubs are now situatedprimarily in residential areas.

Through this determined repositioning,we have developed a pub estate ofexceptional quality that is predominantlyfreehold or long leasehold and which, withits superior scale and location, generatessales per pub over three times higher thanthat of the average pub in the UK. Largescale, at both the corporate and individualpub level, has been critical in the successof our value and volume strategy. The size and capacity of our large pubs enableus to drive high volumes of food atattractive prices and, this year, our sameoutlet like-for-like food sales increased by 5.1%. We now sell 107 million meals a year, making us the largest on-tradecaterer in the country.

Key to this growth is our commitment to provide our customers with the bestquality food offers possible at consistentlygreat value. This year, we have maintainedan average main meal price of £5.60against a UK average of between £8 and£9* which, combined with the high levelof service and amenity that our pubs offer,has proved compelling to our guests. Foodvolumes have grown by 67% over the lastfive years. Purchasing and productivitygains this year mean we are convertingsales growth very effectively into profits.

Although food is relatively lower margin,sustained and profitable volume growthhas strengthened our negotiating positionwith suppliers, driving further purchasinggains and enabling us not only to offsetincreases in regulatory costs this year butto maintain retail net operating marginsbroadly in line with last year. Our strategyis to reinvest such gains back into thevalue and quality offered to customers,driving real competitive advantage andthereby creating additional impetus tovolume growth. We will continue toreinvest margin into our menu offers.

At the pub level, increasing volumeunderpins our gains in businessefficiencies. Continuous investment indeveloping operating skills in the capacitymanagement of kitchens, bars and servetimes ensure high standards of serviceeven at peak trading times. This year, theSizzling Pub Co. training team was highlycommended in the Customer ServiceTraining Team of the Year category in theNational Customer Service Awards 2007,for its role in supporting new openings.

Our sophisticated scheduling and salesforecasting systems allow us to match evermore tightly the number of staff deployedwith the fluctuating trading patterns of the pub. Thus, at busy periods we canmove quickly to capture additional salesby scheduling more staff, whilst keeping costs to a minimum during quieter times.This focus, together with our trainingprogrammes, has resulted in a 3.9%increase in staff contribution per hour in the core estate. Pub employment costshave been maintained at under 24% ofsales despite the substantial real increasesin the National Minimum Wage.

Our considerable purchasing power andsuccessful productivity systems have alsodriven great benefit in the Acquired Siteswhere, ahead of our forecasts at the timeof acquisition, we have made £7m ofpurchasing gains during the year.

* Source: Menurama

67%Food volumes up by 67% over last five years

5.1%Like-for-like food sales up by 5.1%

3.9%We have achieved a 3.9% increase in staff contribution per hour in the core estate.

The Coal HoleNicholson’sCentral London

The OakmereHarvesterPotters Bar

15

Pub & CarveryAs the rise in frequent, casual eating-out among value-focused consumers has continued apace, Mitchells & Butlershas successfully evolved new formats to tap into this fast-growing area of the market. One such format is Pub & Carvery, trialled over two years ago,and now trading in 58 sites nationally.Serving over 2,900 meals a week,the highest we believe of any format in the industry, the brand provides atraditional, relaxed pub environmentwith a freshly-cooked carvery offerpriced from an incredible £3.50. For ourguests, this represents better value thaneating at home. The brand has averageweekly sales of almost £30k per pub and is providing very high incremental returns on investment.

107mWe now serve 107 million meals per year, compared to fewer than 15 million in 1995.

Our experts

Food growthIn a pub eating-out market thathas grown by 27% since 2002,and is forecast to grow by asimilar amount in the next fiveyears, our food volumes haveincreased by 67%. Additionally,our food sales mix has grownfrom 22% of total retail turnoverin 1998 to 37% at the end of2006. This is anticipated to growto over 40% in two years’ timewhen the full benefit of oursuccessful conversion of theAcquired Sites will be evident.

£5.60Average Mitchells & Butlers main meal price.

The Hole in the WallPub & CarveryUnderwood, Nottingham

Nicky Retail Business managerMetro Professionals team

Steve Senior Purchasing managerFood Purchasing team

Michelle Pricing managerPricing and Insight team

PeopleOur people are key to the successful, profitable operationof our businesses. It is not enough to have the best pubs,brands and formats in the industry, we need the bestpeople too. We continually focus on recruiting, trainingand retaining the right people with the right personalityand a passion for excellent customer service.

The Old ContemptiblesClassic PubBirmingham

18

Cask ale trainingThe quality of our cellar skills has been instrumental in our sustained gainsin beer market share. With the increasein demand for cask ales, Ember Inns hasinvested this year in specific training onthe management and serve of cask ale,to ensure customers enjoy the finestquality pint possible. Most Ember Innsare now certified by Cask Marque, an independent accreditation scheme to recognise excellence in the service of cask ale, and each pub has a beerquality champion, trained by experiencedbrewers. It has been important to achievethe right balance between the traditionalale drinkers who are loyal to one or twobrands with those customers seeking out new flavours. Ember Inns typicallycarry at least one big-name brand or regional favourite but alongside there are a number of cask ales chosenby the customers in conjunction with the manager.

Earlier this year, Ember Inns workedwith the Duchy Originals charitablebrand to launch an exclusive promotionof its Organic Ale which provided ourcustomers with an opportunity to try thebeer ahead of the competition.

Our experts

Operational skillsOur strong like-for-like salesgrowth of 3% this year is adirect result of the focus andoperational excellence of ourpeople. The recruitment andtraining of talented employees at all levels remains a vitalelement of our continued market out-performance.

Duchy Originals Organic AleThe FieldhouseEmber Inns, Solihull

Tim Fire, Health & Safety managerRisk & Compliance team

Donna Food Training managerPubs & Bars HR team

Jenny Employee Communications managerCommunications team

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Key to the successful, profitable operationof our businesses is our ability to recruit,train and retain the best people. Our wide range of brands and formats meanswe are able to offer a huge variety ofopportunities to our employees, from bar staff to kitchen manager to chef. We offer comprehensive training so we do not always require experience; however,personality and a passion for excellentcustomer service are critical.

Mitchells & Butlers deploys a combination of assessment centres,internal development centres, recruitmentadvertising, interviewing and on-jobevaluation to recruit potential managersand assistant managers and to help peopledevelop their careers. At the same time we recognise that many people want theflexibility of a part-time job in order tosuit their lifestyle. We aim to provide fortheir needs in the workplace.

We currently employ nearly 43,000 peopleand offer real opportunities to build acareer within the Company, from retailstaff to Operations Director. This year weinvested an average of six days trainingper employee, with structured trainingprogrammes including both on and offthe job training.

At the retail level, the National Certificateof Personal Licence Holders (‘NCPLH’) is an essential qualification to progress to manager level and employees can work towards this with an experiencedmanager; this year, over 3,000 employeesachieved their NCPLH with the Company.The internal succession rate to the post of retail manager is around 70% for mostof our brands and formats.

Our training programmes are not onlyfundamental to motivating our employees,giving them the skills to achieve theirambitions but also, crucially, theyunderpin our commitment to operate our businesses safely. Notably, we haverigorous training about the responsibleretailing of alcohol to give our retailemployees the expertise and theconfidence to serve our customerscorrectly. Our retail teams currently refuse service to approximately 50,000people a month who are unable to provide proof of their age.

The Company has two graduaterecruitment schemes: the CorporateGraduate programme and the VocationalGraduate Programme, placing employeeson a fast-track to a retail managementposition. Within any given year, we haveapproximately 60 graduates participatingin our management training schemes andfor the second year running we achieved a Springboard UK award for Best StudentPlacement for a Large Organisation.

The Company has had an established,comprehensive employee communicationsprogramme in place for over ten years. A variety of channels such as teammeetings, conferences, in-housepublications and the intranet keep staffinformed on matters relating to theCompany and its performance. Two-waycommunications between seniormanagement and employees are drivenprimarily through regular discussionsgroups at the corporate level andoperational communications forums. A formal Business Forum, at whichExecutive Directors meet with electedemployee representatives to discussbusiness concerns, takes place annually.

The yearly corporate employeesatisfaction survey gauges staff opinion on a wide variety of Company issues and working practices in a confidentialmanner and provides a continuousobjective measure for employeesatisfaction and engagement. This yearthe response rate to the survey improvedfor the fourth consecutive year and thecontinuing positive trend relating toquestions about employee engagement isencouraging, with over 90% of employeesfeeling satisfied and motivated by theirwork. More than 94% of Mitchells &Butlers’ employees would recommend the Company as a good place to work.


500Around 500 managers a year complete their Competence in Retail Management Certificate,which has been accredited asoutstanding by the British Instituteof Innkeeping.

2,000Around 2,000 retail employees a year complete their ManagementFoundation Course.

3,000Over 3,000 employees a year complete their NCPLH.

Toby CaveryThanet, Kent

The Scotsbridge MillPremium Country DiningRickmansworth

Increasing property valuesThe combination of our effective operating strategy and our market-leading brands and formats gives us theability to trade each one of our pubs under the style mostappropriate for the target market and local customerdemographic, increasing individual pub cash flows andmaximising asset values.

The Scotsbridge MillPremium Country DiningRickmansworth

22



The deliberate repositioning of Mitchells& Butlers’ estate over the last 15 years hasbeen dramatic as we have sought to targetthe growth areas of both the market andthe economy. Three strategic acquisitionsin 1995 (Harvester), in 1999 (the AlliedDomecq pubs) and last year (239 pubrestaurants from Whitbread), have enabledus to make significant step changes in therestructuring of our business to seizeadvantage in the fast-growing market foreating-out in this country. We have alsoacquired over 400 individual sites sincethe early 1990s and the superior scale andlocation of our pub estate is a source ofreal competitive advantage.

During the same period of time, we have evolved a range of over 25 brandsand formats, providing our customers – whether they are 18 or 80 – with a pub,bar or pub restaurant that they want tovisit. Our wide range of formats gives us the flexibility to trade each one of our properties under the offer mostappropriate for the target market andlocal customer demographic, affording us distinct competitive advantage. Thisflexibility has been a key element in oursuccessful conversion of the AcquiredSites. In addition, we opened six new sites and completed 65 conversions and13 growth projects from our existing estateto change the customer offer or increasethe trading area of the site. We aregenerating a pre-tax incremental return of 20% on such investments in the coreestate over the last two years.

We have also continued to make targeteddisposals this year, taking advantage of the buoyancy in the market to crystallisethe property value of some smaller,freehold pubs where this exceeds thetrading value to the Company. During the year we achieved £162m of disposalproceeds, including the sale of 102 pubsto Trust Inns Ltd in October 2006,generating funds which can then bereinvested in higher growth assets.

Our integrated model, where the value of our property portfolio has been greatlyenhanced by our superior operationalexpertise and market-leading brands andformats, has already created significantvalue for shareholders and underpinnedour success to date. This has beenreflected in the £1.1bn upward revaluationof the estate to £5.0bn, which has beencarried out in conjunction with ourproperty valuers, Colliers CRE.

Our focus remains on releasing toshareholders the benefits of this capitalappreciation. In October 2006, wereturned £486m to shareholders by means of a Special Dividend of £1 pershare, crystallising for shareholders the continuing growth in the value of the estate.

It has also been clear that propertyinvestors are attracted to the long term,secure growth prospects that can becreated through the rentalising of part ofour operational cash flows in a dedicatedproperty structure. Whether in a jointventure, a REIT or another separateproperty structure, fundamentally highervalues appear to be placed on the estatethan when it is combined in an integratedmodel with the operations.

We believe that substantial value can be potentially captured from our highquality, freehold and long leasehold assets, through such structures. A keyconsideration in such a process is toconstruct a lease arrangement whichensures that both the property and theoperations remain mutually incentivised to continue to create long-term value.

The Board will continue to investigateactively options for capturing the value of the property estate for shareholders on a sustainable basis.

20%We are generating a pre-tax incrementalreturn of 20% on our investments in thecore estate over the last two years.

The Crown & GreyhoundMetro ProfessionalsDulwich, London

The OakmereHarvesterPotters Bar

Three strategic acquisitions to reposition the estate:

1995 Harvester

1999 550 former Allied Domecq pubs

2006 239 former Whitbread pub restaurants

23

The Acquired SitesIn July last year, we acquired 239 of the best pub restaurant sites in the UK.These freehold pubs were well located,large, predominantly residential andfreehold or long leasehold, andapproximately half situated in thehigher growth regions of the South Eastand South West of England. They weretherefore an excellent strategic fit withthe Company’s existing estate. Our keycapital investment priority this year hasbeen the rapid and successful conversionof these sites and a total of £80m hasbeen invested to this end.

The conversion of these sites to ourbrands and formats is enabling us tocreate substantial shareholder value fromthis acquisition and is accelerating ourgrowth and leadership position in thecasual eating-out market.

Our experts

Format evolutionWe have developed and evolved over 25 leading brandsand formats, affording usdistinct competitive advantageover operators with a morelimited range.

£1.1bnThe increase in the value of our estate following a revaluation this year.

The Royal Saracen’s HeadPremium Country DiningBeaconsfield

Mark Senior Estates managerProperty Estates team

Clair Investment Performance managerStrategic Planning team

Andrew Brand Building managerToby Carvery Building Management team

24

Summary operatingand financial reviewCorporate social responsibility


Mitchells & Butlers has a core belief thatsustainable business success has to bebased on experienced, professionallicensed retailing which builds upon thereputation of each individual pub in itsown community.

We operate in a highly regulated industryand recognise that attached to the grant ofour licences is the primary obligation toensure the responsible operation of ourpremises at all times for customers, staffand the wider community. For this reason,we strive to ensure that corporate socialresponsibility underpins our businessoperation and discipline at every level.

Our philosophy for corporate socialresponsibility combines the best of the traditions of the pub landlord’scommitment to the community withleading practice in crucial areas such as the responsible retailing of alcohol,food safety and staff training.

A more detailed account of Mitchells &Butlers’ corporate social responsibilitypractices can be found in our separatelypublished Corporate Social ResponsibilityReview 2007 on www.mbplc.com/csrreview

Alcohol and Social Responsibility (‘ASR Policy’)Mitchells & Butlers first established acomprehensive policy for the responsibleretailing of alcohol in 2000. Our ASRPolicy includes clear guidelines on theresponsible operation of our pubs, the sale and promotion of alcohol, our under18s policy, and our comprehensive stafftraining and development programmes.

We updated and re-launched the ASRPolicy in October 2004, again in May 2006and most recently in August this year, toinclude tighter guidelines on the pricingand promotions across our businesses andon Challenge 21, our under 18s policy.

We are determined to ensure thatMitchells & Butlers’ pubs are operated in a way that fully justifies the grant of a licence for the responsible retailing of alcohol. In that regard, we were pleasedto be recognised for the second time by the Morning Advertiser as this year’smost responsible drinks retailer in themanaged pubs sector.

Smoking bansWe believe the introduction of the smokingbans will be beneficial to our businesses in the longer term. They present us with areal opportunity to attract new customers,who did not previously use pubs becauseof the tobacco smoke, to come into our pubs and pub restaurants across the United Kingdom.

Our experience since the bans came intoforce shows that our large pubs, servinghigh volumes of good food at attractiveprices, are already seeing this benefit. We are continuing to develop thereputation of our pubs for serving goodfood at good value prices, focusing oninnovation in the development of ourmenus and drinks ranges, to create a widechoice of dishes using quality ingredientswhich are freshly prepared.

GamingMitchells & Butlers, through its support of the British Beer and Pub Association(‘BBPA’), has worked closely with theGambling Commission on the drafting of the Gaming Machine Permits Code of Practice which replaced the industry’svoluntary code from 1 September 2007.The BBPA has also worked with theGambling Commission on the draft Codeof Practice for Gaming in Pubs and Clubs,which will regulate the playing of pokerand bingo.

Community involvementMitchells & Butlers understands that eachof our businesses has an impact on itslocal community. We aim to ensure thatthis impact is always positive and wepursue this through a carefully composedblend of local and national initiatives.

Our pub and pub restaurant managersraise thousands of pounds for charity and are supported via the CompanyCommunity Awards and celebrated via theannual Heart of the Community Awards in recognition of the positive communityimpact achieved by our pub managers.

In addition we are now in our third year of partnership with Barnardo’s. Our in-house Routes to a Brighter Futurecampaign helps Barnardo’s to work withthe most vulnerable children and youngpeople, helping them transform their livesand their potential.

As a leading company with itsheadquarters in Birmingham we alsosponsor a number of successful artsorganisations in the city. Partnershipsinclude the City of BirminghamSymphony Orchestra, Birmingham Royal Ballet, The Birmingham REP and ExCathedra.

EnvironmentMitchells & Butlers takes its environmental responsibilities seriouslyand has a policy of seeking continuousimprovement, with particular focus on recycling and energy usage.

We have an established recyclingprogramme for both glass and cardboardin our businesses. In the last 12 monthswe recycled over 14,000 tonnes of waste.

We are continuing to make excellentprogress in energy saving and, inSeptember, we opened our first ‘green’business, designed to trial a number of energy saving measures, at the TobyCarvery, Banbury.

The FriaryScreamDerby

25


integrity of the existing and provenintegrated operating model. Following acompetitive process, we negotiated termswith R20 for the sale of a 50% stake in a£4.5bn joint venture, comprising themajority of our freehold and longleasehold properties. Shortly beforefinalising the agreement, the sudden debtmarket crisis in July meant that thetransaction could not be implemented.

Hedging arrangementsIn the final stage of the plannedtransaction, Mitchells & Butlers and R20separately entered into debt hedgingarrangements comprising interest rate andinflation swaps intended to be contributedto the joint venture. These were requiredto support the delivery of the financingpackage. The turbulence in the debtmarkets since July has led to long-terminterest rates falling. At the same time,long-term inflation expectations haverisen, whilst the market liquidity for suchinstruments has sharply diminished.These three factors combined to producea post-tax deficit on the hedges of £155m,against the mark-to-market values at thebalance sheet date. This was not a cashloss to the business, as the hedges havenot been closed out and we continue toexpect that they will be utilised in a futureproperty based re-financing, once debtsmarkets have stabilised.

Property valuationGiven the continued focus on our estate,we completed a revaluation of theproperties as at 29 September 2007. Therevised value of £5.0bn is included in ourfinancial statements and represents a netincrease of £1.1bn against the historicalaccounting approach. Whilst this

accounting valuation is consistent with the existing structure of the Group, ourproperty valuers have advised that, withinan OpCo/PropCo structure, our freeholdand long leasehold properties wouldsupport a market rent of £280m and arental yield of 5.8%, with an indicativevalue of £4.8bn before any allowance forpurchaser’s costs. This valuation coversonly the rent from these properties andtherefore excludes the other cash flowsreceived by the operating company which, based on trading in the year ended 29 September 2007, would equate to some £200m of underlying EBITDA.

PensionsAfter £40m of additional contributions,there was a pension deficit of £18m at the end of September under IAS19, withmore prudent mortality assumptionsapplied following the actuarial valuationexercise in the year. The formal actuarialvaluation as at 31 March 2007 indicates alarger deficit of around £250m, reflectingthe more conservative gilts basis fordiscounting future liabilities. In line with the new pension regulations, theCompany is finalising with the Trustees a formal recovery plan to close this deficitby 2017. As part of this plan, in additionto ordinary annual service contributions,we expect that further contributions of£24m will be made in each of the nextthree years.

SummaryOur operational focus remains on drivingprofitable sales growth and generatingstrong cash flows. We will also continue to look at the best opportunity to releaseadditional value from our property tobenefit shareholders.

Summary operatingand financial reviewFinance Director’s report

Mitchells & Butlers has performedwell despite a more challengingconsumer environment in thesecond half of the year. Earningsper share grew by 21.2% in theyear, underpinning the proposedincrease of 16.3% in the annualordinary dividend to 14.25 penceper share, in addition to thespecial dividend of £1 per sharepaid to shareholders in October 2006.

Strong operating performanceOur value and volume strategy, combinedwith the unrivalled quality of our pubproperties, has been the key to ourresilient trading performance. Like-for-like sales during the year were up 3% and net retail operating margins werebroadly maintained, despite £8m ofadditional regulatory costs and £14m of closure and pre-opening costs arisingfrom the conversion of the Acquired Sites to our brands and formats.

Investing for high returnsIn the year we invested £253m in theestate, including £131m of expansionarycapital of which £80m was spent onconverting the Acquired Sites, delivering a sales uplift of approximately 20% againstthe levels at which the sites were acquired.Our core expansionary investment overthe last two years has continued to deliverincremental pre-tax returns of 20%, whilstthe business as a whole achieved a post-taxcash return on capital employed of 10.8%.

Value creative disposalsAlternative use and investment demand for individual pubs reachedrecord levels during the year and we tookthe opportunity to dispose of some of our smaller pubs, reinvesting the proceedsin high return projects within the estate.During the year, we raised £162m of cashfrom disposals, including £101m from the sale of 102 smaller, community pubs to Trust Inns Ltd.

Releasing additional value from propertyWe conducted during the year a rigorousreview to determine whether theCompany’s properties would be valuedmore highly if they were separated fromthe operations of the business. Ourmarket-testing in the spring confirmedthat specialist investors would place a substantially higher value on ourproperties than that which was implied inour stock market valuation. We examinedalternative structures to access this upsidefor shareholders and concluded that ajoint venture would offer the best route to crystallise a substantial proportion ofthe property value, whilst protecting the

Karim NaffahFinance Director

26

Summary operatingand financial review


Total revenue for the year was £1,894m up10.1% on last year, including the first yearof ownership of the Acquired Sites. Stronglike-for-like sales growth continuedreflecting resilient trading in morechallenging conditions in the second halfand further significant market share gains.With the success of our ongoing sales andmarketing activities, like-for-like food anddrink sales were up 5.1% and 2.2%respectively with average retail prices upless than 2%. Overall gross margins wereslightly below last year, reflecting a furthersignificant shift towards the higher growthbut lower margin categories of food andwine. By continuing to improve employeeproductivity, our pub employment ratio wasmaintained at below 24% of sales, despitefurther increases in the National MinimumWage adding £7m to our labour costs. As aresult the net retail operating margin at17.9% was broadly in line with last year,despite £14m of one-off closure andpre-opening costs.

We invested £261m in the estate in the year,of which £8m related to the purchase of theAcquired Sites and £80m was invested toconvert the majority of those sites toMitchells & Butlers’ brands and formats.£122m was invested to maintain the highlevels of amenity in the pubs and in thecontinuing development and evolution ofour brands and formats and £51m wasspent on expansionary projects in theexisting estate. During the year six newpubs opened and 65 existing pubs wereconverted to one of our brands and formatsto uplift their sales and profits. Overall weare continuing to achieve an incrementalpre-tax return of 20% on the expansionaryinvestment of the last two years. Net capitalinvestment was £99m after achieving£162m of cash from disposals.

Operating profit before exceptional itemswas £343m, 11.0% ahead of last year.

Revenue in the Pubs & Bars division was1.0% ahead of last year, including £16mfrom the Acquired Sites transferred to thedivision following conversion. Like-for-likesales, on a same outlet basis, were ahead by4.7%. There were continued drinks marketshare gains, as a result of the widening gapbetween our amenity, product range andvalue for money and that of thecompetition. Food sales across the divisionwere up 12.5% (excluding the AcquiredSites) driven by growth in the residentialpubs as well as the Town Pubs and centralLondon estate. As a result of tight costcontrol and improved employeeproductivity, operating profit of £191mbefore exceptional items was up 6.7% in the year and net Operating marginincreased from 18.7% to 19.7%. Excludingthe contribution from the Acquired Sitesand the impact of major disposals in the comparative, the existing Pubs and Barsestate increased Operating profit by 11.9%.

Revenue in the Restaurants division was19.2% ahead of last year at £908m,including the contribution of £160mfrom the Acquired Sites. Excluding theAcquired Sites, revenue grew by 2.7% withfood sales up 3.9% and drinks up 0.7%.The Restaurants division successfullyintegrated the Acquired Sites andcompleted the majority of the conversionsduring the year as planned. Growth in therest of the estate slowed during the yearprimarily as a result of the increasingeconomic pressure on mid-marketconsumers and greater intensity ofcompetition in pub food. Operating profitof £145m before exceptional items was up11.5% on last year, including £16m fromthe Acquired Sites. Net Operating marginfell from 17.1% last year to 16.0% due tothe closure and pre-opening costs associatedwith the conversion of Acquired Sitesand the comparatively low marginsachieved by those sites prior to conversion.Excluding the Acquired Sites, operatingprofit increased by 4.0% with a netoperating margin improvement on0.2 percentage points.

Standard Commercial PropertyDevelopments Limited, the Group’sin-house property development business,generated £18m of revenue and £7m ofoperating profit in the year.

Substantial progress was made in thesummer on structuring an attractiveproperty transaction, with terms largelyconcluded with R20 (the investment vehicleof Robert Tchenguiz) based on the sale ofa 50% stake in a £4.5bn property jointventure comprising 1,300 pubs and£240m of rent. In the final stages of theplanned transaction, the Company andR20 separately entered into certain interestand inflation hedging arrangementsintended to be contributed to the jointventure. The sudden, rapid deteriorationin debt market conditions in later Julymeant that a financing package could notbe obtained and the transaction could notbe executed. The hedges remain in placeas it is the Board’s intention to utilisethese instruments in a future property-based refinancing once debt marketshave stabilised.

Given the continued focus on the value ofour estate, we have completed a revaluationof our fixed assets based on an updatedvaluation performed by Colliers CRE, ofour freehold and long leasehold propertiesas at 29 September 2007. The revised valueof the properties at £5.0bn represents anet increase of £1.1bn compared with thehistorical accounting basis. We will continueto regularly revalue our properties each yearon a rolling basis.

The Company entered into certain interestrate and other hedging arrangements inJuly 2007 which provide an economichedge against the future anticipated cashflows associated with a property basedrefinancing, however they do not qualify forhedge accounting. The total fair value ofthese instruments during the year reportedwithin exceptional items was £(221)m. Anexceptional loss on property related items of£23m arose during the year, consisting ofimpairment arising from the revaluation ofthe property portfolio of £45m partly offsetby net profits on the disposal of propertiesof £22m, primarily related to the sale of102 pubs to Trust Inns Limited on6 October 2006. Exceptional costs of £4mwere incurred in the first half of the yearrelating to the integration of the AcquiredSites, whilst a further £7m of costs wereincurred in the second half of the year,relating primarily to professional advisers’fees in relation to the Board’s reviewof a potential property refinancing and theproposed joint venture transaction with R20.

Finance costs for the year before exceptionalitems were £153m, £35m higher than lastyear, reflecting the higher level of debt inthe Group following the purchase of theAcquired Sites in July 2006 and thepayment of a Special Dividend of £486m,to shareholders in October 2006. Theeffective tax rate was 30%, one percentagepoint lower than last year.

Earnings per share before exceptional itemswere 35.5p, 21.2% ahead of last year. Inaddition to the growth in operating profit,earnings per share have benefited from a17% reduction in the average number ofshares mainly as a result of the 34 for 41share consolidation in October 2006.

The Board is recommending a finaldividend of 10p per share. Together withthe interim dividend of 4.25p paid in June,this gives a total dividend for the year of14.25p, 16.3% higher than last year.

The Group’s operations continued togenerate strong cash flows. Cash flow fromoperations was £447m before exceptionalitems but after pension contributions of£40m. Net capital expenditure was £99mincluding £80m of expenditure on theAcquired Sites, £51m of core expansionarycapital investment, £122m of maintenancecapital, less disposals proceeds of £162m.

On an IAS 19 basis, the net deficit in thepension scheme was £18m (£14m, after tax)at 29 September 2007 compared with £99m(£67m after tax) at 30 September 2006. Thereduction in deficit reflects the benefit of£40m of additional pension contributionspaid in the year and improved investmentreturns, partially offset by updatedassumptions of life expectancy.

27


2007 200652 weeks 52 weeks

Income statement £m £m

Revenue 1,894 1,720 Operating profitPubs & Bars 191 179 Restaurants 145 130

Retail 336 309 SCPD 7 –

Operating profit before exceptional items 343 309 Operating exceptional items (11) (7)(Loss)/profit arising on property-related items (23) 23

Operating profit 309 325 Net finance costs (368) (113)Net finance income from pensions 11 8

(Loss)/profit before taxation (48) 220 Tax credit/(expense) 38 (25)

(Loss)/profit for the financial period (10) 195

Earnings/(loss) per ordinary shareBasic – before exceptional items 35.5 p 29.3pBasic – after exceptional items (2.5)p 39.7p

Ordinary dividends per share 14.25p 12.25pSpecial dividends per share 100.00p –

2007 2006Cash flow £m £m

Operating profit before exceptional items 343 309 Depreciation and amortisation 129 121

EBITDA before exceptional items 472 430 Working capital movement 8 9 Other non-cash items 11 11 Additional pension contributions (40) (20)

Net cash inflow from operations before exceptional items 451 430 Net capital expenditure (99) (583)

Operating cash flow after net capital expenditure 352 (153)Integration costs paid (4) –

Cash flow from operations after net capital expenditure 348 (153)

Net interest paid (145) (107)Tax paid (33) (48)Dividends paid (538) (56)Purchase of own shares (46) (76)Proceeds on release of own shares held 11 12 Defence costs – (4)Expenditure associated with refinancing (4) (10)Corporate restructuring costs (4) –

Net cash flow (411) (442)

2007 2006restated*

Balance sheet £m £m

Non-current assets 5,163 3,970 Non-current assets held for sale 6 88

Total non-current assets 5,169 4,058 Current assets 303 498 Total current liabilities (790) (321)

Net current (liabilities)/assets (487) 177

Total assets less current liabilities 4,682 4,235

Total non-current liabilities (3,106) (3,026)

Net assets/shareholders’ funds 1,576 1,209

* Restated in respect of a prior year deferred tax adjustment (see notes to the 2007 Annual report and accounts).

Independent auditors’ statement to themembers of Mitchells & Butlers plcWe have examined the Group’s summaryfinancial statement for the year ended 29September 2007 which comprise thesummary income statement, summaryconsolidated cash flow statement andsummary balance sheet.

This report is made solely to thecompany’s members, as a body, inaccordance with Section 251 of theCompanies Act 1985. To the fullest extentrequired by the law, we do not accept orassume responsibility to anyone other thanthe company and the company’s membersas a body, for the audit work, for thisreport, or for the opinions we haveformed.

Respective responsibilities of directorsand auditorsThe directors are responsible forpreparing the Annual review inaccordance with applicable law.

Our responsibility is to report to you ouropinion on the consistency of the summaryfinancial statement within the Annualreview with the full annual financialstatements, the Directors’ report andDirectors’ Remuneration report, and itscompliance with the relevant requirementsof section 251 of the Companies Act 1985and the regulations made thereunder. Wealso read the other information containedin the Annual review and consider theimplications for our report if we becomeaware of any apparent misstatements ormaterial inconsistencies with the summaryfinancial statement.

Basis of opinionWe conducted our examination inaccordance with Bulletin 1999/6 ‘Theauditors’ statement on the summaryfinancial statement issued by the AuditingPractices Board. Our report on thecompany’s full annual financial statementsdescribes the basis of our audit opinionson those financial statements and theDirectors’ Remuneration report.

OpinionIn our opinion the summary financialstatement is consistent with the full annualfinancial statements, the Directors’ reportand Directors’ Remuneration report, ofMitchells & Butlers plc for the year ended29 September 2007 and complies with theapplicable requirements of section 251 ofthe Companies Act 1985, and regulationsmade thereunder.

Ernst & Young LLPRegistered AuditorsLondon

Note: The maintenance and integrity of the Mitchells & Butlers plc website is the responsibility of the Directors; the work carried out by the auditors does not involveconsideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since theywere initially presented on the website.

28

Board of Directors Mitchells & ButlersAnnual review and summary financial statement 2007

1 Roger Carr, aged 60Chairman *#~Became Chairman of the Company onits separation from Six Continents PLCin 2003. He is Chairman of Centrica plcand Deputy Chairman of CadburySchweppes plc and a senior adviser toKohlberg Kravis Roberts Co. Ltd. He isalso a non-executive director to theBank of England’s Court of Directors.He has previously held a number ofsenior appointments including ChiefExecutive of Williams plc, Chairman of Chubb plc and Chairman of ThamesWater plc. He was appointed as amember of the Remuneration Committeeon 1 October 2006.

2 Tim Clarke, aged 50Chief Executive ~†Became Chief Executive of theCompany on its separation from Six Continents PLC in 2003, havingpreviously been Chief Executive ofSix Continents PLC. Between 1995 and2000 he was Chief Executive of BassRetail, which now constitutes thebusiness of Mitchells & Butlers plc. He chairs the Executive Committee. He is a director of the British Beer &Pub Association, having been Chairmanin 2002 and was appointed a director of The Drinkaware Trust on 2 February2007. He is a non-executive director ofAssociated British Foods plc and theBirmingham Royal Ballet.

3 Karim Naffah, aged 44Finance Director †Became Finance Director of theCompany on its separation from SixContinents PLC in 2003. In 1991, hejoined Bass, becoming its Director ofStrategic Planning in 1992. In 2000, he became Strategy Director for thatgroup and a member of the StrategicBusiness Committee and the executivecommittees of the Hotels and Retaildivisions. He also held responsibility for the property development and ITfunctions.

4 Mike Bramley, aged 56Managing Director, Pubs and Bars †Became a Director of the Company onits demerger from Six Continents PLC in 2003. He has been Managing Director,Pubs & Bars since September 2002. Inover 20 years with Bass/Six Continents,he worked in a variety of roles in thepubs and brewing businesses. In 1995he became Commercial Director ofBass Taverns and in 1998 wasappointed HR and Commercial Directorof Bass Leisure Retail. He is a directorof the British Beer & Pub Association.

5 Tony Hughes, aged 59Executive Director † (former Managing Director, Restaurants)Became a Director of the Company onits demerger from Six Continents PLC in 2003. He was Managing Director,Restaurants from 2000 to 30 September2007. In 1995 he joined Bass followingsenior management roles at B&Q, J.A.Devenish and Whitbread. In 2001 hereceived the Hotel and Caterer ‘Catey’for the Pub Industry Award, in both2002 and 2006 he was voted Retailers’Retailer Individual of the Year by thepub and restaurant industry and in 2007 he received a Lifetime AchievementAward at the 8th European FoodserviceSummit.

6 Adam Fowle, aged 48Managing Director, Restaurants†Became Managing Director, Restaurantson 1 October 2007. Adam rejoinedMitchells & Butlers in March 2005 asBusiness Development Director, havingspent two years with Sainsbury’s asRetail Director. Adam originally joinedBass as a District Manager in 1985 andworked in a number of operational andstrategic roles, latterly as ManagingDirector for the Pubs and Bars Division.

7 George Fairweather, aged 50Non-Executive Director *•~Appointed a Non-Executive Director in April 2003, he chairs the AuditCommittee. He is Group FinanceDirector of Alliance Boots havingpreviously held the same role withAlliance UniChem up until its mergerwith Boots Group. Earlier appointmentswere with Elementis and DawsonInternational, both as Group FinanceDirector, and before that with DixonsGroup and Procter & Gamble.

8 Sara Weller, aged 46Non-Executive Director *•~Appointed a Non-Executive Director inApril 2003, she chairs the RemunerationCommittee. Sara is Managing Directorof Argos Ltd having previously been Deputy Managing Director of J Sainsbury plc. Earlier appointmentswere with Abbey National and MarsConfectionery.

9 Sir Tim Lankester, aged 65Non-Executive Director *•~Appointed a Non-Executive Director inMay 2003, he is President of CorpusChristi College, Oxford. From 1973 to1995 he was a member of the CivilService rising to be Deputy Secretary of H.M. Treasury, Permanent Secretary,Overseas Development Administration,Foreign and Commonwealth Office andPermanent Secretary, Department forEducation. He served as PrivateSecretary at 10 Downing Street andrepresented the UK on the Boards ofthe World Bank and the IMF. He hasheld non-executive directorships ofCU/CGU and Smith & Nephew andcurrently is a non-executive director of ACTIS Capital. He is Chairman of the Board of Management of theLondon School of Hygiene and TropicalMedicine and was appointed Chairmanof the Board of Trustees of theContemporary Dance Trust Limited on 1 September 2007.

10 Drummond Hall, aged 58Non-Executive Director *•~Appointed Senior Independent Directoron 1 February 2007, having recentlystepped down from his full time positionas Chief Executive of Dairy Crest plc.Prior to that, he had held marketingpositions in Procter & Gamble, Marsand Pepsi Cola, before moving to HPBulmer plc where he became ManagingDirector of the Cider and Beer Divisionand a member of the Group Executive.He was appointed a non-executivedirector of Taylor Nelson Sofres plc on12 April 2007.

Our strong leadership team

1 5 9

2 6 10

3 7

4 8

29


Executive Committee

11 John Butterfield, aged 42Strategy Director†Joined the Bass Group in 1999,transferring to the retail business in2000 to become Director of StrategicPlanning. He was previously employedby Bain & Company (managementconsulting) and StandardChartered/West LB (InvestmentBanking).

12 Bronagh Kennedy, aged 44HR Director and General Counsel†Company Secretary to the Board of Directors, Bronagh is a qualifiedsolicitor and joined the Bass retailbusiness in April 1995. She wasappointed Director of Legal Affairs in 2000 and HR Director and GeneralCounsel in 2002. She was previouslyemployed with Allen & Overy.

13 Adam Martin, aged 44Marketing Director†Joined the Bass Group in 1996becoming Marketing Director of theretail business in 1999. Adam waspreviously employed at GeminiConsulting and Cadbury Limited.

14 Richard Pratt, aged 52Commercial Director†Became Commercial Director in 2002having joined the Bass retail business in 1994 as Catering Retail Director. Hepreviously worked for Diageo plc.

15 Jeremy Townsend, aged 43Deputy Finance Director†Joined the Company in June 2005as Deputy Finance Director. He waspreviously employed by J Sainsbury plc(Corporate Finance Director) andErnst & Young (Corporate Finance).

16 Alison Wheaton, aged 43Property and IT Director†Joined the Bass retail business in 1997 as Director of Strategic Planning,moving to run Hollywood Bowl beforebecoming Operations Director ofLondon & Venues. She was appointedProperty & IT Director in 2002. Alisonwas previously employed by Pepsi Cola,Lever Brothers and Morgan Stanley andis a non-executive director of the LondonDevelopment Agency.

Key* A Non-Executive Director# A member of the Remuneration

Committee• A member of the Audit and

Remuneration Committees~ A member of the Nomination

Committee† A member of the Executive

Committee

11 15

12 16

13

14

30

Directors’ report &Corporate governance report


Directors’ reportPrincipal activitiesMitchells & Butlers is the leading operatorof managed pubs and pub restaurants,with an estate of 2003 sites as at 29 September 2007, principally located in the UK. A review of the the Group’sperformance is contained in the fullDirectors’ report which cross-refers to theChairman’s statement, and the Operatingand financial review incorporating theChief Executive’s review, the Businessreview, the Financial review and Corporategovernance report contained in the Annualreport and financial statements 2007, a copy of which is available on request and can be viewed on the Company’swebsite at www.mbplc.com/reports

Share capitalOn 1 October 2006, the Company had 486,910,806 ordinary shares of 71⁄12pin issue. On 18 October 2006 the sharecapital of the Company was consolidatedin the ratio of 34 new ordinary shares of 813⁄24p for every 41 existing ordinaryshares of 71⁄12p. As at 29 September 2007,403,779,693 ordinary shares of 813⁄24p werein issue. 1,241,969 of these shares wereheld in Treasury and the Company’semployee share trusts held 1,070,449shares at the year end.

Refinancing and return of funds to shareholdersFollowing a refinancing that wascompleted in September 2006 and theshare capital consolidation that occurredin October 2006, the Company paid a Special Dividend of £1 per share on 25 October 2006 as an interim dividend for the year ending 29 September 2007.

Final dividendThe Board recommends a final dividendfor the year ended 29 September 2007 of 10.0p per share to be paid on 4 February 2008 to shareholders on the register at close of business on 7 December 2007. This makes a totaldividend, including the Special Dividend,for the year of 114.25p per share (2006 12.25p per share).

Securities and Exchange Commission (‘SEC’) registration As a result of changes to the SEC rulesimplemented in June 2007, the Companywas able to file to terminate its registrationunder the US Securities and Exchange Act 1934 (the ‘Exchange Act’). Thistermination took effect on 4 September2007 and accordingly the Company nolonger has any reporting requirementsunder the Exchange Act.

DirectorsDetails of the Directors who served on the Board during the year are shownon page 28.

There were no changes to the Boardduring the year.

Adam Fowle was appointed to the Boardon 1 October 2007 and Tony Hughes will stand down from the Board on 31 December 2007. Mike Bramley, RogerCarr and Drummond Hall will retire byrotation at the Annual General Meetingon 31 January 2008. Adam Fowle will alsostand for reappointment at that meeting ashe was appointed by the Directors duringthe year. The Executive Directors eachhave a service contract with the Company,and the Non-Executive Directors serveunder letters of appointment.

EmployeesThe Group employed an average of42,741 people in 2007 (2006 38,677).Details of the Group’s employmentpolicies are shown in the Annual reportand financial statements.

Donations The Company continues to supportcommunity initiatives and charitablecauses, full details of which are given in the Annual report and financialstatements. The Company made nopolitical donations during the year andintends to maintain its policy of notmaking such payments. It will, however,as a precautionary measure to avoidinadvertent breach of the law, seekshareholder authority at its 2008 AGM to make limited donations or incurlimited political expenditure, althoughit has no intention of using the authority.

Annual General MeetingThe notice convening the Annual GeneralMeeting to be held at 11.00am onThursday, 31 January 2008 is contained in a circular sent to shareholders with this review.

Corporate governance reportThe Board recognises the importance of good corporate governance in creating a successful, sustainable and profitablebusiness. It is committed to compliancewith the principles of corporategovernance as set out in the CombinedCode on Corporate Governance (the ‘Combined Code’) and considers thatthe Company has complied throughoutthe year ended 29 September 2007 withall the provisions of the Combined Code,except where explained below.

Internal controlThe Board is responsible for the Group’s system of internal control and risk management and for reviewing itseffectiveness. In order to discharge thatresponsibility, the Board confirms that ithas established the procedures necessaryto apply the Combined Code, including

clear operating procedures, lines ofresponsibility and delegated authority.These procedures have been in place sincethe Company was listed and are regularlyreviewed by the Board.

During the year, the Board has conducteda review of the effectiveness of the systemof internal control. The system is designedto manage, rather than eliminate, the riskof failure to achieve business objectivesand it must be recognised that it can onlyprovide reasonable and not absoluteassurance against material misstatementor loss. In that context, the review, in theopinion of the Board, did not indicate thatthe system was ineffective or unsatisfactory.

The Group regularly reviews both the typeand amount of external insurance that itbuys bearing in mind the availability ofsuch cover, its cost, and the likelihood andmagnitude of the risks involved. TheGroup additionally maintains Directors’and officers’ insurance cover.

Board and committee structureTo support the principles of goodcorporate governance, the Board, isresponsible to the shareholders for thegood standing of the Company. Therewere eight regular Board meetings duringthe year, along with seven additionalmeetings. During the year the Companyentered the FTSE 100 and, as a result, the Chairman now holds more than onechairmanship of a FTSE 100 company.The Non-Executive Directors specificallyconsidered this as part of the Boardeffectiveness review and concluded that he is more than capable of devotingsufficient time to his role of Chairman of the Company alongside his externalappointments.

The Audit, Remuneration, Nominationand Executive Committees of the Board meet throughout the year. Their terms of reference are available on www.mbplc.com/investors

The Company Secretary’s responsibilitiesinclude ensuring good information flowsto the Board and its committees andbetween senior management and Non-Executive Directors, and for assisting the Directors with their professionaldevelopment.

Going concernThe Company’s financial statements for the year ended 29 September 2007have been prepared on a going concernbasis as, after making appropriateenquiries, the Directors have a reasonableexpectation that the Group has adequateresources to continue in operationalexistence for the foreseeable future.

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These principles of alignment are cascaded as appropriate to executives below Board level.

Incentivises increase in cash returns generated by the business and reduction in overall cost of funding.

Aligns interests of Executive Directors andshareholders.

Up to 177% of base salary. Total shareholderreturn against anindustry specificcomparator group.

Average excess ofcash return on cashcapital employed overthe weighted averagecost of capital.

Total shareholderreturn against anindustry specificcomparator group.

Average excess ofcash return on cashcapital employed overthe weighted averagecost of capital.

Reflects competitive market level for the role andindividual contribution.

Benchmarked against FTSE All Share index andrelevant sub-sector comparator group.

Individual contribution. Individual contribution.

Remuneration report Mitchells & ButlersAnnual review and summary financial statement 2007

This summary is an extract of informationfrom the full Remuneration reportcontained in the Annual report andfinancial statements 2007, a copy of which is available on request and can be viewed on the Company’s website atwww.mbplc.com/reports. Throughout thisreview, references to the year are to the52 week period ended 29 September2007. The full Remuneration report willbe put to shareholders for approval at theforthcoming Annual General Meeting.

Remuneration policy for ExecutiveDirectorsThe following overall policy has appliedthroughout the year and is intended to continue to apply for the financial year 2008.

The Remuneration Committee (the‘Committee’) determines on behalf of theBoard, with the benefit of advice fromexternal consultants and the HumanResources function, the remunerationpackages, including pension rights and,should it be necessary, compensationpayments, of the Executive Directors, the other members of the ExecutiveCommittee and certain other senior

executives. The Committee is alsoresponsible for reviewing the fees of theChairman. The Committee aims to ensurethat remuneration packages are designedto attract, retain and motivate ExecutiveDirectors of the highest calibre. It hasregard to the levels of remunerationwithin the Group and the specificindustries and businesses with which theGroup companies compete and is alsosensitive to levels within the widercommunity. The Company operatesperformance-related policies designed toprovide the appropriate balance betweenfixed remuneration and variable riskreward. Using target or projected valuecalculations, performance-relatedincentives for Executive Directors willequate to approximately 60% of totalremuneration.

Share and cash-based incentives aredesigned so as to align the interests ofexecutives with those of shareholders.Executive Directors are currently requiredto build and maintain significantshareholdings equivalent to twice theirbasic salary, but three times salary for theChief Executive. Although the Committeerecently reduced this to one times salary

for any future appointments, subject tothis continuing to be reflective of marketpractice, it was decided that Adam Fowlewho was appointed to the Board on 1 October 2007 would be required toattain a shareholding of twice his annualsalary within five years of his appointmentas an Executive Director.

The Company measures its performanceagainst its strategy through four keyperformance indicators (‘KPI’s), being:1. Same outlet like-for-like sales growth.2. Earnings per share (‘EPS’) growth.3. Cash return on cash capital employed

(‘CROCCE’) in excess of the weightedaverage cost of capital, post tax(‘WACC’).

4. Incremental return on expansionarycapital.

As outlined in the OFR, total shareholderreturn (‘TSR’) is also an importantmeasure of performance and this measureforms one of the performance conditionsfor the Performance Restricted Share Plan.

These KPIs and their alignment toremuneration policy are summarisedbelow.

Performance Restricted Share Plan (‘PRSP’)

Basic salary

Incentivises growth in EPS and share price.Aligns interests of Executive Directors andshareholders.

Deferred shares matched 1:1 subject toachievement of a performance condition. DividendAccrued Shares will be awarded on the value ofordinary dividends accruing on vested shares.

Growth in EPS overRPI over a three yearperformance period.

Short Term Deferred Incentive Plan (‘STDIP’)

Growth in EPS overRPI over a three yearperformance period.

Motivates achievement of annual business KPIsand delivery of EPS target.

55% of salary ‘on target’ bonus, 100% of basesalary maximum bonus. Payable in cash or sharesat the discretion of the Committee.

Earnings per share(75%) and personaland group businessobjectives (25%).These objectives arebased on a number of measures includinglike-for-like salesgrowth and return on investment.

Earnings per share(75%) and personaland group businessobjectives (25%).These objectives arebased on a number ofmeasures includinglike-for-like salesgrowth and return oninvestment.

Annual performance bonus

Purpose Grant policy Performance measures2006/07 2007/08


Components of remuneration packages

Basic salaryBasic salary will normally be set within a competitive range broadly at medianmarket level when compared with anappropriate comparator group. Aspreviously reported, from 2007 onwards,the Committee decided that by exception,basic salary may extend into the upperquartile to attract new employees andreward key individuals for consistentoutstanding performance.

Of the components of the remunerationpackage, only basic salary is pensionable.

Annual performance bonus and ShortTerm Deferred Incentive PlanChallenging performance goals are setwhich must be achieved before a bonusbecomes payable. These targets are linkedto the Group’s performance in achievingstrategic business objectives, deliveringcorporate financial targets and to eachDirector’s achievement of personalbusiness objectives. The maximum bonusopportunity for 2007 was 100% of salary.

Annual bonuses may be paid in cash but,at the discretion of the Committee, theExecutive Directors may receive all or part of the bonus in the Company’s sharesunder the terms of the STDIP. Under the STDIP, any award of Bonus Shares is deferred for three years and, if theExecutive Director is in the Company’s

Directors’ emoluments 2007

Total emolumentsBasic Annual (excluding pensions)

salaries performance 2007 2006and fees bonus* Benefits 52 weeks 52 weeks

£000 £000 £000 £000 £000

Executive DirectorsTim Clarke 538 – 22 560 951Mike Bramley 374 – 21 395 643Tony Hughes 374 – 25 399 645Karim Naffah 386 – 13 399 677

Non-Executive DirectorsRoger Carr 224 – – 224 209George Fairweather 55 – – 55 51Drummond Hall ** 47 – – 47 44Sir Tim Lankester 47 – – 47 44Sara Weller 55 – – 55 51

Total 2007 2,100 – 81 2,181

Total 2006 2,015 1,222 78 3,315

* Final consideration of whether a bonus should be payable in respect of the year to 29 September 2007 has been frozen pending a review by the Committee** Drummond Hall’s fees were paid to his former employer, Dairy Crest Group plc, until his retirement from that company on 31 December 2006

The figures above represent emoluments earned during the periods shown. There was no payment for loss of office. ‘Benefits’incorporate the value of all tax assessable benefits arising from employment with the Company, which primarily relate to theprovision of a company car and healthcare cover.

employment at the end of that period, the Company will provide MatchingShares on a 1:1 basis, subject tosatisfaction of the performance condition.Where Matching Shares have beenawarded, the performance condition hasbeen based on EPS growth. DividendAccrued Shares, equal to the grossordinary dividends applicable over theperformance period will be awarded basedon the number of shares vesting.

During the year, certain hedginginstruments (‘hedges’) were taken out inanticipation of implementing a propertybacked refinancing. These hedges havegiven rise to a non-cash deficit at the yearend. As it is uncertain whether this non-cash deficit will crystallise and, if so, theextent to which it will affect the financialperformance of the Company, theExecutive Directors have voluntarilyoffered to freeze final consideration ofwhether a bonus should be paid in respectof the year to 29 September 2007 pendinga review by the Remuneration Committeeat the forthcoming half year or later, ifappropriate.

Performance Restricted Share PlanThe PRSP aims to encourage continuingimprovement in the Group’s performanceover the longer term. Generally a threeyear performance cycle will commenceeach year and at the end of the cycle twoaspects of the Company’s performance willbe measured:

• total shareholder return against acomparator group of competitorcompanies; and

• cash return on cash capital employedagainst its weighted average cost ofcapital, post tax.

Awards will be graded according to thelevel of performance on each of thesemeasures. For awards made from 2006onwards, Dividend Accrued Shares, equal to the gross ordinary dividendsapplicable over the performance periodwill be awarded based on the number of shares vesting.

Executive share options Grants of options have been made underthe Mitchells & Butlers Executive ShareOption Plan (‘EXSOP’), although nogrants have been made under the EXSOPsince June 2005. It is intended that nofurther grants are made under this plan.The maximum value of shares over whichoptions were granted in any year was twicesalary for Executive Directors. Options areexercisable three to ten years from grantsubject to the achievement of aperformance condition set by theCommittee.

Pension arrangementsExecutive Directors participate with other members in the relevant Grouppension schemes.

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Remuneration reportcontinued


Short Term Deferred Incentive Plan The values earned in the year in respect of shares receivable through the matching facility under the STDIP are shown in the tablebelow. These Matching Shares relate to bonuses earned for 2005/06 which were rolled over under the terms of the plan and arevalued at 721.5p per share, the share price on 5 December 2006, the date of award. Matching Shares will be released after threeyears, subject to the satisfaction of a performance condition.

Awarded in FY 2007

Value of Matching Number of Matching Shares awarded

Director Shares awarded £000

Tim Clarke 44,187 319Mike Bramley 19,455 140Tony Hughes 38,910 281Karim Naffah 21,121 152

Performance Restricted Share PlanA cycle of the PRSP ended on 29 September 2007. The performance measures related to the Company’s TSR performance against a group of comparator companies and to the excess of CROCCE over WACC. The maximum potential awards to Executive Directorsare shown in the table below.

Maximum Maximum Maximumpotential potential potential

shares shares as awardas at Lapsed Exercised Granted as at as at Earliest Latest

30.09.06 in year in year in year 29.09.07 29.09.07 vesting lapseDirector shares shares shares shares* shares £000** date date

Tim Clarke 586,978 61,337 143,117 140,014 522,538 3,193 30.11.07 30.11.11Mike Bramley 393,220 40,290 94,008 95,104 354,026 2,163 30.11.07 30.11.11Tony Hughes 393,220 40,290 94,008 95,104 354,026 2,163 30.11.07 30.11.11Karim Naffah 417,784 43,296 101,024 100,388 373,852 2,284 30.11.07 30.11.11

* Granted on 1 December 2006; share price at date of grant was 685.0p** Based on the share price on 28 September 2007 of 611.0p

Executive share optionsThe Directors executive share options at 29 September 2007 are summarised in the table below.

Weighted average

option priceDirector 30.09.06 Exercised 29.09.07 pence

Tim Clarke 1,671,917 (456,620) 1,215,297 280.52Mike Bramley 1,085,781 (605,777) 480,004 285.41Tony Hughes 1,169,473 (689,469) 480,004 285.41Karim Naffah 1,022,934 (32,567) 990,367 259.71

The above table excludes potential awards under the PRSP

All-employee share plansExecutive Directors are entitled to participate in the Company’s all-employee plans on the same basis as other employees. No grant of options was made under the Sharesave plan to any Director during the year. The Directors’ interests under the Sharesave plan at 29 September 2007 were as follows:

Shares Optionunder price

Director option pence

Tim Clarke 9,423 169Mike Bramley – –Tony Hughes – –Karim Naffah 4,509 209


Under the Share Incentive Plan, Executive Directors and employees are conditionally awarded shares which become unconditionalafter three years. The Executive Directors’ interests in shares under this plan are as follows:

Sharesconditionally Total

Unconditional awarded in conditionalDirector shares June 2007 shares

Tim Clarke 1,669 342 1,574Mike Bramley 1,440 278 1,463Tony Hughes 1,493 278 1,463Karim Naffah 1,606 292 1,524

Directors’ shareholdingsOrdinary shares of

813⁄24p

29.09.07 30.09.06*

Executive DirectorsTim Clarke 806,409 487,022Mike Bramley 422,666 104,222Tony Hughes 468,381 110,932Karim Naffah 333,131 224,827

Non-Executive DirectorsRoger Carr 27,470 17,470George Fairweather 1,658 1,658Drummond Hall 7,974 2,902Sir Tim Lankester 1,017 1,017Sara Weller 4,383 4,354

* Adjusted for the share consolidation implemented on 18 October 2006

The above shareholdings, and the shares held on behalf of the Executive Directors by the trustee of the Company’s Share IncentivePlan, are all beneficial interests.

Pension benefitsThe Company provides an Executive Pension Plan (the ‘Plan’) and an unfunded Executive Top-Up Scheme in which the Directorsparticipate. Their accrued pensions under these schemes, which would be paid annually on retirement at 60, based on service to 29 September 2007, are shown in the table below. Mike Bramley opted out of the Plan for future accrual with effect from 5 April2006 and Tony Hughes opted out of the Plan for future accrual from 31 March 2007.

AccruedYears of pension at

pensionable 29.09.07Director service £ p.a.

Tim Clarke 17 295,800Mike Bramley 27 256,300 Tony Hughes† 12 140,800 Karim Naffah 16 173,700

† The value of accrued pension for the year to 29.09.07 reflects in part the decision taken at the discretion of the Committee after careful consideration and with the consent of the Plan Trustees to allow Tony Hughes to draw his accrued pension without deduction on his early retirement, aged 59, from 31 December 2007. No specific additional contribution is or has been made by the Company in respect of his early retirement.

Company’s performance against FTSE 100 and FTSE 250 15.04.03 to 29.09.07

From its listing on 15 April 2003 until 21 December 2003, the Company was a constituent of the FTSE 100 Index, and thereafter was included in the FTSE 250 Index. On 20 April 2007, the Company re-entered the FTSE 100 Index. The graph above, therefore, measures the Company’s performance against both indices.

0

100

200

300

400

Sep 07Sep 06Sep 05Sep 04Sep 03

Mitchells & Butlers TSRFTSE 250 FTSE 100

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Shareholder information Mitchells & ButlersAnnual review and summary financial statement 2007

Electronic communicationShareholders can register to receive an e-mail notification of the availability of the Company’s latest shareholdercommunications at the following web link www.mbplc.com/ecomms. The websitealso enables shareholders to view details of their own shareholding or electronicallyappoint a proxy to vote on their behalf on any poll that may be held at theforthcoming Annual General Meeting.

Following recent changes in legislation the Company will be seeking authority to amend its Articles of Association at the2008 AGM to enable it to make electroniccommunication with shareholders thedefault position. The Company intends to enclose communication election cardswith the interim dividend paymentmailing in 2008. Shareholders will havethe right to request to receive papercommunications, however this presents an opportunity for the Company tobenefit from reducing costs whilstreducing its impact on the environment.

Interim resultsThe Company does not intend to publishfuture interim results in hard copy. Theinterim results will be available online at www.mbplc.com/reports

Amalgamating your share accountsIf you received more than one copy of thisreport, it may be because the Registrar hasmore than one record of shareholdings inyour name. To ensure that you do notreceive duplicate mailings in future, youcan have all your shares amalgamated intoone account by contacting the Registrar atthe address below.

Dividend mandatesShareholders who wish dividends to bepaid directly into a bank/building societyaccount, should contact the Registrar for a dividend mandate form. This method of payment removes the risk of delay orloss of dividend cheques in the post andensures that your account is credited on the due date.

Key dates 2007 preliminary results announcement 29 November 2007Final dividend:

Ex-dividend date 5 December 2007Record date 7 December 2007Payment date 4 February 2008

Annual General Meeting 31 January 2008Interim management statement 31 January 2008Announcement of interim results May 2008Interim dividend payment date July 2008Interim management statement July 2008Pre close trading update September 2008Announcement of 2008 preliminary results Nov/Dec 2008

Dividend reinvestment plan (‘DRIP’)Shareholders can choose to reinvestdividends received to purchase furthershares in the Company through a DRIP. A DRIP application form is available fromthe Registrar or at the following web linkwww.mbplc.com/dividends

Low cost share dealing serviceA simple, low cost postal facility for buying and selling Mitchells & Butlers plcordinary shares is available through theCompany’s Registrar, information may beobtained from the Registrar’s addressbelow or at www.shareview.co.uk/dealing

Individual savings accounts (‘ISAs’)ISAs in Mitchells & Butlers plc ordinaryshares are available through the Registrarand information may be obtained fromthe Registrar’s address below.

Share price informationThe latest Mitchells & Butlers plc shareprice is available at the following web link www.mbplc.com/shareprice, in thefinancial press or on Ceefax and Teletextand also on the Financial Times CitylineService, telephone +44 (0)906 843 0000(calls charged at 60p per minute).

ShareGiftThe Orr Mackintosh Foundation operates this charity share donationscheme for shareholders with smallholdings of shares, whose value makesthem uneconomic to sell. Details can be obtained from the Registrar or theShareGift website www.ShareGift.org or bycalling ShareGift on +44 (0)20 7930 3737.

Corporate Social Responsibility ReviewThe Mitchells & Butlers Corporate SocialResponsibility Review 2007 is available on the Company’s website and can bedownloaded directly by visitingwww.mbplc.com/csrreview. If you do not have access to the internet and wouldlike a printed copy, please write to theCommunications Department at theregistered office shown below.

Special Dividend and share consolidationOn 25 October 2006 the Company paid a Special Dividend of £1 per share toshareholders on the register at the close ofbusiness on 17 October 2006. As approvedby shareholders on 17 October 2006, theSpecial Dividend was accompanied by a consolidation of the Company’s sharecapital, effective from 18 October 2006,whereby shareholders received 34 newordinary shares for every 41 existingordinary shares held on 17 October 2006.

ContactsRegistered office27 Fleet StreetBirmingham B3 1JPTelephone +44 (0)870 609 3000Fax +44 (0)121 233 2246

RegistrarEquinitiAspect HouseSpencer RoadLancingWest SussexBN99 6DA

Telephone 0870 241 3930* (from the UK)Telephone +44 (0)1903 702424 (for non-UK callers)Fax +44 (0)1903 702424

* For those with hearing loss, a textphoneis available on 0870 600 3950 for UKcallers with compatible equipment.

StockbrokersJPMorgan Cazenove LimitedMerrill Lynch International

AuditorErnst & Young LLP

Investment bankersCitigroup

SolicitorsAllen & Overy LLP

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Acquired Sites239 pub restaurant sites acquired fromWhitbread PLC in July 2006.

AmenityDesign, décor, furniture and facilitiesthat contribute to the environment andatmosphere of a pub.

AWT (Average weekly take)The average sales per pub per week,calculated as total sales divided by theaverage number of pubs trading duringthe period divided by the number ofweeks in the period.

BrandsOutlets which trade under a commonname, or their own individual namesunder an externally recognised groupname, with a consistent design, drinksrange, menu, service style andpromotional programme.

Business franchiseAn agreement where an entrepreneurgains access to high quality pubs and a sophisticated business supportinfrastructure whilst the Company retains its scale purchasing and overheadadvantages and shares in the tradingupside through a franchise fee. TheCompany receives a commercial rent forthe property and retains the propertyownership.

Capacity managementThe process that seeks to ensure that a pub can service maximum volumes atpeak trading times whilst maintainingcustomer satisfaction levels.

Cash flow from operationsThe cash generated from the operationsof the Company generally defined asrevenues less all operating expenses.

CAGRCompound Annual Growth Rate.

CoversThe number of main meals sold.

Cover turnThe total number of main meals solddivided by the number of main mealsthat could be sold in one sitting.

EBITDAEarnings before interest, tax,depreciation, amortisation andexceptional items.

External costsCosts influenced by outside factors, ie regulatory and energy costs.

FormatsOutlets where to the customer’s eye the business trades without any overtbranding or badging but the customeroffer and operating template aremanaged to defined standards.

Gross marginGross profit divided by sales, expressedas a percentage.

Gross profitSales less cost of goods sold, expressed in monetary terms (£s).

Incremental pre-tax returnsGrowth in annual pre-tax operatingprofit expressed as a percentage of theassociated capital investment. For siteswhich do not have 12 months post-investment trading, incremental return is estimated based on an annualisation of actual post-investment trading.

IFRSInternational Financial ReportingStandards.

National Minimum WageThe minimum amount an employermust pay its workers as defined by law.

Off-tradeAny retail outlet which has a licence tosell alcohol for consumption off thepremises.

On-tradeAny retail outlet which has a licence to sell alcohol for consumption on the premises (eg pubs, restaurants,nightclubs, clubs).

Operating profitEarnings before interest, tax andexceptional items.

Outlet employment ratioPub employment costs divided by totalsales, expressed as a percentage.

Post-tax cash returnEBITDA less tax divided by average netoperating assets less revaluation reserveplus accumulated depreciation plusgoodwill written off.

ProductivitySales less hourly paid wages divided bythe number of hours worked.

RefinancingThe repayment of an existing loan withthe proceeds from a new loan.

REITReal Estate Investment Trust.

Same outlet like-for-like sales growthThe increase in sales performance of allmanaged pubs that were trading for the two periods being compared, expressed as a percentage.

SecuritisationA means of raising finance secured onidentifiable and predictable cash flowsderived from a particular set of assets.

Share buybackThe purchase in the open market by a listed company of its own shares.

Uninvested like-for-like sales growthThe increase in sales performance of those managed pubs that have notreceived expansionary investment ofmore than £30,000 in either year beingcompared, expressed as a percentage.

Glossary

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Mitchells & Butlers key brandsand formats include:

All Bar OneStylish, contemporary bars in cities nationwide, run by professionalsfor professionals

AlexVibrant bar-restaurants in Germany,where people of all ages meet up to eat, drink and talk and enjoy theextensive outside seating areas and full table-service

Nicholson’sPrimarily located in London, thesebeautifully restored, historic pubs offerpremium quality food and a wideselection of cask ales

Community pubsGreat value, inclusive pubs at the heartof their neighbourhoods, providingregulars with a relaxed, sociable placeto meet up with everyone they know

Ember InnsHigh quality local pubs providing ourcustomers with a home from home anda great range of cask ales, wines andquality food

O’Neill’sIrish bars offering great ‘craic’ and livemusic alongside hearty pub food with a distinct Irish flavour and the bestGuinness in town

Premium Country Dining GroupModern country restaurants with greatbars designed to offer our guests highquality, fresh food and drink in asophisticated environment

ScreamAimed at students and like-mindedindividuals, and famous for the Screamburger as well as their excellent lagerselection, these pubs are often the bestplace in town to watch all majorsporting events

Metro ProfessionalsHighly individual pubs which attract an eclectic, urban crowd andoffer an innovative choice of wines and cask beers and food with acontemporary twist

BrownsElegant brasserie bars and restaurantsoffering a fusion of British and Europeanclassic dishes in tasteful surroundings

Toby CarveryWelcoming, accessible pub restaurantswith traditional carvery experts creatingSunday everyday for all our guests,whatever the occasion

Vintage InnsTraditional pub restaurants with realcharacter and cosy interiors providing a warm, relaxed atmosphere, excellentwines, cask-conditioned ales and good food

The paper used in this Review isderived from 50% recycled material,the remaining 50% is sourced fromsustainable forests and bleached usingan Elemental Chlorine Free process.It is produced at a Mill that has ISO14001 Environmental Accreditationand is FSC certified.

Music barsPlaying the best music from the 70s,80s and 90s, these high street venuesoffer customers a terrific night ofdancing in a mixed, friendly crowd

HarvesterFamily-friendly restaurants servingfreshly prepared grills, spit-roasts andfish dishes and the famous salad cart,included with every meal

Hollywood BowlFun, safe bowling for groups of friendsand families to enjoy, on any day of theweek, with the convenience of a realtime online booking service

Town pubsConveniently located city centre pubs offering good value food anddrink, whether for a morning coffee,a lunch-time get together or an after-work drink with friends

Sizzling Pub Co.Friendly, comfortable local pubs offeringregulars and families great value sizzlingdishes and a good choice of drinks

Pub & CarveryTop quality carvery meals at greatprices within a friendly local pub servinggood value drinks

Innkeeper’s LodgeOffering the quality, satisfaction and value for money expected frombudget accommodation, but with theadvantage of a great pub next door,Innkeeper’s Lodge is the perfect placeto stay for business or leisure

50%

Cert no. TT-COC-002228

Design and productionCarnegieOrr

PrintRoyle Corporate Print

Mitchells & Butlers plc27 Fleet StreetBirmingham B3 1JPTel: +44 (0) 870 609 3000Fax: +44 (0) 121 233 2246www.mbplc.com

annual review and summary financial statement 2007 · 25 finance director’s report 27 summary...

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