mab annual report 2011

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Brandspeoplelove

Annual reportand accounts 2011


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Contents

Overview01 Executive Chairmans statement02 Executive Chairmans review04 Corporate social responsibility

Financial review07 Financial review09 Key performance indicators10 Risks and uncertainties

Governance13 Board of Directors14 Directors report18 Directors responsibilities statement19 Corporate governance statement23 Audit Committee report25 Report on Directors remuneration

Financial statements35 Independent auditors report to the

members of Mitchells & Butlers plc

36 Group income statement37 Group statement of

comprehensive income38 Group balance sheet

39 Group cash ow statement40 Group statement of changes in equity41 Notes to the nancial statements74 Five year review75 Independent auditors report to the

members of Mitchells & Butlers plc76 Mitchells & Butlers plc

parent company balance sheet77 Notes to the parent company

nancial statements

Shareholder information83 Shareholder information84 Glossary

Mitchells & Butlers is the UKs largestoperator of restaurants and pubs, witha leading portfolio of well-recognisedbrands and a high quality freehold estate.

Find out more about our brands at

www.mbplc.com

Toby Carvery offers a warm andwelcoming environment, withroast meats carved at the iconicdeck and served with freshlysteamed vegetables, makingevery visit feel like the perfectSunday afternoon.

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Executive Chairmans statement

Retained Estate1

Total sales up 4.9% including food salesup 7.8%

Like-for-like sales up 2.6% Operating prot up 1.1%

Group EBITDA returns of21% achieved on

expansionary capex invested over thelast two years

Net debt reduced by over 400m

Estate valuation up 2%

Group Retained Estate

I am delighted to have been appointedExecutive Chairman of your Company. I havelong regarded Mitchells & Butlers as the bestrestaurant and pub company in the countryand I hope to be able to develop your business

successfully in the future.

My experience of over 30 years in the industryhas been focused on managing large, food-ledrestaurant and pub sites. In addition to this Ihave been Chairman of a number of successfulbusinesses in the leisure sector. My key initialpriorities are to appoint a high quality ChiefExecutive to lead the implementation of theexisting strategy and to strengthen the Boardwith additional Non-Executive Directors.

There have been a number of changes on theBoard over the last few years and what Mitchells& Butlers requires now is a sustained period

of stability in management and business focus.I believe that my background and experiencewill enable me to keep the long-term support ofthe Board and shareholders, ensuring stabilityfor the business to grow.

I would like to recognise the contribution duringthe year from both John Lovering and SimonBurke as Chairman as well as from Adam Fowlefor his signicant service to the Company overa number of years. Mike Balfour and JeremyBlood have also stepped down from the Boardand I would like to express my thanks for theirservice, particularly to Jeremy for his leadershipduring the period when he assumed the role of

Interim Chief Executive.

We welcome Doug Evans to the Board, whereI am sure he will play a key role in developingthe Company in the future.

The economic conditions continue to be

challenging and we continue to work througha prolonged economic downturn whilst alsodealing with high levels of cost ination.Within this context, we are focusing on thedelivery of our strategy of growing food sales,focusing on operating margins and rolling outour brands whilst ensuring good returns oncapital. I am encouraged by the work completedso far although we still have much to do, andwe are therefore implementing a number ofbusiness initiatives to accelerate our strategy.

Success in a difcult economic environmentrequires unrelenting focus on our customersneeds and ensuring that our staff have the tools

they need to provide an exceptional qualityof service. We are therefore implementing anew initiative that will deliver a more effectiveorganisational structure, reduce the burdenon front line staff and deliver an enhancedcustomer experience. I would like to recordmy thanks to the 40,000 employees whocontinue to show immense dedication to theircustomers, colleagues and to Mitchells &Butlers. Our performance is rooted in theirtalent and enthusiasm.

Bob IvellExecutive Chairman

Over the last 18 months, the business ha s made anumber of major disposals including 333 non-core pubs,Hollywood Bowl and lodges. As such, it is useful to showthe performance of the Retained Estate, which excludesthese businesses as well as SCPD, exceptional items and

other adjustments.1 Adjusted prot before tax is stated before exceptional

items and other adjustments.2 Adjusted earnings per share is prot after tax before

exceptional items and other adjustments, divided by theweighted average number of ordinary shares in issue.

Revenue up 4.9%(m)

Operating prot up 1.1%(m)

Adjusted earnings per share2 down 5.7%(p)

Adjusted prot before tax1 down 7.7%(m)

EBITDA up 1.8%(m)

Bob IvellExecutive Chairman

Business highlights

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Mitchells & Butlers plcAnnual report and accounts 2011 01

Overview

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Executive Chairmans review

Mitchells & Butlers is the UKs largest operatorof restaurants and pubs, with a leading portfolioof well-recognised brands and a high qualityfreehold estate. Food is our largest sellingproduct having grown by 30% over the last fouryears and this has helped generate a 16% rise inprots per site over the same period. As a result,the estate has high average weekly sales andannual protability per site, at over 22k and180k respectively, both well above the averageof our major competitors.

This year has seen good progress towardsachieving our strategic objectives despite achallenging consumer and inationary costenvironment. We continue to actively developand implement a number of sales and costinitiatives that will help further enhance ourcompetitive position.

Sales growthThe Retained Estate delivered 4.9% salesgrowth in the year with total food salesgrowth of 7.8% and drinks sales up 2.3%.

On a like-for-like basis, sales growth in the

nancial year was 2.6% with food like-for-likesales up 4.8% and drink up 1.0%.

FY2010 FY2011 FY2012 Week Week WeekLike-for-likesalesgrowth 1-52 1-52 1-8Total 2.8% 2.6% 2.0%Food 4.7% 4.8% 1.8%Drink 1.4% 1.0% 3.0%

Over the rst eight weeks of the new nancialyear our like-for-like sales grew by 2.0% whichreects the impact of strong early sales, drivenby good weather, on an underlying current runrate of around 1%.

Our vision

Our strategy

Investment opportunities

53 new sites were opened in the year, slightlyahead of our target of 50 new openings.

Mitchells & Butlers plcAnnual report and accounts 201102


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Operating protThe Retained Estate operating prot increasedin the year by 1.1% driven by higher sales andincreasing restaurant and pub numbers.

Operating margin was down 0.7 percentagepoints to 16.3% due to a number of inationaryand regulatory pressures. These industry-widecost rises relate to increases in food, energy,alcohol duty, National Minimum Wage, businessrates and the introduction of the Carbon

Reduction Commitment. Efciencies in areassuch as purchasing and wastage reductionmitigated some of the impact of these costpressures.

Brand roll-outThere continue to be good freehold andleasehold investment opportunities to developnew sites across our brand portfolio. As a result53 new sites were opened in the year, slightlyahead of our target of 50 new openings. Theseinclude 21 of the 22 Ha Ha Bar & Grill sitesacquired in November 2010, 16 new sites onleisure and retail parks and 16 other, mainlyfreehold sites. During the year we also

converted 48 of our existing sites to ourexpansion brands.

EBITDA returns on expansionary capital haveimproved from 19% as at the half year to 21%,with our new openings programme performingespecially well. Within this, our investments inleasehold retail and leisure park sites havedelivered particularly strong returns of over30% and we see a good pipeline ofopportunities to expand further in this area,alongside our continued investments in newfreehold sites.

Business initiativesThe Group is actively implementing a numberof business initiatives to underpin futureprotability and increase long term shareholdervalue. These include a reorganisation of theGroups IT infrastructure and an initiative tosimplify the central support functions.

Central support processes will be improvedby devolving greater responsibility andaccountability to customer facing operations,

in order to enhance the guest experience andcontinue to grow the business. The rst stageof this programme is the appointment of RobinYoung as Operations Director with accountablebrand groups reporting directly into him, eachled by a Brand Operations Director. Robinwas previously Commercial Director and hassignicant operational and change managementexperience across a variety of companies.Further changes in operational and centralsupport structures are anticipated and as aresult, a consultation period is being initiatedwithin the Group.

Outlook

The consumer environment remainschallenging. We expect inationary costpressures to persist in the new nancial year,especially from energy, duty and food. Wewill seek to mitigate the impact of these costincreases with the effective implementationof our business initiatives and will continueto take advantage of attractive capitalinvestment opportunities. Overall, Mitchells& Butlers strong portfolio of assets, brandsand operational skills means that it is wellpositioned to grow further in the year ahead.

16New sites on leisure and retail parks.

4848 existing sites converted toexpansion brands.

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Corporate social responsibility

As one of the leading eating and drinking-outcompanies in the UK we place a strongemphasis on operating a sustainable andresponsible business. As a result, delivering andmaintaining an effective social responsibilityprogramme is something we take very seriously.

Good food and great choiceAttitudes towards food and eating-out arechanging and our customers want to know

more about the food they eat.

We want our customers to be able to makean informed choice and therefore providingdetailed nutritional information about food isbecoming a welcome addition to the menuwhen dining out in one of our restaurants.

We already provide this information on ourHarvester, Toby Carvery, Crown Carveriesand Sizzling Pubs websites and we arecontinuing to work to provide the same levelof information for all our other brands by theend of 2012. In March, Harvester took a furtherstep and became the rst national restaurant

brand to print dish by dish calorie informationon its menus.

At the same time, our chefs work closely withour food suppliers to develop our menus,particularly focusing on improving thenutritional content of each individual item.This year we appointed a dedicated Companynutritionist to assist us with this development,and accelerate our food responsibilityprogramme internally and across oursupplier base.

We have identied a number of target areaswhich are important to us as a leading playerin the food industry and which we are focusingon as a priority, including: the increasedprovision of nutritional information tocustomers; developing and signposting healthyoptions; reducing saturated fat in our dishes;developing a salt reduction programme;designing nutritionally balanced young guestmenus; and providing customers with allergenguidance. Our food development and tradingteams will work alongside our brands andsuppliers to progress these priorities over thecoming months.

Responsible serviceWe recognise we have an inherent duty underour alcohol licences to ensure the responsibleoperation of our premises for our guests,employees and the wider community.Alongside this we continue to emphasisethe pubs key role in providing a safe andcontrolled environment for the sale andconsumption of alcohol.

Our long-standing Alcohol and Social

Responsibility Policy reects these values andincorporates strict controls over the pricing andpromotion of our alcoholic products, as well asrobust staff training practices.

Through the rigorous implementation of ourChallenge 21 scheme, we continue to commit toour staff delivering responsible service acrossour estate. Last year 675,000 customers wererefused service for failing to prove they wereover 18 and over 229,000 were refused serviceas they were deemed to have already hadtoo much to drink. In addition, to reect thechanges in Scottish law, we now have ourChallenge 25 programme in place across our

Scottish businesses.

The Public Health Responsibility DealMitchells & Butlers has been engaged in theGovernments Public Health ResponsibilityDeal, taking part in both the alcohol and foodnetwork groups to develop a series of pledgesfor action across the industry. Mitchells &Butlers has signed up to a series of alcoholpledges including providing clear unit labellingon our drinks menus, support of alcoholawareness campaigns and taking part in theChallenge 21 scheme. Harvester has also signedup to the calorie labelling pledge and becamethe rst UK-wide restaurant brand to print

calories on menus.

40Over 40 of our restaurants and pubs acrossthe country entered and won a Best Bar NoneAward for upholding the highest standards ofsafety and security.

A comprehensive overview of our corporate social responsibility activitiescan be found online.

To nd out more go to www.mbplc.com/responsibility

Highlights 2011



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We are keen to play our part in working withGovernment and industry on public healthissues and understand that this includesensuring consumers have the information theyneed to make informed choices when eatingand drinking in our businesses.

Environmental mattersWaste and recycling progressIn the year, we announced we are on target tosend zero waste direct to landll by the end

of 2013. Over the last ve years our wastecollections have transformed from generalwaste to specialist collections for glass, drymixed recycling (cardboard, paper, plasticsand cans) and more recently the introductionof food waste recycling collections.

The food collection service is currently inoperation in around 75% of Mitchells & Butlerslocations with a full roll out planned for laterthis year. The food waste is sent for processingby the means of anaerobic digestion whichconverts the food waste into electricity.

This effective programme means there is little

other material for Mitchells & Butlers to disposeof at landll and meets our 80% commitmenttarget made in 2010. Our goal of sending zerowaste to landll by 2013 will have bothcommercial and environmental benets nowand in the future, and reects the Companysinnovation in managing waste.

Reducing energy consumptionOur established energy managementprogramme remains a key priority and wecontinue to focus on ensuring that energyefciency and carbon reduction is afundamental part of everyday business culture.

Our energy reduction process is based arounda core programme of operational best practiceand training standards. Alongside this ourenergy management team co-ordinate aseries of projects to help us proactivelymanage our energy resources and drive downconsumption levels.

This year a number of successful trial projectsare being extended across our businessincluding the introduction of LED lighting

and automated equipment controls. We havealso introduced new innovative ideas such asdrawing external ambient air through a lterinto the cellar to maintain the requiredtemperature, therefore saving signicantelectricity costs in running cooling equipmentduring cooler times of the year. Automatedmeter readings to better manage our waterconsumption are also being trialled.

Energy recovery is playing an important role.Several businesses are now generating freehot water recovered from cellars and kitchens.Furthermore, building insulation is widelyacknowledged as one of the most cost effective

methods of saving energy. From our initial trialslast year we have seen a signicant reduction inenergy consumption levels and are thereforeplacing loft and pipe work insulation into afurther 300 businesses.

We are a major funder of the DrinkawareTrust. All our drinks menus now include theDrinkaware strapline and unit of alcoholinformation. We will continue to support theTrusts work to reduce alcohol misuse and

promote responsible drinking.

4,816We collected around 2,596 tonnes of usedcooking oil (for recycling to bio-diesel), savingover 4,816 tonnes of carbon which is theequivalent of removing as much as 2,000family cars from the road every month.

81,000We diverted 81,000 tonnes of wastefrom landll.

Healthy eating

Harvester has joined the Governments PublicHealth Responsibility Deal and become therst UK-wide restaurant brand to print calorieson menus.

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200k+Donated to charity by our brands andemployees this year.

London 2012 Olympics

Mitchells & Butlers is an ofcial partner ofEngland & Great Britain Hockey, with Harvesterthe organisations ofcial restaurant partner.

Working with communitiesRestaurants and pubs are the driving forcebehind many communities across the UK.Therefore we actively encourage our managersto contribute to their local area and place theirbusinesses at the heart of these communities.

Our annual Heart of the Community awardsagain showcased the great efforts ourstaff and customers place in charity andcommunity activity. Our national winner,

the Chaddlewood, Plymouth has workedtirelessly over the last year to benet a numberof charities. Hosting fundraising evenings,establishing a pub library, and identifyingwith local and national causes, led to thepub being named Heart of the CommunityPub of the Year.

Charitable activitiesCollectively our employees and brands haveraised over 200,000 this year for charity,continuing to demonstrate outstandingcharitable giving. This years highlights include:

following 18 months of national and local

fundraising challenges, the Sizzling Pubsteam have donated over 130,000 toHelp for Heroes; and

Crown Carveries donated over 6,000 freemeals to past and present servicemen, aspart of their support for national ArmedForces Day 2011.

In addition, around 65,000 has been donatedthis year to a variety of worthy causes. Thisincludes a 25,000 donation to our corporatecharity partner, Marie Curie Cancer Care,and 40,000 of donations (ranging fromapproximately 100 to 500 in each case) toover 80 local and national charities covering a

wide range of charitable purposes, including,for example, County Air Ambulance and theMS Society. Our employees have also beensupporting Marie Curie through a series offundraising challenges and have raised anadditional 12,000, plus our restaurants andpubs raised a further 25,000 by supportingthe charitys Great Daffodil Appeal in March,bringing our total donation for the third yearof partnership to 62,000.

The Princes TrustFor the rst time we are also supporting ThePrinces Trust and their work with helping youngpeople in the UK. Our Business DevelopmentDirector, Kevin Todd, has become a memberof the charitys Retail Leadership Group. Thisgroup is formed of leading companies andindividuals from the UK retail sector, primarilyfocused on raising funds and awareness ofThe Princes Trust to help reduce the numberof young people who are facing long-termunemployment and social exclusion.

In addition, Vintage Inns is supporting youngpeople directly through The Princes Trust Just

the Job work placement scheme. As part of theprogramme the young people must complete atwo week work placement and Vintage Inns isoffering opportunities in its restaurants acrossthe UK.

Olympic supportAs part of looking ahead to the London 2012Olympics, Mitchells & Butlers is an ofcialpartner of England & Great Britain Hockey, withHarvester the organisations ofcial restaurantpartner. The three year sponsorship seeks toencourage thousands of people to start playingsport in their local clubs and to support Britishathletes at the London Olympics.

Corporate social responsibilitycontinued



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Financial review

Tim JonesFinance Director

Internal rentThe system of internal rents implemented at thestart of the year is now fully in place and alignsour internal performance measurement acrossleasehold and freehold sites.

Operating Property TotalRetainedEstate m m m

Turnover 1,762 1,762EBITDAR 439 439External rent (41) (41)Internal rent (190) 190 EBITDA 208 190 398EBITDA % 11.8% 22.6%

Exceptional items and other adjustmentsTotal exceptional items and other adjustmentsdecreased prots before tax by 24m andconsisted of a charge of 13m relating to thecurtailment of the dened benet pensionscheme as at March 2011 (see further below);a 5m net pensions nance charge; a 4m losson the disposal of properties; and a 2m chargerelating to the valuation of the property portfolioand impairment review. An exceptional deferredtax credit of 35m has been recognised whichprincipally represents the tax impact of theabove items including a release of deferred taxrelating to asset disposals, as well as the impactof the reduction in the UK standard rate ofcorporation tax.

DividendsThe Board continues to monitor operatingcash ow generation and capital investmentopportunities before taking a decision on thetiming and quantum of the resumption ofdividend payments.

Capital expenditure and disposalsTotal capital expenditure in the year was172m, a signicant increase from 138m spentin FY 2010. 82m was invested in expansionarycapital and 82m was spent maintaining andenhancing the high level of amenity in ourrestaurants and pubs. A further 8m was spenton infrastructure projects including upgrades toour till systems, updates to the stock and labourscheduling systems and improvements to theenergy efciency of our restaurants and pubs.

In total the business raised 424m throughdisposals in the year.

Retained Estate resultsTotal revenues were up 4.9% to 1,762m, withfood sales up 7.8% and drink sales up 2.3%.Food sales are now our largest income line,representing just over 48% of total sales and

remain a key driver of total sales growth. Weestimate that nearly three-quarters of our salesrelate to guests using our businesses to eat.

Despite an increasingly challenging consumerenvironment, across the full year, like-for-likesales growth was 2.6%. Food like-for-like saleswere up 4.8% mainly driven by increasing foodspend per head with the number of meals sold,slightly lower. Drink like-for-like sales were up1.0% with volumes down, partly on the backof increasing duty costs that have led to higheraverage drink prices.

There were a number of inationary cost

increases during the year which were partiallyoffset by efciencies in purchasing and wastereduction. Outlet employment costs as apercentage of sales increased marginallyby 0.1 percentage points to 24.8%.

Retained Estate EBITDA grew 1.8% to 398mand EBIT grew 1.1% to 288m. As a result ofthe cost pressures described above, operatingmargins were 16.3%.

Total Group resultsOther operations including the 333 non-corepubs, Hollywood Bowl and lodges contributed34m of revenue and 6m of operating prot in

the year, against 300m of revenue and 37mof operating prot in the prior year (FY 2010).As a result, total Group revenues were down9.3% to 1,796m and operating prot beforeexceptional items was down 8.7% to 294m.

Net interest costs were 138m, 15m lowerthan last year as a result of lower net debtand the repayment and cancellation of theunsecured medium term and revolving creditfacility. Prot before tax and exceptional itemswas 156m, 7.7% lower than last year.

The pre-exceptional tax charge of 42m isan effective rate of 27% of prot before tax

representing a small decrease from theprevious year due mainly to the reduction inthe UK standard rate of corporation tax.

Earnings per share before exceptional itemswere 28.0p, down 1.7p against last year.Statutory basic earnings per share afterexceptional items were 30.7p. This comparesto a 20.6p loss last year primarily due to anexceptional property revaluation charge inthat year of 304m.

172mTotal capital expenditure in the year.

1,762mRetained Estate total revenues were up 4.9%.

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Financial reviewcontinued

Cash ow and balance sheetA Red Book valuation of our freehold andlong leasehold estate has been completedin conjunction with our property valuers inaddition to an impairment review on the short

leasehold and unlicensed assets. The overallincrease of 71m represents a 2% increase inthe estate valuation and is reected as a 2mcharge to the income statement and a 73mincrease in reserves. We continue to moderatethe value of our larger, high protability sites asthere are few comparable industry multiples forthese high-performing sites.

Cash ow from operations of 336m wasgenerated by 404m of EBITDA, increased by5m of non-cash items and reduced by 40m ofadditional contributions to the pension schemesand 33m due to working capital movements,principally relating to the disposed businesses.

After payments for net interest of 134m, taxof 20m, maintenance capital expenditure of90m and share capital inows of 2m, freecash ow of 94m was generated in the year.After expansionary capital expenditure andproceeds from disposals, net cash ow in theyear was 436m.

As a result, net debt reduced to 1,870m inthe year, consisting of net debt within thesecuritisation of 2,089m and net cash heldoutside the securitisation of 219m. Total Groupnet debt is a multiple of 4.7 times RetainedEstate EBITDA, down from 5.1 times at the lastyear end.

PensionsAs reported last year, the dened benetsection of the pension plan ceased futureaccrual for active employees as at 12 March2011. Employees were offered a transfer to thedened contribution section of the plan at thisdate. This transition led to an exceptional chargebeing recognised during the year of 13m dueto the projected RPI increases for deferredpensions being higher than the 2% cappedsalary increases assumption for active members.

Following the closure of the dened benetscheme on 12 March, the Company reviewed

the appropriate accounting under IFRIC 14for the Companys funding obligations andas a result of this review has restated theaccounting at 25 September 2010, reducingboth the pension liability and the relateddeferred tax asset.

The pre-tax pension decit as at 24 September2011 reduced to 37m (FY 2010 decit of143m). This reduction is due to an increasein corporate bond yields, which are used todiscount scheme liabilities; an increase in the

value of the schemes assets mainly driven byhigher government bond prices as yields fell;and additional Group contributions of 40mduring the year.

Tim JonesFinance Director

Cautionary statementThis Financial review has been preparedsolely to provide additional information toshareholders to assess the Companysstrategies and the potential for thosestrategies to succeed.

This Financial review contains certainforward-looking statements. These statementsare made by the Directors in good faith based

on the information available to them up to thetime of their approval of this report and suchstatements should be treated with cautiondue to the inherent uncertainties, includingboth economic and business risk factors,underlying any such forward-lookinginformation.

The Directors, in preparing this Financialreview, have complied with Section 417 of theCompanies Act 2006. They have also soughtto comply with the guidance set out in theAccounting Standards Boards ReportingStatement: Operating and Financial review.

This Financial review has been prepared forthe Company and its subsidiary undertakingsas a whole and therefore gives greateremphasis to those matters which aresignicant to the Company and its subsidiaryundertakings when viewed as a whole.

336mCash ow from operations of 336m wasgenerated by 404m of EBITDA.

436mNet cash ow in the year.



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Key performance indicators

It is a key principle of the Group to alignthe interests of the Directors and otheremployees with those of its shareholders.Executive remuneration therefore includes

measures linked to the KPIs below. Fulldetails of the various schemes in operationare shown from page 26 in the Report onDirectors remuneration.

In FY 2011 Mitchells & Butlers implementedand monitored its performance against itsstrategy principally through three KPIs.

The performance in the year was as follows:

KPI KPI defnitions Progress in FY 2011

1. Same outlet like-or-like sales growth The sales this year compared to the sales in theprevious year of all UK managed sites that weretrading in the two periods being compared,expressed as a percentage.

Mitchells & Butlers operational andmarketing plans have delivered like-for-likesales growth of 2.6% in FY 2011 comparedwith the prior year (2.0% in FY 2010).


2. EPS growth Adjusted earnings per share for the yearcompared to last year, as reported in thenancial statements, expressed as a percentage.

The disposal of the non-core pubs, bowlsand lodges resulted in Group operatingprots down by 8.7% and EPS by 5.7%in FY 2011 (up 7.3% and 25.8% respectivelyin FY 2010).


3. Incremental return on expansionary capital Incremental return is the growth in annual siteEBITDA expressed as a percentage of the

associated capital investment for sites havingreceived expansionary investment over thelast two nancial years. For sites which have notbeen trading for a full 12 months, incrementalreturn is estimated based on an annualisationof actual post-investment trading. Expansionarycapital is capital invested to increase thetrading area of a site or to materially changethe customer offer. Expansionary capitalrepresents investment over and above themaintenance investment cycle for a site.

The performance in this area remains wellabove our cost of capital. Pre-tax EBITDA

returns of 21% are being achieved on theexpansionary capital projects carried outover the last two years (31% EBITDA asat FY 2010).

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Risks and uncertainties

This section highlights the principal risks that affect the Company, together with the key mitigating activities in place to manage those risks. This doesnot represent a comprehensive list of all of the risks that the Company faces, but focuses on those that are considered currently to be of most concern.

The processes that are used to identify and manage risks are described in the Internal Control and Risk Management statement on pages 21 and 22.

Actively managing potential risks

Regular risk workshops by business function

Risks mapped to controls currently in place Residual risks prioritised for mitigation Conrmed with Executive and Board

Existing controls enforced and tested

Remedial action plans implemented

Executive held accountable

Controls identied

Suggested action plans agreed to bridge gaps

Options for controls identied and costed

Plans approved by Executive and Board

Risk management processOverall Board responsibility by Risk and Assurance Functions

Risks identied, assessed and prioritised

Market risks Risk description Mitigating activities

Consumer taste andbrand management Social and demographic changes are driving the long-termgrowth in eating-out while at the same time leading to asteady decline in the sales of on-trade drinks without food.These changes, together with other developments inconsumer taste may reduce the appeal of Mitchells &Butlers brands to its customers, especially if the Companyfails to anticipate and identify these changes and respondto them adequately and promptly.

On a regular basis, a brand strategy team meets involving marketers,operators and nance as part of a structured programme to improvecontinuously existing brands and to develop new customer offers. Thisprocess is co-ordinated with the capital expenditure programme to ensurethat investment is taking place in support of customers changing needs.

The Company uses an online guest satisfaction survey to collectcustomer feedback. This feedback together with the results of researchstudies is monitored and evaluated by a dedicated customer insight teamto ensure that the relevance to their customers of the Companys brandsis maintained.

Pricing and marketchanges

External inuences, such as changes in the generaleconomic climate or competitor activity, could have adetrimental effect on customers spending patterns andtherefore the Companys revenue, protability andconsequently the value of its assets.

Mitchells & Butlers business is focused on the long-term potential of theeating-out market. The Company owns sites across the UK with a widespectrum of customer offers targeted at different consumer groups andleisure occasions. This range allows the Company to respond to changesin consumer expenditure either by exing our offerings or by substituting

a different brand at a particular location. This activity is supported bydedicated Pricing and Revenue Management and Asset Planning teamswhich analyse and evaluate a range of information including that in respectof competitors.



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Operational risks Risk description Mitigating activities

Investments inacquisitions andconversions

Mitchells & Butlers strategy is to increase signicantly itsnumber of restaurants to drive further scale advantage andprovide strong incremental returns. However, it may not be

possible to identify and acquire suitable sites on acceptableterms and investments may not perform as anticipated.

The Companys dedicated acquisitions and asset planning team employs arigorous project appraisal process in respect of investments, using externaladvisers where necessary. Post-investment performance of acquired or

converted sites investments is monitored in detail.

People planning anddevelopment

Mitchells & Butlers business has a strong customer focus,and as such it is important that it is able to attract, retain,develop and motivate the best people with the rightcapabilities throughout the organisation.

Remuneration packages are benchmarked to ensure that they remaincompetitive and a talent review process is used to provide structuredsuccession planning. A long-term incentive plan is in place to alignmanagement and shareholder interests.

The Company also makes signicant investment in training to ensure that itspeople have the right skills to perform their jobs successfully. Furthermorean employee survey is conducted annually to establish employeesatisfaction and engagement and compare it with other companies aswell as previous annual surveys. Where appropriate, changes in workingpractices are made in response to the ndings of these surveys.

Energy price increases Mitchells & Butlers is a large commercial user of gas andelectricity. There is a risk that costs increase because ofglobal increases in demand and uncertainty of supply in

energy producing nations.

The energy procurement strategy seeks to reduce the risk of cost increasesand uncertainty over energy prices by a rolling programme of short andmedium-term purchases against forecast requirements.

A dedicated energy management team is responsible for optimising energyusage across the organisation by promoting energy efcient workingpractices via training and educational programmes and by the installationof energy efcient equipment.

Cost o goods priceincreases

Increases in the price of goods for resale as a result ofincreases in global demand and uncertainty of supply inproducing nations can have a signicant impact on the costbase consequently impacting margins.

Mitchells & Butlers leverages its scale to drive competitive cost advantageand collaborates with suppliers to increase efciencies in the supplychain. The fragmented nature of the food supply industry on the worldcommodity markets gives the Company the opportunity to source productsfrom a number of alternative suppliers in order to drive down cost. TheCompany continually evolves the composition of menus and retail prices inorder to optimise value to the customer as well as prots for the Company.

Business continuity andcrisis management

Mitchells & Butlers relies on its food and drink supply chainand the key IT systems underlying the business to serve itscustomers efciently and effectively. Supply chain

interruption, IT system failure or crises such as terroristactivity or the threat of disease pandemic might restrictsales or reduce operational effectiveness.

The Company has in place crisis and continuity plans that are tested andrefreshed regularly.

Finance risks Risk description Mitigating activities

Borrowing covenants There are risks that borrowing covenants are breachedbecause of circumstances such as:

i) A change in the economic climate leading to reducedcash inows, or

ii) A material change in the valuation of theproperty portfolio.

The Company maintains headroom against these risks. The nanceteam conducts daily cash forecasting with periodic reviews at theTreasury Committee, the roles of which include ensuring that theBoard Treasury Policy is adhered to, monitoring its operation andagreeing appropriate strategies for recommendation to the Board.In addition, regular forecasting and testing of covenant complianceis performed and frequent communication is maintained with theSecuritisation Trustee.

Pension und defcit In March 2011 the dened benet section of the pensionplan ceased future accrual for active employees. However,

scheme members retain their benets accrued prior toMarch 2011. There is a risk that the pension fund decitincreases because of poor investment performance, lowerlong-term bond yields or increased life expectancy, leadingto unexpected increases in funding requirements by theCompany. The triennial actuarial valuation carried out as at31 March 2010 resulted in a decit of 400m.

Mitchells & Butlers maintains a close dialogue with the Trustees of thepension schemes and three of the 12 Trustees are appointed by the

Company. In addition to the regular service contributions, the Companyhas already made signicant additional contributions to reduce thefunding decit. As a result of the triennial valuation conducted last yearthe Company agreed to increase annual additional contributions from24m to 40m. The funding levels and contribution requirements willbe reviewed again at the next triennial valuation as at March 2013.

Regulatory risks Risk description Mitigating activities

Health and saety A major health and safety failure could lead to illness,injury or loss of life or signicant damage to the Companysor a brands reputation.

Mitchells & Butlers maintains a robust programme of health and safetychecks both within its restaurants and pubs and throughout the supplychain. The dedicated Safety Assurance team uses a number of technicalpartners including food technologists, microbiologists and allergy specialiststo ensure that our food procedures are safe. Regular independent audits oftrading sites are performed to ensure that procedures are followed and that

appropriate standards are maintained. Food suppliers are required to meetthe British Retail Consortium Global Standard for Food Safety and aresubject to regular safety and quality audits. Comprehensive health andsafety training programmes are in place.

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At Vintage Inns discover real ales,real res and pub food as heartyand warming as the welcome,with beautifully kept beer gardensperfect for soaking up the GreatBritish summer.

Governance

Brands

peopletrust

In this section13 Board of Directors14 Directors report18 Directors responsibilities statement19 Corporate governance statement23 Audit Committee report25 Report on Directors remuneration



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Board of Directors

1. Bob Ivell, aged 59Executive Chairmanbcde

Appointed as Executive Chairman in October2011 having been Interim Non-ExecutiveChairman since July 2011. Bob has over30 years o extensive ood and beverageexperience with a particular ocus on ood-led,managed restaurants and pubs. He is currentlySenior Independent Director o Britvic plc,Chairman o David Lloyd Leisure Limitedand a Board adviser to the Delphi Partnership,a corporate fnance advisory frm. He waspreviously a main board director o S&N plc in

the role o Chairman and Managing Directoro the Scottish & Newcastle retail division.He has also been Chairman o Regent Inns,Chairman o Park Resorts, Chairman o NextGeneration Clubs, Managing Director oBeeeater Restaurants, one o Whitbreadspub restaurant brands and a director o TheRestaurant Group.

2. Ron Robson, aged 48Deputy Chairmanabcd

Appointed as Deputy Chairman in July2011, Ron is currently a senior executivewith Tavistock Group and is a nominatedshareholder representative o Piedmont Inc.

He was previously Chie Financial Ofcer oTamar Capital Partners and Group FinanceDirector o Kenmore, both propertyinvestment and management groups. From2005 to 2008 he was Group Finance Directoro The Belhaven Group plc, a listed pubretailing, brewing and drink distributiongroup. Prior to that he held a number osenior fnance roles including Group FinanceDirector o a listed shipping and logisticsgroup, and trained as a CharteredAccountant with Arthur Andersen.

3. Tim Jones, aged 48Finance Directore

Tim was appointed Finance Director inOctober 2010. Prior to joining the Company,he held the position o Group Finance Directoror Interserve plc, a support services group.Previously, he was Director o FinancialOperations at Novar and held senior fnancialroles both in the UK and overseas in thelogistics company, Exel plc. Tim is a membero the Institute o Chartered Accountants inEngland and Wales and obtained an MA inEconomics at Cambridge University.

4. Doug Evans, aged 49Company Secretary & General Counsele

Appointed to the Board in October 2011having held the position o CompanySecretary & General Counsel since he

joined Mitchells & Butlers in January 2011.Doug was previously at Royal Mail wherehe was Group General Counsel. Prior tothis he held Company Secretary & CorporateLegal Director positions at Exel plc andEngen Limited.

5. Douglas McMahon, aged 46Non-Executive Directorabcd

Appointed a Non-Executive Director inOctober 2010, Douglas is a Managing Directoro Tavistock Group and is a nominatedshareholder representative o Piedmont Inc.He has two decades o marketing experience,previously serving as Chairman and CEOo Publicis New York, General Manager oJ. Walter Thompson New York and ChieMarketing Ofcer at Consumer News andBusiness Channel (CNBC).

a A Non-Executive Directorb A member o the Audit Committeec A member o the Remuneration Committeed A member o the Nomination Committeee A member o the Executive Committee

Ages correct at 21 November 2011.

Key

1 2 3 4 5

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Directors report

The Directors present their report and theaudited nancial statements for the yearended 24 September 2011. A review of thebusinesses, activities and future developmentsof the Company and its subsidiaries is givenon pages 1 to 11 which, together with the

Corporate governance statement and AuditCommittee report, are incorporated byreference into this report and, accordingly,should be read as part of this report.

Details of the Groups policy on addressingrisks are given on pages 10 to 11 and 21 to22 and details about nancial instruments areshown in note 19 to the nancial statements.These sections include information abouttrends and factors likely to affect the futuredevelopment and performance of theGroups business. The Company undertakesno obligation to update forward-lookingstatements.

Associated key performance indicators for theGroups business are set out on page 9.

This report has been prepared for, and onlyfor, the members of the Company as a body,and no other persons. The Company, itsDirectors, employees, agents or advisers donot accept or assume responsibility to anyother person to whom this document isshown or into whose hands it may come andany such responsibility or liability is expresslydisclaimed.

Principal activitiesMitchells & Butlers is the leading operatorof managed restaurants and pubs and, asat 24 September 2011, had an estate of1,605 sites including 65 leased and franchised

sites in the UK, and 39 restaurants inGermany. In order to reshape Mitchells &Butlers into a food-led business centredaround core concepts which have signicantgrowth potential and facilitate withdrawalfrom the more price sensitive drinks-ledbusinesses, the Company disposed of 333non-core pubs on 14 November 2010,following the approval of the disposal byshareholders at a General Meeting held on26 October 2010.

Possible offer from Piedmont Inc.On 12 September 2011, Piedmont Inc.announced that it was considering making

an offer for Mitchells & Butlers, at 230p pershare. The Independent Directors of Mitchells& Butlers plc (comprising Bob Ivell, JeremyBlood and Tim Jones) announced that theywould not recommend an offer, if made, onsuch terms.

On 13 October 2011, Piedmont Inc.announced that it had decided not toproceed with an offer for the Company.

Share capitalThe Companys issued ordinary share capitalas at 24 September 2011 comprised a singleclass of ordinary shares of which 409,467,418

shares were in issue and listed on the LondonStock Exchange (25 September 2010408,953,036 shares). Details of movements inthe issued share capital can be found in note22 to the nancial statements on page 67.Each share carries the right to one vote atgeneral meetings of the Company. All issuedshares are fully paid up and carry no additionalobligations or special rights. There are norestrictions on transfers of shares in theCompany, or on the exercise of voting rightsattached to them, other than those whichmay from time to time be applicable underexisting laws and regulations. At the yearend, 429 shares were held in Treasury and

the Companys employee share trusts held2,539,988 shares.

Shareholders passed a resolution at the 2011AGM to permit the Directors to undertakemarket purchases of up to 40,904,986 of theCompanys shares. This authority will expireat the earlier of the 2012 AGM or 27 March

2012. No shares have been purchased by theCompany during the year.

A resolution proposed at the 2011 AGM topermit the Directors to allot shares, togetherwith shares and other relevant securities inconnection with a rights issue, was notpassed. Between the AGM and the end of theyear, shares with a nominal value of 33,421were allotted under all-employee schemes aspermitted under Section 549 Companies Act2006. No securities were issued in connectionwith a rights issue during the year.

The Company is not aware of any agreements

between shareholders that restrict the transferof shares or voting rights attached to the shares.

Interests of the Directors and their immediatefamilies in the issued share capital of theCompany as at the year end are on page 33of the Report on Directors remuneration.

DividendsNo nal dividend will be paid in respect of theyear ended 24 September 2011 (2010 nil).No interim dividend was paid during the year(2010 nil).

Interests in voting rights

As at the date of this report, the Company wasaware of the following interests in its shares:

Ordinary %oShareholder shares capital*

Piedmont Inc. 93,463,000 22.82%Elpida Group Ltd 85,020,885 20.76%Baillie Gifford 21,688,977 5.30%Legal & General 14,533,901 3.55%Smootheld Holding Limited 14,185,101 3.46%

* Using the total voting rights gure announced tothe London Stock Exchange on 31 October 2011of 409,502,671.

The Boards responsibilities inrespect of the Company include:

Determining the overall business andcommercial strategy

Identifying the long-term objectives Reviewing the annual operating budgetand nancial plans

Determining the basis of allocation of capital Considering all matters relating to a major

change of policy

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DirectorsDetails of the Directors as at 21 November2011 and their biographies are shown onpage 13. The Directors at 24 September 2011and their interests in shares are shown on

page 33. Changes to the Board of Directorsduring the year and subsequent to the yearend are set out in full in the Corporategovernance statement on page 19.

The powers of the Companys Directorsare set out in the Companys Articles ofAssociation. Directors are appointed inaccordance with the Articles of Association,which require any mid-year appointee tostand for reappointment at the next AGM.Directors who wish to continue in their rolemust submit themselves for re-election atan AGM at least every three years and, inaddition, such further Directors (if any) must

retire by rotation to bring the number retiringby rotation up to one-third of the number ofDirectors in ofce at the date of the noticeof meeting. Any Director appointed duringthe year will not be counted in determiningthe one-third who should stand for re-electionby rotation. Over and above this, at the2012 AGM, the Company will complywith provision B.7.1 of the UK CorporateGovernance Code which states that alldirectors of FTSE 350 companies should besubject to annual election by shareholders.

Under a Deed of Appointment betweenPiedmont Inc. and the Company, Piedmont

Inc. has the right to appoint two shareholderdirectors to the Board whilst it owns 22%or more of the issued share capital of theCompany, and the right to appoint oneshareholder director to the Board whilst itowns more than 16% of the Company butless than 22%. In the event that Piedmont Inc.owns less than 16% of the Company any suchshareholder directors would be required toresign immediately.

Directors indemnityAs permitted by the Articles of Association,the Directors have the benet of an indemnitywhich is a qualifying third party indemnityprovision as dened by Section 234 of the

Companies Act 2006. The indemnity wasin force throughout the last nancial year,and is currently in force. The Companyalso purchased and maintained throughoutthe nancial year Directors and Ofcersliability insurance in respect of itself and itsDirectors. No indemnity is provided for theCompanys auditor.

Conicts of interestThe Companys Articles of Associationpermit the Board to consider and, if it sees t,authorise situations where a Director has aninterest that conicts, or may possibly conict,with the interests of the Company (Situational

Conicts). The Board has a formal system inplace for Directors to declare SituationalConicts to be considered for authorisationby those Directors who have no interest in thematter being considered. In deciding whetherto authorise a Situational Conict, the non-conicted Directors are required to act in theway they consider would be most likely topromote the success of the Company for thebenet of all shareholders, and they mayimpose limits or conditions when givingauthorisation, or subsequently, if they thinkthis is appropriate. The Board believes thatthe systems it has in place for reporting andconsidering Situational Conicts continue to

operate effectively.

Related party transactionsInternal controls are in place to ensure thatany related party transactions involvingDirectors or their connected persons arecarried out on an arms length basis and areproperly recorded.

Essential contracts or arrangementsThe Company has a number of contractualagreements with suppliers in support of itsbusiness activities. Whilst the loss of someof these arrangements may cause temporary

disruption, none are considered to beessential to the business of Mitchells& Butlers.

Change of control provisionsThere are no signicant agreements whichcontain provisions entitling other parties toexercise termination or other rights in theevent of a change of control of the Company.

There are no provisions in the Directors oremployees service agreements providing forcompensation for loss of ofce or employmentoccurring because of a takeover.

The trustee of the Mitchells & Butlers ShareIncentive Plan will invite participants on whosebehalf it holds shares to direct it how to votein respect of those shares, and if there is anoffer for the shares or other transaction whichwould lead to a change of control of theCompany, participants may direct it to acceptthe offer or agree to the transaction. Thetrustee of the Mitchells & Butlers EmployeeBenet Trust may, having consulted with theCompany, vote or abstain from voting anyshares it holds or accept or reject an offerrelating to shares in any way it sees t, and itmay take all or any of the following mattersinto account: the long-term interests of

beneciaries, the non-nancial interests ofbeneciaries, the interests of beneciariesin their capacity as employees or formeremployees, the interests of futurebeneciaries and considerations of a local,moral, ethical, environmental or social nature.

The rules of certain of the Companysshare plans include provisions which applyin the event of a takeover or reconstruction,as set out below.

Provisions which apply in the event of a takeover or reconstruction

Shareplan Provisionintheeventoatakeover

Long-Term Incentive Plan Awards vest pro rata to performance and time elapsed,alternatively participants may be allowed or required bythe Company to exchange their awards

Performance Restricted Share Plan Awards vest pro rata to performance and time elapsedand lapse six months later

Short-Term Deferred Incentive Plan Bonus shares may be released or exchanged for sharesin the new controlling company

Executive Share Option Plan Options may be exercised within six months of a changeof control

Sharesave Plan Options may be exercised within six months of a changeof control

Share Incentive Plan Free shares may be released or exchanged for shares inthe new controlling company

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Directors reportcontinued

Employment policiesThe Group employed an average of 40,728people in 2011 (2010 44,600).

Through our diversity and equal opportunities

policy, the Company aims to provide anenvironment which enables job candidateswith disabilities to perform better by seeking,where possible, to make reasonableadjustments. Through our online recruitmentsystem, candidates can inform us directabout their disability, so that we can makeadjustments, enabling them to perform to thebest of their ability on assessment events.

Should any employee of the Companybecome disabled during their time withus, we actively make adjustments, includingarranging appropriate training, to keep theemployee with us. We take steps both to

increase the effectiveness of employeeswith disabilities and to ensure they are ina suitable role. A more detailed accountcan be found in our separately publishedSocial Responsibility Review 2011 atwww.mbplc.com/responsibility

Employee communicationMitchells & Butlers communicates with itsemployees on a frequent basis and in anumber of ways to suit their different workingpatterns. This includes:

a corporate intranet website; a dedicated external website for

retail employees; email news alerts; letters; line manager briengs; e-newsletters for mobile workers; a monthly magazine poster,

Whats Cooking, for the retail estate; and communications forums or road shows

held by function or brand acrossthe Company.

Details of the nancial and economic factorsaffecting the performance of the Company areshared with all employees at the appropriatetime using the methods listed above.

We provide opportunities for employeesto give their feedback to the Company in anumber of ways, from team or shift meetingsin restaurants and pubs, discussion groupswith Executive Committee members, annual

surveys for all employees and the Mitchells& Butlers annual Business Forum. BusinessForum representatives collect questions fromemployees across the Company and putthem to a special Executive Committee.The questions and answers are publishedin Whats Cooking.

Employee engagementWhats the Big Idea?, is a company-wideinitiative where employees are encouraged tosubmit their ideas for improving the business,environmentally, nancially or otherwise, viaour dedicated employee website.

Our retail teams participate in e-learning,covering food, health and re safety,Challenge 21 and Intermediate Food Hygiene.

Mitchells & Butlers is keen to encouragegreater employee involvement in the Groupsperformance through share ownership. Itoperates two HMRC approved all-employeeplans, which are the Sharesave Plan and theShare Incentive Plan. The Company alsooperates four other plans on a selective basis,which are the Performance Restricted SharePlan, the Short-Term Deferred Incentive Plan,the Executive Share Option Plan and theLong-Term Incentive Plan. Further details

on the plans are set out in the Report onDirectors remuneration.

During the year, the Company has remainedwithin its headroom limits for the issue of newshares for share plans as set out in the rulesof the above plans. The Company uses anemployee benet trust to acquire shares inthe market when appropriate to satisfy shareawards in order to manage headroom underthe plan rules. No shares in the Companywere purchased by the employee benettrust during FY 2011.

Policy on payment of suppliersMitchells & Butlers plc is a holding companyand has no trade creditors.

The policy of its principal operating

subsidiaries is to agree particular terms withmajor suppliers and to abide by those terms,subject to satisfactory performance by thesupplier. Amounts owed to other suppliers aresettled in the month following that in whichthe subsidiaries receive a valid invoice. Theaverage number of days the Group takes topay an invoice is 38 days (2010 40 days).

Charitable donations andcharitable activityThe Company continues to supportcommunity initiatives and charitable causes,full details of which are given on page 6 in theCorporate social responsibility section of this

Annual report.

Political donationsThe Company made no political donationsduring the year and intends to maintain itspolicy of not making such payments. It will,however, as a precautionary measure toavoid inadvertent breach of the law, seekshareholder authority at its 2012 AGM tomake limited donations or incur limitedpolitical expenditure, although it has nointention of using the authority.

Funding and liquidity riskIn order to ensure that the Groups long-term

funding strategy is aligned with its strategicobjectives, the Treasury Committeeregularly assesses the maturity prole ofthe Groups debt, alongside the prevailingnancial projections and three year plan.This enables it to ensure that funding levelsare appropriate to support the Groups plans.



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The current funding arrangements of theGroup consist primarily of the securitisednotes issued by Mitchells & Butlers Financeplc (and associated liquidity facility). Furtherinformation regarding these arrangements

is included in note 18. The terms of thesecuritisation contain a number of nancialand operational covenants. Compliancewith these covenants is monitored byGroup treasury.

The Group prepares a rolling daily cashforecast covering a six week period andan annual cash forecast by period. Theseforecasts are reviewed on a daily basis andused to manage the investment and borrowingrequirements of the Group. A combination ofcash pooling and zero balancing agreementsare in place to ensure the optimum liquidityposition is maintained. Committed facilities

outside of the securitisation are sized toensure that the Group can meet its medium-term anticipated cash ow requirements.

Going concernThe nancial statements which appear onpages 36 to 81 have been preparedon a going concern basis as, after makingappropriate enquiries, the Directors havea reasonable expectation that the Grouphas adequate resources to continue inoperational existence for the foreseeablefuture. See note 31.

Additional information for shareholders

Following the implementation of the EUTakeovers Directive into UK law, the Companyis required to provide certain information forshareholders. The information required isincluded elsewhere within this Directorsreport. In addition the Company is requiredto inform shareholders that the CompanysArticles of Association may be amendedby special resolution at a general meetingof shareholders.

Annual General MeetingThe notice convening the Annual GeneralMeeting is contained in a circular sent toshareholders with this report and includesfull details of the resolutions proposed.

AuditorFollowing a competitive tender duringthe year, Deloitte LLP was appointed asauditor to the group and Ernst & Young LLPresigned. Deloitte LLP has expressed itswillingness to continue in ofce as auditorof the Company and its reappointmentwill be put to shareholders at the AGM.

Post-balance sheet eventsThere are no post-balance sheet eventsto report.

By order of the Board

Doug EvansDirector & Company Secretary21 November 2011

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Directors responsibilities statement

The directors are responsible for preparingthe Annual Report and the nancialstatements in accordance with applicablelaw and regulations.

Company law requires the directors toprepare nancial statements for each nancialyear. Under that law the directors are requiredto prepare the group nancial statements inaccordance with International FinancialReporting Standards (IFRSs) as adopted bythe European Union and Article 4 of the IASRegulation and have elected to prepare theparent company nancial statements inaccordance with United Kingdom GenerallyAccepted Accounting Practice (UnitedKingdom Accounting Standards andapplicable law). Under company law thedirectors must not approve the accountsunless they are satised that they give a

true and fair view of the state of affairs ofthe company and of the prot or loss of thecompany for that period.

In preparing the parent company nancialstatements, the directors are required to:

select suitable accounting policies andthen apply them consistently;

make judgements and accounting estimatesthat are reasonable and prudent;

state whether applicable UK AccountingStandards have been followed, subject toany material departures disclosed andexplained in the nancial statements; and

prepare the nancial statements on thegoing concern basis unless it isinappropriate to presume that thecompany will continue in business.

In preparing the group nancial statements,International Accounting Standard 1 requiresthat directors:

properly select and apply accounting

policies; present information, including accountingpolicies, in a manner that provides relevant,reliable, comparable and understandableinformation;

provide additional disclosures whencompliance with the specic requirementsin IFRSs are insufcient to enable users tounderstand the impact of particulartransactions, other events and conditions onthe entitys nancial position and nancialperformance; and

make an assessment of the companysability to continue as a going concern.

The directors are responsible for keepingadequate accounting records that aresufcient to show and explain the companystransactions and disclose with reasonableaccuracy at any time the nancial positionof the company and enable them to ensurethat the nancial statements comply withthe Companies Act 2006. They are alsoresponsible for safeguarding the assets ofthe company and hence for taking reasonablesteps for the prevention and detection offraud and other irregularities.

The directors are responsible for themaintenance and integrity of the corporate

and nancial information included on thecompanys website. Legislation in the UnitedKingdom governing the preparation anddissemination of nancial statements maydiffer from legislation in other jurisdictions.

Responsibility statementWe conrm that to the best of our knowledge:

the nancial statements, prepared inaccordance with the relevant nancial

reporting framework, give a true and fairview of the assets, liabilities, nancialposition and prot or loss of the companyand the undertakings included in theconsolidation taken as a whole; and

the management report, which isincorporated into the directors report,includes a fair review of the developmentand performance of the business andthe position of the company and theundertakings included in the consolidationtaken as a whole, together with adescription of the principal risks anduncertainties that they face.

Disclosure of information to auditorHaving made the requisite enquiries, so far asthe Directors are aware, there is no relevantaudit information (as dened by Section418(3) of the Companies Act 2006) of whichthe Companys auditor is unaware and eachDirector has taken all steps that ought tohave been taken to make themselves awareof any relevant audit information and toestablish that the Companys auditor isaware of that information.

By order of the Board

Doug Evans

Director & Company Secretary21 November 2011



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Corporate governance statement

The Board recognises the importance ofgood corporate governance in creating asustainable, successful and protable businessand details are set out in this Statement of theCompanys corporate governance proceduresand application of the principles of the Code.

Explanation for non-compliance with

parts of the CodeFor part of the year the Board was not fullyconstituted in compliance with the Code,which impacted governance in the form ofBoard and Committee appointments andmembership and the frequency of Committeemeetings. It meant that for certain periods,as described more fully below, Committeefunctions were undertaken by the full Board.

As a result, the Company did not comply withthe following provisions of the Code duringthe periods specied below:

A.1.1 Matters reserved for the Board.

A.4.1 Senior Independent Director (from11 February 2011 to year end).

A.4.2 Chairmans performance appraisal.

B.1, B.1.2 and B.2.4 Composition of the Boardand appointments (from 11 February 2011 toyear end).

B.2.1, C.3.1 and D.2.1 Constitution of theNomination, Audit and RemunerationCommittees respectively (from 11 February2011 to year end).

B.6.1, B.6.2 and B.6.3 (Board and committeeevaluation and external evaluation).

As previously announced, it is the Boardsintention to appoint additional Non-ExecutiveDirectors to the Board. Notwithstanding theCode non-compliance in relation to thecomposition of the Board, the Board believes

all other aspects of the Companys corporategovernance are in compliance with the Code,as set out in this report.

The information required by Disclosure andTransparency Rule (DTR) 7.1 is set out inthe Audit Committee report on pages 23to 24. The information required by DTR 7.2is set out in this Corporate governancestatement, other than that required underDTR 7.2.6 which is set out in the Directorsreport on pages 14 to 17.

Board compositionA table listing all changes to the Board of

Directors during the year is on page 20.On 26 October 2011, Bob Ivell was appointedas Executive Chairman, Jeremy Blood resignedas a Director, and Doug Evans was appointedas a Director.

Board and Committee structureThe Board and Committee structure operatesas set out below.

The BoardThe Board is responsible to shareholdersfor the strategic direction, development andcontrol of the Group. It approves strategicplans and annual capital and revenue budgets.

It reviews signicant investment proposalsand the performance of past investmentsand maintains an overview and control of theGroups operating and nancial performance.It monitors the Groups overall system ofinternal controls, governance and complianceand ensures that the necessary nancial andhuman resources are in place for the Companyto meet its objectives.

The Executive Directors may be permitted toaccept one external non-executive directorappointment with the Boards prior approvaland as long as this is not likely to lead toconicts of interest.

The Company Secretarys responsibilitiesinclude ensuring good information ows tothe Board and its committees and betweensenior management and the Non-ExecutiveDirectors. The appointment and removal ofthe Company Secretary is a matter reservedfor the Board. The Company Secretary isresponsible through the Chairman, foradvising the Board on all corporategovernance matters and for assisting theDirectors with their professional development.This includes regular corporate governanceand business issues updates, as well as the useof operational site visits and the provision of

external courses where required. During theyear, the Company Secretary facilitated acomprehensive induction for each of thenewly appointed Directors, tailored toindividual requirements and includingguidance on requirements of, andDirectors duties in connection with, theCode and the Companies Act 2006 as wellas other relevant legislation.

During FY 2011 there were 10 scheduledBoard meetings including a two day off-sitemeeting which considered the Groupsstrategy and a further three Board meetingswhich were called at short notice. The table

below shows attendance levels at the Boardand Committee meetings held during theyear; the numbers in brackets conrm howmany meetings each Director was eligible toattend during the year.

Where a Director was unable to attend ameeting, they were provided with all thepapers and information relating to thatmeeting and were able to discuss issuesarising directly with the Chairman and ChiefExecutive. There are 10 Board meetingscurrently planned for FY 2012.

Corporate governance statement

The Board is responsible for ensuring compliance withthe 2010 UK Corporate Governance Code (the Code),which is issued by the Financial Reporting Council andwhich is available at www.frc.org.uk. This includesreviewing internal controls, ensuring that there is anappropriate balance of skills and experience representedon the Board and maintaining relations with shareholders.

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Attendance levels at Board and Committee meetings Audit Remuneration Nomination Board Committee Committee Committee

Current Directors who served during the yearBob Ivell 6 (6) N/A N/A N/ATim Jones 11 (11) N/A N/A N/ADouglas McMahon 9 (11)1 N/A N/A N/ARon Robson 13 (13) N/A N/A N/A

Former Directors who served during the yearMichael Balfour 9 (11) 2 (2) 4 (4) 2 (2)Jeremy Blood* 13 (13) 2 (2) 4 (4) N/ASimon Burke 10 (11) 2 (2) 3 (4) 2 (2)

Adam Fowle 4 (6) N/A N/A 1 (2)Sir Tim Lankester 4 (4) 1 (1) 3 (4) 2 (2)John Lovering 4 (5) N/A N/A 2 (2)

* Left post year-end.1 Douglas McMahon was unable to attend two Board meetings convened at short notice.

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Corporate governance statementcontinued

Details of the Executive Directors service

contracts are set out on page 29 and onthe Companys website. The Chairman andthe Non-Executive Directors have lettersof appointment which are available forinspection at the registered ofce of theCompany during normal business hours andat the place of the Annual General Meetingfrom at least 15 minutes before and until theend of the meeting.

The provisions in the Articles concerningDirectors re-election are set out on page 15of the Directors report. All the CompanysDirectors will stand for re-election at the 2012AGM in accordance with provision B.7.1 of

the Code and their biographical details as at21 November 2011 are set out on page 13,including their main commitments outsidethe Company. Further information is below.

ChairmanBob Ivell is the Executive Chairman of theBoard and, prior to this (from 14 July 2011to 26 October 2011), was Interim Chairmanof the Board. He ensures that appropriatecommunication is maintained withshareholders. He has responsibility forrunning the Board and for ensuring thatall Directors are fully informed of mattersrelevant to their roles. He is also Chairman

of the Nomination Committee and theRemuneration Committee.

Chief Executive

Jeremy Blood was the Interim Chief Executiveuntil his resignation on 26 October 2011and a search is under way for his replacement.The Chief Executive has responsibility forimplementing the strategy agreed by theBoard and for the executive management ofthe Group. Bob Ivell has assumed the dutiesof the Chief Executive until an appointmentis made.

Senior Independent DirectorSimon Burke was the Senior IndependentDirector until 11 February 2011. Therehas been no Senior Independent Directorsince then.

Non-Executive DirectorsThe Company has experienced Non-Executive Directors on its Board. Bob Ivellwas considered to be independent uponhis appointment on 9 May 2011, in thathe was free from any business or otherrelationship which could materially inuencehis judgement and he represented a strongsource of advice and independent challenge.On his appointment as Interim Chairman on14 July 2011 (and subsequently as ExecutiveChairman on 26 October 2011), as set outin the Code, the independence test is nolonger appropriate to apply to his position.

Ron Robson and Douglas McMahon wereappointed as representatives of the Companyslargest shareholder, Piedmont Inc., and aretherefore not regarded as independent inaccordance with the Code.

Other than their fees which are disclosed onpage 30, the Non-Executive Directorsreceived no remuneration from the Companyduring the year. When Non-ExecutiveDirectors are considered for appointment, the

Nomination Committee will take into accounttheir other responsibilities in assessingwhether they can commit sufcient time totheir prospective directorship.

All Directors are briefed by the use ofcomprehensive papers circulated in advanceof Board meetings and by presentations at themeetings in addition to receiving minutes ofprevious meetings. Their understanding ofthe Groups business is enhanced by businessspecic presentations and operational visitsto the Groups businesses. Separate strategymeetings and meetings with senior executivesare also held throughout the year. The training

needs of Directors and of members of theBoards Committees are formally consideredon an annual basis and are also monitoredthroughout the year.

CommitteesEach Board Committee has written terms ofreference approved by the Board, which areavailable on the Companys website.

Audit CommitteeDetails of the Audit Committee are includedin the Audit Committee report on pages 23and 24 and are incorporated by reference intothis Statement.

Remuneration CommitteeDetails of the Remuneration Committeeare included in the Report on Directorsremuneration on pages 25 to 33 and areincorporated by reference into this Statement.

Nomination CommitteeThe Nomination Committee is responsiblefor nominating, for the approval of the Board,candidates for appointment to the Board.It is also responsible for succession planningand reviewing the output of the Boardeffectiveness review. A detailed descriptionof the duties of the Nomination Committee

is set out within its terms of reference whichcan be viewed at www.mbplc.com

The following were members of theNomination Committee during the year:

Memberat 25/09/10 (orlaterdateo Leaving Memberat appointment) date 24/09/11

Michael Balfour Y 13/07/11 Jeremy Blood1 15/02/11 YSimon Burke2 Y 13/07/11 Adam Fowle Y 15/03/11 Bob Ivell3 19/08/11 YSir Tim Lankester Y 27/01/11 John Lovering4 Y 11/02/11

Douglas McMahon 19/08/11 YRon Robson 19/08/11 Y

1 Resigned from the Company on 26/10/11.2 Chairma n from 15/02/11.3 Chairma n from 19/08/11.4 Chairma n to 11/02/11.

DirectorsThe following were Directors of the Company during the year ended 24 September 2011:

Date Dateo appointed changeorole

Current Directors who served during the yearBob Ivell Independent Non-Executive Director** 09/05/11 14/07/11

Interim Chairman*** 14/07/11 Tim Jones Finance Director 18/10/10 Douglas McMahon* Non-Executive Director 15/10/10 Ron Robson* Non-Executive Director 22/01/10

Deputy Chairman 14/07/11

Date Date appointed ceased

Former Directors who served during the yearMichael Balfour Independent Non-Executive Director 28/01/10 13/07/11Jeremy Blood Independent Non-Executive Director** 28/01/10 15/03/11

Interim Chief Executive 15/03/11 26/10/11Simon Burke Independent Non-Executive Director** 28/01/10 11/02/11

Deputy Chairman** 02/02/10 11/02/11Senior Independent Director** 02/02/10 11/02/11Chairman 11/02/11 13/07/11

Adam Fowle Managing Director, Restaurants 01/10/07 12/04/09COO 12/04/09 21/05/09Acting CEO 21/05/09 03/08/09Chief Executive 03/08/09 15/03/11

Sir Tim Lankester Independent Non-Executive Director 16/05/03 27/01/11John Lovering Chairman 28/01/10 11/02/11

* Nominated shareholder representative of Piedmont Inc.** Independent while in the role specied.*** Subsequently appointed as Executive Chairman on 26 October 2011.



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The Company Secretary is secretary to theNomination Committee.

Between 13 July 2011 and the year end,the Company did not comply with provision

B.2.1 of the Code in respect of theNomination Committee consisting of amajority of independent Non-ExecutiveDirectors. Notwithstanding this, when theNomination Committee was not fullyconstituted its role was taken on by the fullBoard, so that there was at all times a formal,rigorous and transparent procedure for theappointment of new Directors to the Board.Directors did not attend the relevant meetingswhere their new roles were being discussed.

The Nomination Committee met twice duringthe year to consider succession planning andrecommended the initial appointment of Bob

Ivell. The Board subsequently considered hisappointment as Interim Chairman and laterExecutive Chairman, taking into account hisother external commitments none of whichwere regarded as signicant. The initialappointment process for Bob Ivell wasfacilitated by an external recruitment agency.The previous Chairman was not involved inthe selection or appointment of Bob Ivell asInterim Chairman. Where a Director wasunable to attend a meeting and the meetingdid not relate to their own appointment,they were provided with all the papers andinformation relating to that meeting andwere able to discuss issues arising direct

with the chair of the Committee and theCompany Secretary.

General Purposes CommitteeThe General Purposes Committee comprisesany two Executive Directors or any oneExecutive Director together with a seniorofcer from an agreed and restricted list ofsenior executives. It is always chaired by aDirector. It attends to business of a routinenature and to the administration of matters,the principles of which have been agreedpreviously by the Board or an appropriatecommittee.

Disclosure CommitteeThe Disclosure Committee considers anddecides upon matters brought to its attention,which would be likely to give rise to anobligation to make a market announcementunder the FSA Listing Rules. It comprisesthe Chief Executive, the Finance Director,the Director of Corporate Affairs and theCompany Secretary & General Counsel.

Executive CommitteeThe Executive Committee, which is chairedby the Chief Executive (currently by theExecutive Chairman), consists of the ExecutiveDirectors and certain other senior executives,

namely Robin Young (Operations Director),Saudagar Singh (HR, Service & ProductivityDirector), Gary John (Property Director) andKevin Todd (Business Development Director).

The Executive Committee meets at least everyfour weeks and has day-to-day responsibilityfor the running of the Groups business.It develops the Groups strategy and annualrevenue and capital budgets for Boardapproval. It reviews and recommends to theBoard any signicant investment proposals.

This Committee monitors the nancial andoperational performance of the Group and

allocates resources within the budgets agreedby the Board. It considers employment issues,ensures the Group has an appropriate poolof talent and develops senior managementmanpower planning and succession plans.

Independent adviceMembers of the Board may take independentprofessional advice in the furtherance of theirduties and they have access to the advice andservices of the Company Secretary & GeneralCounsel, the Companys legal advisers andexternal auditor.

Code of Ethics

The Company has implemented businessconduct guidelines describing the standardsof behaviour expected from those workingfor the Company, via a Code of Ethics (theEthics Code). Its aim is to promote honestand ethical conduct throughout our business,and it applies to all corporate employees.The Ethics Code requires:

compliance with all applicable rules andregulations that apply to the Companyand its ofcers;

the ethical handling of actual or apparentconicts of interest between internal andexternal, personal and professional

relationships; and that any hospitality from suppliers must

be approved, with a presumption againstits acceptance.

The Ethics Code was updated during the yearto reect the Bribery Act 2010 that came intoeffect on 1 July 2011. The Company takesa zero tolerance approach to bribery andhas developed an extensive Bribery Policy.The Code requires employees to complywith the Bribery Policy.

The Company also offers an independentlyadministered, condential, whistleblowinghotline for any employee wishing to report anyconcern that they feel is inappropriate to raisewith their line manager. All whistleblowing

allegations are reported to and consideredby the Executive and Audit Committees.

The Board takes regular account of social,environmental and ethical matters concerningthe Company through regular reports to theBoard and presentations to the Board at itsstrategy meetings. The Company Secretaryis responsible for ensuring that Directors aremade aware of and receive training in respectof such matters. The Board is also responsiblefor the Companys internal risk managementsystem, for which more details can be foundin the Risks and uncertainties section of thisreport, and below.

Internal control and risk managementThe Board has overall responsibility forthe Groups system of internal control andrisk management and for reviewing itseffectiveness. In order to discharge thatresponsibility, the Board has established theprocedures necessary to apply the 2010 UKCorporate Governance Code for the yearunder review and to the date of approvalof the Annual report. Such procedures areregularly reviewed by the Board.

The key features of the Groups internalcontrol and risk management systems include:

An overall governance frameworkincluding:

i. clearly dened delegation of authorityand reporting lines;

ii. a comprehensive set of policies andprocedures that employees are requiredto follow; and

iii. the Groups Code of Ethics, in respectof which an annual conrmation ofcompliance is obtained from allcorporate employees.

Processes, including monitoring by the

Board, in respect of:

i. strategic plan achievement;ii. nancial performance within a

comprehensive nancial planning,accounting and reporting framework;

iii. capital investment and assetmanagement performance, withdetailed appraisal, authorisation andpost-investment reviews; and

iv. consumer insight data and actions toevolve brands and formats to ensurethat they continue to be appealingand relevant.

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