Annual Report 2018

In compliance with Listing Rule 9.6.1, Mitchells & Butlers plc has today submitted copies of the following documents to the National Storage Mechanism:

  1. Company Annual Report and Accounts 2018
  2. Notice of the 2019 Annual General Meeting

These documents will shortly be available for inspection at

The above documents can also be accessed on the Company's website at:

The Company's Annual General Meeting will be held at Mitchells & Butlers plc, Retail Support Centre, 27 Fleet Street, Birmingham, B3 1JP on Tuesday 22 January 2019 at 2.00pm.

A condensed set of Mitchells & Butlers plc financial statements and information on important events that have occurred during the year and their impact on the financial statements was included in the Company's Full Year Results announcement on 22 November 2018. That information, together with the information on Risks and Uncertainties given below and the directors' responsibilities statement below, constitutes the requirements of DTR 6.3.5 which is to be communicated via an RIS in unedited full text. This announcement is not a substitute for reading the full Annual Report and financial statements. To view the Full Year Results announcement, visit the Company website:

Risks and uncertainties

This section highlights the top ten principal risks and uncertainties that affect the Company, together with the key mitigating activities in place to manage those risks. This does not represent a comprehensive list of all of the risks that the Company faces, but focuses on those that are currently considered to be most relevant.

The processes that are used to identify and manage risks are described in the internal control and risk management statement on pages 62 and 63 of the Annual Report.

Risk category and descriptionControls/mitigating activities
Risk category and description
1.Market risks
Risk category and description
Declining sales performance

This risk falls into three main categories:

Sales: There is a risk that declining sales, concerns around consumer confidence, increased personal debt levels, squeezes on disposable income and rising inflation individually, together or in combinations, may adversely affect our market share and profitability, reducing headroom against securitisation tests.

Consumer and market insight: If Mitchells & Butlers fails to manage and develop its existing (and new) brands in line with consumer needs and market trends due to failure to obtain or use sufficient insight in a timely manner, this may lead to a decline in revenues and profits.

Pricing and market changes: If price changes are not intelligently applied due to a lack of appreciation of market sensitivities and elasticities, this may result in decreased revenue and profit particularly in relation to exceptional dry/hot summer weather and extreme cold/snow conditions.
Controls/mitigating activities
Right team and structure in place. Brand alignment ensures the right research gets done and is acted on.

Daily, weekly and periodic sales reporting, monitoring and scrutiny activity is in place.

Our Eat Drink Share panel provides robust, quick and cost-effective research. This is our own panel of 27,000 Mitchells & Butlers guests whom we can use for research purposes for quick and cost-effective insights.

Primary research in partnership with brand/category teams.

Working with suppliers to tap into their research.

Each brand has its own pricing strategy.

Price promotions are in line with the agreed strategy.

Sales training for Management.

Consumer/insight-led innovation process and development for new brands.

Reduce guest complaints by improving the local management of social media responses (e.g. TripAdvisor responses).

Increased digital marketing activity including new loyalty apps.

Increased activity from takeaway and delivery offerings.

Online guest satisfaction survey to collect guest feedback. This feedback, together with the results of research studies, is monitored and evaluated by a dedicated guest insight team to ensure that the relevance to guests of the Company's brands is maintained.
Risk category and description
Cost of goods - price increases

Food: The price of goods increases due to changes in demand, legislation, exchange rates and/or production costs and uncertainty of supply, leading to decreased profits.

Drinks: The price of drinks goods increases due to changes in demand, legislation, exchange rates and production costs, leading to decreased profits.

Goods not for resale: Increases in the price of goods not for resale and utilities costs as a result of increases in global demand and uncertainty of supply in producing nations can have a significant impact on the cost base, consequently impacting margins.

Brexit: Given that in FY 2019, the transition period for the UK to exit from the EU will commence (noting that c.30% of food spend is sourced from EU countries), the overall risk and impact of additional costs is higher. In addition, there is an increasing risk of sourcing certain products given the expected delays at ports following exit from the EU. On exit of the EU, cost of goods would be impacted by changes in terms of trade and therefore tariffs, additional border controls and fluctuations in the value of sterling.
Controls/mitigating activities
Overall, price increases are mitigated as Mitchells & Butlers leverages its scale to drive competitive cost advantage and collaborates with suppliers to increase efficiencies in the supply chain. The fragmented nature of the food supply industry in the world commodity markets gives the Company the opportunity to source products from a number of alternative suppliers in order to drive down cost. Consideration has been given to potential areas such as supply chain risk (e.g. customs controls on imports), labour risk and economic disruption. Key mitigating activities for food and drink are detailed below:

A Food Procurement Strategy is in place.

Full reviews have been carried out on key categories to ensure optimum value is achieved in each category.

A full range review was completed in 2017 ensuring the correct number of products/suppliers. This is regularly reviewed.

Regular reporting of current and projected inflation.

Good relationships with key suppliers.

Each drinks category has a clearly defined strategic sourcing plan to ensure Company scale is leveraged, supply base is rationalised and consumer needs are met.

Good relationships with key suppliers.

Supplier collaboration programmes are in place.

Plans in place to mitigate Sugar Tax.

Risk is increasing mainly due to the devaluation of the pound following the EU referendum, changes in Government policy (raising the risk of punitive duty changes) and the introduction of the Sugar Tax in 2018. Brexit risks have been considered in detail during FY 2018 and mitigating plans continue to be developed.

Buying ahead to mitigate the increasing risk of a lack of availability of products upon exit from the EU.
Risk category and description
2. Operational Risks
Risk category and description
People planning and development

Mitchells & Butlers has a strong guest focus and so it is important that it is able to attract, retain, develop and motivate the best people with the right capabilities throughout the organisation. There is a risk that, without the right people, our customer service levels would be affected.

There are a large number of EU workers within the Group, particularly in London and the South East. Therefore, the overall risk is increasing as the UK approaches its exit from the EU. Any restriction on the free movement of labour would have a material impact on both the cost of labour and access to talent.
Controls/mitigating activities
The Company makes significant investment in training to ensure that its people have the right skills to perform their jobs successfully.

Furthermore, an employee survey is conducted annually to establish employee satisfaction and engagement and this is compared with other companies, as well as previous surveys. Where appropriate, changes in working practices are made in response to the findings of these surveys.

Remuneration packages are benchmarked to ensure that they remain competitive and a talent review process is used to provide structured succession planning.

The apprenticeship programme will also assist in mitigating against the increasing risk in relation to EU workers.
Risk category and description
Business continuity and crisis management

Mitchells & Butlers relies on its food and drink supply chain and the key IT systems underlying the business to serve its guests efficiently and effectively. Supply chain interruption, IT system failure or crises such as terrorist activity or the threat of disease pandemic might restrict sales or reduce operational effectiveness.
Controls/mitigating activities
The Company has in place crisis and continuity plans that are tested and refreshed regularly. The Company's third-party back-up facility, for Retail Support Centre employees, has been successfully tested to ensure critical business systems are able to function in the event of a disaster.

In addition, during FY 2018, departmental Business Continuity Plans have been revised, updated and reviewed by the Risk Committee.

During FY 2018, two key departments took part in a test of our third-party off-site back-up facility. This test was a success and identified some key learnings to improve the overall service, all of which were implemented.
Risk category and description
Information security and disaster recovery

There is a risk that inadequate disaster recovery plans and information security processes are in place to mitigate against a system outage, or failure to ensure appropriate back-up facilities (covering key business systems and the recovery of critical data) and loss of sensitive data.

Increasing risk of cyber-attacks.

Risk of non-compliance with GDPR.
Controls/mitigating activities
In FY 2018 a further review of cyber security was performed in order to highlight any gaps and address any challenges. As a result, a number of further improvements have been made to address audit actions.

In addition, controls include:

The work carried out by the Group's cross-functional Information Security Steering Group.

Group Assurance IT controls reviews.

Implementation and revision of appropriate cyber security governance policies and procedures.

Ongoing security awareness initiatives continue to be undertaken.

A regular cycle of penetration testing.

An effective implementation of a business wide Global Data Protection Regulation compliance programme, including training of all relevant employees and contractors.

Increased focus on protecting the business against potential cyber-attacks has resulted in the implementation of additional controls to mitigate against such risks.

Systems, processes and controls have been reviewed and updated to ensure GDPR compliance.
Risk category and description
Wage cost inflation

There is a risk that increased costs associated with further increases to the National Living Wage may adversely impact upon overall operational costs.
Controls/mitigating activities
A detailed review of the risks associated with the National Living Wage has been completed. This review has been undertaken at a strategic level and seeks to ensure that appropriate mitigating actions are in place, some of which are in relation to how the Group carefully manages productivity and efficiency across the estate.

We have successfully implemented a new Time and Attendance system to improve the management controls and reporting of staff hours.
Risk category and description
Borrowing covenants

There are risks that borrowing covenants are breached because of circumstances such as:

i. A change in the economic climate leading to reduced cash inflows; or

ii. A material change in the valuationof the property portfolio.

The overall risk has increased in the year due to increased trading and cost pressures which could essentially drive reduced headroom.
Controls/mitigating activities
The Company maintains headroom against these risks. The finance team conducts daily cash forecasting with periodic reviews at the Treasury Committee, the role of which include ensuring that the Board Treasury Policy is adhered to, monitoring its operation and agreeing appropriate strategies for recommendation to the Board.

In addition, regular forecasting and testing of covenant compliance is performed and frequent communication is maintained with the Securitisation Trustee.

Annual property valuation.

Detailed assessment within the long-term viability statement.
Risk category and description
Pension fund deficit

The material value of the pension fund deficit remains a risk.
Controls/mitigating activities
The Company has made significant additional contributions to reduce the funding deficit. In July 2017, the Company reached agreement on the triennial valuation of the Group pension schemes as at 31 March 2016, with a funding shortfall of £451m (March 2013 valuation £572m shortfall).

The Company will continue to pay cash contributions (of £48m p.a. indexed) to 2023, with an additional payment of£13m into escrow in 2024 should such further funding be required at that time.
Risk category and description
Failure to operate safely and legally

A major health and safety failure could lead to illness, injury or loss of life or significant damage to the Company's or a brand's reputation.
Controls/mitigating activities
Mitchells & Butlers maintains a robust programme of health and safety checks both within its restaurants, pubs and bars and throughout the supply chain.

The dedicated Safety Assurance team uses a number of technical partners including food technologists, microbiologists and allergen specialists to ensure that our food procedures are safe.

Regular independent audits of trading sites are performed to ensure that procedures are followed and that appropriate standards are maintained.

If a business is identified as underperforming in terms of health and safety standards, it would be immediately targeted for improvement.

The Company has Primary Authority Partnerships with Westminster City Council for the provision of assured advice on, amongst other things, safety issues and with Hampshire Fire Service for the provision of support and guidance on fire safety risks.

Food suppliers are required to meet the British Retail Consortium Global Standard for Food Safety and are subject to regular safety and quality audits.

Comprehensive health and safety training programmes are in place.

Risk category and description
Food supply chain safety

Malicious or accidental contamination in the supply chain could lead to food goods for resale being unfit for human consumption or being dangerous to consume. This could lead to restrictions in supply which in turn causes an increase in cost of goods and reduced sales due to consumer fears and physical harm to customers/employees.

Allergens are becoming an increased risk within the industry.
Controls/mitigating activities
Mitchells & Butlers has a Safety Assurance team and uses a number of technical partners including food technologists, food safety experts, microbiologists, allergy consultants, trading standards specialists and nutritionists.

Mitchells & Butlers uses a robust system of detailed product specifications.

All food products are risk rated using standard industry definitions and assessment of the way the products are used in Mitchells & Butlers' kitchens. Suppliers are then risk rated according to their products.

Each food supplier is audited at least once per annum in respect of safety and additionally in response to any serious food safety complaint or incident.

A robust response has been taken to manage allergens and the associated data within the menu cycle coupled with a continuous review in place to ensure controls remain appropriate.

Directors' responsibilities statement

The Annual Report contains the following statement regarding responsibility for the financial statements in compliance with DTR 4.1.12. This statement relates solely to the Annual Report and financial statements and is not connected to the extracted information set out in the Full Year Results announcement.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:

  • the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
  • the Strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
  • the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

The directors of Mitchells & Butlers plc are listed in the Annual Report and on the Mitchells & Butlers plc website,

For further information, please contact:

Investor Relations
Amy de Marsac
0121 498 6514

James Murgatroyd (Finsbury)
020 7251 3801