RNS Number : 2666E
Mitchells & Butlers PLC
17 December 2009

Mitchells & Butlers plc (the 'Company')

AnnualFinancialReport 2009

Further to the release of the Company's Final Results announcement on 26 November 2009, the Company announces that it hastodaypublished its Annual report and accounts 2009(or 'Annual Financial Report') and that the Annual Financial Report is now availablealongside the Final Results announcementon theCompany's websiteatwww.mbplc.com/171209ar09.

Inaccordance with paragraph 9.6.1of the FSA Listing Rules, two copies of thedocuments listed below,which are being mailed to shareholders today, have been submitted to the UKLA for publication through the Document Viewing Facility situated at:

Financial Services Authority
25 The
LondonE14 5HS
Telephone 020-7066-1000

- A letter to shareholders from the Board of Directors (the content of which is being released as a separate announcement);

-Company'sAnnualreport and accounts2009;
Notice of Annual General Meeting2010;and
Form ofProxywith accompanying letter regarding communication methods.

The Company's 2010AGM will be held at The International Convention Centre,Broad Street,BirminghamB1 2EAon Thursday 28 January 2010 at 11am.

Pursuant to paragraph 6.1.2 of the FSA Disclosure and Transparency Rules, two draft copies of the proposed amendments to the Company's Articles of Association pending approval at the 2010 AGM, have also been submitted to the UKLA. In addition, a full set of the Articles highlighting the amendments is available for inspection until the close of the AGM at the offices of Allen & Overy LLP,One Bishops Square,LondonE1 6ADduring business hours.

The Company's Final Results announcement of 26 November 2009 containedamanagement reportas well asthe audited financial statementswhich wereprepared in accordance with the applicable accounting standards.The Annual Financial Report submittedto theUKLA todayalso containsinformation regarding the Company's principal risks and uncertainties anda responsibility statement relating to the content of the AnnualFinancial Report (from the Directors in office as at 25 November 2009); an extract of this information is provided below as required under Disclosure and Transparency Rule 6.3.5, however this material is not a substitute for reading the full Annual report and accounts 2009.There are no related party transactionsrequiring disclosure.

Statement of Directors' Responsibilities for preparing the Annual report andaccounts 2009

The following statement, which was prepared for the purposes of the Annualreportand accounts 2009, is set out on page34of that document. Asmentionedabove, this statementis repeated here solely for the purpose of complying with Disclosure and Transparency Rule6.3.5. Thisstatement relates to and is extracted from the Annualreportand accounts 2009. It is notconnected to the information presented in this announcement or inthe Company's FinalResults announcement that was published on 26 November 2009:

The Directors are responsible for preparing the Annual report, the Remuneration report and the financial statements (Group and Company) in accordance with applicableUKlaws and regulations.UKcompany law requires the Directors to prepare financial statements for each financial year. Under that law, the Directorshave prepared the Group financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union ('EU') and applicableUKlaw. Further, they have elected to prepare the Company financial statements in accordance withUKaccounting standards ('UK GAAP') and applicableUKlaw.

In preparing the financial statements, the Directors are requiredto:

select suitable accounting policies and apply them consistently;

make judgements and estimates that are reasonable andprudent;

for the Group financial statements, state whether they havebeen prepared in accordance with IFRSs asadopted by the EU,subject to any material departures disclosed and explained inthe financial statements; and

for the Company financial statements, state whetherapplicable UK accounting standards have been followed,subject to any material departures disclosed and explainedin the financial statements.

The Directors are responsible for keeping proper accountingrecords that disclose with reasonable accuracy at any time thefinancial position of the Company and the Group and enablethem to ensure that the Annual report and financial statementscomply with the Companies Act 2006 and, with regard to theGroup financial statements, Article 4 of the IAS Regulation.They are also responsible for the system of internal control forsafeguarding the assets of the Company and the Group andhence for taking reasonable steps to prevent and detect fraudand other irregularities.

A copy of the financial statements of the Company is postedon the Company's website www.mbplc.com. The Directors areresponsible for the maintenance and integrity of the corporateand financial information included on the website. Informationpublished on the Company's website is accessible in manycountries with different legal requirements. Legislation in theUKgoverning the preparation and dissemination of financialstatements may differ from legislation in other jurisdictions.

Each of the Directors, the names and functions of whom are setout on page 28, confirms that to the best of his or her knowledgethey have complied with the above requirements in preparingthe financial statements in accordance with applicable accountingstandards and that the financial statements give a true and fairview of the assets, liabilities and financial position and profit ofthe Group and the Company and of the Group's income statementfor that period. In addition each of the Directors confirms that themanagement report represented by the Directors'report includesa fair review of the development and performance of the businessand the position of the Group, together with a description of theprincipal risks and uncertainties that it faces.

Disclosure of information to auditors

Having made the requisite enquiries, so far as the Directorsare aware, there is no relevant audit information (as definedby Section 418(2) of the Companies Act 2006) of which theCompany's auditors are unaware and each Director has takenall steps that ought to have been taken to make themselvesaware of any relevant audit information and to establish thatthe Company's auditors are aware of that information.

By order of the Board

Bronagh Kennedy

Company Secretary

25 November 2009

Principal risks and uncertainties
Here follows an extract from the Annual report and accounts 2009regardingthe principal risks and uncertainties that the Company faces,as set out on pages 24 to 27 of that document:

This section highlights some of the risks which affect the Company. It is not intended to be anexhaustive and extensive analysis of all risks which may affect the Company, but those which have been identified and could have a material impact on Mitchells & Butlers' long-term performance andachievement of its strategy. These risks have been grouped under the following headings: market; operational; regulatory and financial. Mitchells & Butlers adopts a pro-active approach in this area witheach member of the Executive Committee managing the specific risks associated with their areas of responsibility together with a dedicated Assurance team who report through the General Counsel tothe Executive Committee and the Board.

The Board has overall responsibility for managing the Company's risk. A sub-committee of the Executive (the Risk Committee) assists the Board and the Executive Committee in the review of risk management processes and in the consideration of major risks.

Its primary responsibilities are to:

• review the operation of the risk management process;

• consider the Company's major and other significant risks and the adequacy of the mitigation actions;

• review and comment on the updates on risks prepared by Group Assurance prior to submission to the Executive and Audit Committees; and

• review and comment on the Group Assurance audit plan prior to submission for approval to the Audit Committee.

The Board also receives regular updates on significant legislative changes or developments in corporate governance best practice. The Company's social, environmental and ethical disclosures are reviewed for accuracy through a combination of detailed verification by members of management responsiblefor the individual areas of corporate social responsibility and high level review by the members of the Board and Executive Committee.

Market-driven risks

Consumer expenditure

Changes in the general economic climate, such as those caused by the global 'credit crunch' and the resultant recession, can have a detrimental effect on consumer expenditure and therefore Companyrevenues. Morelocalisedeconomic factors can also have an impact, such as reduced tourist visits toLondonfollowing terrorist activity.

Mitchells & Butlers has around 2,000 pubs across theUKwith a wide spectrum of customer offers targeted at different consumer groups and leisure occasions. This range provides flexibility to respond to changes in consumer expenditure either by altering the products soldand prices charged, or by substituting a more appropriate style of pub at a particular location.

Consumer taste

Changes in consumer taste or a new or improved competitor offering may reduce the appeal of Mitchells & Butlers' pubs to its customers, especially if the Company fails to anticipate, identify and respond adequately and promptly to these changes.

For example, on a long-term perspective, social and demographic changes have driven the growth in pub food while at the same time leading to a steady decline in the on-trade beer market. This decline has been further impacted by the introduction of the smoking ban inEnglandon 1 July 2007 and

the loss-leading pricing policies of the large supermarket groups, with the off-trade in total now accounting for almost 50% of allUKbeer sales up from 18% 20 years ago. Competition in the eating-out market has increased as pubs have responded to the decline in drinks sales by introducing food or improving their existing menus. In light of this threat, Mitchells & Butlers has responded by improving the quality, value and range of its menu items and drinks offers in order to gain market share.

On a regular basis, there are marketing strategy meetings whichanalysea variety of data to ensure that Mitchells & Butlers pubs are maintaining their relevance to their customers. This analysis is part of a structured programme to develop new styles of pubs and continuously improve existing brands. This process is co-ordinated with a property review to ensure the appropriate capital investment is taking place to supportthe marketing strategy. The evolution of Harvester, which has returned to sales growth following menu and pricing changes, and the development of Miller & Carter, a steakhouse offer, which has grown to16 pubs over the last two years are relevant recent examples of this process in action.

Operational risks

Pricing Risks

The pricing of products is a critical management tool inmaximisingcash gross margin and therefore growing the net operating profits of the business. There is a risk that if the Company fails to price the products that it sells at the right level, volume declines will occur if the price is too high or insufficientmargin will be achieved if the price is too low, thereby impacting on the profitability of the Company. As a result, retail pricing decisions are constantly monitored by a central pricing team which reviews andassesses the impact of pricing changes on profitability to ensure that any changes are effective.

Supplier dynamics

Food and drink purchases account for the majority of Mitchells & Butlers' supply costs. Mitchells & Butlers is exposed to the risk of higher food prices dependent on world economic conditions, global availability, foreign exchange fluctuations and demand for products. In FY 2008 and FY 2009 there has been an incremental food cost of £9m and £8m respectively. There are some signs that the level of future price increases will be at a lower rate however it is likely that they will still be subject to volatility.

Despite this, as a result of the value and volume strategy that the Company pursues and the strength of its consumer offers and pub estate, Mitchells & Butlers has continued to grow food volumes mitigating the increases in food cost of goods. Purchasing effectiveness is a key area of focus as the large number of food ingredients and fragmented nature of food suppliers on the world commodity markets have given Mitchells & Butlers a greater opportunity to source food from alternative suppliers. In addition to this, the Company continually reviews its cost of goods for each menu item in order tomaximisevalue to the customer as well as profits, and this menu management process also assists in mitigating food cost increases.

In drinks Mitchells & Butlers has successfully renegotiated supplier contracts partially offsetting the effect of duty increases. Additionally, as the Company's legacy tied drinks arrangements have ended, Mitchells & Butlers has broadened the choice available to customers onfavourableterms. Mitchells

&Butlersis no longer contractually bound to source minimum purchase volumes from certain suppliers although there are some distribution obligations in place.

Mitchells & Butlers is a large commercialuser of gas and electricity and is subject to fluctuations in utility costs (for example, gas and electricity costs rose sharply during 2008 due to global price increases). To reduce exposure to short-term fluctuations in energy prices, Mitchells & Butlers has a rolling programme of forward purchases. An energy awareness team reviews energy consumption and works with the business to find ways to promote further efficiencies.

The Company also regularly reviews the financial position of its major suppliers to assess the risk of suppliers ceasing to be able to trade.

Service standards

Service standards are a critical component of Mitchells & Butlers' pubs' success with levels of service and retailing standards a key element in the consumer's choice of pub. Mitchells & Butlers operates ongoing staff training focusing on service quality and supports this through a variety of methodsincluding guest satisfaction surveys.

Health and safety

Mitchells & Butlers is the largest on-trade caterer and there is therefore the potential that there might be a major health and safety failure leading to illness, injury or loss of life or significant damage to theCompany's reputation. In light of this, the Company has in place rigorous health and safety trainingprogrammesand regular independent audits which are carried out to ensure that procedures are followed.


Critical to Mitchells & Butlers' success is its ability to attract, retain, develop and motivate the best people with the right capabilities throughout theorganisation. Remuneration packages are benchmarkedto ensure that they remain competitive and a talent review process has been established to provide structured succession planning.

The Company makes significant investment in training to ensure that its people have the right skills to perform their jobs successfully. Furthermore an employee attitude survey is conducted annually to establish employee satisfaction and engagement and to compare it against other companies as well as previous annual surveys.

IT systems

Mitchells & Butlers is reliant on its IT systems to trade efficiently and to ensure that appropriate controls are in place. There is a potential for a failure of key IT systems for a sustained period which may restrictsales or reduce operational effectiveness. Therefore the Company has in place a number of tested contingency plans and disaster recovery processes which mitigate the impact of such failures.

Regulatory risks

Mitchells & Butlers operates in a heavily regulated sector, where changes in regulation can have a significant impact. Some examples of the regulatory changes which have affected Mitchells & Butlersinclude:

National Minimum Wage andHolidayPay

The National Minimum Wage was introduced 10 years ago and has increased by a compound annual growth rate of 5.5% per annum over its first eight years, materially above inflation. However in 2007 the Low Pay Commission indicated that any further increase should remain in line with general wage inflation; consequently in October 2008 it rose by 3.8% to £5.73 (up 21p) and in October 2009 it rose by 1.2% to £5.80. In October 2007 new rules increased the statutory holiday entitlement of staff from 20 to 24 days, which increased the Company's employment costs.

Mitchells & Butlers has in the pastsuccessfully mitigated these statutory increases in employment costs through productivity improvements. These measures have allowed the Company to maintain the ratio of employmentcosts at 24.3% of sales in FY 2009.


New licensing laws became effective inEnglandandWalesin November 2005 with similar changes being introduced inScotlandin September 2009. Licensing matters were transferred to local authoritiesand greater flexibility of opening hours was introduced to allow pub operators to apply to the local authority for permission to change opening hours, subject to objections from local residents, the policeand other relevant agencies. These groups have the right to ask the local authority for the premises' licence to be reviewed if they believe that the Government's licensing objectives are being compromised. The local authority now has the power to attach further conditions to thelicence, reducetrading hours, call for a change in the pub management or ultimately suspend or revoke the licence.

The Policing and Crime bill is currently in committee stage in the Lords. The bill takes a two-tiered approach to further regulation of alcohol retailers with a small number of mandatory conditions for all alcohol retailers, alongside new discretionary powers for local authorities.

Mitchells & Butlers does not operate any24 hourlicencesand invests heavily in the training of its pub managers and staff to ensure continued compliance with licensing laws and that its pubs are operated in a responsible manner.


Mitchells & Butlers' profitability is affected by a number of different taxes. These include duty on alcoholic beverages, property rates, VAT, corporation tax and other business taxes. There is a risk that tax legislation changes may result in increased levels of tax and therefore reduced revenue, profitabilityor cash flow.

Mitchells & Butlers ensures it takes appropriate action tominimisethe risks from legislation changes through a number of means including:

• active participation with industryorganisations, such as the British Beer & Pub Association and the British Hospitality Association, ensuring that effective lobbying is carried out; and

• continual improvements in operating procedures to ensure any cost increases arising from such changes can be mitigated through productivity increases or other cost reductions.

The amount and timing of the Group's cash tax payments and receipts are dependent upon the interpretation of tax legislation. Alternative interpretations could affect tax returns which are submitted but not yet approved, material tax losses utilised in prior years or available for offset against future profits and claims for overpayments of tax in prior periods.

Should the Company be subject to a changeof ownership as defined by the Income and Corporation Taxes Act 1988 (Sections 768, 769 and Schedule 28A) and be deemed to have undergone a significant change to its business, tax losses available for offset against future profits could be lost or the timing of cash tax credits could be impacted.

In mitigation of the above risks, Mitchells & Butlers monitors its tax position on an ongoing basis in conjunction with advice from tax specialists and discussions with HMRC.

Financial risks


The Group uses interest rate and currency swap contracts to hedge its exposure to changes in interest rates and exchange rates. The Group currently has £1.35bn of interest rate swaps and cross-currencyswaps in place in relation to the securitisation, with their longevity and amounts matched to the underlying bonds. It also has £150m of short-term interest rates swaps held outside thesecuritisationagainst floating rate debt with a maturity date of December 2010. There are no swaps remaining on the Group's balance sheet relating to the proposed property joint venture.

Cash flows

Mitchells & Butlers has financing in place with sufficient headroom to support the operational strategy and maintain an efficient balance sheet. There is a risk however that due to a change in the economic climate or other significant financial impact either that the business might not be able to fulfil the termsof its financial obligations, or that the business would not be able to refinance its unsecured medium-term facility, drawings on which were £383m at the year end, prior to its maturity in November 2011.

In either of these circumstances the Company could reduce its cash costs, primarily by reducing operating costs or reducing its maintenance and expansionary capital expenditure. Alternatively thebusiness could look to other forms of finance such as sale and leaseback, rights issues, or other specific mortgage transactions to meet cash requirements. Clearly there is no guarantee that theseother forms of finance will be available to the business at the required time.

Pension funding

Mitchells & Butlers has two defined benefit pension schemes which give rise to various funding risks. There is a risk that the Company's funding of these schemes may be increased or accelerated to meetthe expected liabilities within the scheme. The expected liabilities of the schemes are impacted by changes in various economic factors such as life expectancy, asset returns, bond yields and inflation expectations.

Mitchells & Butlers' pension risks have been mitigated by the closure of the definedbenefit schemes to new entrants in 2002, (as well as the introduction, with effect from 1 October 2009, of a 2% per annum limit on increases to that proportion of salary which is used to calculate theretirement benefit for current active members). As an alternative, a defined contribution pension scheme is now available to eligible new employees.

Mitchells & Butlers also maintains a close dialogue with the pension schemes' Trustees and three of the Trustees are appointed by the Company. As a result of the funding deficits in the schemes, in addition to the regular service contributions, the Company has made additional contributions of over £200m since demerger in 2003 in order to proactively reduce the deficit.

The pension deficit on the balance sheethad increased to £130m at the year end primarily due to a reduction in corporate bond yields. The next pension scheme triennial valuation for funding purposes is due in March 2010. Discussions havecommenced with the Pension Trustees in respect of the various assumptions to be used in the valuation, some of which could vary significantly from the accounting basis, and we therefore anticipate that the valuation deficit may be higher than £130m. A revised funding plan will be agreed with the Trustees once the valuation process is complete.

Property valuation and security

There is a risk that a significant reduction in the Company's profitability or a material change to the basis of valuation of our property portfolio, upon which the Group's borrowing is secured, may adversely impact the Group's borrowing covenants or distributable reserves. This is mitigated by the headroom that we maintain against these risks, for example on the covenants within the securitisation there is a net worth threshold of £500m; and at the year end the headroom on this covenant was £1,092m.

Material litigation

Mitchells & Butlers may be subject to litigation in the ordinary course of its operations. If such litigation resulted in fines, damages or reputational damage to Mitchells & Butlers, its business could beadversely affected.

Mitchells & Butlers has audited procedures in place to safeguard against materiallitigation, and has insurance in place to cover the more easily identifiable litigation risks.

Other financial risks

Other financial risks are shown in note 20 to the accounts.

- Ends -

For further information, please contact:

Investor Relations:

Erik Castenskiold

+44 121 498 6513


James Murgatroyd(Finsbury Group)

+44 207 251 3801

Notes for editors:

Mitchells & Butlers owns and operates around 2,000 high quality pubs in prime locations nationwide. The Group's predominantly freehold, managed estate is biased towards large pubs in residential locations. With around 3% of the pubs in theUK, Mitchells & Butlers has 10% of industry sales and average weekly sales per pub almost four times greater than that of the averageUKpub.

Mitchells & Butlers' leading portfolio of brands and formats includes Ember Inns, Harvester, Sizzling Pub Co., Toby Carvery, Vintage Inns, Crown Carveries, All Bar One, O'Neill's, Nicholson's and Browns. In addition, Mitchells & Butlers operates a large number of individual city centre and residential pubs.

This information is provided by RNS
The company news service from the London Stock Exchange