Annual Report
and Accounts 2022
Financial highlights
£2,208m
Revenue
£8m
Profit before tax
b
£240m
Adjusted operating profit
c
2.2p
Basic earnings per share
c
Financial review
Go to page 55
Environmental,
social and
governance targets
Net zero
Greenhouse gas emissions by
FY 2040 (Scope 1, 2 and 3)
Zero
Operational waste to landfill by
FY 2030
50%
Reduction in food waste by FY 2030
ESG review
Go to page 32
a. As at 24 September 2022.
b. Includes separately disclosed items.
c. The Directors use a number of
alternative performance measures
(‘APMs’) that are considered critical
to aid understanding of the Group’s
performance. Key measures are
explained on pages 177 to 179 of
this report.
About us
Our scale is impressive (see ‘Scale and geographical
diversity’ on pages 22 and 23). Since 1898, the Group
has been at the forefront of UK drinking and eating out.
In FY 2022 we served 99 million meals, as well as some
316 million drinks. We employ over 46,000
a
people in
pubs, bars and restaurants that are located across the
length and breadth of the UK and in Germany, with
over 82% of the UK population within five miles of one
of our sites.
We remain focused on our three priority areas of
building a more balanced business, instilling a
commercial culture, and driving an innovation agenda,
whilst pursuing our purpose of being the host of life’s
memorable moments, bringing people and communities
together through great experiences.
IFC Financial highlights
03 Welcome to Mitchells
& Butlers
04 Purpose in Action –
Apprenticeships
06 Purpose in Action –
Community
08 Purpose in Action –
Sustainability
10 Chairman’s statement
18 Chief Executive’s business review
24 Our markets
26 Our strategic priorities
28 Task Force on Climate-related
Financial Disclosures
32 Our sustainability targets
34 Our business model
38 Value creation story
42 Key performance indicators
44 Risks and uncertainties
52 Compliance statements
– Corporate Viability
– Non-financial information
statement
– Section 172 Companies
Act statement
55 Financial review
60 Chairman’s introduction
to governance
62 Board of Directors
64 Directors’ report
72 Statement of Directors’
responsibilities in respect
of the Annual Report and
Accounts
73 Corporate governance
statement
85 Audit Committee report
89 Report on Directors’
remuneration
Financial Statements
108 Independent auditor’s report
to the members of Mitchells
& Butlers plc
116 Group income statement
117 Group statement of
comprehensive income
118 Group balance sheet
119 Group statement of changes
in equity
120 Group cash flow statement
121 Notes to the consolidated
financial statements
171 Mitchells & Butlers plc
Company financial statements
173 Notes to the Mitchells &
Butlers plc Company
financial statements
Other Information
177 Alternative performance
measures
180 Shareholder information
Contents
Introduction
Governance
Outlines how the Group
monitors its actions, policies,
practices and decisions as well as
the effect of those actions on its
stakeholders.
Strategic Report
Provides a summary of the
Group’s purpose, business
model, strategy, risks,
development, performance,
position and future prospects
including relevant non-financial
information.
A brand for
every occasion
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 01
02 Introduction
Our purpose is to be the host of life’s
memorable moments, bringing people
and communities together through
great experiences.
Despite the impact on sales of
the Covid-19 Omicron variant in the early
part of the financial year, it has been
rewarding to be able to deliver this
purpose unencumbered by restrictions
and with some certainty about our ability
to trade over a sustained period. Allied to
this has been the evidence that our guests’
love of socialising with friends in a pub or
restaurant environment has remained
strong. This year has been focused on
rebuilding trade, against a backdrop of
inflationary cost challenges, and
strengthening the teams which make our
pubs and restaurants thrive, with a view to
creating long-term sustainable value for
all of our stakeholders.
The next few pages show some of the
things we have done in FY 2022 to support
our guests, people and communities.
Phil Urban
Chief Executive
Welcome
to Mitchells
& Butlers
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 03
Purpose in Action – Apprenticeships
We have maintained
our support for the
development of our
people…
To support our recovery post-pandemic, the Group
has continued to both invest in, and grow, our
population of apprentices – introducing new talent
to our industry, whilst also upskilling our current
employees looking to further their careers.
We were extremely proud to gain external
recognition from the Gov.uk Top 100
Apprenticeship Employers 2022, where we
placed 7th. This is an improvement on previous
placings, and meant we were the only hospitality
organisation to place in the top 20. We also
managed to retain our Top 100 Employer status
in the ‘Rate My Apprenticeship’ awards as voted
for by our apprentices. We achieved National
Apprenticeship Awards West Midlands Highly
Commended in both the Macro Employer of
the Year, and Recruitment Programme of the
Year categories. Our HR apprentice Lauren
Carroll was awarded Higher Apprentice of the
Year West Midlands.
In FY 2023, we will continue to expand our
apprenticeship opportunities from Level 2
through to Level 7 and have an appetite to keep
growing our own apprenticeship talent. We are
aspiring to recruit a further 1,000 new employees
in addition to accelerating the careers of 1,000
current employees ensuring both populations
have a genuine alternative to college and
university, and enjoy long-lasting and rewarding
careers in hospitality.
We offer hospitality-specific apprenticeships
nationwide in all our managed pubs and
restaurants, alongside a menu of intermediate
and degree level apprenticeships for corporate
employees. We now offer 25 apprenticeship
standards and partner with eight providers
and universities.
This year, over 1,000 apprentices have joined us,
and a similar number of our current employees
have enrolled onto one of the apprenticeship
opportunities open to them. We are also delighted
that over 350 employees successfully completed
their first apprenticeship during FY 2022. The
Group now has around 2,100 apprentices
in-learning within the organisation. Given the
importance of developing and retaining chefs,
we continue to grow our culinary capability via our
Chefs’ Academy. Designed to inspire and develop
internal culinary skill over and above that which
our core menus require, 175 of our chefs have
embarked on the Commis Chef apprenticeship
delivered by our award-winning tutors.
“In the year ahead, we will
continue to expand our
apprenticeship opportunities
and grow our apprenticeship
talent.”
04 Introduction
A fellowship of the City & Guilds of London Institute was recently
bestowed on Gary Richmond, Culinary Learning & Development
Manager for our Chefs’ Academy apprenticeship programme.
This was in recognition of his outstanding professional and personal
achievement and his contribution as a passionate advocate of
technical, vocational and lifelong education.
Fellowship of the City & Guilds of London Institute is a prestigious
honour, made even more special as Gary started his career with a
City & Guilds apprenticeship aged just 15. Now, over 40 years later,
Gary dedicates his time to teaching the our apprentices on the
City & Guilds pathway.
Gary was one of only four to be nominated for a fellowship. As part
of his fellowship, he will now continue to promote the Guild, the
hospitality industry, and apprenticeships.
When asked about the fellowship, Gary commented:
“I’m extremely proud and honoured to be bestowed this
honour. Training and development is hugely important
to me, and to be recognised for doing a job I absolutely
love is extremely humbling. I am passionate about
promoting this wonderful industry and mentoring our
chefs, kitchen managers and rising stars of the future.”
Every year we host MABsterchef for our chef apprentices
to showcase their skills.
The cook-off competition is a chance for any chef apprentice
to create and cook a dish that will blow our judges away.
Here we speak to James Howden-Bee, a chef apprentice from
Sizzling Pub & Grill, about his experience of the day and the
preparation that went into cooking his winning dish of pan-seared
duck breast with fondant potato, chantenay carrots, grilled
asparagus, served with a red currant and red wine sauce:
“I’m very proud to be named the winner of MABsterchef
2022. The highlight of the day was meeting all the
chefs from different brands, and seeing the dishes they
had created was great. There was also a huge buzz
around the room. You could see the chefs were nervous,
but everyone was having a good time and enjoying
the experience.
My advice to anyone competing in the competition is
to stick to the brief. Remember that the dish you are
creating has to be cooked for over 500 people plus.
So, keep it simple, and just focus on cooking it well and
packing it with flavour! And, make sure you practise,
practise, and practise. I think my wife and the rest of
my pub team are heartily sick of trying duck with
different potatoes and sauce!”
2,100
apprentices in-learning
currently
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 05
Purpose in Action – Community
Our pubs, bars and
restaurants have
continued to serve
and support their
communities…
The key focus for partnering with Social Bite is
that we can offer Jobs First employees a chance to
grow current skills and learn new ones. We have
found that our current candidates have learnt
many key skills whilst working with us as we can
offer a safe learning environment that can help
people to flourish. Some key learnt skills are:
• Interacting with guests and other
team members
• Growing self confidence
• Time management
• Kitchen skills
• Mental wellbeing
So far, All Bar One Edinburgh, Glasgow and
Regent Street, Browns Glasgow and Harvester
Hillington have been inducted into the
scheme with seven employees having joined
Mitchells & Butlers.
We aim to continue the great partnership with
Social Bite by supporting the current sites and
opening up more opportunities for sites to join
the Jobs First Programme especially in London.
We will be supporting the charity with their
upcoming Break the Cycle event. Over the festive
period we will also be partnering with Social Bite
during their Festival of Kindness campaign, by
raising donations via our festive menus and raising
awareness of the campaign in our sites.
We are also supporting Social Bite through
contactless donation terminals in four of our sites,
as well as various virtual challenges for our
frontline and corporate teams.
Alongside this central and brand-driven activity
there are countless outlet-led and individual
contributions to the community which take place
every day – from sponsorship events to small
acts of kindness. These place the Group, its
people and its pubs, bars and restaurants at the
core of their communities, both serving and
supporting them.
Various initiatives to support our communities
are in place, organised at a brand and
company level.
One of these is our work with Social Bite, a charity
which helps people experiencing homelessness
regain their independence, as well as being
the largest provider of freshly-made free food in
the UK to those in need. In FY 2022, we have
supported their initiative to help revolutionise
the access that people, who have experienced
homelessness, have to job opportunities across
the UK. Through Social Bite’s Jobs First
programme, we are working with them to help
break down the barriers people face on their
route to employment and support them to reach
their potential.
The programme, which guarantees living wage
employment for each person who participates,
will provide wrap-around support for both the
employer and employee. We offer each Jobs First
employee a 13-week training schedule and a
support worker from Social Bite will assist them
throughout the programme and their employment
contract, meeting weekly to offer practical
support on bills and forms, as well as emotional
guidance and confidence-building to adapt to
working life. Our General Managers work
together with Social Bite to appropriately guide
the employee, facilitating appraisal processes and
employee progress.
Our businesses have long been a hub for local
communities to gather, providing intangible
benefits beyond the core offer of food and drink.
06 Introduction
13
13-week training
programme offered to each
Jobs First Employee
“I’m coming up to my first year of employment and
I want to thank Mitchells & Butlers and Social Bite
for all the help and support they have given.
I personally needed the help and motivation to get
myself back into work after suffering the loss of
a close relative.
Social Bite helped me build my career path and
gain the confidence to get back into work – whether
it be money, work-related or personal life someone
was always there for support and guidance.
Mitchells & Butlers has been a great help also, a
standout moment being when I broke my ankle and
they still kept me employed and helped me through
all the necessary training until I was fit for work.
Working at Mitchells & Butlers has been a great
experience which I will never forget.”
Jobs First Employee
at Harvester
“At Social Bite we have always worked to create a
movement that invites great businesses to become
part of the solution to end homelessness.
This partnership has enabled real positive change
in the lives of people who have experienced
homelessness and is creating tangible ways to
break the cycle of homelessness.
We are thrilled to be working with Mitchells &
Butlers in our mission to end homelessness, thank
you for your continued support.”
Josh Littlejohn MBE
Social Bite Co-Founder
“These initiatives place
Mitchells & Butlers, its
people and its pubs at the
core of their communities.”
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 07
Purpose in Action – Sustainability
We have put
sustainability and
respect for the
environment at the
core of everything
we do…
• Nutrition: we introduced calorie information
for more than 10,000 recipes in all our core
brands in April 2022. This is the foundation
of our wider nutrition strategy which was
developed to enhance the nutritional quality
of the dishes we serve. The strategy focuses
on reducing calories and saturated fat, as well
as reducing salt in our meals by 2024, in line
with Public Health England’s reduction targets
for children’s meals.
• Packaging: our target is to increase the
proportion of waste recycled to 80% by
FY 2025. We are therefore working closely
with our food and drink suppliers to remove
and reduce packaging of items delivered to
sites, allowing our teams to recycle more.
In FY 2022 we completed a project with our
waste management partner Biffa to give the
majority of our sites separate glass, cardboard
and food waste bins, with around 200 sites
additionally having the ability to recycle plastic.
• Animal welfare: during the period we have
hosted an animal welfare workshop with
our major animal protein suppliers, agreed
better dairy cattle welfare standards with
our suppliers, as well as working in
partnership with our laying hens’ suppliers
to improve conditions.
• Energy and water: we have introduced an
incentive for our pubs to reduce their usage
of energy by ten per cent. All sites have
benefited from energy audits to identify
means to reduce energy usage with smart
meters now installed across the estate. We are
also trialling various energy-saving technological
solutions such as heating system additives,
voltage optimisers and heat recovery systems.
Another focus in the coming year is on
reducing water consumption and improving
water reuse and recycling.
• Property: we are engaging proactively
with our contractors to develop common
construction techniques to incorporate
sustainable building practices into our
day-to-day conversion and remodel
investment programme from sourcing of
timber to recycling of construction waste.
We will continue to focus on embedding a
sustainability ethos into our business so that
we can create a positive effect on people and
communities and reduce the negative impact
of our operations on the environment.
Further detail on our work in this area can be seen
on pages 32 and 33.
We have deliberately interlinked sustainability
with our strategy so that it becomes part of our
culture. Our strategy has been developed to align
with the issues addressed by the UN Sustainable
Development Goals and we have committed to
reducing the negative impact of our business
model on the environment in light of these
objectives. The targets we have set ourselves as
well as further detail on our sustainability strategy
can be seen on pages 32 and 33.
During FY 2022 we have put in place a number
of initiatives to support these targets:
• Cool food pledge: World Resources Institute
(‘WRI’) introduced the pledge to help people
and organisations reduce the climate impact
of the food they consume through shifting
towards lower emission options. We currently
have eight All Bar Ones and ten Harvesters
trialling menus that deliver reduced carbon
emissions, with a range of new, lower emission
dishes. Initial indications are that the menus
reduce emissions by around ten per cent.
We will continue these trials and hope to roll
out the menu more widely in the future.
Our strategy aims to deliver long-term
sustainable shareholder value through
organic and sustainable growth.
08 Introduction
“We will continue to focus on
embedding a sustainability
ethos into our business so
that we can create a
positive effect on people
and communities.”
10k+
Calorie information shown for
more than 10,000 recipes on
our menus
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 09
This year the strength of our teams
has been demonstrated through the
successful rebuilding of trade after
a challenging couple of years.
There is a sense across the business that
momentum is returning and that despite the new
challenges we face, in the form of the current
inflationary environment, our business has the
financial strength and the management expertise
required to adapt and succeed. It is encouraging
to see our Ignite programme, which has delivered
consistently in the past, back in full flow, and the
resumption of our proven capital programme.
Although the challenges facing the industry
remain, I am confident in the underlying strength
of our organisation.
Our purpose
During the period, our purpose to be the host of
life’s memorable moments, bringing people and
communities together through great experiences,
has continued to be highly important. We remain
at the centre of our communities as a place for our
guests to meet and socialise.
To support our purpose, we have provided
further support at a corporate level through
partnerships with organisations such as Shelter
and Social Bite, and at a brand level with charities
such as the RNLI and the Royal British Legion.
This is in addition to the countless initiatives taken
to support the wellbeing of our people and
communities at an outlet level.
In this report, we bring to life how we make our
purpose live in the business, to the benefit of all
stakeholders, through a series of case studies in
the Purpose in Action section on pages 04 to 09
of this report.
Our culture
Our people are our greatest asset, and this has
never been more evident than during the last few
years. They have responded positively to all the
challenges that they have encountered, both
personally and professionally, and I would like to
thank all of them for their tenacity, hard work and
dedication to Mitchells & Butlers and its guests.
The Board and the Executive Committee,
who lead the organisation, have also responded
magnificently, dealing with the complex
operational and financial challenges we
have faced.
Our values
The values we hold ourselves accountable
to across the business are Passion, Respect,
Innovation, Drive and Engagement. We believe
that these foster the culture and environment
needed to enable our people to work collectively,
and in union with our stakeholders, to support
our purpose.
Our Board
During the year, the Board continued to work
together to deal with the challenges posed by
operating a multi-site business in the face of
significant inflationary cost pressures.
Susan Murray, who joined the Board in March
2019, and was the Senior Independent Director,
stood down from the Board at the AGM in 2022,
with Jane Moriarty, who assumed the role of chair
of the Audit Committee in July 2021, accepting
the Board’s invitation to become the Senior
Independent Director. I would like to thank Susan,
on behalf of the Board, for her contribution.
Chairman’s
statement
“It has been a pleasure to see our businesses
and teams flourishing again and delivering
memorable moments to our guests whilst
bringing people and communities together.”
Bob Ivell
Chairman
10 Strategic Report
Amanda Brown was appointed as a Non-
Executive Director in July 2022, joining the Audit,
Remuneration and Nomination Committees as
well as becoming Chair of the Remuneration
Committee. Her previous role was as Chief
Human Resources Officer of Hiscox Limited,
having previously held senior executive roles with
Whitbread Group PLC, PepsiCo, Inc and Mars,
Inc. She is also a Non-Executive Director and
Chair of the Remuneration Committee of
Micro Focus International PLC.
We have a group of Non-Executive Directors who
bring a balance of knowledge and expertise to
the Board.
Their biographies can be found on pages 62
and 63.
Greg McMahon, Company Secretary and
General Counsel, stepped down in September
2022 after more than nine years in the position.
I want to thank Greg and wish him well in his
retirement. We welcome Andrew Freeman,
formerly of PPHE Hotel Group, who joins as
Greg’s successor, we look forward to working
with him.
Further detail on the operation of the Board can
be found in the Governance section which starts
on page 59.
My focus will continue to be on ensuring that we
have a strong team in place with the right balance
of technical, financial and functional skills and
expertise to guide our development, as well as the
appropriate governance structure to ensure that
we safeguard the business for all stakeholders.
Bob Ivell
Chairman
Mitchells & Butlers plc
Chairman’s introduction to Governance
Go to page 60
“Although the challenges facing
the industry remain, I am
confident in the underlying
strength of our organisation.”
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 11
A brand for
every occasion
Drink led
All Bar One
Nicholson’s
Castle
Suburban
sites
Ember Inns
High
Street
sites
At Mitchells & Butlers, we have a
diverse portfolio of brands and formats
offering experiences to suit a range
of occasions.
From a family celebration meal
at Miller & Carter to a few drinks
with a sharing plate after work,
our teams deliver all manner of
memorable occasions.
Our dedicated teams are led by
experienced hospitality professionals
and strive to exceed our guests’
expectations, as shown by our
impressive guest feedback scores.
Castle
12 Strategic Report
Premium
Value
Food led
Miller & Carter
Vintage Inns
Alex
Toby Carvery
Stonehouse
Premium
Country
Pubs
Browns
Harvester
Introduction Strategic Report Governance Financial Statements Other Information
13Mitchells & Butlers plc Annual Report and Accounts 2022
“A birthday wouldn’t be the
same without fizz and nibbles
with my mates at All Bar One
after work.”
Premium
drink led
14 Strategic Report
“Mum loves the tender fillet steak and
sticky toffee pudding at our local
Miller & Carter. It’s a delicious treat
without breaking the bank.”
15
Premium
food led
Introduction Strategic Report Governance Financial Statements Other Information
15Mitchells & Butlers plc Annual Report and Accounts 2022
“Friday night drinks in the sunshine
at our local on the high street, what
a great way to celebrate the start
of the summer.”
16 Strategic Report
Value
drink led
“Easter weekend at Toby Carvery is a
celebration to remember, succulent carvery
meals with unlimited trimmings and steamed
and roasted veggies. It’s the perfect place to
meet the family.”
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 17
Value
food led
We have been encouraged by the continued
recovery in sales this year, with our like-
for-like sales
a
performance, accounting
for the impact of VAT changes, improving
each quarter to finish with 1.5% growth in
the final quarter.
We are mindful of the acute pressures on the UK
consumer over the coming months but we remain
focused on our purpose to be the host of life’s
memorable moments.
This performance has been in the context of
a highly challenging trading environment. Over
December and January FY 2022, there was a
marked reduction in trade across the sector due
to the emergence of the new Covid variant,
Omicron, and the caution that brought to guests.
February saw the beginning of the conflict in
Ukraine which has had significant impacts on
cost inputs and supply chains globally. Over the
summer, we had extreme heat weather events
and widespread industrial action, both of which
have negatively impacted trade.
This year the talent, resilience and commitment
of our people has again been proven as we have
successfully rebuilt trade after a demanding couple
of years. I want to thank all our teams as, together,
they rose to the challenge and redoubled their
efforts and everyone should feel proud about
what they have collectively delivered.
The approach we have taken with our Ignite
programme of work recognises that there is no
silver bullet to growing the business, but instead it
is the incremental gains made across several fronts
that can bring success. Ignite is a programme
made up of a wide range of management
improvement initiatives. It has a number of
different workstreams, each led by one of our
Executive Directors and a functional expert.
A project management office and governance
routine ensures that we all remain focused on
extracting as much value as we can from the
Ignite programme.
We remain focused on executing our capital
programme ambition of a seven-year investment
cycle, which has been proven to deliver value by
improving the competitive position of our pubs
and restaurants. Our ability to enhance amenity
and premiumise our offers will enable us to win
market share together with our well invested
estate and the best people in the industry.
The trading environment remains challenging
and cost headwinds continue to put significant
pressure on the sector. However, we have proven
over recent years the ability to adapt and build
momentum with both our Ignite and capital
programmes. Demand for our well-loved brands
has been demonstrated by an encouraging return
to like-for-like sales
a
growth as we look to continue
our recovery as a market leading operator.
Further detail on our strategic priorities can be
found on pages 26 and 27.
18 Strategic Report
Chief Executive’s
business review
“This year the talent, resilience and commitment
of our people has again been proven as we have
successfully rebuilt trade after a demanding
couple of years.”
Phil Urban
Chief Executive
a. The Directors use a number of alternative performance
measures (‘APMs’) that are considered critical to aid the
understanding of the Group’s performance. Key
measures are explained on pages 177 to 179 of this report.
18 Strategic Report
Business review
Total sales across the period were £2,208m
reflecting a 1.3% decline on FY 2019, driven
mainly by temporary Covid-related sales
reductions and closures in the first part of the year
plus site disposals since FY 2019. Despite this,
adjusted operating profit
a
of £240m reflects
a strong return to profitability. Excluding the
c. £70m increase in utility costs, profits would
have been close to pre-Covid-19 levels, despite
the impact during the year of the Omicron variant
and inflationary cost pressures.
We made a good start to FY 2022 with positive
like-for-like sales
a
growth over the first eight
weeks. This encouraging performance continued
until late November when concerns first arose
around the emergence of the new Covid variant,
Omicron, which led to calls for further caution in
socialising and resulted in a clear downturn in
activity across the sector. As a result, over the
seven weeks to the end of the first quarter,
like-for-like sales
a
declined with the adverse
impact of Omicron being particularly felt over
the important festive season.
As guest confidence returned early in the new
year, our business regained momentum,
supported by the benefits from a new set of Ignite
initiatives, with strong like-for-like sales
a
growth in
the second quarter. Over the first half of the year,
food sales continued to outperform drink, with
food like-for-like sales
a
growth of 6.9%, helped by
the reduced rate of VAT. At this point, we started
to observe an encouraging trend of recovery in
city sites, as people began to return to offices and
city centre destinations, albeit trading in some
areas of London, such as The City, remained
relatively subdued, particularly at the end of the
week. Drink sales continued to be challenging
across the sector and drink like-for-like sales
a
declined by 6.9% in the first half, with suburban
locations seeing the largest declines.
VAT reverted from 12.5% to 20% on 1 April 2022
which contributed to a softening of sales in the
third quarter, alongside industrial action and very
hot weather, resulting in only modest like-for-like
sales
a
growth across the full quarter, with food
continuing to be the main driver. Trading
improved in the fourth quarter, despite an
additional period of extreme heat as well as
further rail strikes. Sales over the August bank
holiday were encouraging, with strong like-for-
like
a
growth over the three-day weekend, before
returning to levels consistent with the quarter
as a whole. Growth continued to be driven by
food sales with the strongest performances in our
premium, food-led brands.
The unprecedented challenges the industry has
faced have had an unavoidable impact on market
supply with a 9.9% decline in pubs and restaurants
since March 2020 (CGA Outlet Index October
22). Food-led venues have been hit harder by
closures: the number of outlets reducing by
12.0%, with independent and tenanted businesses
making up 82% of net closures. Given our strong
estate and portfolio of brands, we believe that we
are well placed to benefit from these changes in
the competitive landscape.
Our strategic priorities
The fundamental strengths of our business
provide a platform for the future. We have an
83% freehold and long leasehold estate, with
recognised and diversified brands across a broad
range of consumer occasions, demographics
and locations, and an experienced and proven
management team with the focus to build on
the momentum previously gained. We remain
focused on the strategic pillars which formed the
foundations of our strong performance before
the pandemic, and which are equally relevant to
the current challenging trading environment.
We continue to provide value for money to our
guests, working hard to protect entry level items
where we can and introducing more premium
items to provide trade-up options. The benefit of
our size and scale, our ability to continue to invest
in our capital programme and the mitigation
generated through Ignite allow us to use price
tactically and to remain competitive.
Our Ignite programme of work remains at the core
of our long-term value creation plans and we are
working on over 40 fresh initiatives, alongside
a large number already implemented in the
business. We are currently focusing particularly
on initiatives which enhance efficiency and
productivity, helping to offset cost headwinds,
through enhancements such as improved labour
scheduling, cost mitigating procurement strategies
and energy consumption reduction. The
auto-scheduling project aims to assist our site
managers by producing automatically generated
team member rosters to help ensure we have the
right people on shift at the right time, to drive
sales at peak times and reduce costs at quieter
times. We have a number of energy reduction
projects underway including the installation of
voltage optimisers that reduce electricity
consumption, chemical additives that have been
added to our heating systems to reduce gas
consumption, trial of internet-connected control
devices to lower electricity and gas consumption
and we have trained energy ambassadors across
the country to complete site energy audits,
all further reducing consumption in our sites.
In addition, we are working with our waste
oil collection partner as we look to grow our
oil recycling rate though increasing frequency
of pickups and trialling a QR code driver
validation system.
With increasing food costs, we are flexible in the
way we procure, and we are constantly looking to
limit exposure to the lines that are seeing the
highest inflation at any one time. This may mean
a higher level of product substitution than we
would normally have, or the removal of some food
items entirely, until markets settle down. We also
look to use our scale purchasing power, where we
can procure items across all brands, and hence
secure volume advantage. We are confident in
our ability to deliver long-term and sustained
efficiencies and business improvements through
the existing Ignite programme.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 19
We remain committed to accelerating our digital
strategy, an area which became increasingly
important to guests during the pandemic.
Our strategy focuses on building the correct
organisational capabilities to allow for quick
activation of new digital services as consumer
behaviours change, allowing us to be at or near
the forefront of digital advances in the sector.
We have made significant progress in our digital
services in recent years, for example our digital
order at table facility, our streamlined online
booking experience, and the development of our
own channel delivery capability seeking to drive
sales and protect margins.
Success in hospitality is inextricably linked to
customer satisfaction, with the correlation
between superior guest review scores and
stronger like-for-like sales, irrefutable. When we
re-opened our doors in FY 2021, we saw our
guest review scores strengthen, from an average
4.0 out of 5.0 pre-Covid, to 4.3 post-Covid.
Whilst there may have been a grace period in
guest expectations post-lockdown, as the year
progressed we were delighted to see these guest
scores maintained, with every brand over 4.0.
This is a solid foundation to build upon, and
strengthening these scores further remains
a key focus.
From the start of the financial year our capital
programme has been resumed, delivering value
by improving the competitive position of our pubs
and restaurants within their local markets. We are
committed to re-establishing a seven-year
investment cycle and, whilst short-term supply
issues in terms of material procurement and
contractor availability affected progress last year,
this continues to be a key focus for the business.
This year we have completed 170 investment
projects including 160 remodels, six conversions,
the acquisition of the freehold of three sites that
were previously leasehold and opened one new
Alex site in Germany. We are continuing to see
strong performances from our investment
projects. The conversion programme includes the
trial of Browns in suburbia, stretching the brand
beyond its usual high street location. The first trial
site opened in August and is performing well and
a second has just opened in December.
Current trading and outlook
Since the year end, we have been encouraged
by like-for-like sales
a
growth of 6.5% as compared
to FY 2022, which equates to growth of 11.1%
excluding the VAT benefit in place last year.
Comparing to FY 2019 pre-Covid-19, like-for-like
sales
a
have grown by 9.2%.
The continued recovery of sales is encouraging,
with a general return to office working, city
centres becoming stronger and guests across the
country becoming ever more confident to return
to the hospitality sector. This makes us cautiously
optimistic about the future, although we remain
very mindful of the potential implications of the
cost-of-living challenge facing guests, which
is expected to persist at least through the
year ahead.
Cost inflation headwinds continue to present
a significant challenge for the sector as a whole,
notably in energy, food and wages but now
evident throughout our supply chains. Overall for
the current year, we anticipate an inflationary cost
headwind across our c. £1.8 billion cost base in
the region of 10-12% before mitigation. The
Energy Price Guarantee from the Government for
businesses for six months from 1 October 2022
was welcome but energy costs are still expected
to increase this year and significant uncertainty
remains over the second half. At the current time
we have bought forward 45% of this financial
year’s anticipated energy requirement.
The trading environment therefore remains very
challenging. However, based on recent sales
performance, the strength and diversity of our
portfolio of brands, delivery of a new wave of
efficiency initiatives under our proven Ignite
programme and continued focus on our capital
programme, we believe we are well positioned
to meet this challenge.
Phil Urban
Chief Executive
Mitchells & Butlers plc
a. The Directors use a number of alternative performance
measures (‘APMs’) that are considered critical to aid the
understanding of the Group’s performance. Key
measures are explained on pages 177 to 179 of
this report.
Chief Executive’s business review continued20 Strategic Report
Introduction Strategic Report Governance Financial Statements Other Information
21Mitchells & Butlers plc Annual Report and Accounts 2022
Scale and
geographical diversity
Our strong portfolio of brands and formats includes All Bar One,
Browns, Castle, Ember Inns, Harvester, Miller & Carter,
Nicholson’s, O’Neill’s, Premium Country Pubs, Sizzling Pubs,
Stonehouse, Toby Carvery and Vintage Inns. In addition, we
operate Innkeeper’s Collection hotels in the UK and Alex
restaurants and bars in Germany.
Alex
42 sites
All Bar One
53 sites
Browns
24 sites
Castle
104 sites
Ember Inns
150 sites
Harvester
161 sites
High Street
69 sites
Miller & Carter
124 sites
Nicholson’s
78 sites
O’Neill’s
40 sites
Premium Country Pubs
125 sites
Stonehouse
92 sites
Suburban
242 sites
Toby Carvery
153 sites
Vintage Inns
179 sites
22 Strategic Report
1
2
3
4
5
7
9
10
11
8
6
15
Brands and formats
across 1,636 sites
46,000+
Employees
as at 24 September 2022
83%
Freehold and long leasehold
properties
% of outlets
1 Scotland 5%
2 North West 10%
3 North East 3%
4 Yorkshire and Humberside 8%
5 West Midlands 15%
6 East Midlands 5%
7 Wales 4%
8 East of England 8%
9 South West 7%
10 South East (excluding London) 14%
11 London 21%
UK revenue by region (FY 2022)
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 23
Our markets
“The eating out industry continues to face
challenges including rising costs and dampened
consumer confidence as pressures intensify on
the UK consumer.”
Whilst the trading environment remains
challenging and uncertain, with increases in the
cost of living putting continued pressure on
consumers, the market has seen resilience in
like-for-like sales over the year. The sector made
a strong start to the year with like-for-like sales
growth against 2019 of 3.2%
b
and 2.1%
b
over
October and November 2021 respectively. This
encouraging performance continued until late
November when concerns first arose around the
emergence of the new Covid variant, Omicron,
leading to calls for further caution in socialising
which resulted in a downturn in activity across the
sector over the important festive season, with
December like-for-like sales decline of -10.5%
b
.
Thereafter, once it was confirmed that the
symptoms of Omicron were generally mild, guest
confidence to return to pubs and restaurants was
boosted and like-for-like sales growth returned to
the market. VAT reverted back from 12.5% to 20%
on 1 April 2022 which contributed to a softening
of sales growth over April and May but the market
has remained either flat or in growth since.
September 2022 saw 4.0%
b
like-for-like growth
across the sector with the Restaurants, Pub
Restaurants and Pubs segments, as defined by
Coffer CGA, each in solid growth. However, we
are mindful that pressures on the UK consumer
are likely to continue to build in the short to
medium term.
UK Consumer Confidence tumbled in September
2022 to a new low of -49
c
, the worst overall index
score since records began in 1974. Consumers
have been squeezed under the pressure of the
UK’s growing cost-of-living crisis driven by rapidly
rising food prices, domestic fuel bills and
mortgage payments. However, eating and
drinking out remains the affordable luxury that
many consumers are looking to prioritise and have
prioritised in the past. The sector is focused on
retaining current guests, creating experiences
that can’t be replicated at home and delivering
high levels of customer service to protect
trading levels.
Inflationary cost pressures also impacted
businesses and presented an increasing challenge
to the hospitality sector as a whole, especially
through the second half of the year. Whereas cost
inflation has previously been concentrated in the
areas of energy, wages and food costs it is now
evident throughout most of the supply chain.
These will prolong the medium-term impact on
margins across the industry.
Supply of pubs and restaurants has reduced since
March 2020 before the national lockdowns in
response to Covid-19, with the financial pressure
of closures and trading restrictions forcing a
number of operators to close. According to the
Alix Partners Market Recovery Monitor between
March 2020 and September 2022, 11,426
d
pubs
and restaurants have closed representing a net
reduction in supply of 9.9%
d
. In just three months
from June 2022 to September 2022, 2,230 closed,
a net reduction of 2.1%, with all the decline from
independent and leased businesses as cost
pressures mounted.
Post-pandemic, delivery is now well entrenched
in consumer behaviour and is expected to remain
a significant part of the eating out market going
forward. Sales are well above pre Covid-19 levels
but there has started to be a flattening of demand
as consumers return to the on trade.
Digital technology became increasingly important
in supporting the industry during the pandemic
and developments continue to accelerate. Guests
are now more accustomed to digital elements of
their experience in pubs and restaurants, such as
scanning a QR code to access menus, and
ordering and paying on their mobiles. 34%
e
of
guests would be more likely to choose a venue
with mobile order and pay available. There
remains a great opportunity for technology to
enhance guests’ experience and this will be an
increasing differentiator in the market.
The implications of Brexit remain for the sector,
principally around the supply and cost of products
and workforce shortages. Risks in relation to
procurement have continued to be well managed
by mitigating for the potential lack of availability of
products, reviewing and updating key contracts,
identifying contingency markets and maintaining
strong commercial relationships with key
suppliers. Our apprenticeship programme has
been a key asset in managing the risk around
workforce shortage and remains a focus for the
business going forward.
The global political and macroeconomic
environments remain volatile and we will continue
to monitor the impact on our sector. Our Ignite
programme of work remains at the core of our
long-term value creation plans and we continue to
focus on initiatives which enhance efficiency and
productivity, helping to offset the inflationary cost
pressures caused by external factors outside of
our control.
Our response to this competitive environment can
be seen on pages 26 and 27.
Sources:
b. Coffer CGA Business Tracker.
c. GfK Consumer Confidence Index September 2022.
d. CGA AlixPartners Market Recovery Monitor
October 2022.
e. Zonal GO Technology Report Order & Pay
November 2020.
24 Strategic Report24
Coffer CGA Business Tracker (including M&B) by Segment, vs. 2019
1.3%
-4.6%
2.5%
2.8%
0.0%
3.7%
5.4%
2.4%
5.1%
6
4
2
0
-2
-4
-6
July 2022 August 2022 September 2022
Restaurants Pub restaurants Pubs (Wet Led)
Source: Coffer CGA Business Tracker
Coffer CGA Business Tracker (including M&B), vs. 2019
3.2%
4.0%
2.0%
0.0%
4.7%
0.1%
2.0%
4.1%
2.9%
-0.9%
-10.5%
2.1%
Oct
21
Nov
21
Dec
21
Jan
22
Feb
22
Mar
22
Apr
22
Jul
22
Jun
22
May
22
Aug
22
Sep
22
6
4
2
0
-2
-4
-6
-8
-10
-12
Source: Coffer CGA Business Tracker
Net market outlet closures post Covid-19 pandemic and over the last three months
Net market
closures
March 2020 to
September 2022
% change in total
known sites
March 2020 to
September 2022
Net market
closures
June 2022 to
September 2022
% change in total
known sites
June 2022 to
September 2022
Food-led -5,195 -12.0% -665 -1.7%
Drink-led -5,124 -8.4% -1,449 -2.5%
Accommodation-led -1,107 -10.3% -116 -1.2%
Total -11,426 -9.9% -2,230 -2.1%
Source: CGA AlixPartners Market Recovery Monitor October 2022
“The global political
and macroeconomic
environments remain
volatile and we will
continue to monitor the
impact on our sector.”
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 25
Our strategic priorities
Maintaining our consistent three strategic priorities
“Through building a strong and efficient business
we are able to focus on providing experiences
which our team and guests enjoy being a part of.”
Our strategic priorities are the pillars which
underpin the activity within the business to drive
long-term sustainable growth and ultimately that
enable us to achieve our purpose of being the
host of life’s memorable moments, bringing
people and communities together through great
experiences. Through building a strong and
efficient business we are able to focus on
providing experiences which our team and guests
enjoy being a part of, including processes which
are sustainable and aim to bring people together
throughout our supply chain. We have
maintained consistency in our three strategic
priorities over recent years and believe that
continued focus in these areas is key to retaining
stability and growth in the business through a
period of external uncertainty. Our three strategic
pillars are:
• Build a more balanced business
• Instil a more commercial culture
• Drive an innovation agenda
Focusing on these areas through our Ignite
programme of work, a wide range of management
improvement initiatives, delivered significant
progress generating sustained like-for-like sales
a
growth and cost efficiencies. Two waves of Ignite
initiatives previously rolled out have directly led to
enhanced performance over a number of areas,
improving our trading levels and increasing
profitability. The third wave of Ignite initiatives
rolled out over the last year have continued this
progress. We are focusing on initiatives which
enhance efficiency and productivity, in areas such
as automatic product ordering, enhanced labour
scheduling, cost-mitigating procurement
strategies and energy consumption reduction.
We remain confident in our ability to deliver
long-term and sustained efficiencies and
business improvements through the existing
Ignite programme.
We believe that our three strategic pillars remain
the crucial elements of the business which will
drive long-term growth. Through the Ignite
workstream and our capital programme, we will
continue to unlock value in these areas enhancing
our competitive position in the market.
The table on page 27 outlines these strategic
priorities, our progress against them in FY 2022,
our priorities for FY 2023 and their link to our
sustainability strategy, risks and KPIs.
“We have maintained consistency
in our three strategic priorities
over recent years and believe that
continued focus in these areas
is key to retaining stability and
growth in the business through
a period of external uncertainty.”
a. The Directors use a number of alternative performance
measures (‘APMs’) that are considered critical to aid the
understanding of the Group’s performance. Key
measures are explained on pages 177 to 179 of
this report.
26 Strategic Report26 Strategic Report
1. Build a more
balanced business
• To effectively utilise our estate of largely freehold-
backed properties
• To ensure we are exposed to the right market segments
by having the optimal trading brand or concept in each
outlet, based on location, site characteristics and local
demographics
• To maintain the amenity level of the estate such that we
operate safely, reduce our impact on the environment
and remain competitive to guests, alongside meeting
cash flow commitments
2. Instil a more
commercial culture
• To empower teams across the business to make
changes to facilitate sustainable growth
• To engage our teams in delivering outstanding guest
experiences
• To act quickly and decisively to remain competitive in
our fast-changing marketplace
• To provide training and development opportunities
which allow our people to thrive within the business
• To enhance processes to address Modern Day Slavery
threats in the supply chain
3. Drive an innovation
agenda
• To ensure that our brands and formats remain fresh and
relevant within their market segments
• To leverage the increasing role technology can play in
improving efficiency and guest experience
• To execute a digital strategy to engage with consumers
across a variety of platforms
• To facilitate new product and concept development
• To utilise our scale and position to lead on
environmental issues which impact our sector, finding
innovative solutions to pressing issues
FY 2022 progress
• Capital expenditure at £122m was below historic levels
as progress was impacted by supply issues in terms of
material procurement in the year
• Completed 166 conversions and remodels, purchased
the freeholds of three businesses from leasehold and
opened a new Alex site in Germany
• We opened our first Browns in a suburban location in
August 2022 which is performing well and we will look to
trial further if successful
• We are committed to re-establishing a seven-year
investment cycle and this continues to be a key focus for
the business
FY 2022 progress
• Continued progress on menu and product
rationalisation resulted in further cost savings
• Increased the scope of fraud detection capability via
IntelliQ and reduced double discounting
• Successfully trialled automated team member
scheduling to ensure we have the right people on shift
at the right time, to drive sales at peak and reduce costs
at quieter times
• Increased average spend-per-head through tailored
pricing, menu psychology and digital ordering
• Increased focus on our guest review scores through
a number of projects within the Ignite programme,
including improving brand standards and guest
recovery practices
• Delivered auto-ordering for food and drink, targeting
increased product availability and reduced waste
• Trained energy ambassadors across the country to
complete site energy audits, reducing consumption
in our sites
• Increased oil collection and recycling rates through
implementation of best practice processes
• Continued our work with Stop The Traffik to drive best
practice in addressing Modern Day Slavery threats in
the supply chain
FY 2022 progress
• Expanded our delivery offer to more sites and
increased the number of channels available within the
estate, with 82% of sites now offering one or more
delivery channels
• Launched ‘Own Channel Delivery’ in Harvester
whereby guests can order a meal for delivery through
our own digital channels and the order is fulfilled by
a third-party partner, Deliveroo
• Delivered ‘conversational ordering’ within our
order-at-table platform which promotes trade-ups,
increasing average order value
• Made enhancements to our customer relationship
management including greater personalisation of
e-mail content, reducing cannibalisation of promotions
• Optimised the table bookings systems used across our
brands to ensure we have the best technology to
maximise internal and external spaces bookings
• Created the first Toby Carvery Dark Kitchen, bringing
the opportunity to enjoy the great taste of a Toby
Carvery through our delivery partners in London
• Launched the ‘Friends & Family’ discount app, enabling
our teams to nominate up to five friends or family
members to enjoy 20% off food and drink Monday
to Thursday
FY 2023 priorities
• There is a full capital programme planned for FY 2023
• Focus on enhancing asset value through remodelling
sites where we believe increased value can be unlocked
• Make further selective acquisitions where we feel they
add value to the estate, and disposals where we feel we
have extracted maximum value
• Honour the minimum maintenance spend as required by
the securitisation structure and ensure effective
allocation of capital
• Invest in technologies, such as voltage optimisers,
heating additives and internet-connected control
devices, to improve the energy efficiency of our estate
• Look to maximise the utility of the secondary spaces
across the estate via a dedicated Ignite initiative.
An example of recent innovation here is the opening of
our first Arrowsmiths Darts Bar as part of an existing
O’Neill’s site
FY 2023 priorities
• Adapt to the changing environment within which we
operate to maximise the profitability of each business
• Deliver a wide range of cost control initiatives across
the estate under the Ignite programme
• Fully roll out automated team member scheduling
• Complete the installation of voltage optimisers to
reduce electricity consumption and look to invest in
further technologies
• Further exploit opportunities to move certain building
maintenance services in-house to improve service and
reduce cost
• Continue to leverage scale through central
procurement and benchmark our businesses
• As per our Modern Day Slavery Statement, we will
review and publish our performance against set KPIs
FY 2023 priorities
• A fourth wave of Ignite initiatives is under review and
will provide fresh ideas and innovation
• Continue to develop our order and pay-at-table
technology with new features, user experience
improvements and further upselling opportunities
• The introduction of ‘My Account’ functionality across
all our digital channels that enables guests to manage
their bookings, orders, loyalty and marketing
preferences in one place
• Look to expand the Toby Dark Kitchen delivery offer to
new sites across the estate
• Grow ‘Own Channel Delivery’ to our other key delivery
brands to increase margin
• Maximise new and existing external trading areas
• Work with World Resources Institute to develop ways
to reduce the emissions of the ingredients on our menus
Sustainability
• Enhancing the sustainability credentials of our buildings
is a key priority
• During the year, we have invested in energy
consumption reducing technology and will look for
further opportunities to expand in future years
• We are reviewing the way in which we power our
buildings for the longer term and will be trialling
opportunities to produce renewable energy on-site
• Removing gas as an energy source from our sites is a key
objective of our Net Zero roadmap. In the year, we have
developed an all-electric kitchen for Toby Carvery which
will be rolled out across the brand
• We are looking for opportunities to reduce water
consumption and wastage
Sustainability
• We now communicate our sustainability ambitions on
all brand websites and have built our communication on
these topics through social media in appropriate brands
• We have made good progress in reducing food waste,
reduced by 29% from FY 2019 baseline and are
launching a new trial in FY 2023 to help us better
understand where waste is generated in sites to inform
future strategies to further reduce it
• We are working in collaboration with our waste
management providers and suppliers to reduce the
amount of waste generated by the business
• We have worked with Social Bite to help provide
employment to vulnerable people on their Jobs First
programme
Sustainability
• During the year we trialled new menus designed to
reduce the emissions of the food we serve, as well as
identifying low emission dishes to guests
• We have active and ongoing discussions with our
suppliers on innovative ways to reduce the
environmental impact of our supply chain
• We are active members of the Zero Carbon Forum,
a cross-industry group which is focused on finding
solutions to help hospitality transition to a low
carbon economy
Links to Key Risks
1, 2, 3, 8, 9, 11, 12, 13, 15
See pages 44 to 51
Links to Key Risks
1, 2, 3, 6, 8, 9, 11, 12, 13, 15
See pages 44 to 51
Links to Key Risks
1, 2, 4, 5, 8, 11, 12, 13, 14
See pages 44 to 51
Links to KPIs
2, 3, 4, 5
See pages 42 and 43
Links to KPIs
1, 2, 3, 5
See pages 42 and 43
Links to KPIs
2, 3, 5
See pages 42 and 43
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 27
At the time of publication, the Group has made
climate-related financial disclosures consistent
with the Task Force on Climate-related Financial
Disclosures (‘TCFD’) recommendations, except
that for this first year of disclosure, qualitative
assessment of identified risks and opportunities
will be provided. Quantitative analysis will be
provided from next financial year.
Task Force on Climate-
related Financial Disclosures
The purpose of this statement is to provide investors
and wider stakeholders with an understanding of
Mitchells & Butlers plc’s exposure to climate-related risks
and opportunities and our strategic response to managing
those risks and opportunities.
Governance
We, alongside our stakeholders, recognise that
the health of our planet is critical to the wellbeing
of society at large and that the food industry has
a significant part to play in addressing the current
climate emergency. We also recognise that the
food industry will feel the effects of continued
climate change ever more acutely which will result
in changes in consumer behaviour, advances
in innovation and the evolution of leisure offers
to adapt to changing needs. The Board is
committed to delivering the purpose of the
organisation; to be the host of life’s memorable
moments, and to do so in a way which reduces
the environmental harm caused by operations.
We have developed a clear governance
framework to support our assessment and
response to climate-related matters.
Board oversight of climate-related risks
and opportunities
The Board is responsible for the long-term
success of the Group and has an established
framework in place which enables effective
assessment and management of risks, including
climate-related risks and opportunities.
Responsibility for ESG matters is managed within
the framework by the Corporate Responsibility
Committee, which receives inputs from the
Group Risk Committee on the management of
climate-related risks, the Group Audit Committee
on the financial consideration of climate-related
risks and the Group Remuneration Committee
on the inclusion of climate-related metrics in
remuneration. The Corporate Responsibility
Committee reviews the progress and guides the
future direction of the sustainability strategy,
including reporting on key metrics, and reports
the findings back to the Board on a regular basis,
such that climate-related risks and opportunities
remain on the agenda for all Board members.
As such climate-related risks and opportunities
form an important part of the context of which
the organisational strategy is considered and
developed, ensuring that the Group is positioned
to protect itself from financial and reputational
risks associated with climate and to benefit from
accelerating the sustainability programme in order
to align brand propositions with guests’ changing
needs. When considering any business planning
activity the Board takes into consideration the
broader context of which trading environment,
with details of the climate aspect provided by the
Corporate Responsibility Committee. Investment
in sustainable building practices forms an
important aspect of the sustainability strategy
and a standing agenda item has been added,
to the review of all proposals, to ensure that
sustainability credentials are considered on all
capital expenditure projects.
TCFD Working group
Formed, supported by external advisers
Sustainability Steering Committee
2. Climate-related risks and
opportunities
Workshops help across functions
3. Quantitative analysis
Performed with a view to completing
quantitative scenario analysis in FY 2023
1. Gap analysis
against current governance and procedures
Responding to TCFD
FY 2022 disclosure
including governance, risk, strategy, metrics
and targets
Ongoing
integration of TCFD recommendations
into practices
28 Strategic Report
Organisational and reporting structure for climate governance
The Corporate Responsibility Committee meets
at least quarterly and provides oversight of TCFD
activity on behalf of the Board. The Board has
asked one of its Non-Executive Directors, Dave
Coplin, to take a lead role in oversight and
development of the Company’s approach to
climate-related issues, working alongside a
designated member of the Executive Committee
and the Head of Sustainability. Dave Coplin has,
for the last 30 years, been providing strategic
advice and guidance on driving innovation and
transformation to organisations and governments
both here in the UK and around the world, giving
him excellent experience in this role. The
Corporate Responsibility Committee receives
regular update papers, including reporting on key
metrics, from the Sustainability Steering
Committee to inform the committee on progress
of specific initiatives designed to deliver defined
ambitions, and future priorities and challenges.
The Corporate Responsibility Committee
provides feedback and guidance on the content
of the papers to the Steering Committee and
submits quarterly summary papers to the Board
to inform the Board’s understanding of the
challenges faced and progress being made. In
addition, to strengthen the response to climate-
related issues the organisation is a founding
member of the Zero Carbon Forum, with
Executive Committee member involvement. The
Zero Carbon Forum is a hospitality group bringing
members together to tackle environmental issues,
with input from experts the forum facilitates more
efficiency in developing strategies to achieve
sustainability targets than acting independently.
The Sustainability Steering Committee meets on
a monthly basis with members of the Executive
Committee to inform management of the
progress on key initiatives and to discuss any
decisions required by the Executive Committee.
The Head of Sustainability attends Executive
Committee meetings to provide informative
sessions on the key, climate-related challenges
facing the industry and how the sustainability
strategy addresses these issues.
Risk management
In response to the TCFD requirements we have
performed a detailed review of the climate-related
risks and opportunities relevant to the business.
The resulting principal risks and further
information can be found in the Risks and
uncertainties section on page 44.
Identifying, assessing and managing
climate-related risks and opportunities
The following stages formed the process of
identifying and assessing climate-related risks
and opportunities:
• Workshops were held with external third
parties who reviewed Mitchells & Butlers’
operations before generating a list of
climate-related risks and opportunities
relevant to the business. These were
considered alongside guidance from the
World Business Council for Sustainable
Development (‘WBCSD’) Food, Agriculture
and Forest Products TCFD Preparer Forum
to formulate a list of all the climate-related
risks and opportunities which may impact
our organisation.
• Workshops were held with representatives
from relevant functions across the organisation
to obtain a wide range of perspectives on
the identified climate-related risks and
opportunities. Using expert knowledge of the
business and its supply chain, experience from
past events and insight into guest behaviour
each risk and opportunity was assessed and
opinions were gathered on future change and
perceived risk materiality. The output of the
workshops was a reduced list of risks and
opportunities which were considered to be
most material to the organisation based on this
qualitative assessment. This process helped to
reinforce our response to TCFD requirements.
• Our established risk management framework
and heat mapping was then used to establish
which of those identified risks were likely to be
material to our business, being those with
a high likelihood and a high impact. Two risks
were identified to be material, and therefore
have now been included as Principal Risks,
with the results discussed and approved by
the Risk Committee.
Climate-related risks and opportunities will
remain under ongoing review through the
Sustainability Steering Committee and Risk
Committee, supported by any further TCFD
guidance and evolving corporate best practice.
We will continue to consult with third parties to
provide independent review of our responses
to climate-related risks and opportunities and
progress against our disclosed targets.
Through our membership and active involvement
in industry-led organisations, such as the UK
Hospitality Sustainability Committee and Zero
Carbon Forum, and through regular dialogue with
suppliers, we will continue to collaborate on our
responses to climate risks and to seek out
opportunities to progress against our goals.
We engage actively with our suppliers on
sustainability issues, including at our annual
supplier conference, and will be seeking to further
progress alignment of objectives which will help
manage climate risks through Scope 3 emissions
measurement and management.
In considering our climate risks and opportunities
we have assessed short-term risks as being
between 0-3 years in line with how we assess our
principal risks and viability statement; medium-
term risks as being between 3-6 years; and
long-term risks between 6-20 years in line with
our longer-term contracts and climate
commitments.
Climate-related risks and opportunities
management and strategy
Our analysis of climate-related risks and
opportunities has identified the following risks
and opportunities. The risks of the introduction
of carbon taxes and of increased severe weather
events are considered as material and therefore
have been included within our principal risks
(see pages 44 to 51); these risks are consistent
across all of our locations.
Climate-related risks primarily impact the financial
planning process from the bottom up. Specific
initiatives are developed on a brand-by-brand
basis to ensure optimal alignment with guest
needs, and therefore become an integral part of
a brand’s budgeting assumptions. Similarly,
investment in sustainable technology and building
practices are built into functional budgets, with
investments such as trialling solar panels, part of
the project plan for the year ahead. Capital
expenditure in relation to sustainable
developments may also be approved during the
year as part of the overall capital budget. The
financial, and environmental, impact of all
sustainability initiatives are carefully tracked and
reported to the Sustainability Steering Committee
which in turn escalates any material impact to the
Executive Committee.
A resilient sustainability strategy is in place,
designed to mitigate the financial and reputational
impact of climate-related risks and to capture the
benefit of aligning our brand proposition to
changing consumer needs. In particular, we have
a well-developed transition plan to Net Zero,
which has been designed in collaboration with
third-party experts and will be submitted to the
Science Based Targets initiative for approval
during the next financial year. This detailed
roadmap provides the benchmark against which
performance can be tracked to a low emission
economy, with our contribution clearly
understood as well as that of our suppliers, such
that we can influence others in our supply chain
to reduce their emissions. Sustainability is a key
priority for the Board and management and
remains so despite the challenges currently faced
by the industry as a whole.
Board of directors
Executive
committee
Portfolio
development
committee
Audit Nomination
Responsibility
Risk
Remuneration
Sustainability Steering Committee
Resources CommunityFood & drink
Key
Internal governance structure
Supporting committee structure
Performance reviews, activity approval
Approval decisions in accordance with
governance thresholds
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 29
Below is a summary of the climate-related risks included within our principal risk register; for further details on our risk assessment framework please see
page 44.
Transition risk Physical risk Transition opportunity
Risk
Introduction of carbon taxes and levies
Risk
Increased severity of extreme weather events
Risk
Adjusting brand propositions to appeal to
changing consumer preferences
Category
Operational costs
Category
Acute
Category
Revenue
Description
This risk represents the impact on operating
costs of the business both directly through
taxation and indirectly through higher input
costs which would result from the introduction
of taxation and levies attributed to greenhouse
gas emissions.
Qualitative assessment has identified this risk
as both high in impact and likelihood over
the short to medium term. The introduction
of a form of carbon taxation is likely to be
introduced as pressure mounts for progress to
be made against the Government ambition to
achieve Net Zero by 2050.
Description
This acute physical risk represents the risk to both
revenue and the supply chain of increased severe
events. Revenue would be impacted through the
interruption to trade caused by both extremely hot
weather and adverse weather such as rain and
snow, and possible site closure as a result of
flooding. In addition, the availability of products in
the supply chain, in particular agricultural produce,
could be impacted by severe weather having an
effect on product availability and input prices.
The qualitative assessment included a high-level
review of previous interruption to trade resulting
from extreme weather as well as scientific forecasts
as to the likely increase in extreme weather events
which has resulted in the risk being identified as
both high impact and high likelihood.
Description
Changing consumer preferences towards
products seen as better for the environment,
for example dietary shifts towards low carbon
products, presents an opportunity for the
Group to position brands to appeal in an
evolving market. The breadth of brands within
the Group portfolio provides the opportunity
to test adapted brand propositions in a low risk
way and to therefore be ahead of the market
when consumer preferences begin to change
in the mass market.
Approach to risk/opportunity
management
We are a member of the UK Hospitality
Sustainability Committee which enables us to
have foresight over potential policy changes
impacting the organisation.
We have developed a Net Zero strategy with
a target date of 2040. The strategy has been
developed in partnership with an independent
third party and will be submitted for Science
Based Targets initiative approval during
FY 2023.
We have a number of initiatives underway
designed to reduce our emissions in line with
our Net Zero roadmap. The detailed plan for
reduction will help to mitigate an element of
potential cost, and a target date ahead of
Government ambition will help to position the
organisation ahead of the market average.
Approach to risk/opportunity
management
The weather has a high level of impact on trading
levels across the estate and therefore monitoring
weather forecasts in relation to expected trading
levels is a normal part of the financial planning of
the business.
This monitoring activity will enable us to identify
when patterns of increased instances of extreme
weather events begin to develop.
In relation to site closure due to damage to buildings,
such as during flooding, we have insurance in place
to recover the lost trade and required repairs. Our
experience during closure has meant that we have
developed strategies to close sites at short notice,
such that in the instance of extreme weather
significantly impacting trade we could close sites in
order to mitigate some of the financial losses which
we would be exposed to.
To manage the risk associated with our supply chain,
we monitor and communicate with our suppliers
closely giving us foresight over potential supply
issues. We also have sufficient breadth of products
and dishes across our brands such that supply issues
with one product could be mitigated through
switching to a substitute.
Approach to risk/opportunity
management
All of the initiatives under the sustainability
strategy help to strengthen the Group’s
position in relation to environmental matters.
This allows our brands to communicate with
guests on environmental issues with
consistency across the portfolio and to build
a reputation for sustainable operations.
Our focus on achieving ambitious
environmental targets will position the Group
well to benefit from changing consumer habits.
Our ability to trial proposition adaptations in
appropriate brands to gauge guest reaction
will ensure we are well prepared to make
informed decisions. In addition, our scale and
commitment to our investment programme will
enable the Group to enhance the sustainability
credentials of its properties.
Future measurement considerations
The approach to the quantitative assessment
to be performed during FY 2023 will be to take
the Group’s forecast carbon emissions, from
our Net Zero roadmap, and to apply DEFRA
published carbon values over the short,
medium and long term giving an estimate of
the potential financial impact of the introduction
of carbon taxes.
Future measurement considerations
The quantitative assessment to be performed
during FY 2023 will involve a detailed analysis of
previous impact on trade of extreme weather to
determine the potential impact on revenue and the
supply chain of a variety of weather events. The
increase of extreme weather events will be derived
from climate-science research and applied to two
scenarios of degrees of climate warming over the
short, medium and long-term time horizons to
determine the potential financial impacts.
Future measurement considerations
Consumer insight is continuously reviewed
and is used to inform brand evolution. In
addition, direct consumer feedback is used to
highlight changing guest preferences, and
reactions to brand changes designed to
enhance environmental credentials.
Alongside financial performance these metrics
will inform the future evolution of our brands.
Horizon
Short – medium term
Horizon
Short – medium term
Horizon
Short – medium term
30 Strategic Report Task Force on Climate-related Financial Disclosures continued
Climate-related metrics
The below metrics are used either to track the performance of strategies designed to mitigate the impact of the principal climate-related risks, or as an internal
measure of risk exposure. These measures are not yet included within remuneration policies. Historical greenhouse gas emissions, Scope 1 and 2, are
available in previous annual reports, where the context of year-on-year movement and Covid-19 impact is provided.
Metric category Metric Group targets
Link to identified risks
and opportunities
Climate-related risk
Greenhouse gas emissions
Scope 1, 2 and 3
Unit of measure
tCO
2
e
Absolute Scope 1, 2 and 3 emissions
calculated in accordance with Greenhouse
Gas Protocol guidance by an independent
third party.
Yes – Group target set, Net Zero by 2040.
We align our definition of Net Zero to the
SBTi corporate standard. Our Net Zero target
includes our Scope 1, 2 & 3 emissions, using
an operational control approach. We have set
a near-term target (pending submission/
validation from SBTi) to reduce our absolute
Scope 1 & 2 GHG emissions 70% by 2030,
compared to a 2019 base year (aligned to 1.5
degrees) and a target to reduce our absolute
Scope 3 emissions 28% over the same
timeframe. We have also set a long-term
target (pending submission/validation from
SBTi) to reduce absolute GHG emissions
from Scopes 1, 2 & 3 90% by 2040 from a
2019 base year and to be Net Zero by 2040.
Aligned to the SBTi criteria we will offset our
residual 10% emissions using carbon removal
offsets at our Net Zero date.
Carbon taxes and levies.
Climate-related risk
Proportion of estate
exposed to flood risk
Unit of measure
% of estate
Proportion of sites within the estate identified
as high or medium flood risk due to proximity
to rivers and coasts.
No target set, used as an internal measure of
risk exposure.
Physical risk – increased
instances of severe
weather events.
Climate-related
opportunity
Transition to renewable
energy
Unit of measure
% and megawatt hour
(‘MWh’)
Percentage and MWh of energy
consumption which is purchased from
renewable sources.
No target set, reported as an indicator
of progress.
Carbon taxes and levies.
Climate-related
opportunity
Workforce competence
Unit of measure
Number
Training provided to key groups or functions
centrally. Completion of sustainability
induction for frontline teams.
No targets set, to be considered during
FY 2023.
Carbon taxes and levies.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 31
32 Strategic Report
Our sustainability targets
Our strategy has been developed to align with the issues
addressed by the UN SDGs
“We have set challenging sustainability
targets against which we will monitor
our progress.”
1. Respect for the planet
Objective
We are committed to reducing our emissions,
tackling waste and protecting biodiversity
Key actions
• Completed our Net Zero roadmap in
collaboration with third-party experts,
providing a detailed plan for decarbonisation
• Submit our Net Zero roadmap for Science Based
Targets initiative approval during FY 2023
• Founding and active member of the Zero
Carbon Forum, bringing the industry together
to reduce emissions across the sector through
shared learning and insights
• Continue to purchase 100% renewable
electricity
• Develop a programme plan to remove gas
from the estate and to increase on site
renewable energy generation
• Increased the proportion of operational waste
diverted from landfill to 96%
• Target to increase recycling rate to 80% across
the estate by 2030, currently 58%, through
team engagement and working with suppliers
on more sustainable packaging
UN Sustainable Goal alignment
We have been working on enhancing the
sustainability of our operations since 2019; this
focus underpins our strategic priorities and is a
part of the way we want to do business. We aim to
make sustainable operation part of the culture of
the business and have purposefully integrated
sustainability initiatives into the relevant functional
areas, such that we build knowledge and
experience within our teams.
Our strategy has been developed to align with
the issues addressed by the UN Sustainable
Development Goals and Paris Climate
Agreement. We have committed to reducing the
negative impact of our business model on the
environment in light of these objectives. Our Net
Zero ambition has been developed to align with
the Science Based Targets initiative methodology
to keep global warming well below 2°C.
We have identified the UN Sustainable
Development Goals which we believe we can
have the greatest impact on, and have aligned
these to our strategic pillars as shown below.
For each of the pillars we have defined our
objective, key actions and targets. We are
members of industry groups such as the UK
Hospitality Sustainability Committee and Zero
Carbon Forum, to share best practice with the
intention of moving the industry forward as
a whole.
Details on the link between our sustainability
strategy and our strategic pillars can be seen on
pag e 2 7.
2. Pride in our offers
Objective
We strive to deliver responsibly sourced products
and menu options for everyone
Key actions
• Evolve our menus to support our ambition of
reducing food emissions
• Work with suppliers across all categories to
understand and improve the environmental
credentials of the products we buy
• Maintain BBFAW Tier 3 rating
• Supplier agreements set out sustainability
expectations and standards supported by
annual supplier conferences
• Continued focus on enhancing the nutritional
balance and information available on menus
• All direct palm oil purchases are from
Rainforest Alliance Approved sources
UN Sustainable Goal alignment
3. Care for communities
Objective
People are central to our business, we are focused on
supporting our teams and the communities we serve
Key actions
• Strategic partnerships with charities developed,
including Shelter and Social Bite
• Expand our programme with Social Bite,
supporting vulnerable people back into
employment
• Enhanced employee wellbeing strategy and
improved resources and tools available to
employees
• Increase the number of volunteering hours
offered by our teams
• Brand-driven relationships with local
organisations and charities
• Modern Day Slavery policies enhanced,
with actual risk assessment completed,
in partnership with Stop the Traffik
UN Sustainable Goal alignment
Sustainability strategic pillars
32 Strategic Report
2. Zero operational waste
to landfill
Target Zero operational waste to landfill
by 2030.
Performance During the year we have diverted
96% of operational waste from landfill. In
partnership with our waste management
providers we have run a bin optimisation
programme, ensuring that all of our sites have
appropriate recycling and general waste bins in
the most accessible areas of the business, to
encourage improved segregation of waste. This
has helped us improve our recycling rate to 58%.
However, we have targeted a recycling rate of
80% by 2030 and are working across a number
of fronts to achieve an improvement in the
proportion of waste we recycle. We are working
with suppliers to reduce the volume of packaging
entering our sites, and to ensure that as much
packaging as possible can be recycled, as well
as engaging teams in the positive environmental
impact they can have by increasing recycling
rates. We face challenges in some geographies
where recycling of materials is not yet available
and we continue to investigate opportunities to
access recycling in these areas.
1. Net Zero greenhouse gas
emissions by 2040
Target Achieve Net Zero greenhouse gas
emissions by 2040 (absolute reduction of
emissions, including Scope 1, 2 and 3) from our
FY 2019 baseline.
Performance Our Scope 1, 2 and 3 greenhouse
gas emissions have decreased by 36% against our
FY 2019 baseline in FY 2022. The reduction is
primarily due to reduced electricity consumption
during FY 2022, as well as a material reduction in
food emissions. Details of the breakdown of our
emissions and opportunities for reduction can be
found on pages 69 to 71.
Total Scope 1 and 2 emissions reduced by 25%
in FY 2022, driven by a reduction in electricity
consumption during FY 2022. The stated reduction
is based on the location-based calculation, which
reflects reduced consumption. On a market-
based calculation the reduction is higher due to
the increased proportion of renewable energy
purchased since the baseline year. Scope 1
emissions include direct emissions from controlled
or owned resources and Scope 2 emissions include
indirect emissions from the generation of purchased
electricity, heating and cooling. The reduction of
Scope 1 and 2 emissions has been driven by a
focused reduction in energy consumption. We
have a team of energy ambassadors in place
across the business who are trained to help fellow
managers to reduce their energy consumption
and to identify areas of opportunity; the efforts of
this team have helped to reduce consumption in
the year. In addition, we have invested this year in
voltage optimisers and a technology which helps
to improve the efficiency of heating systems.
Our Scope 3 emissions include all other indirect
emissions that occur in our value chain; these
include food and drinks purchased, guest travel,
employee travel, our capital programme, logistics,
other purchases and waste generated in
operations. Scope 3 emissions represent 87%
of our baseline footprint and this year we have
completed our Net Zero roadmap with a
third-party expert and have a clear pathway to
achieving our target reduction of Scope 3
emissions. As food is the largest individual
contributor to our footprint, we are focused on
reducing the emissions of the ingredients on our
menus through engagement with suppliers,
as well as tweaking the recipes of dishes and
encouraging guests to opt for lower emission
dishes. During FY 2022 we completed menu trials
in two brands, in collaboration with the World
Resources Institute, which resulted in c. 10%
emission reductions. We will continue to progress
in this area with the aim of reducing the emissions
of our menus across all brands, which is a key
focus for achieving Net Zero.
3. Food waste
Target Reduce food waste by 50% by 2030 from
our FY 2019 baseline.
Performance This year we have achieved a 29%
reduction in food waste against our FY 2019
baseline. Significant progress has been made in
food waste management in both our supply chain
and in our sites.
Within the supply chain, food waste has been
reduced through enhanced management of
events which generate waste. For example,
excess stock was previously wasted when
seasonal menu changes were made in brands.
However, now an advance plan is made to utilise
that excess stock in advance of menu changes
resulting in significantly less waste. A review of
low volume, high waste items has also facilitated
menu changes designed to reduce waste by
removing these items. In addition, we began
working with FareShare during FY 2022 donating
unavoidable waste to charities and community
groups who can ensure the food goes to those
who need it. During the year, 26% of supply chain
waste was donated through FareShare.
In our sites food waste reduction has been
achieved through strengthened operational
procedures which reduce the level of waste
generated during the food prep process,
including accurate portion sizes from suppliers,
as well as reduced menu complexity. The
introduction of auto-ordering has helped to
improve the forecasting of dish mix and therefore
reduced waste through spoilage. In addition,
we have rolled out Too Good To Go across
four brands, saving c. 15,000 meals a week
from wastage.
Unavoidable food waste from our pubs and
restaurants is sent to anaerobic digestion. The
digestion process itself creates biogas which is
then captured and used to generate electricity.
Our targets
Zero
Target to achieve Net Zero
greenhouse gas emissions
by 2040
Zero
Target to achieve zero
operational waste to landfill
by 2030
50%
Target to reduce
food waste by 50%
by 2030
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 33
Our business model
The Mitchells & Butlers difference
In this section, we outline the distinctive characteristics
of Mitchells & Butlers that enable it to create value for its
stakeholders – be they financial, structural, environmental
or cultural.
• Long-term transfer of value to equity as debt
is paid down
• Strategy designed to generate sustainable
growth and to provide flexibility in uncertain
trading environments
More detail on our financial performance can be
seen on pages 55 to 58.
Financial
• We are largely hedged against changes in
consumer taste thanks to our diversified portfolio
of leading brands and offers which cater for
various demographics and disposable income
levels. See pages 12 and 13
• We are a predominantly freehold business with
well-invested properties
• As one of the largest operators we benefit from
economies of scale driven by our central functions
• We understand our guests and have the systems
in place to receive and react to their changing
needs to evolve our offers
Structural
34 Strategic Report
Environmental
• Our sustainability strategy is designed to create a positive effect on
people and communities and to reduce the negative effect of our
operations on the environment
For more detail on our sustainability strategy, see pages 32 and 33.
The
Mitchells
& Butlers
difference
Cultural
• We have a defined purpose
supported by our PRIDE
(Passion, Respect, Innovation,
Drive, Engagement) values
• Our people strategy
encompasses a structured
approach to recruitment,
retention, development and
engagement
• We have a team of dedicated,
knowledgeable and capable
people who are critical to
delivering outstanding
experiences to our guests
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 35
How we create value
The Mitchells & Butlers difference
Our business model is driven by our understanding of
our guests and our ability to evolve our brands and offers
to reflect changes in their needs.
1
Our experience and
ability to interpret
guest feedback help
us understand what
our guests want.
EmployeesSuppliers Guests
4
5
Creating memorable
moments generates
value for stakeholders.
Everything we learn about our
guests’ requirements is fed back.
Amenity
Safety
Choice
Hygiene
Environment
Value
Occasion
36 Strategic Report
Critical to the delivery of our offers is the quality
of our people, supply chain, estate and central
functions, which provide the infrastructure
through which our brands deliver memorable
moments to our guests.
Our success in creating these moments
consistently, safely and profitably creates
long-term value for our stakeholders.
Understanding
what our guests
want influences
every element
of our brands
and offers.
2
Run by our people…
46,844*
Employees
Realised within our estate…
1,718
Pubs, bars and restaurants
Supplied by our supply chain…
1,508
Suppliers
Local community InvestorsEnvironment
3
Supported and
managed by our
central functions…
• Finance and Technology
• Human Resources
• Legal and Risk
• Marketing
• Procurement
• Property
The combination of our brands, people, supply chain, estate and
central functions creates memorable moments for our guests.
* As at 24 September 2022.
Everything we do is…
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 37
Value creation story
FY 2022 highlights
Achieved tier 3 Business
Benchmark on Farm Animal
Welfare rating
Strong relationships have
facilitated good supply chain
management through Covid-19
disruptions
Donated unavoidable surplus
food in the supply chain in
partnership with FareShare
4+
Online review score of over 4 out of 5
across the business
Industry leading safety scores
Our suppliers provide the products which bring
our brand visions to life. Our guests’ tastes are
continuously evolving and our ability to meet
changing preferences at scale sets us apart from
our competitors.
We build long-term and collaborative
partnerships with our suppliers. We work closely
with suppliers to ensure the needs of both
businesses are met and to ensure relationships are
maintained. By working together, we can develop
new and innovative products with suppliers
which help our brands adapt and evolve,
building both of our businesses. Through these
partnerships, we work to maintain transparency
about our payment terms.
We work with suppliers to understand the
environmental impact of our supply chain and to
minimise the negative impact of production and
transportation. We are working to ensure that all
our suppliers can support our sustainability
ambitions, including prioritising high animal
welfare standards. Further detail on our
sustainability strategy can be seen on pages 32
and 33.
GuestsSuppliers
38 Strategic Report
Growing and developing our
internal talent is a priority to
address talent shortages
Innovative recruitment and
attraction solutions ensuring the
right people join our business
Employee wellbeing has never
been more important
The following table sets out our diversity balance
between men and women at the end of FY 2022.
Men Women
Directors 7 2
Other senior managers 29 13
All employees 21,896 24,948
Our people are central to our business, bringing
brand visions to life through engaging interaction
with our guests and preparation of high-quality
food and drink.
Through our open and inclusive culture, we aim
to create an environment which allows our people
to develop and grow. Recruiting effectively is
important as it ensures that we attract the right
people that will thrive in our organisation.
Increasingly, technology can be helpful in
supporting our recruitment activity, and enables
us to market our job opportunities effectively in
a very competitive environment.
The satisfaction and enjoyment of our guests is
critical to the success of our business. We always
aim to exceed guests’ expectations and
continually evolve our offers with that objective
in mind.
We collate guest feedback through online
channels and via our brand surveys which is
reviewed centrally and used to provide valuable
insight to both our operations and brand
marketing teams.
We have always strived to achieve high safety and
hygiene standards and have used this strong base
to evolve our ways of working for the challenges
we face. We focus on ensuring high-quality,
consistent practices across the business. We
constantly review the new procedures to ensure
that both high safety levels and guest satisfaction
can be achieved.
As ever, high-quality food and drink, served by
an engaged team, in an appealing environment
remain key elements to providing our guests with
memorable experiences, alongside the highest
safety standards. We regularly assess changing
guest preferences across these areas to position
our brands for success.
We are proud of the learning and development
opportunities we offer and strive to provide
progression opportunities to all our people.
Over the past year we have increased the number
of people promoted internally, particularly at
the frontline.
Regular development catch ups are held
throughout the year to support employees’
progression and personal development.
We have two formal feedback surveys a year
providing the opportunity to gain insight into
employee satisfaction and to highlight
opportunities to improve our offer as an employer.
Employee forums are hosted by the Executive
Committee team members and enable all
employees to raise issues via elected
representatives, giving them the opportunity
to directly discuss any issues.
The welfare of our employees is of paramount
importance to us and we continually review
the support we offer to employees across
the business.
Dave Coplin, an independent Non-Executive
Director, is the nominated Board member
responsible for representing the employee voice
at Board level.
We are committed to providing equal
opportunities for all our employees. Our
employee Diversity and Inclusion Policy ensures
that every employee, without exception, is treated
equally and fairly and that all our employees are
aware of their responsibilities.
Employees
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 39
Value creation story continued
Developed a nutritional roadmap
focused on enhanced information
and balanced choices
£143m
Tax paid (not including tax collected,
e.g. VAT)
7
Employed seven people from the
Social Bite academy, helping people
who have experienced homelessness
back into work
No. 5
Harvester awarded number five in
Out to Lunch rankings by The Soil
Association
Pledge to the Peas Please
campaign
All direct palm oil purchases
continue to be sourced from
Rainforest Alliance approved
suppliers
96%
96% of operational waste diverted
from landfill
Committed to achieving Net Zero
emissions by 2040
Harvester and All Bar One menu
trials deliver significant carbon
emission savings
Over 80 tonnes of food waste
donated to charities via FareShare
during the last three years
We have a long history of providing a central hub
to many communities where people have met and
socialised for decades.
Many of our brands are long-standing supporters
of causes which resonate with the brand and its
guests. For example, All Bar One supports Shelter
with selected dishes including a donation,
Toby Carvery supports the Armed Forces and
Nicholson’s supports the Royal National Lifeboat
Institution (‘RNLI’).
We are actively looking to enhance the positive
impact we can have on local communities,
including supporting charities, providing career
opportunities, encouraging responsible drinking,
and supporting health by enhancing and
providing information on the nutritional content
of our meals.
EnvironmentLocal community
40 Strategic Report
Strong stewardship through
the Covid-19 pandemic
Equity raise in FY 2021 gave
strength to balance sheet
Reporting on Environmental,
Social and Governance issues
enhanced
The natural environment provides the business
with the resources it needs to operate. We take
our responsibility to protect that environment
seriously and have set stretching targets to reduce
the negative impact of our business.
We have aligned our objectives with the UN
Sustainable Development Goals in order to focus
our efforts on the global priorities. Our aim is to
embed a sustainable way of doing business within
our current operations such that it becomes
business as usual and we are doing that through
a Board-level committee, steering committee and
focused workstreams with representatives from
across the business.
The food industry has an important part to play
in climate change, as food supply chains are a
significant factor in rising greenhouse gas
emissions and in the reduction of biodiversity.
We have measured our baseline emissions and
have used this to create a roadmap for reduction
which is one of our priority areas. We are also
conscious of the food industry’s significant impact
on biodiversity which is another area we are
balancing within our future plans to reduce the
negative impact our organisation has on the
environment and to enhance the positive
outcomes wherever possible.
Further detail of our sustainability strategy can be
found on pages 32 and 33.
Our investors are made up of our shareholders
and bondholders who play an important role in
monitoring and safeguarding the governance of
the Company.
We aim to demonstrate the responsible
stewardship of the Company from a financial,
strategic, governance, environmental and ethical
perspective. We have a highly effective Board,
with Directors with various specialisms and
backgrounds to best govern the Company. Their
biographies can be found on pages 62 and 63.
We maintain an open dialogue through our
investor relations programme. We update
investors and bond holders on financial and
strategic performance through regular
performance updates and facilitate discussion
through meetings, roadshows and our Annual
General Meeting.
Board-level committees ensure that appropriate
time and focus is allocated to the key areas of
governance of the business and, where
necessary, expert third parties are consulted.
The Board provides a healthy level of challenge
and debate on key areas and has been successful
in moving the business forward.
The Executive Committee consists of members
of management from across the business who
have a wealth of experience both within the
hospitality industry and from other sectors.
Their biographies can be found on our website
at www.mbplc.com/investors/our-management.
We recognise that it is important that our
investors have transparency over the operation of
our business and the full details of our governance
procedures are set out on pages 73 to 84.
Investors
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 41
42 Strategic Report
1. Staff turnover
Definition
The number of leavers in our retail businesses,
expressed as a percentage of the average number
of retail employees. This like-for-like measure
excludes site management. The turnover
measurement gives an indication of the retention
of retail staff and can help to identify if there is an
arising retention issue in any area of the business
which could highlight an engagement issue. In
addition, as team members go through a thorough
induction and training process there is an element
of cost for each person who leaves the business.
Therefore, it is important for the Board to monitor
this measure.
FY 2022 performance
Over the past two years turnover was suppressed
by the impact of Covid-19 as there were minimal
leavers during closure periods. In comparison to
FY 2021, turnover in FY 2022 increased by
36 ppts to 94%. This increase reflected the very
challenging labour market with the industry
overall seeing higher levels of employee turnover
during the reopening and recovery period post
Covid-19 closures. Our ongoing focus is to deliver
and enhance our people promise to meet the
needs of our employees and improve retention.
2. Guest review score
Definition
For several years, Mitchells & Butlers, along with
many other hospitality businesses and other retail
businesses, used Net Promoter Score (‘NPS’) as a
measure of guest satisfaction with the experience
it provides and reported NPS in its Annual Report.
NPS was derived from surveys which we ask
guests to complete following a visit to one of our
outlets. However, in recent years, these surveys
have been increasingly superseded by guest
reviews posted on Google, Facebook, Tripadvisor
and other review sites. In recognition of this trend,
we have changed our reported guest measure to
be an average feedback score across the major
third-party feedback channels, with effect from
the end of FY 2022.
FY 2022 performance
Our average feedback score across all major
feedback channels was 4.3 out of 5.0 for FY 2022,
in line with our FY 2021 score and ahead of
previous years. Improving this score remains a
key focus of the business as we aim to create
memorable moments for our guests. There is a
collection of Ignite projects underway to further
improve this metric.
3. Year-on-year same
outlet like-for-like sales
a
Definition
Sales this year compared to the sales in FY 2019,
being the last full year pre-Covid-19, of all UK
managed sites that were trading in the two
periods being compared, expressed as a
percentage. Like-for-like sales
a
is an important
indicator of how the business is performing
in the context of its previous performance,
the long-term trend of which can reflect
improvements in guest appeal. Whilst we have
compared to FY 2019 during FY 2021 and
FY 2022 due to the significant impact Covid-19
had on trade, going forward we will revert to the
previous calculation of using the previous financial
year as a comparative.
FY 2022 performance
Like-for-like sales
a
increased by 1.1% in FY 2022
vs. FY 2019. Growth was driven by food sales
with the strongest performances in our premium,
food-led brands. The first half of FY 2022 was
assisted by a lower rate of VAT on food and
non-alcoholic drinks at 12.5% compared to the
full rate of 20% in FY 2019.
84
2018
81
2019
56
2020
58
2021
94
2022
Links to strategic priorities: 2
See pages 26 and 27
Links to strategic priorities: 1, 2 and 3
See pages 26 and 27
Links to strategic priorities: 1, 2 and 3
See pages 26 and 27
94% 4.3 1.1%
3.9
2018
4.0
2019
4.2
2020
4.3
2021
4.3
2022
3.5
2018
1.3 1.1
2019
2020
-3.5
2021
-9.6
2022
Key performance indicators
Measuring performance
We measure our performance against our strategy through
five key performance indicators.
42 Strategic Report
4. Incremental return on
expansionary capital
a
Definition
Expansionary capital includes investments made
in new sites and investment in existing assets that
materially changes the guest offer. Incremental
return is the growth in annual site EBITDA,
expressed as a percentage of expansionary
capital. Is it important for the Board to monitor
return on investment as it indicates the success
of the capital programme which underpins one
of our three key strategic pillars, to build a
balanced business.
FY 2022 performance
The EBITDA return on all conversion and
acquisition capital invested over last four years
was 18%. This level of return is not indicative of
the quality of the investment programme but
largely due to the reduced trading levels due to
Covid-19 restrictions that are captured in the
calculation. Our capital programme continues
to be a key focus of the business and one which
we believe will deliver significant future value.
5. Adjusted operating
profit
a
Definition
Operating profit before separately disclosed
items as set out in the Group Income Statement.
Separately disclosed items are those which are
separately disclosed by virtue of their size or
incidence. Excluding these items allows an
understanding of the trading of the Group.
The Board monitors adjusted operating profit
as one of the financial health indicators, as it
helps to reveal how efficiently the business is
being operated.
FY 2022 performance
Adjusted operating profit
a
for the year of £240m
was significantly higher than the prior year. This
increase in profit is predominantly due to the
impacts of Covid-19 during FY 2021, including
closure and reduced trading levels. FY 2022 was
notably lower than FY 2019, the last year pre
Covid-19, due to the negative impact of the
Omicron Covid-19 variant on trading in December
2021 and significant cost headwinds, particularly
across food costs, labour and energy.
a. The Directors use a number of alternative
performance measures (‘APMs’) that are considered
critical to aid the understanding of the Group’s
performance. Key measures are explained on pages
177 to 179 of this report.
Links to strategic priorities: 1
See pages 26 and 27
Links to strategic priorities: 1, 2 and 3
See pages 26 and 27
£240m18%
18
2018
16
2019
21
2020
6
2022
-0.8
2021
240
2018
303
2019
317
2020
99
2021
29
2022
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 43
1st
• Executive Committee
• Leadership group/management
• Internal controls and processes
• Internal policies and procedures
• Training
2nd
• Financial authority limits
• Risk management processes
• Audit Committee
• Risk Committee
• Health and Safety Team
• Technology specialists
• Legal support
3rd
• Group Assurance
• Operational Practices Team
This does not represent a comprehensive list of
all of the risks that the Group faces but focuses on
those that are currently considered to be most
relevant. Please also refer to how we link the key
risks to our strategic priorities, on page 26.
Overview
Risk management is critical to the proper
discharge of our corporate responsibilities and
to the delivery of shareholder value. Risk is at the
heart of everything we do as an organisation.
Therefore, the process for identifying and
assessing risks and opportunities for
improvements is an integral and inseparable
part of the management skills and processes
which are at the core of our business.
There is a formally established Risk Committee in
place which continues to meet on a regular basis
to review both the key risks and emerging risks
facing the business.
Key risks identified are reviewed and assessed by
the Risk Committee in terms of their likelihood
and impact and recorded on the Group’s ‘Key Risk
Heat Map’, in conjunction with associated agreed
risk mitigation plans. The processes that are used
to identify emerging risks and manage known
risks are described in the Internal Control and Risk
Management statement on pages 83 and 84.
Management support, involvement and
enforcement is fundamental to the success of our
risk management framework and members of the
Executive Committee take responsibility for the
management of the specific risks associated with
their function. Our Group risk register clearly
outlines the alignment of each key risk to an
Executive Committee member and identifies an
‘action owner’, to ensure responsibilities are
formally aligned.
There is a robust and transparent process in place
to provide an appropriate level of direction and
support in the identification, assessment and
management of risks across all areas of the
business which have the potential to seriously
damage our financial position, our shareholder
value, our responsibilities to our staff and guests,
our reputation and our relationships with key
stakeholders. The board has carried out an
assessment of the Group’s emerging and principal
risks, resulting in the identification, assessment
and management of risks across all areas of the
business. The principal risks are subject to review
each quarter by the Audit Committee, which is
also attended by the Board.
Key risk heat map
The Key risk heat map below includes an
indication of the likelihood of a ‘risk event’
occurring in relation to each of the principal risks
and the expected magnitude of the impact of
each such event.
Our three lines of defence
Likelihood
Low Impact High
High
Key risk heat map
13
5
9
11
6
8
3
14
15
1
2
4
12
10
7
Risk event
1
Borrowing covenants
2
Sales performance
3
People planning and development
4
Business continuity and crisis management
5
Information and cyber security
6
Wage cost inflation
7
Pension fund deficit
8
Failure to operate safely and legally
9
Cost of goods – price increases
10
Food supply chain safety
11
Health and lifestyle concerns
12
Environment and sustainability
13
Enforced Government closure/trading
restrictions
14
Introduction of carbon taxes and levies
15
Increased severity of extreme weather events
Risks and uncertainties
Keeping risk under control
This section highlights the principal risks and
uncertainties that affect the Group, together with the key
mitigating activities in place to manage those risks.
44 Strategic Report
Risk category and description High-level controls/mitigating activities Movement
1. Borrowing covenants
There are risks that borrowing covenants are
breached because of circumstances such as:
ii. a change in the economic climate leading
to reduced cash net inflows; or
ii. a material change in the valuation of the
property portfolio.
Risk Increasing
Following the equity raise in March 2021,
covenant waivers remain in place, which has
meant the overall risk is reduced. However,
this needs to be balanced against the ongoing
costs headwinds. Therefore, the risk is assessed
as ‘Increasing’.
• The Group maintains sufficient headroom against the covenants. The
finance team conducts daily cash forecasting with periodic reviews at
the Treasury Committee (the role of which includes 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.
• A detailed assessment of the mitigating risks is included in the long-term
viability statement on page 52.
Risk Increasing
2. Sales performance
This risk falls into the below 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 combination, may adversely affect our
market share and profitability, reducing headroom
against securitisation tests.
Consumer and market insight: If the Group
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.
Risk Stable
Overall, this risk is stable due to improved sales
performance following the lack of restrictions post
the Covid-19 pandemic.
• Right operational and commercial team and structure in place. Brand
alignment ensures the right research is done and is acted upon.
• 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 of the Group’s guests, whom
we can use for research purposes for quick and cost-effective insights.
• Primary research in partnership with brand and 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 and 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 Group’s brands is maintained.
• Our priority is to continue to protect our team members and guests,
providing an eating-out experience which can be enjoyed. We have
very strong health and safety practices already in place in our
businesses, which we will enhance and evolve to tackle the challenges
we face. We will be transparent with guests as to these measures such
that they can trust in us and will clearly communicate our expectations
of guests to comply with the measures put in place.
Risk Stable
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 45
Risks and uncertainties continued
Risk category and description High-level controls/mitigating activities Movement
3. People planning and
development
The Group 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 guest
service levels would be affected.
The external recruitment activity over the
previous year is challenging due to the lack of
quality candidates being available. A further
potential risk is the image of hospitality, given
the recent pandemic impact.
Retention is high amongst our Director and
‘head of department’ populations which may
lead to a perceived lack of progression routes
and hence unwanted loss of good talent at
lower levels.
Regarding retail labour, overall, there is a
continued risk of a lack of quality of internal and
external pipeline for key roles resulting in open
vacancies or poor-quality appointments, leading
to poor performance, reduced quality of service
and loss of sales. There is a previous lack of
consistent skills training affecting guest
satisfaction and employee engagement
and retention.
Kitchen Manager attraction and attrition
continues to be the role with the highest
concern, particularly given the declining non-UK
applicants, decrease in internal progression and
increase in turnover which is influencing the
overall risk rating.
Wage pressure (over 25s) remains an issue, as
competition for labour continues to increase.
Risk Increasing
There has been a loss of EU workers within the
Group, particularly in London and the South
East. Therefore, the overall risk continues to
increase. Following the UK’s departure from the
EU, restrictions on the movement of labour
continue to have a material impact on both the
cost of labour and access to talent.
• The Group 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. Please also refer to the Report on Directors’
remuneration, on pages 89 to 106.
• The apprenticeship programme will also assist in mitigating against the
increasing risk in relation to non-UK workers. Please also refer to
Purpose in Action – Apprenticeships, on pages 04 and 05.
• A new talent management system has been sourced and is planned
to be implemented in FY 2023.
Risk Increasing
Specifically in
London/South East
4. Business continuity and
crisis management
The Group 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 a further disease pandemic) might
restrict sales or reduce operational effectiveness.
Risk Stable
Overall, the risk is stable. Staff have the
resources and ability to work remotely rather
than rely on access to the Retail Support Centre.
• The Group has in place crisis and continuity plans that are reviewed and
refreshed regularly.
• New ways of working are in place for all Retail Support Centre staff, to
ensure when the office is temporarily closed to employees, there is little
or no impact to staff, given that all staff have the appropriate resources
available to them in order to work remotely and in an efficient manner.
• We have assessed the risks associated with remote working and cyber
security and are confident that those areas are suitably controlled.
Risk Stable
46 Strategic Report
Risk category and description High-level controls/mitigating activities Movement
5. Information and cyber
security
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.
Given the increase in the level and frequency
of global cyber attacks, the likelihood of
occurrence is therefore increasing, although
current IT controls and monitoring tools
are robust.
Risk of non-compliance with data protection
laws is an increasing risk for the business to
ensure full compliance remains up to date.
Risk Decreasing
Overall, the risk is decreasing due to the ongoing
review and improvement of cyber security
controls. However, the increased activity,
information security and reliance on IT systems
continues to be a key focus to ensure critical IT
systems are kept secure and tested frequently
and any vulnerabilities identified are addressed
out efficiently.
• A detailed external review of cyber security processes is performed on
a regular basis in order to highlight any gaps and address any challenges.
As a result, a number of further improvements have been made (and
continue to be made) to strengthen overall security cyber controls.
• 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.
– Increased focus on protecting the business against potential cyber
attacks has resulted in the implementation of additional controls to
mitigate against such risks.
– The effective implementation of a business-wide data protection
compliance programme, including training of all relevant employees
and contractors.
– Systems, processes and controls have been reviewed and updated
to ensure compliance with data protection laws.
Risk Decreasing
6. 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.
Risk Increasing
Due to further increases set by Government,
wage costs continue to increase.
• A detailed review of the risks associated with the National Living Wage
has been completed. This review has been undertaken at a strategic
level to ensure that the Group carefully manages productivity and
efficiency across the estate.
• We have successfully implemented a time and attendance system to
improve the management controls and reporting of staff hours.
Risk Increasing
7. Pension fund deficit
The material value of the pension fund deficit
remains a risk.
Risk Decreasing
The Group has made significant additional
contributions to reduce the funding deficit.
• The Group has made significant additional contributions to reduce the
funding deficit. In September 2019, the Group reached agreement on the
triennial valuation of the Group pension schemes as at 31 March 2019,
with a funding shortfall of £293m (March 2016 valuation £451m shortfall).
• The Group will continue to pay cash contributions (of £49m p.a. indexed)
to 2023, with an additional payment of £13m into escrow in 2024 should
such further funding be required at that time.
• The Group reached agreement with the Pension Trustees in respect of
non-payment of monthly deficit contributions from April to September
2020, with those payments now added to the end of the current
agreement, thereby extending it by six months. Further agreement was
also reached to delay payment of the January to March 2021 deficit
contributions, which have now been paid alongside the April 2021
contributions, following the successful equity raise.
• In FY 2022, an Executive Committee pension scheme full buy-in
was undertaken.
Risk Decreasing
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 47
Risks and uncertainties continued
Risk category and description High-level controls/mitigating activities Movement
8. 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 Group’s or a brand’s reputation.
Risk Stable
Overall, the risk continues to be stable. In
particular, allergen-related incidents and near
misses have stabilised.
• The Group 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 use 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 is immediately targeted for improvement and
then reassessed.
• 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 Stable
9. Cost of goods – price
increases
Food: The cost of food for resale increases due
to changes in demand, food legislation, exchange
rates and/or production costs and uncertainty of
supply, leading to decreased profits.
Drinks: The cost of drinks for resale increases
due to changes in demand, legislation, exchange
rates and production costs, leading to
decreased profits.
Utility costs: A number of external factors,
including the result of the war in Ukraine, has
lead to an increased cost pressure on utility
costs, for the Group.
Goods not for resale: Increases in the cost 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.
Risk Increasing
The overall risk of cost inflation is increasing
given a number of factors, including:
• Rising UK inflation
• Rising utility costs
• Exchange rate movements
• Labour shortages
• Raw material availability issues
• The impact of the war in Ukraine
• Higher haulage and shipping costs
• Poor harvests
However, mitigation is sought where possible
through a change of supplier, products,
specification, range and an ongoing review and
monitoring of energy cost management.
In order to reduce the overall impact of costs increases, the Group 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 Group 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:
Food:
• A food procurement strategy is in place.
• Full reviews are carried out on key categories to ensure optimum value
is achieved in each category.
• A full range review was completed in FY 2022 ensuring the correct
number of products and suppliers. This is regularly reviewed.
• Regular reporting of current and projected inflation.
• Good relationships with key suppliers.
Drinks:
• Each drinks category has a clearly defined strategic sourcing plan to
ensure the Group’s scale is leveraged, the supply base is rationalised,
and consumer needs are met.
• Good relationships with key suppliers.
• Supplier collaboration programmes are in place.
Energy:
• Ongoing review of energy purchasing policy (covering short-term and
medium-term energy purchasing).
• The Group currently spot purchases its energy requirements and also
enters into short and medium-term energy hedges as part of the overall
energy purchasing strategy.
• Weekly Energy Cost Price & Forecast Reports are produced
and monitored.
• Trial of solar panels to reduce reliance on the grid.
• Energy Ambassadors complete energy audits in every business.
Please also refer to Purpose in Action – Sustainability on page 08.
Risk Increasing
48 Strategic Report
Risk category and description High-level controls/mitigating activities Movement
10. 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 cause an
increase in cost of goods for resale and reduced
sales due to consumer fears and physical harm
to guests and/or employees.
Risk Stable
Risks facing the food supply chain safety are
regarded as stable.
• The Group 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.
• The Group 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 the Group’s kitchens.
Suppliers are then risk rated according to their products.
• Each food supplier is audited at least once per year 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 to ensure the controls in place remain appropriate.
Risk Stable
11. Health and lifestyle
concerns
Failure to respond to changing consumer
expectations in relation to health and lifestyle
choices and our responsibility to facilitate those.
Risk Increasing
There is an increasing level of focus from media
and Government on health and obesity issues.
This heightened consumer awareness has
increased consumer awareness of the health
implications of their eating and drinking choices,
and it is important that we continue to evolve our
offers to facilitate consumers to make informed
decisions. Failure to meet these expectations
could have both a financial and reputational
impact on the business. Therefore, this risk
is increasing.
• We monitor changing behaviour in relation to health and lifestyle issues
and adapt our brands to appeal to changing needs ensuring that the
brands remain relevant and competitive.
• We have set targets for ongoing sugar and salt reduction.
• A plan is in place to provide nutritional information for all brands to allow
customers to make informed decisions. Please also refer to Purpose in
Action – Sustainability on page 08.
Risk Increasing
12. Environment and
sustainability
Climate change, biodiversity depletion and
environmental pollution present a risk to our
ability to source products, with food being
particularly at risk.
Risk Increasing
The impact of extreme and longer-term shifts in
weather patterns, natural resource depletion and
other effects of climate change could impact the
business both financially and reputationally.
These factors could disrupt our supply chain and
the ability to source products due to reduced
availability. Regulatory action to manage climate
change could result in the introduction of
additional taxes or restrictions being imposed.
The business also has a responsibility to
continually aim to reduce its usage of natural
resources and its negative impact on the climate.
Therefore, this risk continues to increase.
• We have set challenging targets in key areas such as greenhouse gas
emissions, food waste, recycling and use of plastics (see pages 32
and 33).
• We have completed an exercise to determine our baseline greenhouse
gas emissions from which we have developed a plan to deliver our
ambitions of reducing emissions by 25% by 2030, which has been
approved by the Board. Please also refer to our sustainability targets
on page 31.
• We are working with the World Resources Institute on their Cool Food
Pledge programme to reduce the emissions of food supply chain links,
which is a significant contributor to emissions globally.
• All direct palm oil purchases continue to be sourced from Rainforest
Alliance approved suppliers. Please also refer to our Value creation
story, on pages 38 to 41.
• We are working with industry collaboration groups to develop a roadmap
to sourcing sustainable soy in our supply chain.
• We are developing initiatives to reduce our consumption of natural
resources, with an electricity workstream live in the business, and gas
and water in the planning phases.
Risk Increasing
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 49
Risks and uncertainties continued
Risk category and description High-level controls/mitigating activities Movement
13. Enforced Government
closure/trading restrictions
There is a risk that the business could be
impacted by an enforced Government closure
or imposed severe trading restrictions, of part
or the whole of the estate, for example: regional
and/or national and/or global pandemic,
chemical and/or terrorist activity.
A global pandemic may have a negative impact
on the Group’s operating and financial
performance and liquidity. An outbreak of a
global virus may cause severe disruptions in the
global economy which could adversely affect
the Group’s business or operations, as well as
the business or operations of third parties with
whom the Group conducts business.
Risk Stable
The frequency and nature of these risks arising
are unpredictable, as evidenced during the
Covid-19 pandemic. However, given that
Government trading restrictions have been
lifted, the associated risks to the business
have stabilised.
• Contingency plans are in place to review and respond to enforced
Government actions and/or severe business disruption or trading
restrictions. These should be subject to a formal review.
• Business opening and closure processes have been updated.
• Strong supply chain relationships are maintained to assist in the event
of cancelling and/or returning stock orders.
• Robust processes are in place to manage Government furlough schemes.
• The Group, and in particular the Safety and Security Team, is able to
adapt quickly and respond to a change in operational and functional
processes, as a result of a pandemic and/or business closures.
• Established communication cascade and mechanisms are in place for
employees, guests and suppliers.
• IT infrastructure, hardware, systems and employee support is in place
to maintain remote working.
• Key financial controls have been reviewed, assessed and updated to
ensure they continue to be operated in the event of limited and/or no
access to either the Retail Support Centre or businesses.
• A high-level review of lessons learned, following the Covid-19
pandemic, has been undertaken to inform the required changes to
business planning and operating procedures.
Risk Stable
14. Introduction of carbon
taxes and levies
This risk represents the impact on operating
costs of the business both directly through
taxation and indirectly through higher input
costs which would result from the introduction
of taxation and levies attributed to greenhouse
gas emissions.
Risk Stable
Qualitative assessment has identified this risk as
both high in impact and likelihood over the short
to medium term. Whilst the risk is currently
assessed as stable, the introduction of a form of
carbon taxation is likely to be introduced as
pressure mounts for progress to be made against
the Government ambition to achieve Net Zero
by 2050.
• The Group is a member of UK Hospitality Sustainability Committee
which enables us to have foresight over potential policy changes
impacting the organisation.
• The Group has developed a Net Zero strategy with a target date of
2040. The strategy has been developed in partnership with an
independent third party and will be submitted for Science Based
Targets initiative approval during FY 2023. Please also refer to our
sustainability targets, outlined on page 31.
• We have a number of initiatives underway designed to reduce our
emissions in line with our Net Zero roadmap. The detailed plan for
reduction will help to mitigate an element of potential cost, and a target
date ahead of Government ambition will help to position the organisation
ahead of the market average. Please also refer to our Task Force on
Climate-related Financial Disclosures, on pages 28 to 31.
Risk Stable
50 Strategic Report
Risk category and description High-level controls/mitigating activities Movement
15. Increased severity of
extreme weather events
This acute physical risk represents the risk to
both revenue and the supply chain of increased
severe events. Revenue would be impacted
through the interruption to trade caused by both
extremely hot weather and adverse weather
such as rain and snow, and possible site closure
as a result of flooding. In addition, the availability
of products in the supply chain, in particular
agricultural produce, could be impacted by
severe weather having an effect on product
availability and input prices.
Risk Stable
Following a qualitative assessment, which
included a high-level review of previous
interruption to trade resulting from extreme
weather (as well as scientific forecasts as to
the likely increase in extreme weather events),
the overall risk is assessed as stable.
• The weather has a high level of impact on trading levels across the
Group and therefore monitoring weather forecasts in relation to
expected trading levels is a normal part of the financial planning of
the Group.
• This monitoring activity will enable the Group to identify when patterns
of increased instances of extreme weather events begin to develop.
• In relation to site closure due to damage to buildings, such as during
flooding, we have insurance in place to recover the lost trade and
required repairs. Our experience during closure has meant that we have
developed strategies to close sites at short notice, such that in the
instance of extreme weather significantly impacting trade we could
close sites in order to mitigate some of the financial losses which we
would be exposed to.
• To manage the risk associated with our supply chain, we monitor and
communicate with our suppliers closely giving us foresight over
potential supply issues. We also have sufficient breadth of products and
dishes across our brands such that supply issues with one product could
be mitigated through switching to a substitute. Please also refer to our
Task Force on Climate-related Financial Disclosures, on pages 28 to 31.
Risk Stable
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 51
Corporate Viability Disclosure
In accordance with Provision 31 of the 2018 UK
Corporate Governance Code, the Directors have
undertaken an assessment, including sensitivity
analysis, of the prospects of the Group for a
period of three years to September 2025.
Assessment period
Three years continues to be adopted as an
appropriate period of assessment as it aligns with
the Group’s planning horizon in a fast moving
market subject to changing consumer tastes in
addition to economic and political uncertainties,
and is supported by three-year forecasts as
approved by the Board. This period also aligns
with the triennial process for pensions valuations,
a consideration in respect of future cash flows.
Beyond this period, performance is impacted by
global macroeconomic and other considerations
which become increasingly difficult to predict.
As set out below, this is particularly so at the
current time.
Assessment of prospects
The Group’s financial planning process comprises
a detailed forecast for the next financial year,
together with a projection for the following two
financial years.
The Group’s strategy seeks to provide long-term
direction to protect the viability of the business
model given prevailing and evolving market
and economic conditions. The Directors’
assessment of longer-term prospects has been
made taking account of the current and expected
future financial position and the principal risks
and uncertainties, as detailed within the
Annual Report.
At the current time uncertainty facing the
business remains particularly high due both to
challenging and potentially volatile conditions as
a result of the extended impact of both Covid-19
and Brexit, and to global political developments,
supply chain disruptions and uncertain
government policy, and to increasing cost
headwinds in areas such as energy, wages and
food costs. These are exacerbated by concerns
over consumer spending power in the face
of falling real wages. Longer-term risks are
further identified around evolving consumer
demands and tastes and the economic and
political environment.
Key factors considered in the assessment of the
Group’s prospects are a strong market position
with a broad range of brands and offers trading
from a well-positioned and largely freehold
estate, supported by the resumption of capital
investment focused on premiumisation of offers
and an appropriate remodel cycle, all anticipated
to contribute to outperformance against the
wider market.
Assessment of viability
The current funding arrangements of the Group
consist of £1.4bn of long-term securitised debt
which amortises on a scheduled profile over the
next 14 years. Securitisation covenants are tested
quarterly, both on an annual and a half year basis,
although as set out in the note to the financial
statements on going concern, a refinancing was
undertaken during the prior reporting period,
resulting in a number of waivers and amendments
through to January 2023 being obtained.
Unsecured committed facilities of £150m were
in place at the year end, having been extended
during the refinancing and equity Open Offer.
These facilities expire within the three-year term
of this assessment, in February 2024.
Following the end of the third national lockdown
in 2021 sales have returned to growth above
pre-pandemic levels such that the principal
short-term risks facing the business are now
assessed to be the maintaining and generating of
further growth on this level of demand, in addition
to increased cost inflation notably in energy,
wage rates and utilities. The Group has reviewed
a number of forecast scenarios and sensitivities
around these risks, including additional stress
testing that has been carried out on the Group’s
ability to continue in operation under
unfavourable operating conditions. In making this
assessment the Group has taken the view that
there will be no material further adverse impact of
Covid-19 (or any other pandemic) such that sales
will continue to grow year-on-year. In particular
it is assumed that no further mandated closure
or trading restrictions will be reintroduced.
Through the assessment period, the Group is
forecasting sales growth against last year
remaining at close to current levels. Further, it
assumes that on a general basis the current very
high levels of cost inflation will start to abate
beyond FY 2023 and that energy markets and
costs in particular will start to revert to closer to
historical levels in absolute terms through FY 2024
leading to a recovery in profitability over the
assessment period.
The Group’s three-year plan takes account of
these risks, in addition to the prevailing economic
outlook and capital allocation decisions, alongside
limited mitigating activity such as improved
operational efficiencies (stock and labour
management and energy saving initiatives) to
manage these costs. In the base case scenario the
Group remains within solvency covenant limits
and has access to sufficient liquidity to meet its
outgoings. It is noted that there is a requirement to
refinance the unsecured facilities and potentially
increase the amount in February 2024. It is
considered that this can be accommodated within
the debt capacity of the business given future
anticipated recovery in profit and the strength
of the creditor relationships exhibited in the
refinancing exercises during FY 2020 and
FY 2021, noting also that each year a further
c. £120m of securitised debt is expected to have
been paid down. The resilience of this base case
plan is then assessed through the application of
forecast analysis, focused in particular on growth
of demand and high levels of input cost inflation
during the current financial year as well as on
a longer-term basis. Sensitivities of the following
risks described in the Annual Report have also
been applied individually to the base plan. In all
scenarios the Group remains profitable but with
the following impact on liquidity and solvency
based on financial covenants (Risk event 1) on
both secured debt and unsecured facilities:
• Declining Sales Performance (Risk event 2):
Lower like-for-like sales growth rate in
FY 2023, FY 2024 and FY 2025 of
approximately 2% pa, with the outcome that
covenants would be breached in the second
half of FY 2023 and beyond.
• Cost of Goods Price Increases (Risk event 9):
Increase in direct Cost of Goods (Drink and
Food) resulting in margins 2 ppts lower in the
second half of FY 2023, and 0.5 ppts lower
through FY 2024 and FY 2025, with the
outcome that covenants would be breached
in the second half of FY 2023 and beyond.
• Increased utilities cost (Risk event 9):
additional £20m costs in the (uncapped)
second half of FY 2023, with reductions
delayed until FY 2025, with the outcome that
covenants would be breached in the second
half of FY 2023 and beyond.
• Increased Wage Cost Inflation (Risk event 6):
1.5% increase in statutory NLW wage rate in
FY 2023, with no forecast covenant breaches
but limited, or no, headroom.
Compliance statements
52 Strategic Report
As noted above, in the base case there is a
requirement to refinance unsecured facilities
before February 2024 and potentially increase
the amount. With Declining Sales Performance
and Cost of Goods Price Increases this would
be required earlier, in FY 2023, as it would in
a scenario representing an aggregation of all
downside sensitivities. In all other individual
sensitivities refinancing would not have to be
undertaken earlier than in FY 2024.
Viability statement
The Directors have concluded, based upon the
extent of the financial planning assessment,
sensitivity analysis, potential mitigating actions
and current financial position that there is a
reasonable expectation that the Group will have
access to sufficient resources to continue in
operation and meet all its liabilities as they fall due
over the three-year period to September 2025.
However, due to the prevailing high level of
unpredictability and uncertainty concerning both
future demand and the persistence of high levels
of cost inflation, the Directors do not believe that
the possibility of an unwaived breach of covenant
or shortfall in liquidity over the three-year period
is remote. Under such a scenario the Directors
believe that waivers should be obtained from
main stakeholders but this is not fully within the
Group’s control. Given this, and the material
uncertainty highlighted in the going concern
assessment, the viability of the business over the
three-year assessment period remains uncertain.
Non-financial information statement
The Group has complied with the requirements of
s414CB of the Companies Act 2006 by including
certain non-financial information within the
report. This can be found as follows:
• Business model on pages 34 to 37.
• Information regarding the following matters
can be found on the following pages:
– Environmental matters on pages 32, 33,
40, and 41;
– Employees on page 39;
– Social matters on pages 38 to 41;
– Respect for human rights on pages 68, 81
and 82;
– Anti-corruption and anti-bribery matters
on pages 81 and 82.
• Where principal risks have been identified in
relation to any of the matters listed above,
these can be found on pages 44 to 51
including a description of the business
relationships, products and services which are
likely to cause adverse impacts in those areas
of risk, and a description of how the principal
risks are managed.
• All key performance indicators of the Group,
including those non-financial indicators, are on
pages 42 and 43.
• The Financial review section on pages 55 to 58
includes, where appropriate, references to,
and additional explanations of, amounts
included in the accounts.
Section 172 Companies Act statement
The Directors have acted in a way that they
considered, in good faith, to be most likely to
promote the success of the Company for the
benefit of its members as a whole and in doing
so have given regard, amongst other matters,
to the following considerations in the decisions
taken during the financial period ended
24 September 2022:
• the likely consequences of any decision in the
long term;
• the interests of the Company’s employees;
• the need to foster the Company’s business
relationships with suppliers, guests and
others;
• the impact of the Company’s operations on
the community and environment;
• the desirability for high standards of business
conduct; and
• the need to act fairly as between members
of the Company.
The Board has a duty under Section 172
Companies Act 2006 to promote the success of
the Company and, in doing so, must take account
of the effect on other stakeholders of how it
manages the business of the Company, whether
these stakeholders are from within the Company,
in its group or outside the Company and its group.
Throughout the year the Board has kept in mind
these responsibilities as it has supervised and
monitored the business activities and prospects
of the Company and as it has considered, and,
where appropriate, made decisions relating to
strategic aspects of the Company’s affairs.
In addition, the 2018 UK Corporate Governance
Code specifically requires that the Board should
understand the views of the Company’s key
stakeholders (including employees, suppliers,
customers and others) and keep stakeholder
engagement mechanisms under review so they
remain effective. The 2018 Code also recommends
that there should be regular reporting as to how
the Board has complied with this engagement
approach in its decision-making processes and
how the interests of different shareholders have
been considered.
In carrying out these functions, the Board had
regard to those stakeholders which it had
identified as being of significant importance.
These are the Company’s shareholders, those
employees of the Mitchells & Butlers Group who
were likely to be affected by the activities of the
Company (including their job security and
entitlements in terms of pay, pensions and other
benefits), guests who purchase goods and
services provided by the Company, suppliers to
the Company, whether they are external to the
Mitchells & Butlers Group or within that group,
governmental authorities such as HMRC and
regulatory bodies, the Trustees of the Group’s
pension schemes, providers of finance to the
Group including its banks and bond holders,
real estate property counterparties (whether as
landlords or tenants) and those specific entities
or individuals who are likely to be affected by
the outcome of the relevant matter falling for
consideration on a case-by-case basis.
There is a robust and transparent process in place
to provide an appropriate level of direction and
support in the identification, assessment and
management of risks across all areas of the
business which have the potential to seriously
damage our financial position, our shareholder
value, our responsibilities to our staff and guests,
our reputation and our relationships with key
stakeholders. Established communication
cascade and mechanisms are in place for
employees, suppliers and guests: engagement
with employees is discussed on page 67 of the
Directors’ Report, which sets out the various
platforms for employee communications,
facilitated by Dave Coplin, a Non-Executive
Director who acts as the ‘employee voice’;
engagement with key, critical suppliers is
addressed on page 75 of the Corporate
Governance Statement which describes the
supplier tiering process; and engagement with
guests is discussed on page 101 of the Report
on Directors’ remuneration which describes the
mechanisms for providing guest feedback.
The Company’s culture is embodied in a set of
PRIDE values of Passion, Respect, Innovation,
Drive and Engagement which underpin its key
priorities of People, Practices, Profits and Guests.
The Board observes these PRIDE values in
discharging its everyday responsibilities in order
to ensure that decisions taken are in line with the
Company’s values and objectives. High standards
of business conduct are expected, in furtherance
of which the Board has implemented a Code of
Ethics, which is fully described on pages 81 and
82 of the Corporate Governance Statement,
and a declaration of compliance with the Modern
Slavery Act 2015 (including a Supplier Code of
Conduct) is dealt with on page 68 of the
Directors’ Report. Appropriate scrutiny of the
environmental impact of the Group’s activities
is included in the Sustainability section of the
Strategic Report on pages 32 and 33.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 53
Compliance statements continued
Not all of those stakeholders’ interests fall for
consideration in each set of circumstances which
the Board has to consider. However, as and when
a particular matter falls for review by the Board,
it first seeks to identify those stakeholders which
are likely to be impacted by the decision of the
Board, and then the Board discusses the
respective interests of those stakeholders as well
as the consistency (or otherwise) of the relevant
proposal with the Board’s existing, or any
proposed change(s) to its, strategic plan.
Major matters considered by the Board during the
year related primarily to the effect on the Group’s
business and its guests, employees and suppliers
of the continued impact of the Covid-19
pandemic, including the emergence of the
‘Omicron’ variant of the virus, and the implications
of rising cost inflation notably on food and utility
costs driven by macro economic challenges and
geopolitical issues including the conflict in
Ukraine. There were also similar considerations
made by the Board in relation to the Group’s
German business and the impact of the
continuing Covid-19 pandemic and costs
pressures on its operations, creditors, employees,
regulatory bodies and other stakeholders,
including regional and federal German
Government authorities.
In considering the implications of the Covid-19
pandemic and the other external factors referred
to above, the Board looked not only at the position
and prospects of the Company, but also took
into consideration the wider Mitchells & Butlers
Group as a whole, in relation to the financing
arrangements and the need to comply with the
Group’s obligations of its securitisation
arrangements and other financial arrangements.
Having identified the relevant stakeholders and
their interests in relation to specific matters or
particular circumstances, the Board then assessed
the relevant weighting of those interests in
considering and eventually reaching its
conclusions. This was of particular importance in
relation to its decisions relating to the ongoing
effects of the Covid-19 pandemic, which included
the emergence of the ‘Omicron’ variant of the
virus, leading to an adverse impact over the
important festive period; the effect on the Group’s
operations and its guests, employees and
suppliers as the rate of VAT on food and
non-alcoholic drink reverted to its full rate of 20%;
and cost inflation headwinds, notably in utilities,
wages and food as a result of developments
across the world, including the conflict in Ukraine.
In reaching its decisions, the Board was mindful
of the need to seek to preserve the integrity of
the Company’s business so that it could trade
successfully again after the impact of the Covid-19
pandemic had passed but that it would need to
allocate its resources in such a way as to ensure
creditors’ interests and the interests of other
stakeholders such as employees and guests were
not prejudiced. This led to a need for allocation
of cash resources in a prudent and carefully
controlled way whilst ensuring that, over time,
creditors received payment of amounts
properly due.
Board papers set out the rationale for the
proposals and the relevant decisions were made
after discussion amongst the Board members with
appropriate legal, accounting, HR and treasury
input. The processes implemented by the Board
included regular meetings to consider key
developments as well as the provision, refreshed
during the financial year, of training to Directors
in relation to their responsibilities as directors of
a limited company, including the responsibilities
under Section 172 Companies Act 2006.
Specific consideration was given in the decision-
making processes implemented by the Board to
how the manner in which the Company operated,
and the specific proposals it was asked to
consider, aligned to its strategic goals as described
on pages 26 and 27 and its agreed purpose as
referred to on page 03.
The Board also confirmed that, in discharging its
responsibilities for management, supervision and
control of the Company’s business and its affairs,
it would seek to align to the Mitchells & Butlers
Group PRIDE Values of Passion, Respect,
Innovation, Drive and Engagement as set out
at page 35 of this Annual Report.
Throughout this Annual Report we provide
examples of how we take these considerations
into account. The Board values the importance of
effective stakeholder engagement and believes
that stakeholders’ views should be considered in
its decision-making. Details of how we engage
with various stakeholders can be found on pages
38 to 41.
54 Strategic Report
Financial review
Our financial and operating performance
“On a statutory basis, profit before tax for the
year was £8m (FY 2021 loss £42m), on sales
of £2,208m (FY 2021 £1,065m).”
Tim Jones
Chief Financial Officer
Statutory Adjusted
a
FY 2022
£m
FY 2021
£m
FY 2022
£m
FY 2021
£m
Revenue 2,208 1,065 2,208 1,065
Operating profit 124 81 240 29
Profit/(loss) before tax 8 (42) 124 (94)
Earnings/(loss) per share 2.2p (11.5)p 18.0p (13.6)p
Operating margin 5.6% 7.6% 10.9% 2.7%
The Group Income Statement discloses adjusted
profit and earnings per share information that
excludes separately disclosed items to allow an
understanding of the trading performance of the
Group. Separately disclosed items are those
which are separately identified by virtue of their
size or incidence.
At the end of the period, the total estate
comprised 1,718 sites in the UK and Germany
of which 1,636 are directly managed.
Unless otherwise noted, sales comparisons
below are on a three-year basis, to the same
period in FY 2019, being the last full pre-Covid-19
financial year.
Like-for-like sales
a
for the year increased by 1.1%,
comprising an increase in like-for-like food sales
a
of 5.2% and a decrease in like-for-like drink sales
a
of (4.1)%.
Revenue
Total revenue of £2,208m (FY 2021 £1,065m)
reflects a period of continuous trading, albeit
disrupted by the Omicron variant in the first
quarter, as compared to the prior year which
included substantial closures and restrictions
relating to Covid-19. Sales figures in the first half
of the year include the benefit of the temporary
reduction in the rate of VAT on food and
non-alcoholic drink sales to 12.5%.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 55
Sales growth in food was driven by premiumisation and other increases in
spend per head, with the strongest performances in our premium, food-led
brands. Volumes for both food and drink were in double-digit decline against
FY 2019.
For the ten weeks since the period end like-for-like sales
a
against FY 2019
have increased by 9.2%.
Moving forward it will become more meaningful to use FY 2022 as a primary
comparator for like-for-like sales
a
. On this basis, for the ten weeks since the
period end, like-for-like sales
a
have increased by 6.5%, comprising an
increase in like-for-like food sales
a
of 1.9% and like-for-like drink sales
a
growth
of 12.1%, with both in volume growth. Total sales in this period grew by 7.3%.
Separately disclosed items
Separately disclosed items are identified due to their nature or materiality
to help the reader form a view of overall and adjusted trading.
A £117m reduction in value is recognised relating to valuation and
impairment of properties, comprising a £86m impairment arising from the
revaluation of freehold and long leasehold sites, a £9m impairment of short
leasehold and unlicensed properties and a £22m impairment of right-of-use
assets. The £22m tax credit relates to these impairments.
There was a £1m net profit arising on property disposals in the period.
Operating profit and margins
a
Adjusted operating profit
a
for the year was £240m (FY 2021 £29m),
a substantial increase on FY 2021 which was significantly impacted by
Covid-19 closures and restrictions.
Adjusted operating margin of 10.9% was 8.2 ppts higher than last year, again
due mainly to significant periods of closure and other trading restrictions.
Statutory operating margin of 5.6% was 2.0 ppts lower than last year due to
the impact of separately disclosed property impairments.
Inflationary cost pressures presented an increasing challenge both to our
business and to the hospitality sector as a whole, especially through the
second half of the year. Inflationary costs were initially concentrated in the
areas of energy, wages and food costs but progressively became evident
throughout most of the supply chain. Inflationary cost headwinds against
FY 2019 totalled c. £220m during FY 2022, over the three year period, with
energy cost increases contributing c. £70m, after consumption savings.
We continue to work very hard to mitigate as much of the impact of these
cost increases as we can, both through driving sales growth and through
identifying and implementing further cost efficiencies, all executed under
our Ignite programme of work. Looking forward, we anticipate an aggregate
cost headwind in the region of 10-12% on our cost base of c. £1.8 billion this
year before mitigation, with operating margins remaining lower than
pre-Covid levels in the medium term.
Government Support
Following the outbreak of the Covid-19 global pandemic in early 2020 and
the subsequent enforced closure of the business, M&B received a number of
different areas of support from both local and central Government in the UK
and in Germany. During the year, Government support was received in the
form of Local Authority Grants £3m (FY 2021 £11m), business rates relief
£5m (FY 2021 £75m), grants for loss of profits in Germany £1m (FY 2021
£14m) and apprenticeship incentives £1m (FY 2021 £nil).
In the prior period, £210m of support was received in relation to the UK
Coronavirus Job Retention Scheme (‘CJRS’) and a further £9m of
Government assistance for wages and salaries in Germany (Kurzarbeit).
The Group also benefited from a reduction in the rate of VAT from 20% to
5% on non-alcoholic sales which was introduced by the UK Government on
15 July 2020 and continued until 30 September 2021. Following this a rate of
12.5% applied for the subsequent six months until 31 March 2022. The
estimated impact of this on food and drink revenue in FY 2022 is £43m
(FY 2021 £81m).
Interest
Net finance costs of £114m for the year were £6m lower than the same period
last year, with annual amortisation reducing the value of securitised debt.
The net pensions finance charge was £2m (FY 2021 £3m). The net pensions
charge for next year is expected to remain at the same level.
Earnings per share
Basic earnings per share, after the separately disclosed items described
above, were 2.2p (FY 2021 loss (11.5)p), adjusted earnings per share
a
were
18.0p (FY 2021 loss (13.6)p).
The basic weighted average number of shares in the period was 595m and
the total number of shares issued at the balance sheet date was 597m.
Like-for-like sales
a
growth/(decline) against FY 2019:
Weeks 1–15
Q1
Weeks 16–28
Q2
Weeks 29–42
Q3
Weeks 43–52
Q4 Weeks 1–52
Food 5.2% 8.9% 2.9% 4.1% 5.2%
Drink (9.1)% (4.2)% (1.3)% (1.0)% (4.1)%
Total (1.5)% 3.8% 0.9% 1.5% 1.1%
Total excl. VAT benefit (5.5)% 0.2% 0.9% 1.5% (0.9)%
Financial review continued56 Strategic Report
Cash flow
FY 2022
£m
FY 2021
£m
EBITDA before movements in the valuation of the
property portfolio 374 182
Non-cash share-based payment and pension
costs and other 6 13
Operating cash flow before movements in
working capital and additional pension
contributions 380 195
Working capital movement 19 7
Pension deficit contributions (44) (52)
Cash flow from operations 355 150
Capital expenditure (122) (33)
Net finance lease principal payments (45) (41)
Interest on lease liabilities (16) (21)
Net interest paid (99) (104)
Tax (2) 1
Issue and purchase of shares (1) 341
Other 1 –
Repayment under liquidity facility – (9)
Repayment of term loan – (100)
Repayment of revolving credit facilities – (10)
Net cash flow before bond amortisation 71 174
Mandatory bond amortisation (110) (104)
Net cash flow (39) 70
The business generated £374m of EBITDA before movements in the valuation
of the property portfolio. This is notably higher than last year due to FY 2021
being significantly impacted by Covid-19 closures and restrictions.
Capital expenditure has increased in FY 2022 as the capital programme
resumed following reduced activity in the prior period due to the cash
management strategy adopted in response to Covid-19 restrictions.
In FY 2021, share issue proceeds reflect the equity raise of £351m less £9m
transaction fees and £1m purchase of own shares.
Before mandatory bond amortisation, cash inflow was £71m (FY 2021
£174m). After mandatory bond amortisation, cash outflow was £39m
(FY 2021 inflow of £70m).
Capital expenditure
Capital expenditure of £122m (FY 2021 £33m) comprises £117m from the
purchase of property, plant and equipment and £5m in relation to the
purchase of intangible assets.
Capital expenditure remains a priority for the business but was below
targeted levels due primarily to global supply chain disruption and delays
in obtaining planning consent, resulting in reduced project completions.
We expect capital expenditure for FY 2023 to increase further to
approximately £200m.
FY 2022 FY 2021
£m Number £m Number
Maintenance and infrastructure 39 14
Remodels – refurbishment 60 155 9 21
Remodels – expansionary 2 5 1 2
Conversions 6 6 2 5
Acquisitions – freehold 14 3 7 2
Acquisitions – leasehold 1 1
Total return generating capital
expenditure 83 170 19 30
Total capital expenditure 122 33
The three freehold acquisitions represent the purchase of three properties
previously held as leasehold.
Property
In line with our property valuation policy a red book valuation of the freehold
and long leasehold estate has been completed in conjunction with the
independent property valuer, CBRE. In addition, the Group has undertaken
an impairment review on short leasehold and unlicensed properties. The
overall property portfolio valuation of c. £4bn has decreased by £282m
(FY 2021 increase of £196m). This reflects £95m impairment separately
disclosed in the income statement and a £187m decrease in the revaluation
reserve. In addition to this, there was a £22m impairment of right-of-use
assets, separately disclosed in the income statement.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 57
Pensions
During the period, the trustees of the M&B Executive Pension Plan
(‘MABEPP’), working closely with the Company, have successfully
completed a full scheme buy-in with Legal and General Assurance Society
Limited. This transaction eliminates substantially all remaining risk in this
scheme within the level of existing committed contributions. The MABEPP
makes up approximately 20% of the Company’s total pension obligations,
with the vast majority of the balance being in the M&B Pension Plan (‘MABPP’).
The latest triennial pension valuations of both schemes are assessed as at
31 March 2022 (2019 £293m combined deficit). MABEPP having already
achieved buy-in, requires only limited future funding to cover its running
costs and any data true ups. Preliminary results for MABPP show a significant
improvement in the actuarial funding position. Once the valuations are
agreed, the future contributions to be made by the Company until 2023
should remain unchanged, but with all monies now being made into blocked
escrow accounts.
Net debt
a
and facilities
Following the adoption of IFRS 16 in FY 2020, leases are now included in
net debt
a
. Net debt
a
at the period end was £1,679m, comprised of £1,198m
non-lease liabilities and lease liabilities of £481m (FY 2021 £1,783m
comprised of £1,270m non-lease liabilities and lease liabilities of £513m).
In addition to the securitisation, the Group has a £150 million unsecured facility
expiring in February 2024. Further details of existing debt arrangements and
an analysis of net debt
a
can be found in Notes 4.1 and 4.4 to the financial
statements and at www.mbplc.com/infocentre/debtinformation/.
Going concern
After considering forecasts, sensitivities and mitigating actions available to
management and having regard to risks and uncertainties, the Directors have
a reasonable expectation that the Group has adequate resources to continue
to operate within its borrowing facilities and covenants for a period of at least
12 months from the date of signing the financial statements. However, given
the prevailing high level of unpredictability and uncertainty concerning both
sales and, particularly, cost inflation, the Directors have concluded that a
material uncertainty exists which may cast significant doubt over the Group’s
ability to trade as a going concern, in which case it may be unable to realise its
assets and discharge its liabilities in the normal course of business.
Accordingly, the financial statements continue to be prepared on the going
concern basis but with material uncertainty arising from the impact of
macroeconomic factors on the Group’s compliance with financial covenants
and its liquidity. Full details are included in note 1.
Tim Jones
Chief Financial Officer
6 December 2022
a. The Directors use a number of alternative performance measures (‘APMs’) that are
considered critical to aid understanding of the Group’s performance. Key measures are
explained on pages 177 to 179 of this report.
Financial review continued58 Strategic Report
Governance
Outlines how the Group monitors its actions, policies,
practices and decisions as well as the effect of those
actions on its stakeholders.
In this section
60 Chairman’s introduction to governance
62 Board of Directors
64 Directors’ report
72 Directors’ responsibilities statement
73 Corporate governance statement
85 Audit Committee report
89 Report on Directors’ remuneration
Introduction Strategic Report Governance Financial Statements Other Information
59Mitchells & Butlers plc Annual Report and Accounts 2022
As at 24 September 2022, the Company had more than
46,000 employees and one of the key roles for the Board is
to provide leadership for them and maintain the highest
possible standards of corporate governance.
The Company is required to report under the
2018 UK Corporate Governance Code (the ‘2018
Code’). The 2018 Code places emphasis on
relationships between companies, shareholders
and stakeholders. It also promotes the importance
of establishing a corporate culture that is aligned
with the Company’s purpose and business
strategy, promotes integrity and values diversity
and sets the expectations for reporting the
Board’s involvement in these areas. Some of these
aspects of the 2018 Code are reflected in the
Strategic Report on pages 10 to 58, which sets out
the Group’s strategy, progress and performance
for the year. Meanwhile, the Board-focused
corporate governance aspects of the 2018 Code
are reflected in the Corporate Governance
Statement on pages 73 to 84, which sets out
the Company’s compliance against published
governance requirements where there is
a narrative explanation as to how the Board
has approached compliance with, or in a few
limited areas divergence from, the Code’s best
practice guidance.
FY 2022 has brought about additional reporting
requirements in relation to climate change and full
details are included in that section of the Strategic
Report on pages 28 to 31. Phil Urban heads our
climate change policy initiatives, and while this
area remains a responsibility of the entire Board,
the Corporate Responsibility Committee manages
and monitors the detail of the Group’s approach
to this important topic. The organisational and
reporting structure for climate governance is set
out on page 29 in our climate related disclosures.
During the year, the Board continued to work
together to deal with the many and varied
challenges arising from the ongoing consequences
of the pandemic, together with the continued
drain on cash resources. I am very grateful both
to the Board and all our employees who pulled
together so magnificently to remain steadfast in
such difficult circumstances.
The first quarter of FY 2022 was once again
impacted by Covid-19, with the spread of the
Omicron variant, though the operating and
trading environment of the Group’s businesses
has, in all material respects, returned to the
normal pattern of activities which existed prior
to the Covid-19 pandemic.
Our broad range of Board talent covers a variety
of professional skills, and our diverse group of
Non-Executive Directors continue to bring much
experience and challenge to the Board. Susan
Murray, our Senior Independent Director,
decided not to submit herself for re-election at
the 2022 Annual General Meeting in order to
concentrate on her other commitments and
activities, and Jane Moriarty accepted the Board’s
invitation to become the Senior Independent
Director with effect from the end of the 2022
AGM. I would like to thank Susan for her
dedicated service and unwavering support,
particularly during the course of the pandemic.
Chairman’s
introduction to
governance
“Dear fellow shareholders, I have pleasure
in updating you on our progress in
corporate governance over the past year.”
Bob Ivell
Chairman
60 Governance
We were very pleased to welcome Amanda
Brown as a new Non-Executive Director, who
joined the Board with effect from 4 July 2022 and
at the same time, was appointed Chair of the
Remuneration Committee. She brings extensive
Human Resources skills to the Board and has
previous experience of chairing a Remuneration
Committee. We look forward to working with her
to continue to develop the business and you can
read her Report on Directors’ remuneration on
page 89.
Finally, our Company Secretary and General
Counsel, Greg McMahon, stepped down from
his role on 31 August 2022 having been with us
since 2013, and we wish him a long and happy
retirement. We are delighted to welcome his
replacement, Andrew Freeman, to the Company.
My focus will continue to be on maintaining a
strong team, with a broad range of professional
backgrounds, experience from both within
our sector and in other industries and businesses
and communication skills to drive further
improvements where possible. From a
governance standpoint, the basic governance
arrangements already in place are unchanged
since FY 2021, with the exception of additional
procedures and reporting arrangements put in
place in order to comply with the new climate
change requirements. Certain aspects of the 2018
Code could not be, and were not, complied with
in FY 2021 and this continued into FY 2022. These
deviations from the 2018 Code are fully explained
on pages 76 and 77 in the Corporate Governance
Statement in line with the ‘Comply or Explain’
regime which forms an intrinsic part of that
2018 Code.
The 2018 Code states that there should be a
formal and rigorous annual evaluation of the
performance of the board, its committees,
the chair and individual directors and that the
chair should consider having a regular externally
facilitated board evaluation. In FTSE 350
companies this should happen at least every three
years. An externally facilitated review of the
Board’s effectiveness took place in 2018 and the
results were published in the 2018 Annual Report
and Accounts, with the next externally facilitated
review being due for reporting in the 2021 Annual
Report and Accounts. Instead, the Board decided
that the interests of shareholders would be
better served by the Board focusing on restarting
the business following the pandemic and
consequently no external evaluation took place
in respect of FY 2021, nor in FY 2022. The Board
will review this approach as and when it feels it
necessary to do so in the context of the
circumstances in which the Group is operating.
Although there was no formal evaluation carried
out during the year, I remain satisfied that the
skills, contributions and experience of the Board
are appropriate for the challenges faced by the
Group during the year and for the future. You can
read the Board biographies on pages 62 and 63.
The annual appraisal of my performance as
Chairman was carried out in FY 2022 by the
Senior Independent Director, Jane Moriarty,
with the conclusions fed back to me.
The remainder of this Corporate Governance
Statement contains the narrative reporting
required by the 2018 Code, the Listing Rules and
the Disclosure Guidance and Transparency Rules.
I hope that you find this Corporate Governance
Statement to be informative and helpful in relation
to this important topic.
We are committed to maintaining an active
dialogue with all our shareholders, and we
continue to offer our institutional investors access
to key senior management and our Investor
Relations team. The Chair of each of our Audit
Committee and Remuneration Committee and
the Senior Independent Director are available for
dialogue with shareholders on any significant
matters in relation to their areas of responsibility
if this is needed and you can read their reports on
pages 85 and 89 respectively.
The Annual General Meeting will be held in
February 2023 and all shareholders are welcome
to attend. For those shareholders who cannot
attend but would like to hear the proceedings, we
will also supply a telephone listen-only facility. Full
details are set out in the separate Notice of AGM
published with this Annual Report.
I look forward to the year ahead, confident in the
knowledge that the Company is led by a highly
competent, professional and motivated team.
I also look forward to the support of you, our
shareholders, as our senior management team
looks to rebuild the business and continues to
focus on driving future profit growth and creating
additional shareholder value.
Bob Ivell
Chairman
Mitchells & Butlers plc
For the Company’s latest financial information
Go to www.mbplc.com/investors
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 61
Phil Urban
Chief Executive
M E P
Phil joined Mitchells & Butlers in January 2015
as Chief Operating Officer and became Chief
Executive in September 2015. Phil was previously
Managing Director at Grosvenor Casinos,
a division of Rank Group and Chairman of the
National Casino Forum. Prior to that, he was
Managing Director for Whitbread’s Pub
Restaurant Division, and for Scottish & Newcastle
Retail’s Restaurants and Accommodation
Division. Phil has an MBA and is a qualified
management accountant (‘CIMA’).
Tim Jones
Chief Financial
Officer
M E P
Tim was appointed Chief Financial Officer in
October 2010. Prior to joining the Company,
he held the position of Group Finance Director
for Interserve plc, a support services group.
Previously, he was Director of Financial
Operations at Novar plc and held senior financial
roles both in the UK and overseas in the logistics
company, Exel plc. Tim is a member of the
Institute of Chartered Accountants in England
and Wales and obtained an MA in Economics
at Cambridge University.
Bob Ivell
Non-Executive
Chairman
R N M C P
Appointed to the Board in May 2011, Bob has
over 40 years of extensive food and beverage
experience with a particular focus on food-led,
managed restaurants, pubs and hotels. He is
currently a Non-Executive Director of Charles
Wells Limited and a board member of UK
Hospitality. He was previously Senior
Independent Director of AGA Rangemaster
Group plc and Britvic plc, and a main board
Director of S&N plc as Chairman and Managing
Director of its Scottish & Newcastle retail division.
He has also been Chairman of Carpetright plc,
Regent Inns, Park Resorts and David Lloyd
Leisure Limited, and was Managing Director of
Beefeater Restaurants, one of Whitbread’s pub
restaurant brands, and a Director of The
Restaurant Group. Bob is Chair of the Nomination
Committee, the Pensions Committee, the Market
Disclosure Committee and the Corporate
Responsibility Committee.
Key to Committee membership
A Audit Committee
R Remuneration Committee
N Nomination Committee
M Market Disclosure Committee
E Executive Committee
C Corporate Responsibility Committee
P Pensions Committee
Our broad range of Board talent covers a variety of
professional skills, and our diverse group of Non-Executive
Directors continue to bring much experience and
challenge to the Board.
62 Governance
Board of Directors
A strong leadership team
Dave Coplin
Non-Executive
Director
A R N C
Appointed as an independent Non-Executive
Director in February 2016, Dave is the Chief
Executive Officer and founder of The Envisioners
Limited. He was formerly the Chief Envisioning
Officer for Microsoft Limited, and is an
established thought leader on the role of
technology in our personal and professional lives.
For over 25 years he has worked across a range of
industries and customer marketplaces, providing
strategic advice and guidance around the role and
optimisation of technology in modern society,
both inside and outside of the world of work.
Dave is also a Non-Executive Director of each of
the Pensions and Lifetime Savings Association
and Vianet Group plc.
Eddie Irwin
Non-Executive
Director
N C
Appointed as a Non-Executive Director in
March 2012, Eddie is a nominated shareholder
representative of Elpida Group Limited, which,
as part of the Odyzean Group, is a significant
shareholder in Mitchells & Butlers. Eddie is
Finance Director of Coolmore, a leading
thoroughbred bloodstock breeder with
operations in Ireland, the USA and Australia
and a Non-Executive Director of Grove Limited,
the holding company of Barchester Healthcare
Limited. He graduated from University College
Dublin with a Bachelor of Commerce Degree
and he is a Fellow of both The Association
of Chartered Certified Accountants and The
Chartered Governance Institute.
Keith Browne
Non-Executive
Director
P
Appointed as a Non-Executive Director in
September 2016, Keith is a nominated
shareholder representative of Elpida Group
Limited, which, as part of the Odyzean Group,
is a significant shareholder in Mitchells & Butlers.
He is a Non-Executive Director of Grove Limited,
the holding company of Barchester Healthcare
Limited. Keith obtained a Bachelor of Commerce
Degree from University College Dublin, qualified
as a chartered accountant in 1994 and
subsequently gained an MBA from University
College Dublin. After joining KPMG Corporate
Finance in 1996, he became a partner in the firm
in 2001 and Head of Corporate Finance in 2009.
He retired from the partnership to operate as an
Independent Consultant in 2011.
Jane Moriarty
Senior Independent
Director
A R N C M
Appointed as an independent Non-Executive
Director in February 2019, Jane is a Fellow of the
Institute of Chartered Accountants in Ireland, and
currently a Non-Executive Director of Babcock
International Group PLC, and a Director of NG
Bailey Group Limited, Quarto Group Inc.,
Tennants Consolidated Limited, Nyrstar NV and
Martin’s Investments Limited. Jane was previously
a senior advisory partner with KPMG LLP. Jane is
Chair of the Audit Committee.
Amanda Brown
Non-Executive
Director
A R N C
Amanda joined the Board in July 2022 as an
independent Non-Executive Director. She is
a Non-Executive Director and Chair of the
Remuneration Committee of Micro Focus
International PLC and was formerly the Chief
Human Resources Officer of Hiscox Limited.
She previously held senior executive roles
with Whitbread Group PLC, PepsiCo, Inc
and Mars, Inc. Amanda is Chair of the
Remuneration Committee.
Josh Levy
Non-Executive
Director
R P
Appointed as a Non-Executive Director in
November 2015, Josh is a nominated shareholder
representative of Piedmont Inc., which, as part of
the Odyzean Group, is a significant shareholder
in Mitchells & Butlers. Josh is Chief Executive of
Ultimate Finance Group, Chairman of Avenue
Insurance and a Director of Tavistock Group.
Josh previously worked in the Investment Banking
Division of Investec Bank.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 63
The Board’s responsibilities in respect of the
Company include:
• Determining the overall business and commercial strategy
• Identifying the Company’s long-term objectives
• Reviewing the annual operating budget and financial plans and
monitoring performance in relation to those plans
• Determining the basis of the allocation of capital
• Considering all policy matters relating to the Company’s activities
including any major change of policy
For FY 2022, the Board is reporting under the 2018 Code. Further
information is set out in the Strategic Report on pages 10 to 58 which
examines the ‘purpose’ aspect of the 2018 Code and in the Corporate
Governance Statement on pages 73 to 84, which describes the
Company’s approach and practices in relation to the 2018 Code.
For the Company’s latest financial information
Go to www.mbplc.com/investors
The Directors present their report on the affairs of the Group and the
audited financial statements for the 52 weeks ended 24 September 2022.
The Business review and Sustainability review of the Company and its
subsidiaries are given on pages 18 to 20 and pages 32 and 33 respectively
which, together with the Corporate Governance Statement and Audit
Committee report, are incorporated by reference into this report and,
accordingly, should be read as part of this report.
Details of the Group’s policy on addressing risks are given on pages 44 to 51,
83 and 84, and details about financial instruments are shown in note 4.3 to
the financial statements. These sections include information about trends
and factors likely to affect the future development and performance of the
Group’s businesses. The Company undertakes no obligation to update
forward-looking statements.
Key performance indicators for the Group’s businesses are set out on pages
42 and 43.
The Company’s Directors pay due regard to the need to foster the
Company’s business relationships with suppliers, guests and others. Details
of the Company’s engagement process with various stakeholders and
different tiers of suppliers, together with the effect of such consideration on
the principal decisions taken by the Company during the financial year, are
set out in the section discussing the Company’s business model on pages 34
to 37 and in the statement made in compliance with Section 172 of the
Companies Act 2006 set out on page 53.
This report has been prepared under current legislation and guidance in
force at the year end date. In addition, the material contained on pages 10 to
58 reflects the Directors’ understanding of the requirement to provide
a Strategic Report.
This report has been prepared for, and only for, the members of the
Company as a body, and no other persons. The Company, its Directors,
employees, agents or advisers do not accept or assume responsibility to any
other person to whom this document is shown or into whose hands it may
come or who becomes aware of it and any such responsibility or liability is
expressly disclaimed.
Areas of operation
During FY 2022, the Group had activities in, and operated through, pubs,
bars and restaurants in the United Kingdom and Germany. As a consequence
of the requirements of the Government and regulatory authorities in the four
nations of the United Kingdom and in Germany, for extended periods of time
during FY 2021, the Group’s businesses in those countries were either closed
or subject to varying levels and degrees of operating restrictions. At the end
of FY 2021 those mandatory closure requirements and operating restrictions
had been relaxed, though the first quarter of FY 2022 was once again
impacted by Covid-19, with the spread of the Omicron variant resulting in
renewed calls for caution in socialising over the important festive period.
Thereafter, once it was confirmed that the symptoms of Omicron were
generally mild, and the immunisation regime had been implemented widely
across the population, consumer confidence was boosted and the operating
and trading environment of the Group’s businesses has, in all material
respects, returned to the normal pattern of activities which existed prior to
the Covid-19 pandemic. A summary of the performance of the business in
the face of these challenges is set out on page 89.
A full list of the Company’s subsidiaries and their respective country of
operation is given on page 169 of the Annual Report.
Share capital and voting rights
The Company’s issued ordinary share capital as at 24 September 2022
comprised a single class of ordinary shares of which 597,383,363 shares
were in issue and listed on the London Stock Exchange (25 September 2021
596,618,849 shares). The rights and obligations attaching to the ordinary
shares of the Company are contained within the Company’s Articles
of Association.
Of the issued share capital, no shares were held in treasury and the
Company’s employee share trusts held 3,846,671 shares. Details of
movements in the issued share capital can be found in note 4.7 to the
financial statements on page 166.
Each share carries the right to one vote at general meetings of the Company.
The notice of the Annual General Meeting specifies deadlines for exercising
voting rights in relation to the resolutions to be proposed at the Annual
General Meeting.
All issued shares are fully paid up and carry no additional obligations or
special rights. There are no restrictions on transfers of shares in the
Company, or on the exercise of voting rights attached to them, other than
those which may from time to time be applicable under existing laws and
regulations and under the Articles of Association. In addition, pursuant to
the Listing Rules of the Financial Conduct Authority, Directors and certain
officers and employees of the Group require the prior approval of the
Company to deal in the ordinary shares of the Company.
Participants in the Share Incentive Plan (‘SIP’) may complete a Form of
Instruction which is used by Equiniti Share Plan Trustees Limited, the SIP
Trustee, as the basis for voting on their behalf.
During the year, shares with a nominal value of £65,302 were allotted under
all-employee schemes as permitted under Section 549 of the Companies Act
2006. No securities were issued in connection with a rights issue during
the year.
The Company is not aware of any agreements between shareholders that
restrict the transfer of shares or voting rights attached to the shares.
Interests of the Directors and their immediate families in the issued share
capital of the Company as at the year end are shown on page 103 in the
Report on Directors’ remuneration.
Directors’ report
64 Gove rnance
Dividends
No Final Dividend will be paid in respect of the financial year ended
24 September 2022 (FY 2021 nil). No Interim Dividend was paid during the
year (FY 2021 nil).
On 14 February 2021, the Group reached agreement with its three
relationship banks for a new £150m three year unsecured facility. In addition,
extended waivers and amendments, applicable until January 2023, were
agreed within the Group securitisation to provide flexibility and stability to
manage the secured financing structure. Without these extensions, certain
breaches would have resulted due to the ongoing impact of Covid-19 and the
measures taken to stem the spread of the virus. Both the unsecured and
secured financing agreements were conditional on completion of the Open
Offer which took place in March 2021. In addition, on completion of the
Open Offer, the full £100m of the term loans which the Company had
secured, and drawn down, under the Coronavirus Large Business
Interruption Loan Scheme was repaid.
In securing these valuable amendments the Group has agreed not to pay an
external dividend, undertake any share buy-backs or repurchase bond debt
until January 2023 at the earliest.
In addition, the Odyzean Group has indicated that it will support a focus on
reinvesting any surplus cash in the Group’s businesses and, therefore, would
prefer the Company to prioritise debt repayment and investment in the
Group’s businesses over the payment of dividends for the foreseeable future.
Interests in voting rights
On 15 February 2021, the Company received notification of the interests of
Odyzean Limited, a new holding company formed to consolidate the
shareholdings in Mitchells & Butlers of Piedmont Inc., Elpida Group Limited,
and Smoothfield Holding Ltd. As at 24 September 2022, the Company was
aware of the significant holdings of voting rights (3% or more) in its shares
shown in Table 1 below.
Table 1: Interests in voting rights as at 24 September 2022
Shareholder Ordinary shares
% of
share capital
a
Odyzean Limited
b
338,833,695 56.72% Direct holding
Standard Life
Aberdeen plc
29,260,403 4.90% Indirect holding
Standard Life
Aberdeen plc (rights to
recall lent shares)
170,000 0.03% Indirect holding
Lansdowne Partners
(UK) LLP
29,851,841 5.00% Indirect holding
a. Based on the total voting rights figure as at 24 September 2022 of 597,383,363 shares.
b. As the parent company of each of Piedmont Inc., Elpida Group Limited and Smoothfield
Holding Ltd.
Percentages are rounded to two decimal places.
The following change took place between 25 September 2022 and
6 December 2022:
• Lansdowne Partners (UK) LLP notified the Company on 29 September
2022 that its indirect holding was 29,633,363 shares (4.96%).
Directors
Details of the Board Directors as at 6 December 2022 and their biographies
are shown on pages 62 and 63. The Directors as at 24 September 2022 and
their interests in shares are shown on page 103.
During the year, Susan Murray stepped down from the Board on 25 January
2022 and Amanda Brown was appointed to the Board on 4 July 2022.
In relation to the appointment and removal of Directors the Company is
governed by its Articles of Association and the Companies Act 2006 and
related legislation. The powers of the Company’s Directors are set out in the
Company’s Articles of Association.
In accordance with the Company’s Articles of Association (which are in line
with the best practice guidance of the 2018 Code) all the Directors will retire
at the Annual General Meeting and will offer themselves for election or
re-election as appropriate.
Major shareholder Board representation and
relationship agreement
Until February 2021, the two largest shareholders in the Company
were Piedmont Inc. (‘Piedmont’) and Elpida Group Limited (‘Elpida’). On
15 February 2021, the Company was notified that a new holding company,
Odyzean Limited (‘Odyzean’), had been formed to consolidate the
shareholdings in the Company of Piedmont, Elpida, and Smoothfield Holding
Ltd, in order to address the significant capital needs of Mitchells & Butlers
and to provide a clear and consistent framework for those shareholders’
future relationship with the Company. Odyzean confirmed that it was fully
supportive of the Mitchells & Butlers management team, and that it intended
to review the composition of the Board of Directors of Mitchells & Butlers,
and to work with the management team to ensure the strategy and structure
of the business were appropriate to optimise its long-term success and that
the time and cost devoted to public company matters were reduced.
The Board is grateful for the significant financial commitment provided by
its major shareholders for the business, together with its 1,718 pubs and
restaurants, and over 46,000 UK and German employees. The Company
maintains excellent relations with Odyzean, whose investment objectives
are fully aligned with those of the Group. Odyzean maintains a dialogue with
the Board via the representatives on the Board nominated by Piedmont and
Elpida, all of whom are careful to ensure that there is no conflict between
their roles as representatives of shareholders and their duty to the Board.
Odyzean has representatives on the Board, nominated by Piedmont and
Elpida respectively. Piedmont’s appointment rights are formalised in the
Deed of Appointment referred to in this report but there is no equivalent
agreement in place between the Company and Elpida. The Elpida
representatives were appointed with the approval of the Board in March
2012 and September 2016. The Board has carefully considered whether it
would be appropriate to enter into a formal agreement with Elpida that is
similar to the existing agreement between the Company and Piedmont.
Having taken into account the Financial Reporting Council’s report of August
2014 ‘Towards Clear & Concise Reporting’ and the views expressed
previously by certain investor representative bodies, the Board considers
that such an agreement would be merely one of form rather than substance
and not in the interests of shareholders generally. As a result, the Board does
not propose, currently, that the Company should enter into such an
agreement with Elpida, and Elpida has not, to date, sought such an agreement.
Under a Deed of Appointment between Piedmont Inc. and the Company,
Piedmont Inc. has the right to appoint two shareholder Directors to the
Board whilst it owns 22% or more of the issued share capital of the Company,
and the right to appoint one shareholder Director to the Board whilst it owns
more than 16% of the Company but less than 22%. In the event that Piedmont
Inc. owns less than 16% of the Company any such shareholder Directors
would be required to resign immediately. This Deed of Appointment also
entitles Piedmont Inc. to appoint one Director to sit on the Nomination
Committee and to have a Director attend, and receive all the papers relating
to, meetings of the Remuneration Committee.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 65
Directors’ report continued
The trustee of the Company’s SIP will invite participants on whose behalf it
holds shares to direct it how to vote in respect of those shares, and, if there is
an offer for the shares or other transaction which would lead to a change of
control of the Company, participants may direct it to accept the offer or agree
to the transaction. The trustee of the Mitchells & Butlers Employee Benefit
Trust may, having consulted with the Company, vote or abstain from voting
in respect of any shares it holds or accept or reject an offer relating to shares
in any way it sees fit, and it may take all or any of the following matters into
account: the long-term interests of beneficiaries; the non-financial interests
of beneficiaries; the interests of beneficiaries in their capacity as employees
or former employees; the interests of future beneficiaries; and considerations
of a local, moral, ethical, environmental or social nature.
The rules of certain of the Company’s share plans include provisions which
apply in the event of a takeover or reconstruction, as set out in Table 2 below.
Table 2: Provisions which apply in the event of a takeover
or reconstruction
Share plan Provision in the event of a takeover
2013 Performance
Restricted Share Plan
Awards vest pro rata to performance and
time elapsed and lapse six months later
2013 Short Term Deferred
Incentive Plan
Bonus shares may be released or
exchanged for shares in the new
controlling company
2013 Sharesave Plan Options may be exercised within six
months of a change of control
Share Incentive Plan Free shares may be released or
exchanged for shares in the new
controlling company
Restricted Share Plan 2021 Awards are automatically released and
replaced by an equivalent award in the
new controlling company
It is proposed that the Sharesave Plan, the Share Incentive Plan and the Short
Term Deferred Incentive Plan will be renewed at the 2023 AGM as their ten
year life will be expiring in January 2023 (see the Report on Directors’
remuneration for further information). The rules of the renewed share plans
will contain similar provisions regarding a takeover or reconstruction of the
Company as set out above. Full details are set out in the Notice of Meeting
accompanying this Annual Report.
Additional disclosures
Other information that is relevant to the Directors’ report, and which is
incorporated by reference into this report, can be located as follows:
Page(s)
Future developments of the business 10 to 58
Research and development 34 to 37
Financial instruments and financial risk management 150 and 152
Greenhouse gas emissions 69 to 71
Corporate governance statement 73 to 84
Employee involvement 68
Employees with disabilities 67
Non-financial reporting 10 to 58
Stakeholder engagement 75
Section 172 statement 53
On 29 July 2021, the Company confirmed that it had entered into a relationship
agreement with Odyzean, in line with the Company’s stated intentions at the
time of the Open Offer. The Company has complied with the independence
provisions of the relationship agreement as required by LR 9.2.2ADR(1) and,
so far as the Company is aware, Odyzean and any of its relevant associates
have complied (or, as applicable, procured such compliance in accordance
with LR 9.2.2BR(2)(a)) with those independence provisions.
There is a requirement to disclose the parent and ultimate controlling party
of the Company where this is different. There is no parent or ultimate
controlling party as such of Mitchells & Butlers plc. However, as disclosed in
the table of ‘Interests in voting rights’ on page 65, and the section headed
‘Major shareholder Board representation and relationship agreement’ on
page 65, Odyzean, as the holder of the separate shareholdings of Piedmont,
Elpida and Smoothfield Holding Limited has disclosed its interest in 56.72%
of the shares in the Company. Odyzean, however, does not actually hold any
shares in the Company on its own behalf.
Directors’ indemnity
As permitted by the Articles of Association, each of the Directors has the
benefit of an indemnity, which is a qualifying third-party indemnity as
defined by Section 234 of the Companies Act 2006. The indemnity was in
force throughout the tenure of each Director during the period, and is
currently in force. The Company also purchased and maintained throughout
the period Directors’ and Officers’ liability insurance in respect of itself and its
Directors and the directors of any subsidiary of the Company. No indemnity
is provided for the Company’s auditor.
Articles of Association
The Articles of Association may be amended by special resolution of the
shareholders of the Company.
Conflicts of interest
The Company’s Articles of Association permit the Board to consider and,
if it sees fit, authorise situations where a Director has an interest that conflicts,
or may possibly conflict, with the interests of the Company (‘Situational
Conflicts’). The Board has a formal system in place for Directors to declare
Situational Conflicts to be considered for authorisation by those Directors
who have no interest in the matter being considered. In deciding whether to
authorise a Situational Conflict, the non-conflicted Directors are required to
act in the way they consider would be most likely to promote the success of
the Company for the benefit of all shareholders, and they may impose limits
or conditions when giving authorisation, or subsequently, if they think this is
appropriate. The Board believes that the systems it has in place for reporting
and considering Situational Conflicts continue to operate effectively.
Related party transactions
Internal controls are in place to ensure that any related party transactions
involving Directors or their connected persons are carried out on an
arm’s-length basis and are properly recorded.
The related party transactions in FY 2022 to which the Group was party are
set out in note 5.1 to the financial statements.
Change of control provisions
There are no significant agreements which contain provisions entitling other
parties to such agreements to exercise termination or other rights in the
event of a change of control of the Company.
There are no provisions in the Directors’ or employees’ service agreements
providing for compensation for loss of office or employment occurring
because of a takeover.
66 Governance
Employee engagement
Mitchells & Butlers engages with its employees on a regular basis and in
a number of ways to suit their different working patterns and this is
discussed further in the Report on Directors’ remuneration on page 89.
Engagement includes:
• line manager briefings;
• communications forums and roadshows held by functions or brands
across the Company;
• a dedicated intranet for the Retail Support Team and Retail Management;
• ‘Mable’, the Mitchells & Butlers online learning platform;
• email news alerts;
• focus groups;
• weekly bulletins – specifically targeted at retail house managers and
mobile workers; and
• employee social media groups.
Details of the financial and economic factors affecting the performance of
the Company are shared with all employees at the appropriate time using the
methods listed above. In line with the requirements of the 2018 Code, the
Board agreed that Dave Coplin will act as a link to the Board for employees in
order to strengthen the ‘employee voice’ at the Board. This involves attending
employee forums, focus groups and providing feedback on values and
behaviours, employee development and upskilling and ensuring that
feedback is listened to and acted upon where appropriate.
As part of this role, Dave Coplin uses the insight he has gained to provide
the Board with an employee perspective across a range of issues, which the
Board considers to be very valuable. Dave meets regularly with senior
members of the Human Resources team and is also supporting the business
in how it may utilise technology to better communicate with employees.
In addition, as a member of the Remuneration Committee his insight is also
very helpful in the context of Executive pay.
Updates on employee matters are normally presented to the Remuneration
Committee or Board at least twice a year and cover a wide range of issues.
Over the course of FY 2022 these updates have focused on employee
engagement and specifically detailed feedback from the two engagement
surveys held during the year, the recruitment market, pay and conditions and
flexibility and working hours.
The Remuneration Committee is also informed where significant changes
are proposed to employment conditions and policies elsewhere in the Group,
or if there are important employee-related projects underway. More detail
on how the Remuneration Committee takes into account wider workforce
polices and the views of employees in relation to Executive pay can be found
on page 97.
We provide opportunities for employees to give their feedback to the
Company in a number of ways, from team or shift meetings in pubs,
bars and restaurants and engagement surveys for all employees to the
Mitchells & Butlers Business Forum. Business Forum representatives collect
questions from employees across the Company and put them to members
of the Executive Committee. The questions and answers are communicated
to employees.
Disclosures required pursuant to the Listing Rules can be found on the
following pages:
Page(s)
Information required by Listing Rule 9.8.4R
1. Long-term incentive schemes 89 to 106
2. Allotment of shares during the year 166
3. Significant contracts 66
4. Significant related party agreements 66
5. Relationship agreement 65 and 66
Information required by Listing Rule 9.8.6R
6. Directors’ interests 103
7. Significant shareholders (DTR 5) 65
8. Going concern statement 58
9. Statement of corporate governance 73 to 84
10. Details of Directors’ service contracts 105 and 106
11. Climate-related financial disclosures consistent
with TCFD
28 to 31
12. Board diversity 76
The Company has chosen, in accordance with section 414C(11) of the
Companies Act 2006, and as noted in this Directors’ report, to include
certain matters in its Strategic Report that would otherwise be required to
be disclosed in this Directors’ report. The Strategic Report can be found
on pages 10 to 58 and includes an indication of future likely developments
in the Company, details of important events and the Company’s business
model and strategy.
Employment policies
The Group employed an average of 45,408 people in FY 2022 (FY 2021
39,853). Through its diversity policy, the Company seeks to ensure that
every employee, without exception, is treated equally and fairly and that all
employees are aware of their responsibilities.
Our policies and procedures fully support our disabled colleagues. We take
active measures to do so via:
• a robust reasonable adjustment policy;
• disability-specific online resources (accessible via the Group’s online
recruitment system); and
• processes to ensure colleagues are fully supported.
The Group is responsive to the needs of its employees. As such, should any
employee of the Group become disabled during their time with us, we will
actively retrain that employee and make reasonable adjustments to their
working environment where possible, in order to keep the employee with
the Group. It is the policy of the Group that the recruitment, training, career
development and promotion of disabled persons should, as far as possible,
be identical to that of other employees.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 67
Directors’ report continued
Share ownership
Mitchells & Butlers is keen to encourage greater employee involvement in
the Group’s performance through share ownership. It operates two HMRC
approved all-employee plans, which are the 2013 Sharesave Plan and the
Share Incentive Plan (which includes Partnership shares). Further details on
the plans are set out in the Report on Directors’ remuneration on pages 89
to 106.
The Company also operates three other plans on a selective basis, which are
the 2013 Performance Restricted Share Plan, the 2013 Short Term Deferred
Incentive Plan and the Restricted Share Plan 2021. The 2013 Sharesave Plan,
the Share Incentive Plan and the 2013 Short Term Deferred Incentive Plan
will all reach the end of their respective lives for grant purposes in 2023 and
accordingly, resolutions for their respective renewal will be put to the 2023
Annual General Meeting. Full details are set out in the accompanying Notice
of Meeting.
During the year, the Company has remained within its headroom limits for
the issue of new shares for share plans as set out in the rules of the above
plans. The Company uses an employee benefit trust to acquire shares in the
market when appropriate to satisfy share awards in order to manage
headroom under the plan rules. A total of 1,000,000 shares in the Company
were purchased by the employee benefit trust during FY 2022.
Responsible alcohol policy
Mitchells & Butlers operates the Challenge 21 policy in all our businesses
across England and Wales, a Challenge 25 policy in our Scottish businesses
and similar policies in Northern Ireland and Germany. The policy requires
that any guest attempting to buy alcohol who appears under the age of 21
in England, Wales or Northern Ireland (or 25 in Scotland) must provide an
acceptable form of proof of age ID to confirm that they are over 18 before
they can be served. We employ similar policies across the various regions
of Germany in order to comply with local laws.
All of these policies form part of our regular training for our employees on
their responsibilities for serving alcohol.
Political donations
The Company made no political donations during the year and intends
to maintain its policy of not making such payments. It will, however,
as a precautionary measure to avoid inadvertent breach of the law,
seek shareholder authority at its 2023 AGM to make limited donations
or incur limited political expenditure, although it has no intention of using
the authority.
Modern Slavery Act 2015
In accordance with the requirements of the Modern Slavery Act, during the
period the Board reviewed, updated and approved the Company’s Modern
Slavery Act compliance statement, which was signed on behalf of the Board
by Phil Urban. A copy of that statement can be accessed on the Company’s
website, www.mbplc.com.
This statement covers the Company’s commitment to operating and
conducting its business in such a way that human rights are respected and
protected. Mitchells & Butlers will not permit or condone any form of slavery,
servitude, forced or compulsory labour or human trafficking. It clearly states
how the Company is committed to ensuring that there is no modern slavery
or human trafficking in its supply chains or in any part of its businesses and
this is reflected in the Mitchells & Butlers Modern Slavery & Human
Trafficking Policy and Supplier Code of Conduct. The statement also covers
due diligence processes for slavery and human trafficking, supply chain
accountability, Company accountability (including ethical and socially
responsible conduct in the workplace), training and information and
reviewing key performance indicators to measure how effective we have
been to ensure that slavery and human trafficking is not taking place in any
part of our business and supply chain, in terms of record keeping and actions
taken to strengthen supply chain due diligence, auditing and verification.
Phil Urban has ultimate responsibility for employment-related issues and he
also oversees matters relating to human rights including the implementation
of the Modern Slavery Act throughout the Group.
The Mitchells & Butlers ‘People Promise’
Our clearly defined people promise enables us to differentiate our
employment proposition, and the diagram below illustrates in more detail the
elements of our people promise. Clearly, pay is a very important element but
other factors also play an important part of the overall value proposition,
which is known internally as our ‘People Promise’.
Our people value opportunities for progression, challenge within their
role, fair rewards and a safe working environment. Our research has also
shown that, in normal times, unlike some industries and employers,
Mitchells & Butlers offers a number of important differentiators which our
employees value:
• Flexibility and convenience: Mitchells & Butlers has always promoted
a flexible approach to working from the frontline through to our support
centre. The Covid-19 pandemic has further demonstrated how flexibility
and convenience are ever more important factors for employees across
all employee groups.
• More job satisfaction: As part of our research, we learnt that working for
Mitchells & Butlers gave employees a strong sense of family and that
employees put a high value on the day-to-day variety of work. This
comes through very strongly in our survey results.
• A great atmosphere: Undoubtedly working in hospitality, especially at the
frontline, is hard work. However, we also know that it can be great fun.
Our aim at Mitchells & Butlers is to make the working environment as fun
and friendly as possible whilst ensuring that guests receive great service.
It remains the case that employees have begun to reassess what is important
to them and their work following the Covid-19 pandemic and now in
response to cost of living pressures. In addition, other industries have been
able to demonstrate how they now can offer careers that provide some
elements of our proposition in a way not seen before, for example through
very flexible working arrangements. It is therefore important to review and
refresh our research so that our ‘People Promise’ evolves and remains
relevant to current and prospective team members.
We expect ourpeople to
SERVE WITH PRIDE
(as they have since 1898!)
Like many employers, opportunities for progression,
challenge, fair rewards & safety and security
A better lifestyle,
because of the flexibility
and convenience
More job satisfaction,
because of the sense of community,
the feeling of belonging, the shared
purpose, the variety of work and
pride in their achievements
A great atmosphere,
because it’s both fun
and friendly
All this adds up to our
big promise – that you’ll
But unlike many employers, also:
In return, we offer:
F
U
N
68 Governance
Going concern
After considering forecasts, sensitivities and mitigating actions available to
management and having regard to risks and uncertainties, the Directors have
a reasonable expectation that the Group has adequate resources to continue
to operate within its borrowing facilities and covenants for a period of at least
12 months from the date of signing the financial statements. However, given
the prevailing high level of unpredictability and uncertainty concerning both
sales and, particularly, cost inflation, the Directors have concluded that a
material uncertainty exists which may cast significant doubt over the Group’s
ability to trade as a going concern, in which case it may be unable to realise its
assets and discharge its liabilities in the normal course of business.
Accordingly, the financial statements continue to be prepared on the going
concern basis but with material uncertainty arising from the impact of
macroeconomic factors on the Group’s compliance with financial covenants
and its liquidity. Full details are included in note 1.
Events after the balance sheet date
There are no post-balance sheet events to report.
Greenhouse gas (‘GHG’) emissions statement
The Group generates GHG emissions throughout its estate of bars and
restaurants for heating, cooling, lighting and catering including the
refrigeration and preparation of food and drink.
Both location and market-based GHG emissions per £m turnover have
decreased by 32% in FY 2022 in comparison to FY 2021. However, the
absolute emissions for Scope 1 and 2 (location and market-based) emissions
have increased by 41%. This is due to the following key factors:
1. During the first quarter of FY 2021, Covid-19 regulations were in place
and lockdowns were imposed which restricted operations across the
estate and led to our sites being closed to the public for prolonged
periods during what is usually a peak trading season. This resulted in a
reduction in energy use and subsequent emissions, as well as a significant
reduction in turnover. Both factors had an impact on the FY 2021
intensity ratio.
2. Operational levels returned to normal during FY 2022, and as a result
we have seen a significant year-on-year increase in absolute emissions
as growth in trading levels led to more energy being consumed across
the estate.
3. A 32% reduction in the intensity ratio has been realised through the
efficiency measures that we have rolled out, in combination with the
significant increase in revenue generated in FY 2022.
We have also continued with our commitment to purchase a green,
REGO-backed supply of electricity, with all UK sites supplied by electricity
generated from renewable sources. Further information on our sustainability
targets can be found on pages 32 and 33.
Annual General Meeting
The notice convening the Annual General Meeting is contained in a circular
sent to shareholders with this report and includes full details of the
resolutions proposed.
Auditor
A competitive audit tender took place in June 2021, following which KPMG
LLP was selected to become the auditor to the Company in respect of
FY 2022 and this was approved by shareholders at the 2022 Annual General
Meeting. KPMG LLP has expressed its willingness to continue in office as
auditor of the Company and its reappointment will be put to shareholders
at the AGM.
Funding and liquidity risk
In order to ensure that the Group’s long-term funding strategy is aligned
with its strategic objectives, the Treasury Committee regularly assesses the
maturity profile of the Group’s debt, alongside the prevailing financial
projections and three year plan. This enables it to ensure that funding levels
are appropriate to support the Group’s plans.
The current funding arrangements of the Group consist of the securitised
notes issued by Mitchells & Butlers Finance plc (and associated liquidity
facility) and £150m of unsecured committed bank facilities (reduced by
£100m during the prior year as part of the Open Offer and refinancing).
Further information regarding these arrangements is set out on page 58 and
is also included in note 4.1 to the financial statements on page 148. The terms
of the securitisation and the bank facilities contain a number of financial and
operational covenants. Compliance with these covenants is monitored by
Group Treasury. As set out on page 52 (Assessment of viability) and the note
to the financial statements on going concern, as part of the refinancing
arrangements entered into during FY 2021 a number of waivers and
amendments were agreed, as described on page 121.
The Group prepares a rolling daily cash forecast covering a six-week period,
a four-weekly update on six-month forward-looking cash forecasts and
an annual cash forecast by period. These forecasts are reviewed and used
to manage the investment and borrowing requirements of the Group.
A combination of cash pooling and zero balancing agreements is in place to
ensure the optimum liquidity position is maintained. Committed facilities
outside of the securitisation are sized to ensure that the Group can meet its
medium-term anticipated cash flow requirements. Short-term cash
management is optimised through regular discussions considering projected
cash inflows and outflows.
During the year, the Group completed the necessary amendments to
transition its financing arrangements in advance of the discontinuation of
LIBOR as a floating reference rate, replacing LIBOR with a SONIA-based
rate in respect of sterling and a SOFR-based rate in respect of US dollars.
The amendments in respect of the securitised bonds were agreed by the
Bondholders through a formal consent solicitation process and bilateral
agreements were reached with securitised swap and liquidity facility
providers (using amended reference rates consistent with those agreed
under the bonds). The unsecured committed facility was arranged on a
SONIA basis in February 2021, so did not require any further amendment.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 69
Directors’ report continued
Table 3: Mitchells & Butlers’ carbon reporting disclosure
Assessment parameters
Assessment year FY 2022
Consolidation approach Financial control
Boundary summary All bars and restaurants either owned or under operational control during FY 2022 were included.
Scope General classifications of greenhouse gas emissions scopes based on the GHG protocol and ISO14064-1:2006 within the
context of the Group’s operations are as follows:
Scope 1 – direct greenhouse gas emissions from sources that are owned or controlled by the Group, e.g., fuel combustion
of varying types, occurs during kitchen activity and to generate heating and domestic hot water most commonly through
natural grid supplied gas, but also some LPG (Liquefied Petroleum Gas) and oil. Real fires fuelled by logs or coal are also
used to supplement customer comfort and enhance ambience.
Scope 2 – GHG emissions from the generation of purchased electricity used during kitchen activity and for lighting,
heating and cooling.
Scope 3 – indirect emissions from activities up and down the Group’s value chain but occurring from sources not owned
or controlled by the Group.
This assessment focuses on Scope 1 and 2 emissions only (Scope 3 is optional under the current regulations).
Consistency with the
financial statements
Scope 1 and 2 emissions are reported for both FY 2022 and FY 2021 on a financial year basis.
Franchise sites are excluded as they are responsible for arranging and paying for their own energy.
Alex sites in Germany are included. Emissions are based on UK-average emissions per outlet multiplied by the number
of Alex sites. These sites make up the non-UK aspect of this report.
Exclusions Scope 1 – Wood, charcoal, and kerosene are excluded because each of these amounts to less than 1% of total emissions
which falls below the materiality threshold.
Scope 1 – Corporate mileage is excluded because collectively it amounts to less than 1% of total emissions which falls
below the materiality threshold.
Emission factor data source All carbon emission factors used are sourced from the UK Government GHG conversion factors for company
reporting 2022.
Assessment methodology Environmental Reporting Guidelines: including Streamlined Energy and Carbon Reporting Guidelines March 2019.
Materiality threshold All emission types estimated to contribute >1% of total emissions are included.
Estimation Scope 1 – Fugitive Emissions are partially estimated due to unknown quantities and gas types for some sites.
Scope 1 & 2 – Electricity & Gas consumption uses a pro-rata estimate for supplies that do not have complete data in the
reporting year.
Intensity threshold Emissions are stated in tonnes CO
2
e per £m revenue. This intensity ratio puts emissions into context given the scale of the
Group’s activities and enables comparison with prior year performance.
The intensity ratio for FY 2021 has been revised to include global as well as UK and offshore total emissions.
Target Emissions during FY 2021 are provided for comparative purposes.
Energy efficiency action taken
With the easing of Covid regulations and a return to normal operations, we had forecast an increase in energy consumption across the estate in FY 2022.
We therefore took the initiative to appoint energy ambassadors in every geographical district to effectively manage our energy consumption. Our energy
ambassadors are trained to support General Managers to investigate and resolve issues resulting in energy exceedances and to identify opportunities for
optimising energy use and reducing consumption. We have also invested in improving the efficiency of our heating systems and in technology to reduce
consumption, including voltage optimisers.
Commentary
Both location and market based reporting methodologies are used. Scope 2 location-based emissions use UK grid average emissions. Scope 2 market-based
emissions account for the electricity purchased within the UK portfolio from REGO backed sources which result in zero emissions.
For transparency we have reported two intensity ratios: a location-based ratio and a market-based ratio for both Scope 1 and 2 emissions.
70 Governance
Global GHG emissions and energy use data for FY 2022
Current reporting year FY 2022 Comparison reporting year FY 2021
UK and
offshore
Global
(excluding UK
and offshore) Total
UK and
offshore
Global
(excluding UK
and offshore) Total
% Change
year-on-year
Scope 1 tCO
2
e
(location-based) 84,892 2,386 87,278 60,234 1,652 61,886 41%
Scope 2 tCO
2
e
(location-based) 63,876 1,795 65,671 45,205 1,240 46,445 41%
Total Scope 1 & 2 emissions tCO
2
e
(location-based) 148,768 4,181 152,949 105,439 2,892 108,331 41%
Total Scope 1 & 2 emissions tCO
2
e
(market-based) 84,892 4,181 89,073 60,371 2,892 63,263 41%
Energy Consumption used to calculate
the above emissions: kWh 742,837,490 20,879,255 763,716,745 512,119,253 14,048,159 526,167,412 45%
Intensity Ratio: tCO
2
e/turnover(£m)
– (location-based)
a
– – 69 – – 102 -32%
Intensity Ratio: tCO
2
e/turnover(£m)
– (market-based)
a
– – 40 – – 59 -32%
a. Intensity ratios based on the turnover for FY 2021 of £1,065m and for FY 2022 of £2,208m.
Note: intensity ratio for FY 2021 has been revised to include global as well as UK and offshore total emissions.
Disclosure of information to auditor
Having made the requisite enquiries, so far as the Directors are aware, specifically those who are a Director at the date of approval of the Annual Report, there
is no relevant audit information (as defined by Section 418(3) of the Companies Act 2006) of which the Company’s auditor is unaware and each Director has
taken all steps that ought to have been taken to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware
of that information.
This report, which includes the Strategic Report, has been approved by the Board and is signed on its behalf.
Andrew Freeman
Group General Counsel and Company Secretary
6 December 2022
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 71
Statement of Directors’ responsibilities in
respect of the Annual Report and Accounts
Company law requires the Directors to prepare Group and parent Company
financial statements for each financial year. Under that law they are required
to prepare the Group financial statements in accordance with UK-adopted
international accounting standards and applicable law and have elected to
prepare the parent Company financial statements on the same basis.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and parent Company and of the Group’s profit or loss for
that period. In preparing each of the Group and parent Company financial
statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant
and reliable;
• state whether they have been prepared in accordance with UK-adopted
international accounting standards;
• assess the Group and parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern; and
• use the going concern basis of accounting unless they either intend to
liquidate the Group or the parent Company or to cease operations, or
have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the parent Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the
parent Company and enable them to ensure that its financial statements
comply with the Companies Act 2006. They are responsible for such internal
control as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or
error, and have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible
for preparing a Strategic Report, Directors’ Report, Report on Directors’
Remuneration and Corporate Governance Statement that complies with
that law and those regulations.
The Directors are responsible for
preparing the Annual Report and Accounts
and the Group and parent Company
financial statements in accordance with
applicable law and regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
In accordance with Disclosure Guidance and Transparency Rule 4.1.14R,
the financial statements will form part of the annual financial report prepared
using the single electronic reporting format under the TD ESEF Regulation.
The Auditor’s report on these financial statements provides no assurance
over the ESEF format.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the applicable set
of accounting standards, 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; and
• the Strategic Report includes a fair review of the development and
performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they face.
We consider the Annual report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Group’s position and performance, business
model and strategy.
Tim Jones
Chief Financial Officer
6 December 2022
72 Govern ance
Corporate
governance
statement
“This statement sets out our report to
shareholders on the status of our
corporate governance arrangements.”
Bob Ivell
Chairman
The Board is responsible for ensuring that the activities
of the Group and its various businesses are conducted in
compliance with the law, regulatory requirements and
rules, good practices, ethically and with appropriate and
proper governance and standards.
This includes reviewing internal controls, ensuring
that there is an appropriate balance of skills and
experience represented on the Board, compliance
with the applicable UK Corporate Governance
Code, which is issued by the Financial Reporting
Council and which is available at www.frc.org.uk,
and maintaining appropriate relations with
shareholders and other stakeholders.
The latest financial information for Mitchells &
Butlers and its Group of companies is included
in the 2022 Annual Report and Accounts
(of which this Corporate Governance Statement
forms part) and which is available online at:
www.mbplc.com/investors.
Shareholder relations
The Board recognises that it is accountable to
shareholders for the performance and activities
of the Company. The Company regularly updates
the market on its financial performance, at the half
year and full year results in May and December
respectively, and by way of other announcements
as required. The content of these updates is
available by webcast on the Company’s website
www.mbplc.com, together with general
information about the Company so as to be
available to all shareholders. The Company has
a regular programme of dialogue with its larger
shareholders which provides an opportunity to
discuss, on the basis of publicly available
information, the progress of the business.
On a more informal basis, the Chairman, the Chief
Executive and the Chief Financial Officer regularly
report to the Board the views of larger shareholders
about the Company, and the other Non-Executive
Directors are available to meet shareholders on
request and are offered the opportunity to attend
meetings with larger shareholders.
The AGM provides a useful interface with
shareholders, many of whom are also guests in
our pubs, bars and restaurants. All proxy votes
received in respect of each resolution at the AGM
are counted and the balance for and against, and
any votes withheld, are indicated.
At the January 2022 Annual General Meeting,
the Company had four resolutions where 20%
or more of votes cast were cast against the
resolution. These were in respect of the annual
report on remuneration, and the re-election of
Bob Ivell (Chairman), Eddie Irwin and Josh Levy,
and resulted in the Company featuring in the
Investment Association’s public register of
shareholder dissent. The Company’s response
to its inclusion in that register can be found in
the register itself and on the Company’s website
www.mbplc.com.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 73
Corporate governance statement continued
Corporate governance code reporting
For FY 2022, the Company has reported under the 2018 Code.
Its requirements are:
1. enhanced board engagement with the workforce and wider
stakeholders, including describing how the Company complies with its
obligations to take into account stakeholder views pursuant to Section
172 of the Companies Act 2006;
2. demonstration of a clear business strategy aligned with a healthy
corporate company culture;
3. a high-quality and diverse board composition; and
4. proportionate executive remuneration that supports the long-term
success of the business.
The Board established a Corporate Responsibility Committee in June 2019.
The purpose of this Committee is to allow more executive, leadership and
functional management involvement in key areas of significant importance
including environmental impacts of the Group’s activities, community
relationships and the role of the Company in society. The existence of this
Committee demonstrates a significant commitment to the enhancement of
governance in general and matters such as stakeholder engagement. More
details of this Committee and its membership are set out on page 81 and its
Terms of Reference are on the Company’s website www.mbplc.com.
Alignment to the 2018 Code
As part of its alignment with the 2018 Code, the following operational and
administrative framework is in place.
1. Enhanced Board engagement with the workforce and
wider stakeholders
The 2018 Code recommends that the Board should consider wider
stakeholder views, in particular implementing arrangements for gathering
the views of the workforce. The 2018 Code permits a designated Non-
Executive Director to fill this role and in 2019 the Board designated Dave
Coplin for this role. The purpose of this appointment under the 2018 Code
is to gather employee views, ensure employee views are taken into account
in Board discussions and decision-making, and engage with the workforce
to explain how executive remuneration aligns with the Company’s
remuneration policy. This commenced in FY 2019 with Dave Coplin being
introduced to those executive managers who could help ensure that
meetings and site visits were effective. Progress has continued to date,
albeit delayed during lockdown, given social distancing requirements.
Mitchells & Butlers has an Employee Forum with elected representatives
which normally meets with the Executive Directors and members of the
Executive Committee twice a year. Dave Coplin also attends these meetings.
During FY 2022 two meetings were held in March and September.
Questions from the workforce in general are sought through the intranet to
seek areas of concern or enquiry and to enable the Company to respond.
The Employee Forum will, from time to time, be provided with an overview
of how executive pay is aligned with the Company’s strategic objectives.
The Terms of Reference of the Employee Forum reflect this. Further details
on employee engagement can be found in the Report on Directors’
remuneration on page 89.
The results of regular Board roadshows are used to update managers on
performance and the latest developments affecting the Group, and
employee feedback is included in Board papers where appropriate as part
of the decision-making process.
The UK Corporate Governance Code (the ‘Code’) contains best practice
recommendations in relation to corporate governance yet acknowledges
that, in individual cases, these will not all necessarily be appropriate for
particular companies. Accordingly, the Code specifically recognises the
concept of ‘comply or explain’ in relation to divergences from the Code
which reflect the specific circumstances of individual companies.
“The Code does not set out a rigid set of rules; instead, it offers flexibility
through the application of Principles and through ‘comply or explain’
Provisions and supporting guidance. It is the responsibility of boards to use
this flexibility wisely and of investors and their advisors to assess differing
company approaches thoughtfully.”
Susan Murray stepped down from the Board following the AGM on
25 January 2022, and Amanda Brown was appointed to the Board on 4 July
2022. The Company confirms that the external search consultancy services
of Spencer Stuart (an external search consultancy the Company has engaged
from time to time) were engaged in connection with Amanda’s appointment,
and that there is no other connection between Spencer Stuart and the
Company, its Board, or any of its Directors. No other changes to the Board
were made during the year and the Board currently consists of nine
members, three of whom are independent Non-Executive Directors
(including two female independent Non-Executive Directors). A more
detailed explanation is set out at page 75.
Corporate governance arrangements during FY 2022 in
response to the ongoing effects of Covid-19 and the emergence
of the Omicron variant
After the removal of the pandemic-related restrictions, during FY 2022
the Company reverted to its normal pre-pandemic corporate governance
arrangements, and the Board maintained its regular set of scheduled
meetings, with adjustments and flexibility to reflect the often-changing
operating and trading environment, particularly in relation to supply chain
shortages and the Omicron variant. The details of the numbers of meetings
of the Board and the Audit and Remuneration Committees in the period are
set out on page 78.
The Executive Committee, which is the principal operational decision-
making forum of the Group, continued with its monthly cycle of meetings in
FY 2022, and the output of its meetings was reported to the Board. The
Executive Committee addressed in particular all stakeholder arrangements
including the relationships and dialogue with employees, shareholders,
supplier arrangements and the Group’s pension arrangements.
Employee wellbeing arrangements and workplace implications:
The Company has an established wellbeing strategy that encompasses five
pillars of wellbeing; social, environmental, physical, mental and financial.
Within these pillars there are a range of resources and tools available for line
managers and employees to access, including:
• our employee assistance programme which is run by the Licensed Trade
Charity. They operate a free, 24/7 confidential helpline and a website
available to all employees.
• an online wellbeing centre that provides access to workout videos,
nutritional advice, financial wellbeing tools and mindfulness and
meditation videos and articles.
• financial wellbeing tools and support via Nudge.
• mental health training available for all line managers to assist them in
supporting their teams. In addition the business has trained a number
of mental health first aiders.
• wellbeing days and events, which are now often held virtually and
this will enable all employees to participate in the various activities
and workshops.
74 Governance
Principle B and Provisions 1 and 2 of the 2018 Code require the Board to:
• describe how opportunities and risks to the future success of the
business have been considered and addressed, the sustainability of the
Company’s business model and how its governance contributes to the
delivery of its strategy;
• establish the Company’s purpose, values and strategy, ensure that these
and its culture are aligned and describe the activities the Board takes to
monitor and implement this culture; and
• describe the Company’s approach to investing in and rewarding
its workforce.
Details of how the Board achieves these are given in the Strategic Report on
pages 10 to 58.
c. Training and awareness
There is an induction process for all Directors on appointment and the
Group General Counsel and Company Secretary is available to all Directors,
whether of the Company or any of the subsidiaries, for consultation and
guidance on matters of governance in relation to any aspects of the affairs of
any part of the Group. As circumstances or new areas develop, whether in
the operations of the business or externally, appropriate training will be
considered to ensure that each Director is involved in decision-making and
oversight with the benefit of the correct amount of knowledge as to what is
relevant for consideration.
The induction process ensures that Directors are aware of, and understand,
the requirements under Section 172. Nevertheless, in April 2019, a
comprehensive guide was sent to all subsidiary Directors to provide training
below Board level in relation to Section 172 requirements, focusing on how
such considerations should be documented in the future, to ensure a proper
understanding of what needs to be considered and what evidence is
required to be presented when putting proposals to the Board.
Ongoing training and guidance on their responsibilities continues to be
provided to subsidiary company Directors.
d. Information
Board paper procedures now contain specific references to the factors
referred to in Section 172 of the Companies Act 2006, so they can be
brought to the Board’s attention where appropriate.
e. Policies and processes
The business has an existing comprehensive suite of policies and processes
across a wide spectrum of its operations and practices and these are
updated, revised and re-communicated regularly.
f. Stakeholder engagement
Engagement with the workforce is addressed above and engagement with
guests is dealt with through the Guest Health initiatives and this is explained in
our Value Creation story on pages 38 to 41. Engagement with key, critical
suppliers is addressed through the supplier segmentation tiering process
where we consult with suppliers on a regular basis. This varies from monthly
interaction to annual reviews, depending on where the supplier appears on
the Company’s tier 1 to tier 4 ranking (which is a multi-factor process involving
criticality, volume, spend size and availability of substitute products).
3. Board composition and diversity
a. Board composition
The Board is currently comprised of nine members whose biographies are
outlined on pages 62 and 63. These are the Chairman, Chief Executive and
Chief Financial Officer, three independent Non-Executive Directors
and three Non-Executive Directors nominated by the Company’s largest
shareholders who are part of the Odyzean Group. Of these, two
independent Non-Executive Directors, representing 22% of the Board’s
Directors are female, one of whom is also the Senior Independent Director.
The Chairman, Bob Ivell, has served on the Board since May 2011. Susan
Murray did not put herself forward for re-election at the AGM on 25 January
2022 and with effect from the end of the 2022 AGM, Jane Moriarty replaced
her as Senior Independent Director.
2. A clear business strategy aligned with a healthy corporate
company culture
In July 2018 the Financial Reporting Council published ‘Guidance on the
Strategic Report’, strengthening the link between the purpose of the
Strategic Report and the Directors’ duty under Section 172 of the Companies
Act 2006, to promote the success of the Company. The requirement under
the Companies Act 2006 is that the Strategic Report must inform members
of the Company, and help them assess, how the Directors have performed
their duty under Section 172 to promote the success of the Company. The
revised guidance encourages companies to consider the broader matters
that may impact upon the performance of the Company over the longer term
including the interests of wider stakeholders, and it is now established
Mitchells & Butlers practice that strategic proposals put to the Company’s
Board meetings include a requirement to consider the Directors’ duties
under Section 172. A detailed explanation of the manner in which the Board
has discharged its responsibilities under Section 172 is set out in the
Compliance Statements on pages 53 and 54.
The specific provisions of Section 172 require Directors to act in the way they
consider, in good faith, would be most likely to promote the success of the
Company for the benefit of its members as a whole and, in doing so, have
regard to the interests of other stakeholders. The specific requirements of
Section 172 are that Boards should consider:
• the likely consequences of decisions in the long term;
• the interests of the Company’s employees;
• the fostering of business relationships with suppliers, customers
and others;
• the impact of the Company’s operations on the community and the
environment;
• the desirability of the Company maintaining a reputation for high
standards of business conduct; and
• the need to act fairly as between members of the Company.
The 2018 Code specifically requires that the Board should understand the
views of the Company’s key stakeholders (including employees, suppliers,
customers and others) and keep stakeholder engagement mechanisms
under review so they remain effective. The 2018 Code also recommends
that there should be regular reporting as to how the Board has complied with
this engagement approach in its decision-making processes and how the
interests of different shareholders have been considered. The 2018 Code
sets out a series of aspects to be taken into account in demonstrating the
Board has complied with its Section 172 responsibilities. These are listed
below, together with Company procedures which align Mitchells & Butlers’
corporate behaviour with the spirit and values of the 2018 Code and how the
Board has employed its oversight of the Company’s purpose. This purpose is
set out in more detail in the Strategic Report.
a. Culture
Mitchells & Butlers has in place a set of PRIDE values of Passion, Respect,
Innovation, Drive and Engagement which underpin its key priorities of
People, Practices, Profits and Guests. The Board observes these PRIDE
values in discharging its everyday responsibilities and considering decisions
and proposals and encourages all levels of the organisation to do so.
b. Strategy
In demonstrating that the Board is promoting the success of the Company
and taking decisions with regard to their long-term impact, the Board must
ensure it has in place, and regularly reviews, its agreed strategy.
Developments arising from the strategy review are followed up, documented
and, on a regular basis, the Board reviews whether the Company is operating
in line with that strategy and/or there needs to be a revision of the strategy to
reflect external, and possibly internal, changes in the dynamics of the
business. Board papers refer to whether they reflect a proposal that is aligned
to, or diverges from, the agreed strategy.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 75
Corporate governance statement continued
Explanation for non-compliance with parts of the Code
The current Board consists of the two Executive Directors and the Chairman,
the three Independent Non-Executive Directors and three representative
directors of the Odyzean Group which holds approximately 57% of the
issued share capital. The Board does not currently intend to change this
arrangement, and believes that, despite not strictly complying with the 2018
Code, the current structure strengthens corporate governance as it is both
representative of the Company’s shareholder base and demonstrates the
Odyzean Group’s ongoing commitment and support to the overall strategy
and management of the Company.
The assessment of the composition of the Board and its Committees and the
Chairman’s tenure should be considered in the context of the explanation
already set out under the heading of ‘Board composition and diversity’ on
page 75.
During the year, there were four separate areas of divergence from full
compliance with the 2018 Code, as set out below by reference to specific
paragraphs in the 2018 Code.
1. Chairman’s tenure (Provision 19)
Provision 19 of the 2018 Code states:
“The chair should not remain in post beyond nine years from the date of their
first appointment to the board. To facilitate effective succession planning and
the development of a diverse board, this period can be extended for a limited
time, particularly in those cases where the chair was an existing non-
executive director on appointment. A clear explanation should be provided.”
Bob Ivell was appointed to the Board in May 2011 and, as such, his
appointment extended beyond the normal nine-year tenure, which expired
in May 2020. The Board had already reviewed this in advance in 2019 and
concluded that it was appropriate that he should remain in place as
Chairman. The extraordinary events of 2020, which continued into 2021,
and the ongoing challenges which the Group has faced as a result of the
Covid-19 pandemic, have made it clear that the decision to confirm that
Mr Ivell should remain in place, allowing him to co-ordinate the Board’s
oversight of the senior executive team’s response to the pandemic, was the
correct one.
Mr Ivell’s extensive industry experience and his involvement with such
influential bodies as UK Hospitality, have been of great assistance to the
Company in addressing the ongoing challenges of energy prices, inflationary
cost pressures, the demanding trading environment and dampened
consumer confidence. The requirement for a stable and experienced Board
in such circumstances, and it being an inappropriate time for the Board to be
considering changes in the existing arrangements, meant that no further
consideration was given in FY 2022 to Provision 19 of the 2018 Code, in
relation to Bob Ivell’s Chair tenure. This will remain the case while the
Company continues to deal with the rebuilding of its business.
2. Composition of the Board (Provision 11)
Throughout the year, Provision 11 of the 2018 Code, which requires that at
least half the board, excluding the chair, should be non-executive directors
whom the board considers to be independent, was not complied with.
Accordingly, this had consequential implications on the composition of the
Nomination, Audit and Remuneration Committees.
The Board does not comply fully with the requirement for at least half of its
members to be independent, due to the presence of three shareholder
representatives on the Board, representing members of the Odyzean Group.
These shareholders maintain a dialogue via their representatives on the
Board, all of whom are careful to ensure that there is no conflict between
that role and their duty to the Board and other shareholders.
The Board acknowledges that this level of gender diversity and the
Chairman’s period of tenure on the Board do not meet the expectations
of the Davies Report, the Hampton-Alexander Review, the best practice
recommendations of the UK Corporate Governance Code or some
shareholders and, whilst this overall composition of the Board remains
a matter for continuous review, it should be noted that in its Open Offer
Prospectus, the Company confirmed that the Odyzean Group had indicated
that it would disregard specific corporate governance requirements around
tenure and that it expected the Board to focus on retaining and acquiring skill
sets amongst the Non-Executive Directors that are required to optimise the
development of the business going forward.
The Company has not received any indication of a change in approach on
these issues by the Odyzean Group.
b. Board diversity
Principle J of the 2018 Code states that boards are encouraged to ‘promote
diversity of gender, social and ethnic backgrounds, cognitive and personal
strengths’ through their appointments and succession planning. The
purpose is to ensure that there is a balance of views from different genders
and other experiences and skill sets around the board table so that
decision-making can be made with good oversight of all relevant factors.
Dave Coplin has been identified by the Board as the Director responsible
for oversight of the Company’s Diversity and Inclusion arrangements. The
Company has had a Board Diversity Policy in place for some time, but during
FY 2019 it was also agreed that talent pipeline presentations to the Board
should include the extent to which diversity aspects have been taken into
account in development plans/recruitment, and that ethnicity and disability
reporting should be addressed, to the extent that the Company has reliable
data. Talent pipeline presentations were put on hold during Covid-19
restrictions, but resumed in FY 2021 and continued in FY 2022.
Gender Pay Gap data is already overseen by the Remuneration Committee
and details are set out on page 95 of the Report on Directors’ remuneration.
4. Proportionate executive remuneration
This is dealt with on pages 95 and 104 of the Report on Directors’
remuneration.
Corporate governance
The Board is committed to high standards of corporate governance. The
Board considers that the Company has complied throughout the year ended
24 September 2022 with all the Provisions and best practice guidance of the
2018 Code except certain specific aspects related to Chairman’s tenure,
Board composition, the constitution of Board Committees and a Board
effectiveness review. This Corporate Governance Statement addresses the
areas where, for reasons specific to Mitchells & Butlers, there are
divergences from the 2018 Code as described below.
The Audit Committee report and Nomination Committee report, which are
set out on pages 85 to 88 and page 80 respectively of the Annual Report,
also form part of this Corporate Governance Statement and they should all
be considered together.
The Board recognises the importance of good corporate governance in
creating a sustainable, successful and profitable business and details are set
out in this statement of the Company’s corporate governance procedures
and application of the principles of the 2018 Code. There are, however, a
small number of areas where, for reasons specifically related to the Company,
the detailed Provisions of the 2018 Code were not fully complied with in
FY 2022. These areas are kept under regular review. A fundamental aspect
of the 2018 Code is that it contains best practice recommendations in relation
to corporate governance yet acknowledges that, in individual cases, these
will not all necessarily be appropriate for particular companies. Accordingly,
the 2018 Code specifically recognises the concept of ‘comply or explain’ in
relation to divergences from it.
Compliance with the Code
Except for the matters which are explained below (in line with the ‘comply
or explain’ concept), the Company complied fully with the Principles and
Provisions of the 2018 Code throughout the financial year in respect of
which this statement is prepared (and continues to do so as at the date of
this statement).
76 Governance
4. Board Effectiveness Review (Provision 21)
In light of the circumstances in which the Company was operating, and as
reported on page 76, the Chairman, has kept the skills, contributions and
experience of the Board members under close review throughout FY 2022.
An externally facilitated Board evaluation is recommended to be carried out
every three years and last took place in FY 2018. In view of the ongoing
issues caused by Covid-19 and its knock-on effects which are still affecting
the business together with the energy price challenges and supply chain
issues arising from the war in Ukraine, the Board took the decision not to
proceed with an evaluation during FY 2022, either internal or externally
facilitated. The Board will consider if it is appropriate to carry out such an
evaluation, whether internal or using an external facilitator, in FY 2023.
The information required by Disclosure Guidance and Transparency Rule
(‘DTR’) 7.1 is set out in the Audit Committee report on pages 85 to 88.
The information required by DTR 7.2 is set out in this Corporate Governance
Statement, other than that required under DTR 7.2.6 which is set out in the
Directors’ report on pages 64 to 71.
Board composition
The Board started the year with nine Directors. During the year Susan
Murray resigned and Amanda Brown was appointed to the Board, and the
table on page 78 lists the composition of the Board during the year.
As indicated on page 76, at the present time, no further significant changes
to the leadership and oversight of the Group by its Board and its Committees
are currently being considered due to the continuing uncertainties around
the Company’s trading environment caused by the need to re-establish the
business and deal with supply chain shortages.
The Board
The Board is responsible to all stakeholders, including its shareholders, for
the strategic direction, development and control of the Group. It approves
strategic plans and annual capital and revenue budgets. It reviews significant
investment proposals and the performance of past investments and
maintains oversight, supervision and control of the Group’s operating and
financial performance. It monitors the Group’s overall system of internal
controls, governance and compliance and ensures that the necessary
financial, technical and human resources are in place for the Company to
meet its objectives. Our website includes a schedule of matters which have
been reserved for the main Board.
During FY 2022 there were eight Board meetings. There were also five
meetings of the Audit Committee, one meeting of the Remuneration
Committee and no meetings of the Nomination Committee. The table on
the following page shows attendance levels at the Board and Committee
meetings held during the year; the numbers in brackets confirm how many
meetings each Director was eligible to attend during the year.
Full attendance was recorded for all Directors in respect of all Board and
Committee meetings held during FY 2022, but where Directors are unable to
attend a meeting (whether of the Board or one of its Committees), they are
provided with all the papers and information relating to that meeting and are
able to discuss issues arising directly with the Chairman of the Board or
Chair of the relevant Committee.
In addition, the Board members ordinarily meet more informally
approximately three or four times a year and the Chairman and the
Non-Executive Directors ordinarily meet without the Executive Directors
twice a year. There are eight Board meetings currently planned for FY 2023.
The Company Secretary’s responsibilities include ensuring good information
flows to the Board and between senior management and the Non-Executive
Directors. The Company Secretary is responsible, through the Chairman, for
advising the Board on all corporate governance matters and for assisting the
Directors with their professional development. This includes regular corporate
governance and business issues updates, as well as the use of operational site
visits and the provision of external courses where required. The Company
Secretary facilitates a comprehensive induction for newly appointed
Directors, tailored to individual requirements and including guidance on the
requirements of, and Directors’ duties in connection with, the 2018 Code
and the Companies Act 2006 as well as other relevant legislation.
The appointment and removal of the Company Secretary is a matter
reserved for the Board.
The members of the Odyzean Group made extremely significant
investments in the Company and currently hold approximately 57% of the
Company’s issued share capital. The Board considers their investment
objectives to be fully aligned with those of the Group and of other
shareholders. The Board maintains excellent relations with its major
shareholders and considers their commitment to be a significant factor in the
ongoing stability of the Board, particularly as a result of their strong support
of the Board’s long-term strategy, including the recent Ignite initiatives.
Their continued investment and presence on the Board adds value as the
Group works towards common goals, and in pursuit of the Company’s
published strategy. In particular, the members of the Odyzean Group have
been very supportive of the Board’s actions when the Company had to deal
with the forced closure of the business during the Covid-19 pandemic,
followed by the need for an Open Offer in FY 2021, which they subscribed
for in full. Their respective representatives continued to offer valuable advice
and experience while the Board considered options in the face of such
unprecedented circumstances.
The Board intends to continue to work closely with the representatives of its
major shareholders to further the interests of the Company. The Company is
not aware of any changes being proposed to the shareholder representative
profile of the Board in the immediate future.
3. Constitution of Committees
Throughout FY 2022, the Company had (and continues to have) fully
functioning Nomination, Audit and Remuneration Committees as required
by the 2018 Code.
(i) Nomination Committee (Code Provision 17)
The Nomination Committee was not fully compliant with the Code in
FY 2022, in that it did not contain a majority of independent Non-Executive
Directors as required by Code Provision 17. This occurred for a short period
only, which started from the period following Susan Murray’s leaving the
Board on 25 January 2022, and ceased following the appointment of
Amanda Brown to the Nomination Committee on 4 July 2022. At the year
end of 24 September 2022, the Nomination Committee was fully compliant
with 2018 Code Provision 17.
(ii) Audit Committee (Code Provision 24)
For part of the year, the Audit Committee was not fully compliant with
Provision 24 of the 2018 Code, which specifies that the Audit Committee
should consist of independent Non-Executive Directors, with a minimum
membership of three. Susan Murray stood down from the Audit Committee
on 25 January 2022 and Amanda Brown was appointed to the Audit
Committee on 4 July 2022, so for the period following Susan’s resignation to
the date of Amanda’s appointment, the requirement for three independent
Non-Executive Directors on the Audit Committee was not met. At the year
end of 24 September 2022, the Audit Committee was fully compliant with
Provision 24 of the 2018 Code.
(iii) Remuneration Committee (Code Provision 32)
The Remuneration Committee is not fully compliant with the relevant
Provisions of the 2018 Code. Provision 32 of the 2018 Code specifies that
the Remuneration Committee should consist of independent Non-Executive
Directors and the Remuneration Committee included the presence of a
representative of a major shareholder who is a member of the Odyzean
Group. On 25 January 2022, Susan Murray resigned from the Remuneration
Committee and Amanda Brown was appointed to the Remuneration
Committee on 4 July 2022. From the start of FY 2022 to the date of the
appointment of Amanda Brown as Committee Chair on 4 July 2022,
the office of Chair of the Remuneration Committee was vacant, and during
that period, remuneration matters were considered by the Board. As set out
on page 65, under the terms of the Deed of Appointment between the
Company and Piedmont Inc., Piedmont is entitled to have a Director attend,
and receive all the papers relating to, meetings of the Remuneration
Committee. The Board has, in the circumstances, agreed that Mr Levy
should be a member of the Committee. The Board has carefully considered
the implications of this arrangement and has concluded that it constitutes
a valid exception under the ‘comply or explain’ regime of the 2018 Code,
in that the shareholder concerned is committed to the progression and
growth of the Company, has made a substantial financial commitment and is
fully supportive of the Group’s strategy. All the shareholder representatives
have significant commercial and financial experience and make a substantial
contribution to the Committees and the Group remains fully committed
to working with them on matters affecting the Group and its activities in
the future.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 77
Corporate governance statement continued
Attendance levels at Board and Committee meetings
Directors who served during the year Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Bob Ivell 8 (8) n/a 1 (1) n/a
Keith Browne 8 (8) n/a n/a n/a
Amanda Brown (appointed 4 July 2022) 2 (2) 1 (1) 1 (1) n/a
Dave Coplin 8 (8) 5 (5) 1 (1) n/a
Eddie Irwin 8 (8) n/a n/a n/a
Tim Jones 8 (8) n/a n/a n/a
Josh Levy 8 (8) n/a 1 (1) n/a
Jane Moriarty 8 (8) 5 (5) 1 (1) n/a
Susan Murray (stepped down from the Board on 25 January 2022) 2 (2) 2 (2) n/a n/a
Phil Urban 8 (8) n/a n/a n/a
The numbers in brackets in the table above confirm how many meetings each Director was eligible to attend during the year.
Directors
The following were Directors of the Company during the year ended 24 September 2022:
Directors who served during the year
Date
appointed
Date of change
of role
Bob Ivell Independent Non-Executive Director
a
09/05/11 14/07/11
Interim Chairman
a
14/07/11 26/10/11
Executive Chairman 26/10/11 12/11/12
Non-Executive Chairman 12/11/12 –
Keith Browne
b
Non-Executive Director 22/09/16 –
Amanda Brown Independent Non-Executive Director 04/07/22 –
Dave Coplin Independent Non-Executive Director 29/02/16 –
Eddie Irwin
b
Non-Executive Director 21/03/12 –
Tim Jones Chief Financial Officer 18/10/10 –
Josh Levy
c
Non-Executive Director 13/11/15 –
Jane Moriarty Independent Non-Executive Director 27/02/19 25/01/22
Senior Independent Director 25/01/22 –
Susan Murray Independent Non-Executive Director and Senior Independent Director 08/03/19 25/01/22
Phil Urban Chief Executive 27/09/15 –
a. Independent while in the role specified.
b. Nominated shareholder representative of Elpida Group Limited.
c. Nominated shareholder representative of Piedmont Inc.
78 G overnance
Bob Ivell was appointed to the role of Executive Chairman on 26 October
2011 on the departure of the then Chief Executive and reverted to the role
of Non-Executive Chairman on 12 November 2012.
The Chairman ensures that appropriate communication is maintained with
shareholders. He ensures that all Directors are fully informed of matters
relevant to their roles. An explanation of the Board’s view on the Chairman’s
tenure is set out at page 76.
With effect from 1 January 2023, the Chairman’s fee will increase by 4% to
£296,000 per annum.
Chief Executive
Phil Urban was appointed Chief Executive on 27 September 2015. He has
responsibility for implementing the strategy agreed by the Board and for the
executive management of the Group.
Senior Independent Director
Susan Murray stepped down from the Board at the end of the 2022 AGM
on 25 January 2022, and Jane Moriarty was appointed Senior Independent
Director on the same date.
The Senior Independent Director supports the Chairman in the delivery of
the Board’s objectives and ensures that the views of all major shareholders
and stakeholders are conveyed to the Board. Jane Moriarty is available to all
shareholders should they have any concerns if the normal channels of
Chairman, Chief Executive or Chief Financial Officer have failed to resolve
them, or for which such contact is inappropriate.
Ordinarily, the Senior Independent Director also meets with Non-Executive
Directors, without the Chairman present, at least annually, and conducts
the annual appraisal of the Chairman’s performance and provides feedback
to the Chairman on the outputs of that appraisal. In FY 2022, the annual
appraisal of the Chairman’s performance was conducted by the Senior
Independent Director, Jane Moriarty, and the conclusions fed back to the
Chairman. Annual reviews of the Chairman’s performance will continue to
be conducted as required by the 2018 Code. All Directors have the ability
to raise any relevant views which they have with the Senior Independent
Director if they feel this is needed.
Non-Executive Directors
The Company has experienced Non-Executive Directors on its Board.
Josh Levy was appointed to the Board as a representative of one of the
Company’s largest shareholders, Piedmont Inc., a member of the Odyzean
Group, and was therefore not regarded as independent in accordance with
the 2018 Code.
Eddie Irwin and Keith Browne were appointed to the Board as
representatives of another of the Company’s largest shareholders, Elpida
Group Limited, which is also a member of the Odyzean Group, and were
therefore not regarded as independent in accordance with the 2018 Code.
There are currently three independent Non-Executive Directors on the
Board: Dave Coplin, Jane Moriarty and Amanda Brown.
Other than their fees, and reimbursement of taxable expenses which are
disclosed on page 99, the Non-Executive Directors received no
remuneration from the Company during the year.
With effect from 1 January 2023, the base fee for Non-Executive Directors
will increase by 4% to £55,000 per annum, the fee paid to Non-Executive
Directors for chairing a Committee or for the role of Senior Independent
Director will increase to £13,500 per annum, and the fee paid to Dave Coplin
for his role as the Board representative for ‘employee voice’ will increase to
£13,500 per annum.
When Non-Executive Directors are considered for appointment, the Board
takes into account their other responsibilities in assessing whether they can
commit sufficient time to their prospective directorship. On average, the
Non-Executive Directors spend two to three days per month on Company
business, but this may be more depending on the circumstances from time
to time.
At the start of the year, the Board was made up of seven male and two female
Directors. Susan Murray stepped down from the Board on 25 January 2022
and Amanda Brown was appointed to the Board on 4 July 2022. At the year
end, the Board consisted of seven male and two female Directors.
The Executive Directors have service contracts. The Chairman and each
of the Non-Executive Directors have letters of appointment. Copies of the
respective service contracts or letters of appointment of all the members of
the Board are available on the Company’s website. In addition, they are
available for inspection at the registered office of the Company during normal
business hours and at the place of the Annual General Meeting from at least
15 minutes before, and until the end, of the meeting.
At the Company’s forthcoming Annual General Meeting in 2023, Amanda
Brown, who joined the Board during FY 2022, will be standing for election
for the first time, and all other Directors will be required to stand for annual
re-election, in accordance with the Company’s Articles of Association. Their
biographical details as at 6 December 2022 are set out on pages 62 and 63,
including their main commitments outside the Company. In addition,
Provision 18 of the 2018 Code requires that the papers accompanying the
resolutions to elect or re-elect directors, set out the specific reasons why the
individual director’s contribution is, and continues to be, important to the
Company’s long-term sustainable success and this information is included in
the Notice of Meeting.
Provision 15 of the 2018 Code states that full-time executive directors
should not take on more than one non-executive directorship in a FTSE 100
company or other significant appointments. The Mitchells & Butlers policy is
that Executive Directors may be permitted to accept one external Non-
Executive Director appointment with the Board’s prior approval and as long
as this is not likely to lead to conflicts of interest. During FY 2022, neither of
the Executive Directors held any such external directorship, nor did they
hold any other significant appointments, as a director or otherwise, and that
remains the case as at the date of this Annual Report.
Division of responsibilities between Chairman and
Chief Executive
In accordance with Provision 9 of the 2018 Code, the roles of Chairman and
Chief Executive should not be exercised by the same individual.
The division of responsibilities between the Chairman and the Chief
Executive is clearly established as required by Principle G of the 2018 Code
and these are set out in writing and have been agreed by the Board. In
particular, it has been agreed in writing that the Chairman shall be
responsible for running the Board and shall provide advice and assistance to
the Chief Executive. He also chairs the Nomination Committee, is a member
of the Remuneration Committee and attends, by invitation, meetings of the
Audit Committee. He also chairs the Market Disclosure Committee,
Corporate Responsibility Committee, the Property Committee and the
Pensions Committee.
It is also agreed in writing that the Chief Executive has responsibility for
all aspects of the Group’s overall commercial, operational and strategic
development. He chairs the Executive Committee (details of which
appear on page 81) and attends the Nomination, Remuneration and
Audit Committees by invitation, not necessarily for the entirety of such
meetings depending upon the subject matter. He is also a member of
the Market Disclosure Committee, the Property Committee and the
Pensions Committee.
The segregation of responsibilities between the Chairman and the Chief
Executive is set out in the Company’s Corporate Governance Compliance
Statement, which is available on our website, www.mbplc.com.
All other Executive Directors (currently just the Chief Financial Officer) and
all other members of the Executive Committee report to the Chief Executive.
Chairman
Provision 9 of the 2018 Code provides that the Chairman should, on
appointment, meet the independence criteria set out in Provision 10 of the
2018 Code. Bob Ivell met these independence criteria on appointment.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 79
Corporate governance statement continued
In accordance with the disclosure requirement in Provision 23 of the 2018
Code, as at the date of this report, the gender balance for those in the senior
management team and their direct reports was split as to 45% female and
55% male. For this purpose, the senior management team comprises the
Executive Committee.
The gender balance of the Executive Committee (which includes two Board
members) is 70% male and 30% female. Further information on the Executive
Committee is given on page 81.
The Nomination Committee agrees the importance of having diversity on
the Board, including female representation and individuals with different
experiences, skill sets and expertise, so as to maintain an appropriate balance
within the Company and on the Board. Whilst there were no formal meetings
of the Nomination Committee in FY 2022, its members were consulted about
and supported the appointment of Amanda Brown and were briefed on,
and supported, the approach to diversity across the Board.
Diversity and Inclusion Steering Group and Board
Diversity Policy
The Company has a Diversity and Inclusion Steering Group which examines
the implementation of diversity within the Group. As referred to on page 76,
Dave Coplin has been identified by the Board as the Director with
responsibility for oversight of the Company’s Diversity and Inclusion
arrangements.
The Board has approved a Board Diversity Policy, which was reviewed and
approved in October 2022. The key statement and objectives of that policy
are as follows:
Statement:
The Board recognises the benefits of diversity. Diversity of skills,
background, knowledge, international and industry experience, and gender,
amongst many other factors, will be taken into consideration when seeking
to appoint a new Director to the Board. Notwithstanding the foregoing, all
Board appointments will always be made on merit.
Objectives:
• The Board should ensure an appropriate mix of skills and experience to
ensure an optimum Board and efficient stewardship. All Board
appointments will be made on merit while taking into account individual
competence, skills and expertise measured against identified objective
criteria (including consideration of diversity).
• The Board should ensure that it comprises Directors who are sufficiently
experienced and independent of character and judgement.
• The Nomination Committee will continue to review what steps and
recruitment processes are appropriate for achieving diversity on the
Board with due regard being given to the recommendations set out in the
Davies Report, the Hampton-Alexander Review and the 2018 Code.
These will be reviewed on an annual basis.
Progress against the policy:
The Board continues to monitor progress against this policy. In terms of
Board diversity, at the start of FY 2022 there were nine Board directors,
of which two were female (22%). The Board reduced to eight members on
25 January 2022, following the departure of Susan Murray, reducing the
percentage of women on the Board to 12.5%. The percentage of women on
the Board increased to 22% again, following the appointment of Amanda
Brown on 4 July 2022, and remained at 22% at the FY 2022 year end. Any
future appointments will always be made on merit and will continue to take
into account diversity, not only in terms of gender, but also in terms of the
appropriate mix of skills and experience. The assessment of the composition
of the Board and its Committees and the Chairman’s tenure should be
considered in the context of the explanation already set out under the
heading of ‘Board composition and diversity’ on page 75.
Details of the Mitchells & Butlers Diversity Policy, which applies to diversity
in relation to employees of the Mitchells & Butlers Group, can be found in the
Value Creation story on page 38.
A detailed description of the duties of the Nomination Committee is
set out within its terms of reference which can be viewed at
www.mbplc.com/investors/business-conduct/board-committees/
Board information and training
All Directors are briefed by the use of comprehensive papers circulated in
advance of Board meetings and by presentations at those meetings, in
addition to receiving minutes of previous meetings. Their understanding of
the Group’s business is enhanced by business specific presentations and
operational visits to the Group’s businesses. Separate strategy meetings and
meetings with senior executives and representatives of specific functions,
brands or business units are also held throughout the year.
The training needs of Directors are formally considered on an annual basis
and are also monitored throughout the year with appropriate training being
provided as required, including corporate social responsibility and corporate
governance as well as the environmental impacts of the Company’s activities.
Independent advice
Members of the Board may take independent professional advice in the
furtherance of their duties and the Board has agreed a formal process for
such advice to be made available.
Members of the Board also have access to the advice and services of the
Group General Counsel and Company Secretary, the Company’s legal and
other professional advisers and its external auditor.
The terms of engagement of the Company’s external advisers and its
external auditor are regularly reviewed by the Group General Counsel and
Company Secretary.
Committees
The Audit, Remuneration, Nomination and Corporate Responsibility
Committees have written terms of reference approved by the Board, which
are available on the Company’s website www.mbplc.com. Those terms of
reference are each reviewed annually by the relevant Committee to ensure
they remain appropriate.
Audit Committee
Details of the Audit Committee and its activities during the year are included
in the Audit Committee report on pages 85 to 88 which is incorporated by
reference into this statement.
Remuneration Committee
Details of the Remuneration Committee and its activities during the year are
included in the Report on Directors’ remuneration on pages 89 to 106.
Amanda Brown was appointed Chair of the Remuneration Committee on her
appointment to the Board on 4 July 2022.
Nomination Committee
The Nomination Committee is responsible for nominating, for the approval
of the Board, candidates for appointment to the Board. It is also responsible
for succession planning for the Board and the Executive Committee and
reviewing the output of the Board effectiveness review. In compliance with
the disclosure requirements of Provision 23 of the 2018 Code, there is an
ongoing process of review of the make-up of the Board and for Board
succession, which is carried out by the Nomination Committee and led by
the Chairman. The Nomination Committee engages external search
agencies when required and ensures that all candidates are identified and
assessed against pre-determined criteria. Gender balance is dealt with by
the Nomination Committee on a regular basis and includes assessment of
gender balance at senior management level.
The following were members of the Nomination Committee during the year:
Appointment
date
Member at
24/09/22
Bob Ivell (Chair) 11/07/13 Yes
Amanda Brown (appointed 4 July 2022) 04/07/22 Yes
Dave Coplin 29/02/16 Yes
Eddie Irwin 11/07/13 Yes
Jane Moriarty 27/02/19 Yes
Susan Murray (resigned 25 January 2022) 08/03/19 No
80 Governance
A note of the actions agreed by, and the principal decisions of, the Executive
Committee, is supplied to the Board for information in order that Board
members can keep abreast of operational developments.
General Purposes Committee
The General Purposes Committee comprises any two Executive Directors
or any one Executive Director together with a senior officer from an agreed
and restricted list of senior executives. It is always chaired by an Executive
Director. It attends to business of a routine nature and to administrative
matters, the principles of which have been agreed previously by the Board
or an appropriate Committee.
Portfolio Development Committee
The executive review of property transactions and capital allocation to
significant property matters such as site remodel and conversion plans
and the Company’s real estate strategy is carried out by the Portfolio
Development Committee. This is not a formal Board Committee but
comprises the Chief Executive, the Chief Financial Officer, the Group
Property Director, and the Group General Counsel and Company Secretary.
It has delegated authority to approve certain transactions up to agreed
financial limits and, above those authority levels, it makes recommendations
to the Board or the Property Committee.
Treasury Committee
The treasury operations of the Mitchells & Butlers Group are operated on
a centralised basis under the control of the Group Treasury department.
Although not a formal Board Committee, the Treasury Committee,
which reports to the Chief Financial Officer but is subject to oversight
from the Audit Committee and, ultimately, the Board, has day-to-day
responsibility for:
• liquidity management;
• investment of surplus cash;
• funding, cash and banking arrangements;
• interest rate and currency risk management;
• guarantees, bonds, indemnities and any financial encumbrances
including charges on assets; and
• relationships with banks and other market counterparties such as credit
rating agencies.
The Treasury Committee also works closely with the Finance Department to
review the impact of changes in relevant accounting practices and to ensure
that treasury activities are disclosed appropriately in the Company’s accounts.
The Board delegates the monitoring of treasury activity and compliance to
the Treasury Committee. It is responsible for monitoring the effectiveness
of treasury policies and making proposals for any changes to policies or in
respect of the utilisation of new instruments. The approval of the Board,
or a designated committee thereof, is required for any such proposals.
Code of ethics
The Company has implemented business conduct guidelines describing
the standards of behaviour expected from those working for the Company
in the form of a code of ethics (the ‘Ethics Code’). The Ethics Code was
re-communicated to all employees in FY 2022 to ensure it was kept clearly
in focus. Its aim is to promote honest and ethical conduct throughout our
business. The Ethics Code requires:
• compliance with all applicable rules and regulations that apply to the
Company and its officers including compliance with the requirements
of the Bribery Act 2010;
• the ethical handling of actual or apparent conflicts of interest between
internal and external, personal and professional relationships; and
• that any hospitality from suppliers must be approved in advance
by appropriate senior management, with a presumption against
its acceptance.
The Company takes a zero tolerance approach to bribery and has developed
an extensive Bribery Policy which is included in the Ethics Code. The Ethics
Code requires employees to comply with the Bribery Policy.
Market Disclosure Committee
The EU Market Abuse Regulation (‘MAR’) which took effect in July 2016,
brought about substantial changes relating to announcements of material
information about the Company and its affairs, and relating to dealings in
shares or other securities by Directors and other senior managers, including
tighter controls on permitted ‘dealings’ during closed periods and the
handling of information relating to the Company. MAR requires companies
to keep a list of people affected and the previous compliance regime and
timeframe were enhanced.
As a result, a formal standing Committee of the Board was established,
the Market Disclosure Committee, which comprises the Chairman, the
Chief Executive, the Chief Financial Officer and an independent Non-
Executive Director.
Corporate Responsibility Committee
A Corporate Responsibility Committee was established in June 2019 and its
purpose is to allow more executive, leadership and functional management
involvement in matters of corporate responsibility and sustainability.
Its Terms of Reference are on the Company’s website www.mbplc.com.
The Corporate Responsibility Committee comprises Bob Ivell (Chair), Eddie
Irwin, Jane Moriarty, Dave Coplin and Amanda Brown. The Chief Executive,
Phil Urban, is invited to attend regularly.
A multi-disciplinary operational and functional steering committee has been
identified and tasked with carrying out first level oversight of the work plan
and roadmap approved by the Committee in FY 2021, with regular reports to
the Corporate Responsibility Committee. More details of the activities
involved in this programme during the financial year are set out on page 40.
Property Committee
The Property Committee reviews property transactions which have been
reviewed and recommended by the Portfolio Development Committee,
without the need for submission of transactions to the full Board. The
Property Committee agrees to the overall strategic direction for the
management of the Group’s property portfolio on a regular basis and may
decide that a particular transaction should be referred to the Board for
consideration or approval. The Property Committee comprises Bob Ivell
(Committee Chair), Phil Urban, Tim Jones, Josh Levy, Keith Browne,
Jane Moriarty, Amanda Brown and Gary John.
Pensions Committee
The Board has established a Pensions Committee to supervise and
manage the Company’s relationship with its various pension schemes and
their trustees.
The Pensions Committee members are Bob Ivell (Committee Chair),
Tim Jones, Phil Urban, Keith Browne and Josh Levy.
Throughout FY 2022 the work of the Pensions Committee focused primarily
on the monitoring of the performance of the Group’s pensions arrangements
including the Mitchells & Butlers Executive Pension Plan moving to a buy-in
transaction in December 2021 and both that scheme and the Mitchells &
Butlers Pension Plan putting in place arrangements for implementing
equalisation of guaranteed minimum pensions.
Executive Committee
The Executive Committee, which is chaired by the Chief Executive, consists
of the Executive Directors and certain other senior executives, namely Gary
John (Group Property Director), Susan Martindale (Group HR Director),
Andrew Freeman (Group General Counsel and Company Secretary), Chris
Hopkins (Commercial and Marketing Director) and Susan Chappell, David
Gallacher, Dennis Deare and Anna-Marie Mason (the Divisional Directors).
The Executive Committee ordinarily meets at least every four weeks and has
day-to-day responsibility for the running of the Group’s business.
It develops the Group’s strategy and annual revenue and capital budgets for
Board approval. It reviews and recommends to the Board any significant
investment proposals. This Committee monitors the financial and operational
performance of the Group and allocates resources within the budgets
agreed by the Board. It considers employment issues, ensures the Group has
an appropriate pool of talent and develops senior management workforce
planning and succession plans.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 81
Corporate governance statement continued
The Company also offers an independently-administered, confidential
whistleblowing hotline for any employee wishing to report any concern
that they feel would be inappropriate to raise with their line manager. All
whistleblowing allegations are reported to, and considered by, the Executive
Committee and a summary report (with details of any major concerns) is
supplied to, and considered by, the Audit Committee at each of its meetings.
Principle E and Provision 6 of the 2018 Code require the Board to be clear
how its approach to whistleblowing has changed from an Audit Committee-
led approach to a Board-led approach. Although the Audit Committee
continues to receive regular reports on whistleblowing activity, each set of
full Board papers also includes, as part of the report from the Group Risk
Director, the number and assessment of any whistleblowing reports received
and, where relevant, the actions taken in respect of reports which are, on
investigation, found to be credible.
The Board takes regular account of social, environmental and ethical matters
concerning the Company through regular reports to the Board and
presentations to the Board at its strategy meetings.
Directors’ training includes environmental, social and governance (‘ESG’)
matters and the Company Secretary is responsible for ensuring that
Directors are made aware of and receive regular training in respect of these
important areas. The Chief Executive, Phil Urban, is ultimately responsible
for ESG matters, which includes Climate Change reporting, which is dealt
with in the next section.
Climate change reporting
1. Reporting
Reporting prior to 2021
For periods beginning on or after 1 April 2019, The Companies (Directors’
Report) and Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018 required new or enhanced directors’ report disclosures
on greenhouse gas emissions and energy consumption. Quantitative and
narrative disclosures on energy consumption and energy efficiency
measures were added to the pre-existing greenhouse gas emissions
disclosures. Additionally, the regulations brought in a new requirement to
report on the principal measures taken to increase energy efficiency if any
such action has been taken in the organisation’s financial year.
The FY 2020 Strategic Report set out these principal measures but for
FY 2021 it was expanded to set out not only the principal measures and their
progress since then, but also our future aims in this area. Progress made in
FY 2022 is set out in the Strategic Report on pages 10 to 58.
New mandatory reporting and disclosure requirements
The Task Force on Climate-related Financial Disclosures (‘TCFD’) was
established by the Financial Stability Board in 2015 and published its final
report in June 2017. The report set out eleven recommended disclosures
under four pillars to promote better disclosure and these are set out below:
TCFD : four recommendations and eleven recommended disclosures
Recommendations
Governance Strategy Risk Management Metrics and Targets
Disclose the organisation’s
governance around climate-
related risks and opportunities
(‘CRO’).
Disclose the actual and potential
impacts of CRO on the
organisation’s businesses, strategy,
and financial planning where such
information is material.
Disclose how the organisation
identifies, assesses and manages
climate-related risks.
Disclose the metrics and targets
used to assess and manage relevant
CRO where such information
is material.
Recommended Disclosures
(a) Describe the Board’s oversight
of CRO.
(a) Describe the CRO the
organisation has identified over the
short, medium and long term.
(a) Describe the organisation’s
processes for identifying and
assessing climate-related risks.
(a) Disclose the metrics used by the
organisation to assess CRO in line
with its strategy and risk
management process.
(b) Describe management’s role in
assessing and managing CRO.
(b) Describe the impact of CRO on
the organisation’s businesses,
strategy and financial planning.
(b) Describe the organisation’s
processes for managing climate-
related risks.
(b) Disclose Scope 1, Scope 2 and,
if appropriate, Scope 3 greenhouse
gas (‘GHG’) emissions and the
related risks.
(c) Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-
related scenarios, including a 2°C
or lower scenario.
(c) Describe how processes for
identifying, assessing and
managing climate-related risks are
integrated into the organisation’s
overall risk management.
(c) Describe the targets used by the
organisation to manage CRO and
performance against targets.
For FY 2022, the Company has undertaken a comprehensive review of its risks in relation to, and oversight of, TCFD and the results of this are set out on pages
28 to 31 of the Strategic Report.
82 Governance
Information, reporting and assurance
In the 2021 Annual Report, the Company undertook to address the following
aspects of its readiness for TCFD reporting during FY 2022:
• whether climate-related management information was robust and fit for
purpose. See pages 28 to 31 of the Strategic Report for further discussion
on this;
• the extent to which any external data, or external expertise that the
Company relied upon is reliable and credible;
• whether the finance function has taken ownership of information and
accounting around climate change and, if not, whether there are sufficient
checks and balances to give confidence in the information;
• consideration of the findings of reporting reviews such as the FRC’s
climate change thematic review. Changes to annual report processes and
reporting have been examined and implemented as necessary; and
• the level of internal or external oversight or assurance to which the
Company’s metrics will be subjected.
The Board is responsible for the Company’s internal risk management
system, in respect of which more details can be found in the ‘Risks and
uncertainties’ section of this report, and in the following section of
this statement.
Internal control and risk management
The Board has overall responsibility for the Group’s system of internal control
and risk management and for reviewing its effectiveness. In order to discharge
that responsibility, the Board has established the procedures necessary to
apply the 2018 Code for the period under review and to the date of approval
of the Annual Report. Such procedures are in line with the Financial
Reporting Council’s ‘Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting’ and are regularly reviewed by the
Audit Committee.
The key features of the Group’s internal control and risk management
systems include:
• Processes, including monitoring by the Board, in respect of:
i. financial performance within a comprehensive financial planning,
accounting and reporting framework;
ii. strategic plan achievement;
iii. capital investment and asset management performance, with detailed
appraisal, authorisation and post-investment reviews; and
iv. consumer insight data and actions to assess the evolution of brands
and formats to ensure that they continue to be appealing and relevant
to the Group’s guests.
• An overall governance framework including:
i. clearly defined delegations of authority and reporting lines;
ii. a comprehensive set of policies and procedures that employees are
required to follow; and
iii. the Group’s Ethics Code, in respect of which an annual confirmation
of compliance is sought from all corporate employees.
• The Risk Committee, a sub-committee of the Executive Committee,
which assists the Board, the Audit Committee and the Executive
Committee in managing the processes for identifying, evaluating,
monitoring and mitigating risks. The Risk Committee, which continues to
meet regularly, is chaired by the Group General Counsel and Company
Secretary and comprises Executive Committee members and other
members of senior management from a cross-section of functions.
The new Listing Rule
The new climate-related disclosure Listing Rule 9.8.6R(8) is a continuing
obligation for premium listed companies in annual reports for periods
commencing on or after 1 January 2021 and thereafter, so this FY 2022 is
the first Annual Report where reporting for the Company will be mandatory.
The rule requires companies to disclose:
• whether they have made disclosures consistent with the four
recommendations and eleven recommended disclosures set out in
section C of the TCFD Final Report in their annual financial report;
• where these disclosures can be found in the annual report; and
• a ‘comply or explain’ obligation to explain:
• if they have not included disclosures consistent with all of the TCFD’s
recommendations and/or recommended disclosures, which disclosures
they have not included and the reasons for not including them; and/or
• why they have included some or all of the disclosures in a document other
than their annual report.
Where not all required TCFD disclosures have been provided, in addition to
explaining why, the annual report now also needs to explain:
• the timeframe for compliance; and
• the steps the company is taking or plans to take to achieve compliance.
Institutional Investor requirements
Institutional Investors will expect all listed companies to be reporting against
all four TCFD pillars and want those disclosures to be more meaningful and
will be instructing their clients accordingly in relation to voting. They will also
expect companies to include a statement in their annual report that the
directors have considered material climate-related matters when preparing
and signing-off the company’s accounts.
2. Actions being taken by the Company
Executive ownership
The Board tasked Phil Urban with spearheading the Company’s approach to
tackling climate change reporting across the organisation since he also chairs
the Executive Committee so can ensure focus at Executive Committee level.
Strategy
The Board is mindful of the business impacts relevant to the sector, and due
consideration of such is included when considering changes made across the
business in relation to climate change obligations. Going forward, this
important issue will continue to form part of the considerations taken into
account by the Board when it is evaluating strategic decision and investment
priorities. Capital expenditure proposals submitted to the Board include
appropriate details on such aspects.
Governance
Climate change issues are discussed at Board level and the Board has
specifically requested the Corporate Responsibility Committee to focus on
ESG/sustainability matters. The Company’s required climate response/
transformation is a feature of agendas, with priority being given to ensuring
enough time is dedicated to the discussion. The Corporate Responsibility
Committee approved, and recommended to the Board, the Group’s
sustainability roadmap through which it identified and agreed how to
manage climate-related issues. These initiatives were addressed in FY 2022
when TCFD compliance became compulsory for the Company.
Risk and Scenario analysis
During FY 2022, the Company developed a rigorous climate change scenario
impact analysis. The Audit Committee is tasked with ensuring it is satisfied
that the scenarios are sufficiently challenging, diverse and relevant, and also
ensuring through this process and the Risk Committee that its risk monitoring
activity appropriately addresses climate change risks for the Company.
Further details are set out on pages 28 to 31 of the Strategic Report.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 83
Corporate governance statement continued
The system of internal control is designed to manage, rather than eliminate,
the risk of failure to achieve business objectives and, as such, it can only
provide reasonable and not absolute assurance against material
misstatement or loss. In that context, in the opinion of the Audit Committee,
the review did not indicate that the system was ineffective or unsatisfactory.
To the extent that weaknesses in internal controls were identified, the Audit
Committee reviewed the audit findings, together with the remedial action
plans that were put in place, and sought confirmation that all actions were
closed out in a timely manner. Through this process, material audit findings
were presented to the Audit Committee, the necessary follow-up reviews
were completed and the results were reported to the Audit Committee, to
ensure appropriate mitigation plans had been actioned. Please refer to the
Audit Committee report, on pages 85 to 88.
The Audit Committee is not aware of any change to this status up to the date
of approval of this Annual Report.
With regard to insurance against risk, it is not practicable to insure against
every risk to the fullest extent. The Group regularly reviews both the type
and amount of external insurance that it buys with guidance from an external
independent broker, bearing in mind the availability of such cover, its cost
and the likelihood and magnitude of the risks involved and the mitigation
which insurance might provide.
The primary responsibilities of the Risk Committee are to:
i. advise the Executive Committee on the Company’s overall risk appetite
and risk strategy, taking account of the current and prospective
operating, legal, macroeconomic and financial environments;
ii. advise the Executive Committee on the current and emerging risk
exposures of the Company in the context of the Board’s overall risk
appetite and risk strategy;
iii. promote the management of risk throughout the organisation;
iv. review and monitor the Company’s capability and processes to identify
and manage risks;
v. consider the identified key risks faced by the Company and new and
emerging risks and consider the adequacy of mitigation plans in respect
of such risks; and
vi. where mitigation plans are regarded to be inadequate, recommend
improvement actions.
The Group’s risks identified by the processes that are managed by the Risk
Committee, are described in the ‘Risks and uncertainties’ section on pages
44 to 51.
More details of the work of the Risk Committee are included in the Audit
Committee report on pages 85 to 88.
• Examination of business processes on a risk basis including reports from
the internal audit function, known as Group Assurance, which reports
directly to the Audit Committee.
The Group also has in place systems, including policies and procedures,
for exercising control and managing risk in respect of financial reporting
and the preparation of consolidated accounts. These systems, policies
and procedures:
i. govern the maintenance of accounting records that, in reasonable detail,
accurately and fairly reflect transactions;
ii. require reported information to be reviewed and reconciled, with
monitoring by the Audit Committee and the Board; and
iii. provide reasonable assurance that transactions are recorded as
necessary to permit the preparation of financial statements in accordance
with International Financial Reporting Standards (‘IFRS’) or UK Generally
Accepted Accounting Practice, as appropriate. Please also refer to the
Statement of Directors’ responsibilities in respect of the Annual Report
and Accounts, on page 72.
In accordance with the 2018 Code, during the year the Audit Committee
completed (and reported to the Board its conclusions in respect of) its annual
review of the effectiveness of the Group’s risk management and internal
control systems, including financial, operational and compliance controls.
84 Govern ance
Audit Committee
report
“On behalf of the Board, I present the report of the
Audit Committee for the financial year ended
24 September 2022.”
Jane Moriarty
Chair of the Audit Committee
Introduction
During recent years, as the purpose and
effectiveness of external and internal audit
procedures came under increasing public
scrutiny, the Committee has ensured it has
maintained an appropriate level of engagement
with the Chief Financial Officer and the Group
Risk Director, other key individuals and their
teams who collectively provide an appreciation
and rigorous insight into how the Group functions
and reports. The Committee is very grateful for
the insight these interactions provide and this,
in turn, significantly assists the Committee in
executing its oversight role and ensuring
confidence in reporting to the wider Board.
Engagement with external auditors,
internal auditors and other third-party
advisers
The Committee continued to engage formally,
regularly and at an appropriate level of detail
with our external auditors, internal auditors
(also externally resourced) and other third-party
advisers as necessary. This has enabled the
Committee to maintain an appropriate
understanding of how our auditors and advisers
interact and test our comprehensive risk
functions. The Committee’s engagement during
the auditing and advisory process enables it
to convey confidence in their collective
fieldwork conclusions.
The Committee also ensured that the Group
provided adequate resources to ensure that any
additional non-audit services required during the
year were obtained, where necessary, and the
Financial Reporting Council’s (FRC) evolving
reporting requirements were adhered to. The
FRC performed a review of the Group’s 2021
annual report, the results of which were
communicated in a letter in April 2022. They
raised queries and recommendations to enhance
future disclosures, which have been considered
by the Committee, and which were actioned
promptly. This allowed the FRC to close their
enquiries in a satisfactory and timely manner.
The FRC review provides no assurance that the
annual report and accounts are correct in all
material respects; the FRC’s role is not to verify
the information provided but to consider
compliance with reporting requirements, and the
letter was issued by FRC on the basis that the FRC
(which includes the FRC’s officers, employees and
agents) accepts no liability for reliance on this
letter by the company or any third party, including
but not limited to investors and shareholders.
Effectiveness of internal controls and
Group assurance and risk function
The above efforts provided the Committee with
a clear and detailed understanding of the principal
financial and operational risks throughout the
period (please also refer to the Group’s risks and
uncertainties, detailed on pages 44 to 51). The
Committee continued to focus on challenging the
effectiveness of internal controls, the robustness
of assurance and risk management processes and
in assessing the importance of, and acting as
required upon, all reported information received
from our external and internal auditors and
third-party advisers.
The Committee remains committed to
maintaining an open and constructive dialogue
on relevant audit matters with all shareholders.
Therefore, should you have any comments or
questions on any aspects of this report, or indeed
the wider financial statements, may I respectfully
ask you to please email myself, care of Adrian
Brannan, Group Risk Director, at company.
secretariat@mbplc.com
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 85
The role and responsibilities of the Audit Committee are to:
• review the Group’s public statements on internal control, risk management
and corporate governance compliance;
• review the Group’s processes for detecting fraud, misconduct and
control weaknesses and to consider the Group’s response to any
such occurrence;
• review management’s evaluation of any change in internal controls over
financial reporting;
• review with management, and the external auditor, Group financial
statements required under UK legislation before submission to the Board;
• establish, review and maintain the role and effectiveness of the internal
audit function, Group Assurance and the risk function, whose objective is
to provide independent assurance over the Group’s significant processes
and controls, including those in respect of the Group’s principal risks;
• assume direct responsibility for the appointment, compensation,
resignation, dismissal and the overseeing of the external auditor,
including review of the external audit, its cost and effectiveness;
• pre-approve non-audit work to be carried out by the external auditor and
the fees to be paid for that work together with the monitoring of the
external auditor’s independence;
• oversee the process for dealing with complaints received by the Group
regarding accounting, internal accounting controls or auditing matters
and any confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters; and
• adopt and oversee a specific Code of Ethics for all employees which is
consistent with the Group’s overall statement of business ethics.
Key activities of the Audit Committee
Audit matters are reviewed at quarterly Audit Committee meetings
throughout the year at which detailed reports are presented for review.
The Audit Committee commissions reports from external advisers,
the Group Risk Director or Group management, either after consideration
of the Group’s key risks or in response to developing issues.
During the year, in order to fulfil the roles and responsibilities of the Audit
Committee, the following matters were considered:
• the suitability of the Group’s accounting policies and practices;
• half year and full year financial results;
• the scope and cost of the external audit;
• the external auditor’s full year report;
• the appointment of the external auditor, KPMG LLP;
• any non-audit work carried out by the auditor and trends in the non-audit
fees in accordance with the Committee’s policy to ensure the
safeguarding of audit independence;
• the co-ordination of the activities and the work programmes of the
internal and external audit functions;
• the arrangements in respect of Group Assurance including its resourcing,
external support, the scope of the annual internal audit plan for FY 2022,
the level of achievement of that plan and the scope of the annual internal
audit plan for FY 2023;
• periodic internal control and assurance reports from Group Assurance;
• the Group’s risk management framework for the identification and control
of key risks, its risk and assurance mitigation plan and the annual
assessment of effectiveness of controls;
• review of the going concern and Corporate Viability Disclosures
(a summary is reported on pages 58 and 52 respectively);
• compliance with the Group’s Code of Ethics;
• corporate governance developments;
• the status of material litigation involving the Group; and
• reports on allegations made via the Group’s whistleblowing procedures
and the effectiveness of these procedures, including a summary of
reports received during FY 2022.
Remit and membership of the Audit Committee
The main purpose of the Audit Committee is to review and maintain
oversight of the Group’s corporate governance, particularly with respect
to financial reporting, internal control and risk management. The Audit
Committee’s responsibilities also include:
• reviewing the processes for detecting fraud, misconduct and internal
control weaknesses;
• reviewing the effectiveness of the Group Assurance function; and
• overseeing the relationship with the external and internal auditors and
other third-party advisers.
At the date of the 2022 Annual Report, the Audit Committee comprised
three independent Non-Executive Directors: Jane Moriarty (Chair), Dave
Coplin and Amanda Brown. In accordance with 2018 Code Provision 24
the Board considers that Jane Moriarty has significant, recent and relevant
financial experience. Biographies of all of the members of the Audit
Committee, including a summary of their respective experience, appear
on pages 62 and 63.
The Audit Committee met at least quarterly during FY 2022. In each case,
appropriate papers were distributed to the Committee members and other
invited attendees, including, where and to the extent appropriate,
representatives of the external audit firm, the internal Group Assurance
function and other third-party advisers.
When appropriate, the Audit Committee augments the skills and experience
of its members with advice from internal and external audit professionals,
for example, on matters such as developments in financial reporting. Audit
Committee meetings are also attended, by invitation, by other members of
the Board including the Chairman, the Chief Executive and the Chief
Financial Officer, the Group General Counsel and Company Secretary, the
Group Risk Director and representatives of the external auditor, KPMG LLP.
The Audit Committee also has the opportunity to meet privately with the
external auditor not less than twice a year, without any member of
management present, in relation to audit matters.
The remuneration of the members of the Audit Committee is set out in the
Report on Directors’ remuneration on page 99.
Summary terms of reference
A copy of the Audit Committee’s terms of reference is publicly available
within the Investor section of the Group’s website:
www.mbplc.com/pdf/audit_committee_terms.pdf
The Audit Committee’s terms of reference were approved by the Committee
and adopted by the Board in 2013. Those terms of reference specifically
provide that they will be reviewed annually. They have been reviewed and
updated as appropriate each year since and no changes were felt to be
needed when they were reviewed in September 2022. Accordingly, in
FY 2022 no material changes were made to the terms of reference of the
Audit Committee, but the work of the Audit Committee will be kept under
review with the expectation that any such matters which come to light are
included in the next annual review.
The Audit Committee is authorised by the Board to review any activity within
the business. It is authorised to seek any information it requires from, and
require the attendance at any of its meetings of, any Director, any member of
management and any employees, who are expected to co-operate with any
request made by the Audit Committee.
The Audit Committee is authorised by the Board to obtain, at the Group’s
expense, external legal or other independent professional advice and secure
the attendance of outsiders with relevant experience and expertise, if it
considers this necessary.
The Chair of the Audit Committee reports to the Board meeting following
each Committee meeting on the Committee’s work and the Board receives
a copy of the minutes of each meeting.
Audit Committee report continued86 Governance
A similar approach has been employed in relation to the FY 2023 internal
audit plan. The principal objectives of the internal audit plan for FY 2022
were, and remain for FY 2023:
• to provide confidence that existing and emerging key risks are being
managed effectively;
• to confirm that controls over core business functions and processes are
operating as intended; and
• to confirm that major projects and significant business change
programmes are being adequately controlled.
Findings from all audit reports issued by the Group Assurance function are
reviewed by the Audit Committee. Internal audit recommendations are closely
monitored from implementation through to closure via a recommendation
tracking system, which efficiently assists the overall monitoring of internal
audit recommendations to ensure these are successfully implemented in
a timely manner. A summary of the status of the implementation of internal
audit recommendations is made monthly to the Executive Committee and
quarterly to the Audit Committee.
Risk management framework
As disclosed in the ‘Risk and uncertainties’ section on pages 44 to 51 the Risk
Committee continues to meet on a quarterly basis to review the key risks
facing the business. Membership of the Risk Committee, which includes
representation from each of the key business functions, is detailed below:
• Group General Counsel and Company Secretary (Chairman)
• Chief Financial Officer
• Commercial and Marketing Director
• Divisional Director (Operations)
• Group HR Director
• Director of Business Change & Technology
• Group Risk Director
• Director of Group Legal & Company Secretariat
• Head of Safety
Key risks identified are reviewed and assessed on a quarterly basis in terms
of their likelihood and impact, and are measured on the Group’s ‘Key Risk
Heat Map’, in conjunction with associated risk mitigation plans. In addition,
the Risk Committee review includes an assessment of the material relevance
of emerging risks and the continued relevance of previously identified risks.
During FY 2022, Risk Committee meetings continued to include a cross-
functional, detailed review of the Group’s key risks. This process, which was
introduced in FY 2016, continues to prove to be effective and adds value to
the continued development and progression of the Group’s approach to
evaluating new and existing risks, supported by robust mitigation plans.
Actions arising from Risk Committee meetings are followed up by the Group
Risk Director. The Audit Committee reviews the Risk Committee minutes in
addition to undertaking a quarterly review of the Group’s ‘Key Risk Heat Map’.
Confidential reporting
The Group’s whistleblowing policy enables staff, in confidence, to raise
concerns about possible improprieties in financial and other matters and to
do so without fear of reprisal. Details of the policy are set out in the Group’s
Code of Ethics. The Audit Committee receives quarterly reports on
whistleblowing incidents and remains satisfied that the procedures in place
are satisfactory to enable independent investigation and follow up action
of all matters reported. No major issues have been reported in FY 2022
(major issues being defined for this purpose as matters having a financial
impact of greater than £100k). The Board also receives a report on
whistleblowing in the Group General Counsel and Company Secretary’s
regular report to Board meetings.
Disclosure of significant and other judgements
The Audit Committee has reviewed the key judgements applied in the
preparation of the consolidated financial statements, which are described
in the relevant accounting policies and detailed notes to the financial
statements on pages 107 to 176.
The Audit Committee’s review included consideration of the following areas
and key accounting judgements:
• Going concern – the headroom on the covenants across both the
secured and unsecured estates and Group liquidity, have been reviewed
in detail by management and assessed by the Audit Committee (see page
58). The Corporate Viability Disclosure which includes details of further
sensitivity is on page 52.
• Property, plant and equipment valuation – the assumptions used by
management to value the long leasehold and freehold estate including:
estimated fair maintainable trading levels; brand multiples and use of
spot valuations, to ensure a consistent valuation methodology is in place.
The revaluation methodology is determined by using management
judgement, with advice taken from third-party valuation experts. Short
leasehold buildings, right-of-use assets, unlicensed land and buildings,
and tenant’s fixtures, fittings and equipment are held at cost less
depreciation and impairment. Impairment includes management
judgement to determine site level profit and cash forecasts and includes
estimations of discount and long-term growth rates.
• Pension surplus/deficit – the actuarial pension funding is sensitive to
the actuarial assumptions applied in measuring future cash outflows.
The use of assumptions such as the discount rate and inflation which
have an impact on the valuation of the defined benefit pension scheme
has been assessed by the Audit Committee. Management has used
judgement to determine the applicable discount and inflation rate to
apply to pension increases in calculating the defined benefit obligation.
The total pension liability, inclusive of minimum funding, is significantly
less sensitive to management assumptions due to the remaining term of
the schedule of contributions.
• Separately disclosed items – judgement is used to determine those
items which should be separately disclosed to allow an understanding of
the adjusted trading performance of the Group. Separately disclosed
items are explained and analysed in note 2.2 of the financial statements
on page 124. This judgement includes assessment of whether an
item is of sufficient size or of a nature that is not consistent with normal
trading activities.
Effectiveness of internal audit
The Audit Committee is responsible for monitoring and reviewing the
effectiveness of the Group’s internal audit function. The Audit Committee
meets regularly with management and with the Group Risk Director and the
internal auditor to review the effectiveness of internal controls and risk
management and receives reports from the Group Risk Director on
a quarterly basis.
During each financial year, the Audit Committee completes its annual review
of the effectiveness of the Group’s system of internal controls and internal
audit function, including financial, operational, compliance and risk
management systems.
The annual internal audit plan is approved by the Audit Committee and is
kept under review on a monthly basis, by the Group Risk Director, in order to
reflect the changing business needs and to ensure new and emerging risks
are considered. The Audit Committee is informed of any amendments made
to the internal audit plan on a quarterly basis. The FY 2022 internal audit plan
was developed through a review of formal risk assessments (in conjunction
with the Risk Committee and the Executive Committee) together with
consideration of the Group’s key business processes and functions that could
be subject to audit.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 87
Audit Committee report continued
External audit annual assessment
The Audit Committee assesses annually the qualification, expertise,
resources and independence of the Group’s external auditor and the overall
effectiveness of the audit process. The Chief Financial Officer, Group
General Counsel and Company Secretary, Audit Committee Chair and
Group Risk Director meet with the external auditor to discuss the audit,
significant risks and any key issues included on the Audit Committee’s
agenda during the year.
Fair, balanced and understandable statement
One of the key governance requirements of the Annual Report and Accounts
is for the report and accounts, taken as a whole, to be fair, balanced and
understandable, and that they provide the information necessary for
shareholders to assess the Group’s position, performance, business model
and strategy. Therefore, upon review of the financial statements, the Audit
Committee and the Board have confirmed that they are satisfied with the
overall fairness, balance and clarity of the Annual Report and Accounts,
which is underpinned by the following:
• review of the formal review processes at all levels to ensure the Annual
Report and Accounts are factually correct;
• clear guidance being issued to all contributors to ensure a consistent
approach; and
• formal minutes of the Year End Working Group comprised of relevant
internal functional representatives and appropriate external advisers.
Jane Moriarty
Chair of the Audit Committee
6 December 2022
External auditor appointment
Following Shareholder and Board approval, KPMG LLP was appointed as
the auditor in 2022, following a formal tender process in 2020 to ensure the
continued objectivity, independence and value for money of the statutory
audit. KPMG LLP is therefore responsible for undertaking the FY 2022 audit.
The Audit Committee has considered the guidance in relation to rotation
including the proposed transition rules which will be considered when
recommending the appointment of the auditor in future years. The Group
has complied throughout FY 2022 with the provisions of The Statutory Audit
Services for Large Companies Market Investigation (Mandatory Use of
Competitive Tender Processes and Audit Committee Responsibilities)
Order 2014.
External auditor’s independence
The external auditor should not provide non-audit services where it might
impair their independence or objectivity to do so. The Audit Committee has
established a policy to safeguard the independence and objectivity of the
Group’s external auditor as set out below. That policy was reviewed in
FY 2022 and a copy of it is appended to the Audit Committee’s terms of
reference and is available on the Group’s website.
Pursuant to that policy the following services have been pre-approved by the
Audit Committee provided that the fees for such services do not exceed in
any year more than 70% of the average audit fee paid to that audit firm over
the past three years (unless prior approval has been obtained from the FRC,
such as the additional work performed in relation to the Open Offer during
FY 2021):
• audit services, including work related to the annual Group financial
statements and statutory accounts; and
• working capital review, in respect of the Open Offer in FY 2021, following
approval from the FRC.
The Audit Committee remains confident that the objectivity and
independence of the external auditor are not in any way impaired by reason
of the non-audit services which they provide to the Group.
That policy also includes an extensive list of services which the audit firm
may not provide or may only provide in very limited circumstances where
the Group and the audit firm agree that there would be no impact on the
impartiality of the external audit firm.
Details of the remuneration paid to the external auditor, and the split
between audit and non-audit services, are set out at note 2.3 of the financial
statements on page 128.
88 Governance
Report on Directors’
remuneration
“Following my appointment as Chair of the Remuneration
Committee in July, I am pleased to present the Directors’
Remuneration Report in respect of the financial period
which ended on 24 September 2022.”
Amanda Brown
Chair of the Remuneration Committee
Background and business context
The UK Hospitality industry has faced another
year of considerable challenge and volatility.
In early December it became clear that concerns
relating to the emergence of the new Omicron
variant were having an impact on consumer
confidence, with the public encouraged to limit
socialising and this having a major detrimental
effect on trading at the busiest period of the year.
By the half year, it was clear that a number of
factors were having a sustained impact on driving
up inflationary cost pressures, notably wages,
fuel and food costs, not only affecting our own
cost base, but crucially threatening to impact
consumer confidence as inflation began to rise.
Against this backdrop the business has performed
well. By the start of FY 2022 sales had returned to
growth, and whilst the impact of the Omicron
variant meant that sales over the four-week
Christmas period fell on a like-for-like basis by
over 10%, performance was strong in the period
up to the start of December. Through the
remainder of the year like-for-like sales remained
in growth although overall profitability continued
to be impacted by the external factors set out
above. Total sales for FY 2022 fell by 1.3% mainly
as a result of temporary closures in the first
quarter, however, like-for-like sales
a
grew by 1.1%
over the full year.
In comparison with FY 2019, cost headwinds
totalled £220m with energy costs contributing
£70m. If energy costs had remained flat, full year
Operating Profit would have been broadly in
line with FY 2019 even when taking into account
the other cost increases. Given the impact of
Omicron in the first quarter, this represents a very
strong performance.
The strategic priorities underpinning the
performance of the business have remained
consistent for a number of years, with our
aims being:
• build a balanced business,
• instil a commercial culture and,
• to drive an innovation agenda.
The Ignite programme of work continues to be
the engine room that drives progress across these
priorities and has enabled the management team
to be proactive in managing the impact of the
macroeconomic environment on the business.
A range of new initiatives is now being introduced
alongside existing projects. These newer projects
include automated ordering for food and drinks,
and, more recently, the roll out commenced of
automated scheduling tools. Both of these
initiatives improve efficiency and save our
managers time, allowing them to focus on
our guests.
The ongoing energy cost pressures make it
essential that businesses look to innovation as
a way to mitigate as far as possible increases that
the business faces. These innovations have
ranged from the very straightforward, such as
appointing in-house energy champions to identify
opportunities to improve energy efficiency, to
more sophisticated capital driven responses such
as the installation of voltage optimisers.
Our capital investment plan is key to us building
a balanced business and has continued despite
the ongoing uncertainty. Over FY 2022 c. 166
conversions and remodel projects were
completed, made possible by the strong
underlying financial position of the Group, and
these projects continue to deliver good returns.
a. Compared to FY 2019, this being the last full pre-Covid
financial year.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 89
Financial measures – Operating Profit (outcome 14.6% out of 43%)
In the hope of a more stable FY 2022, the Board set Operating Profit targets
at the start of the financial year for the Company incentive schemes. By the
end of the first quarter, a number of things had changed. The emergence of
the Omicron variant had a significant impact on Christmas trading, the cost
headwinds the business was facing were far in excess of those anticipated at
the start of the financial year and it was also clear that consumer confidence
would be weakened as a result of much higher inflation and, in particular,
increases in household energy costs.
At the beginning of the second quarter, the Board reviewed performance
and, taking into account the significant shift in the financial outlook,
concluded that the targets set were no longer appropriate for the c. 6,000
employees across the Group that we were trying to incentivise, at the same
time highlighting a significant retention and motivation risk. The Board
therefore determined it would be appropriate to set a target for the final
eight periods of the year (April to end September) but with a corresponding
reduction in bonus opportunity. This approach applied to all those employees
eligible to participate in an incentive plan and included c. 5,000 critical
frontline managers as well as the Executive Team and Executive Directors.
For the Executive Directors, this meant that the financial performance in
the first five periods of the financial year was measured against the original
targets set in respect of this period. As these targets were not achieved,
no bonus will be awarded in respect of this period.
The Operating Profit target for the remainder of the financial year was set
following a reforecast of the business in the light of the escalating cost
pressures, notably in wages, food and energy costs. This resulted in an
Operating Profit target of £167.7m in respect of this period. The Board
determined that this pro-rata target was at least as challenging as the full year
target and provided a fair and proportionate level of incentive for Executives
in what would be a very challenging year.
As this target now covered a part year, the overall earnings opportunity for
this element was reduced accordingly on a pro-rata basis from 70% to 43% of
base pay.
The same performance range applied to the revised target with earnings
beginning to accrue at 95% of the target and maximum at 103% of target.
This approach to annual incentives was applied to all support centre
colleagues. For frontline management employees a pro-rata approach was
put in place based on the same principles. In addition, where any bonus was
earned by employees in this group against the earlier period’s targets, this
was also paid.
The overall Operating Profit outcome over the financial year was £240m, and
£165m for the period between April and the end of September equivalent to
98.4% of the eight period target, resulting in a bonus payment equivalent to
14.6% of salary for Executive Directors.
Non-financial measures – (outcome 18.75% out of 30%)
The non-financial measures encompass Guest Health, Employee
Engagement and Food Safety, and form an important part of the annual
incentive plan. Clear correlations have been established over a number of
years between strong employee engagement, high levels of guest
satisfaction and sales performance. Food safety is always a priority for
the business.
Bonus can only be earned under these non-profit elements if 97.5% of the
Operating Profit target is met. The non-profit targets for FY 2022 were
measured over a full year and the Operating Profit underpin assessed against
the financial target set for the final eight periods of the year, and therefore the
profit underpin condition has been met.
Guest Health performance was at the threshold level for payment,
Employee Engagement exceeded the maximum target and the Food Safety
element met the target set. As a result, the overall outcome across all three
non-profit elements was a payment equivalent to 18.75% of base pay for
Executive Directors.
Building a sustainable business
Progress against our Environmental, Social and Governance (‘ESG’) strategy
has also continued throughout the last year. This strategy focuses on three
areas, respect for the planet, pride in our offers and care for our communities.
We have set a very ambitious target to be Net Zero by 2040, to have zero
operational landfill by 2030 and to have reduced food waste by 50% by 2030.
Work towards these targets is underpinned by a number of workstreams
focused on practical ways of achieving these aims, for example by increasing
recycling and making operational improvements to reduce our food waste
through partnerships such as Too Good to Go. We are also founding
members of the Zero Carbon Forum. Our strategy also encompasses our
people and our communities with a focus on employee wellbeing and
working with partners such as Shelter, Only a Pavement Away and Social
Bite to tackle homelessness and provide job opportunities. More information
on our broader sustainability strategy can be found on pages 32 and 33.
It is well documented that the hospitality sector has been impacted by
employee shortages since the pandemic began and whilst there are some
areas of the country where recruitment and retention remain challenging,
particularly for kitchen teams, employee numbers in Mitchells & Butlers have
recovered almost to pre-pandemic levels.
The challenging recruitment market is unlikely to change in the short to
medium term, and as a result it is important that our overall employee offer
adapts to meet the demands of current and prospective employees. To do
this, work is underway to enable employees to work more flexibly and to
consider how best to address long working hours which have been a
characteristic of the hospitality industry for many years.
The business is also very aware of the role it can play in supporting our
employees with the impact of inflation and the cost of living, and an element
of this is ensuring that pay and benefits remain competitive. All employees
have access to a platform that provides discounts across a range of retailers,
including supermarkets and we have recently extended our employee
discount scheme to enable friends and family to access the scheme. In
addition, employees are able to access support across a range of mechanisms
including our employee assistance programme which is operated in
conjunction with the Licensed Trade Charity.
Outcome of the 2022 AGM vote on the Annual Report on
Directors’ remuneration
At the 2022 AGM the Annual Report on Directors’ remuneration received
the support of 78.5% of shareholders. It is clear to me that some shareholders
had concerns about the RSP award level for the Chief Financial Officer
(‘CFO’) which I will address later in this report. The current remuneration
policy was approved at the 2021 AGM with 82.5% of shareholders voting in
favour of the policy.
Remuneration in FY 2022
From the start of FY 2022 to my appointment as Remuneration Committee
Chair in July 2022, remuneration matters were considered by the Board.
As such, where references are made to the Board in the remainder of this
statement this indicates that the matter was dealt with by the Board and
where the Remuneration Committee (‘the Committee’) is referenced it was
a matter considered by the Committee.
Annual Bonus
For FY 2022 the annual bonus scheme reverted to the structure in place prior
to the Covid-19 pandemic, with four elements: Adjusted Operating Profit
a
(hereafter known as Operating Profit), Guest Health, Employee Engagement
and Food Safety. These plan measures reflect the overall business scorecard
aligning all employees from the Executive Committee through to the
management teams in each business.
Report on Directors’ remuneration continued
a. The Directors use a number of alternative performance measures (‘APMs’) that are
considered critical to aid the understanding of the Group’s performance. Key measures
are explained on pages 177 to 179 of this report.
90 Governance
FY 2020 PRSP (Nil Vesting)
During FY 2020 share awards were made to Phil Urban and Tim Jones
under the terms of the PRSP to the value of 200% and 140% of their
respective salaries.
The 2020/22 PRSP performance condition had two independent elements,
Operating Cash Flow before separately disclosed items (75% weighting and
hereafter referred to as Operating Cash Flow) and relative TSR performance
against a group of sector peers (25% weighting).
As has been well documented, the Covid-19 pandemic has severely
impacted on financial performance with Operating Cash Flow of £835m
being below the level required for threshold vesting (£1,509m). As a result,
this element of the plan lapsed. TSR performance was -41.3% and below
the median of the group (-36.5%) and therefore this element of the plan
also lapsed.
Remuneration for FY 2023
Fixed Pay (Base Pay, Pensions and Benefits)
Fixed pay for Executive Directors has remained unchanged since 2019 and
will not increase in 2023.
The current level of inflation is putting pressure on pay increases. Overall pay
increases have been 6.3% over the year with hourly paid frontline employees
who are typically the lowest paid employees in the group, seeing the largest
increases. It is anticipated that pay increases for frontline workers in the
coming year will again be at least at the level seen in FY 2022.
With effect from 1 January 2023 Phil Urban’s salary will increase to £579,000
(5%) and Tim Jones’s to £484,500 (5%). In line with our intention to reduce
pension allowances for Executive Directors to the average employer
contribution, increases in base pay will be entirely offset by an equal
reduction in the cash equivalent pension contribution. Therefore, the
pension allowance paid to Executive Directors will reduce to 5.6%. This
compares with 4% for the general workforce and we anticipate that
alignment will be achieved in FY 2024 in line with the approach we
communicated in our remuneration policy.
There are no changes to the benefits available to Executive Directors.
Annual Bonus
The Committee has determined that the annual bonus scheme for FY 2023
will be broadly the same as that in place for FY 2022, and will be structured
as follows:
• The maximum earnings opportunity will remain at 100% of base salary.
• Adjusted Operating Profit
a
will continue to account for 70% of the
overall opportunity.
• Delivery of a threshold level of financial performance will result in a
payment of 7.5% of base salary. This is a small change from the FY 2022
scheme where bonus began to accrue from the threshold level of
performance. The Committee feels that this change is appropriate in the
context of the target that has been set for FY 2023. The level of payout for
delivery of target performance across all elements remains unchanged at
50% of base salary.
• There remains a great deal of uncertainty in relation to the cost
headwinds the business may face in the coming year. The Committee has
therefore decided that targets will be set for the full year but that initially a
quarter one incentive target will be put in place. Achievement of this target
would accrue a pro-rata bonus based on the target range set out above.
• At the end of the first quarter the Committee will consider whether it is
appropriate to revise the targets set for the remainder of the year, which
may result in quarterly targets being set throughout the year or a revised
target being set for a longer period depending on the circumstances and
outlook at the time.
• The Committee feels that this approach will ensure that targets remain
appropriately stretching and can take into account the volatility that may
impact costs (either way) in the year and particularly in relation to energy.
Final Bonus Outcome
In determining the final bonus outcome, the Committee considered the
wider performance of the Group across the entire financial year as part of its
overall quality of earnings assessment. The Committee felt it was important
that this assessment included the financial performance in the first quarter of
the year, taking into account trading prior to the emergence of the Omicron
variant and the resilience the business has shown subsequently as the cost
pressures have further increased significantly in the remainder of the year as
a result of Russia’s invasion of Ukraine. Overall, given the very challenging
circumstances, the Committee felt that the Senior Management team had
delivered a strong performance over the year.
In taking all of these factors into account, and specifically the scaling back of
the bonus opportunity for the financial element and the very demanding
nature of the targets, the Committee was therefore satisfied that the overall
outcome was consistent with our performance over the year. An additional
important consideration was that other employee groups had been treated
consistently with the approach taken for Executive Directors.
Therefore, the total bonus awarded to Executive Directors is 33.4% of salary,
resulting in bonus payments of £182,241 and £152,491 to Phil Urban and
Tim Jones respectively.
In line with our policy, half of any bonus award will be deferred into shares
under the Short Term Deferred Incentive Plan (‘STDIP’), which will be
released in two equal amounts after 12 and 24 months. These shares must
be retained until the shareholding requirement is met and are subject to
a post-cessation holding period.
FY 2019 PRSP vesting and underpin
Last year’s report explained that the FY 2019 PRSP has vested but that these
vested shares, equivalent to 21.5% of the maximum outcome, were subject
to a share price underpin. This underpin meant that shares could not be
exercised unless the share price equalled or exceeded 272p on any one day
from 25 November 2021 up to and including 25 May 2022. During the
period up to 25 May 2022 the share price came very close to meeting this
underpin, reaching 268p in February. The share price had been consistently
above this underpin in the period just prior to vesting and over the last three
months of FY 2021 the average share price was 277p.
The Board considered this matter in April when it became clear that the
underpin condition would not be met and concluded that it was very likely
that the condition would have been met, had it not been for the wider macro
factors affecting share prices across many sectors of the economy. For
example these factors, namely the impact of Omicron and Russia’s invasion
of Ukraine, saw share prices fall across the FTSE All Share Travel and Leisure
group (which Mitchells & Butlers is a part) by around 3.7% in the period
between the shares vesting in November 2021 and the end of the underpin
period in May 2022. Over the period from the date of grant to the end of the
original underpin period, Mitchells & Butlers outperformed the median share
price of the FTSE All Share Travel and Leisure group.
Equally, the Board did not feel that it would be appropriate to simply override
the condition and allow awards to be exercised at a time when the share price
was depressed. It was also noted that this type of underpin is unusual in
long-term incentive plans and means that there is a further performance
hurdle to be met in order for vested shares to be released.
The Board therefore determined that it would be appropriate to extend the
time period under which the underpin would need to be satisfied to two
years post the vesting date (to November 2023), this being the period by
which vested awards must be exercised under the plan rules. If the underpin
is met during the extended period, the Committee is committed to reviewing
the wider circumstances at the time, including the Company’s broader
performance, to determine whether it is appropriate for the vested shares to
be exercised. As such, the underpin being met during the extended period
will not automatically result in the vested shares becoming exercisable.
In accordance with our remuneration policy, a letter explaining the decisions
to amend the underpin was sent to major shareholders and investor groups
during the year, and there were no concerns raised as a result.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 91
Report on Directors’ remuneration continued
The most important consideration as we plan for FY 2023 is to ensure that
the CFO remuneration includes an appropriate level of long-term incentive
now, rather than compared with the level two years ago. An RSP grant of
100% of salary (implying a 200% salary Performance Share Plan) for the CFO,
is, in my view, a sensible ongoing level for this role. I would ask shareholders
to now consider the grant in this context and I hope that you will support the
view of the Committee that this level of award is appropriate for a CFO who
has been in position for 12 years and who has been (and will continue to be)
vital in navigating the business through the challenges it faces.
The Committee has reviewed the performance underpin which it will take
into account (amongst other factors) when determining its use of discretion
on whether to adjust the number of shares vesting. It concluded that the
three elements of the current underpin remain appropriate and requires the
Committee to consider the following:
• If any adjustments have been made to annual bonus outcomes for each of
the three years covered by the vesting period for awards under the RSP;
• Whether there has been material damage to the reputation of the
Company (in such circumstances, responsibility and hence any
adjustments to the level of vesting may be allocated collectively or
individually to participants); and
• That the business has an appropriate capital structure in place that
enables the execution of our strategic priorities.
The following ‘Remuneration at a Glance’ section provides a short summary
that demonstrates that our overall approach to Executive Remuneration has
been and continues to be, measured, well balanced and appropriate.
Amanda Brown
Chair of the Remuneration Committee
6 December 2022
• Based on current assumptions, an on-target payout over the full year
would require a sales performance well ahead of pre-pandemic levels
and that a significant proportion of the anticipated cost headwinds of
c. £180m will be offset through initiatives to enhance efficiency and
productivity. A maximum payment would therefore represent a very
strong performance.
The remaining 30% of the annual bonus plan will be allocated against the
business scorecard as follows:
– 15% for Guest Health (reputation.com scores and guest complaints).
– 10% for employee engagement.
– 5% for Food Safety.
• For FY 2023 the guest health measurement will no longer encompass Net
Promoter Score (‘NPS’). Over time social media scores have become the
most relevant measurement of guest satisfaction and the replacement of
NPS also reflects the change in the overall Company guest KPI from NPS
to reputation.com scores. The non-financial elements are only payable if
a threshold level of financial performance is achieved. For FY 2023 this
will be unchanged at 97.5% of Operating Profit.
Consideration was given to the introduction of further ESG measures into the
annual bonus plan for FY 2023 and specifically the inclusion of a measure
aligned to our sustainability strategy. On balance the Board felt that it would
be more appropriate to consider how best such a measure may fit into
incentive plans as part of our forthcoming remuneration policy review.
Executive Directors are also aware that the Committee may take into account
other factors when assessing if any bonus may be paid as part of our
established quality of earnings assessment. In particular this assessment will
review the overall financial performance of the Group over the year to ensure
that any payout resulting from the approach to target setting above is
consistent with overall performance across the year.
Restricted Share Plan (‘RSP’) award FY 2023 to FY 2025
An RSP award is due to be made in respect of the FY 2023 to FY 2025 period.
The Committee has agreed that the award for Executive Directors will remain
at 100% of base pay.
In light of the comments raised by some shareholders last year in respect of
the CFO’s RSP award quantum, I have taken the opportunity as the incoming
Remuneration Committee Chair to assess this level of award. When an RSP
is introduced, standard practice is to grant 50% of the previous performance
tested award. I therefore understand the concern of some shareholders
when this was not done for the CFO. The rationale for this decision has been
documented in previous reports.
This report has been prepared on behalf of the Board and has been approved by the Board.
The report has been prepared in accordance with the Companies Act disclosure regulations
(the Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013) (the ‘Regulations’).
a. The Directors use a number of alternative performance measures (‘APMs’) that are
considered critical to aid the understanding of the Group’s performance. Key measures
are explained on pages 177 to 179 of this report.
92 Governance
Remuneration at a glance
33.4% of salary
33.4% 0.0% 0.0%
2022 2020 2021
0.0% 21.5% 0.0%
2022 2021 2020
2022 Outcomes
Annual Bonus
• LFL Sales growth of 1.1%
• Online Review scores at highest ever level
• Very strong employee engagement scores
• Food safety scores at highest ever level
• FY 22 Operating Profit of £240m
• Achieved 98.4% of Operating Profit bonus target
• Operating Profit broadly at pre-pandemic levels had energy
costs remained flat
• 50% of the bonus award is deferred into shares
• Shares released after 12 and 24 months
Fixed Pay (Salary, Pension and Benefits)
• Overall fixed pay has not increased since 2019.
• Increases in salary for Executive Directors have been offset entirely by an equal reduction in cash equivalent pension contributions.
• This approach will continue for 2023.
2020–2022 PRSP
• PRSP had two measures, Operating
Cash Flow and Relative TSR
• Each year of the performance period impacted by Covid
• Overall Operating Cash Flow of £835m
was well below the level required for threshold vesting
• TSR also below threshold required for vesting
• 2021 vesting was subject to a share price underpin that is
not yet met, therefore shares have not been released to
Executive Directors
Overall Outcome Overall Outcome
Historical outcomes Historical outcomes
Chief Executive Fixed Pay Chief Financial Officer Fixed Pay
0% vesting
2023 2022 2021
20192020
£300,000
£400,000
£500,000
£600,000
£700,000
2023
£300,000
£400,000
£500,000
£600,000
£700,000
2022 2021
20192020
Salary Pension Benefits
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 93
Report on Directors’ remuneration continued
Components of remuneration
The remuneration package for the Executive Directors comprises both fixed and variable elements consistent with our remuneration principles.
Fixed: Variable:
Fixed components – pay
With effect from 1 January 2023, Phil Urban’s salary will increase by 5% to £579,000 and Tim Jones’ salary will also increase by 5% to £484,500.
Variable components
Annual bonus
No change to potential quantum – 100% of salary.
Measures will be: Operating Profit Guest Health Engagement Safety
Half of any bonus payable will be deferred in the form of shares and released in equal parts after 12 and 24 months.
RSP
+ +Salary Annual bonusBenefits and pension RSP and sharesFixed total Variable total= =
70% 15% 10% 5%
Business scorecard measures
Award level (Phil Urban and Tim Jones)
100% of salary
Approach for 2023
Executive Directors’ shareholdings
Phil Urban Chief Executive
£579,000
Tim Jones Chief Financial Officer
£484,500
Phil Urban (Shareholding requirement 250%)
Current shareholding Shareholding requirements
Owned shares Outstanding unvested awards
Tim Jones (Shareholding requirement 200%)
119% 222%
0% 250%
104% 191%
0% 200%
The cash equivalent pension contribution for both Executive Directors will be reduced by an amount equal to the increase in base salary.
As a result the cash equivalent pension contribution will be 5.6%.
No performance conditions but vesting subject to performance underpins, assessed by the Remuneration Committee prior to vesting.
A two-year holding period applies for all long-term incentive awards.
• Directors are required to retain all vested shares (net of tax) until the
share ownership guideline is met
• Post cessation, the shareholding requirement is equal to the
shareholding guideline for two years post departure with shares held in
a nominee account. Transitional arrangements are in place for existing
Executive Directors.
94 Governance
Chief Executive
£626,000
£1,494,500
£1,784,000
£2,073,500
Minimum
100% 41.9%
19.4%
38.7%
35.0%
32.5%
32.5%
30.2%
27.9%
27.9%
14.0%
£624,000
100%
£807,000
77.1%
22.9%
On-target Maximum
FY 2022
Actual
FY 2021
Actual
Maximum
+50% Share
price gain
Share price gain
Long-term incentives
Short-term incentives
Fixed pay
Chief Financial Officer
£532,394
£1,259,144
£1,501,394
Minimum
100% 42.3%
19.2%
38.5%
35.5%
32.3%
32.2%
30.5%
27.8%
27.8%
13.9%
£524,000
100%
£677,000
77.5%
22.5%
On-target Maximum
FY 2022
Actual
FY 2021
Actual
Maximum
+50% Share
price gain
Share Price Gain
Long-term incentives
Short-term incentives
Fixed pay
£1,743,644
Table 1
Chief Executive pay ratio
Financial year
P25
(lower quartile)
P50
(median)
P75
(upper quartile)
2022 53:1 47:1 45:1
2021 41:1 38:1 36:1
2020 37:1 35:1 35:1
2019 120:1 112:1 106:1
Table 2
Gender Pay Gap
Financial year
2022
%
2021
%
2020
%
2019
%
2018
%
2017
%
Mean Pay Gap 5.6 20.2 29.3 6.1 7.4 8.1
Median Pay Gap 2.2 -13.1 17.3 3.2 4.7 5.2
Mean Bonus Gap 11.0 21.0 24.6 33.5 38.5 27.6
Median Bonus Gap 0.0 33.3 5.2 15.4 29.2 20.6
Application of remuneration policy
A key principle of the Group’s remuneration policy is that variable short-term
remuneration should be linked to the financial performance of the Group
and that long-term reward should provide alignment of Executives to
shareholders. The charts opposite show the composition of the remuneration
of the Chief Executive and Chief Financial Officer at minimum, on-target and
maximum levels, including the impact of a 50% increase in share price on the
LTIP outcome. The chart also shows FY 2021 and FY 2022 actual outcomes.
The performance scenarios demonstrate the proportion of maximum
remuneration which would be payable in respect of each remuneration
element at each of the performance levels. In developing these scenarios,
the following assumptions have been made:
Minimum
Only the fixed elements of remuneration are payable. The fixed element
consists of base salary, benefits and pension. Base salary is the salary
effective from 1 January 2023. Benefits are based on actual FY 2022 figures
and include company car allowance, healthcare and taxable expenses.
Pension is the cash allowance and/or Company pension contribution payable
from 1 January 2023.
On-target
In addition to the minimum, this reflects the amount payable for on-target
performance under the short-term and long-term incentive plans:
• 50% of maximum (50% of base salary for the Chief Executive and Chief
Financial Officer) is payable under the short-term incentive plan; and
• 100% of the award is payable under the long-term incentive plan.
Maximum
In addition to the minimum, maximum payment is achieved under both the
short-term and long-term incentive plans such that:
• 100% of base salary is payable under the short-term incentive plan for the
Chief Executive and Chief Financial Officer; and
• 100% of the award is payable under the long-term incentive plan.
Share price gain
This shows the impact a 50% increase in the share price would have on the
RSP outcome.
Pay ratios and gender pay
Table 1 on the right sets out the Chief Executive pay ratio at the median,
25th and 75th percentiles.
More detail in relation to the pay ratio calculation can be found on page 17.
Table 2 on the right provides a summary of gender pay data for the Group.
Gender Pay Gap calculations in 2020 and 2021 were impacted as a result of
the Coronavirus Job Retention Scheme, which meant only those working on
the snapshot day were included in the calculations (c. 200 employees). The
2022 results are broadly consistent with those seen prior to 2020, although it
is encouraging that across all four measures the gap has reduced.
Additional remuneration information
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 95
Report on Directors’ remuneration continued
Below are two practical examples of how the remuneration principles apply
to different employee groups:
General Managers
A competitive package is important for this group as they are fundamental to
the day-to-day success of the business and the current recruitment market
remains challenging in some geographical areas, with a shortage of
high-calibre managers. As with Executive Directors, a high proportion of
potential reward for this group is based on performance and the overall
structure is straightforward to understand. There is a lesser weighting on
equity, but all General Managers can participate in any of the all-employee
share schemes, subject to qualifying service, thereby building their own
stake in the business.
Hourly Paid Employees
The recruitment market has become very challenging for the sector as a
result of changes to immigration policy following Brexit. In addition, the
Covid-19 pandemic has seen many EU workers return home and some UK
workers leave the industry during the long periods of furlough. Therefore,
competitive pay remains a priority and, in particular, for skilled kitchen roles
where there remains a shortage of high-quality talent and this has resulted in
increased rates of pay for this group in particular. Although base pay for our
hourly paid team members is not linked to performance, there is a strong link
to performance where there are opportunities to earn tips and where a
service charge is applied (100% of which is retained by the team with no
administration charge), and, more broadly, the good performance of the
Company allows for more investment in pay. Pay structures for this group are
straightforward and, as with other employees, hourly paid team members
can participate in any of the all-employee share schemes, subject to
qualifying service.
Mitchells & Butlers’ remuneration principles
When determining Executive Director remuneration policy, the
Remuneration Committee addresses each of the factors under Provision 40
of the 2018 UK Corporate Governance Code and these are also reflected in
our principles:
Shareholder alignment
A high proportion of reward is delivered in the form of equity, ensuring
Executives have strong alignment with shareholders.
Competitive
Providing reward that promotes the long-term success of the business
whilst enabling the attraction, retention and motivation of high-calibre
senior Executives.
Performance-linked
A proportion of an Executive Director’s reward is linked to performance, with
a clear line of sight between the outcomes of the business and the delivery of
shareholder value.
Straightforward
The remuneration structure is simple to understand for participants and
shareholders and is aligned to the strategic priorities of the business.
These same principles apply throughout the organisation and are adapted
as appropriate for specific employee groups with a different emphasis on
certain principles in comparison to Executive Directors. This is illustrated
in the table on page 97 which sets out remuneration below Executive
Director level.
For senior management, a much greater proportion of the overall reward
package is performance linked and therefore is variable and at risk, whereas
for our hourly paid colleagues a greater weighting applies to the competitive
and straightforward principles as these factors are more important to the
attraction and retention of these employees.
Alignment of Executive pay to strategy
The table below sets out how the three strategic priorities of the business align to executive remuneration for Executive Directors:
Strategic priority Link to Executive remuneration
Building a more
balanced business
Strong operating performance supports the
delivery and sustainability of the capital plan and
estate optimisation.
Operating Profit delivery is the main component of the annual bonus plan.
The RSP enables senior management to focus on long-term sustainable
performance without the risk of being in conflict with the achievement of
performance targets that have been set over a predetermined period.
A more balanced business delivers brands and
food and drink offers in an environment that
guests want to enjoy.
The Guest Health element of the annual bonus plan provides a strong
indicator of the success of each business. There is a clear correlation
between strong Guest Health performance and sales performance.
High-quality engaged teams are fundamental to
the success of any business.
The engagement element of the annual bonus plan measures how our
teams feel about working for Mitchells & Butlers, and, in turn, the service
they provide to guests.
Instilling a more
commercial culture
A commercial culture improves controls,
efficiency, purchasing and pricing, driving both
improved cash flow and operating performance.
Operating Profit delivery is the main component of the annual bonus plan.
Commercial decisions must be guest focused
and benefit from the input of customer feedback.
The Guest Health metric quickly demonstrates where decisions are right or
wrong and Executives are incentivised to react.
Developing and evolving a commercial culture
requires high levels of employee engagement and
business awareness throughout the business.
The employee engagement element of the annual bonus plan supports and
underpins the development of culture.
Driving an
innovation agenda
Innovation at small and large scale is an engine
for improved sales and, therefore, cash and
profit generation.
The RSP enables a focus on innovation without the risk of being in conflict
with the achievement of performance targets that have been set over
a predetermined period.
Operating Profit delivery is the main component of the annual bonus plan.
Guests’ expectations continue to increase,
demanding higher standards of service and
digital capability.
The Guest Health element of the annual plan provides valuable actionable
feedback and incentivises action.
Innovation involves change, and delivery of
change requires strong employee engagement.
The employee engagement element of the annual bonus plan incentivises
action to maintain and improve employee engagement.
96 Governance
Remuneration below Executive Director level
The table below demonstrates how the key elements of Executive pay align with the wider workforce:
Job Group
(Number of employees) Base pay Bonus Long-term incentives All-employee share plans
Executive Directors (2) Pay broadly around
mid-market levels.
Overall, increases
(in percentage terms)
consistent across all salaried
employee groups.
Bonus schemes for all
schemes align to the business
scorecard.
The majority of bonus
opportunity is linked to
financial performance.
Measures and targets for
long-term incentive plans
consistent for all
participants.
All employees can
participate in any of the
all-employee share
schemes, subject to
qualifying service, building
a stake in the business.
Executive Committee (8)
Senior management (c. 40)
Retail Support Centre
(c. 1,050)
Retail managers (c. 5,100)
Retail team members
(c. 37,000)
Pay set in line with market
requirements and closely
monitored.
Base pay for many
employees is ahead of the
statutory minimums.
Many employees benefit
from tips and service charge,
and it is Mitchells & Butlers’
policy to pass 100% of these
earnings on to employees.
Our pay approach is aimed at providing regular and
predictable earnings through competitive base pay for
our retail team members. This is valued more highly
than variable pay elements by retail team members and
is in line with our ‘competitive’ and ‘straightforward’
remuneration principles.
Workforce engagement
We welcome and encourage feedback from employees on a broad range of topics including business improvement, engagement and remuneration.
This feedback is gathered in a number of ways throughout the year as shown in the illustration below:
Employee survey
Outcomes reviewed by
the Remuneration
Committee and taken
into account when
setting remuneration
policy.
CEO roadshows
The CEO and CFO hold
regular roadshows that
allow both support
centre colleagues and
General Managers an
opportunity to discuss
business issues and
provide feedback.
Employee forum
Elected representatives
have direct access to the
Executive Committee as
part of the forum and
where necessary
Executive remuneration
matters, are brought to
the attention of the
Remuneration
Committee Chair.
Overview of pay and
policy decisions
Committee members are
updated on employee
terms and conditions
and made aware of
significant changes to
policies and other
pay-related matters.
Remuneration Committee
Nominated
Non-Executive
Director
A Non-Executive
Director (Dave Coplin)
has been appointed to
engage with employees
and report back to the
Board. Dave Coplin is
a member of the
Remuneration
Committee.
Obtaining and understanding the views of our employees, including in
relation to Executive Remuneration, is an important consideration for the
Committee when developing and operating our overall approach to
remuneration across Mitchells & Butlers. In addition to our approach to
communicating with our employees, we also welcome feedback and all
employees are invited to take part in our employee engagement surveys.
These provide all employees with an opportunity to give anonymous
feedback on a wide range of topics of interest or concern to them.
The Committee reviews these results and any significant concerns over
remuneration would be considered separately by the Committee and,
if appropriate, taken into account when determining the remuneration
approach and its implementation.
An employee forum is normally held twice every year, which gives an
opportunity for employees to ask questions of senior management via
elected representatives, and which from FY 2020 has been attended by
Dave Coplin. This forum was suspended during the pandemic but resumed
in March 2022, with a second forum held in September 2022. The Executive
team find these forums very valuable, as the format allows for a more
in-depth discussion and understanding that is not possible through other
channels such as surveys.
The Committee is regularly updated throughout the year on pay and conditions
applying to Group employees alongside other workforce-related matters.
Where significant changes are proposed to employment conditions and
policies elsewhere in the Group, or there are important employee-related
projects underway, these are highlighted for the attention of the Committee
at an early stage. Over the course of FY 2022, these updates have focused on
employee engagement, the challenges of the current recruitment landscape
and strategies to rebuild capability, including the reinvigoration of our
internal training and development routes, which also encompass our
apprenticeship programmes.
The Committee takes into account the base pay review budget applicable
to other employees when considering the pay of Executive Directors. The
Committee considers a broad range of reference points when determining
policy and pay levels. These include external market benchmarks as well as
internal reference points. Any such reference points are set in an appropriate
context and are not considered in isolation.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 97
Report on Directors’ remuneration continued
Committee activity during the year
Following Imelda Walsh’s decision to step down from the Board and Chair
of the Remuneration Committee in July 2021 and until the appointment of
Amanda Brown in July 2022, remuneration matters were dealt with at the
main Board. Since July 2022 the Committee met once. Key remuneration
items considered over the year were as follows:
October 2021
(Main Board)
• CEO pay review
• Executive Committee pay review
• FY 2022 Annual bonus targets
November 2021
(Main Board)
• FY 2019 PRSP vesting outcome
• FY 2022 Restricted Share Plan award
• Employee engagement targets
• Executive Director and Executive Committee
pay review
• Employee engagement update
March 2022
(Main Board)
• All employee share schemes
• Restricted Share Plan approach for FY 2023
April 2022
(Main Board)
• Approach to 2019 PRSP underpin
• Restricted Share Plan approach for FY 2023
• Employee engagement update
September 2022
(Committee)
• FY 2023 Annual Bonus Plan structure
• Employee conditions update
• Governance update
• All employee Share Scheme rules review
Advice to the Committee
The Committee received advice from PwC LLP (‘PwC’) during the year.
PwC were appointed following a competitive tender process during 2018.
PwC are signatories to the Remuneration Consultants Group Code of
Conduct and any advice received is governed by that Code. Total fees
payable in respect of remuneration advice to the Committee in the reporting
year totalled £8,375
b
and were charged on a time and materials basis.
Advice was also received from the Company’s legal advisers, Freshfields
Bruckhaus Deringer LLP, on the operation of the Company’s employee share
schemes and on corporate governance matters. Clifford Chance LLP also
provided advice in relation to pension schemes.
The Committee is satisfied that the advice received from its advisers was
objective and independent and that the PwC engagement partner and the
team that provide remuneration advice to the Committee do not have any
connections that may impair their independence.
Members of management including Susan Martindale, the Group HR
Director, and Craig Provett, the Director of Compensation and Benefits,
are invited to attend meetings on remuneration matters where appropriate.
They are not present when matters affecting their own remuneration
arrangements are discussed. The Company Chairman does not attend
Board or Committee meetings when his remuneration is under review.
Phil Urban and Tim Jones were present at meetings where the Company’s
long-term and short-term incentive arrangements and share schemes were
discussed. However, each declared an interest in the matters under review
and did not vote on their own arrangements.
b. Fees are shown net of VAT. 20% VAT was paid on the advisers’ fees shown above.
In addition, in his role as the nominated Non-Executive Director, Dave Coplin
undertakes a number of activities ranging from visits to our businesses to
meet and discuss issues with employees to focus groups with specific
employee groups such as Kitchen Managers. Dave meets regularly with
members of the Human Resources team and is also supporting the business
in how it may utilise technology to better communicate with all employees.
The views of employees in relation to Executive Remuneration have been
sought in the past and this issue was not proved to be an area of interest or
concern for employees at this time. Our engagement survey has a section
that allows employees to anonymously raise any concerns they may have on
any matter, and in 2022 there were over 11,000 comments recorded, none of
which related to senior management pay. The Committee will continue to
explore how best to engage with employees on this issue.
This section details the remuneration payable to the Executive and
Non-Executive Directors (including the Chairman) for the financial period
ended 24 September 2022 and how we intend to implement our
remuneration policy for FY 2023. This report, along with the Chair’s annual
statement, will be subject to a single advisory vote at the 2023 AGM.
The Committee are cognisant of all guidance issued by institutional
shareholders and advisory agencies and take this into account during the
year based on the guidance in place at the start of our financial year. It is
noted that guidance is regularly updated, and any changes will be taken into
consideration in the next relevant reporting period.
Committee terms of reference
The Committee’s terms of reference were reviewed and updated in 2019 to
take account of the 2018 UK Corporate Governance Code.
The Committee’s main responsibilities include:
• determining and making recommendations to the Board on the
Company’s executive remuneration policy and its cost;
• taking account of all factors necessary when determining the policy, the
objective of which is to ensure that the remuneration policy promotes the
long-term success of the Company;
• determining the individual remuneration packages of the Executive
Directors and other senior Executives (including the Group General
Counsel and Company Secretary and all direct reports to the
Chief Executive) and, in discussion with the Executive Directors,
the Company Chairman;
• having regard to the pay and employment conditions across the
Company when setting the remuneration of individuals under the remit
of the Committee; and
• aligning Executive Directors’ interests with those of shareholders by
providing the potential to earn significant rewards where significant
shareholder value has been delivered.
Committee membership and operation
Committee members and their respective appointment dates are detailed in
the table below.
Name
Date of appointment to the
Committee
Amanda Brown
a
4 July 2022
Bob Ivell 11 July 2013
Dave Coplin
a
29 February 2016
Josh Levy 20 July 2017
Jane Moriarty
a
27 February 2019
a. Independent Non-Executive Directors.
Annual report on remuneration
98 Governance
Statement of voting at the AGM
At the last AGM (held on 25 January 2022), a resolution on the annual report on remuneration was subject to an advisory vote. The table below sets out
details of this advisory vote and the outcome of the vote on our remuneration policy at the 2021 AGM:
Votes cast Votes for
a
% Votes against % Votes withheld
b
Approval of annual report on remuneration 528,299,309 414,751,850 78.51 113,547,459 21.49 100,541
Approval of remuneration policy at 2021 AGM 516,340,056 425,892,672 82.48 90,447,384 17.52 61,932
a. The ‘For’ vote includes those giving the Company Chairman discretion.
b. A vote withheld is not a vote in law and is not counted in the calculation of the votes ‘For’ or ‘Against’ the resolution.
Votes ‘For’ and ‘Against’ are expressed as a percentage of votes cast.
Pay outcomes
The tables and related disclosures set out on pages 99 to 103 on Directors’ remuneration, deferred annual bonus share awards (‘STDIP’), PRSP and RSP share
options, Share Incentive Plan and pension benefits have been audited by KPMG LLP.
Directors’ remuneration
The tables below set out the single figure remuneration received by the Executive Directors and the Non-Executive Directors during the reporting year.
Executive Directors (audited by KPMG)
Basic salaries
£000
Taxable
benefits
a
£000
Short-term
incentives
£000
Pension-related
benefits
b
£000
Long-term
incentives
£000
Other
c
£000
Total
remuneration
£000
Total
fixed pay
£000
Total
variable pay
£000
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
Phil Urban 546 534 15 14 182 – 64 76 – – 3 3 810 627 628 627 182 –
Tim Jones 457 447 15 14 152 – 53 63 – – 2 2 679 526 527 526 152 –
Sub-total
Executive
Directors 1,003 981 30 28 334 – 117 139 – – 5 5 1,489 1,153 1,155 1,153 334 –
Non-Executive Directors (audited by KPMG)
Fees
£000
Taxable
benefits
d
£000
Short-term
incentives
£000
Pension-related
benefits
£000
Long-term
incentives
£000
Other
£000
Total
remuneration
£000
Total
fixed pay
£000
Total
variable pay
£000
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
FY
2022
FY
2021
Bob Ivell 284 284 1 – – – – – – – – – 285 284 285 284 – –
Ron Robson
e
– 45 – – – – – – – – – – 45 45 – –
Eddie Irwin 53 53 – – – – – – – – – – 53 53 53 53 – –
Colin
Rutherford
f
– 53 – – – – – – – – – – – 53 – 53 – –
Imelda Walsh
f
– 53 – – – – – – – – – – – 53 – 53 – –
Josh Levy 53 53 – – – – – – – – – – 53 53 53 53 – –
Dave Coplin 66 66 – – – – – – – – – – 66 66 66 66 – –
Keith Browne 53 53 – – – – – – – – – – 53 53 53 53 – –
Susan Murray
g
22 66 – – – – – – – – – – 22 66 22 66 – –
Jane Moriarty 76 56 0.5 – – – – – – – – – 76.5 56 76.5 56 – –
Amanda
Brown
h
15 – – – – – – – – – – – 15 – 15 – – –
Sub-total
Non-Executive
Directors 622 782 1.5 – – – – – – – – – 623.5 782 623.5 782 – –
Total Executive
Directors and
Non-Executive
Directors 1,625 1,763 31.5 28 334 – 117 139 – – 5 5 2,112.5 1,935 1,778.5 1,935 334 –
a. Taxable benefits for the year comprised car allowance, healthcare and taxable expenses.
b. Based on the value of supplements paid in lieu of contributions to the Company Scheme.
c. Includes free shares awarded under the SIP.
d. Taxable benefits for Non-Executive Directors include cash payments made or accounted for by the Company relating to the reimbursement of expenses (and the value of personal tax on
those expenses).
e. Ron Robson stepped down from the Board on 31 July 2021.
f. Imelda Walsh and Colin Rutherford stepped down from the Board on 19 July 2021.
g. Susan Murray stepped down from the Board on 25 January 2022.
h. Amanda Brown joined the Board on 4 July 2022.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 99
Report on Directors’ remuneration continued
The Operating Profit target for the remainder of the financial year was set
following a reforecast of the business in the light of the escalating cost
pressures, notably in food and energy costs. This resulted in an Operating
Profit target of £167.7m in respect of this period. The Board determined that
this pro-rata target was at least as challenging as the full year target and
provided a fair and proportionate level of incentive for Executives in what
would be a very challenging year.
As this target now covered a part year, the overall earnings opportunity for
this element was reduced accordingly on a pro-rata basis from 70% to 43% of
base pay.
The same performance range applied to the revised target with earnings
beginning to accrue at 95% of the target and maximum at 103% of target.
The same approach to annual incentives was applied to all retail support
centre colleagues. For frontline management employees a pro-rata approach
was put in place on the same basis. In addition, where any bonus was earned
by any employees in this group against the earlier period’s targets, this was
also paid.
The overall Operating Profit outcome over the financial year was £240m, and
£165m for the period between April and the end of September equivalent to
98.4% of the eight period target resulting in a bonus payment equivalent to
14.6% of salary out of 43%) for Executive Directors.
Financial measures
Operating Profit (Outcome 14.6% out of 43%)
In the hope of a more stable FY 2022, the Board set Operating Profit targets
at the start of the financial year for the Company incentive schemes. By the
end of the first quarter, a number of things had changed. The emergence of
the Omicron variant had a significant impact on Christmas trading, the cost
headwinds the business was facing were far in excess of those anticipated at
the start of the financial year and it was also clear that consumer confidence
would be weakened as a result of much higher inflation and, in particular,
increases in household energy costs.
At the beginning of the second quarter, the Board reviewed performance
and, taking into account the significant shift in the financial outlook
concluded that the targets set were no longer appropriate for the c. 6,000
employees across the Group that we were trying to incentivise, at the same
time highlighting a significant retention and motivation risk.
The Board therefore determined it would be appropriate to set a target for
the final eight periods of the year (April to end September) but with a
corresponding reduction in bonus opportunity. This approach applied to all
those employees eligible to participate in an incentive plan and included
c. 5,000 critical frontline managers as well as the Executive Team and
Executive Directors.
For the Executive Directors, this meant that the financial performance in
the first five periods of the financial year was measured against the original
targets set in respect of this period. As these targets were not achieved,
no bonus will be awarded in respect of this period.
b. The measures, targets and outcomes are not audited.
Annual bonus
Annual performance bonus and STDIP
The annual bonus and STDIP operate as set out in our remuneration policy which is available on the Company’s website. Details of the measures and targets
applying to the 2022 plan are set out below
b
:
Threshold – 95%
of Target
(% of salary
payable)
Target
(% of salary
payable)
Maximum – 103%
of Target
(% of salary
payable)
Outcome
(% of salary
payable)
Adjusted Operating Profit
(70%) (Periods 8-13)
£159.3m
(0%)
£167.7m
(21.5%)
£172.7m
(43%)
£165m
a
(14.6%)
Threshold Target
Calculation of outcome
(% of salary payable)
Performance
(Score)
Outcome
(% of salary
payable)
Guest Health (15%)
Net Promoter Score (‘NPS’) 55.0 60.0 Each element is scored 1 if better than target,
0 if between threshold and target, and -1 if
below threshold.
• If the sum of these scores is +3 then
maximum bonus is paid (15%).
• If the sum of these scores is +1 or +2 then an
on-target payment would be made (7.5%).
• If the sum of these scores is 0 then threshold
bonus is paid (3.75%).
50.5
(-1)
0
(3.75%)
Social Media Score 4.2 4.3 4.32
(+1)
Complaints Ratio 0.80 0.70 0.79
(0)
Threshold
(% of salary
payable)
Target
(% of salary
payable)
Maximum
(% of salary
payable)
Outcome
(% of salary
payable)
Employee Engagement
(10%)
a
78.5
(2.5%)
79.5
(5%)
80.5
(10%)
80.8
(10%)
Food Safety
(5%)
98.5%
(5%)
99.5%
(5%)
a. Payout is on a straight-line basis between points.
100 Governance
The target for FY 2022 was based on a combined score with a greater
weighting placed on the more comprehensive YourSay score. The final
outcome was a combined score of 80.8, which is the second highest ever
combined score, just very slightly behind the score achieved in 2019 (81.3)
and above the target required for a maximum payment (80.5).
As a result, a payment equivalent to 10% was awarded to Executive Directors
under this element.
Food Safety (5% out of 5%)
Food safety will always be a priority for the business, which is why a measure
was introduced that is based on the number of businesses that achieve either
a 4 or 5 rating in the independently operated National Food Hygiene Rating
System (‘NFHRS’). The stretching target set for 2022 was for 98.5% of
businesses (of which we have 1,636) to achieve a score of either 4 or 5 over
the year and the actual result was that 99.5% of businesses achieved this level
of performance and the Group retained its second place in the league table
for large pub and restaurant groups.
As an additional check, the Committee has also taken into account overall
workplace safety which again has been strong in all areas.
The structure for this element is such that payout is based entirely on
achieving the target set, therefore a payout equivalent to 5% was triggered
against this element.
Overall outcome
The total bonus awarded to Executive Directors is 33.4% of salary, resulting in
bonus payments of £182,241 and £152,491 to Phil Urban and Tim Jones
respectively.
In line with our policy, half of any bonus award will be deferred into shares
under the Short Term Deferred Incentive Plan (‘STDIP’), which will be
released in two equal amounts after 12 and 24 months. Bonus Share awards
are subject to continued employment. These shares must be retained until
the shareholding requirement is met and are subject to a post-cessation
holding period.
Long-term incentives vesting during the year
FY 2020 PRSP vesting
During FY 2020 share awards were made to Phil Urban and Tim Jones under
the terms of the PRSP to the value of 200% and 140% of their respective
salaries.
The 2020/22 PRSP performance condition had two independent elements,
Operating Cash Flow before separately disclosed items (75% weighting and
hereafter referred to as Operating Cash Flow) and relative TSR performance
against a group of sector peers (25% weighting).
Guest Health (3.75% out of 15%)
The measurement of Guest Health comprises a combination of three
elements, Net Promoter Score (‘NPS’), a combined social media score
(‘reputation.com’) and guest complaints.
For FY 2022 the NPS target was set at 60, broadly equivalent to the scores
seen prior to the pandemic, however the overall score for this element fell
short of this demanding target at 50.5.
The target for the reputation.com score was set at 4.3, which would
represent a highest ever score and a further improvement on the FY 2021
outcome of 4.18. The reputation.com measure has become the primary
indicator of guest satisfaction in recent years and provides the strongest
correlation to sales performance. Good progress was made over FY 2022
and the overall score was 4.32, just ahead of the target set by the Committee.
The guest complaints metric measures the proportion of complaints received
for every 1,000 meals served. The target for this measure was set at 0.70.
The overall outcome of 0.80 fell very slightly short of this demanding target
but did meet the threshold level of performance required under this element.
Based on combined scores across three guest health metrics, the overall
outcome is at the threshold level of performance and, as a result, a payout
equivalent to 3.75% (out of 15%), was awarded to Executive Directors under
this element.
Employee Engagement (10% out of 10%)
During FY 2022 the business reverted back to undertaking two engagement
surveys each year. In June employees are able to provide feedback through
a comprehensive survey, ‘YourSay’ and a shorter pulse survey takes place in
February. Around two thirds of employees participate in the survey which
provides valuable feedback, not only through the scoring mechanism but
also from free text comments provided by employees. This year over 11,000
comments were received in the main YourSay survey, a summary of which
was presented to the Remuneration Committee.
A clear correlation between employee engagement scores, guest satisfaction
and, in turn, sales performance has been proven over a number of years.
Throughout FY 2022 our teams have faced many challenges, including
supporting the recovery of the business in the early part of the financial year,
ongoing shortages of team members and difficulties in the supply chain
which ultimately impact on our guests and therefore can be challenging for
our teams to manage at the frontline.
2020/22 PRSP – performance conditions Threshold (25%) to maximum (100%) range
a
Actual % vesting
Operating Cash Flow (75% of the award) £1,509m to £1,539m £835m Nil
Total Shareholder Return relative to peer group
b
(25% weighting)
25% would vest for matching the median of the group.
100% would vest for TSR performance that exceeds the
median by 8.5% p.a. subject to a share price underpin
-41.3% Nil
a. Between threshold and maximum, vesting under each measure is on a straight-line basis. Below threshold the award will lapse.
b. Comprising the constituents of the All Share Travel and Leisure Group.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 101
Report on Directors’ remuneration continued
Long-term incentive awards made during FY 2022
An award for FY 2022/24 was made to the Chief Executive and the Chief Financial Officer in November 2021 in accordance with the rules of the RSP and
within the approved remuneration policy.
The RSP is not subject to further performance conditions. However, the Committee will take into account the following factors (amongst other things) when
determining whether to exercise its discretion to adjust the number of shares vesting:
• if any adjustments have been made to annual bonus outcomes for each of the three years covered by the vesting period for awards under the RSP;
• whether there has been material damage to the reputation of the Company (in such circumstances, responsibility and hence any adjustments to the level
of vesting may be allocated collectively or individually to participants); and
• that the business has a stable and appropriate capital structure in place following the cessation of restrictions on trade due to the Covid-19 pandemic that
enables the recovery of the business and execution of the Company’s strategic priorities.
Full details of awards made to Executive Directors under the RSP are set out below (audited by KPMG):
Executive Directors
Nil Cost Options
awarded during
the year to
24/09/22
Basis of award
(% of basic
annual salary)
Award
date
Market price
per share used
to determine
the award
(p)
a
Actual/
planned
vesting date
Latest
lapse date
b
Face value
c
£
Phil Urban 226,810 100 Nov 2021 236.1 Nov 2024 Feb 2025 554,324
Tim Jones 189,750 100 Nov 2021 236.1 Nov 2024 Feb 2025 463,749
Total 416,560 1,018,073
a. Market price is the average of the middle market quotation on the three days prior to the award being made.
b. The date on which vested shares will lapse if not exercised.
c. Face value is the maximum number of shares that may vest (excluding any dividend shares that may accrue) multiplied by the middle market quotation of a Mitchells & Butlers share on the
day the award was made (244.4p).
All-employee SIP
The table below shows the awards made to Directors under the free share element of the SIP during the year (audited by KPMG).
SIP
Executive Director
Shares
awarded
during
the year
to 24/9/22
Award
date
Market price
per share
at award
(p)
Normal
vesting
date
Market price
per share
at normal
vesting date
(p)
Lapsed
during
period
Phil Urban 1,455 20/6/22 206.4 20/6/25 n/a –
Tim Jones 1,217 20/6/22 206.4 20/6/25 n/a –
Total 2,672 –
Directors’ entitlements under the Partnership Share element of the SIP are set out as part of the Directors’ interests table on page 103.
PRSP, RSP, STDIP and SAYE
The table below sets out details of the Executive Directors’ outstanding awards under the PRSP, RSP, STDIP and Sharesave (‘SAYE’) (audited by KPMG).
Executive Director Scheme
Number of
shares at
25 September
2021
Granted
during the
period
Lapsed
during the
period
Exercised
during the
period
Number of
shares at
24 September
2022
Phil Urban PRSP 668,835 – 326,239 – 342,596
RSP 173,807 226,810 – – 400,617
STDIP 26,032 – – 26,032 –
SAYE 15,142 – – 8,111 7,031
Total 883,816 226,810 326,239 34,143 750,244
Tim Jones PRSP 391,575 – 190,977 – 200,598
RSP 145,407 189,750 – – 335,157
STDIP 21,775 – – 21,775 –
SAYE 8,111 – – 8,111 –
Total 566,868 189,750 190,977 29,886 535,755
102 Governance
Directors’ interests
Executive Directors are expected to hold Mitchells & Butlers shares in line with the shareholding guideline set out in the approved remuneration policy.
This requires the Chief Executive to accumulate Mitchells & Butlers shares to the value of a minimum of 250% of salary (200% of salary for the CFO) through
the retention of shares arising from share schemes (on a net of tax basis) or through market purchases. Phil Urban’s shareholding at 24 September 2022 was
119.3% of his basic annual salary (2021 188.5%) and Tim Jones’s shareholding was 109.6% of his basic annual salary (2021 167.4%) and as a result the
shareholding guideline is not met at this time. In line with the remuneration policy, no shares can be sold until the guideline is met and post-cessation holding
requirements are in place.
Executive Directors’ shareholdings are calculated based on the average share price over the final three months of the financial period; for FY 2022 this was
173.1p (FY 2021 277.4p). Prior to the Covid-19 pandemic, based on the projected outcomes for both short-term and long-term incentive plans it was
anticipated that both Executive Directors would have met the shareholding requirement by the end of 2020.
The interests of the Directors in the ordinary shares of the Company as at 25 September 2021 and 24 September 2022 are as set out below:
Wholly-owned shares
without performance
conditions
a
Unvested
shares with
performance
conditions
Unvested shares
without performance
conditions
b
Unvested options
without performance
conditions
c
Unvested options
with performance
conditions/underpins
d
Vested but
unexercised
options
Total
shares/options
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
Executive
Directors
Phil Urban 397,775 363,868 – – – 26,032 7,031 15,142 743,213 842,642 – – 1,130,180 1,247,684
Tim Jones 292,092 270,404 – – – 21,775 – 8,111 535,755 536,982 – – 827,847 837,272
Non-
Executive
Directors
Bob Ivell 17,222 17,222 – – – – – – – – – – 17,222 17,222
Eddie Irwin 43,883 43,883 – – – – – – – – – – 43,883 43,883
Dave Coplin 2,836 2,836 – – – – – – – – – – 2,836 2,836
Josh Levy – – – – – – – – – – – – – –
Keith Browne – – – – – – – – – – – – – –
Susan Murray
e
– – – – – – – – – – – – – –
Jane Moriarty – – – – – – – – – – – – – –
Amanda Brown – – – – – – –
Total 753,808 698,213 – – – 47,807 7,031 23,253 1,278,968 1,379,624 – – 2,039,807 2,148,897
a. Includes Free Shares and Partnership Shares granted under the SIP.
b. Deferred bonus awards granted under the STDIP.
c. Options granted under the Sharesave as detailed in the table on page 102.
d. Options granted under the PRSP or RSP as detailed in the table on page 102.
e. Susan Murray stepped down from the Board on 25 January 2022.
Directors’ shareholdings (shares without performance conditions) include shares held by persons closely associated with them.
The above shareholdings are beneficial interests and are inclusive of Directors’ holdings under the Share Incentive Plan (both Free Share and Partnership
Share elements).
Phil Urban and Tim Jones acquired 217 and 218 shares respectively under the Partnership Share element of the Share Incentive Plan between the end of the
financial period and 6 December 2022. There have been no changes in the holdings of any other Directors since the end of the financial period.
None of the Directors has a beneficial interest in the shares of any subsidiary or in debenture stocks of the Company or any subsidiary.
The market price per share on 24 September 2022 was 151.6p and the range during the year to 24 September 2022 was 266.8p to 149.1p per share.
The Executive Directors as a group beneficially own 0.1% of the Company’s shares.
Fees for external directorships
No external non-executive directorships were held by either Executive Director during the year to 24 September 2022.
Payment for loss of office
No payments for loss of office were made in the year ended 24 September 2022.
Payments to past Directors
No payments were made to any past Directors in the year ended 24 September 2022.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 103
Report on Directors’ remuneration continued
Total shareholder return from September 2012 to September 2022 (rebased to 100)
This graph shows the value, by 24 September 2022, of £100 invested in Mitchells & Butlers plc on 24 September 2012, compared with the value of £100
invested in the FTSE 250 and the FTSE All Share Travel and Leisure index.
300
200
100
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Mitchells & Butlers plc FTSE 250 FTSE All Share Travel and Leisure
Source: Datastream (Thomson Reuters)
CEO earnings history
Year ended 28/09/13 27/0 9/14 26/09/15 24/09/16 30/09/17 29/09/18 28/09/19 26/09/20 25/9/21 24/9/22
Phil Urban
Single figure remuneration (£000) – – – 613 770 819 1,684 553 627 810
Annual bonus outcome (% of max) – – – – 28 39 82 – – 33
LTIP vesting outcome (% of max) – – – – – – 47.5 – – –
Alistair Darby
Single figure remuneration (£000) 982
a
642 878 – – – – – – –
Annual bonus outcome (% of max) 71.0 – – – – – – – – –
LTIP vesting outcome (% of max) n/a n/a 19.0 – – – – – – –
Bob Ivell
Single figure remuneration (£000) 69
b
– – – – – – – – –
Annual bonus outcome (% of max) n/a
c
– – – – – – – – –
LTIP vesting outcome (% of max) n/a
c
– – – – – – – – –
a. Alistair Darby formally took up the position of CEO on 12 November 2012 following a short period of induction and handover. The figure shown reflects the date of his appointment to the
Board (8 October 2012).
b. Figure shown is up to and including 11 November 2012 as Bob Ivell remained Executive Chairman to this date.
c. The Director was not a participant in the plan.
Year-on-year change in remuneration of Directors compared to an average employee
2022 2021
Salary/Fees Bonus Benefits Salary/Fees Bonus Benefits
Average employee 5.6% 32.2% -14.0% 1.2% 81.6% 6.3%
Executive Directors
Phil Urban 2.2% 100.0% 3.1% 0.00% 0.00% -1.4%
Tim Jones 2.2% 100.0% 5.9% 0.00% 0.00% -3.3%
Non-Executive Directors
Bob Ivell 0.0% 0.0% -60.4% 0.0% 0.0% -25.4
Eddie Irwin 0.0% 0.0% 0.0% 0.0% 0.0% 0
Dave Coplin 0.0% 0.0% -93.2% 0.0% 0.0% -74.0
Josh Levy 0.0% 0.0% -100.0% 0.0% 0.0% 225.1
Keith Browne 0.0% 0.0% 0.0% 0.0% 0.0% -59.2
Jane Moriarty 34.8% 0.0% -54.3% 24.5% 0.0% 443.9
Amanda Brown 100.0% 0.0% 0.0% n/a n/a n/a
Salaries and fees are based on rates at the year-end date on a full time equivalent (‘FTE’) basis. The increase in fees for Jane Moriarty reflects the additional fee
received as Chair of the Audit Committee. Hourly paid employees do not participate in any bonus scheme and in most cases are not eligible for taxable
benefits. The figures shown for these elements are based on the year-on-year change for eligible employees.
The figures for Executive Directors do not include LTIP awards or pension benefits that are disclosed in the single figure table. The benefit figures for
Non-Executive Directors relate to taxable expenses as detailed in the single figure table on page 99.
104 Governance
Pay ratios
The table below sets out the Chief Executive pay ratio at the median, 25th and 75th percentiles for 2022. Data is also presented for 2018 as Mitchells & Butlers
has disclosed the pay ratio between the Chief Executive and the median pay of other employees for the last four years, despite not needing to comply with
this requirement until the 2020 Annual Report.
Chief Executive pay ratio
Financial year Method P25 (lower quartile) P50 (median) P75 (upper quartile)
2022 Option C 53:1 47:1 45:1
2021 Option C 41:1 38:1 36:1
2020 Option C 37:1 35:1 35:1
2019 Option C 120:1 112:1 106:1
2018 Option C 61:1 58:1 52:1
The lower quartile, median and upper quartile employees were calculated based on full-time equivalent base pay data as at 24 September 2022. This
calculation methodology was selected as the data was felt to be the most accurate way of identifying the best equivalents of P25, P50 and P75 and, therefore,
the most accurate measurement of our pay ratios. Of the three allowable methodologies under the legislation, this method is classed as ‘Option C’. Option A
was considered but given the high levels of team member turnover, it was felt more appropriate to adopt the approach set out above.
The employee pay data has been reviewed and the Committee is satisfied that it fairly reflects the relevant quartiles given the very large proportion of hourly
paid team members employed by Mitchells & Butlers (c. 85% of the total workforce). The three representative employees used to calculate the pay ratios
are hourly paid and the base pay elements were calculated using a full-time equivalent hourly working week of 35 hours. Hourly paid employees do not
participate in the annual bonus plan or long-term incentive plan and in most cases do not have any taxable benefits. Employee pay does not include earnings
from tips and service charge, from which many employees benefit. It is Mitchells & Butlers’ policy to pass all earnings from tips and service charges to
employees without deduction for administration. The calculations are based on the single figure methodology and exclude the value of any awards under
the free share element of the SIP.
Pay details for the individuals are set out below:
Chief Executive
(£)
P25 (lower quartile)
(£)
P50 (median)
(£)
P75 (upper quartile)
(£)
Salary 545,694 15,161 17,290 17,271
Total pay 806,808 15,161 17,290 17,778
The Chief Executive’s base salary increased by 3% from 1 January 2022 but was offset by an equal reduction in pension contributions compared. This
compares to an overall increase in employee pay of over 6%. The ratio between the base pay of the Chief Executive and the base pay of employees at each
quartile has reduced slightly as a result. On a total pay basis, the ratio of workforce pay to the Chief Executive’s total pay has increased, reflecting the higher
levels of variable pay from the annual bonus plan. The Committee believes that the ratio is broadly consistent with that of other organisations in hospitality and
retail. The overall trend in the median ratio aligns with the movement in the single total figure of remuneration over time.
Hourly-paid employees do not participate in the annual bonus plan, whereas salaried employees do participate in an annual bonus plan (c. 6,000 employees).
The median pay ratio is consistent with pay and progression policy for UK employees. More broadly, pay in the hospitality sector is lower than many other
sectors and this will be an influencing factor in the overall pay ratio, despite significant increases in pay rates over the last few years.
Relative importance of spend on pay £m
Figures shown for wages and salaries consist of all earnings, including bonus. In FY 2022, £1.5m (0.1%) was paid to Executive and Non-Executive Directors
(2021 £1.1m (0.1%)).
800
400
0
600
200
FY 2022 FY 2021
* From note 2.3 to the consolidated financial statements. ** Business Rates, Corporation Tax, Employer’s NI.
There were no shareholder dividends or share buybacks in FY 2022.
Wages and salaries* Principal taxes** Pension deficit contributions Debt service
+20.4%
+157.9%
-15.4%
-0.5%
684
203
204568 147
57
44
52
Details of service contracts and letters of appointment
Details of the service contracts of Executive Directors are set out below.
Director Contract start date Unexpired term
Notice period
from Company
Minimum notice
period from Director
Compensation on
change of control
Phil Urban
a
27/09/15 Indefinite 12 months 6 months No
Tim Jones 18/10/10 Indefinite 12 months 6 months No
a. Phil Urban became Chief Executive and joined the Board on 27 September 2015. His continuous service date started on 5 January 2015, the date on which he joined the Company as
Chief Operating Officer.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 105
Report on Directors’ remuneration continued
Non-Executive Directors
Non-Executive Directors, including the Company Chairman, do not have
service contracts but serve under letters of appointment which provide that
they are initially appointed until the next AGM when they are required to
stand for election. In line with the Company’s Articles of Association, all
Directors, including Non-Executive Directors, will stand for re-election at the
2023 AGM, apart from Amanda Brown who is standing for election. This is
also in line with the provisions of the 2018 UK Corporate Governance Code.
Non-Executive Directors’ appointments are terminable without notice and
with no entitlement to compensation. Payment of fees will cease immediately
on termination.
Copies of the individual letters of appointment for Non-Executive Directors
and the service contracts for Executive Directors are available at the
Registered Office of the Company during normal business hours and on
our website. Copies will also be available to shareholders to view at the
2023 AGM.
Implementation of remuneration policy in FY 2023
Fixed Pay (Base Pay, Pensions and Benefits)
Fixed pay for Executive Directors has remained unchanged since 2019 and
will not increase in 2023.
The current level of inflation is putting pressure on pay increases. Overall pay
increases have been 6.3% over the year with hourly paid frontline employees
who are typically the lowest paid employees in the Group, seeing the largest
increases. It is anticipated that pay for frontline workers in the coming year
will again be at least at the level seen in FY 2022.
With effect from 1 January 2023 Phil Urban’s salary will increase to £579,000
(5%) and Tim Jones to £484,500 (5%). Their salaries were last increased in
January 2022. In line with our aim to reduce pension allowances for
Executive Directors to the average employee contribution, increases in base
pay will be entirely offset by an equal reduction in the cash equivalent
pension contribution. Therefore, the pension allowance paid to Executive
Directors will reduce to 5.6% and we anticipate that alignment will be
achieved in FY 2024 in line with the approach we communicated in our
remuneration policy.
Annual Bonus
The Committee has determined that the annual bonus scheme for FY 2023
will be the broadly same as that in place for FY 2022, and will be structured
as follows:
• The maximum earnings opportunity will remain at 100% of base salary.
• Adjusted Operating Profit
a
will continue to account for 70% of the
overall opportunity.
• Delivery of a threshold level of financial performance will result in a
payment of 7.5% of base salary. This is a small change from the FY 2022
scheme where bonus began to accrue from the threshold level of
performance. The Committee feels that this change is appropriate in the
context of the target that has been set for FY 2023. The level of payout for
delivery of target performance across all elements remains unchanged at
50% of base salary.
• There remains a great deal of uncertainty in relation to the cost
headwinds the business may face in the coming year. The Committee has
therefore decided that targets will be set for the full year but that initially
a quarter one incentive target will be put in place. Achievement of this
target would accrue a pro-rata bonus based on the target range set
out above.
• At the end of the first quarter the Committee will consider whether it is
appropriate to revise the targets set, which may result in quarterly targets
being set throughout the year or a revised target being set for a longer
period depending on the circumstances and outlook at the time.
• The Committee feels that this approach will ensure that targets remain
appropriately stretching and can take into account the volatility that may
impact costs in the year and particularly in relation to energy.
• Based on current assumptions, an on-target payout over the full year
would require a sales performance well ahead of pre-pandemic levels
and that a significant proportion of the anticipated cost headwinds of
c. £180m will be offset through initiatives to enhance efficiency and
productivity. A maximum payment would therefore represent a very
strong performance.
The remaining 30% of the annual bonus plan will be allocated against the
business scorecard as follows:
– 15% for Guest Health (reputation.com scores and guest complaints).
– 10% for employee engagement.
– 5% for Food Safety.
• For FY 2023 the guest health measurement will no longer encompass Net
Promoter Score (‘NPS’). Over time social media scores have become the
most relevant measurement of guest satisfaction and the replacement of
NPS also reflects the change in the overall Company guest KPI from NPS
to reputation.com.
• The non-financial elements are only payable if a threshold level of
financial performance is achieved. For FY 2023 this will be unchanged at
97.5% of Operating Profit.
• Targets are not being disclosed on the basis that they are considered
commercially sensitive but will be disclosed in next year’s report.
Executive Directors are also aware that the Committee may take into account
other factors when assessing if any bonus may be paid as part of our
established quality of earnings assessment. In particular this assessment will
review the overall financial performance of the Group over the year to ensure
that any payout resulting from the approach to target setting above is
consistent with overall performance across the year.
RSP award FY 2023/25
An RSP award is due to be made in respect of the FY 2023/25 period. The
Committee has agreed that the award for Executive Directors will remain at
100% of base pay.
The Committee has reviewed the performance underpin which it will take
into account (amongst other factors) when determining its discretion to
adjust the number of shares vesting.
It concluded that the three elements of the current underpin remain
appropriate and requires the Committee to consider the following:
• if any adjustments have been made to annual bonus outcomes for each of
the three years covered by the vesting period for awards under the RSP;
• whether there has been material damage to the reputation of the
Company (in such circumstances, responsibility and hence any
adjustments to the level of vesting may be allocated collectively or
individually to participants); and
• that the business has an appropriate capital structure in place that enables
the execution of our strategic priorities.
Share Plan Rules Renewal
The Short Term Deferred Incentive Plan, Sharesave Plan and Share Incentive
Plan will be renewed at the 2023 AGM as their 10-year life will be expiring in
January 2023. There are no material changes to the rules and the plans will
continue to operate as they do currently. Full details will be set out in the
AGM notice of meeting accompanying this Annual Report.
Non-Executive Directors’ fee review
The Chairman’s fee was last increased in January 2015 and Non-Executive
Director fees were last increased in January 2019. As detailed in the
corporate governance section of this report, the Chairman’s fee will increase
by 4% to £296,000 per annum and the base fee for Non-Executive Directors
will increase by 4% to £55,000 per annum with effect from 1 January 2023.
The fee paid to Non-Executive Directors for chairing a Committee, acting as
the nominated Director for employee voice, or for the role of Senior
Independent Director will also increase by 4% to £13,500 per annum.
a. The Directors use a number of alternative performance measures (‘APMs’) that are
considered critical to aid the understanding of the Group’s performance. Key measures
are explained on pages 177 to 179 of this report.
106 Go vernance
Financial
Statements
Details the financial performance of the Group in FY 2022
in comparison to its performance in prior years.
In this section
108 Independent auditor’s report to the
members of Mitchells & Butlers plc
116 Group income statement
117 Group statement of comprehensive income
118 Group balance sheet
119 Group statement of changes in equity
120 Group cash flow statement
Notes to the consolidated financial
statements
121 Section 1 – Basis of preparation
124 Section 2 – Results for the period
124 2.1 Segmental analysis
124 2.2 Separately disclosed items
125 2.3 Revenue and operating costs
129 2.4 Taxation
132 2.5 Earnings/(loss) per share
133 Section 3 – Operating assets and liabilities
133 3.1 Property, plant and equipment
139 3.2 Leases
143 3.3 Working capital
144 3.4 Provisions
145 3.5 Goodwill and other
intangible assets
147 3.6 Associates
148 Section 4 – Capital structure and
financing costs
148 4.1 Borrowings
150 4.2 Finance costs and income
150 4.3 Financial instruments
159 4.4 Net debt
161 4.5 Pensions
165 4.6 Share-based payments
166 4.7 Equity
168 Section 5 – Other notes
168 5.1 Related party transactions
169 5.2 Subsidiaries and associates
170 5.3 Five year review
171 Mitchells & Butlers plc Company
financial statements
173 Notes to the Mitchells & Butlers plc
Company financial statements
Introduction Strategic Report Governance Financial Statements Other Information
107Mitchells & Butlers plc Annual Report and Accounts 2022
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities are
described below. We believe that the audit evidence we have obtained is
a sufficient and appropriate basis for our opinion. Our audit opinion is
consistent with our report to the audit committee.
We were first appointed as auditor by the shareholders on 25 January 2022.
The period of total uninterrupted engagement is for the 1 financial period
ended 24 September 2022. We have fulfilled our ethical responsibilities
under, and we remain independent of the Group in accordance with, UK
ethical requirements including the FRC Ethical Standard as applied to listed
public interest entities. No non-audit services prohibited by that standard
were provided.
Overview
Materiality:
Group financial
statements as a whole
£22m
0.44% total assets
Coverage 95% Group assets
Key audit matters
Recurring risks Going concern
Valuation of the freehold and long leasehold
restaurant and pub estate
Impairment of right of use assets and short
leasehold properties
1. Our opinion is unmodified
We have audited the financial statements of Mitchells & Butlers plc
(‘the Company’) for the 52 week period ended 24 September 2022 which
comprise the Group Income Statement, the Group Statement of
Comprehensive Income, the Group and Company Balance Sheets, the
Group and Company Statements of Changes in Equity, the Group cash flow
statement and the related notes, including the accounting policies in notes 1
to 5.4 of the Group financial statements and notes 1 to 10 of the Company
financial statements.
In our opinion:
• the financial statements give a true and fair view of the state of the
Group’s and of the parent Company’s affairs as at 24 September 2022
and of the Group’s profit for the 52 week period then ended;
• the Group financial statements have been properly prepared in
accordance with UK-adopted international accounting standards;
• the parent Company financial statements have been properly
prepared in accordance with UK accounting standards, including FRS
101 Reduced Disclosure Framework; and
• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
Independent auditor’s report to the
members of Mitchells & Butlers plc
108 Financial Statements
2. Material uncertainty related to going concern
The risk Our response
Going Concern
Refer to page 87 (Audit
Committee Report), page 121
note 1 (accounting policy and
financial disclosures).
We draw attention to note 1 to
the financial statements which
indicates that the maintenance
of growth in sales in the face of
pressure on consumer spending
power in an environment of
falling real wages, and the
future outlook for cost inflation
across the whole of the cost
base but most notably in energy
prices, food costs and wages
and salaries. The outlook for
these is highly uncertain and
volatile, particularly energy
costs in the second half of
FY 2023, and will depend on
a number of factors including
consumer confidence, global
political developments and
supply chain disruptions and
government policy. These
events and conditions, along
with the other matters
explained in note 1, constitute
a material uncertainty that may
cast significant doubt on the
Group’s and the parent
Company’s ability to continue
as a going concern.
Our opinion is not modified in
respect of this matter.
Disclosure quality
The financial statements
explain how the Board has
formed a judgement that it is
appropriate to adopt the going
concern basis of preparation
for the Group and parent
Company.
That judgement is based on an
evaluation of the inherent risks
to the Group’s and Company’s
business model and how those
risks might affect the Group’s
and Company’s financial
resources or ability to continue
operations over a period of at
least a year from the date of
approval of the financial
statements.
Given the extent of the
economic uncertainty
described by the Directors,
there is little judgement
involved in the Directors’
conclusion that risks and
circumstances described in
note 1 to the financial
statements represent a material
uncertainty over the ability of
the Group and Company to
continue as a going concern for
a period of at least a year from
the date of approval of the
financial statements.
However, clear and full
disclosure of the facts and the
Directors’ rationale for the use
of the going concern basis of
preparation, including that
there is a related material
uncertainty, is a key financial
statement disclosure and so
was the focus of our audit in
this area. Auditing standards
require that to be reported as
a key audit matter.
Our procedures included:
Assessing transparency:
• We considered whether the going concern disclosure in note 1 to the financial
statements gives a full and accurate description of the Directors’ assessment
of going concern, including the identified risks and, dependencies, and
related sensitivities.
Our assessment of management’s going concern assessment also included:
Funding assessment:
• We assessed the forecast cash position, available committed facilities and the
Director’s assessment of the Group’s ability to comply with its covenants during
the forecast period, to understand the financial resources available to the Group
during the forecast period.
Historical comparisons:
• We assessed the ability of the Group to accurately forecast by comparing the most
recent year’s performance against budget and challenged the assumptions over
the going concern period based on historical performance. We also challenged
the actual performance in recent years versus base case and downside case to
challenge the quantum of risks applied in the forecasts.
• We considered the consistency of managements’ forecasts with other areas of the
audit, including the right-of-use asset impairment review and revaluation of
freehold and long leasehold properties.
Key dependency assessment:
• We evaluated how the model captures events and conditions that may cast
significant doubt on the ability to continue as a going concern and evaluated
whether key assumptions were within a reasonable range, and assessed the
plausible but severe downside scenarios, particularly whether those downside
scenarios reflected plausible impacts of higher cost inflation and changes in
consumer behaviour on the business.
Sensitivity analysis:
• We assessed the downside sensitivities to ensure that these represented severe
but plausible scenarios based on our knowledge of the business and sector and
we considered the most recent trading results to form a holistic view of the Group.
Our sector experience:
• We assessed the forecasts and key assumptions by reference to our knowledge of
the business and the general market conditions including the potential risk of
management bias. We critically assessed the impact of those market conditions on
sales and cost inflation assumptions included within the cashflow forecasts;
Evaluating Directors’ intent:
• We evaluated the achievability of the actions the Directors consider they would
take to improve the position should the risks materialise, taking into account the
extent to which the Directors can control the timing and outcome of these.
Our results
We found the going concern disclosure in note 1 with a material uncertainty to
be acceptable.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 109
Independent auditor’s report to the members of Mitchells & Butlers plc continued
3. Other key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most
significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. Going concern is a significant key audit matter and
is described in section 2 of our report. We summarise below the other key audit matters, in decreasing order of audit significance, in arriving at our audit
opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures.
These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial
statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on
these matters.
The risk Our response
Valuation of the freehold
and long leasehold
restaurant and pub estate
(£4,036 million; 2021 £4,277
million)
Refer to page 85 (Audit
Committee Report), page 133
note 3.1 (accounting policy and
financial disclosures).
Subjective estimate
The Group holds its freehold
and long leasehold property
estate at fair value, with a
revaluation taking place as at
the balance sheet date. We
determined that the valuation of
the Group’s property estate is a
major source of estimation
uncertainty.
The valuation involves the use
of subjective assumptions, most
notably the fair maintainable
trade and applicable trading
multiples. Covid-19 introduced
unprecedented levels of
disruption to business
operations and this has reduced
the available level of recent
trading information used to
inform these assumptions.
These assumptions are
inherently subjective and small
changes in the assumptions
used in the valuation could have
a significant effect on the
carrying value in the balance
sheet which we consider is
a fraud risk.
The effect of these matters is
that, as part of our risk
assessment, we determined
that the valuation of the
freehold and long leasehold
restaurant and pub estate has
a high degree of estimation
uncertainty, with a potential
range of reasonable outcomes
greater than our materiality for
the financial statements as a
whole, and possibly many times
that amount. The financial
statements (note 3.1) discloses
the sensitivity estimated by
the Group.
Our procedures included:
Assessing valuation approach:
• We met with the Group’s external valuers and management to critically assess the
valuation assumptions and methodology used in valuing the properties and the
market evidence used by the valuers to support their assumptions. We also
obtained an understanding of management’s involvement in the valuation process
to assess whether appropriate oversight had occurred.
Assessing valuer’s credentials:
• We critically assessed the independence, professional qualification, competence
and experience of the internal and external valuers engaged by the Group.
Sensitivity analysis:
• We considered sensitivities to the overall valuation from changes to fair
maintainable trade and to valuation multiples.
Benchmarking assumptions:
• We challenged the key assumptions, with the assistance of our own valuation
specialists, for a sample of properties by making a comparison to market
comparable data.
Assessing inputs:
• We vouched observable inputs used for a sample of assets in the valuation to
source documentation.
Assessing outputs:
• We evaluated and challenged the output of the valuations through the
identification of higher risk assets with the assistance of our own valuation
specialists;
Assessing transparency:
• We critically assessed the adequacy of the Group’s disclosures in relation to the
valuation of the estate and the sensitivity of changes in key assumptions
We performed the tests above rather than seeking to rely on any of the Group’s
controls because the nature of the balance is such that we would expect to obtain
audit evidence primarily through the detailed procedures described.
Our results
We found the valuation of the freehold and long leasehold restaurant and pub estate
to be acceptable.
110 Financial Statements
The risk Our response
Impairment of right-of-use
assets and short leasehold
properties
(£497 million; 2021 £530
million)
Refer to page 85 (Audit
Committee Report), page 133
note 3.1 (accounting policy and
financial disclosures) and note
3.2 page 139.
Subjective estimate
The estimated recoverable
amount of right-of-use assets
and short leasehold properties
is subjective due to the inherent
uncertainty involved in
forecasting and discounting
future cashflows at a CGU level.
The impact of COVID-19 on
recent trading patterns,
together with the current levels
of cost inflation, increases the
degree of estimation
uncertainty.
The effect of these matters is
that, as part of our risk
assessment, we determined
that the recoverable amount of
right of use assets and short
leasehold properties has a high
degree of estimation
uncertainty, with a potential
range of reasonable outcomes
greater than our materiality for
the financial statements as a
whole. In conducting our final
audit work, we concluded that
reasonably possible changes to
the value in use would not be
expected to result in material
impairment.
Our procedures included:
Assessing impairment triggers:
• We assessed the appropriateness and completeness of impairment
triggers identified;
Benchmarking assumptions and historical comparison:
• We assessed and challenged the key assumptions through retrospective review
and comparison to industry forecasts and other externally derived data, including
available sources for comparable companies.
Assessing allocation:
• We evaluated the reasonableness of budget allocations to individual cash
generating units (CGUs) through retrospective review and comparison to CGU
specific factors
Sensitivity analysis:
• We evaluated the appropriateness and likelihood of the sensitivities and their
impact on the overall impairment test outcome and assess whether additional
sensitivity analysis would have been appropriate.
Assessing inputs:
• We vouched observable inputs used for a sample of assets to source
documentation.
Assessing transparency:
• We critically assessed the adequacy of the Group’s disclosures.
We performed the tests above rather than seeking to rely on any of the Group’s
controls because the nature of the balance is such that we would expect to obtain
audit evidence primarily through the detailed procedures described.
Our results
We found the Group’s conclusion on the impairment of its right-of-use assets and
short leasehold properties to be acceptable.
Recoverability of parent
Company ‘s investment in
subsidiaries
(£1,866 million; 2021 £1,616
million)
Refer to page 174 note 5 to the
parent Company accounts
(accounting policy and financial
disclosures).
Low risk high value
The carrying amount of the
parent Company’s investments
in subsidiaries represents 74%
(2021 70%) of the Company’s
total assets. Their recoverability
is not a high risk of misstatement
or subject to significant
judgement. However, due to
their materiality in the context of
the parent Company financial
statements, this is considered to
be the area that had the greatest
effect on our overall parent
Company audit.
Our response
We performed the tests below rather than seeking to rely on any of the Company’s
controls because the nature of the balance is such that we would expect to obtain
audit evidence primarily through the detailed procedures described.
Our procedures included:
Test of detail:
• We compared the carrying amount of all investments with the relevant
subsidiaries’ draft balance sheet to identify whether their net assets, being an
approximation of their minimum recoverable amount, are in excess of their
carrying amount and assess whether those subsidiaries have historically been
profit-making.
Comparing valuations:
• For the investments where the carrying amount exceeds the net asset value,
we compared the carrying amount of the investment to management’s
assessment of value in use.
Benchmarking assumptions:
• We assessed and challenged the key assumptions in the value in use calculation
through comparison to industry forecasts and other externally derived data.
We compared the sum of the discounted cash flows to the Group’s market
capitalisation to assess the reasonableness of those cash flows.
Our results
We found the Company’s conclusion that there is no impairment of its investments
in subsidiaries to be acceptable.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 111
Independent auditor’s report to the members of Mitchells & Butlers plc continued
4. Our application of materiality and an overview of the
scope of our audit
Materiality for the Group financial statements as a whole was set at
£22 million, determined with reference to a benchmark of total assets (of
which it represents 0.44%). We used a benchmark of total assets, which we
consider to be appropriate given the sector in which the entity operates; the
majority of the total asset value is in the pub estate and these assets act as
security for the Group’s securitised borrowings and will therefore be a focus
of users of the accounts.
Materiality for the parent Company financial statements as a whole was set at
£11 million, determined with reference to a benchmark of parent Company
total assets (of which it represents 0.44%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole.
Performance materiality for the Group was set at 75% of materiality for the
consolidated financial statements as a whole, which equates to £16.5 million
for the Group and £8.25 million for the parent Company We applied this
percentage in our determination of performance materiality because we did
not identify any factors indicating an elevated level of risk.
In addition, we applied materiality of £10 million, to Group revenue for which
we believe misstatement of lesser amounts than materiality for the financial
statements as a whole could reasonably be expected to influence the
Company’s members’ assessment of the financial performance of the Group.
We agreed to report to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £1.1 million, in addition to other
identified misstatements that warranted reporting on qualitative grounds.
Audits for Group reporting purposes were performed by the Group audit
team. The components within the scope of our work accounted for 95% of
total Group assets, 94% of total profits and losses that made up Group profit
before tax and 89% of total Group revenue.
The audits were all performed to materiality levels set individually for each
component and ranged from £7.5 million to £19.8 million.
The audit work performed was predominately substantive as we placed
limited reliance upon the Group’s internal control over financial reporting.
Group materiality
£22 million
£22m
Whole financial statements
materiality
£16.5m
Whole financial statements
performance materiality
£19.8m
Range of materiality at 5
components (£7.5m–£19.8m)
£1.1m
Misstatements reported to the
audit committee
Group total assets
£4,951 million
Group materiality
Group total assets
Group total assets
Full scope for Group audit purposes 2022 95%
Residual components 5%
95%
5%
Total profits and losses that made up
Group profit before tax
Full scope for Group audit purposes 2022 94%
Residual components 6%
94%
6%
Group revenue
Full scope for Group audit purposes 2022 89%
Residual components 11%
89%
11%
95% 94% 89%
112 Financial Statements
5. The impact of climate change in our audit
In planning our audit, we considered the potential impacts of climate change
on the Group’s business and its financial statements.
The Group has set out its target to achieve zero greenhouse gas emissions by
2040, for Scope 1, 2 and 3 emissions, zero operation waste to landfill by 2030
and to reduce food waste by 50% by 2030 (from FY 2019 baselines).
However, whilst the Group has set targets to be carbon neutral by 2050,
the consequences, in terms of investment, of the gross cost of this transition,
how the demand might be impacted by the price increases needed to
recover these costs and the longer term changes in customer behaviour are
still being assessed, as the Group considers how it will work towards meeting
these targets.
As part of our audit we have performed a risk assessment, including making
enquiries of management, reading board meeting minutes and applying our
knowledge of the Group and sector in which it operates to understand the
extent of the potential impact of climate change risk on the Group’s financial
statements. Taking into account the nature of the business, we have not
assessed climate related risk to be significant to our audit this year. There was
no impact on our key audit matters.
We also read the Group’s disclosure of climate related information in the
front half of the annual report and considered consistency with the financial
statements and our knowledge gained from our financial statement
audit work.
6. Going concern
The Directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Group or the Company or to cease
their operations, and as they have concluded that the Group’s and the
Company’s financial position means that this is realistic for at least a year from
the date of approval of the financial statements (‘the going concern period’).
As stated in section 2 of our report, they have also concluded that there is
a material uncertainty related to going concern.
An explanation of how we evaluated management’s assessment of going
concern is set out in section 2 of our report.
Our conclusions based on this work:
• we consider that the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
• we have nothing material to add or draw attention to in relation to the
Directors’ statement in note 1 to the financial statements on the use of the
going concern basis of accounting and their identification therein of a
material uncertainty over the Group and Company’s use of that basis for
the going concern period, and we found the going concern disclosure in
note 1 to be acceptable; and
• the related statement under the Listing Rules set out on page 52 is
materially consistent with the financial statements and our audit knowledge.
7. Fraud and breaches of laws and regulations
– ability to detect
Identifying and responding to risks of material misstatement
due to fraud
To identify risks of material misstatement due to fraud (‘fraud risks’) we
assessed events or conditions that could indicate an incentive or pressure
to commit fraud or provide an opportunity to commit fraud. Our risk
assessment procedures included:
• Enquiring of Directors, the audit committee, internal audit and inspection
of policy documentation as to the Group’s and Company’s high-level
policies and procedures to prevent and detect fraud, including the
internal audit function, and the Group’s/Company’s channel for
‘whistleblowing’, as well as whether they have knowledge of any actual,
suspected or alleged fraud.
• Reading Board, audit committee, risk and remuneration committee
meeting minutes.
• Considering remuneration incentive schemes and performance targets
for management and Directors
• Using analytical procedures to identify any unusual or unexpected
relationships.
• Considering the existence of any significant unusual transactions.
We communicated identified fraud risks throughout the audit team and
remained alert to any indications of fraud throughout the audit.
As required by auditing standards, and taking into account possible
pressures to meet profit targets, our overall knowledge of the control
environment, we perform procedures to address the risk of management
override of controls, in particular the risk that Group and component
management may be in a position to make inappropriate accounting entries
and the risk of bias in accounting estimates and judgements such as the
valuation of the estate and impairment assumptions. On this audit we do not
believe there is a fraud risk related to revenue recognition because Group
revenue is generated predominantly through the operation of pubs. This
revenue contains no significant judgements and is comprised of a large
number of small, simple transactions that are received in cash or credit card
receivables at the point of sale. Therefore there is limited opportunity for
management to manipulate or to fraudulently post the volume of transactions
that would be required to have a material impact on revenue.
We also identified a fraud risk related to the valuation of the freehold and
long leasehold pub and restaurant estate. Further detail in respect of this
area is set out in the key audit matter disclosures in section 3 of this report.
We performed procedures including:
• Identifying journal entries and other adjustments to test for all full scope
components based on risk criteria and comparing the identified entries
to supporting documentation. These included those posted by senior
finance management/those posted to unusual accounts related to
revenue, cash and borrowings, operating costs/other expenses, seldom
used accounts and those that move costs out of EBITDA.
• Evaluated the business purpose of significant unusual transactions.
• Assessing whether the judgements made in making accounting estimates
are indicative of a potential bias.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 113
Independent auditor’s report to the members of Mitchells & Butlers plc continued
7. Fraud and breaches of laws and regulations
– ability to detect continued
Identifying and responding to risks of material misstatement
due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be
expected to have a material effect on the financial statements from our
general commercial and sector experience, and through discussion with
the Directors and other management (as required by auditing standards),
and from inspection of the Group’s regulatory and legal correspondence
and discussed with the Directors and other management the policies and
procedures regarding compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved gaining an
understanding of the control environment including the entity’s procedures
for complying with regulatory requirements.
We communicated identified laws and regulations throughout our team and
remained alert to any indications of non-compliance throughout the audit.
The potential effect of these laws and regulations on the financial statements
varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect the
financial statements including financial reporting legislation (including related
companies legislation), distributable profits legislation, pension legislation
and taxation legislation and we assessed the extent of compliance with these
laws and regulations as part of our procedures on the related financial
statement items.
Secondly, the Group is subject to many other laws and regulations where the
consequences of non-compliance could have a material effect on amounts or
disclosures in the financial statements, for instance through the imposition of
fines or litigation or the loss of the Group’s license to operate. We identified
the following areas as those most likely to have such an effect: licensing
regulations, responsible drinking regulations, planning and building
legislation, health and safety, data protection laws, anti-bribery, employment
law, recognising the nature of the Group’s activities. Auditing standards limit
the required audit procedures to identify non-compliance with these laws
and regulations to enquiry of the Directors and other management and
inspection of regulatory and legal correspondence, if any. Therefore if
a breach of operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches
of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that
we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit
in accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely the inherently
limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection
of fraud, as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
8. We have nothing to report on the other information in the
Annual Report
The Directors are responsible for the other information presented in the
Annual Report together with the financial statements. Our opinion on the
financial statements does not cover the other information and, accordingly,
we do not express an audit opinion or, except as explicitly stated below,
any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether, based on our financial statements audit work, the information
therein is materially misstated or inconsistent with the financial statements or
our audit knowledge. Based solely on that work we have not identified
material misstatements in the other information.
Strategic report and Directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the strategic report and
the Directors’ report;
• in our opinion the information given in those reports for the financial 52
week period is consistent with the financial statements; and
• in our opinion those reports have been prepared in accordance with the
Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act 2006.
Disclosures of emerging and principal risks and
longer-term viability
We are required to perform procedures to identify whether there is a
material inconsistency between the Directors’ disclosures in respect of
emerging and principal risks and the viability statement, and the financial
statements and our audit knowledge.
Based on those procedures, other than the material uncertainty related to
going concern referred to above, we have nothing further material to add or
draw attention to in relation to:
• the Directors’ confirmation within the viability statement page 52 that
they have carried out a robust assessment of the emerging and principal
risks facing the Group, including those that would threaten its business
model, future performance, solvency and liquidity;
• the Risks and uncertainties disclosures describing these risks and how
emerging risks are identified, and explaining how they are being
managed and mitigated; and
• the Directors’ explanation in the viability statement of how they have
assessed the prospects of the Group, over what period they have done
so and why they considered that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as
they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications
or assumptions.
We are also required to review the viability statement, set out on page 52
under the Listing Rules. Based on the above procedures, we have concluded
that the above disclosures are materially consistent with the financial
statements and our audit knowledge.
Our work is limited to assessing these matters in the context of only the
knowledge acquired during our financial statements audit. As we cannot
predict all future events or conditions and as subsequent events may result in
outcomes that are inconsistent with judgements that were reasonable at the
time they were made, the absence of anything to report on these statements
is not a guarantee as to the Group’s and Company’s longer-term viability.
114 Financial Statements
Corporate governance disclosures
We are required to perform procedures to identify whether there is a
material inconsistency between the Directors’ corporate governance
disclosures and the financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is
materially consistent with the financial statements and our audit knowledge:
• the Directors’ statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and understandable,
and provides the information necessary for shareholders to assess the
Group’s position and performance, business model and strategy;
• the section of the annual report describing the work of the Audit
Committee, including the significant issues that the audit committee
considered in relation to the financial statements, and how these issues
were addressed; and
• the section of the annual report that describes the review of the
effectiveness of the Group’s risk management and internal
control systems.
We are required to review the part of the Corporate Governance Statement
relating to the Group’s compliance with the provisions of the UK Corporate
Governance Code specified by the Listing Rules for our review. We have
nothing to report in this respect.
9. We have nothing to report on the other matters on which we
are required to report by exception
Under the Companies Act 2006, we are required to report to you if,
in our opinion:
• adequate accounting records have not been kept by the parent Company,
or returns adequate for our audit have not been received from branches
not visited by us; or
• the parent Company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not
made; or
• we have not received all the information and explanations we require for
our audit.
We have nothing to report in these respects.
10. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 72, the Directors
are responsible for: the preparation of the financial statements including
being satisfied that they give a true and fair view; such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error; assessing
the Group and parent Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and using the
going concern basis of accounting unless they either intend to liquidate the
Group or the parent Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue our opinion in an auditor’s report.
Reasonable assurance is a high level of assurance, but does not guarantee
that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken
on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at
www.frc.org.uk/auditorsresponsibilities.
The Company is required to include these financial statements in an annual
financial report prepared using the single electronic reporting format
specified in the TD ESEF Regulation. This auditor’s report provides no
assurance over whether the annual financial report has been prepared in
accordance with that format.
11. The purpose of our audit work and to whom we owe our
responsibilities
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the Company’s
members, as a body, for our audit work, for this report, or for the opinions we
have formed.
Simon Haydn-Jones
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill
Snowhill Queensway
Birmingham
B4 6GH
6 December 2022
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 115
2022
52 weeks
2021
52 weeks
Notes
Before
separately
disclosed
items
£m
Separately
disclosed
items
a
£m
Total
£m
Before
separately
disclosed
items
£m
Separately
disclosed
items
a
£m
Total
£m
Revenue 2.1, 2.3 2,208 – 2,208 1,065 – 1,065
Operating costs before depreciation,
amortisation and movements in the valuation
of the property portfolio 2.2, 2.3 (1,836 ) – (1,836 ) (898 ) 13 (885 )
Share in associates results 3.6 1 – 1 1 – 1
Net profit arising on property disposals 2.2, 2.3 – 1 1 – 1 1
EBITDA
b
before movements in the
valuation of the property portfolio 373 1 374 168 14 182
Depreciation, amortisation and movements
in the valuation of the property portfolio 2.2, 2.3 (133 ) (117 ) (250 ) (139 ) 38 (101 )
Operating profit/(loss) 240 (116 ) 124 29 52 81
Finance costs 4.2 (115 ) – (115 ) (122 ) – (122 )
Finance income 4.2 1 – 1 2 – 2
Net pensions finance charge 4.2, 4.5 (2 ) – (2 ) (3 ) – (3 )
Profit/(loss) before tax 124 (116 ) 8 (94 ) 52 (42 )
Tax (charge)/credit 2.2, 2.4 (17 ) 22 5 17 (40 ) (23 )
Profit/(loss) for the period 107 (94 ) 13 (77 ) 12 (65 )
Earnings/(loss) per ordinary share
– Basic 2.5 18.0 p 2.2 p (13.6 )p (11.5 )p
– Diluted 2.5 18.0 p 2.2 p (13.6 )p (11.5 )p
a. Separately disclosed items are explained and analysed in note 2.2.
b. Earnings before interest, tax, depreciation, amortisation and movements in the valuation of the property portfolio. The Directors use a number of alternative performance measures
(APMs) that are considered critical to aid the understanding of the Group’s performance. Key measures are explained on pages 177 to 179 of this Report.
The notes on pages 121 to 170 form an integral part of these consolidated financial statements.
All results relate to continuing operations.
Group income statement
For the 52 weeks ended 24 September 2022
116 Financial Statements
Notes
2022
52 weeks
£m
2021
52 weeks
£m
Profit/(loss) for the period 13 (65 )
Items that will not be reclassified subsequently to profit or loss:
Unrealised (loss)/gain on revaluation of the property portfolio 3.1 (187 ) 150
Remeasurement of pension liability 4.5 41 9
Tax relating to items not reclassified 2.4 32 (97 )
(114 ) 62
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations 2 (1 )
Cash flow hedges:
– Gains arising during the period 4.3 180 32
– Reclassification adjustments for items included in profit or loss 4.3 1 56
Tax relating to items that may be reclassified 2.4 (45 ) (4 )
Other comprehensive income after tax 24 145
Total comprehensive income for the period 37 80
The notes on pages 121 to 170 form an integral part of these consolidated financial statements.
Group statement of comprehensive income
For the 52 weeks ended 24 September 2022
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 117
Group balance sheet
24 September 2022
Notes
2022
£m
2021
£m
Assets
Goodwill and other intangible assets 3.5 14 13
Property, plant and equipment 3.1 4,194 4,442
Right-of-use assets 3.2 339 379
Interests in associates 3.6 6 5
Finance lease receivables 3.2 12 14
Deferred tax asset 2.4 4 4
Derivative financial instruments 4.3 56 29
Total non-current assets 4,625 4,886
Inventories 3.3 23 19
Trade and other receivables 3.3 90 48
Current tax asset 1 3
Finance lease receivables 3.2 1 1
Derivative financial instruments 4.3 4 –
Cash and cash equivalents 4.4 207 252
Total current assets 326 323
Total assets 4,951 5,209
Liabilities
Pension liabilities 4.5 (42 ) (51 )
Trade and other payables 3.3 (408 ) (333 )
Current tax liabilities – (2 )
Borrowings 4.1 (130 ) (134 )
Lease liabilities 3.2 (53 ) (50 )
Derivative financial instruments 4.3 – (37 )
Total current liabilities (633 ) (607 )
Pension liabilities 4.5 (22 ) (92 )
Borrowings 4.1 (1,334 ) (1,416 )
Lease liabilities 3.2 (428 ) (463 )
Derivative financial instruments 4.3 (28 ) (172 )
Deferred tax liabilities 2.4 (354 ) (346 )
Provisions 3.4 (9 ) (9 )
Total non-current liabilities (2,175 ) (2,498 )
Total liabilities (2,808 ) (3,105 )
Net assets 2,143 2,104
Equity
Called up share capital 4.7 51 51
Share premium account 4.7 357 356
Capital redemption reserve 4.7 3 3
Revaluation reserve 4.7 1,009 1,150
Own shares held 4.7 (5 ) (3 )
Hedging reserve 4.7 (20 ) (156 )
Translation reserve 4.7 15 13
Retained earnings 733 690
Total equity 2,143 2,104
The notes on pages 121 to 170 form an integral part of these consolidated financial statements.
The consolidated financial statements were approved by the Board and authorised for issue on 6 December 2022.
They were signed on its behalf by:
Tim Jones
Chief Financial Officer
118 Financial Statements
Group statement of changes in equity
For the 52 weeks ended 24 September 2022
Called
up share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Revaluation
reserve
£m
Own
shares
held
£m
Hedging
reserve
£m
Translation
reserve
£m
Retained
earnings
£m
Total
equity
£m
At 26 September 2020 37 28 3 1,117 (3 ) (240 ) 14 722 1,678
Loss for the period – – – – – – – (65 ) (65 )
Other comprehensive income/(expense) – – – 33 – 84 (1 ) 29 145
Total comprehensive income/(expense) – – – 33 – 84 (1 ) (36 ) 80
Share capital issued 14 328 – – – – – – 342
Purchase of own shares – – – – (1 ) – – – (1 )
Release of own shares – – – – 1 – – (1 ) –
Credit in respect of share-based payments – – – – – – – 3 3
Tax credit on share-based payments – – – – – – – 2 2
At 25 September 2021 51 356 3 1,150 (3 ) (156 ) 13 690 2,104
Profit for the period – – – – – – – 13 13
Other comprehensive (expense)/income – – – (141 ) – 136 2 27 24
Total comprehensive (expense)/income – – – (141 ) – 136 2 40 37
Share capital issued – 1 – – – – – – 1
Purchase of own shares – – – – (2 ) – – – (2 )
Credit in respect of share-based payments – – – – – – – 4 4
Tax charge on share-based payments – – – – – – – (1 ) (1 )
At 24 September 2022 51 357 3 1,009 (5 ) (20 ) 15 733 2,143
The notes on pages 121 to 170 form an integral part of these consolidated financial statements.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 119
Group cash flow statement
For the 52 weeks ended 24 September 2022
Notes
2022
52 weeks
£m
2021
52 weeks
£m
Cash flow from operations
Operating profit 124 81
Add back/(deduct):
Movement in the valuation of the property portfolio 2.2 117 (38 )
Net profit arising on property disposals 2.2 (1 ) (1 )
Depreciation of property, plant and equipment 2.3 93 98
Amortisation of intangibles 2.3 4 4
Depreciation of right-of-use assets 2.3 36 37
Loss on disposal of fixtures, fittings and equipment – 2
Cost charged in respect of share-based payments 4.6 4 3
Past service cost in relation to the defined benefit pension obligation 4.5 – 3
Administrative pension costs 4.5 4 5
Share of associates results 3.6 (1 ) (1 )
Impairment of finance lease receivables 3.2 – 2
Operating cash flow before movements in working capital and additional pension contributions 380 195
(Increase)/decrease in inventories (3 ) 3
Increase in trade and other receivables (19 ) (7 )
Increase in trade and other payables 42 10
(Decrease)/increase in provisions (1 ) 1
Additional pension contributions 4.5 (44 ) (52 )
Cash flow from operations 355 150
Interest payments
a
(67 ) (65 )
Interest payments on interest rate swaps
a
(33 ) (40 )
Interest receipts on cross currency swap
a
Interest payments on cross currency swap
a
(1 ) (1 )
Other interest paid – lease liabilities 4.4 (16 ) (21 )
Borrowing facility fees paid – (1 )
Interest received 1 1
Tax (paid)/received (2 ) 1
Net cash from operating activities 238 25
Investing activities
Purchases of property, plant and equipment (117 ) (29 )
Purchases of intangible assets (5 ) (4 )
Proceeds from sale of property, plant and equipment 1 1
Finance lease principal repayments received 3 –
Net cash used in investing activities (118 ) (32 )
Financing activities
Issue of ordinary share capital 4.7 1 342
Purchase of own shares 4.7 (2 ) (1 )
Repayment of principal in respect of securitised debt
b
4.4 (115 ) (107 )
Principal receipts on currency swap
b
4.4 20 17
Principal payments on currency swap
b
4.4 (15 ) (14 )
Repayment of liquidity facility 4.4 – (9 )
Repayment of term loan 4.4 – (100 )
Repayment of unsecured revolving credit facilities 4.4 – (10 )
Cash payments for the principal portion of lease liabilities 4.4 (48 ) (41 )
Net cash (used in)/from financing activities (159 ) 77
Net (decrease)/increase in cash and cash equivalents (39 ) 70
Cash and cash equivalents at the beginning of the period 4.4 227 158
Foreign exchange movements 2 (1 )
Cash and cash equivalents at the end of the period 4.4 190 227
a. Interest paid is split to show gross payments on the interest rate and cross currency swaps.
b. Principal repayments on securitised debt are split to show repayments relating to the cross currency swap.
The notes on pages 121 to 170 form an integral part of these consolidated financial statements.
120 Financial Statements
Notes to the consolidated financial statements
Section 1 – Basis of preparation
The financial statements of the subsidiaries are prepared for the same
financial reporting period as the Company. Intercompany transactions,
balances and unrealised gains and losses on transactions between Group
companies are eliminated on consolidation.
Going concern
The Group’s business activities, together with the factors likely to affect its
future development, performance and position are set out in the Strategic
Report on pages 10 to 58. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are also described within the
Financial Review on pages 55 to 58.
Note 4.3 to the consolidated financial statements includes the Group’s
objectives, policies and processes for managing its capital; its financial risk
management objectives; details of its financial instruments and hedging
activities; and its exposures to credit risk and liquidity risk. As highlighted in
note 4.1 to the consolidated financial statements, the Group’s financing is
based upon securitised debt and unsecured borrowing facilities.
The Directors have adopted the going concern basis in preparing these
financial statements after assessing the impact of identified principal risks
and their possible adverse impact on financial performance, specifically
revenue and cash flows.
The combined impact on the hospitality sector of Covid-19, Brexit and
more recently high and persistent cost inflation, initially in energy, wages
and food costs, but now evident throughout most of the Group’s cost base,
has resulted in reduced levels of sales, profits and operating cash flow
since March 2020. These factors cast a high degree of uncertainty as to the
future financial performance and cash flows of the Group and have been
considered by the Directors in assessing the ability of the Group to continue
as a going concern.
The Group’s primary source of borrowings is through ten tranches of fully
amortising loan notes with a gross debt value of £1.4bn as at the end of the
period. These are secured against the majority of the Group’s property
and its future income streams. The principal repayment period varies by
class of note with maturity dates ranging from 2023 to 2036, with £116m
amortisation payments falling due within the going concern period.
The Group also has available a committed unsecured credit facility of £150m
which has a maturity date in February 2024. At the balance sheet date there
were no drawings under these facilities.
Last year the Group launched an Open Offer to shareholders resulting in an
inflow of £351m of additional funds, gross of transaction costs, on 12 March
2021. This significantly enhanced the financial position of the Group. Further,
and contingent on this equity raise, new debt arrangements were secured by
agreement with the Group’s main stakeholders. In summary:
• The establishment of the £150m 3 year unsecured revolving credit facility
due to expire in February 2024, referred to above.
• Agreement to a number of covenant waivers and amendments with
Ambac Assurance UK Ltd, as controlling creditor, and HSBC Trustee (CI),
as trustee, running until January 2023 to provide flexibility and stability to
manage the Group’s secured debt financing structure.
Within the secured debt financing structure there are two main covenants:
the level of net worth (being the net asset value of the securitisation group)
and, FCF to DSCR. As at 24 September 2022 there was substantial
headroom on the net worth covenant. FCF to DSCR represents the multiple
of Free cash Flow (being EBITDA less tax and required capital maintenance
expenditure) generated by sites within the structure to the cost of debt
service (being the repayment of principal, net interest charges and associated
fees). This is tested quarterly on both a trailing two quarter and a four
quarter basis. These tests were waived until January 2022 (two quarter)
and April 2022 (four quarter) and then set as transitioning to their full level
of a minimum of 1.1 times by January 2023.
General information
shares and is registered in England and Wales. The Company’s shares are
listed on the London Stock Exchange. The address of the Company’s
registered office is shown on page 180.
The principal activities of the Company and its subsidiaries (the Group) and
the nature of the Group’s operations are set out in the Strategic Report on
pages 10 to 58.
The Group is required to prepare its consolidated financial statements in
accordance with International Financial Reporting Standards (IFRSs) as
adopted within the UK and in accordance with the Companies Act 2006.
The Group’s accounting reference date is 30 September. The Group draws
up its consolidated financial statements to the Saturday directly before or
following the accounting reference date, as permitted by section 390 (3) of
the Companies Act 2006. The period ended 24 September 2022 and the
comparative period ended 25 September 2021 both include 52 trading weeks.
The consolidated financial statements have been prepared on the historical
cost basis as modified by the revaluation of freehold and long leasehold
properties, pension obligations and financial instruments.
The Group’s accounting policies have been applied consistently.
Basis of consolidation
The consolidated financial statements incorporate the financial statements
of Mitchells & Butlers plc (the Company) and entities controlled by the
Company (its subsidiaries).
Control is achieved when the Company:
• has the power over the investee;
• is exposed, or has rights, to variable return from its involvement with the
investee; and
• has the ability to use its power to affects its returns.
The Company reassesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control listed above.
When the Company has less than a majority of voting rights of an investee,
it considers that it has power over the investee when the voting rights are
sufficient to give it the practical ability to direct the relevant activities of the
investee unilaterally. The Company considers all relevant facts and
circumstances in assessing whether or not the Company’s voting rights in
an investee are sufficient to give it power, including:
• the size of the Company’s holding of voting rights relative to the size and
dispersion of holdings of the other vote holders;
• potential voting rights held by the Company, other vote holders
or parties;
• rights arising from other contractual arrangements; and
• any additional facts and circumstances that indicate that the Company
has, or does not have, the current ability to direct the relevant activities at
the time that decisions need to be made, including voting patterns at the
previous shareholders’ meetings.
Consolidation of a subsidiary begins when the Company obtains control over
the subsidiary and ceases when the Company loses control of the subsidiary.
Specifically, the results of the subsidiaries acquired or disposed of during the
period are included in the Group income statement from the date the
Company gains control until the date when the Company ceases to control
the subsidiary.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 121
Foreign currencies
Transactions in foreign currencies are recorded at the exchange rates ruling
on the dates of the transactions. Monetary assets and liabilities denominated
in foreign currencies are translated into the functional currency at the
relevant rates of exchange ruling at the balance sheet date. Foreign exchange
differences arising on translation are recognised in the Group income
statement. Non-monetary assets and liabilities are measured at cost using
the exchange rate on the date of the initial transaction.
The consolidated financial statements are presented in pounds sterling
(rounded to the nearest million), being the functional currency of the primary
economic environment in which the parent and most subsidiaries operate.
On consolidation, the assets and liabilities of the Group’s overseas operations
are translated into sterling at the relevant rates of exchange ruling at the
balance sheet date. The results of overseas operations are translated into
sterling at average rates of exchange for the period. Exchange differences
arising from the translation of the results and the retranslation of opening net
assets denominated in foreign currencies are taken directly to the Group’s
translation reserve. When an overseas operation is sold, such exchange
differences are recognised in the Group income statement as part of the gain
or loss on sale.
The results of overseas operations have been translated into sterling at the
weighted average euro rate of exchange for the period of £1 = €1.18 (2021 £1
= €1.15), where this is a reasonable approximation to the rate at the dates of
the transactions. Euro and US dollar denominated assets and liabilities have
been translated at the relevant rate of exchange at the balance sheet date of
£1 = €1.12 (2021 £1 = €1.17) and £1 = $1.09 (2021 £1 = $1.37) respectively.
Going concern continued
Unsecured facilities were initially measured only against a liquidity covenant,
against which there was substantial headroom, until the end of Q3 FY 2022.
Following this date further covenants were introduced relating to the ratio of
EBITDAR to rent plus interest (at a minimum of 1.5 times) and net debt to
EBITDA (to be no more than 3.0 times) based on the performance of the
unsecured estate, both tested on a half-yearly basis.
In the year ahead the main uncertainties are considered to be the
maintenance of growth in sales in the face of pressure on consumer spending
power in an environment of falling real wages, and the future outlook for cost
inflation across the whole of the cost base but most notably in energy prices,
food costs and wages and salaries. The outlook for these is highly uncertain
and volatile, particularly energy costs in the second half of FY 2023, and will
depend on a number of factors including consumer confidence, global
political developments and supply chain disruptions and government policy.
The Directors have reviewed the financing arrangements against a forward
trading forecast in which they have considered the Group’s current financial
position. This forecast assumes further growth in sales beyond pre-
pandemic levels and on the prior year slightly below the level generated in
recent months. Costs are also assumed to continue to increase in line with
recent experience blending at an expected increase of c10% across the cost
base of the business of approximately £1.8bn. Under this base case the
Group is able to stay within revised committed facility financial covenants,
albeit with limited headroom, and maintains sufficient liquidity.
The Directors have also considered a severe but plausible downside scenario
covering adverse movements against the base forward forecast in both sales
and cost inflation in which some, but limited, mitigation activity is taken
including lower capital expenditure on site remodel activity and a flex down
of labour costs in line with reduced sales. In this scenario sales are assumed
to remain in growth but at a level further below current run rates, and the
impact of unmitigated cost inflation is higher particularly in the areas of food,
labour and energy aggregating to 12% of the cost base. In this downside
scenario, whilst the Group retains sufficient liquidity throughout the period
based on existing facilities, covenants would be breached in the fourth
quarter of the year in both secured and unsecured facilities. Under such a
scenario the Directors believe that, on the basis of previous waivers secured,
the strong asset base and longer term trading prospects, waivers should be
forthcoming from main stakeholders. However this is not within the Group’s
control and as a result the Directors cannot conclude that the possibility of an
un-waived breach of covenant is remote.
After due consideration of these factors, the Directors believe that it remains
appropriate to prepare the financial statements on a going concern basis.
However, the circumstances outlined above, in particular the uncertainty
concerning sales and cost inflation with the resulting possibility of an
un-waived covenant breach, and ultimately the need to renew unsecured
facilities on or before February 2024, indicate the existence of a material
uncertainty related to events or conditions that may cast significant doubt
over the Group’s and the Company’s ability to realise their assets and
discharge their liabilities in the normal course of business. The financial
statements do not include any adjustments that would arise from the basis
of preparation being inappropriate.
A review of longer-term viability is provided on pages 52 and 53 which
assesses the Group’s ability to continue in operation and to meet its liabilities
as they fall due over a longer, three year period.
Section 1 – Basis of preparation continued
Notes to the consolidated financial statements continued122 Financial Statements
New and amended IFRS Standards that are effective for the current period
The International Accounting Standards Board (IASB) and International Financial Reporting Interpretations Committee (IFRIC) have issued the following
standards and interpretations which have been adopted by the Group in these consolidated financial statements for the first time with the following impact.
Accounting standard Effective date
Interest Rate Benchmark Reform –
Phase 2
(Amendments to IFRS 9 Financial
Instruments, IAS 39 Financial
Instruments: Recognition and
Measurement, IFRS 7 Financial
Instruments: Disclosures, IFRS 4
Insurance Contracts, IFRS 16 Leases)
The Group has adopted the amendments to IFRS 9, included in Phase 2 of the Interest Rate Benchmark Reform,
in the current period, which address issues that might affect financial reporting during the reform of an interest
rate benchmark. This includes the effects of changes to contractual cash flows or hedging relationships arising
from the replacement of an interest rate benchmark with an alternative benchmark rate.
A number of the Group’s financial instruments had LIBOR as their interest reference rate at the start of the period.
During the period, the Group completed the necessary amendments to transition its financing arrangements in
advance of the discontinuation of LIBOR as a floating reference rate, replacing LIBOR with a Sterling Overnight
Index Average (SONIA) based rate in respect of sterling and a Secured Overnight Financing Rate (SOFR) based
rate in respect of US dollars. The amendments in respect of the securitised bonds were agreed by the Bondholders
through a formal consent solicitation process and bilateral agreements were reached with securitised swap
providers (using amended reference rates consistent with those agreed under the bonds). All sterling based
facilities and agreements referencing sterling LIBOR transitioned in the period and now reference SONIA,
plus a credit adjustment spread of 11.93 basis points to maintain an economically equivalent position, for periods
commencing on or after 1 January 2022. The facilities currently referencing US dollar LIBOR will transition to
SOFR plus 26.161 basis points for periods commencing on or after 1 July 2023. The liquidity facility and the unsecured
committed facility were arranged on a SONIA basis in the prior period, so did not require any further amendment.
As part of the transition, all of the Group’s hedge relationships have been reviewed and these continue to be
highly effective. Hedge documentation has been updated in accordance with the reliefs permitted in the
amendments to IFRS 9, designating the new interest reference rate in both the hedged item and the hedging
instrument. As a result of the transition, there has been no impact on the amounts recognised in the income
statement or statement of other comprehensive income.
The Directors do not expect that the adoption of the standard listed above will have a material impact on the consolidated financial statements in future periods.
New and revised IFRS Standards in issue but not yet effective
The IASB and IFRIC have issued the following standards and interpretations
which could impact the Group, with an effective date for financial periods
beginning on or after the dates disclosed below:
Accounting standard Effective date
Amendments to IAS 1 and IFRS Practice
Statement 2 (Disclosure of Accounting Policies)
1 January 2023
Amendments to IAS 1 (Classification of Liabilities
as Current or Non-current)
1 January 2023
Amendments to IAS 8 (Definition of Accounting
Estimates)
1 January 2023
Amendments to IAS 12 (Deferred Tax related to
Assets and Liabilities arising from a Single
Transaction)
1 January 2023
IFRS 17 Insurance Contracts 1 January 2023
Amendments to IFRS 3 (Reference to the
Conceptual Framework)
1 January 2022
Amendments to IAS 16 (PPE – proceeds before
intended use)
1 January 2022
Amendments to IAS 37 (Onerous Contracts – cost
of fulfilling a contract)
1 January 2022
Annual improvements to IFRS standards
2018-2020 cycle (Amendments to IFRS 1
First-time Adoption of International Financial
Reporting Standards, IFRS 9 Financial
Instruments, IFRS 16 Leases, and IAS 41
Agriculture)
1 January 2022
The Directors do not expect that the adoption of the standards listed above
will have a material impact on the consolidated financial statements in
future periods.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of the consolidated financial statements requires
management to make judgements, estimates and assumptions in the
application of accounting policies that affect reported amounts of assets,
liabilities, income and expense.
Estimates and judgements are periodically evaluated and are based on
historical experience and other factors including expectations of future
events that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates.
Judgements and estimates for the period remain largely unchanged from the
prior period.
Significant accounting estimates:
The significant accounting estimates with a significant risk of a material
change to the carrying value of assets and liabilities within the next year in
terms of IAS 1 Presentation of Financial Statements, are:
• Going concern assessment – in the current and prior period, there has
been significant judgement around the going concern assessment,
including estimation uncertainty in the forecasts used for this assessment.
Full details are provided in the going concern review on pages 121
and 122.
• Fair value of freehold and long leasehold properties – see note 3.1
Other areas of judgement are described in each section listed below:
• Determination of items that are separately disclosed – see note 2.2
• Impairment review of short leasehold properties – see note 3.1
• Impairment review of right-of-use assets – see note 3.2
• Selection of appropriate assumptions for calculation of the defined
benefit pension liabilities – see note 4.5
Other sources of estimation uncertainty are described in:
• Impairment review of short leasehold properties – see note 3.1
• Impairment review of right-of-use assets – see note 3.2
• Actuarial valuations of the defined benefit pension liabilities – see note 4.5
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 123
2.1 Segmental analysis
Accounting policies
Operating segments
IFRS 8 Operating Segments requires operating segments to be based on the Group’s internal reporting to its Chief Operating Decision Maker (CODM).
The CODM is regarded as the Chief Executive together with other Board members. The Group trades in one business segment (that of operating pubs
and restaurants) and the Group’s brands meet the aggregation criteria set out in Paragraph 12 of IFRS 8. Economic indicators assessed in determining that
the aggregated operating segments share similar economic characteristics include: expected future financial performance; operating and competitive
risks; and return on invested capital. As such, the Group reports the business as one reportable business segment.
The CODM uses EBITDA and operating profit before interest and separately disclosed items as the key measures of the Group’s results on an
aggregated basis.
Geographical segments
Substantially all of the Group’s business is conducted in the United Kingdom. In presenting information by geographical segment, segment revenue and
non-current assets are based on the geographical location of customers and assets.
Geographical segments
UK Germany Total
2022
52 weeks
£m
2021
52 weeks
£m
2022
52 weeks
£m
2021
52 weeks
£m
2022
52 weeks
£m
2021
52 weeks
£m
Revenue – sales to third parties 2,117 1,009 91 56 2,208 1,065
Segment non-current assets
a
4,524 4,817 41 36 4,565 4,853
a. Includes balances relating to intangibles, property, plant and equipment, right-of-use assets, investments in associates and finance lease receivables.
2.2 Separately disclosed items
Accounting policy
In addition to presenting information on an IFRS basis, the Group also presents adjusted profit and earnings per share information that excludes separately
disclosed items and the impact of any associated tax. Adjusted profit measures are presented excluding separately disclosed items as we believe this
provides both management, investors and other stakeholders with useful additional information about the Group’s performance and supports a more
effective comparison of the Group’s trading performance from one period to the next. Adjusted profit and earnings per share information is used by
management to monitor business performance against both shorter-term budgets and forecasts but also against the Group’s longer-term strategic plans.
Judgement is used to determine those items which should be separately disclosed. This judgement includes assessment of whether an item is of sufficient
size or of a nature that is not consistent with normal trading activities.
Separately disclosed items are those which are separately identified by virtue of their size or incidence.
Accounting judgements
Judgement is used to determine those items which should be separately disclosed to allow an understanding of the adjusted trading performance of the
Group. This judgement includes assessment of whether an item is of sufficient size or of a nature that is not consistent with normal trading activities.
Separately disclosed items are identified as follows:
• Past service cost in relation to the defined benefit pension obligation as a result of the High Court ruling on guaranteed minimum pensions (GMPs)
equalisations. This has been disclosed separately as it is not considered part of the adjusted trade performance of the Group and would prevent
comparability between periods of the Group’s trading if not separately disclosed.
• Costs directly associated with the Government enforced closure of pubs as result of the Covid-19 pandemic. These costs are disclosed separately
as they are not considered to be part of normal trading activities.
• A refund in relation to the settlement of a long-standing claim with HMRC regards gaming duty is separately disclosed due to its size.
• Profit/(loss) arising on property disposals – property disposals are disclosed separately as they are not considered to be part of adjusted trade
performance and there is volatility in the size of the profit/(loss) in each accounting period.
• Movement in the valuation of the property portfolio – this is disclosed separately, due to the size and volatility of the movement in property valuation
each period, which can be partly driven by movements in the property market and discount rate where impairment reviews are completed. This
movement is also not considered to be part of the adjusted trade performance of the Group and would prevent comparability between periods of the
Group’s trading performance if not separately disclosed.
• Tax rate change – the change in tax rate is not part of normal trading activity and due to the size in any given period, this is disclosed separately.
Notes to the consolidated financial statements continued
Section 2 – Results for the period
124 Financial Statements
The items identified in the current period are as follows:
Notes
2022
52 weeks
£m
2021
52 weeks
£m
Separately disclosed items
Past service cost in relation to the defined benefit obligation a – (3)
Costs directly associated with Covid-19 and the enforced closure of pubs b – (4)
Gaming machine settlement c – 20
Total separately disclosed items recognised within operating costs – 13
Net profit arising on property disposals 1 1
Movement in the valuation of the property portfolio:
– (Impairment charge)/impairment reversal arising from the revaluation of freehold and long leasehold
properties d (86) 51
– Impairment of freehold and long leasehold tenant’s fixtures and fittings e – (3)
– Impairment of short leasehold and unlicensed properties f (9) (2)
– Impairment of right-of-use assets g (22) (8)
Net movement in the valuation of the property portfolio (117) 38
Total separately disclosed items before tax (116) 52
Tax credit/(charge) relating to above items 22 (11)
Tax charge relating to change in tax rate h – (29)
22 (40)
Total separately disclosed items after tax (94) 12
a. On 20 November 2020, the High Court ruled that pension schemes will need to revisit individual transfer payments since 17 May 1990 to check if any additional value is due as a result of
guaranteed minimum pensions (GMPs) equalisition. This latest judgement followed on from the ruling regarding GMPs on 26 October 2018 and requires that schemes make a top-up
payment to any member who exercised their statutory right to transfer benefits to an alternative scheme. The top-up payment should be the shortfall between the original transfer
payments and what would have been paid if benefits had been equalised at the time, with interest in line with bank base rate plus 1% each year. The past service cost recognised in the
prior period was an estimate of the impact to the Group’s schemes as a result of this ruling.
b. Costs directly associated with the Covid-19 pandemic primarily relate to the disposal of stock items at site and within distribution depots that are beyond usable dates as a result of the
Government enforced closure of pubs during periods of local and national lockdown. These costs are not considered to be part of normal trading activity.
c. In the prior period, a decision of a First-Tier tribunal in the case of the Rank Group Plc against HMRC, for the period post-2005, was given in favour of the taxpayers, with HMRC
subsequently confirming it will not appeal against the decision and will now pay valid claims. As a result, the Group resubmitted a claim to HMRC covering the period from 2005 to 2012
for VAT on gaming machine income. An estimate of the amount receivable, including interest, of £20m was recognised in the prior period.
d. The impairment arising from the Group’s revaluation of its freehold and long leasehold pub estate comprises an impairment charge, where the carrying values of the properties exceed
their recoverable amount, net of a revaluation surplus that reverses past impairments. See note 3.1 for further details.
e. Impairment of freehold and long leasehold tenant’s fixtures and fittings where their carrying values exceed their recoverable amounts. See note 3.1 for further details.
f. Impairment of short leasehold and unlicensed properties where their carrying values exceed their recoverable amounts. See note 3.1 for further details.
g. Impairment of right-of-use assets where their carrying values exceed their recoverable amounts. See note 3.2 for further details.
h. A deferred tax charge was recognised in the prior period following the substantive enactment of legislation which increased the UK standard rate of corporation tax from 19% to 25% from
1 April 2023.
2.3 Revenue and operating costs
Accounting policies
Revenue recognition
Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes amounts collected
on behalf of third parties. The Group recognises revenue when it transfers control of a product or service to a customer.
Revenue – food and drink
The majority of revenue comprises food and drinks sold in the Group’s outlets. Revenue is recognised when control of the goods has transferred, being
at the point the customer purchases the goods at the outlet or on ordering through a delivery partner. Payment of the transaction price is due immediately
at the point the customer makes a purchase at the outlet, or on agreed terms where purchases are made through third-party delivery partners. Revenue
excludes sales-based taxes, coupons and discounts.
Revenue – services
Revenue for services mainly represents income from gaming machines, hotel accommodation and rent receivable from unlicensed and leased operations.
Revenue for gaming machines and hotel accommodation is recognised at the point the service is provided and excludes sales-based taxes and discounts.
Rental income is received from operating leases where the Group acts as lessor for a number of unlicensed and leased operations. Income from these
leases is recognised on a straight-line basis over the term of the lease.
Operating profit
Operating profit is stated after charging separately disclosed items but before investment income and finance costs.
Supplier incentives
Supplier incentives and rebates are recognised within operating costs as they are earned. The accrued value at the reporting date is included in
other receivables.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 125
2.3 Revenue and operating costs continued
Accounting policies continued
Government grants
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the
grants will be received.
Government grants are recognised in the income statement on a systematic basis over the periods in which the Group recognises as expenses the related
operating costs for which the grants are intended to compensate.
Local Authority grants
Following the outbreak of the Covid-19 global pandemic in early 2020 and the subsequent enforced closure of the business, the Mitchells & Butlers Group
(MAB), under the Temporary Framework for State Aid for Covid-19 Responses (TF), has received a number of different areas of support from both local
and central Government in the UK and also Germany. During the prior period, the Group applied for various Local Authority grants as a result of both local
and national restrictions that required pubs and restaurants to close. Under these schemes, businesses in the retail, hospitality and leisure sectors in
England and Germany were entitled to one-off cash grants for each business impacted. The maximum amount the Group was able to claim was £10.9m as
a result of the State Aid cap. However, following the EU Court ruling on State Aid aggregation, it has now become clear that aid provided to a Group via
different countries does not require aggregation for the purposes of the State Aid cap provided there is sufficient autonomy between subsidiaries operating
in different countries. As a result, the Group has sufficient headroom to recognise further support, albeit subject to the individual caps applicable in both
the UK and Germany. This has resulted in the recognition of an additional £2m of income in the current period.
Following the outbreak of the Omicron variant of Covid-19 in the UK in November 2021, the Government introduced some further grants to help support
businesses in the leisure and hospitality sectors. Under this scheme, the maximum amount the Group was able to claim was £1.3m.
German Government grants
During the prior period, the Group was entitled to receive Government assistance in Germany as a result of Covid-19 in relation to the pubs and
restaurants that are operated there. Assistance was received in relation to staff wages and salaries under Kurzarbeit. In addition the German Government
provided grants to assist with loss of profits during enforced closure periods under the November 2020 Support and December 2020 Support schemes,
as well as the Fixed Cost Bridging Aid scheme. These grants all fell outside of the Temporary Framework and were therefore excluded from the State Aid
maximum rules. Following the impact of the Omicron variant in December 2021, further grant claims have been made in the current period for costs
incurred during periods of significantly lower sales under an extension of the Bridging Aid scheme.
Business rates
Businesses in the retail, hospitality and leisure sectors in England, Scotland and Wales were granted 100% business rates relief for the 2020/21 rates year,
covering the period from 1 April 2020 to 31 March 2021. An additional three months of 100% business rates relief was granted to cover 1 April 2021 to
30 June 2021. Following this, in England, business rates were discounted by two-thirds from 1 July 2021 until 31 March 2022, subject to a £2m cap. In
Scotland and Wales, there was an extension of 100% rates relief for hospitality businesses until 31 March 2022.
Apprenticeship incentives
The Group is entitled to claim £1,000 for each apprentice employed, where they are aged 16 to 18, or under 25 and meet certain other criteria.
As part of its response to the Covid-19 pandemic, the UK Government introduced a scheme to enable an employer to receive up to an additional £3,000
per apprentice, where the apprentice commenced employment between 1 August 2020 and 31 January 2022. The payment is phased with amounts due
in equal instalments at 90 days and 365 days after employment commenced and is recognised on receipt of cash.
Coronavirus Job Retention Scheme (CJRS)
Under this scheme, HMRC reimbursed up to 80% of the wages of certain employees who were furloughed. The scheme was designed to compensate for
staff costs, so amounts received were recognised in the income statement over the same period as the costs to which they relate. In the income statement,
operating costs are shown net of grant income received. The scheme commenced on 20 March 2020 and continued until 30 September 2021. A similar
scheme operated in Germany (Kurzarbeit).
Section 2 – Results for the period continued
Notes to the consolidated financial statements continued126 Financial Statements
Government grants
The impact of grants received on the income statement is as follows:
Government grant scheme Income statement line impact
2022
52 weeks
£m
2021
52 weeks
£m
Local Authority Grants (UK and Germany) Revenue – other 3 11
Grants for loss of profits in Germany Revenue – other 1 14
Apprenticeship incentives Revenue – other 1 –
Coronavirus Job Retention Scheme Operating costs before separately disclosed items – 210
Government assistance for wages and salaries in
Germany (Kuzarbeit) Operating costs before separately disclosed items – 9
Total Government grants received 5 244
In addition to the grants received above, the impact in the current period of business rates relief received, across all sites within the UK, is an estimated saving
of £5m (2021 £75m).
The Group has also benefited from a reduction in the rate of VAT from 20% to 5% on non-alcoholic sales which was introduced by the UK Government on
15 July 2020 and continued until 30 September 2021. Following this a rate of 12.5% applied for the subsequent six months until 31 March 2022. The estimated
impact of this on food and drink revenue in the current period is £43m (2021 £81m).
Revenue
Revenue is analysed as follows:
2022
52 weeks
£m
2021
52 weeks
£m
Food 1,166 592
Drink 957 414
Services 80 34
Other – Local Authority grants (UK and Germany) 3 11
Other – German Government grants for loss of profits 1 14
Other – Apprenticeship incentives 1 –
2,208 1,065
Revenue from services includes rent receivable from unlicensed properties and leased operations of £9m (2021 £6m).
Operating costs
Operating costs are analysed as follows:
2022
52 weeks
£m
2021
52 weeks
£m
Raw materials and food and drink consumables recognised as an expense
a
556 241
Changes in inventory of finished goods and work in progress (3) 3
Employee costs 758 403
Hire of plant and machinery 21 9
Property operating lease costs
b
9 7
Utility costs 152 56
Business rates 91 20
Other pub costs 207 115
Other central costs 45 44
Operating costs before depreciation, amortisation and separately disclosed items 1,836 898
Other separately disclosed items (note 2.2) – (13)
1,836 885
Net profit arising on property disposals (1) (1)
Depreciation of property, plant and equipment (note 3.1) 93 98
Depreciation of right-of-use assets (note 3.2) 36 37
Amortisation of intangible assets (note 3.5) 4 4
Net movement in the valuation of the property portfolio (note 2.2) 117 (38)
Depreciation, amortisation and movements in the valuation of the property portfolio 250 101
Total operating costs 2,085 985
a. Supplier incentives are included as a reduction to the raw materials and consumables expense. These are not disclosed separately as the value is immaterial.
b. Property operating lease costs include service charge, insurance and turnover rents.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 127
Notes to the consolidated financial statements continued
2.3 Revenue and operating costs continued
Employee costs
2022
52 weeks
£m
2021
52 weeks
£m
Wages and salaries 684 568
Share-based payments (note 4.6) 4 3
Social security costs 54 38
Pensions (note 4.5) 16 13
Employee costs before Government grants 758 622
UK Government grant
a
– (210)
German Government grant
b
– (9)
Total employee costs 758 403
a. In the prior period, a Government grant was received in relation to the Coronavirus Job Retention Scheme, to contribute towards the cost of employee wages and salaries, social security
costs and pensions. This was introduced by the UK Government in response to the Covid-19 pandemic. In the UK, the scheme commenced on 20 March 2020 and continued until
30 September 2021.
b. In the prior period, a grant was received in relation to employee wages and salaries from the German Government under Kuzarbeit, as described above.
The 4-weekly average number of employees including part-time employees was 44,335 retail employees (2021 38,852) and 1,073 support employees (2021 1,001).
Information regarding key management personnel is included in note 5.1. Detailed information regarding Directors’ emoluments, pensions, long-term
incentive scheme entitlements and their interests in share options is given in the Report on Directors’ remuneration on pages 89 to 106.
Auditor remuneration
2022
52 weeks
£m
2021
52 weeks
£m
Fees payable to the Group’s auditor for the:
– audit of the consolidated financial statements 0.2 0.2
– audit of the Company’s subsidiaries’ financial statements 0.5 0.5
Total audit fees
a
0.7 0.7
Other fees to auditor:
– audit-related assurance services – –
– other non-audit services
b
– 0.6
Total non-audit fees – 0.6
Total fees 0.7 1.3
KPMG LLP were appointed as external auditor in the current period. 2021 fees were payable to the previous external auditor, Deloitte LLP.
a. Auditor’s remuneration of £0.6m (2021 £0.6m) was paid in the UK and £0.1m (2021 £0.1m) was paid in Germany.
b. During the prior period, non-audit fees of £0.6m were incurred in relation to the Open Offer completed during March 2021. As outlined in the Audit Committee policy on page 88 the
external auditor should not provide non-audit services in any one year that exceed 70% of the average audit fee paid to the audit firm in the previous three years. In the case of services
provided in relation to the Open Offer, after careful consideration of their independence and professional guidance, the Audit Committee agreed that it was appropriate for Deloitte to
be appointed on a separate engagement to conduct the working capital review in relation to the Open Offer.
Section 2 – Results for the period continued
128 Financial Statements
2.4 Taxation
Accounting policies
The income tax (charge)/credit represents both the income tax payable, based on profits/(losses) for the period, and deferred tax and is calculated using
tax rates enacted or substantively enacted at the balance sheet date. Taxable profit differs from net profit as reported in the income statement because it
excludes items of income or expense which are not taxable. Income tax is recognised in the income statement except when it relates to items that are
charged or credited in other comprehensive income or directly in equity, in which case the income tax is also charged or credited in other comprehensive
income or directly in equity.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profits and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable
that taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group
is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that
it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse
in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset realised based on tax laws and
rates that have been substantively enacted at the balance sheet date. The amount of deferred tax recognised is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities.
Taxation – Group income statement
2022
52 weeks
£m
2021
52 weeks
£m
Current tax:
– Corporation tax (3) (2)
– Amounts over provided in prior periods 1 4
Total current tax (charge)/credit (2) 2
Deferred tax:
– Origination and reversal of temporary differences 3 8
– Effect of changes in UK tax rate 4 (29)
– Adjustments in respect of prior periods – (4)
Total deferred tax credit/(charge) 7 (25)
Total tax credit/(charge) in the Group income statement 5 (23)
Further analysed as tax relating to:
Profit/(loss) before separately disclosed items (17) 17
Separately disclosed items 22 (40)
5 (23)
The standard rate of corporation tax applied to the reported profit/(loss) is 19.0% (2021 19.0%).
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 129
2.4 Taxation continued
The tax credit (2021 charge) in the Group income statement for the period is lower than (2021 lower) the standard rate of corporation tax in the UK.
The differences are reconciled below:
2022
52 weeks
£m
2021
52 weeks
£m
Profit/(loss) before tax 8 (42)
Taxation (charge)/credit at the UK standard rate of corporation tax of 19.0% (2021 19.0%) (1) 8
Expenses not deductible (2) (2)
Income not taxable 4 1
Tax credit/(charge) in respect of change in UK tax rate 4 (29)
Adjustment in respect of prior periods 1 –
Effect of different tax rates of subsidiaries in other jurisdictions (1) (1)
Total tax credit/(charge) in the Group income statement 5 (23)
Taxation for other jurisdictions is calculated at the rates prevailing in those jurisdictions.
2022
52 weeks
£m
2021
52 weeks
£m
Deferred tax in the Group income statement:
Accelerated capital allowances (12) (13)
Retirement benefit obligations (8) (29)
Unrealised gains on revaluations 23 –
Tax losses – UK (9) 35
Tax losses – Interest restriction 13 –
Share-based payments – 1
Rolled over and held over gains – (19)
Depreciated non-qualifying assets – (1)
Right-of-use assets – 1
Total deferred tax credit/(charge) in the Group income statement 7 (25)
Taxation – other comprehensive income
2022
52 weeks
£m
2021
52 weeks
£m
Deferred tax:
Items that will not be reclassified subsequently to profit or loss:
– Unrealised losses/gains due to revaluations – revaluation reserve 46 (117)
– Unrealised losses/gains due to revaluations – retained earnings (5) 16
– Rolled over and held over gains – retained earnings – (20)
– Remeasurement of pension liability and rate change of pension liability (9) 24
32 (97)
Items that may be reclassified subsequently to profit or loss:
– Cash flow hedges (45) (4)
Total tax charge recognised in other comprehensive income (13) (101)
Notes to the consolidated financial statements continued
Section 2 – Results for the period continued
130 Financial Statements
Tax relating to items recognised directly in equity
2022
52 weeks
£m
2021
52 weeks
£m
Deferred tax:
– Tax (charge)/credit related to share-based payments (1) 2
Taxation – Group balance sheet
The deferred tax assets and liabilities recognised in the Group balance sheet are shown below:
2022
£m
2021
£m
Deferred tax assets:
Retirement benefit obligation (note 4.5) 14 31
Derivative financial instruments 8 53
Tax losses – UK 43 52
Share-based payments 2 3
Right-of-use assets 6 6
Tax losses – Interest restriction 13 –
Total deferred tax assets 86 145
Deferred tax liabilities:
Accelerated capital allowances (57) (44)
Rolled over and held over gains (164) (164)
Unrealised gains on revaluations (211) (275)
Depreciated non-qualifying assets (4) (4)
Total deferred tax liabilities (436) (487)
Total (350) (342)
At 24 September 2022, the Group has netted off deferred tax assets of £82m (2021 £141m) with deferred tax liabilities where there is a legally enforceable
right to settle on a net basis. Deferred tax assets and liabilities have been offset and disclosed in the Group balance sheet as follows:
2022
£m
2021
£m
Deferred tax assets (after offsetting) 4 4
Deferred tax liabilities (after offsetting) (354) (346)
Net deferred tax liability (350) (342)
Unrecognised tax allowances
At the balance sheet date the Group had unused tax allowances of £95m in respect of unclaimed capital allowances (2021 £97m) available for offset against
future profits.
A deferred tax asset has not been recognised on tax allowances with a value of £24m (2021 £24m) because it is not certain that future taxable profits will be available
in the company where these tax allowances arose against which the Group can utilise these benefits. These tax credits can be carried forward indefinitely.
Factors which may affect future tax charges
The Finance Act 2021 increased the main rate of corporation tax from 19% to 25% with effect from 1 April 2023. The effect of this change has been reflected
in the closing deferred tax balances at 25 September 2021 and 24 September 2022.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 131
2.5 Earnings/(loss) per share
Basic earnings/(loss) per share (EPS) has been calculated by dividing the profit or loss for the period by the weighted average number of ordinary shares
in issue during the period, excluding own shares held by employee share trusts.
For diluted earnings/(loss) per share, the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares.
Adjusted earnings/(loss) per ordinary share amounts are presented before separately disclosed items (see note 2.2) in order to allow an understanding of the
adjusted trading performance of the Group.
The profits/(losses) used for the earnings/(loss) per share calculations are as follows:
2022
52 weeks
£m
2021
52 weeks
£m
Profit/(loss) for the period 13 (65)
Separately disclosed items, net of tax 94 (12)
Adjusted profit/(loss) for the period
a
107 (77)
a. Adjusted profit/(loss) and adjusted EPS are alternative performance measures (APMs) and are considered critical to aid understanding of the Group’s performance. These measures are
explained on pages 177 to 179 of this report.
The number of shares used for the earnings/(loss) per share calculations are as follows:
2022
52 weeks
£m
2021
52 weeks
£m
Basic weighted average number of ordinary shares 595 566
Effect of dilutive potential ordinary shares:
– Contingently issuable shares 1 1
Diluted weighted average number of shares 596 567
2022
52 weeks
pence
20212
52 weeks
pence
Basic earnings/(loss) per share
Basic earnings/(loss) per share 2.2p (11.5)p
Separately disclosed items net of tax per share 15.8p (2.1)p
Adjusted basic earnings/(loss) per share 18.0p (13.6)p
Diluted earnings/(loss) per share
Diluted earnings/(loss) per share 2.2 p (11.5)p
Adjusted diluted earnings/(loss) per share
a
18.0 p (13.6)p
a. Adjusted earnings/(loss) and adjusted EPS are alternative performance measures (APMs) and are considered critical to aid understanding of the Group’s performance. These measures
are explained on pages 177 to 179 of this report.
At 24 September 2022, 4,839,607 (2021 800,570) other share options were outstanding that could potentially dilute basic EPS in the future but were not
included in the calculation of diluted EPS as they are anti-dilutive for the periods presented.
Section 2 – Results for the period continued
Notes to the consolidated financial statements continued132 Financial Statements
3.1 Property, plant and equipment
Accounting policies
Property, plant and equipment
The majority of the Group’s freehold and long leasehold licensed land and buildings, and the associated landlord’s fixtures, fittings and equipment
(i.e. fixed fittings) are revalued annually and are therefore held at fair value less depreciation. Tenant’s fixtures and fittings (i.e. loose fixtures) within
freehold and long leasehold properties, are held at cost less depreciation and impairment.
Short leasehold buildings (leases with an unexpired lease term of less than 50 years), unlicensed land and buildings and associated fixtures, fittings and
equipment are held at cost less depreciation and impairment.
All land and buildings are disclosed as a single class of asset within the property, plant and equipment table, as we do not consider the short leasehold and
unlicensed buildings to be material for separate disclosure.
Non-current assets held for sale are held at their carrying value or their fair value less costs to sell where this is lower.
Depreciation
Depreciation is charged to the income statement on a straight-line basis to write off the cost less residual value over the estimated useful life of an asset and
commences when an asset is ready for its intended use. Expected useful lives and residual values are reviewed each period and adjusted if appropriate.
No adjustments have been made in the period.
Freehold land is not depreciated.
Freehold and long leasehold buildings are depreciated so that the difference between their carrying value and estimated residual value is written off over
50 years from the date of acquisition. The residual value of freehold and long leasehold buildings is reassessed each period and is estimated to be equal
to the fair value determined in the annual valuation and therefore no depreciation charge is recognised.
Short leasehold buildings, and associated fixtures and fittings, are depreciated over the shorter of the estimated useful life and the unexpired term
of the lease.
Fixtures, fittings and equipment have the following estimated useful lives:
Information technology equipment 3 to 7 years
Fixtures and fittings 3 to 20 years
At the point of transfer to non-current assets held for sale, depreciation ceases. Should an asset be subsequently reclassified to property, plant and
equipment, the depreciation charge is calculated to reflect the cumulative charge had the asset not been reclassified.
Disposals
Profits and losses on disposal of property, plant and equipment are calculated as the difference between the net sales proceeds and the carrying amount
of the asset at the date of disposal.
Revaluation
The revaluation utilises valuation multiples, which are determined via third-party inspection of 20% of the sites such that all sites are individually valued
approximately every five years; estimates of fair maintainable trade comprising estimates of both fair maintainable turnover (FMT) and fair maintainable
operating profit (FMOP); and estimated fair value of tenant’s fixtures and fittings. Properties are valued as fully operational entities, to include fixtures
and fittings but excluding stock and personal goodwill. The value of tenant’s fixtures and fittings is then removed from this valuation via reference to its
estimated fair value. Where sites have been impacted by expansionary capital investment in the preceding twelve months, fair maintainable trade is taken
as the post-investment forecast, as the current period trading performance includes a period of closure.
Valuation multiples derived via third-party inspections determine brand standard multiples which are then used to value the remainder of the non-inspected
estate via an extrapolation exercise, with the output of this exercise reviewed at a high level by the Directors and the third-party valuer.
Where the value of land and buildings derived purely from a multiple applied to the fair maintainable trade misrepresents the underlying asset value,
for example, due to low levels of income or location characteristics, a spot valuation is applied.
Surpluses which arise from the revaluation exercise are included within other comprehensive income (in the revaluation reserve) unless they are reversing
a revaluation deficit which has been recognised in the income statement previously; in which case an amount equal to a maximum of that recognised in the
income statement previously is recognised in the income statement. Where the revaluation exercise gives rise to a deficit, this is reflected directly within
the income statement, unless it is reversing a previous revaluation surplus against the same asset; in which case an amount equal to the maximum of the
revaluation surplus is recognised within other comprehensive income (in the revaluation reserve).
Impairment
Short leaseholds, unlicensed properties and fixtures and fittings are reviewed on an outlet basis for impairment if events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognised whenever the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount is the higher of fair value less costs to sell or value in use. Any changes in outlet earnings or cash flows,
the discount rate applied to those cash flows, or the estimate of sales proceeds could give rise to an additional impairment loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only
so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised
for the asset in prior periods. A reversal of an impairment loss is recognised in the income statement immediately. An impairment reversal is only
recognised where there is a change in the estimates used to determine recoverable amounts, not where it results from the passage of time.
Section 3 – Operating assets and liabilities
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 133
Notes to the consolidated financial statements continued
3.1 Property, plant and equipment continued
Accounting judgements
Revaluation of freehold and long leasehold properties
The revaluation methodology is determined, with advice from third-party valuers, incorporating management judgement where appropriate. The
application of a valuation multiple to the fair maintainable trade of each site is considered the most appropriate method for the Group to determine the fair
value of freehold and long leasehold licensed land and buildings.
At the prior period reporting date of 25 September 2021, judgement was applied to determine the most appropriate measure of site level fair
maintainable trade. Given further periods of enforced closure, as a result of Covid-19, persisted throughout the majority of the first half of the financial
year, the 52 week average trading performance to March 2020 was still considered to be the most appropriate measure of site level fair maintainable trade
in the prior period.
The emergence of the Omicron variant of Covid-19 in November 2021 negatively impacted trade in the first half of the current financial period. As a result
fair maintainable trade at 24 September 2022 has been determined by adjusting the prior period fair maintainable trade on the basis of turnover (FMT) and
operating profit margin (FMOP) performance trends over the second half of the financial period. This adjustment is a matter of judgement that reflects the
extent to which licensed property fair values are being impacted by performance over this period, as advised by third-party valuers.
Where sites have been impacted by expansionary capital investment in the preceding twelve months, management judgement is used to determine the
most appropriate source of site level fair maintainable trade, as the current period trading performance includes a period of closure. Fair maintainable trade
has been determined by estimating both FMT and FMOP by reference to post-investment forecasts and turnover trends post opening.
Brand standard property multiples have been established by CBRE via third-party inspections of 20% of the freehold and long leasehold licensed property
estate. Market conditions that resulted in Covid-19 multiple reductions in the prior period are no longer considered relevant by CBRE due to the strength
of the property market. As a result the average multiple adopted has increased at 24 September 2022.
Further judgement is required where the property value derived purely from a multiple applied to the fair maintainable trade misrepresents the underlying
asset value. In this instance, management apply a spot valuation.
Impairment review of short leasehold and unlicensed properties
For the short leasehold property impairment review, judgement has been applied to determine the most appropriate site level profit and cash flow
forecasts based on the Group forecast for FY 2023 to FY 2025 that was in place at the balance sheet date.
Management apply judgement when allocating overhead costs to site cash flows, with an overhead allocation being made only for those costs that can be
directly attributable to a site on a consistent basis.
Significant accounting estimates
Revaluation of freehold and long leasehold properties
The application of the valuation methodology requires two significant estimates; the estimation of valuation multiples, which are determined via third-
party inspections; and an estimate of fair maintainable trade, consisting of estimates of both fair maintainable turnover (FMT) and fair maintainable
operating profit (FMOP). FMT and FMOP are determined at a site level by reference to both historic and future projected income levels. The valuers also
make reference to market evidence of transaction prices for similar properties to support the multiples adopted. There is considered to be a significant risk
that an adjustment to either of these assumptions could lead to a material change in the property valuation within the next year.
A sensitivity analysis of changes in valuation multiples and fair maintainable trade, in relation to the properties to which these estimates apply, is provided
on page 136. The carrying value of properties to which these estimates apply is £4,036m (2021 £4,277m).
Other sources of estimation uncertainty
Impairment review of short leasehold and unlicensed property and tenant’s fixtures and fittings
The impairment review requires three key sources of estimation uncertainty in calculating the value in use: the estimation of forecast cash flows for each
site; the selection of an appropriate discount rate and the selection of an appropriate long-term growth rate. Both the discount rate and long-term growth
rate are applied consistently to each cash-generating unit.
A sensitivity of changes in forecast cash flows, the discount rate and the long-term growth rate is provided on page 136. The carrying value of assets to
which these estimates apply is £134m (2021 £146m).
Section 3 – Operating assets and liabilities continued
134 Financial Statements
Property, plant and equipment
Property, plant and equipment can be analysed as follows:
Land and
buildings
£m
Fixtures, fittings
and equipment
£m
Total
£m
Cost or valuation
At 26 September 2020 3,868 1,026 4,894
Additions 14 29 43
Disposals
a
(5) (106) (111)
Net increase from property revaluation 201 – 201
Impairment of short leasehold properties (1) (4) (5)
Exchange differences (1) (2) (3)
At 25 September 2021 4,076 943 5,019
Additions 41 89 130
Disposals
a
(9) (106) (115)
Net decrease from property revaluation (273) – (273)
Impairment of short leasehold properties (5) (4) (9)
Exchange differences 1 1 2
At 24 September 2022 3,831 923 4,754
Accumulated depreciation
At 26 September 2020 78 511 589
Provided during the period 5 93 98
Disposals
a
(2) (106) (108)
Exchange differences (1) (1) (2)
At 25 September 2021 80 497 577
Provided during the period 5 88 93
Disposals
a
(5) (106) (111)
Exchange differences – 1 1
At 24 September 2022 80 480 560
Net book value
At 24 September 2022 3,751 443 4,194
At 25 September 2021 3,996 446 4,442
At 26 September 2020 3,790 515 4,305
a. Includes assets which are fully depreciated and have been removed from the fixed asset register.
Certain assets with a net book value of £41m (2021 £41m) owned by the Group are subject to a fixed charge in respect of liabilities held by the
Mitchells & Butlers Executive Top-Up Scheme (MABETUS).
Included within property, plant and equipment are assets with a net book value of £3,577m (2021 £3,806m), which are pledged as security for the
securitisation debt and over which there are certain restrictions on title. Further details of the securitisation are provided in note 4.1.
Cost at 24 September 2022 includes £17m (2021 £14m) of assets in the course of construction.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 135
3.1 Property, plant and equipment continued
Revaluation of freehold and long leasehold properties
The freehold and long leasehold properties have been valued at fair value, as at 24 September 2022, using information provided by CBRE, independent
chartered surveyors. The valuation was carried out in accordance with the RICS Valuation – Global Standards 2022 which incorporate the International
Valuation Standards and the RICS Valuation – Professional Standards UK (the Red Book) assuming each asset is sold as a fully operational trading entity.
The fair value has been determined having regard to factors such as current and future projected income levels. As part of this, CBRE have taken into account
the rebuild in trade following reopening as a result of Covid-19, current cost inflationary pressures notably on labour and energy costs, as well as location,
quality of the pub restaurant and recent market transactions in the sector. In the current period, CBRE have increased the property multiples by removing the
deduction applied in the prior period for the expected impact of Covid-19. Property multiples have returned to pre-Covid levels, with some brand multiples
exceeding the pre-Covid level, which is a reflection of the current demand in the freehold licensed property market.
Sensitivity analysis
Changes in the fair maintainable trade, or the multiple could materially impact the valuation of the freehold and long leasehold properties, and as such they
are both considered to be significant estimates in the current period.
Fair maintainable trade
As noted in the accounting judgements above, fair maintainable trade in the prior period was determined by reference to the trading performance up to
March 2020, the point of the first full lockdown following the emergence of Covid-19, in conjunction with the previous two years of trading performance.
In the current period, site level fair maintainable trade has been adjusted to reflect more recent performance, by adjusting fair maintainable turnover (FMT)
and fair maintainable operating profit (FMOP) with reference to both sales and profit margin trends over periods 7 to 12 of FY 2022 (13 March 2022 to
27 August 2022).
In the current period, fair maintainable trade has declined by 8% as a result of the combined impact of the FMT and FMOP adjustments made. Judgement
has been applied to determine the adjustments to FMT and FMOP, by assessing the extent that current trading performance is considered to be impacting on
freehold licensed property values. As a result, the valuation is sensitive to the view taken on the duration of the impact of high inflation on fair maintainable
trade. Should the fair maintainable trade used as the basis in property valuations decline further in line with EBITDA trends over the second half of the
reporting period, fair maintainable trade may decline by a further 8%. Assuming multiples remain stable, and without applying any further judgement on the
resulting property valuation, this would generate an approximate £284m reduction in the valuation.
Multiples
Valuation multiples are determined at an individual brand level. Over the last three financial periods, the weighted average brand multiple has moved by an
average of 0.3, which is considered to be within the range of reasonably possible outcomes for future movements in multiples. It is estimated that a 0.3 change
in the multiple would generate an approximate £115m movement in valuation.
Impairment review
Short leasehold and unlicensed properties (comprising land, buildings, fixtures, fittings and equipment) which are not revalued to fair market value,
are reviewed for impairment by comparing site recoverable amount to their carrying values. Any resulting impairment relates to sites with poor trading
performance, where the output of the value in use calculations are insufficient to justify their current net book value.
Recoverable amount is determined as being the higher of fair value or value in use. Value in use calculations use forecast trading performance pre-tax cash
flows, for years 1 to 3. These include steady growth in revenue and cost increases, notably across energy, labour and food, equivalent to c. 10% of the cost
base in year 1, with an easing of inflationary pressure in years 2 and 3, as recent increases in energy prices are assumed to reduce, albeit they remain
significantly ahead of historical levels. The forecast cash flows are discounted by applying a pre-tax discount rate of 9.65% (2021 9.60%) and a long-term
growth rate of 2.0% from year 4 (2021 2.0%). The long-term growth rate is applied to the net cash flows and is based on up-to-date economic data points.
Sensitivity analysis
Changes in forecast cash flows, the discount rate or the long-term growth rate could impact the impairment charge recognised for short leasehold and
unlicensed properties.
Forecast cash flows
The forecast pre-tax cash flows used in the value in use calculations are site level forecasts determined from the Group forecast for FY 2023 to FY 2025 that
was in place at the balance sheet date. Management has determined a potential downside scenario to forecast trading as part of the going concern review
discussed on pages 121 and 122. This would result in an increase of £2m to the impairment recognised.
Discount rate
The pre-tax discount rate applied to the forecast cash flows is derived from the Group’s post-tax weighted average cost of capital (WACC). The assumptions
used in the calculation of the Group’s WACC are benchmarked to externally available data. A single discount rate is applied to all cash-generating units.
Over the last two financial periods, the discount rate used in impairment reviews has moved by 0.1%. There is no material impact on the impairment charge
to changes to the discount rate within a reasonable range.
Long-term growth rate
The long-term growth applied to the net cash flows in the value in use calculations is 2.0%. There is no reasonable scenario for the long-term growth rate
under which further impairment occurs.
Current period valuations have been incorporated into the consolidated financial statements and the resulting revaluation adjustments have been taken to the
revaluation reserve or Group income statement as appropriate.
Notes to the consolidated financial statements continued
Section 3 – Operating assets and liabilities continued
136 Financial Statements
The impact of the revaluations/impairments described above is as follows:
2022
52 weeks
£m
2021
52 weeks
£m
Group income statement
Revaluation deficit charged as an impairment (115) (2)
Reversal of past revaluation deficits 29 53
Total impairment (impairment charge)/reversal arising from the revaluation (86) 51
Impairment of short leasehold and unlicensed properties (9) (2)
Impairment of freehold and long leasehold tenant’s fixtures and fittings – (3)
Total impairment of short leaseholds, unlicensed properties and tenant’s fixtures and fittings (9) (5)
Total (impairment charge)/impairment reversal recognised in the income statement (95) 46
Group statement of other comprehensive income
Unrealised revaluation surplus 60 154
Reversal of past revaluation surplus (247) (4)
Total movement recognised in other comprehensive income (187) 150
Net (decrease)/increase in property, plant and equipment (282) 196
The valuation techniques are consistent with the principles in IFRS 13 and use significant unobservable inputs such that the fair value measurement of each
property within the portfolio has been classified as Level 3 in the fair value hierarchy.
The number of pubs included in the revaluation and the resulting valuation of these properties is reconciled to the total value of property, plant and
equipment below.
Number of pubs
Land and
buildings
£m
Fixtures,
fittings and
equipment
£m
Net book
value
a
£m
24 September 2022
Freehold properties 1,328 3,419 344 3,763
Long leasehold properties 94 243 30 273
Total revalued properties 1,422 3,662 374 4,036
Short leasehold properties 61 56 117
Unlicensed properties 14 3 17
Other non-pub assets 2 5 7
Assets under construction 12 5 17
Total property, plant and equipment 3,751 443 4,194
Number of
pubs
Land and
buildings
£m
Fixtures,
fittings and
equipment
£m
Net book
value
a
£m
25 September 2021
Freehold properties 1,329 3,640 346 3,986
Long leasehold properties 94 262 29 291
Total revalued properties 1,423 3,902 375 4,277
Short leasehold properties 68 61 129
Unlicensed properties 15 2 17
Other non-pub assets 1 4 5
Assets under construction 10 4 14
Total property, plant and equipment 3,996 446 4,442
a. The carrying value of freehold and long leasehold properties based on their historical cost is £2,549m and £177m respectively (2021 £2,601m and £180m).
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 137
3.1 Property, plant and equipment continued
The tables below show, by class of asset, the number of properties that have been valued within each FMT and multiple banding:
Valuation multiple applied to FMT
Over 10 times 9 to 10 times 8 to 9 times 7 to 8 times Under 7 times Total
24 September 2022
Number of pubs in each FMT income banding:
< £200k p.a. 67 59 129 174 17 446
£200k to £360k p.a. 21 148 188 102 13 472
> £360k p.a. 65 148 242 38 11 504
153 355 559 314 41 1,422
Valuation multiple applied to FMT
Over 10 times 9 to 10 times 8 to 9 times 7 to 8 times Under 7 times Total
25 September 2021
Number of pubs in each FMT income banding:
< £200k p.a. 70 40 99 140 26 375
£200k to £360k p.a. 15 110 168 115 46 454
> £360k p.a. 54 145 280 79 36 594
139 295 547 334 108 1,423
Movements in valuation multiples between financial periods are the result of changes in property market conditions. The average weighted multiple is 8.7
(2021 8.4).
Capital commitments
2022
£m
2021
£m
Contracts placed for expenditure on property, plant and equipment not provided for in the consolidated financial statements 28 10
Section 3 – Operating assets and liabilities continued
Notes to the consolidated financial statements continued138 Financial Statements
3.2 Leases
Leases – Group as lessee
Accounting policies
The Group assesses whether a contract is or contains a lease, at inception of the contract.
The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for
short-term leases (defined as leases with a lease term of twelve months or less) and leases of low value assets (such as tablets and personal computers,
small items of office furniture and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis
over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets
are consumed.
The lease liability is initially measured at the present value of the future lease payments unpaid at the lease commencement date, discounted by using the
rate implicit in the lease. If this rate cannot be readily determined, the lessee uses its incremental borrowing rate. Lease payments included in the
measurement of the lease liability comprise:
• Fixed lease payments (including in substance fixed payments), less any lease incentives receivable; and
• Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method)
and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
• The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a break
option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
• The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which case the
lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to
a change in a floating interest rate, in which case a revised discount rate is used).
• A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on
the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, adjusted for any advance payments made at or before lease
commencement, less any lease incentives received and any initial direct costs (including lease premiums).
Whenever the Group incurs an obligation to restore the underlying asset to the condition required by the terms and conditions of the lease, a dilapidations
provision is recognised and measured under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. To the extent that the costs relate to a
right-of-use asset, the costs are included in the related right-of-use asset.
Right-of-use assets are depreciated over the remaining committed lease term on a straight-line basis. Right-of-use assets are tested annually for
impairment in accordance with IAS 36 Impairment of Assets.
Right-of-use assets are subsequently remeasured for any changes in lease term and future committed rental payments.
For short-term leases (lease term of twelve months or less), and leases of low-value assets (such as personal computers and office furniture), the Group
recognises a lease expense on a straight-line basis, directly in the income statement, as permitted by IFRS 16.
Impairment of right-of-use assets
Right-of-use assets are tested annually for impairment in accordance with IAS 36 Impairment of Assets, by comparing their recoverable amounts to their
carrying values. Any resulting impairment relates to properties with poor forecast trading performance, where their estimated recoverable amount is
insufficient to justify their current net book value. For practical reasons the impairment review of right-of-use assets is performed simultaneously with the
impairment review of the associated short leasehold properties classified within property, plant and equipment, as an individual site is a single cash-
generating unit (see note 3.1).
Recoverable amount is determined as being the higher of fair value or value in use. Value in use calculations use forecast trading performance cash flows.
Accounting judgements
Impairment of right-of-use assets
Judgement is required when assessing whether a right-of-use asset should be impaired. As impairment is considered at a cash-generating unit level,
with this being an individual outlet, the carrying value used in the impairment test, is the total of the right-of-use asset value and the value held in property,
plant and equipment. As such, the judgements used in the impairment review are the same as those described in note 3.1 on page 134.
Sources of estimation uncertainty
As noted above, the impairment review of right-of-use assets is performed in combination with the impairment review of property, plant and equipment.
The three key sources of estimation uncertainty are described in note 3.1 on page 134. They are, the estimation of forecast cash flows for each site;
the selection of an appropriate discount rate and the selection of an appropriate long-term growth rate.
A sensitivity of changes in forecast cash flows, the discount rate and the long-term growth is provided on page 141. The carrying value of assets to which
these estimates apply is £339m (2021 £379m).
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 139
Notes to the consolidated financial statements continued
3.2 Leases continued
Right-of-use assets
Right-of-use assets can be analysed as follows:
Land and
buildings
£m
Cars
£m
Total
£m
Cost
At 26 September 2020 535 5 540
Additions
a
24 1 25
Disposals (2) (1) (3)
Foreign currency movements (2) – (2)
At 25 September 2021 555 5 560
Additions
a
24 2 26
Disposals (13) (1) (14)
Foreign currency movements 2 – 2
At 24 September 2022 568 6 574
Accumulated depreciation and impairment
At 26 September 2020 136 2 138
Provided during the period 35 2 37
Disposals (1) (1) (2)
Impairment 8 – 8
At 25 September 2021 178 3 181
Provided during the period 35 1 36
Disposals (4) (1) (5)
Impairment 22 – 22
Foreign currency movements 1 – 1
At 24 September 2022 232 3 235
Net book value
At 24 September 2022 336 3 339
At 25 September 2021 377 2 379
At 26 September 2020 399 3 402
a. Additions to right-of-use assets include new leases, increases in dilapidation provisions and lease extensions or rent reviews relating to existing leases.
Some of the property leases in which the Group is lessee contain variable lease payment terms that are linked to the revenue generated from the leased pubs.
Variable payment terms are used in contracts to link rental payments to pub cash flows and reduce fixed costs. The total value of variable lease payments
charged to the income statement in the current period are £2m (2021 £nil).
Impairment review of right-of-use assets
Right-of-use assets are reviewed for impairment by comparing site recoverable amount to their carrying values. Any resulting impairment relates to sites with
poor trading performance, where the output of the calculation is insufficient to justify their current net book value.
As impairment is considered at a cash-generating unit level, with this being an individual outlet, the carrying value used in the impairment test, includes the
total of the right-of-use asset value and the value held in property, plant and equipment. Impairment for property, plant and equipment is described in note
3.1. In summary, the carrying value of the cash-generating units and impairment recognised against those cash-generating units is as follows.
Note
Carrying
value
2022
£m
Impairment
recognised
2022
£m
Carrying
value
2021
£m
Impairment
recognised
2021
£m
Short leasehold properties 3.1 117 (9) 129 (2)
Right-of-use assets 339 (22) 379 (8)
456 (31) 508 (10)
Section 3 – Operating assets and liabilities continued
140 Financial Statements
Recoverable amount is determined as being the higher of fair value or value in use. Value in use calculations use forecast trading performance pre-tax
cash flows, for years 1 to 3. These include steady growth in revenue and cost increases, notably across energy, labour and food, equivalent to c. 10% of the
cost base in year 1, with an easing of inflationary pressure in years 2 and 3, as recent increases in energy prices are assumed to reduce, albeit they remain
significantly ahead of historical levels. The forecast cash flows are discounted by applying a pre-tax discount rate of 9.65% (2021 9.60%) and a long-term
growth rate of 2.0% from year 4 (2021 2.0%). The long-term growth rate is applied to the net cash flows and is based on up-to-date economic data points.
Impairment review of corporate level assets
In addition to the short leasehold property and right-of-use asset impairment review performed at a cash-generating unit level, the overall Group’s cash-
generating units have been grouped together to ensure that the corporate level assets are also considered for impairment. The assumptions are consistent
with those described above for the value in use calculations performed at an individual outlet level, whilst also including unallocated central overheads.
As a result of this review, no additional impairment has been recognised in the current period. A sensitivity analysis has been provided below.
Sensitivity analysis
Changes in forecast cash flows, the discount rate or the long-term growth rate could materially impact the impairment charge recognised for right-of-use
assets. Sensitivity analysis for short leasehold properties has been provided in note 3.1.
Forecast cash flows
The forecast pre-tax cash flows used in the value in use calculations are site level forecasts determined from the Group forecast for FY 2023 to FY 2025 that
was in place at the balance sheet date. Management have determined a potential downside scenario to forecast trading as part of the going concern review
discussed on pages 121 and 122. This would result in an increase of £4m to the impairment recognised against right-of-use assets and no further impairment
charge at a Group level.
Discount rate
The pre-tax discount rate applied to the forecast cash flows is derived from the Group’s post-tax weighted average cost of capital (WACC). The assumptions
used in the calculation of the Group’s WACC are benchmarked to externally available data. A single discount rate is applied to all cash-generating units.
Over the last two financial periods, the discount rate used in impairment reviews has moved by 0.1%.
Although considered unlikely, movements in the pre-tax discount rate beyond 10.35% would result in an impairment of c.£40m at Group level for each
0.1% increment.
Long-term growth rate
The long-term growth applied to the net cash flows in the value in use calculations is 2.0%. There is no reasonable scenario for the long-term growth rate
under which further impairment occurs, with an almost 1% reduction required before an impairment is recognised.
Lease liabilities
A maturity analysis of the undiscounted future lease payments used to calculate the lease liabilities is shown below.
2022
£m
2021
£m
Amounts payable under lease liabilities
Due within one year 68 65
Due between one and two years 42 62
Due between two and three years 47 41
Due between three and four years 43 45
Due between four and five years 38 41
Due between five and ten years 162 166
Due between ten and fifteen 113 121
Due between fifteen and twenty 73 79
Due between twenty and twenty five years 24 32
Due between twenty five and thirty years 12 12
Due after thirty years 80 80
Total undiscounted lease liabilities 702 744
Less: impact of discounting (221) (231)
Present value of lease liabilities 481 513
Analysed as:
Current lease liabilities – amounts due within twelve months 53 50
Non-current lease liabilities – amounts due after twelve months 428 463
481 513
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 141
3.2 Leases continued
Leases – Group as lessor
Accounting policies
The Group enters into lease agreements as a lessor with respect to some of its properties. The properties are operated as either licensed or unlicensed
businesses by the tenants.
Leases for which the Group is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases. When the Group is an
intermediate lessor, it accounts for the head lease and the sub-lease as two separate contracts. The sub-lease is classified as a finance or operating lease
by reference to the right-of-use asset arising from the head lease.
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and
arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.
Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s net investment in the leases. Finance lease
income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of
the leases.
Group as lessor – Finance lease receivables
A maturity analysis of the undiscounted future lease payments receivable used to calculate the finance lease receivable is shown below.
2022
£m
2021
£m
Amounts receivable under finance leases
Due within one year 1 2
Due between one and two years 1 2
Due between two and three years 1 1
Due between three and four years 1 1
Due between four and five years 1 1
Due after five years 20 21
Total undiscounted lease payments receivable 25 28
Less: unearned finance income (12) (13)
Present value of lease payments receivable 13 15
Net investment in the leases is analysed as:
Current finance lease receivables – amounts due within twelve months 1 1
Non-current finance lease receivables – amounts due after twelve months 12 14
13 15
The Directors of the Group estimate the loss allowance on finance lease receivables at the end of the reporting period at an amount equal to lifetime expected
credit loss (ECL). None of the finance lease receivables at the end of the reporting period is past due. The Directors of the Group have recognised a finance
lease receivable impairment of £nil in the current period (2021 £2m).
There has been no change in the estimation techniques or significant assumptions made during the current reporting period in assessing the impairment for
finance lease receivables.
Group as lessor – Operating leases
The Group leases a small proportion of its licensed and unlicensed properties to tenants. The majority of lease agreements have terms of 50 years or less and
are classified as operating leases. Where sublet arrangements are in place, future minimum lease payments and receipts are presented gross.
Total future minimum lease rental receipts under non-cancellable operating leases are as follows:
2022
£m
2021
£m
Due within one year 9 8
Due between one and two years 8 7
Due between two and three years 8 7
Due between three and four years 6 6
Due between four and five years 6 5
Due after five years 34 30
71 63
The total value of future minimum sub-lease rental receipts included above is £4m (2021 £3m).
Notes to the consolidated financial statements continued
Section 3 – Operating assets and liabilities continued
142 Financial Statements
3.3 Working capital
Inventories
Accounting policies
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method.
Inventories can be analysed as follows:
2022
£m
2021
£m
Goods held for resale 23 19
Trade and other receivables
Accounting policy
Trade receivables are initially recognised at transaction price and other receivables are initially recognised at fair value. Subsequently, these assets are
measured at amortised cost. This results in their recognition at nominal value less an allowance for any doubtful debts. The allowance for doubtful debts
is recognised based on management’s expectation of losses without regard to whether an impairment trigger happened or not (an ‘expected credit loss’
model). The Group always measures the loss allowance for trade receivables using the simplified model at an amount equal to lifetime ECL. Loss allowance
for other receivables is measured either at twelve months or lifetime ECL depending on whether the credit risk has increased significantly since initial
recognition (see financial assets impairment policy in note 4.3).
Trade and other receivables can be analysed as follows:
2022
£m
2021
£m
Trade receivables 13 9
Other receivables 16 12
Gaming machine settlement receivable
a
20 20
Prepayments 11 7
Other financial assets
b
21 –
Defined benefit pension blocked account
c
9 –
Total trade and other receivables 90 48
a. Expected claim amount due from HMRC in relation to a claim for VAT on gaming machines (see note 2.2).
b. Other financial assets relate to cash collateral provided by a swap counterparty (see note 4.3).
c. Contributions to the MABEPP scheme have been paid into a blocked account since the scheme buy-in that took place during the period (see note 4.5 for further details).
All amounts fall due within one year.
All trade, lease and other receivables are non-interest bearing. The Directors consider that the carrying amount of trade receivables and other receivables
approximately equates to their fair value. A provision for expected credit loss of £3m (2021 £6m) has been recognised against trade and other receivables.
Credit risk is considered in note 4.3.
Trade and other payables
Accounting policy
Trade and other payables are initially recognised at fair value and recognised subsequently at amortised cost.
Trade and other payables can be analysed as follows:
2022
£m
2021
£m
Trade payables 106 80
Other taxation and social security 87 61
Accrued charges 151 149
Deferred income 23 22
Other payables 20 21
Other financial liabilities
a
21 –
Total trade and other payables 408 333
a. Other financial liabilities relate to cash collateral provided by a swap counterparty (see note 4.3).
Current trade and other payables are non-interest bearing. The Directors consider that the carrying amount of trade and other payables approximately
equates to their fair value.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 143
3.4 Provisions
Accounting policy
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow
of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are measured using the Directors’ best estimate
of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material.
Onerous property provisions represent the expected unavoidable losses on onerous and vacant property leases and comprise the net lease commitment
(fixed service charges) not expected to be covered by operating revenue after all other operating costs. The provision is calculated on a site by site basis
with a provision being made for the remaining committed lease term, where a lease is considered to be onerous. Other contractual dilapidations costs are
also recorded as provisions as appropriate.
Provisions
The provision for unavoidable losses on onerous property leases has been set up to cover fixed service charge payments of vacant or loss-making properties.
The provision for dilapidation costs has been set up to cover the estimated future dilapidation claims from landlords on leases that are within five years of expiry.
Provisions can be analysed as follows:
Onerous property
provisions
£m
Dilapidation
provisions
£m
Total property
provisions
£m
At 26 September 2020 3 2 5
Provided in the period – 4 4
Utilised in the period – – –
At 25 September 2021 3 6 9
Provided in the period 2 1 3
Utilised in the period (1) – (1)
Released in the period (1) (1) (2)
At 24 September 2022 3 6 9
Section 3 – Operating assets and liabilities continued
Notes to the consolidated financial statements continued144 Financial Statements
3.5 Goodwill and other intangible assets
Accounting policies
Business combinations and goodwill
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the
aggregate of the fair values of assets given and liabilities incurred or assumed by the Group in exchange for control of the acquiree. Acquisition-related
costs are recognised in the income statement as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:
• deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS
12 Income Taxes and IAS 19 Employee Benefits (revised) respectively; and
• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations
are measured in accordance with that standard.
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair
value of the acquirer’s previously held equity interest in the acquiree over the net of the identifiable assets acquired and the liabilities assumed at the
acquisition date. If, after reassessment, the net of the identifiable assets acquired and liabilities assumed at the acquisition date exceeds the sum of the
consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the
acquiree, the excess is recognised immediately in the income statement as a bargain purchase.
When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration
arrangement, the contingent consideration is measured at its acquisition date fair value and included as part of the contingent consideration transferred
in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted
retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional
information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that
existed at the acquisition date.
The subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period adjustments depends on
how the contingent consideration is classified. Contingent consideration that is classified as equity is not re-measured at subsequent reporting dates and
its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is re-measured at subsequent
reporting dates, at fair value, with the corresponding gain or loss being recognised in the income statement.
When a business combination is achieved in stages, the Group’s previously-held interests in the acquired entity is re-measured to its acquisition date fair
value and the resulting gain or loss, if any, is recognised in the income statement. Amounts arising from interests in the acquiree prior to the acquisition
date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate
if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports
provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or
additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that,
if known, would have affected the amounts recognised as of that date.
Goodwill is not amortised, but is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying
value may be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from
the synergies of the combination. The impairment review requires management to consider the recoverable value of the business to which the goodwill
relates, based on either the fair value less costs to sell or the value in use. Value in use calculations require management to consider the net present value
of future cash flows generated by the business to which the goodwill relates. Fair value less costs to sell is based on management’s estimate of the net
proceeds which could be generated through disposing of that business. If the recoverable amount of the cash-generating unit is less than the carrying
amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of
the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss is recognised immediately in the income statement and
is not subsequently reversed.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Computer software
Computer software and associated development costs, which are not an integral part of a related item of hardware, are capitalised as an intangible
asset and amortised on a straight-line basis over their useful life. The period of amortisation ranges between three and seven years with the majority being
five years.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 145
Notes to the consolidated financial statements continued
3.5 Goodwill and other intangible assets continued
Intangible assets
Intangible assets can be analysed as follows:
Goodwill
£m
Computer
software
£m
Total
£m
Cost
At 26 September 2020 7 18 25
Additions – 4 4
Disposals – (4) (4)
At 25 September 2021 7 18 25
Additions – 5 5
Disposals – (3) (3)
At 24 September 2022 7 20 27
Accumulated amortisation and impairment
At 26 September 2020 5 6 11
Provided during the period – 4 4
Disposals – (3) (3)
At 25 September 2021 5 7 12
Provided during the period – 4 4
Disposals – (3) (3)
At 24 September 2022 5 8 13
Net book value
At 24 September 2022 2 12 14
At 25 September 2021 2 11 13
At 26 September 2020 2 12 14
With the exception of goodwill, there are no intangible assets with indefinite useful lives. All amortisation charges have been expensed through operating costs.
Goodwill has been tested for impairment within each cash-generating unit, on a site-by-site basis using forecast cash flows, discounted by applying a pre-tax
discount rate of 9.65% (2021 9.60%). For the purposes of the calculation of the recoverable amount, the cash flow projections beyond the three-year period
include 2.0% (2021 2.0%) growth per annum. No impairment has been recognised in the current or prior period.
Section 3 – Operating assets and liabilities continued
146 Financial Statements
3.6 Associates
Accounting policy
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant
influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
The results, assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when
the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations.
Under the equity method, an investment in an associate is accounted for using the equity method from the date on which the investee becomes an
associate. On acquisition of the investment in an associate, any excess of the cost of the investment over the Group’s share of the net fair value of the
identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. If after
reassessment the Group’s share of the net fair value of the identifiable assets and liabilities are in excess of the cost of the investment, this is recognised
immediately in profit or loss in the period in which the investment is acquired.
The requirements of IAS 36 Impairment of Assets are applied to determine whether it is necessary to recognise any impairment loss with respect to the
Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in
accordance with IAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying
amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in
accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.
The Group discontinues the use of the equity method from the date when the investment ceases to be an associate, or when the investment is classified
as held for sale. When the Group retains an interest in the former associate and the retained interest is a financial asset, the Group measures the retained
interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with IFRS 9. The difference between the
carrying amount of the associate at the date the equity method was discontinued, and the fair value of any retained interest, and any proceeds from
disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts
for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate
had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate
would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss
when the equity method is discontinued.
When the Group reduces its ownership interest in an associate but the Group continues to use the equity method, the Group reclassifies to profit or loss
the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest
if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities.
When a Group entity transacts with an associate of the Group, profits and losses resulting from the transactions with the associate are recognised in the
consolidated financial statements only to the extent of interests in the associate that are not related to the Group.
The nature of the activities of all of the Group’s associates is trading in pubs and restaurants, which are seen as complementing the Group’s operations and
contributing to the Group’s overall strategy.
Associates can be analysed as follows:
£m
Cost
At 26 September 2020 4
Share in associates results 1
At 25 September 2021 5
Share in associates results 1
At 24 September 2022 6
Associates relate to shareholdings in 3Sixty Restaurants Limited and Fatboy Pub Company Limited that were acquired in a prior period. Details of these associates
are provided in note 5.2. The carrying value relates to £6m (2021 £5m) for 3Sixty Restaurants Limited and £nil (2021 £nil) for Fatboy Pub Company Limited.
Forecast performance for 3Sixty Restaurants Limited has been reviewed in the light of Covid-19 and current cost inflation pressures, as there is the potential
for a material impact on future earnings. However, as a result of site location and offer and having reviewed more recent performance, there is no indication
of a sustained deterioration of profitability and therefore no impairment has been recognised.
During a prior period, a put and call option agreement was entered into, which allows the Company to acquire the remaining 60% share capital of the
associate, 3Sixty Restaurants Limited, at any point in time after three years from the initial purchase date. The initial 40% investment was purchased on
1 August 2018 for £4m. The current shareholders also have the ability under the option to sell the remaining 60% to the Company, subject to a number
of conditions. During the prior period, and as a result of the Covid-19 pandemic impact on the hospitality sector, the life of the option was extended such that
the earliest date of exercise is 1 April 2023. The fair value of this option at 24 September 2022 is £1m (2021 £1m). This has been recognised as a financial asset
at FVTPL (see note 4.3).
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 147
4.1 Borrowings
Accounting policy
Borrowings, which include the Group’s secured loan notes, are stated initially at fair value (normally the amount of the proceeds) net of issue costs.
Thereafter they are stated at amortised cost using an effective interest basis. Finance costs, which are the difference between the net proceeds and the
total amount of payments to be made in respect of the instruments, are allocated over the term of the debt using the effective interest method. Borrowing
costs are not attributed to the acquisition or construction of assets and therefore no costs are capitalised within property, plant and equipment.
Borrowings can be analysed as follows:
2022
£m
2021
£m
Current
Securitised debt
a,b
113 110
Unsecured revolving credit facilities
c
– (1)
Overdraft
d
17 25
Total current 130 134
Non-current
Securitised debt
a,b
1,334 1,416
Total borrowings 1,464 1,550
a. Further details of the assets pledged as security against the securitised debt are given on page 135.
b. Stated net of deferred issue costs.
c. As at 24 September 2022 the amount of £nil (2021 (£1m)) represents unamortised issue costs.
d. The overdraft is within a cash pooling arrangement. In the cash flow statement, cash and cash equivalents are presented net of this overdraft (see note 4.4).
2022
£m
2021
£m
Analysis by year of repayment
Due within one year or on demand 130 134
Due between one and two years 182 142
Due between two and five years 412 390
Due after five years 740 884
Total borrowings 1,464 1,550
Securitised debt
On 13 November 2003, the Group refinanced its debt by raising £1,900m through a securitisation of the majority of its UK pubs and restaurants owned by
Mitchells & Butlers Retail Limited. On 15 September 2006 the Group completed a further debt (‘tap’) issue to borrow an additional £655m and refinance
£450m of existing debt at lower cost.
The loan notes consist of ten tranches as follows:
Initial
principal
borrowed
£m Interest
Principal
repayment
period (all by
instalments)
Effective
interest
rate
%
Principal outstanding
Tranche
24 September
2022
£m
25 September
2021
£m
Expected
WAL
a
A1N 200 Floating 2011 to 2028 6.61
b
87 99 3 years
A2 550 Fixed – 5.57% 2003 to 2028 5.72 158 180 3 years
A3N 250 Floating 2011 to 2028 6.69
b
109
c
123
c
3 years
A4 170 Floating 2016 to 2028 6.37
b
103 116 3 years
AB 325 Floating 2020 to 2032 6.28
b
291 305 7 years
B1 350 Fixed – 5.97% 2003 to 2023 6.12 26 46 1 year
B2 350 Fixed – 6.01% 2015 to 2028 6.12 255 270 4 years
C1 200 Fixed – 6.47% 2029 to 2030 6.56 200 200 7 years
C2 50 Floating 2033 to 2034 6.47
b
50 50 11 years
D1 110 Floating 2034 to 2036 6.68
b
110 110 13 years
2,555 1,389 1,499
a. Expected weighted average life (WAL) assumes no early redemption in respect of any loan notes.
b. After the effect of interest rate swaps.
c. A3N notes are US$ notes which are shown as translated to sterling at the hedged swap rate. Values at the period end spot rate are £168m (2021 £151m). Therefore the exchange
difference on the A3N notes is £59m (2021 £28m).
Notes to the consolidated financial statements continued
Section 4 – Capital structure and financing costs
148 Financial Statements
The notes are secured on the majority of the Group’s property and future income streams therefrom. All of the floating rate notes are hedged using interest
rate swaps which fix the interest rate payable.
Interest and margin is payable on the floating rate notes as follows:
Tranche Interest Margin
A1N 3 month SONIA 0.57%
A3N 3 month US$ LIBOR 0.45%
A4 3 month SONIA 0.69%
AB 3 month SONIA 0.72%
C2 3 month SONIA 1.99%
D1 3 month SONIA 2.24%
The overall cash interest rate payable on the loan notes is 6.3% (2021 6.3%) after taking account of interest rate hedging and the cost of the financial guarantee
provided by Ambac Assurance UK Limited (Ambac). Ambac acts as a guarantor of the Group’s obligations to repay interest and principal on the loan notes.
In the event that the Group is unable to pay such amounts the guarantee is limited to the Class A1N, A3N, A4 and Class AB note holders only.
The securitisation is governed by various covenants, warranties and events of default, many of which apply to Mitchells & Butlers Retail Limited, the Group’s
main operating subsidiary. There are two main financial covenants, being the level of net assets and free cash flow (FCF) to debt service. FCF to debt service
represents the multiple of cash generated by sites within the structure to the cost of debt service. This is tested quarterly on both a trailing two quarter and a
four quarter basis. There are additional covenants regarding the maintenance and disposal of securitised properties and restrictions on its ability to move cash,
by way of dividends for example, to other Group companies. Further details of the covenants are provided in the going concern review on pages 121 and 122.
During the prior period, and as a result of the ongoing Covid-19 pandemic, revised arrangements regards the secured financing structure were agreed with
the controlling creditor of the securitisation and the securitisation trustee. As a result, a series of amendments and waivers to the securitisation covenants were
obtained, as detailed in the Annual Report and Accounts 2021.
At 24 September 2022, Mitchells & Butlers Retail Limited had cash and cash equivalents of £61m (2021 £66m). Of this amount £1m (2021 £1m), representing
disposal proceeds, was held on deposit in an account over which there are a number of restrictions. The use of this cash requires the approval of the
securitisation trustee and may only be used for certain specified purposes such as capital enhancement expenditure and business acquisitions.
The carrying value of the securitised debt in the Group balance sheet is analysed as follows:
2022
£m
2021
£m
Principal outstanding at beginning of period 1,527 1,647
Principal repaid during the period (115) (107)
Net principal receipts on cross currency swap 5 3
Exchange on translation of dollar loan notes 31 (16)
Principal outstanding at end of period 1,448 1,527
Deferred issue costs (3) (3)
Accrued interest 2 2
Carrying value at end of period 1,447 1,526
Liquidity facility
Under the terms of the securitisation, the Group holds a liquidity facility of £295m provided by two counterparties.
During the prior period, as a result of the Covid-19 pandemic, the Group obtained an extension to an existing waiver to facilitate drawings of up to £110m in
total under the liquidity facility, providing the Group with additional facilities in order to meet payments of principal and interest, provided such drawings were
repaid in full by 15 December 2021.
The amount drawn at 24 September 2022 is £nil (2021 £nil).
Unsecured revolving credit facilities
At the start of the prior period the Group held unsecured committed revolving credit facilities totalling £150m (comprising three £50m bilateral facilities) and
an uncommitted overdraft facility of £5m, available for general corporate purposes. The unsecured committed revolving credit facilities were fully drawn at
£150m during the prior period and subsequently repaid and cancelled on 12 March 2021. These facilities were replaced with a single unsecured committed
revolving credit facility of £150m. The new committed facility expires on 14 February 2024. The amount drawn at 24 September 2022 is £nil (2021 £nil).
There are covenants on the unsecured revolving credit facilities relating to the ratio of EBITDAR to rent plus interest and net debt to EBITDA based on the
performance of the unsecured estate. Further details of the covenants are provided in the going concern review on pages 121 and 122.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 149
4.2 Finance costs and income
2022
52 weeks
£m
2021
52 weeks
£m
Finance costs
Interest on securitised debt (94) (98)
Interest on other borrowings (5) (7)
Interest on lease liabilities (16) (17)
Total finance costs (115) (122)
Finance income
Interest receivable – cash 1 2
Net pensions finance charge (note 4.5) (2) (3)
4.3 Financial instruments
Accounting policies
Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions
of the instrument.
Financial assets
All financial assets are recognised or derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require
delivery of the financial asset within the timeframe established by the market concerned. Financial assets are initially measured at fair value, plus
transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.
Debt instruments that meet the following conditions are measured subsequently at amortised cost:
• the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding.
By default, all other financial assets are measured subsequently at fair value through profit or loss (FVTPL).
The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses (ECLs) on financial assets, where applicable. The amount of expected credit losses
is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial asset.
The Group adopts the simplified approach detailed in IFRS 9 for trade receivables and finance lease receivables and therefore recognises lifetime ECL
on these assets. The expected credit losses on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss
experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast
direction of conditions at the reporting date, including time value of money where appropriate.
For all other financial assets, the Group recognises lifetime ECL when there has been a significant increase in credit risk since initial recognition. However,
if the credit risk on the financial asset has not increased significantly since initial recognition, the Group measures the loss allowance for that financial
instrument at an amount equal to 12-month ECL.
Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In
contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible
within 12 months after the reporting date.
Definition of default
The Group considers financial asset to be in default when information developed internally or obtained from external sources indicates that a debtor
is unlikely to pay its creditors, including the Group, in full (without taking into account any collateral held by the Group).
Section 4 – Capital structure and financing costs continued
Notes to the consolidated financial statements continued150 Financial Statements
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that
have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Write-off policy
The Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of
recovery. Financial assets written off may still be subject to enforcement activities under the Group’s recovery procedures, taking into account legal advice
where appropriate. Any recoveries made are recognised in profit or loss.
Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default)
and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking
information. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date.
For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Group in accordance with
the contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate.
If the Group has measured the loss allowance for a financial asset at an amount equal to lifetime ECL in the previous reporting period, but determines at the
current reporting date that the conditions for lifetime ECL are no longer met, the Group measures the loss allowance at an amount equal to twelve-month
ECL at the current reporting date, except for assets for which the simplified approach was used.
The Group recognises an impairment gain or loss in profit or loss for all financial assets with a corresponding adjustment to their carrying amount through
a loss allowance account.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset
and substantially all the risks and rewards of ownership of the asset to another entity. If the Group does not retain substantially all the risks and rewards of
ownership but continues to control a transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may
have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the
financial asset and also recognises a collateralised borrowing for the proceeds received.
On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration
received and receivable is recognised in profit or loss.
Financial liabilities
The Group has financial liabilities relating to borrowings, for which the accounting policy is provided in note 4.1. Other financial liabilities are initially
measured at fair value, net of transaction costs.
All financial liabilities are measured subsequently at amortised cost using the effective interest method or at fair value through profit or loss (FVTPL).
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or expired. The difference between
the carrying amount of the financial liability discharged and the consideration paid and payable is recognised in profit or loss.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating finance charges over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash flows (including all fees and points paid or received that form an integral
part of the effective interest rate, transaction costs and other premiums or discounts) over the expected life of the debt instrument, or where appropriate,
a shorter period, to the amortised cost of a financial liability. Finance charges are recognised on an effective interest basis for all debt instruments.
Derivative financial instruments
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including interest
rate and currency swaps.
Derivative financial instruments are initially measured at fair value on the contract date and are remeasured to fair value at each reporting date. The resulting
gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing
of the recognition in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability.
Derivatives are not offset in the financial statements unless the Group has both the current legal right to offset and intention to settle on a net basis or
realise simultaneously. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than
twelve months and it is not expected to be realised or settled within twelve months. Other derivatives are presented as current assets or current liabilities.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 151
Notes to the consolidated financial statements continued
4.3 Financial instruments continued
Hedge accounting
The Group designates its derivative financial instruments, i.e. interest rate and currency swaps, as cash flow hedges.
At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk
management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis,
the Group documents whether the hedging instrument is highly effective in offsetting changes in cash flows of the hedged item attributable to the hedged
risk, which is when the hedging relationships meet all of the following hedge effectiveness requirements:
• there is an economic relationship between the hedged item and the hedging instrument;
• the effect of credit risk does not dominate the value changes that result from that economic relationship; and
• the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the
quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that
designated hedging relationship remains the same, the Group adjusts the hedge ratio of the hedging relationship (i.e. rebalances the hedge) so that it
meets the qualifying criteria again.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive
income and accumulated under the heading of hedging reserve, limited to the cumulative change in fair value of the hedged item from inception of
the hedge.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged
item affects profit or loss, in the same line as the recognised hedged item. This transfer does not affect other comprehensive income. Furthermore, if the
Group expects that some or all of the loss accumulated in the hedging reserve will not be recovered in the future, that amount is immediately reclassified to
profit or loss.
Hedge accounting is discontinued only when the hedging relationship ceases to meet the qualifying criteria (after rebalancing, if applicable). This includes
instances when the hedging instrument expires or is sold or terminated. The discontinuation is accounted for prospectively. Any gain or loss recognised in
other comprehensive income and accumulated in the hedging reserve at that time remains in equity and is reclassified to profit or loss when the forecast
transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in the hedging reserve is reclassified
immediately to profit or loss.
Financial risk management
Financial risk is managed by the Group’s Treasury function. The Group’s Treasury function is governed by a Board Approved Treasury Policy Statement which
details the key objectives and policies for the Group’s treasury management. The Treasury Committee ensures that the Treasury Policy is adhered to, monitors
its operation and agrees appropriate strategies for recommendation to the Board. The Treasury Policy Statement is reviewed annually, with recommendations
for change made to the Board, as appropriate. The Group Treasury function is operated as a cost centre and is the only area of the business permitted to
transact treasury deals. It must also be consulted on other related matters such as the provision of guarantees or the financial implications of contract terms.
An explanation of the Group’s financial instrument risk management objectives and strategies is set out below.
The main financial risks which impact the Group result from funding and liquidity risk, credit risk, capital risk and market risk, principally as a result of changes
in interest and currency rates. Derivative financial instruments, principally interest rate and foreign currency swaps, are used to manage market risk.
Derivative financial instruments are not used for trading or speculative purposes.
Funding and liquidity risk
In order to ensure that the Group’s long-term funding strategy is aligned with its strategic objectives, the Treasury Committee regularly assesses the
maturity profile of the Group’s debt, alongside the prevailing financial projections. This enables it to ensure that funding levels are appropriate to support
the Group’s plans.
The current funding arrangements of the Group consist of the securitised notes issued by Mitchells & Butlers Finance plc (and associated liquidity facility)
along with an unsecured committed revolving credit facility of £150m. The terms of the securitisation and the revolving credit facilities contain various financial
covenants. Details of covenant amendments and waivers obtained as a result of the Covid-19 pandemic to mitigate the risk to liquidity are provided in note 4.1
and in the going concern review on pages 121 and 122. Compliance with these covenants is monitored by Group Treasury. The Group also has uncommitted
credit facilities of £5m.
The Group prepares a rolling daily cash forecast covering a six week period and an annual cash forecast by period. These forecasts are reviewed on a daily
basis and are used to manage the investment and borrowing requirements of the Group. A combination of cash pooling and zero balancing agreements are in
place to ensure the optimum liquidity position is maintained. The Group maintains sufficient cash balances or committed facilities outside the securitisation to
ensure that it can meet its medium-term anticipated cash flow requirements.
Section 4 – Capital structure and financing costs continued
152 Financial Statements
The maturity table below details the contractual undiscounted cash flows (both principal and interest), based on the prevailing period end interest
and exchange rates, for the Group’s financial liabilities, after taking into account the effect of interest rate and currency swaps (which are settled gross)
and assumes no early redemption in respect of any loan notes. As such these amounts will not always reconcile to amounts disclosed in the Group
Balance Sheet.
Within
one year
£m
One to
two years
£m
Two to
three years
£m
Three to
four years
£m
Four to
five years
£m
More than
five years
£m
Total
£m
24 September 2022
Securitised debt – loan notes (209) (203) (203) (204) (204) (895) (1,918)
Derivative financial liabilities (settled net) – (5) (5) (4) (4) (12) (30)
Derivative financial asset receipts 30 28 29 29 30 39 185
Derivative financial asset payments (21) (20) (20) (20) (20) (24) (125)
Fixed rate: Securitised debt (200) (200) (199) (199) (198) (892) (1,888)
Lease liabilities (68) (42) (47) (43) (38) (464) (702)
Trade payables (106) – – – – – (106)
Other payables (20) – – – – – (20)
Accrued charges (151) – – – – – (151)
Other financial liabilities (21) – – – – – (21)
25 September 2021
Securitised debt – loan notes (167) (169) (172) (174) (176) (991) (1,849)
Derivative financial liabilities (settled net) (37) (35) (32) (29) (26) (109) (268)
Derivative financial asset receipts 19 19 20 21 22 52 153
Derivative financial asset payments (15) (16) (16) (17) (18) (43) (125)
Fixed rate: Securitised debt (200) (201) (200) (199) (198) (1,091) (2,089)
Lease liabilities (65) (62) (41) (45) (41) (490) (744)
Trade payables (80) – – – – – (80)
Other payables (21) – – – – – (21)
Accrued charges (149) – – – – – (149)
Credit risk
The Group Treasury function enters into contracts with third parties in respect of the investment of surplus funds and derivative financial instruments for
risk management purposes. These activities expose the Group to credit risk against the counterparties. To mitigate this exposure, Group Treasury operates
policies that restrict the general investment of surplus funds and the entering into of derivative transactions to counterparties that have a minimum credit
rating of ‘A’ (long-term) and ‘A1’/‘P1’/‘F1’ (short-term). Where ratings subsequently drop below the policy minimum additional approval is sought from the
Board to retain the position, or action is taken to move to a higher rated counterparty. The minimum long-term rating of any Group counterparty during the
year was ‘A’. The amount that can be invested or transacted at various ratings levels is restricted under the policy. Counterparties to derivative financial
instruments may also be required to post collateral with the Group where their credit rating falls below a predetermined level. During the period, a collateral
amount of £21m has been paid to the Group. This is recognised as an other financial asset and other financial liability in the balance sheet.
To minimise credit risk exposure against individual counterparties, investments and derivative transactions are entered into with a range of counterparties.
The maximum investment exposure with any counterparty during the year was £50m (2021 £50m). The Group held investments with eleven counterparties
during the year (2021 eleven). The Group Treasury function reviews credit ratings, as published by Moody’s, Standard & Poor’s and Fitch Ratings, current
exposure levels and the maximum permitted exposure at given credit ratings, for each counterparty on a daily basis. Any exceptions are required to be
formally reported to the Treasury Committee on a four-weekly basis.
Trade receivables and other receivables mainly represent amounts due from tenants of unlicensed properties, amounts due from Group suppliers and cash
collateral deposits held by third parties. Credit exposure relating to tenants is ordinarily considered to be low risk, with an expected lifetime credit loss
calculated at the period end to reflect the risk of irrecoverable amounts. To minimise credit risk new tenants are assessed using an external credit rating system
before they are approved for tenancy. Credit exposure is reduced for the amounts due from Group suppliers as the Group holds offsetting amounts in trade
and other payables that are due to some of these suppliers. Credit risk on cash collateral deposits held by third parties are considered to be low credit risk
as they are held with reputable banking institutions by third parties. As a result of the Covid-19 pandemic, credit risk increased in the prior period in relation
to trade receivables due to trading restrictions imposed on tenants and an additional expected credit loss allowance was recognised on trade receivables.
In the assessment for the current period, the risk has reduced and as a result the expected credit loss allowance has been reduced in the current period.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 153
4.3 Financial instruments continued
The Group’s maximum credit exposure at the balance sheet date was:
FVTPL
£m
12-month
ECL
£m
Lifetime
ECL
£m
Total
£m
24 September 2022:
Cash and cash equivalents
a
– 190 – 190
Trade receivables
b
– – 13 13
Other receivables
b
– 16 – 16
Other financial assets – 21 – 21
Defined benefit pension blocked account – 9 – 9
Finance lease receivables
c
– – 13 13
Derivatives 60 – – 60
25 September 2021:
Cash and cash equivalents
a
– 227 – 227
Trade receivables
b
– – 9 9
Other receivables
b
– 12 – 12
Finance lease receivables
c
– – 15 15
Derivatives 29 – – 29
a. Cash and cash equivalents as presented in the cash flow statement. This is presented net of an overdraft within a cash pooling arrangement, to which the Group has a legal right of offset.
b. Trade receivables and other receivables are shown net of an expected credit loss allowance, as shown in note 3.3.
c. Finance lease receivables expected credit loss allowance is immaterial, as described in note 3.2.
Capital management
The Group’s capital base is comprised of its net debt (analysed in note 4.4) plus total equity (disclosed on the face of the Group balance sheet). The objective
is to maintain a capital base which is sufficiently strong to support the ongoing development of the business as a going concern, including the amenity, and
cash flow generation of the pub estate. By keeping debt and headroom against its debt facilities at an appropriate level, the Group ensures that it maintains
a strong credit position, whilst maximising value for shareholders and adhering to its covenants and other restrictions associated with its debt (see note 4.1).
In managing its capital structure, from time to time the Group may realise value from non-core assets, buy back or issue new shares, initiate and vary its
dividend payments and seek to vary or accelerate debt repayments. The Group’s policy is to ensure that the maturity of its debt profile supports its strategic
objectives. The Board considers the latest covenant compliance, headroom projections and projected balance sheet positions periodically throughout the
period, based on the advice of the Treasury Committee which meets on a four-weekly basis. The Treasury Committee is chaired by the Group Treasurer
and monitors Treasury performance and compliance with Board-approved policies. The Group Chief Financial Officer is also a member of the Committee.
Further details of the impact of Covid-19 on the capital management of the Group are provided in the going concern review on pages 121 and 122.
Total capital at the balance sheet date is as follows:
2022
£m
2021
£m
Net debt excluding leases (note 4.4) 1,198 1,270
Total equity 2,143 2,104
Total capital 3,341 3,374
Market risk
The Group is exposed to the risk that the fair value of future cash flows of its financial instruments will fluctuate because of changes in market prices. Market
risk comprises foreign currency and interest rate risk.
Foreign currency risk
The most significant currency risk the Group faces is in relation to the class A3N floating rate notes. At issuance of these notes, the Group entered into a cross
currency interest rate swap to manage the foreign currency exposure resulting from both the US$ principal and initial interest elements of the notes. The A3N
notes have a carrying value of £168m (2021 £151m) and form part of the securitised debt (see note 4.1).
Sensitivity analysis
Further to the step-up on the A3N notes on 15 December 2010, the Group has additional foreign currency exposure as a result of the increase in US$ finance
costs. A movement of 10% in the US$ exchange rate would have £nil (2021 £nil) impact on the reported Group profit and £12m (2021 £15m) impact on the
reported Group equity.
The Group has no significant profit and loss exposure as a result of retranslating monetary assets and liabilities at different exchange rates. As the Group is
predominantly UK-based and acquires the majority of its supplies in sterling, it has no significant direct currency exposure from its operations.
Notes to the consolidated financial statements continued
Section 4 – Capital structure and financing costs continued
154 Financial Statements
Interest rate risk
The Group has a mixture of fixed and floating interest rate debt instruments and manages the variability in cash flows resulting from changes in interest rates
by using derivative financial instruments. Where the necessary criteria are met, the Group minimises the volatility in its consolidated financial statements
through the adoption of the hedge accounting provisions permitted under IFRS 9. The interest rate exposure resulting from the Group’s £1.4bn securitisation
is largely fixed, either as a result of the notes themselves being issued at fixed interest rates, or through a combination of floating rate notes against which
effective interest rate swaps are held, which are eligible for hedge accounting.
A number of the Group’s financial instruments had LIBOR as their interest reference rate at the start of the period. During the period, the Group completed
the necessary amendments to transition its financing arrangements in advance of the discontinuation of LIBOR as a floating reference rate, replacing LIBOR
with a Sterling Overnight Index Average (SONIA) based rate in respect of sterling and a Secured Overnight Financing Rate (SOFR) based rate in respect of
US dollars. The amendments in respect of the securitised bonds were agreed by the Bondholders through a formal consent solicitation process and bilateral
agreements were reached with securitised swap providers (using amended reference rates consistent with those agreed under the bonds). All sterling-based
facilities and agreements referencing Sterling LIBOR transitioned in the period and now reference SONIA, plus a credit adjustment spread of 11.93 basis
points to maintain an economically equivalent position, for periods commencing on or after 1 January 2022. The facilities currently referencing US dollar
LIBOR will transition to SOFR plus 26.161 basis points for periods commencing on or after 1 July 2023. The liquidity facility and the unsecured committed
facility were arranged on a SONIA basis in the prior period, so did not require any further amendment.
As part of the transition, all of the Group’s hedge relationships have been reviewed and these continue to be highly effective. Hedge documentation has been
updated in accordance with the reliefs permitted in the amendments to IFRS 9, designating the new interest reference rate in both the hedged item and the
hedging instrument. As a result of the transition, there has been no impact on the amounts recognised in the income statement or statement of other
comprehensive income.
There has been no change to interest rate exposure in the current period. This is consistent with the Group Treasury policy on interest rate management.
Sensitivity analysis
The sensitivity analysis below has been calculated based on the Group’s exposure to interest rates for both derivative and non-derivative instruments as at the
balance sheet date. A 1% movement is used when reporting interest rate risk internally to key management personnel and represents management’s assessment
of this reasonably possible change in interest rates.
For floating rate liabilities, which are not hedged by derivative instruments, the analysis has been prepared assuming that the liability outstanding at the
balance sheet date was outstanding for the whole period. For interest income the analysis assumes that cash and cash equivalents and other cash deposits
that were held in interest bearing accounts at the balance sheet date were held for the whole period.
The Group’s sensitivity to a 1% increase in interest rates is detailed below:
2022
£m
2021
£m
Interest income
a
2 1
Interest expense
b
– –
Profit impact 2 1
Derivative financial instruments (fair values)
c
40 54
Total equity 42 55
a. Represents interest income earned on cash and cash equivalents and other cash deposits (these are defined in note 4.1).
b. The element of interest expense which is not matched by payments and receipts under cash flow hedges which would otherwise offset the interest rate exposure of the Group.
c. The impact on total equity from movements in the fair value of cash flow hedges.
Derivative financial instruments
Cash flow hedges
Changes in cash flow hedge fair values are recognised in the hedging reserve in equity to the extent that the hedges are effective. The cash flow hedges
detailed below have been assessed as being highly effective during the period and are expected to remain highly effective over the remaining contract lives.
The following amounts have been recognised during the period:
2022
52 weeks
£m
2021
52 weeks
£m
Gains arising during the period 180 32
Reclassification adjustments for losses included in profit or loss within finance costs 1 56
181 88
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 155
4.3 Financial instruments continued
Cash flow hedges – securitised borrowings
The nominal and carrying values of cash flow hedges at the balance sheet date, together with the changes in fair value of cash flow hedges during the period,
are shown below.
Nominal amount
of hedging
instrument
£m
Carrying amount of
hedging instrument
Changes in fair
value used for
calculating hedge
ineffectiveness
£m
Assets
£m
Liabilities
£m
2022
Interest rate risk
– 10 interest rate swaps 750 – (28) 181
Foreign exchange risk
– Cross currency swap 109 59 – 31
2021
Interest rate risk
– 10 interest rate swaps 803 – (209) 88
Foreign exchange risk
– Cross currency swap 124 28 – (16)
The cash flows on the interest rate swaps occur quarterly, receiving a floating rate of interest based on SONIA plus a credit adjustment spread of 11.93 basis
points, and paying a fixed rate of 4.81% (2021 4.82%). The contract maturity dates match those of the hedged item. No hedge ineffectiveness on the interest
rate swaps was recognised in profit or loss in the current or prior period.
The cash flows on the cross currency swap occur quarterly, receiving a floating rate of interest based on US$ LIBOR and paying a floating rate of interest at
SONIA plus a credit adjustment spread of 11.93 basis points in sterling. The ineffectiveness on the cross currency swaps due to foreign currency basis spread
was immaterial in both the current and prior period.
The cash flows arising from interest rate swap positions on the same counterparty may be settled as a net position. The cross currency interest rate swap is
held under a separate agreement and cash movements for this instrument are settled individually. In the event of default, the interest rate swaps and cross
currency swaps with counterparty B may be settled net, as shown below.
The position at 24 September 2022 is as follows.
Gross position
£m
Positions netted
in balance sheet
£m
Balance sheet
position
£m
Positions that
could be net in
balance sheet
but are not
£m
Overall net
exposure
£m
Counterparty A – interest rate swaps (12) – (12) – (12)
Counterparty B – interest rate swaps (16) – (16) 16 –
Net interest rate swaps (28) – (28) 16 (12)
Counterparty B – cross currency swap liability (110) 110 – – –
Counterparty B – cross currency swap asset 169 (110) 59 (16) 43
Net cross currency swap 59 – 59 (16) 43
Total 31 31 – 31
The position at 25 September 2021 is as follows.
Gross position
£m
Positions netted
in balance sheet
£m
Balance sheet
position
£m
Positions that
could be net in
balance sheet
but are not
£m
Overall net
exposure
£m
Counterparty A – interest rate swaps (86) – (86) – (86)
Counterparty B – interest rate swaps (123) – (123) 28 (95)
Net interest rate swaps (209) – (209) 28 (181)
Counterparty B – cross currency swap liability (125) 125 – – –
Counterparty B – cross currency swap asset 153 (125) 28 (28) –
Net cross currency swap 28 – 28 (28) –
Total (181) – (181) – (181)
Section 4 – Capital structure and financing costs continued
Notes to the consolidated financial statements continued156 Financial Statements
Share options
During a prior period, a put and call option agreement was entered into, which allows the Company to acquire the remaining 60% share capital of the
associate, 3Sixty Restaurants Limited, at any point in time after three years from the initial purchase date. The initial 40% investment was purchased on
1 August 2018 for £4m (see note 3.6). The current shareholders also have the ability under the option to sell the remaining 60% to the Company, subject to a
number of conditions. During the prior period, and as a result of the Covid-19 pandemic impact on the hospitality sector, the life of the option was extended
such that the earliest date of exercise is 1 April 2023. The fair value of this option at 24 September 2022 is £1m (2021 £1m). This is recognised as a financial
asset through FVTPL.
Fair values of derivative financial instruments
The fair values of the derivative financial instruments were measured at 24 September 2022 and may be subject to material movements in the period
subsequent to the balance sheet date. The fair values of the derivative financial instruments are reflected on the balance sheet as follows:
Derivative financial instruments – fair value
Non-current
assets
£m
Current
assets
£m
Current
liabilities
£m
Non-current
liabilities
£m
Total
£m
Derivatives at fair value designated in cash flow hedges:
– Interest rate swaps – – – (28) (28)
– Cross currency swap 55 4 – – 59
Share options at FVTPL 1 – – – 1
24 September 2022 56 4 – (28) 32
25 September 2021 29 – (37) (172) (180)
Reconciliation of movements in derivative values
The tables below detail changes in the Group’s derivatives, including both cash and non-cash changes where appropriate. Changes in the Group’s
borrowings are disclosed in the net debt reconciliation in note 4.1.
Movements in derivative values for the 52 weeks ended 24 September 2022 are represented by:
At
25 September
2021
£m
Cash
movements
£m
Fair value
movements
£m
At
24 September
2022
£m
Cash flow hedges (181) 33 179 31
Share options 1 – – 1
Total derivatives (180) 33 179 32
Movements in derivative values for the 52 weeks ended 25 September 2021 are represented by:
At
26 September
2020
£m
Cash
movements
£m
Fair value
movements
£m
At
25 September
2021
£m
Cash flow hedges (253) 40 32 (181)
Share options 1 – – 1
Total derivatives (252) 40 32 (180)
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 157
Notes to the consolidated financial statements continued
4.3 Financial instruments continued
Fair value of financial assets and liabilities
The fair value and carrying value of financial assets and liabilities by category is as follows:
2022 2021
Carrying
value
£m
Fair
value
£m
Carrying
value
£m
Fair
value
£m
Financial assets at amortised cost:
– Cash and cash equivalents 207 207 252 252
– Trade receivables 13 13 9 9
– Other receivables 16 16 12 12
– Other financial assets 21 21 – –
– Defined benefit pension blocked account 9 9
– Finance lease receivables 13 13 15 15
279 279 288 288
Financial assets – derivatives at FVTPL:
– Derivative instruments in designated hedge accounting relationships 59 59 28 28
– Share options 1 1 1 1
60 60 29 29
Financial liabilities at amortised cost:
– Borrowings (note 4.1) (1,464) (1,180) (1,550) (1,516)
– Lease liabilities (481) (481) (513) (513)
– Trade payables (106) (106) (80) (80)
– Accrued charges (151) (151) (149) (149)
– Other payables (20) (20) (21) (21)
– Other financial liabilities (21) (21) – –
(2,243) (1,959) (2,313) (2,279)
Financial liabilities – derivatives at FVTPL:
– Derivative instruments in designated hedge accounting relationships (28) (28) (209) (209)
Borrowings have been valued as Level 1 financial instruments, as the various tranches of the securitised debt have been valued using period end quoted offer
prices. As the securitised debt is traded on an active market, the market value represents the fair value of this debt. The fair value of interest rate and currency
swaps is the estimated amount which the Group could expect to pay or receive on termination of the agreements. Other financial assets and liabilities are
either short-term in nature or their book values approximate to fair values.
Fair value of derivative financial instruments
The fair value of the Group’s derivative financial instruments is calculated by discounting the expected future cash flows of each instrument at an appropriate
discount rate to a ‘mark to market’ position and then adjusting this to reflect any non-performance risk associated with the counterparties to the instrument.
IFRS 13 Financial Instruments requires the Group’s derivative financial instruments to be disclosed at fair value and categorised in three levels according to the
inputs used in the calculation of their fair value:
• Level 1 instruments use quoted prices as the input to fair value calculations;
• Level 2 instruments use inputs, other than quoted prices, that are observable either directly or indirectly;
• Level 3 instruments use inputs that are unobservable.
The table below sets out the valuation basis of derivative financial instruments held at fair value by the Group:
Fair value at 24 September 2022
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Financial assets:
Currency swaps – 59 – 59
Share options (see note 3.6) – – 1 1
Financial liabilities:
Interest rate swaps – (28) – (28)
– 31 1 32
Fair value at 25 September 2021
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Financial assets:
Currency swaps – 28 – 28
Share options (see note 3.6) – – 1 1
Financial liabilities:
Interest rate swaps – (209) – (209)
– (181) 1 (180)
Section 4 – Capital structure and financing costs continued
158 Financial Statements
4.4 Net debt
Accounting policies
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and other short-term highly liquid deposits with an original maturity at acquisition of
three months or less. Cash held on deposit with an original maturity at acquisition of more than three months is disclosed as other cash deposits. In the
cash flow statement, cash and cash equivalents are shown net of bank overdrafts that are repayable on demand and form an integral part of the Group’s
cash management.
Net debt
Net debt comprises cash and cash equivalents, cash deposits net of borrowings and discounted lease liabilities. Net debt is presented on a constant
currency basis, due to the inclusion of the fixed exchange rate component of the cross currency swap (as described in note 4.3). Cash flows on the interest
rate and cross currency swaps are shown within interest paid in the Group cash flow statement.
Net debt
Note
2022
£m
2021
£m
Cash and cash equivalents 207 252
Overdraft 4.1 (17) (25)
Cash and cash equivalents as presented in the cash flow statement
a
190 227
Securitised debt 4.1 (1,447) (1,526)
Unsecured revolving credit facility 4.1 – 1
Derivatives hedging securitised debt
b
4.1 59 28
Net debt excluding leases (1,198) (1,270)
Lease liabilities 3.2 (481) (513)
Net debt including leases (1,679) (1,783)
a. Cash and cash equivalents, in the cash flow statement, are presented net of an overdraft within a cash pooling arrangement, to which the Group has a legal right of offset.
b. Represents the element of the fair value of currency swaps hedging the balance sheet value of the Group’s US$ denominated A3N loan notes. This amount is disclosed separately to remove
the impact of exchange movements which are included in the securitised debt amount.
Movement in net debt excluding leases
2022
52 weeks
£m
2021
52 weeks
£m
Net (decrease)/increase in cash and cash equivalents (39) 70
Add back cash flows in respect of other components of net debt:
Principal repayments on securitised debt 115 107
Principal receipts on cross currency swap (20) (17)
Principal payments on cross currency swap 15 14
Repayment of term loan (note 4.1) – 100
Repayment of unsecured revolving credit facilities – 10
Repayment of liquidity facility – 9
Decrease in net debt arising from cash flows 71 293
Movement in capitalised debt issue costs net of accrued interest (1) 1
Decrease in net debt excluding leases 70 294
Opening net debt excluding leases (1,270) (1,563)
Foreign exchange movements on cash 2 (1)
Closing net debt excluding leases (1,198) (1,270)
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 159
4.4 Net debt continued
Movement in lease liabilities:
2022
52 weeks
£m
2021
52 weeks
£m
Opening lease liabilities (513) (541)
Additions
a
(25) (22)
Covid-19 rent concessions
b
– 2
Interest charged during the period (note 4.2) (16) (17)
Repayment of principal 48 41
Payment of interest 16 21
Disposals 11 1
Foreign currency movements (2) 2
Closing lease liabilities (481) (513)
a. Additions to lease liabilities include new leases and lease extensions or rent reviews relating to existing leases.
b. During the prior period, the Group has reached agreement with a number of landlords to waive a portion of rent that was due during periods of enforced pub closure as a result
of Covid-19.
The movement in net debt including leases for the 52 weeks ended 24 September 2022 is represented by:
At
25 September
2021
£m
Cash flow
movements
in the period
£m
Non-cash
movements
in the period
£m
Foreign
currency
movements
£m
At
24 September
2022
£m
Securitised debt (1,526) 115 – (36) (1,447)
Derivatives hedging securitised debt 28 (5) – 36 59
(1,498) 110 – – (1,388)
Revolving credit facilities 1 – (1) – –
Lease liabilities
a
(513) 64 (30) (2) (481)
Total liabilities arising from financing activities (2,010) 174 (31) (2) (1,869)
Cash and cash equivalents 227 (39) – 2 190
Net debt including leases (1,783) 135 (31) – (1,679)
a. Cash movements of £64m relate to £48m repayment of principal on lease liabilities and £16m of interest paid on lease liabilities.
The movement in net debt including leases for the 52 weeks ended 25 September 2021 is represented by:
At
26 September
2020
£m
Cash flow
movements
in the period
£m
Non-cash
movements
in the period
£m
Foreign
currency
movements
£m
At
25 September
2021
£m
Securitised debt (1,646) 107 – 13 (1,526)
Derivatives hedging securitised debt 44 (3) – (13) 28
(1,602) 104 – – (1,498)
Liquidity facility (9) 9 – – –
Term loan (100) 100 – – –
Revolving credit facilities (10) 11 – – 1
Lease liabilities
a
(541) 62 (36) 2 (513)
Total liabilities arising from financing activities (2,262) 286 (36) 2 (2,010)
Cash and cash equivalents 158 70 – (1) 227
Net debt including leases (2,104) 356 (36) 1 (1,783)
a. Cash movements of £62m relate to £41m repayment of principal on lease liabilities and £21m of interest paid on lease liabilities.
Notes to the consolidated financial statements continued
Section 4 – Capital structure and financing costs continued
160 Financial Statements
4.5 Pensions
Accounting policy
Retirement and death benefits are provided for eligible employees in the United Kingdom principally by the Mitchells & Butlers Pension Plan (MABPP)
and the Mitchells & Butlers Executive Pension Plan (MABEPP). These plans are funded, HMRC approved, occupational pension schemes with defined
contribution and defined benefit sections. The defined benefit section of the plans is now closed to future service accrual. The defined benefit liabilities
relates to these funded plans, together with an unfunded unapproved pension arrangement (the Executive Top-Up Scheme, or MABETUS) in respect
of certain MABEPP members. The assets of the plans are held in self-administered trust funds separate from the Company’s assets.
The plans operate under the UK regulatory framework and are governed by Trustee Boards composed of member-nominated and independent Trustee
Directors. The Trustee Directors make investment decisions and set the required contribution rates based on independent actuarial advice and
consultation with the Company.
In addition, Mitchells & Butlers plc also provides a workplace pension plan in line with the Workplace Pensions Reform Regulations. This automatically
enrols all eligible workers into a Qualifying Workplace Pension Plan.
As the Company does not have an unconditional right to recover any surplus from the pension plans, IFRIC 14 requires the minimum funding liability to
be recognised, where it is in excess of the actuarial liabilities. As such, the total pension liabilities recognised in the balance sheet in respect of the Group’s
defined benefit arrangements is the greater of the minimum funding requirements, calculated as the present value of the agreed schedule of contributions,
and the actuarial calculated liabilities. Actuarial liabilities are the present value of the defined benefit obligation, less the fair value of the schemes’ assets.
The cost of providing benefits is determined using the projected unit credit method as determined annually by qualified actuaries. This is based on a
number of financial assumptions and estimates, the determination of which may be significant to the balance sheet valuation in the event that this reflects
a greater deficit than that suggested by the schedule of minimum contributions.
There is no current service cost as all defined benefit schemes are closed to future accrual. The net pension finance charge, calculated by applying the
discount rate to the pension deficit or surplus at the beginning of the period, is shown within finance income or expense. The administration costs of the
schemes are recognised within operating costs in the income statement.
Remeasurement comprising actuarial gains and losses, the effect of minimum funding requirements, and the return on schemes’ assets are recognised
immediately in the balance sheet with a charge or credit to the statement of comprehensive income in the period in which they occur.
Curtailments and settlements relating to the Group’s defined benefit plans are recognised in the income statement in the period in which the curtailment
or settlement occurs.
For the defined contribution arrangements, the charge against profit is equal to the amount of contributions payable for that period.
Accounting judgements
The calculation of the defined benefit liabilities requires management judgement to select an appropriate high-quality corporate bond to determine the
discount rate. The most significant criteria considered for the selection of bonds include the rating of the bonds and the currency and estimated term of the
retirement benefit liabilities.
In addition, management has used judgement to determine the applicable rate of inflation to apply to pension increases in calculating the defined benefit
obligation. Details of this are given below.
Other sources of estimation uncertainty
The calculation of the defined benefit liabilities requires three key sources of estimation uncertainty in calculating the value in use: the selection of an
appropriate discount rate; the selection of an appropriate inflation rate; and the selection of appropriate mortality assumptions.
A sensitivity of changes in the discount rate, the inflation rate and the mortality assumptions is provided on page 162.
Measurement of scheme assets and liabilities
MABEPP – buy-in policy transaction
During the period, the Trustees of the MABEPP entered a Bulk Purchase Agreement (BPA) with Legal and General Assurance Society Limited. The resulting
policy is set up to provide the plan with sufficient funding to cover all known member benefits of the scheme.
The difference between the buy-in purchase price and the defined benefit obligation covered by the policy has been accounted for in other comprehensive
income. The accounting treatment is based on the following considerations made by the Company:
• the employer is not relieved of primary responsibility for the obligation. The policy simply covers the benefit payments that continue to be payable by the
scheme;
• the contract is effectively an investment of the scheme; and
• the contract provides the option to convert the annuity into individual policies, which would transfer the obligation to the insurer (known as a ‘buy-out’).
Whilst this course of action may be considered in future, this is not a requirement and a separate decision will be required before any buy-out proceeds.
Following on from the transaction, the remaining scheduled contribution payments for the MABEPP are being paid into a ‘Blocked Account’ from which
the funds may be used by the Trustee or may be returned to the Company. As a result the payments are no longer recognised as a minimum funding
requirement and any balance in the Blocked Account has been recognised within other receivables (see note 3.3). The amount recognised as at
24 September 2022 is £9m.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 161
4.5 Pensions continued
Actuarial valuation
The actuarial valuations used for IAS 19 (revised) purposes are based on the results of the latest full actuarial valuation carried out at 31 March 2019 and
updated by the schemes’ independent qualified actuaries to 25 September 2021. Schemes’ assets are stated at market value at 25 September 2021 and the
liabilities of the schemes have been assessed as at the same date using the projected unit method. IAS 19 (revised) requires that the schemes’ liabilities are
discounted using market yields at the end of the period on high-quality corporate bonds.
The principal financial assumptions have been updated to reflect changes in market conditions in the period and are as follows:
2022 2021
Main plan Executive plan Main plan Executive plan
Discount rate 5.3% 5.3% 1.9% 1.9%
Pensions increases – RPI max 5% 3.2% 3.2% 3.3% 3.3%
Inflation rate – RPI 3.5% 3.5% 3.5% 3.5%
The discount rate is based on a yield curve for AA corporate rated bonds which are consistent with the currency and estimated term of retirement
benefit liabilities.
To determine the RPI assumption the gilt implied inflation yield curve has been used, reflecting the duration of the Plan’s cash flows, and adjusting for an
assumed inflation risk premium.
The mortality assumptions were reviewed following the 2019 actuarial valuation. A summary of the average life expectancies assumed is as follows:
2022 2021
Main plan
years
Executive plan
years
Main plan
years
Executive plan
years
Male member aged 65 (current life expectancy) 20.9 23.4 20.9 23.4
Male member aged 45 (life expectancy at 65) 22.7 24.5 22.7 24.5
Female member aged 65 (current life expectancy) 23.2 24.3 23.2 24.3
Female member aged 45 (life expectancy at 65) 25.3 26.3 25.3 26.3
Minimum funding requirements
The results of the 2019 actuarial valuation showed a funding deficit of £293m, using a more prudent basis to discount the scheme liabilities than is required by
IAS 19 (revised). As a result of the 2019 actuarial valuation, the Company has subsequently agreed recovery plans for both the Executive and Main schemes in
order to close the funding deficit in respect of its pension liabilities. The recovery plans show an unchanged level of cash contributions with no extension to
the agreed payment term (£45m per annum indexed with RPI from 1 April 2016 subject to a minimum increase of 0% and maximum of 5%, until 31 March 2023).
In the prior period, given the outbreak of the Covid-19 pandemic and the enforced temporary closure of the business at the end of March 2020, the Company
agreed with the Trustee that contributions would be suspended for the months of April to September 2020, with these being added onto the end of the
agreed recovery plan so that these contributions will be paid during the second half of FY 2023.
This agreement is subject to review following completion of the current ongoing actuarial valuation which commenced in March 2022 and is expected shortly.
Under IFRIC 14, additional liabilities are recognised, such that the overall pension liabilities at the period end reflects the schedule of contributions in relation
to the minimum funding requirements, should this be higher than the actuarial deficit. As set out above, following the BPA transaction, contributions for the
MABEPP are being paid into the Blocked Account and are therefore no longer recognised as a minimum funding requirement. The additional liability
recognised at 24 September 2022 relates only to the MABPP.
The employer contributions expected to be paid during the financial period ending 30 September 2023 amount to £42m.
In 2024, an additional payment of £13m will be made into escrow, should such further funding be required at that time. This is a contingent liability and is not
reflected in the pensions liabilities as it is not committed.
Sensitivity to changes in actuarial assumptions
The sensitivities regarding principal actuarial assumptions, assessed in isolation, that have been used to measure the scheme liabilities are set out below.
These are considered to be reasonable sensitivities based on the average movement over the last three financial periods. There was no change in the methods
and assumptions used in preparing the sensitivity analysis from the prior period.
2022
Increase/
(decrease)
in actuarial
surplus
2022
£m
Decrease/
(increase)
in total pension
liabilities
2022
£m
1.9% increase in discount rate 250 5
0.3% increase in inflation rate (53) (1)
Additional one-year decrease to life expectancy 44 1
Section 4 – Capital structure and financing costs continued
Notes to the consolidated financial statements continued162 Financial Statements
2021
Increase/
(decrease)
in actuarial
surplus
2021
£m
Decrease/
(increase)
in total pension
liabilities
2021
£m
0.3% increase in discount rate 127 2
0.4% increase in inflation rate (136) (2)
Additional one-year decrease to life expectancy 93 2
The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the changes in
assumptions would occur in isolation of one another as some of the assumptions may be correlated. In presenting the above sensitivity analysis, the present
value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that
applied in calculating the defined benefit obligation liabilities recognised in the statement of financial position.
Principal risks and assumptions
The defined benefit schemes are not exposed to any unusual, entity specific or scheme specific risks but there are general risks:
Inflation – The majority of the plans’ obligations are linked to inflation. Higher inflation will lead to increased liabilities which is partially offset by the plans
holding inflation linked gilts and other inflation linked assets.
Interest rate – The plans’ liabilities are determined using discount rates derived from yields on AA-rated corporate bonds. A decrease in corporate bond yields
will increase plan liabilities though this will be partially offset by an increase in the value of the bonds held by the plans.
Mortality – The majority of the plans’ obligations are to provide benefits for the life of the members and their partners, so any increase in life expectancy will
result in an increase in the plans’ liabilities.
Asset returns – Assets held by the pension plans are invested in a diversified portfolio of equities, bonds and other assets. Volatility in asset values will lead to
movements in the net deficit/surplus reported in the Group balance sheet for the plans which in addition will also impact the pension finance charge in the
Group income statement.
Amounts recognised in respect of defined benefit schemes
The following amounts relating to the Group’s defined benefit and defined contribution arrangements have been recognised in the Group income statement
and Group statement of comprehensive income.
Group income statement
2022
52 weeks
£m
2021
52 weeks
£m
Operating profit:
Employer contributions (defined contribution plans) (note 2.3) (16) (13)
Administrative costs (defined benefit plans) (4) (5)
Charge to operating profit before separately disclosed items (20) (18)
Past service cost (note 2.2) – (3)
Charge to operating profit (20) (21)
Finance costs:
Net pensions finance income on actuarial surplus 8 5
Additional pensions finance charge due to minimum funding (10) (8)
Net finance charge in respect of pensions (2) (3)
Total charge (22) (24)
Group statement of comprehensive income
2022
52 weeks
£m
2021
52 weeks
£m
Return on scheme assets and effects of changes in assumptions (161) 19
Movement in pension liabilities recognised due to minimum funding 202 (10)
Remeasurement of pension liabilities 41 9
Group balance sheet
2022
£m
2021
£m
Fair value of schemes’ assets 1,699 2,808
Present value of schemes’ liabilities (1,442) (2,438)
Actuarial surplus in the schemes 257 370
Additional liabilities recognised due to minimum funding (321) (513)
Total pension liabilities
a
(64) (143)
Associated deferred tax asset (note 2.4) 14 31
a. The total pension liabilities of £64m (2021 £143m) is presented as a £42m current liability (2021 £51m) and a £22m non-current liability (2021 £92m).
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 163
Notes to the consolidated financial statements continued
4.5 Pensions continued
The movement in the fair value of the schemes’ assets in the period is as follows:
Schemes’ assets
2022
£m
2021
£m
Fair value of schemes’ assets at beginning of period 2,808 2,736
Interest income 53 44
Remeasurement (loss)/gain:
– Return on schemes’ assets (excluding amounts included in net finance charge) (1,119) 67
Additional employer contributions 44 52
Benefits paid (83) (86)
Administration costs (4) (5)
At end of period 1,699 2,808
Changes in the present value of defined benefit obligation are as follows:
Defined benefit obligation
2022
£m
2021
£m
Present value of defined benefit obligation at beginning of period (2,438) (2,434)
Interest cost (45) (39)
Past service cost – (3)
Benefits paid 83 86
Remeasurement losses:
– Effect of changes in financial assumptions 1,024 (62)
– Effect of experience adjustments (66) 14
At end of period
a
(1,442) (2,438)
a. The defined benefit obligation comprises £23m (2021 £39m) relating to the MABETUS unfunded plan and £1,419m (2021 £2,399m) relating to the funded plans.
The weighted average duration of the defined benefit obligation is 14 years (2021 19 years).
The major categories and fair values of assets of the MABPP and MABEPP schemes at the end of the reporting period are as follows:
2022
£m
2021
£m
Cash and equivalents 175 118
Equity instruments – 271
Debt instruments:
– Bonds 1,321 2,473
– Real estate debt 30 50
– Infrastructure debt 92 134
– Secured income debt 360 384
– Absolute return bond funds – 265
– Gilt repurchase transactions (574) (906)
Gold – 6
Forward foreign exchange contracts (1) 13
MABEPP insurance policy 296 –
Fair value of assets 1,699 2,808
The actual investment return achieved on schemes’ assets over the period was a loss of 38.0% (2021 gain of 4.1%), which represented a loss of £1,063m
(2021 gain of £112m).
Virtually all equity instruments, bonds and gold have quoted prices in active markets and are classified as Level 1 instruments. Absolute return bond funds,
gilt repurchase transactions and forward foreign exchange contracts are classified as Level 2 instruments. Real estate debt, infrastructure debt and secured
income debt are classified as Level 3 instruments.
In the 52 weeks ended 24 September 2022 the Group paid £16m (2021 £13m) in respect of the defined contribution arrangements, with an additional £3m
(2021 £3m) outstanding as at the period end.
At 24 September 2022 the MABPP owed £nil (2021 £nil) to the Group in respect of expenses paid on its behalf. This amount is included in other receivables
in note 3.2.
Section 4 – Capital structure and financing costs continued
164 Financial Statements
4.6 Share-based payments
Accounting policy
The Group operates a number of equity-settled share-based compensation plans, whereby, subject to meeting any relevant conditions, employees are
awarded shares or rights over shares. The cost of such awards is measured at fair value, excluding the effect of non market-based vesting conditions, on
the date of grant. The expense is recognised on a straight-line basis over the vesting period and is adjusted for the estimated effect of non market-based
vesting conditions and forfeitures, on the number of shares that will eventually vest due to employees leaving the employment of the Group. Fair values
are calculated using either the Black-Scholes, Binomial or Monte Carlo simulation models depending on the conditions attached to the particular
share scheme.
Sharesave plan options granted to employees are treated as cancelled when employees cease to contribute to the scheme. This results in an accelerated
recognition of the expense that would have arisen over the remainder of the original vesting period.
Schemes in operation
The net charge recognised for share-based payments in the period was £4m (2021 £3m).
The Group had five equity-settled share schemes (2021 five) in operation during the period: the Restricted Share Plan (RSP); the Performance Restricted
Share Plan (PRSP); Sharesave Plan; Share Incentive Plan (SIP) and Short Term Deferred Incentive Plan (STDIP).
The vesting of all awards or options is generally dependent upon participants remaining in the employment of a participating company during the vesting
period. Further details on each scheme are provided in the Report on Directors’ remuneration on pages 89 to 106.
The fair value of awards under the Restricted Share Plan, the Share Incentive Plan and the Short Term Deferred Incentive Plan are equal to the share price
on the date they are granted as there is no price to be paid and employees are entitled to Dividend Accrued Shares to the value of ordinary dividends paid
or payable during the vesting period. There were no awards under the Short Term Deferred Incentive Plan in the current or prior periods. The fair value of
options granted under these schemes is shown below.
Fair value of options granted
2022 2021
Share Incentive Plan 206.4p 285.8p
Restricted Share Plan 244.4p 313.6p
The following table sets out weighted average information about how the fair value of the Sharesave Plan option grants were calculated.
2022
Sharesave
Plan
2021
Sharesave
Plan
Valuation model Black-Scholes Black-Scholes
Weighted average share price 206.4p 285.8p
Exercise price 199.0p 256.0p
Expected dividend yield – –
Risk-free interest rate 2.32% 0.32%
Volatility
a
41.9% 41.9%
Expected life (years)
b
4.1 4.1
Weighted average fair value of grants during the period 76.5p 105.7p
a. The expected volatility is determined by calculating the historical volatility of the Company’s share price commensurate with the expected term of the options and share awards.
b. The expected life of the options represents the average length of time between grant date and exercise date.
Scheme movements in the period
The tables below summarise the movements in outstanding options during the period for each scheme.
Number of shares
Weighted average
exercise price
Sharesave Plan
2022
m
2021
m
2022
p
2021
p
Outstanding at the beginning of the period 5.4 3.4 238.3 239.9
Adjustment for Open Offer – 0.3 – 216.6
Granted 2.2 2.9 199.0 256.0
Exercised (0.3) (0.2) 224.4 200.8
Forfeited (1.2) (0.5) 243.9 222.6
Expired (0.4) (0.5) 225.9 210.3
Outstanding at the end of the period 5.7 5.4 223.5 238.3
Exercisable at the end of the period – – – –
The outstanding options for the sharesave plan scheme had an exercise price of between 199.0p and 256.0p (2021 between 199.4p and 256.0p)
and the weighted average remaining contract life was 2.9 years (2021 2.9 years). The number of forfeited shares in the period includes 726,485
(2021 353,133) cancellations.
Sharesave plan options were exercised on a range of dates. The average share price through the period was 218.7p (2021 268.0p).
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 165
4.6 Share-based payments continued
Number of shares
Share Incentive Plan
2022
m
2021
m
Outstanding at the beginning of the period 1.9 1.8
Granted 0.4 0.3
Exercised (0.2) (0.2)
Outstanding at the end of the period 2.1 1.9
Exercisable at the end of the period 1.3 1.5
Options under the Share Incentive Plan are capable of remaining within the SIP trust indefinitely while participants continue to be employed.
Number of shares
Restricted Share Plan
2022
m
2021
m
Outstanding at the beginning of the period 1.0 –
Granted 1.4 1.0
Outstanding at the end of the period 2.4 1.0
Exercisable at the end of the period – –
The weighted average remaining contract life of the RSP options was 1.8 years (2021 2.2 years).
Number of shares
Performance Restricted Share Plan
2022
m
2021
m
Outstanding at the beginning of the period 3.6 5.6
Adjustment for Open Offer – 0.4
Exercised – (0.1)
Forfeited – (0.2)
Expired (1.8) (2.1)
Outstanding at the end of the period 1.8 3.6
Exercisable at the end of the period – –
The weighted average remaining contract life of the PRSP options was 0.1 years (2021 2.6 years).
4.7 Equity
Accounting policies
Own shares
The cost of own shares held in employee share trusts and in treasury are deducted from shareholders’ equity until the shares are cancelled, reissued or
disposed of. Where such shares are subsequently sold or reissued, the fair value of any consideration received is also included in shareholders’ equity.
Dividends
Dividends proposed by the Board but unpaid at the period end are not recognised in the financial statements until they have been approved by
shareholders at the Annual General Meeting. Interim dividends are recognised when paid.
Scrip dividends are fully paid up from the share premium account. They are accounted for as an increase in share capital for the nominal value of the shares
issued, and a resulting reduction in share premium.
2022 2021
Called up share capital
Number of
shares £m
Number of
shares £m
Allotted, called up and fully paid
Ordinary shares of 8
13
⁄
24
p each
At start of period 596,618,849 51 429,201,117 37
Share capital issued
a
764,514 – 480,126 –
Open Offer issued
b
– – 166,937,606 14
At end of period 597,383,363 51 596,618,849 51
a. During the period, the Company issued 764,514 (2021 480,126) shares at nominal value under share option schemes, for consideration of £65,302 (2021 £41,011).
b. On 12 March 2021, the Group completed a fully underwritten Open Offer share issue to existing shareholders on the basis of 7 shares for every 18 fully paid ordinary shares held. As a
result, a total of 166,937,606 ordinary shares with an aggregate nominal value of £14m were issued for cash consideration of £351m. Transaction costs of £9m were incurred which were
directly attributable to the issuance of the new shares, resulting in £328m being recognised in share premium and net cash proceeds of £342m.
All of the ordinary shares rank equally with respect to voting rights and rights to receive ordinary and special dividends. There are no restrictions on the rights
to transfer shares.
Details of options granted under the Group’s share schemes are contained in note 4.6.
Notes to the consolidated financial statements continued
Section 4 – Capital structure and financing costs continued
166 Financial Statements
Dividends
There were no dividends declared or paid during the current period.
Share premium account
The share premium account represents amounts received in excess of the nominal value of shares on issue of new shares. Share premium of £1m
(2021 £328m) has been recognised on shares issued in the period.
Capital redemption reserve
The capital redemption reserve movement arose on the repurchase and cancellation by the Company of ordinary shares during prior periods.
Revaluation reserve
The revaluation reserve represents the unrealised gain generated on revaluation of the property estate with effect from 29 September 2007. It comprises
the excess of the fair value of the estate over deemed cost, net of related deferred taxation.
Own shares held
Own shares held by the Group represent the shares in the Company held by the employee share trusts.
During the period, the employee share trusts acquired 1,000,000 shares at a cost of £2m (2021 277,144 shares at a cost of £1m) and subscribed for 440,652
shares (2021 258,915) at a cost of £nil (2021 £nil). The employee share trusts released 261,839 (2021 355,632) shares to employees on the exercise of options
and other share awards for a total consideration of £nil (2021 £nil). The 3,846,671 shares held by the trusts at 24 September 2022 had a market value of £6m
(2021 2,667,858 shares held had a market value of £7m).
The Company has established two employee share trusts:
Share Incentive Plan (SIP) Trust
The SIP Trust was established in 2003 to purchase shares on behalf of employees participating in the Company’s Share Incentive Plan. Under this scheme,
eligible employees are awarded free shares which are normally held in trust for a holding period of at least three years. After three years, the shares may be
transferred or sold by the employee but would be subject to income tax and National Insurance contributions. After five years the shares may be transferred
to or sold by the employee free of income tax and National Insurance contributions. The SIP Trust buys the shares in the market or subscribes for newly issued
shares with funds provided by the Company. During the holding period, dividends are paid directly to the participating employees. At 24 September 2022,
the trustees, Equiniti Share Plan Trustees Limited, held 2,091,712 (2021 1,853,883) shares in the Company. Of these shares, 1,289,854 (2021 1,214,064)
shares are available to employees, 756,585 (2021 618,682) shares have been awarded to employees but are still required to be held within the SIP Trust until
the three year holding period has expired, and the remaining 45,273 (2021 21,137) shares are unallocated.
Employee Benefit Trust (EBT)
The EBT was established in 2003 in order to satisfy the exercise or vesting of existing and future share options and awards under the Restricted Share Plan,
Performance Restricted Share Plan, Short Term Deferred Incentive Plan and the Sharesave Plan. The EBT purchases shares in the market or subscribes for
newly issued shares, using funds provided by the Company, based on expectations of future requirements. Dividends are waived by the EBT. At 24 September
2022, the trustees, Sanne Fiduciary Services Limited, were holding 1,754,959 (2021 813,975) shares in the Company.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged future
cash flows.
Translation reserve
The translation reserve is used to record exchange differences arising from the translation of the consolidated financial statements of foreign subsidiaries.
Retained earnings
The Group’s main operating subsidiary, Mitchells & Butlers Retail Limited, had retained earnings under FRS 101 of £2,207m at 24 September 2022
(2021 £2,203m). Its ability to distribute these reserves by way of dividends is restricted by the securitisation covenants (see note 4.1).
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 167
5.1 Related party transactions
Key management personnel
Employees of the Mitchells & Butlers plc Group who are members of the Board of Directors or the Executive Committee of Mitchells & Butlers plc are deemed
to be key management personnel. It is the Board who have responsibility for planning, directing and controlling the activities of the Group.
Compensation of key management personnel of the Group:
2022
52 weeks
£m
2021
52 weeks
£m
Short-term employee benefits 4 3
Movements in share options held by the Directors of Mitchells & Butlers plc are summarised in the Report on Directors’ remuneration on pages 89 to 106.
Associate companies
During the period, the Group has held a number of property lease agreements with its associate companies, 3Sixty Restaurants Limited and Fatboy Pub
Company Limited.
The Group has entered into the following transactions with the associates:
3Sixty Restaurants Limited Fatboy Pub Company Limited
2022
52 weeks
£000
2021
52 weeks
£000
2022
52 weeks
£000
2021
52 weeks
£000
Rent charged 1,180 666 60 37
Sales of goods and services 782 447 4 5
1,962 1,113 64 42
The balance due from 3Sixty Restaurants Limited at 24 September 2022 was £351,600 (2021 £691,000).
The balance due from Fatboy Pub Company at 24 September 2022 was £nil (2021 £57,000), net of a provision of £179,000 (2021 £179,000).
Section 5 – Other notes
Notes to the consolidated financial statements continued168 Financial Statements
5.2 Subsidiaries and associates
Subsidiaries
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.
Mitchells & Butlers plc is the ultimate controlling party and the beneficial owner of all of the equity share capital, either itself or through subsidiary
undertakings, of the following companies:
Name of subsidiary
Country of
incorporation
Registration
Number Nature of business
Principal operating subsidiaries
Mitchells & Butlers Retail Limited England and Wales 00024542 Leisure retailing
Mitchells & Butlers Retail (No. 2) Limited England and Wales 03959664 Leisure retailing
Ha Ha Bar & Grill Limited England and Wales 06295359 Leisure retailing
Orchid Pubs & Dining Limited England and Wales 06754332 Leisure retailing
ALEX Gaststätten Gesellschaft mbH & Co KG Germany Leisure retailing
Midco 1 Limited England and Wales 05835640 Property leasing company
Mitchells & Butlers Leisure Retail Limited England and Wales 01001181 Service company
Mitchells & Butlers Germany GmbH
a
Germany Service company
Mitchells & Butlers Finance plc England and Wales 04778667 Finance company
Other subsidiaries
Mitchells & Butlers (Property) Limited
b
England and Wales 01299745 Property management
Standard Commercial Property Developments Limited
b
England and Wales 00056525 Property development
Mitchells & Butlers Holdings (No.2) Limited
a,b
England and Wales 06475790 Holding company
Mitchells & Butlers Holdings Limited
b
England and Wales 03420338 Holding company
Mitchells & Butlers Leisure Holdings Limited
b
England and Wales 02608173 Holding company
Mitchells & Butlers Retail Holdings Limited England and Wales 04887979 Holding company
Old Kentucky Restaurants Limited England and Wales 00465905 Trademark ownership
Mitchells & Butlers (IP) Limited
b
England and Wales 04885717 Dormant
Mitchells & Butlers Acquisition Company England and Wales 05879733 Dormant
Mitchells & Butlers Retail Property Limited
a,b
England and Wales 06301758 Non–trading
Mitchells and Butlers Healthcare Trustee Limited
b
England and Wales 04659443 Healthcare trustee
ALEX Gaststätten Immobiliengesellschaft mbH
c
Germany Property management
ALL BAR ONE Gaststätten Betriebsgesellschaft mbH
c
Germany Leisure retailing
ALEX Alsterpavillon Immobilien GmbH & Co KG
c
Germany Property management
ALEX Alsterpavillon Management GmbH
c
Germany Management company
ALEX Gaststätten Management GmbH
c
Germany Management company
Miller & Carter Gaststätten Betriebsgesellschaft mbH
c
Germany Leisure retailing
Browns Restaurant (Brighton) Limited
d
England and Wales 01564302 Dormant
Browns Restaurant (Bristol) Limited
d
England and Wales 02351724 Dormant
Browns Restaurant (Cambridge) Limited
d
England and Wales 01237917 Dormant
Browns Restaurant (London) Limited
d
England and Wales 00291996 Dormant
Browns Restaurant (Oxford) Limited
d
England and Wales 01730727 Dormant
Browns Restaurants Limited
d
England and Wales 01001320 Dormant
Lander & Cook Limited
d
England and Wales 11160005 Dormant
a. Shares held directly by Mitchells & Butlers plc.
b. These companies are exempt from the requirement to prepare individual audited financial statements in respect of the 52 week period ended 24 September 2022 by virtue of sections
479A and 479C of the Companies Act 2006.
c. The German subsidiary companies are consolidated on the basis of their reporting period, being the year ending 30 September 2022 (2021 30 September 2021).
d. These companies are exempt from the requirement to prepare and file individual financial statements in respect of the 52 week period ended 24 September 2022 by virtue of sections
394A and 448A of the Companies Act 2006.
All companies registered in England and Wales operate within the United Kingdom. The registered office for these companies is 27 Fleet Street,
Birmingham, B3 1JP.
All companies registered in Germany operate solely within Germany. The registered office for these companies is Adolfstrasse 16, 65185 Wiesbaden.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 169
Notes to the consolidated financial statements continued
5.2 Subsidiaries and associates continued
Associates
Details of the Company’s associates, held indirectly, are as follows. Shares in these associates were acquired in the prior period.
Name of associate Registered office
Country of incorporation
and operation Country of operation Nature of business
Proportion of
ownership
interest %
Proportion of voting
power interest %
3Sixty Restaurants
Limited
1st Floor St Georges House,
St Georges Road, Bolton, BL1 2DD England and Wales United Kingdom Leisure retailing 40 40
Fatboy Pub Company
Limited
Ampney House, Falcon Close,
Quedgeley, Gloucester, GL2 4LS England and Wales United Kingdom Leisure retailing 25 25
5.3 Five year review
2022
52 weeks
£m
2021
52 weeks
£m
2020
52 weeks
£m
2019
52 weeks
£m
2018
52 weeks
£m
Revenue 2,208 1,065 1,475 2,237 2,152
Operating profit before separately disclosed items 240 29 99 317 303
Separately disclosed items (116) 52 (91) (20) (48)
Operating profit 124 81 8 297 255
Finance costs (115) (122) (128) (114) (119)
Finance income 1 2 1 1 1
Net pensions finance charge (2) (3) (4) (7) (7)
Profit/(loss) before taxation 8 (42) (123) 177 130
Tax credit/(charge) 5 (23) 11 (34) (26)
Profit/(loss) for the period 13 (65) (112) 143 104
Section 5 – Other notes continued
170 Financial Statements
Notes
2022
£m
2021
£m
Non-current assets
Investments in subsidiaries 5 1,866 1,616
Amounts owed by subsidiary undertakings 6 381 380
Deferred tax asset 9 19 36
2,266 2,032
Current assets
Trade and other receivables 6 176 170
Cash and cash equivalents 76 115
252 285
Current liabilities
Pension liabilities 4 (42) (51)
Borrowings 8 (17) (25)
Trade and other payables 7 (287) (284)
(346) (360)
Non-current liabilities
Pension liabilities 4 (22) (92)
Net assets 2,150 1,865
Equity
Called up share capital 10 51 51
Share premium account 10 357 356
Capital redemption reserve 3 3
Own shares held 10 (5) (3)
Retained earnings 1,744 1,458
Total equity 2,150 1,865
The Company reported a profit for the 52 weeks ended 24 September 2022 of £250m (52 weeks ended 25 September 2021 £106m).
The Company financial statements were approved by the Board and authorised for issue on 6 December 2022.
They were signed on its behalf by:
Tim Jones
Chief Financial Officer
The accounting policies and the notes on pages 173 to 176 form an integral part of these Company financial statements.
Registered Number: 04551498
Mitchells & Butlers plc Company financial statements
Company balance sheet
24 September 2022
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 171
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Own
shares
held
£m
Retained
earnings
£m
Total
equity
£m
At 26 September 2020 37 28 3 (3) 1,529 1,594
Loss after taxation – – – – (106) (106)
Remeasurement of pension liability – – – – 9 9
Deferred tax on remeasurement of pension liability and rate
change of pension liability – – – – 24 24
Total comprehensive expense – – – – (73) (73)
Share capital issued 14 328 – – – 342
Purchase of own shares – – – (1) – (1)
Release of own shares – – – 1 (1) –
Credit in respect of employee share schemes – – – – 3 3
At 25 September 2021 51 356 3 (3) 1,458 1,865
Profit after taxation – – – – 250 250
Remeasurement of pension liability – – – – 41 41
Deferred tax on remeasurement of pension liability – – – – (9) (9)
Total comprehensive expense – – – – 282 282
Share capital issued – 1 – – – 1
Purchase of own shares – – – (2) – (2)
Release of own shares – – – – – –
Credit in respect of employee share schemes – – – – 4 4
At 24 September 2022 51 357 3 (5) 1,744 2,150
Details of each reserve are provided in note 4.7 to the consolidated financial statements.
Company statement of changes in equity
For the 52 weeks ended 24 September 2022
Mitchells & Butlers plc Company financial statements continued172 Financial Statements
1. Basis of preparation
Basis of accounting
These Company financial statements were prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ as issued
by the FRC.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to IFRS 2 Share-based
Payments, requirements of IFRS 7 Financial Instruments: Disclosures, presentation of a cash flow statement, IAS 36 Impairment of Assets, standards not yet
effective and IAS 24 Related Party Disclosures. Where required, equivalent disclosures are given in the consolidated financial statements.
The Company financial statements have been prepared under the historical cost convention. The Company’s accounting policies have been applied on
a consistent basis to those set out in the relevant notes to the consolidated financial statements.
Share options and share awards are granted to employees of the Mitchells & Butlers Group, by the Company. The Company accounts for share-based
payments, in line with the policy disclosed in note 4.6 of the consolidated financial statements. The Company’s income statement charge in respect of
share-based payments represents the charge for options of employees of the Company. Other companies within the Group are recharged an amount relating
to their employees.
Accounting judgements and sources of estimation uncertainty
The accounting judgements and estimates of the Company are considered alongside those of the Group. The key judgements and sources of estimation
uncertainty of the Company are: the selection of the discount rate and inflation rate assumptions used in the calculation of the defined benefit pension liability
described in note 4.5 of the consolidated financial statements; the determination of appropriate cash flow forecasts for the investment impairment review
described in note 5; and the assessment of expected credit loss on amounts owed by subsidiary undertakings as described in note 6.
Foreign currencies
Transactions in foreign currencies are recorded at the exchange rates ruling on the dates of the transactions. Monetary assets and liabilities denominated
in foreign currencies are translated into sterling at the relevant rates of exchange ruling at the balance sheet date.
2. Profit and loss account
Profit and loss account
The Company has not presented its own profit and loss account, as permitted by Section 408 of the Companies Act 2006.
The Company recorded a profit after tax of £250m (2021 £106m), less dividends of £nil (2021 £nil).
Audit remuneration
Auditor’s remuneration for audit services to the Company was £30,000 (2021 £30,000). This is borne by another Group company, as are any other costs
relating to non-audit services (see note 2.3 to the consolidated financial statements).
3. Employees and Directors
2022
52 weeks
2021
52 weeks
Average number of employees, including part-time employees 2 2
Employees of Mitchells & Butlers plc consist of Executive Directors who are considered to be the key management personnel of the Company.
Details of employee benefits and post-employment benefits including share-based payments are included within the Report on Directors’ remuneration on
pages 89 to 106. The charge recognised for share-based payments in the period is £1m (2021 £nil).
4. Pensions
Accounting policy
The accounting policy for pensions is disclosed in the consolidated financial statements in note 4.5.
Pension liability
At 24 September 2022 the Company’s pension liability was £64m (2021 £143m). Of this amount, £42m (2021 £51m) is a current liability and £22m (2021
£92m) is a non-current liability.
The Company is the sponsoring employer of the Group’s pension plans. Information concerning the pension scheme arrangements operated by the Company
and associated current and future contributions is contained within note 4.5 to the consolidated financial statements on pages 161 to 164.
The pension amounts and disclosures included in note 4.5 to the consolidated financial statements are equivalent to those applicable for the Company.
Notes to the Mitchells & Butlers plc
Company financial statements
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 173
5. Investments in subsidiaries
Accounting policy
The Company’s investments in Group undertakings are held at cost less provision for impairment. The value of these investments are reviewed annually
for impairment by comparing the recoverable amount with carrying value. Recoverable amount is deemed as being either an enterprise value where the
subsidiary is a trading entity or net asset value where the subsidiary has no trading assets.
Investments in
subsidiary
undertakings
£m
Cost
At 26 September 2020 3,400
Additions
a
95
At 25 September 2021 3,495
Additions
a
250
At 24 September 2022 3,745
Provision
At 26 September 2020 1,879
Impairment –
At 25 September 2021 1,879
Impairment –
At 24 September 2022 1,879
Net book value
At 24 September 2022 1,866
At 25 September 2021 1,616
At 26 September 2020 1,521
a. During the current period the Company subscribed for 1 ordinary share (2021 95 million shares), of £1 nominal value, at a subscription price of £250m each (2021 £1 each) in Mitchells & Butlers
Holdings (No.2) Limited.
Mitchells & Butlers plc is the beneficial owner of all of the equity share capital of companies within the Group, either itself or through subsidiary undertakings.
In addition, the Company has indirect investments in associate companies through subsidiary undertakings. See note 5.2 of the consolidated financial
statements for a full list of subsidiaries and associates.
Impairment review – critical accounting judgements
Investments in trading subsidiaries have been tested for impairment using pre-tax forecast cash flows, discounted by applying a pre-tax discount rate of 9.65%
(2021 9.60%) and a long-term growth rate of 2.0% (2021 1.0%). The long-term growth rate is based on up-to-date economic data points and for consistency
with the overall Group profit forecast. No further impairment has been recognised as a result of this review in the current or prior period.
For the investment impairment review, judgement has been applied to determine the most appropriate forecast to use as a result of the impact of Covid-19
and cost inflation on site profits. Forecasts for cash flows of trading subsidiaries have been based on the overall Group forecast for FY 2023 that was in place
at the balance sheet date.
Notes to the Mitchells & Butlers plc Company financial statements continued174 Financial Statements
6. Trade and other receivables
2022
£m
2021
£m
Non-current
Amounts owed by subsidiary undertakings 381 380
2022
£m
2021
£m
Current
Amounts owed by subsidiary undertakings 165 169
Prepayments 2 1
Defined benefit pension blocked account
a
9 –
176 170
a. Contributions to the MABEPP scheme have been paid into a blocked account since the scheme buy-in during the period (see note 4.5 for further details).
Amounts owed by subsidiary undertakings are repayable on demand. However, £381m (2021 £380m) of these amounts are disclosed as non-current as they
are not expected to be settled within the next 12 months. Interest is not charged on all balances. Where interest is charged, it is charged at market rate, based
on what can be achieved on corporate deposits.
Critical accounting judgements
Management has applied judgement when assessing the expected credit loss (ECL) on amounts owed by subsidiary undertakings. An assessment of the
future trading cash flows and asset values of the subsidiaries has been made which also considers intercompany transactions between group companies.
As a result of this assessment, no ECL has been recognised in the current period as it is immaterial.
The Directors consider that the carrying value of amounts owed by subsidiary undertakings approximately equates to their fair value.
7. Trade and other payables
2022
£m
2021
£m
Amounts owed to subsidiary undertakings
a
286 282
Accrued charges – 1
Other payables 1 1
287 284
a. Amounts owed to subsidiary undertakings are repayable on demand. Interest is not charged on all balances. Where interest is charged, it is charged at market rate, based on what can be
achieved on corporate deposits.
8. Borrowings
Accounting policy
The accounting policy for borrowings is disclosed in the consolidated financial statements in note 4.1.
Borrowings can be analysed as follows:
2022
£m
2021
£m
Current
Bank overdraft 17 25
Total borrowings 17 25
Unsecured revolving credit facility
The Company holds an uncommitted gross overdraft facility of £50m (2021 £50m) as part of the Group’s notional pooling arrangements with a net facility
limit of £5m (2021 £5m) across the participating Group companies. The amount drawn at 24 September 2022 is £17m (2021 £25m).
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 175
9. Taxation
Accounting policy
The accounting policy for taxation is disclosed in the consolidated financial statements in note 2.4.
Deferred tax asset
Movements in the deferred tax asset can be analysed as follows:
£m
At 26 September 2020 40
Charged to income statement – pensions (29)
Charged to income statement – tax losses 1
Credited to other comprehensive income – pensions 24
At 25 September 2021 36
Charged to income statement – pensions (8)
Charged to other comprehensive income – pensions (9)
At 24 September 2022 19
Analysed as tax timing differences related to:
2022
£m
2021
£m
Pensions 14 31
Tax losses
a
4 4
Share-based payments 1 1
19 36
a. Tax losses arising in 2008 which are now recoverable by offset against other income.
Further information on the changes to tax legislation are provided in note 2.4 to the consolidated financial statements.
10. Equity
Called up share capital and share premium
Details of the amount and nominal value of called up and fully paid share capital and share premium are contained in note 4.7 to the consolidated financial
statements, including details of the Open Offer share issue on 12 March 2021.
Dividends
Details of the dividends declared and paid by the Company are contained in note 4.7 to the consolidated financial statements.
Own shares held
Details of the amount of own shares held are contained in note 4.7 to the consolidated financial statements.
Notes to the Mitchells & Butlers plc Company financial statements continued176 Financial Statements
The performance of the Group is assessed using a number of Alternative Performance Measures (APMs).
The Group’s results are presented both before and after separately disclosed items. Adjusted profit measures are presented excluding separately disclosed
items as we believe this provides both management and investors with useful additional information about the Group’s performance and supports an effective
comparison of the Group’s trading performance from one period to the next. Adjusted profit measures are reconciled to unadjusted IFRS results on the face of
the income statement with details of separately disclosed items provided in note 2.2.
The Group’s results are also described using other measures that are not defined under IFRS and are therefore considered to be APMs. These APMs are used
by management to monitor business performance against both shorter-term budgets and forecasts but also against the Group’s longer-term strategic plans.
APMs used to explain and monitor Group performance include:
APM Definition Source
EBITDA Earnings before interest, tax, depreciation and amortisation. Group income statement
Adjusted EBITDA Annualised EBITDA on a 52-week basis before separately disclosed items is used to
calculate net debt to EBITDA.
Group income statement
Operating profit Earnings before interest and tax. Group income statement
Adjusted operating profit Operating profit before separately disclosed items. Group income statement
Like-for-like sales growth Like-for-like sales growth reflects the FY 2022 sales performance directly against the
comparable period in FY 2019 of UK managed pubs, bars and restaurants that were
trading in the two periods being compared, unless marketed for disposal.
Comparisons have been made against FY 2019, being the last full year pre-Covid-19.
Group income statement
Like-for-like sales excluding VAT
benefit
Like-for-like sales excluding VAT benefit reflects like-for-like sales growth excluding
the benefit of the temporary reduction in the rate of VAT on food and non-alcoholic
drink sales to 12.5% in the first half of FY 2022.
Group income statement
Adjusted earnings/(loss) per share
(EPS)
Earnings/(loss) per share using profit before separately disclosed items. Note 2.5
Net debt Net debt comprises cash and cash equivalents, cash deposits net of borrowings and
discounted lease liabilities. Presented on a constant currency basis due to the
inclusion of the fixed exchange rate component of the cross currency swap.
Note 4.4
Note 4.3
Net debt: Adjusted EBITDA The multiple of net debt including lease liabilities, as per the balance sheet compared
against 52-week EBITDA before separately disclosed items which is a widely used
leverage measure in the industry.
Note 4.4
Group income statement
Return on capital Return generating capital includes investments made in new sites and investment in
existing assets that materially changes the guest offer. Return on investment is
measured by incremental site EBITDA following investment expressed as a
percentage of return generating capital. Return on investment is measured for four
years following investment. Measurement commences three periods following the
opening of the site.
A. Like-for-like sales
The sales comparisons this year have been compared directly to the sales in FY 2019 being the last full year pre-Covid-19. FY 2020 and 2021 are not
considered appropriate comparisons for trading performance due to the significant disruption caused to trade due to Covid-19 related restrictions and
closures. A comparison to FY 2019 performance is the same approach as taken at FY 2021 and, although we note its limitations, has been used to give the
reader an insight into performance against the most recent year not to be impacted by Covid-19. Moving forward into FY 2023 it will become more
meaningful to use FY 2022 as a primary comparator for like-for-like sales.
Sales of all UK managed sites that were trading in the two periods being compared, are expressed as a percentage. This widely used industry measure
provides better insight into the trading performance than total revenue which is impacted by acquisitions and disposals.
Like-for-like sales excluding VAT benefit have been shown to illustrate the impact of the temporary reduction in the rate of VAT on food and non-alcoholic
drink sales to 12.5% in the first half of FY 2022.
Source
2022
52 weeks
£m
2019
52 weeks
£m
2022 vs. 2019
LFL
%
Reported revenue Note 2.3 2,208.3 2,236.5 (1.3)%
Less non like-for-like sales and income (247.4) (296.0) 16.4%
Like-for-like sales 1,960.9 1,940.5 1.1%
Less like-for-like sales VAT benefit (38.4) – –
Like-for-like sales excl. VAT benefit 1,922.5 1,940.5 (0.9)%
Alternative performance measures
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 177
Alternative performance measures continued
Drink sales
Source
2022
52 weeks
£m
2019
52 weeks
£m
2022 vs. 2019
LFL
%
Reported drink revenue Note 2.3 956.7 1,024.8 (6.6)%
Less non like-for-like drink sales (91.0) (122.2) 25.5%
Drink like-for-like sales 865.7 902.6 (4.1)%
Food sales
Source
2022
52 weeks
£m
2019
52 weeks
£m
2022 vs. 2019
LFL
%
Reported food revenue Note 2.3 1,166.4 1,136.5 2.6%
Less non like-for-like food sales (130.1) (151.2) 14.0%
Food like-for-like sales 1,036.3 985.3 5.2%
Other sales
Source
2022
52 weeks
£m
2019
52 weeks
£m
2022 vs. 2019
LFL
%
Reported other revenue Note 2.3 85.2 75.2 13.3%
Less non like-for-like other sales (26.3) (22.6) (16.4)%
Other like-for-like sales 58.9 52.6 12.0%
B. Adjusted operating profit
Operating profit before separately disclosed items as set out in the Group Income Statement. Separately disclosed items are those which are separately
identified by virtue of their size or incidence. Excluding these items allows an understanding of the trading of the Group.
Source
2022
52 weeks
£m
2021
52 weeks
£m
Year-on-year
%
Operating profit Income statement 124 81 53.1%
Separately disclosed items Note 2.2 116 (52) 323.1%
Adjusted operating profit 240 29 727.6%
Reported revenue Income statement 2,208 1,065 107.3%
Adjusted operating margin 10.9% 2.7% 8.2 ppts
C. Adjusted earnings/(loss) per share
Earnings/(loss) per share using profit/(loss) before separately disclosed items. Separately disclosed items are those which are separately identified by virtue
of their size or incidence. Excluding these items allows an understanding of the trading of the Group.
Source
2022
52 weeks
£m
2021
52 weeks
£m
Year-on-year
%
Profit/(loss) for the period Income statement 13 (65) 120.0%
Add back separately disclosed items Income statement 94 (12) 883.3%
Adjusted profit/(loss) 107 (77) 239.0%
Basic weighted average number of shares Note 2.5 595 566 5.1%
Adjusted earnings/(loss) per share 18.0p (13.6)p 232.4%
178 Other Information
D. Net Debt: Adjusted EBITDA
The multiple of net debt as per the balance sheet compared against 52-week EBITDA before separately disclosed items which is a widely used leverage
measure in the industry. From FY 2020, leases are included in net debt following adoption of IFRS 16. Adjusted EBITDA is used for this measure to prevent
distortions in performance resulting from separately disclosed items.
Due to the Covid-19 closure periods in FY 2020 and 2021, we do not have a representative 52-week EBITDA measure to calculate this metric for FY 2021
as a comparative.
Source
2022
52 weeks
£m
Net debt Note 4.4 1,679
EBITDA Income statement 374
Add back separately disclosed items Income statement (1)
Adjusted 52-week EBITDA 373
Net debt: Adjusted EBITDA 4.5
E. Return on capital
Return generating capital includes investments made in new sites and investment in existing assets that materially changes the guest offer. Return on
investment is measured by incremental site EBITDA following investment expressed as a percentage of return generating capital. Return on investment is
measured for four years following investment. Measurement of return commences three periods following the opening of the site.
The reduced level of return is not indicative of the quality of the investment programme which has performed well over recent years, but due to the reduced
trading levels due to Covid-19 restrictions that are captured in the calculation.
Return on expansionary capital
Source
2021
FY 2018–21
£m
2022
FY 2019–21
£m
2022
FY 2022
£m
2022
Total
£m
Maintenance and infrastructure 182 112 39 151
Remodel – refurbishment 191 128 60 188
Non-expansionary capital 373 240 99 339
Remodel expansionary 14 7 2 9
Conversions and acquisitions
a
55 28 2 30
Expansionary capital for return calculation 69 35 4 39
Expansionary capital open < 3 periods pre year end 23 18 19 37
Total capital Cash flow 465 293 122 415
Adjusted EBITDA Income statement 1,279 857 373 1,230
Non-incremental EBITDA (1,271) (852) (371) (1,223)
Incremental EBITDA 8 5 2 7
Return on expansionary capital 12% 14% 50% 18%
a. Conversion and acquisition capital is net of capex incurred for projects which have been open for less than three periods pre year end.
Introduction Strategic Report Governance Financial Statements Other Information
Mitchells & Butlers plc Annual Report and Accounts 2022 179
Shareholder information
Contacts
Registered office
27 Fleet Street
Birmingham B3 1JP
Telephone 0121 498 4000
Registered in England No. 4551498
Registrar
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
From the UK:
Telephone 0371 384 2065*
From non-UK jurisdictions:
Telephone +44 121 415 7088*
For those with hearing loss, a textphone is available on 0371 384 2255*
for UK callers with compatible equipment.
www.mbplc.com/investors/contacts/
* Lines are open 8.30am to 5.30pm (UK time), Monday to Friday, excluding public holidays
in England & Wales.
Key dates
These dates are indicative only and may be subject to change.
Annual General Meeting February 2023
Announcement of interim results May 2023
Pre-close trading update September 2023
2023 final results announcement November 2023
In line with our sustainability strategy to lessen the negative impact of
our business, we have reduced the number of Annual Reports we have
printed this year. Once that supply is exhausted, we will not print any
further copies, though the Annual Report will be available on our website
and can be printed from there if required, using the following link:
www.mbplc.com/investors/annualreport.
Shareholder information
All of our popular brands have their
own websites, helping our customers to
find the information they need straight
away. Latest food and drink menus,
news and offers, email newsletters,
online bookings and details of new
openings are all available.
Alex
www.dein-alex.de
All Bar One
www.allbarone.co.uk
@allbarone
Browns
www.browns-restaurants.co.uk
@BrownsBrasserie
Ember Inns
www.emberinns.co.uk
@EmberInns
Harvester
www.harvester.co.uk
@HarvesterUK
Innkeeper’s Collection
www.innkeeperslodge.com
Miller & Carter
www.millerandcarter.co.uk
@MillerandCarter
Nicholson’s
www.nicholsonspubs.co.uk
@Nicholsonspubs
O’Neill’s
www.oneills.co.uk
@ONeillsPubs
Premium Country Pubs
www.mbplc.com/findapub
Sizzling Pubs
www.sizzlingpubs.co.uk
@SizzlingPubs
Stonehouse Pizza & Carvery
www.stonehouserestaurants.co.uk
@stonehousepizza
Toby Carvery
www.tobycarvery.co.uk
@tobycarvery
Vintage Inns
www.vintageinn.co.uk
@Vintage_Inns
Our brands
180 Other Information
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182 Introduction
Tel: +44 (0)121 498 4000
Company Number: 4551498