## Annual Report
## and Accounts 2022
### About us Financial highlights
## We run many of the UK’s most beautiful and iconic pubs
## £2,208m
## and restaurants. In fact, we are one of the leading pub
Revenue
## and restaurant companies in the UK with 1,636
## managed businesses.
## £8m
b
Proﬁt before tax
## Our scale is impressive (see ‘Scale and geographical
## diversity’ on pages 22 and 23). Since 1898, the Group £240m
c
Adjusted operating proﬁt
## has been at the forefront of UK drinking and eating out.
## In FY 2022 we served 99 million meals, as well as some
## a 2.2p
## 316 million drinks. We employ over 46,000 people in c
Basic earnings per share
## pubs, bars and restaurants that are located across the
Financial review
## length and breadth of the UK and in Germany, with Go to page 55
## over 82% of the UK population within ﬁve miles of one
## of our sites. Environmental,
### social and
## We remain focused on our three priority areas of governance targets
## building a more balanced business, instilling a
## Net zero
## commercial culture, and driving an innovation agenda,
Greenhouse gas emissions by
## whilst pursuing our purpose of being the host of life’s
FY 2040 (Scope 1, 2 and 3)
## memorable moments, bringing people and communities
## together through great experiences. Zero
Operational waste to landﬁll by
FY 2030
## 50%
Reduction in food waste by FY 2030
ESG review
Go to page 32
### Contents

| IFC Financial highlights |  |  | 10 Chairman’s statement |  |
| --- | --- | --- | --- | --- |
| 03 Welcome to Mitchells |  | Strategic Report | 18 Chief Executive’s business review |  |
|  | & Butlers | Provides a summary of the | 24 Our markets |  |
| 04 Purpose in Action – |  | Group’s purpose, business | 26 Our strategic priorities |  |
|  | Apprenticeships | model, strategy, risks, | 28 Task Force on Climate-related |  |
| 06 Purpose in Action – |  | development, performance, |  | Financial Disclosures |
|  | Community | position and future prospects | 32 Our sustainability targets |  |
| 08 Purpose in Action – |  | including relevant non-ﬁnancial | 34 Our business model |  |
|  | Sustainability | information. | 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
### Introduction
55 Financial review

|  | 60 Chairman’s introduction |  | Financial Statements |  | Other Information |  |
| --- | --- | --- | --- | --- | --- | --- |
| Governance |  | to governance | 108 Independent auditor’s report |  | 177 Alternative performance |  |
| Outlines how the Group | 62 Board of Directors |  |  | to the members of Mitchells |  | measures |
| monitors its actions, policies, | 64 Directors’ report |  |  | & Butlers plc | 180 Shareholder information |  |
| practices and decisions as well as | 72 Statement of Directors’ |  | 116 Group income statement |  |  |  |
| the eﬀect of those actions on its |  | responsibilities in respect | 117 Group statement of |  |  |  |
| stakeholders. |  | of the Annual Report and |  | comprehensive income |  |  |
|  |  | Accounts | 118 Group balance sheet |  |  |  |
|  | 73 Corporate governance |  | 119 Group statement of changes |  |  |  |
|  |  | statement |  | in equity |  |  |
|  | 85 Audit Committee report |  | 120 Group cash ﬂow statement |  |  |  |

a. As at 24 September 2022.

| 89 Report on Directors’ |  | 121 Notes to the consolidated |  | b. Includes separately disclosed items. |
| --- | --- | --- | --- | --- |
|  | remuneration |  | ﬁnancial statements | c. The Directors use a number of |
|  |  | 171 Mitchells & Butlers plc |  | alternative performance measures |

(‘APMs’) that are considered critical
Company ﬁnancial statements
to aid understanding of the Group’s
173 Notes to the Mitchells &
performance. Key measures are
Butlers plc Company explained on pages 177 to 179 of
ﬁnancial statements this report.
Mitchells & Butlers plc Annual Report and Accounts 2022 01
Introduction Strategic Report Governance Financial Statements Other Information
## A brand for
## every occasion
02 Introduction
Mitchells & Butlers plc Annual Report and Accounts 2022 03
Introduction Strategic Report Governance Financial Statements Other Information
## Welcome
## to Mitchells
## & Butlers

| Our purpose is to be the host of life’s | The next few pages show some of the |
| --- | --- |
| memorable moments, bringing people | things we have done in FY 2022 to support |
| and communities together through | our guests, people and communities. |

great experiences.
Phil Urban
Despite the impact on sales of
Chief Executive
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.
04 Introduction
## 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 oﬀer hospitality-speciﬁc apprenticeships | We were extremely proud to gain external |
| --- | --- |
| nationwide in all our managed pubs and | recognition from the Gov.uk Top 100 |
| restaurants, alongside a menu of intermediate | Apprenticeship Employers 2022, where we |
| and degree level apprenticeships for corporate | placed 7th. This is an improvement on previous |
| employees. We now oﬀer 25 apprenticeship | placings, and meant we were the only hospitality |
| standards and partner with eight providers | organisation to place in the top 20. We also |
| and universities. | managed to retain our Top 100 Employer status |

in the ‘Rate My Apprenticeship’ awards as voted

| This year, over 1,000 apprentices have joined us, | for by our apprentices. We achieved National |
| --- | --- |
| and a similar number of our current employees | Apprenticeship Awards West Midlands Highly |
| have enrolled onto one of the apprenticeship | Commended in both the Macro Employer of |
| opportunities open to them. We are also delighted | the Year, and Recruitment Programme of the |
| that over 350 employees successfully completed | Year categories. Our HR apprentice Lauren |
| their ﬁrst apprenticeship during FY 2022. The | Carroll was awarded Higher Apprentice of the |
| Group now has around 2,100 apprentices | Year West Midlands. |

in-learning within the organisation. Given the

| importance of developing and retaining chefs, | In FY 2023, we will continue to expand our |
| --- | --- |
| we continue to grow our culinary capability via our | apprenticeship opportunities from Level 2 |
| Chefs’ Academy. Designed to inspire and develop | through to Level 7 and have an appetite to keep |
| internal culinary skill over and above that which | growing our own apprenticeship talent. We are |
| our core menus require, 175 of our chefs have | aspiring to recruit a further 1,000 new employees |
| embarked on the Commis Chef apprenticeship | in addition to accelerating the careers of 1,000 |
| delivered by our award-winning tutors. | current employees ensuring both populations |

have a genuine alternative to college and
university, and enjoy long-lasting and rewarding
careers in hospitality.
### “In the year ahead, we will
### continue to expand our
### apprenticeship opportunities
### and grow our apprenticeship
### talent.”
Mitchells & Butlers plc Annual Report and Accounts 2022 05
Introduction Strategic Report Governance Financial Statements Other Information
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
## 2,100 love is extremely humbling. I am passionate about
promoting this wonderful industry and mentoring our
apprentices in-learning
chefs, kitchen managers and rising stars of the future.”
currently
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!”
06 Introduction
## Purpose in Action – Community
## Our pubs, bars and
## restaurants have
## continued to serve
## and support their
## communities…
## Our businesses have long been a hub for local
## communities to gather, providing intangible
## beneﬁts beyond the core oﬀer of food and drink.

| Various initiatives to support our communities | The key focus for partnering with Social Bite is |  | We are also supporting Social Bite through |
| --- | --- | --- | --- |
| are in place, organised at a brand and | that we can oﬀer Jobs First employees a chance to |  | contactless donation terminals in four of our sites, |
| company level. | grow current skills and learn new ones. We have |  | as well as various virtual challenges for our |
|  | found that our current candidates have learnt |  | frontline and corporate teams. |
| One of these is our work with Social Bite, a charity | many key skills whilst working with us as we can |  |  |
| which helps people experiencing homelessness | oﬀer a safe learning environment that can help |  | Alongside this central and brand-driven activity |
| regain their independence, as well as being | people to ﬂourish. Some key learnt skills are: |  | there are countless outlet-led and individual |
| the largest provider of freshly-made free food in |  |  | contributions to the community which take place |
| the UK to those in need. In FY 2022, we have | • Interacting with guests and other |  | every day – from sponsorship events to small |
| supported their initiative to help revolutionise |  | team members | acts of kindness. These place the Group, its |
| the access that people, who have experienced | • Growing self conﬁdence |  | people and its pubs, bars and restaurants at the |
| homelessness, have to job opportunities across | • Time management |  | core of their communities, both serving and |
| the UK. Through Social Bite’s Jobs First | • Kitchen skills |  | supporting them. |
| programme, we are working with them to help | • Mental wellbeing |  |  |

break down the barriers people face on their
route to employment and support them to reach So far, All Bar One Edinburgh, Glasgow and
their potential. Regent Street, Browns Glasgow and Harvester
Hillington have been inducted into the
The programme, which guarantees living wage scheme with seven employees having joined
employment for each person who participates, Mitchells & Butlers.
will provide wrap-around support for both the
employer and employee. We oﬀer each Jobs First We aim to continue the great partnership with
employee a 13-week training schedule and a Social Bite by supporting the current sites and
support worker from Social Bite will assist them opening up more opportunities for sites to join
throughout the programme and their employment the Jobs First Programme especially in London.
contract, meeting weekly to oﬀer practical We will be supporting the charity with their
support on bills and forms, as well as emotional upcoming Break the Cycle event. Over the festive
guidance and conﬁdence-building to adapt to period we will also be partnering with Social Bite
working life. Our General Managers work during their Festival of Kindness campaign, by
together with Social Bite to appropriately guide raising donations via our festive menus and raising
the employee, facilitating appraisal processes and awareness of the campaign in our sites.
employee progress.
Mitchells & Butlers plc Annual Report and Accounts 2022 07
Introduction Strategic Report Governance Financial Statements Other Information
“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
“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.
### “These initiatives place
Social Bite helped me build my career path and
### Mitchells & Butlers, its
gain the conﬁdence to get back into work – whether
### people and its pubs at the it be money, work-related or personal life someone
### core of their communities.” 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
## 13
13-week training
programme oﬀered to each
Jobs First Employee
08 Introduction
## Purpose in Action – Sustainability
## We have put
## sustainability and
## respect for the
## environment at the
## core of everything
## we do…
## Our strategy aims to deliver long-term
## sustainable shareholder value through
## organic and sustainable growth.

| We have deliberately interlinked sustainability | • Nutrition: we introduced calorie information |  | • Energy and water: we have introduced an |  |
| --- | --- | --- | --- | --- |
| with our strategy so that it becomes part of our |  | for more than 10,000 recipes in all our core |  | incentive for our pubs to reduce their usage |
| culture. Our strategy has been developed to align |  | brands in April 2022. This is the foundation |  | of energy by ten per cent. All sites have |
| with the issues addressed by the UN Sustainable |  | of our wider nutrition strategy which was |  | beneﬁted from energy audits to identify |
| Development Goals and we have committed to |  | developed to enhance the nutritional quality |  | means to reduce energy usage with smart |
| reducing the negative impact of our business |  | of the dishes we serve. The strategy focuses |  | meters now installed across the estate. We are |
| model on the environment in light of these |  | on reducing calories and saturated fat, as well |  | also trialling various energy-saving technological |
| objectives. The targets we have set ourselves as |  | as reducing salt in our meals by 2024, in line |  | solutions such as heating system additives, |
| well as further detail on our sustainability strategy |  | with Public Health England’s reduction targets |  | voltage optimisers and heat recovery systems. |
| can be seen on pages 32 and 33. |  | for children’s meals. |  | Another focus in the coming year is on |

reducing water consumption and improving

| During FY 2022 we have put in place a number |  | • Packaging: our target is to increase the |  |  | water reuse and recycling. |
| --- | --- | --- | --- | --- | --- |
| of initiatives to support these targets: |  |  | proportion of waste recycled to 80% by |  |  |
|  |  |  | FY 2025. We are therefore working closely | • Property: we are engaging proactively |  |
| • Cool food pledge: World Resources Institute |  |  | with our food and drink suppliers to remove |  | with our contractors to develop common |
|  | (‘WRI’) introduced the pledge to help people |  | and reduce packaging of items delivered to |  | construction techniques to incorporate |
|  | and organisations reduce the climate impact |  | sites, allowing our teams to recycle more. |  | sustainable building practices into our |
|  | of the food they consume through shifting |  | In FY 2022 we completed a project with our |  | day-to-day conversion and remodel |
|  | towards lower emission options. We currently |  | waste management partner Biﬀa to give the |  | investment programme from sourcing of |
|  | have eight All Bar Ones and ten Harvesters |  | majority of our sites separate glass, cardboard |  | timber to recycling of construction waste. |
|  | trialling menus that deliver reduced carbon |  | and food waste bins, with around 200 sites |  |  |
|  | emissions, with a range of new, lower emission |  | additionally having the ability to recycle plastic. | We will continue to focus on embedding a |  |
|  | dishes. Initial indications are that the menus |  |  | sustainability ethos into our business so that |  |
|  | reduce emissions by around ten per cent. | • Animal welfare: during the period we have |  | we can create a positive eﬀect on people and |  |
|  | We will continue these trials and hope to roll |  | hosted an animal welfare workshop with | communities and reduce the negative impact |  |
|  | out the menu more widely in the future. |  | our major animal protein suppliers, agreed | of our operations on the environment. |  |

better dairy cattle welfare standards with
our suppliers, as well as working in Further detail on our work in this area can be seen
partnership with our laying hens’ suppliers on pages 32 and 33.
to improve conditions.
Mitchells & Butlers plc Annual Report and Accounts 2022 09
Introduction Strategic Report Governance Financial Statements Other Information
### “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
10 Strategic Report
## 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
The Board and the Executive Committee,
## This year the strength of our teams
who lead the organisation, have also responded
magniﬁcently, dealing with the complex
## has been demonstrated through the operational and ﬁnancial challenges we
have faced.
## successful rebuilding of trade after
Our values
## a challenging couple of years. The values we hold ourselves accountable
to across the business are Passion, Respect,
Innovation, Drive and Engagement. We believe
There is a sense across the business that To support our purpose, we have provided that these foster the culture and environment
momentum is returning and that despite the new further support at a corporate level through needed to enable our people to work collectively,
challenges we face, in the form of the current partnerships with organisations such as Shelter and in union with our stakeholders, to support
inﬂationary environment, our business has the and Social Bite, and at a brand level with charities our purpose.
ﬁnancial strength and the management expertise such as the RNLI and the Royal British Legion.
required to adapt and succeed. It is encouraging This is in addition to the countless initiatives taken Our Board
to see our Ignite programme, which has delivered to support the wellbeing of our people and During the year, the Board continued to work
consistently in the past, back in full ﬂow, and the communities at an outlet level. together to deal with the challenges posed by
resumption of our proven capital programme. operating a multi-site business in the face of
Although the challenges facing the industry In this report, we bring to life how we make our signiﬁcant inﬂationary cost pressures.
remain, I am conﬁdent in the underlying strength purpose live in the business, to the beneﬁt of all
of our organisation. stakeholders, through a series of case studies in Susan Murray, who joined the Board in March
the Purpose in Action section on pages 04 to 09 2019, and was the Senior Independent Director,
Our purpose of this report. stood down from the Board at the AGM in 2022,
During the period, our purpose to be the host of with Jane Moriarty, who assumed the role of chair
life’s memorable moments, bringing people and Our culture of the Audit Committee in July 2021, accepting
communities together through great experiences, Our people are our greatest asset, and this has the Board’s invitation to become the Senior
has continued to be highly important. We remain never been more evident than during the last few Independent Director. I would like to thank Susan,
at the centre of our communities as a place for our years. They have responded positively to all the on behalf of the Board, for her contribution.
guests to meet and socialise. 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.
Mitchells & Butlers plc Annual Report and Accounts 2022 11
Introduction Strategic Report Governance Financial Statements Other Information
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
### “Although the challenges facing
Mitchells & Butlers plc
### the industry remain, I am
### conﬁdent in the underlying
### strength of our organisation.”
Chairman’s introduction to Governance
Go to page 60
12 Strategic Report
## A brand for
## every occasion
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 Castle Castle
experienced hospitality professionals
and strive to exceed our guests’
expectations, as shown by our
### impressive guest feedback scores. Nicholson’s
### All Bar One
## Drink led
### Ember Inns
### High
### Street
### sites
### Suburban
### sites
13Mitchells & Butlers plc Annual Report and Accounts 2022
Introduction Strategic Report Governance Financial Statements Other Information
## Premium
Browns
## Miller & Carter
## Premium
## Country
## Pubs
## Alex
## Vintage Inns
## Food led
## Harvester
## Toby Carvery
Stonehouse
## Value
14 Strategic Report
## “A birthday wouldn’t be the
## same without ﬁzz and nibbles
## with my mates at All Bar One
## after work.”
Premium
drink led
15 15Mitchells & Butlers plc Annual Report and Accounts 2022
Introduction Strategic Report Governance Financial Statements Other Information
## “Mum loves the tender ﬁllet steak and
## sticky toﬀee pudding at our local
## Miller & Carter. It’s a delicious treat
## without breaking the bank.”
Premium
food led
16 Strategic Report
## “Friday night drinks in the sunshine
## at our local on the high street, what
## a great way to celebrate the start
## of the summer.”
Value
drink led
Mitchells & Butlers plc Annual Report and Accounts 2022 17
Introduction Strategic Report Governance Financial Statements Other Information
## “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.”
Value
food led
18 Strategic Report 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 project management oﬃce and governance
## We have been encouraged by the continued
routine ensures that we all remain focused on
extracting as much value as we can from the
## recovery in sales this year, with our like- Ignite programme.
a
## for-like sales performance, accounting We remain focused on executing our capital
programme ambition of a seven-year investment
## for the impact of VAT changes, improving cycle, which has been proven to deliver value by
improving the competitive position of our pubs
## each quarter to ﬁnish with 1.5% growth in and restaurants. Our ability to enhance amenity
and premiumise our oﬀers will enable us to win
market share together with our well invested
## the ﬁnal quarter.
estate and the best people in the industry.
The trading environment remains challenging
We are mindful of the acute pressures on the UK This year the talent, resilience and commitment
and cost headwinds continue to put signiﬁcant
consumer over the coming months but we remain of our people has again been proven as we have
pressure on the sector. However, we have proven
focused on our purpose to be the host of life’s successfully rebuilt trade after a demanding couple
over recent years the ability to adapt and build
memorable moments. of years. I want to thank all our teams as, together,
momentum with both our Ignite and capital
they rose to the challenge and redoubled their
programmes. Demand for our well-loved brands
This performance has been in the context of eﬀorts and everyone should feel proud about
has been demonstrated by an encouraging return
a highly challenging trading environment. Over what they have collectively delivered.
a
to like-for-like sales growth as we look to continue
December and January FY 2022, there was a
our recovery as a market leading operator.
marked reduction in trade across the sector due The approach we have taken with our Ignite
to the emergence of the new Covid variant, programme of work recognises that there is no
Further detail on our strategic priorities can be
Omicron, and the caution that brought to guests. silver bullet to growing the business, but instead it
found on pages 26 and 27.
February saw the beginning of the conﬂict in is the incremental gains made across several fronts
Ukraine which has had signiﬁcant impacts on that can bring success. Ignite is a programme
cost inputs and supply chains globally. Over the made up of a wide range of management
a. The Directors use a number of alternative performance
summer, we had extreme heat weather events improvement initiatives. It has a number of
measures (‘APMs’) that are considered critical to aid the
and widespread industrial action, both of which diﬀerent workstreams, each led by one of our understanding of the Group’s performance. Key
have negatively impacted trade. Executive Directors and a functional expert. measures are explained on pages 177 to 179 of this report.
Mitchells & Butlers plc Annual Report and Accounts 2022 19
Introduction Strategic Report Governance Financial Statements Other Information
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
Business review VAT reverted from 12.5% to 20% on 1 April 2022
team member rosters to help ensure we have the
Total sales across the period were £2,208m which contributed to a softening of sales in the
right people on shift at the right time, to drive
reﬂecting a 1.3% decline on FY 2019, driven third quarter, alongside industrial action and very
sales at peak times and reduce costs at quieter
mainly by temporary Covid-related sales hot weather, resulting in only modest like-for-like
times. We have a number of energy reduction
a
reductions and closures in the ﬁrst part of the year sales growth across the full quarter, with food
projects underway including the installation of
plus site disposals since FY 2019. Despite this, continuing to be the main driver. Trading
voltage optimisers that reduce electricity
a
adjusted operating proﬁt of £240m reﬂects improved in the fourth quarter, despite an
consumption, chemical additives that have been
a strong return to proﬁtability. Excluding the additional period of extreme heat as well as
added to our heating systems to reduce gas
c. £70m increase in utility costs, proﬁts would further rail strikes. Sales over the August bank
consumption, trial of internet-connected control
have been close to pre-Covid-19 levels, despite holiday were encouraging, with strong like-for-
devices to lower electricity and gas consumption
a
the impact during the year of the Omicron variant like growth over the three-day weekend, before
and we have trained energy ambassadors across
and inﬂationary cost pressures. returning to levels consistent with the quarter
the country to complete site energy audits,
as a whole. Growth continued to be driven by
all further reducing consumption in our sites.
We made a good start to FY 2022 with positive food sales with the strongest performances in our
In addition, we are working with our waste
a
like-for-like sales growth over the ﬁrst eight premium, food-led brands.
oil collection partner as we look to grow our
weeks. This encouraging performance continued
oil recycling rate though increasing frequency
until late November when concerns ﬁrst arose The unprecedented challenges the industry has
of pickups and trialling a QR code driver
around the emergence of the new Covid variant, faced have had an unavoidable impact on market
validation system.
Omicron, which led to calls for further caution in supply with a 9.9% decline in pubs and restaurants
socialising and resulted in a clear downturn in since March 2020 (CGA Outlet Index October
With increasing food costs, we are ﬂexible in the
activity across the sector. As a result, over the 22). Food-led venues have been hit harder by
way we procure, and we are constantly looking to
seven weeks to the end of the ﬁrst quarter, closures: the number of outlets reducing by
limit exposure to the lines that are seeing the
a
like-for-like sales declined with the adverse 12.0%, with independent and tenanted businesses
highest inﬂation at any one time. This may mean
impact of Omicron being particularly felt over making up 82% of net closures. Given our strong
a higher level of product substitution than we
the important festive season. estate and portfolio of brands, we believe that we
would normally have, or the removal of some food
are well placed to beneﬁt from these changes in
items entirely, until markets settle down. We also
As guest conﬁdence returned early in the new the competitive landscape.
look to use our scale purchasing power, where we
year, our business regained momentum,
can procure items across all brands, and hence
supported by the beneﬁts from a new set of Ignite Our strategic priorities
secure volume advantage. We are conﬁdent in
a
initiatives, with strong like-for-like sales growth in The fundamental strengths of our business
our ability to deliver long-term and sustained
the second quarter. Over the ﬁrst half of the year, provide a platform for the future. We have an
eﬃciencies and business improvements through
food sales continued to outperform drink, with 83% freehold and long leasehold estate, with
the existing Ignite programme.
a

| food like-for-like sales | growth of 6.9%, helped by | recognised and diversiﬁed brands across a broad |
| --- | --- | --- |
| the reduced rate of VAT. At this point, we started |  | range of consumer occasions, demographics |
| to observe an encouraging trend of recovery in |  | and locations, and an experienced and proven |
| city sites, as people began to return to oﬃces and |  | management team with the focus to build on |
| city centre destinations, albeit trading in some |  | the momentum previously gained. We remain |
| areas of London, such as The City, remained |  | focused on the strategic pillars which formed the |
| relatively subdued, particularly at the end of the |  | foundations of our strong performance before |
| week. Drink sales continued to be challenging |  | the pandemic, and which are equally relevant to |

a
across the sector and drink like-for-like sales the current challenging trading environment.
declined by 6.9% in the ﬁrst half, with suburban
locations seeing the largest declines.
Chief Executive’s business review continued20 Strategic Report
We remain committed to accelerating our digital The continued recovery of sales is encouraging,
strategy, an area which became increasingly with a general return to oﬃce working, city
important to guests during the pandemic. centres becoming stronger and guests across the
Our strategy focuses on building the correct country becoming ever more conﬁdent to return
organisational capabilities to allow for quick to the hospitality sector. This makes us cautiously
activation of new digital services as consumer optimistic about the future, although we remain
behaviours change, allowing us to be at or near very mindful of the potential implications of the
the forefront of digital advances in the sector. cost-of-living challenge facing guests, which
We have made signiﬁcant progress in our digital is expected to persist at least through the
services in recent years, for example our digital year ahead.
order at table facility, our streamlined online
booking experience, and the development of our Cost inﬂation headwinds continue to present
own channel delivery capability seeking to drive a signiﬁcant challenge for the sector as a whole,
sales and protect margins. notably in energy, food and wages but now
evident throughout our supply chains. Overall for
Success in hospitality is inextricably linked to the current year, we anticipate an inﬂationary cost

| customer satisfaction, with the correlation | headwind across our c. £1.8 billion cost base in |
| --- | --- |
| between superior guest review scores and | the region of 10-12% before mitigation. The |
| stronger like-for-like sales, irrefutable. When we | Energy Price Guarantee from the Government for |
| re-opened our doors in FY 2021, we saw our | businesses for six months from 1 October 2022 |
| guest review scores strengthen, from an average | was welcome but energy costs are still expected |
| 4.0 out of 5.0 pre-Covid, to 4.3 post-Covid. | to increase this year and signiﬁcant uncertainty |
| Whilst there may have been a grace period in | remains over the second half. At the current time |
| guest expectations post-lockdown, as the year | we have bought forward 45% of this ﬁnancial |
| progressed we were delighted to see these guest | year’s anticipated energy requirement. |

scores maintained, with every brand over 4.0.
This is a solid foundation to build upon, and The trading environment therefore remains very
strengthening these scores further remains challenging. However, based on recent sales
a key focus. performance, the strength and diversity of our
portfolio of brands, delivery of a new wave of
From the start of the ﬁnancial year our capital eﬃciency initiatives under our proven Ignite
programme has been resumed, delivering value programme and continued focus on our capital
by improving the competitive position of our pubs programme, we believe we are well positioned
and restaurants within their local markets. We are to meet this challenge.
committed to re-establishing a seven-year
investment cycle and, whilst short-term supply
issues in terms of material procurement and Phil Urban
contractor availability aﬀected progress last year, Chief Executive
this continues to be a key focus for the business. Mitchells & Butlers plc
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
a
by like-for-like sales growth of 6.5% as compared
a. The Directors use a number of alternative performance
to FY 2022, which equates to growth of 11.1%
measures (‘APMs’) that are considered critical to aid the
excluding the VAT beneﬁt in place last year.
understanding of the Group’s performance. Key
Comparing to FY 2019 pre-Covid-19, like-for-like measures are explained on pages 177 to 179 of
a
sales have grown by 9.2%. this report.
21Mitchells & Butlers plc Annual Report and Accounts 2022
Introduction Strategic Report Governance Financial Statements Other Information
22 Strategic Report
## 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 All Bar One Browns
42 sites 53 sites 24 sites
Castle Ember Inns Harvester
104 sites 150 sites 161 sites
High Street Miller & Carter Nicholson’s
69 sites 124 sites 78 sites
O’Neill’s Premium Country Pubs Stonehouse
40 sites 125 sites 92 sites
Suburban Toby Carvery Vintage Inns
242 sites 153 sites 179 sites
Mitchells & Butlers plc Annual Report and Accounts 2022 23
Introduction Strategic Report Governance Financial Statements Other Information
UK revenue by region (FY 2022)
% 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%
## 15 7 Wales 4%
8 East of England 8%
Brands and formats
9 South West 7%
across 1,636 sites
10 South East (excluding London) 14%
11 London 21%
## 46,000+
Employees
as at 24 September 2022
## 83%
Freehold and long leasehold
properties
### 1
### 3
### 2
### 4
### 6
### 5
### 7 8
### 11
### 10
### 9
24 Strategic Report24
## 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 |  |  | Inﬂationary cost pressures also impacted | The implications of Brexit remain for the sector, |
| --- | --- | --- | --- | --- |
| challenging and uncertain, with increases in the |  |  | businesses and presented an increasing challenge | principally around the supply and cost of products |
| cost of living putting continued pressure on |  |  | to the hospitality sector as a whole, especially | and workforce shortages. Risks in relation to |
| consumers, the market has seen resilience in |  |  | through the second half of the year. Whereas cost | procurement have continued to be well managed |
| like-for-like sales over the year. The sector made |  |  | inﬂation has previously been concentrated in the | by mitigating for the potential lack of availability of |
| a strong start to the year with like-for-like sales |  |  | areas of energy, wages and food costs it is now | products, reviewing and updating key contracts, |
|  | b | b |  |  |
| growth against 2019 of 3.2% | and 2.1% | over | evident throughout most of the supply chain. | identifying contingency markets and maintaining |
| October and November 2021 respectively. This |  |  | These will prolong the medium-term impact on | strong commercial relationships with key |
| encouraging performance continued until late |  |  | margins across the industry. | suppliers. Our apprenticeship programme has |
| November when concerns ﬁrst arose around the |  |  |  | been a key asset in managing the risk around |
| emergence of the new Covid variant, Omicron, |  |  | Supply of pubs and restaurants has reduced since | workforce shortage and remains a focus for the |
| leading to calls for further caution in socialising |  |  | March 2020 before the national lockdowns in | business going forward. |
| which resulted in a downturn in activity across the |  |  | response to Covid-19, with the ﬁnancial pressure |  |
| sector over the important festive season, with |  |  | of closures and trading restrictions forcing a | The global political and macroeconomic |

b
December like-for-like sales decline of -10.5% . number of operators to close. According to the environments remain volatile and we will continue
Thereafter, once it was conﬁrmed that the Alix Partners Market Recovery Monitor between to monitor the impact on our sector. Our Ignite
d
symptoms of Omicron were generally mild, guest March 2020 and September 2022, 11,426 pubs programme of work remains at the core of our
conﬁdence to return to pubs and restaurants was and restaurants have closed representing a net long-term value creation plans and we continue to
d
boosted and like-for-like sales growth returned to reduction in supply of 9.9% . In just three months focus on initiatives which enhance eﬃciency and
the market. VAT reverted back from 12.5% to 20% from June 2022 to September 2022, 2,230 closed, productivity, helping to oﬀset the inﬂationary cost
on 1 April 2022 which contributed to a softening a net reduction of 2.1%, with all the decline from pressures caused by external factors outside of
of sales growth over April and May but the market independent and leased businesses as cost our control.
has remained either ﬂat or in growth since. pressures mounted.
b

| September 2022 saw 4.0% | like-for-like growth |  | Our response to this competitive environment can |
| --- | --- | --- | --- |
| across the sector with the Restaurants, Pub |  | Post-pandemic, delivery is now well entrenched | be seen on pages 26 and 27. |
| Restaurants and Pubs segments, as deﬁned by |  | in consumer behaviour and is expected to remain |  |
| Coﬀer CGA, each in solid growth. However, we |  | a signiﬁcant part of the eating out market going |  |
| are mindful that pressures on the UK consumer |  | forward. Sales are well above pre Covid-19 levels |  |
| are likely to continue to build in the short to |  | but there has started to be a ﬂattening of demand |  |
| medium term. |  | as consumers return to the on trade. |  |
| UK Consumer Conﬁdence tumbled in September |  | Digital technology became increasingly important |  |

c

| 2022 to a new low of -49 | , the worst overall index | in supporting the industry during the pandemic |
| --- | --- | --- |
| score since records began in 1974. Consumers |  | and developments continue to accelerate. Guests |
| have been squeezed under the pressure of the |  | are now more accustomed to digital elements of |
| UK’s growing cost-of-living crisis driven by rapidly |  | their experience in pubs and restaurants, such as |
| rising food prices, domestic fuel bills and |  | scanning a QR code to access menus, and |

e

| mortgage payments. However, eating and | ordering and paying on their mobiles. 34% | of |  |
| --- | --- | --- | --- |
| drinking out remains the aﬀordable luxury that | guests would be more likely to choose a venue |  |  |
| many consumers are looking to prioritise and have | with mobile order and pay available. There |  | Sources: |
| prioritised in the past. The sector is focused on | remains a great opportunity for technology to |  | b. Coﬀer CGA Business Tracker. |

c. GfK Consumer Conﬁdence Index September 2022.
retaining current guests, creating experiences enhance guests’ experience and this will be an
d. CGA AlixPartners Market Recovery Monitor
that can’t be replicated at home and delivering increasing diﬀerentiator in the market.
October 2022.
high levels of customer service to protect e. Zonal GO Technology Report Order & Pay
trading levels. November 2020.
Mitchells & Butlers plc Annual Report and Accounts 2022 25
Introduction Strategic Report Governance Financial Statements Other Information
### “The global political
### and macroeconomic
### environments remain
### volatile and we will
### continue to monitor the
### impact on our sector.”
Coﬀer CGA Business Tracker (including M&B) by Segment, vs. 2019
6
5.4%
5.1%
4
3.7%
2.8%
2.5% 2.4%
2
1.3%
0.0%
0
-2
-4 -4.6%
July 2022 August 2022 September 2022
-6
Source: Coﬀer CGA Business Tracker
Coﬀer CGA Business Tracker (including M&B), vs. 2019
6
4.7%
4 4.1%
4.0%
3.2%
2.9%

| 2 | 2.1% |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  | 2.0% |  |  | 2.0% |
|  |  |  | 0.1% | 0.0% |  |

0
-0.9%
-2
-4
-6
-8
-10.5%
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
21 21 21 22 22 22 22 22 22 22 22 22
Source: Coﬀer CGA Business Tracker
Net market outlet closures post Covid-19 pandemic and over the last three months

|  | Net market | % change in total |  |  | Net market | % change in total |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | closures |  | known sites |  | closures |  | known sites |
| March 2020 to |  | March 2020 to |  |  | June 2022 to |  | June 2022 to |
| September 2022 |  | September 2022 |  | September 2022 |  | 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%
-10
Source: CGA AlixPartners Market Recovery Monitor October 2022
-12
Restaurants Pub restaurants Pubs (Wet Led)
26 Strategic Report26 Strategic Report
## 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 Focusing on these areas through our Ignite We believe that our three strategic pillars remain
underpin the activity within the business to drive programme of work, a wide range of management the crucial elements of the business which will
long-term sustainable growth and ultimately that improvement initiatives, delivered signiﬁcant drive long-term growth. Through the Ignite
a

| enable us to achieve our purpose of being the | progress generating sustained like-for-like sales | workstream and our capital programme, we will |
| --- | --- | --- |
| host of life’s memorable moments, bringing | growth and cost eﬃciencies. Two waves of Ignite | continue to unlock value in these areas enhancing |
| people and communities together through great | initiatives previously rolled out have directly led to | our competitive position in the market. |
| experiences. Through building a strong and | enhanced performance over a number of areas, |  |
| eﬃcient business we are able to focus on | improving our trading levels and increasing | The table on page 27 outlines these strategic |
| providing experiences which our team and guests | proﬁtability. The third wave of Ignite initiatives | priorities, our progress against them in FY 2022, |
| enjoy being a part of, including processes which | rolled out over the last year have continued this | our priorities for FY 2023 and their link to our |
| are sustainable and aim to bring people together | progress. We are focusing on initiatives which | sustainability strategy, risks and KPIs. |
| throughout our supply chain. We have | enhance eﬃciency and productivity, in areas such |  |
| maintained consistency in our three strategic | as automatic product ordering, enhanced labour |  |
| priorities over recent years and believe that | scheduling, cost-mitigating procurement |  |
| continued focus in these areas is key to retaining | strategies and energy consumption reduction. |  |
| stability and growth in the business through a | We remain conﬁdent in our ability to deliver |  |
| period of external uncertainty. Our three strategic | long-term and sustained eﬃciencies and |  |
| pillars are: | business improvements through the existing |  |

Ignite programme.
• Build a more balanced business
• Instil a more commercial culture
• Drive an innovation agenda
### “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.
Mitchells & Butlers plc Annual Report and Accounts 2022 27
Introduction Strategic Report Governance Financial Statements Other Information
### 1. Build a more 2. Instil a more 3. Drive an innovation
### balanced business commercial culture agenda
• To eﬀectively utilise our estate of largely freehold- • To empower teams across the business to make • To ensure that our brands and formats remain fresh and
backed properties changes to facilitate sustainable growth relevant within their market segments
• To ensure we are exposed to the right market segments • To engage our teams in delivering outstanding guest • To leverage the increasing role technology can play in
by having the optimal trading brand or concept in each experiences improving eﬃciency and guest experience
outlet, based on location, site characteristics and local • To act quickly and decisively to remain competitive in • To execute a digital strategy to engage with consumers
demographics our fast-changing marketplace across a variety of platforms
• To maintain the amenity level of the estate such that we • To provide training and development opportunities • To facilitate new product and concept development
operate safely, reduce our impact on the environment which allow our people to thrive within the business • To utilise our scale and position to lead on
and remain competitive to guests, alongside meeting • To enhance processes to address Modern Day Slavery environmental issues which impact our sector, ﬁnding
cash ﬂow commitments threats in the supply chain innovative solutions to pressing issues
FY 2022 progress FY 2022 progress FY 2022 progress
• Capital expenditure at £122m was below historic levels • Continued progress on menu and product • Expanded our delivery oﬀer to more sites and
as progress was impacted by supply issues in terms of rationalisation resulted in further cost savings increased the number of channels available within the
material procurement in the year • Increased the scope of fraud detection capability via estate, with 82% of sites now oﬀering one or more
• Completed 166 conversions and remodels, purchased IntelliQ and reduced double discounting delivery channels
the freeholds of three businesses from leasehold and • Successfully trialled automated team member • Launched ‘Own Channel Delivery’ in Harvester
opened a new Alex site in Germany scheduling to ensure we have the right people on shift whereby guests can order a meal for delivery through
• We opened our ﬁrst Browns in a suburban location in at the right time, to drive sales at peak and reduce costs our own digital channels and the order is fulﬁlled by
August 2022 which is performing well and we will look to at quieter times a third-party partner, Deliveroo
trial further if successful • Increased average spend-per-head through tailored • Delivered ‘conversational ordering’ within our
• We are committed to re-establishing a seven-year pricing, menu psychology and digital ordering order-at-table platform which promotes trade-ups,
investment cycle and this continues to be a key focus for • Increased focus on our guest review scores through increasing average order value
the business a number of projects within the Ignite programme, • Made enhancements to our customer relationship
including improving brand standards and guest management including greater personalisation of
recovery practices e-mail content, reducing cannibalisation of promotions
• Delivered auto-ordering for food and drink, targeting • Optimised the table bookings systems used across our
increased product availability and reduced waste brands to ensure we have the best technology to
• Trained energy ambassadors across the country to maximise internal and external spaces bookings
complete site energy audits, reducing consumption • Created the ﬁrst Toby Carvery Dark Kitchen, bringing
in our sites the opportunity to enjoy the great taste of a Toby
• Increased oil collection and recycling rates through Carvery through our delivery partners in London
implementation of best practice processes • Launched the ‘Friends & Family’ discount app, enabling
• Continued our work with Stop The Traﬃk to drive best our teams to nominate up to ﬁve friends or family
practice in addressing Modern Day Slavery threats in members to enjoy 20% oﬀ food and drink Monday
the supply chain to Thursday
FY 2023 priorities FY 2023 priorities FY 2023 priorities
• There is a full capital programme planned for FY 2023 • Adapt to the changing environment within which we • A fourth wave of Ignite initiatives is under review and
• Focus on enhancing asset value through remodelling operate to maximise the proﬁtability of each business will provide fresh ideas and innovation
sites where we believe increased value can be unlocked • Deliver a wide range of cost control initiatives across • Continue to develop our order and pay-at-table
• Make further selective acquisitions where we feel they the estate under the Ignite programme technology with new features, user experience
add value to the estate, and disposals where we feel we • Fully roll out automated team member scheduling improvements and further upselling opportunities
have extracted maximum value • Complete the installation of voltage optimisers to • The introduction of ‘My Account’ functionality across
• Honour the minimum maintenance spend as required by reduce electricity consumption and look to invest in all our digital channels that enables guests to manage
the securitisation structure and ensure eﬀective further technologies their bookings, orders, loyalty and marketing
allocation of capital • Further exploit opportunities to move certain building preferences in one place
• Invest in technologies, such as voltage optimisers, maintenance services in-house to improve service and • Look to expand the Toby Dark Kitchen delivery oﬀer to
heating additives and internet-connected control reduce cost new sites across the estate
devices, to improve the energy eﬃciency of our estate • Continue to leverage scale through central • Grow ‘Own Channel Delivery’ to our other key delivery
• Look to maximise the utility of the secondary spaces procurement and benchmark our businesses brands to increase margin
across the estate via a dedicated Ignite initiative. • As per our Modern Day Slavery Statement, we will • Maximise new and existing external trading areas
An example of recent innovation here is the opening of review and publish our performance against set KPIs • Work with World Resources Institute to develop ways
our ﬁrst Arrowsmiths Darts Bar as part of an existing to reduce the emissions of the ingredients on our menus
O’Neill’s site
Sustainability Sustainability Sustainability
• Enhancing the sustainability credentials of our buildings • We now communicate our sustainability ambitions on • During the year we trialled new menus designed to
is a key priority all brand websites and have built our communication on reduce the emissions of the food we serve, as well as
• During the year, we have invested in energy these topics through social media in appropriate brands identifying low emission dishes to guests
consumption reducing technology and will look for • We have made good progress in reducing food waste, • We have active and ongoing discussions with our

| further opportunities to expand in future years | reduced by 29% from FY 2019 baseline and are | suppliers on innovative ways to reduce the |
| --- | --- | --- |
| • We are reviewing the way in which we power our | launching a new trial in FY 2023 to help us better | environmental impact of our supply chain |
| buildings for the longer term and will be trialling | understand where waste is generated in sites to inform | • We are active members of the Zero Carbon Forum, |
| opportunities to produce renewable energy on-site | future strategies to further reduce it | a cross-industry group which is focused on ﬁnding |
| • Removing gas as an energy source from our sites is a key | • We are working in collaboration with our waste | solutions to help hospitality transition to a low |
| objective of our Net Zero roadmap. In the year, we have | management providers and suppliers to reduce the | carbon economy |
| developed an all-electric kitchen for Toby Carvery which | amount of waste generated by the business |  |
| will be rolled out across the brand | • We have worked with Social Bite to help provide |  |
| • We are looking for opportunities to reduce water | employment to vulnerable people on their Jobs First |  |
| consumption and wastage | programme |  |
| Links to Key Risks | Links to Key Risks | Links to Key Risks |
| 1, 2, 3, 8, 9, 11, 12, 13, 15 | 1, 2, 3, 6, 8, 9, 11, 12, 13, 15 | 1, 2, 4, 5, 8, 11, 12, 13, 14 |
| See pages 44 to 51 | See pages 44 to 51 | See pages 44 to 51 |


| Links to KPIs | Links to KPIs | Links to KPIs |
| --- | --- | --- |
| 2, 3, 4, 5 | 1, 2, 3, 5 | 2, 3, 5 |
| See pages 42 and 43 | See pages 42 and 43 | See pages 42 and 43 |

28 Strategic Report
## 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.
At the time of publication, the Group has made Governance on the ﬁnancial consideration of climate-related
climate-related ﬁnancial disclosures consistent We, alongside our stakeholders, recognise that risks and the Group Remuneration Committee
with the Task Force on Climate-related Financial the health of our planet is critical to the wellbeing on the inclusion of climate-related metrics in
Disclosures (‘TCFD’) recommendations, except of society at large and that the food industry has remuneration. The Corporate Responsibility
that for this ﬁrst year of disclosure, qualitative a signiﬁcant part to play in addressing the current Committee reviews the progress and guides the
assessment of identiﬁed risks and opportunities climate emergency. We also recognise that the future direction of the sustainability strategy,
will be provided. Quantitative analysis will be food industry will feel the eﬀects of continued including reporting on key metrics, and reports
provided from next ﬁnancial year. climate change ever more acutely which will result the ﬁndings back to the Board on a regular basis,
in changes in consumer behaviour, advances such that climate-related risks and opportunities
in innovation and the evolution of leisure oﬀers remain on the agenda for all Board members.
to adapt to changing needs. The Board is As such climate-related risks and opportunities
committed to delivering the purpose of the form an important part of the context of which
organisation; to be the host of life’s memorable the organisational strategy is considered and
moments, and to do so in a way which reduces developed, ensuring that the Group is positioned
the environmental harm caused by operations. to protect itself from ﬁnancial and reputational
We have developed a clear governance risks associated with climate and to beneﬁt from
framework to support our assessment and accelerating the sustainability programme in order
response to climate-related matters. to align brand propositions with guests’ changing
needs. When considering any business planning
Board oversight of climate-related risks activity the Board takes into consideration the
and opportunities broader context of which trading environment,
The Board is responsible for the long-term with details of the climate aspect provided by the
success of the Group and has an established Corporate Responsibility Committee. Investment
framework in place which enables eﬀective in sustainable building practices forms an
assessment and management of risks, including important aspect of the sustainability strategy
climate-related risks and opportunities. and a standing agenda item has been added,
Responsibility for ESG matters is managed within to the review of all proposals, to ensure that
the framework by the Corporate Responsibility sustainability credentials are considered on all
Committee, which receives inputs from the capital expenditure projects.
Group Risk Committee on the management of
climate-related risks, the Group Audit Committee
Responding to TCFD
Sustainability Steering Committee TCFD Working group
Formed, supported by external advisers

| 1. Gap analysis | 2. Climate-related risks and | 3. Quantitative analysis |
| --- | --- | --- |
| against current governance and procedures | opportunities | Performed with a view to completing |
|  | Workshops help across functions | quantitative scenario analysis in FY 2023 |


| Ongoing | FY 2022 disclosure |
| --- | --- |
| integration of TCFD recommendations | including governance, risk, strategy, metrics |
| into practices | and targets |

Mitchells & Butlers plc Annual Report and Accounts 2022 29
Introduction Strategic Report Governance Financial Statements Other Information
Organisational and reporting structure for climate governance Key
Internal governance structure
Audit Nomination Risk
Supporting committee structure
Board of directors
Performance reviews, activity approval
Responsibility Remuneration
Approval decisions in accordance with
governance thresholds
Sustainability Steering Committee
Portfolio
Executive
development
committee
committee
Resources CommunityFood & drink

| The Corporate Responsibility Committee meets | • Workshops were held with external third |  | In considering our climate risks and opportunities |
| --- | --- | --- | --- |
| at least quarterly and provides oversight of TCFD |  | parties who reviewed Mitchells & Butlers’ | we have assessed short-term risks as being |
| activity on behalf of the Board. The Board has |  | operations before generating a list of | between 0-3 years in line with how we assess our |
| asked one of its Non-Executive Directors, Dave |  | climate-related risks and opportunities | principal risks and viability statement; medium- |
| Coplin, to take a lead role in oversight and |  | relevant to the business. These were | term risks as being between 3-6 years; and |
| development of the Company’s approach to |  | considered alongside guidance from the | long-term risks between 6-20 years in line with |
| climate-related issues, working alongside a |  | World Business Council for Sustainable | our longer-term contracts and climate |
| designated member of the Executive Committee |  | Development (‘WBCSD’) Food, Agriculture | commitments. |
| and the Head of Sustainability. Dave Coplin has, |  | and Forest Products TCFD Preparer Forum |  |
| for the last 30 years, been providing strategic |  | to formulate a list of all the climate-related | Climate-related risks and opportunities |
| advice and guidance on driving innovation and |  | risks and opportunities which may impact | management and strategy |
| transformation to organisations and governments |  | our organisation. | Our analysis of climate-related risks and |
| both here in the UK and around the world, giving | • Workshops were held with representatives |  | opportunities has identiﬁed the following risks |
| him excellent experience in this role. The |  | from relevant functions across the organisation | and opportunities. The risks of the introduction |
| Corporate Responsibility Committee receives |  | to obtain a wide range of perspectives on | of carbon taxes and of increased severe weather |
| regular update papers, including reporting on key |  | the identiﬁed climate-related risks and | events are considered as material and therefore |
| metrics, from the Sustainability Steering |  | opportunities. Using expert knowledge of the | have been included within our principal risks |
| Committee to inform the committee on progress |  | business and its supply chain, experience from | (see pages 44 to 51); these risks are consistent |
| of speciﬁc initiatives designed to deliver deﬁned |  | past events and insight into guest behaviour | across all of our locations. |
| ambitions, and future priorities and challenges. |  | each risk and opportunity was assessed and |  |
| The Corporate Responsibility Committee |  | opinions were gathered on future change and | Climate-related risks primarily impact the ﬁnancial |
| provides feedback and guidance on the content |  | perceived risk materiality. The output of the | planning process from the bottom up. Speciﬁc |
| of the papers to the Steering Committee and |  | workshops was a reduced list of risks and | initiatives are developed on a brand-by-brand |
| submits quarterly summary papers to the Board |  | opportunities which were considered to be | basis to ensure optimal alignment with guest |
| to inform the Board’s understanding of the |  | most material to the organisation based on this | needs, and therefore become an integral part of |
| challenges faced and progress being made. In |  | qualitative assessment. This process helped to | a brand’s budgeting assumptions. Similarly, |
| addition, to strengthen the response to climate- |  | reinforce our response to TCFD requirements. | investment in sustainable technology and building |
| related issues the organisation is a founding | • Our established risk management framework |  | practices are built into functional budgets, with |
| member of the Zero Carbon Forum, with |  | and heat mapping was then used to establish | investments such as trialling solar panels, part of |
| Executive Committee member involvement. The |  | which of those identiﬁed risks were likely to be | the project plan for the year ahead. Capital |
| Zero Carbon Forum is a hospitality group bringing |  | material to our business, being those with | expenditure in relation to sustainable |
| members together to tackle environmental issues, |  | a high likelihood and a high impact. Two risks | developments may also be approved during the |
| with input from experts the forum facilitates more |  | were identiﬁed to be material, and therefore | year as part of the overall capital budget. The |
| eﬃciency in developing strategies to achieve |  | have now been included as Principal Risks, | ﬁnancial, and environmental, impact of all |
| sustainability targets than acting independently. |  | with the results discussed and approved by | sustainability initiatives are carefully tracked and |
|  |  | the Risk Committee. | reported to the Sustainability Steering Committee |
| The Sustainability Steering Committee meets on |  |  | which in turn escalates any material impact to the |
| a monthly basis with members of the Executive | Climate-related risks and opportunities will |  | Executive Committee. |
| Committee to inform management of the | remain under ongoing review through the |  |  |
| progress on key initiatives and to discuss any | Sustainability Steering Committee and Risk |  | A resilient sustainability strategy is in place, |
| decisions required by the Executive Committee. | Committee, supported by any further TCFD |  | designed to mitigate the ﬁnancial and reputational |
| The Head of Sustainability attends Executive | guidance and evolving corporate best practice. |  | impact of climate-related risks and to capture the |
| Committee meetings to provide informative | We will continue to consult with third parties to |  | beneﬁt of aligning our brand proposition to |
| sessions on the key, climate-related challenges | provide independent review of our responses |  | changing consumer needs. In particular, we have |
| facing the industry and how the sustainability | to climate-related risks and opportunities and |  | a well-developed transition plan to Net Zero, |
| strategy addresses these issues. | progress against our disclosed targets. |  | which has been designed in collaboration with |

third-party experts and will be submitted to the

| Risk management | Through our membership and active involvement | Science Based Targets initiative for approval |
| --- | --- | --- |
| In response to the TCFD requirements we have | in industry-led organisations, such as the UK | during the next ﬁnancial year. This detailed |
| performed a detailed review of the climate-related | Hospitality Sustainability Committee and Zero | roadmap provides the benchmark against which |
| risks and opportunities relevant to the business. | Carbon Forum, and through regular dialogue with | performance can be tracked to a low emission |
| The resulting principal risks and further | suppliers, we will continue to collaborate on our | economy, with our contribution clearly |
| information can be found in the Risks and | responses to climate risks and to seek out | understood as well as that of our suppliers, such |
| uncertainties section on page 44. | opportunities to progress against our goals. | that we can inﬂuence others in our supply chain |
|  | We engage actively with our suppliers on | to reduce their emissions. Sustainability is a key |
| Identifying, assessing and managing | sustainability issues, including at our annual | priority for the Board and management and |
| climate-related risks and opportunities | supplier conference, and will be seeking to further | remains so despite the challenges currently faced |
| The following stages formed the process of | progress alignment of objectives which will help | by the industry as a whole. |
| identifying and assessing climate-related risks | manage climate risks through Scope 3 emissions |  |
| and opportunities: | measurement and management. |  |

30 Strategic Report Task Force on Climate-related Financial Disclosures continued
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 Risk Risk
Introduction of carbon taxes and levies Increased severity of extreme weather events Adjusting brand propositions to appeal to
changing consumer preferences

| Category | Category | Category |
| --- | --- | --- |
| Operational costs | Acute | Revenue |
| Description | Description | Description |
| This risk represents the impact on operating | This acute physical risk represents the risk to both | Changing consumer preferences towards |
| costs of the business both directly through | revenue and the supply chain of increased severe | products seen as better for the environment, |
| taxation and indirectly through higher input | events. Revenue would be impacted through the | for example dietary shifts towards low carbon |
| costs which would result from the introduction | interruption to trade caused by both extremely hot | products, presents an opportunity for the |
| of taxation and levies attributed to greenhouse | weather and adverse weather such as rain and | Group to position brands to appeal in an |
| gas emissions. | snow, and possible site closure as a result of | evolving market. The breadth of brands within |
|  | ﬂooding. In addition, the availability of products in | the Group portfolio provides the opportunity |
| Qualitative assessment has identiﬁed this risk | the supply chain, in particular agricultural produce, | to test adapted brand propositions in a low risk |
| as both high in impact and likelihood over | could be impacted by severe weather having an | way and to therefore be ahead of the market |
| the short to medium term. The introduction | eﬀect on product availability and input prices. | when consumer preferences begin to change |
| of a form of carbon taxation is likely to be |  | in the mass market. |
| introduced as pressure mounts for progress to | The qualitative assessment included a high-level |  |
| be made against the Government ambition to | review of previous interruption to trade resulting |  |
| achieve Net Zero by 2050. | 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.

| Approach to risk/opportunity | Approach to risk/opportunity | Approach to risk/opportunity |
| --- | --- | --- |
| management | management | management |
| We are a member of the UK Hospitality | The weather has a high level of impact on trading | All of the initiatives under the sustainability |
| Sustainability Committee which enables us to | levels across the estate and therefore monitoring | strategy help to strengthen the Group’s |
| have foresight over potential policy changes | weather forecasts in relation to expected trading | position in relation to environmental matters. |
| impacting the organisation. | levels is a normal part of the ﬁnancial planning of | This allows our brands to communicate with |
|  | the business. | guests on environmental issues with |
| We have developed a Net Zero strategy with |  | consistency across the portfolio and to build |
| a target date of 2040. The strategy has been | This monitoring activity will enable us to identify | a reputation for sustainable operations. |
| developed in partnership with an independent | when patterns of increased instances of extreme |  |
| third party and will be submitted for Science | weather events begin to develop. | Our focus on achieving ambitious |
| Based Targets initiative approval during |  | environmental targets will position the Group |
| FY 2023. | In relation to site closure due to damage to buildings, | well to beneﬁt from changing consumer habits. |
|  | such as during ﬂooding, we have insurance in place | Our ability to trial proposition adaptations in |
| We have a number of initiatives underway | to recover the lost trade and required repairs. Our | appropriate brands to gauge guest reaction |
| designed to reduce our emissions in line with | experience during closure has meant that we have | will ensure we are well prepared to make |
| our Net Zero roadmap. The detailed plan for | developed strategies to close sites at short notice, | informed decisions. In addition, our scale and |
| reduction will help to mitigate an element of | such that in the instance of extreme weather | commitment to our investment programme will |
| potential cost, and a target date ahead of | signiﬁcantly impacting trade we could close sites in | enable the Group to enhance the sustainability |
| Government ambition will help to position the | order to mitigate some of the ﬁnancial losses which | credentials of its properties. |
| organisation ahead of the market average. | 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.

| Future measurement considerations | Future measurement considerations | Future measurement considerations |
| --- | --- | --- |
| The approach to the quantitative assessment | The quantitative assessment to be performed | Consumer insight is continuously reviewed |
| to be performed during FY 2023 will be to take | during FY 2023 will involve a detailed analysis of | and is used to inform brand evolution. In |
| the Group’s forecast carbon emissions, from | previous impact on trade of extreme weather to | addition, direct consumer feedback is used to |
| our Net Zero roadmap, and to apply DEFRA | determine the potential impact on revenue and the | highlight changing guest preferences, and |
| published carbon values over the short, | supply chain of a variety of weather events. The | reactions to brand changes designed to |
| medium and long term giving an estimate of | increase of extreme weather events will be derived | enhance environmental credentials. |
| the potential ﬁnancial impact of the introduction | from climate-science research and applied to two |  |
| of carbon taxes. | scenarios of degrees of climate warming over the | Alongside ﬁnancial performance these metrics |
|  | short, medium and long-term time horizons to | will inform the future evolution of our brands. |

determine the potential ﬁnancial impacts.
Horizon Horizon Horizon
Short – medium term Short – medium term Short – medium term
Mitchells & Butlers plc Annual Report and Accounts 2022 31
Introduction Strategic Report Governance Financial Statements Other Information
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.
Link to identiﬁed risks

| Metric category Metric Group targets |  |  |  | and opportunities |
| --- | --- | --- | --- | --- |
| Climate-related risk |  | Absolute Scope 1, 2 and 3 emissions | Yes – Group target set, Net Zero by 2040. | Carbon taxes and levies. |
| Greenhouse gas emissions |  | calculated in accordance with Greenhouse |  |  |
| Scope 1, 2 and 3 |  | Gas Protocol guidance by an independent | We align our deﬁnition of Net Zero to the |  |
|  |  | third party. | SBTi corporate standard. Our Net Zero target |  |
| Unit of measure |  |  | includes our Scope 1, 2 & 3 emissions, using |  |
| tCO | 2 e |  | 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.
Climate-related risk Proportion of sites within the estate identiﬁed No target set, used as an internal measure of Physical risk – increased
Proportion of estate as high or medium ﬂood risk due to proximity risk exposure. instances of severe
exposed to ﬂood risk to rivers and coasts. weather events.
Unit of measure
% of estate
Climate-related Percentage and MWh of energy No target set, reported as an indicator Carbon taxes and levies.
opportunity consumption which is purchased from of progress.
Transition to renewable renewable sources.
energy
Unit of measure
% and megawatt hour
(‘MWh’)

| Climate-related | Training provided to key groups or functions | No targets set, to be considered during | Carbon taxes and levies. |
| --- | --- | --- | --- |
| opportunity | centrally. Completion of sustainability | FY 2023. |  |
| Workforce competence | induction for frontline teams. |  |  |

Unit of measure
Number
32 Strategic Report 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.”

| We have been working on enhancing the | Our strategy has been developed to align with | We have identiﬁed the UN Sustainable |
| --- | --- | --- |
| sustainability of our operations since 2019; this | the issues addressed by the UN Sustainable | Development Goals which we believe we can |
| focus underpins our strategic priorities and is a | Development Goals and Paris Climate | have the greatest impact on, and have aligned |
| part of the way we want to do business. We aim to | Agreement. We have committed to reducing the | these to our strategic pillars as shown below. |
| make sustainable operation part of the culture of | negative impact of our business model on the | For each of the pillars we have deﬁned our |
| the business and have purposefully integrated | environment in light of these objectives. Our Net | objective, key actions and targets. We are |
| sustainability initiatives into the relevant functional | Zero ambition has been developed to align with | members of industry groups such as the UK |
| areas, such that we build knowledge and | the Science Based Targets initiative methodology | Hospitality Sustainability Committee and Zero |
| experience within our teams. | to keep global warming well below 2°C. | 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.
## Sustainability strategic pillars

| 1. Respect for the planet |  | 2. Pride in our oﬀers |  | 3. Care for communities |  |
| --- | --- | --- | --- | --- | --- |
| Objective |  | Objective |  | Objective |  |
| We are committed to reducing our emissions, |  | We strive to deliver responsibly sourced products |  | People are central to our business, we are focused on |  |
| tackling waste and protecting biodiversity |  | and menu options for everyone |  | supporting our teams and the communities we serve |  |
| Key actions |  | Key actions |  | Key actions |  |
| • Completed our Net Zero roadmap in |  | • Evolve our menus to support our ambition of |  | • Strategic partnerships with charities developed, |  |
|  | collaboration with third-party experts, |  | reducing food emissions |  | including Shelter and Social Bite |
|  | providing a detailed plan for decarbonisation | • Work with suppliers across all categories to |  | • Expand our programme with Social Bite, |  |
| • Submit our Net Zero roadmap for Science Based |  |  | understand and improve the environmental |  | supporting vulnerable people back into |
|  | Targets initiative approval during FY 2023 |  | credentials of the products we buy |  | employment |
| • Founding and active member of the Zero |  | • Maintain BBFAW Tier 3 rating |  | • Enhanced employee wellbeing strategy and |  |
|  | Carbon Forum, bringing the industry together | • Supplier agreements set out sustainability |  |  | improved resources and tools available to |
|  | to reduce emissions across the sector through |  | expectations and standards supported by |  | employees |
|  | shared learning and insights |  | annual supplier conferences | • Increase the number of volunteering hours |  |
| • Continue to purchase 100% renewable |  | • Continued focus on enhancing the nutritional |  |  | oﬀered by our teams |
|  | electricity |  | balance and information available on menus | • Brand-driven relationships with local |  |
| • Develop a programme plan to remove gas |  | • All direct palm oil purchases are from |  |  | organisations and charities |
|  | from the estate and to increase on site |  | Rainforest Alliance Approved sources | • Modern Day Slavery policies enhanced, |  |
|  | renewable energy generation |  |  |  | with actual risk assessment completed, |
| • Increased the proportion of operational waste |  |  |  |  | in partnership with Stop the Traﬃk |

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 UN Sustainable Goal alignment UN Sustainable Goal alignment
Mitchells & Butlers plc Annual Report and Accounts 2022 33
Introduction Strategic Report Governance Financial Statements Other Information
## Our targets
### 1. Net Zero greenhouse gas 2. Zero operational waste 3. Food waste
### emissions by 2040 to landﬁll
Target Achieve Net Zero greenhouse gas Target Zero operational waste to landﬁll Target Reduce food waste by 50% by 2030 from
emissions by 2040 (absolute reduction of by 2030. our FY 2019 baseline.
emissions, including Scope 1, 2 and 3) from our

| FY 2019 baseline. | Performance During the year we have diverted | Performance This year we have achieved a 29% |
| --- | --- | --- |
|  | 96% of operational waste from landﬁll. In | reduction in food waste against our FY 2019 |
| Performance Our Scope 1, 2 and 3 greenhouse | partnership with our waste management | baseline. Signiﬁcant progress has been made in |
| gas emissions have decreased by 36% against our | providers we have run a bin optimisation | food waste management in both our supply chain |
| FY 2019 baseline in FY 2022. The reduction is | programme, ensuring that all of our sites have | and in our sites. |
| primarily due to reduced electricity consumption | appropriate recycling and general waste bins in |  |
| during FY 2022, as well as a material reduction in | the most accessible areas of the business, to | Within the supply chain, food waste has been |
| food emissions. Details of the breakdown of our | encourage improved segregation of waste. This | reduced through enhanced management of |
| emissions and opportunities for reduction can be | has helped us improve our recycling rate to 58%. | events which generate waste. For example, |
| found on pages 69 to 71. |  | excess stock was previously wasted when |
|  | However, we have targeted a recycling rate of | seasonal menu changes were made in brands. |
| Total Scope 1 and 2 emissions reduced by 25% | 80% by 2030 and are working across a number | However, now an advance plan is made to utilise |
| in FY 2022, driven by a reduction in electricity | of fronts to achieve an improvement in the | that excess stock in advance of menu changes |
| consumption during FY 2022. The stated reduction | proportion of waste we recycle. We are working | resulting in signiﬁcantly less waste. A review of |
| is based on the location-based calculation, which | with suppliers to reduce the volume of packaging | low volume, high waste items has also facilitated |
| reﬂects reduced consumption. On a market- | entering our sites, and to ensure that as much | menu changes designed to reduce waste by |
| based calculation the reduction is higher due to | packaging as possible can be recycled, as well | removing these items. In addition, we began |
| the increased proportion of renewable energy | as engaging teams in the positive environmental | working with FareShare during FY 2022 donating |
| purchased since the baseline year. Scope 1 | impact they can have by increasing recycling | unavoidable waste to charities and community |
| emissions include direct emissions from controlled | rates. We face challenges in some geographies | groups who can ensure the food goes to those |
| or owned resources and Scope 2 emissions include | where recycling of materials is not yet available | who need it. During the year, 26% of supply chain |
| indirect emissions from the generation of purchased | and we continue to investigate opportunities to | waste was donated through FareShare. |
| electricity, heating and cooling. The reduction of | access recycling in these areas. |  |
| Scope 1 and 2 emissions has been driven by a |  | In our sites food waste reduction has been |
| focused reduction in energy consumption. We |  | achieved through strengthened operational |
| have a team of energy ambassadors in place |  | procedures which reduce the level of waste |
| across the business who are trained to help fellow |  | generated during the food prep process, |
| managers to reduce their energy consumption |  | including accurate portion sizes from suppliers, |
| and to identify areas of opportunity; the eﬀorts of |  | as well as reduced menu complexity. The |
| this team have helped to reduce consumption in |  | introduction of auto-ordering has helped to |
| the year. In addition, we have invested this year in |  | improve the forecasting of dish mix and therefore |
| voltage optimisers and a technology which helps |  | reduced waste through spoilage. In addition, |
| to improve the eﬃciency of heating systems. |  | we have rolled out Too Good To Go across |

four brands, saving c. 15,000 meals a week
Our Scope 3 emissions include all other indirect from wastage.
emissions that occur in our value chain; these
include food and drinks purchased, guest travel, Unavoidable food waste from our pubs and
employee travel, our capital programme, logistics, restaurants is sent to anaerobic digestion. The
other purchases and waste generated in digestion process itself creates biogas which is
operations. Scope 3 emissions represent 87% then captured and used to generate electricity.
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.

| Zero | Zero | 50% |
| --- | --- | --- |
| Target to achieve Net Zero | Target to achieve zero | Target to reduce |
| greenhouse gas emissions | operational waste to landﬁll | food waste by 50% |
| by 2040 | by 2030 | by 2030 |

34 Strategic Report
## 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.
## Financial
• 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.
## Structural
• 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
Mitchells & Butlers plc Annual Report and Accounts 2022 35
Introduction Strategic Report Governance Financial Statements Other Information
## 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
36 Strategic Report
## How we create value
### The Mitchells & Butlers diﬀerence
### Our business model is driven by our understanding of Our experience and
### our guests and our ability to evolve our brands and oﬀers ability to interpret
### guest feedback help
### to reﬂect changes in their needs.
### us understand what
### our guests want.
Occasion
Environment
Amenity
Safety
## 1
Choice
Value
Hygiene
### Everything we learn about our
### guests’ requirements is fed back.
### Creating memorable
### moments generates
### value for stakeholders.
## 5
## 4
EmployeesSuppliers Guests
Mitchells & Butlers plc Annual Report and Accounts 2022 37
Introduction Strategic Report Governance Financial Statements Other Information
Critical to the delivery of our oﬀers is the quality Our success in creating these moments
of our people, supply chain, estate and central consistently, safely and proﬁtably creates
functions, which provide the infrastructure long-term value for our stakeholders.
through which our brands deliver memorable
moments to our guests.
### Understanding
### what our guests
## 2 want inﬂuences
### every element
### of our brands
### and oﬀers.
## 3
### Everything we do is…
Run by our people… Supplied by our supply chain… Realised within our estate… Supported and
managed by our
## 46,844* 1,508 1,718 central functions…
Employees Suppliers Pubs, bars and restaurants • Finance and Technology
• Human Resources
• Legal and Risk
• Marketing
• Procurement
• Property
* As at 24 September 2022.
### The combination of our brands, people, supply chain, estate and
### central functions creates memorable moments for our guests.
Local community InvestorsEnvironment
38 Strategic Report
## Value creation story
### FY 2022 highlights
## GuestsSuppliers
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
## Achieved tier 3 Business our competitors. 4+
### Benchmark on Farm Animal
We build long-term and collaborative Online review score of over 4 out of 5
### Welfare rating across the business
partnerships with our suppliers. We work closely
with suppliers to ensure the needs of both
### businesses are met and to ensure relationships are Industry leading safety scores
### Strong relationships have
maintained. By working together, we can develop
### facilitated good supply chain new and innovative products with suppliers
### management through Covid-19 which help our brands adapt and evolve,
building both of our businesses. Through these
### disruptions
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
### Donated unavoidable surplus our suppliers can support our sustainability
ambitions, including prioritising high animal
### food in the supply chain in
welfare standards. Further detail on our
### partnership with FareShare
sustainability strategy can be seen on pages 32
and 33.
Mitchells & Butlers plc Annual Report and Accounts 2022 39
Introduction Strategic Report Governance Financial Statements Other Information
## Employees
### The satisfaction and enjoyment of our guests is Growing and developing our We are proud of the learning and development
critical to the success of our business. We always opportunities we oﬀer and strive to provide
### internal talent is a priority to
aim to exceed guests’ expectations and progression opportunities to all our people.
### address talent shortages
continually evolve our oﬀers with that objective Over the past year we have increased the number
in mind. of people promoted internally, particularly at
the frontline.
### Innovative recruitment and
We collate guest feedback through online
### channels and via our brand surveys which is attraction solutions ensuring the Regular development catch ups are held
reviewed centrally and used to provide valuable right people join our business throughout the year to support employees’
insight to both our operations and brand progression and personal development.
marketing teams.
### Employee wellbeing has never We have two formal feedback surveys a year
We have always strived to achieve high safety and providing the opportunity to gain insight into
### been more important

| hygiene standards and have used this strong base |  | employee satisfaction and to highlight |
| --- | --- | --- |
| to evolve our ways of working for the challenges |  | opportunities to improve our oﬀer as an employer. |
| we face. We focus on ensuring high-quality, | The following table sets out our diversity balance |  |
| consistent practices across the business. We | between men and women at the end of FY 2022. | Employee forums are hosted by the Executive |
| constantly review the new procedures to ensure |  | Committee team members and enable all |

Men Women

| that both high safety levels and guest satisfaction |  | employees to raise issues via elected |
| --- | --- | --- |
| can be achieved. | Directors 7 2 | representatives, giving them the opportunity |
|  | Other senior managers 29 13 | to directly discuss any issues. |
| As ever, high-quality food and drink, served by | All employees 21,896 24,948 |  |
| an engaged team, in an appealing environment |  | The welfare of our employees is of paramount |
| remain key elements to providing our guests with |  | importance to us and we continually review |

Our people are central to our business, bringing
memorable experiences, alongside the highest the support we oﬀer to employees across
brand visions to life through engaging interaction
safety standards. We regularly assess changing the business.
with our guests and preparation of high-quality
guest preferences across these areas to position
food and drink.
our brands for success. Dave Coplin, an independent Non-Executive
Director, is the nominated Board member
Through our open and inclusive culture, we aim
responsible for representing the employee voice
to create an environment which allows our people
at Board level.
to develop and grow. Recruiting eﬀectively is
important as it ensures that we attract the right
We are committed to providing equal
people that will thrive in our organisation.
opportunities for all our employees. Our
Increasingly, technology can be helpful in
employee Diversity and Inclusion Policy ensures
supporting our recruitment activity, and enables
that every employee, without exception, is treated
us to market our job opportunities eﬀectively in
equally and fairly and that all our employees are
a very competitive environment.
aware of their responsibilities.
40 Strategic Report Value creation story continued
## EnvironmentLocal community

| Developed a nutritional roadmap | Over 80 tonnes of food waste |
| --- | --- |
| focused on enhanced information | donated to charities via FareShare |
| and balanced choices | during the last three years |

### All direct palm oil purchases
### We have a long history of providing a central hub continue to be sourced from
to many communities where people have met and
### Rainforest Alliance approved
socialised for decades.
### suppliers
## £143m
Many of our brands are long-standing supporters
Tax paid (not including tax collected, of causes which resonate with the brand and its
e.g. VAT) 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 96%
Institution (‘RNLI’).
96% of operational waste diverted
## 7 from landﬁll
We are actively looking to enhance the positive
Employed seven people from the impact we can have on local communities,
### including supporting charities, providing career Committed to achieving Net Zero
Social Bite academy, helping people
### opportunities, encouraging responsible drinking, emissions by 2040
who have experienced homelessness
and supporting health by enhancing and
back into work
providing information on the nutritional content
### of our meals. Harvester and All Bar One menu
### trials deliver signiﬁcant carbon
### emission savings
## No. 5
Harvester awarded number ﬁve in
Out to Lunch rankings by The Soil
Association
### Pledge to the Peas Please
### campaign
Mitchells & Butlers plc Annual Report and Accounts 2022 41
Introduction Strategic Report Governance Financial Statements Other Information
## Investors
### The natural environment provides the business Strong stewardship through Our investors are made up of our shareholders
with the resources it needs to operate. We take and bondholders who play an important role in
### the Covid-19 pandemic
our responsibility to protect that environment monitoring and safeguarding the governance of
seriously and have set stretching targets to reduce the Company.
the negative impact of our business.
### Equity raise in FY 2021 gave
We aim to demonstrate the responsible
### strength to balance sheet
We have aligned our objectives with the UN stewardship of the Company from a ﬁnancial,
Sustainable Development Goals in order to focus strategic, governance, environmental and ethical
our eﬀorts on the global priorities. Our aim is to perspective. We have a highly eﬀective Board,
### Reporting on Environmental,

| embed a sustainable way of doing business within |  | with Directors with various specialisms and |
| --- | --- | --- |
| our current operations such that it becomes | Social and Governance issues | backgrounds to best govern the Company. Their |
| business as usual and we are doing that through | enhanced | biographies can be found on pages 62 and 63. |

a Board-level committee, steering committee and
focused workstreams with representatives from We maintain an open dialogue through our
across the business. investor relations programme. We update
investors and bond holders on ﬁnancial and
The food industry has an important part to play strategic performance through regular
in climate change, as food supply chains are a performance updates and facilitate discussion
signiﬁcant factor in rising greenhouse gas through meetings, roadshows and our Annual
emissions and in the reduction of biodiversity. General Meeting.
We have measured our baseline emissions and
have used this to create a roadmap for reduction Board-level committees ensure that appropriate
which is one of our priority areas. We are also time and focus is allocated to the key areas of
conscious of the food industry’s signiﬁcant impact governance of the business and, where
on biodiversity which is another area we are necessary, expert third parties are consulted.
balancing within our future plans to reduce the The Board provides a healthy level of challenge
negative impact our organisation has on the and debate on key areas and has been successful
environment and to enhance the positive in moving the business forward.
outcomes wherever possible.
The Executive Committee consists of members
Further detail of our sustainability strategy can be of management from across the business who
found on pages 32 and 33. 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.
42 Strategic Report 42 Strategic Report
## Key performance indicators
### Measuring performance
### We measure our performance against our strategy through
### ﬁve key performance indicators.
## 1. Staﬀ turnover 2. Guest review score 3. Year-on-year same
a
## outlet like-for-like sales
Deﬁnition Deﬁnition Deﬁnition
The number of leavers in our retail businesses, For several years, Mitchells & Butlers, along with Sales this year compared to the sales in FY 2019,
expressed as a percentage of the average number many other hospitality businesses and other retail being the last full year pre-Covid-19, of all UK
of retail employees. This like-for-like measure businesses, used Net Promoter Score (‘NPS’) as a managed sites that were trading in the two
excludes site management. The turnover measure of guest satisfaction with the experience periods being compared, expressed as a
a

| measurement gives an indication of the retention | it provides and reported NPS in its Annual Report. | percentage. Like-for-like sales | is an important |
| --- | --- | --- | --- |
| of retail staﬀ and can help to identify if there is an |  | indicator of how the business is performing |  |
| arising retention issue in any area of the business | NPS was derived from surveys which we ask | in the context of its previous performance, |  |
| which could highlight an engagement issue. In | guests to complete following a visit to one of our | the long-term trend of which can reﬂect |  |
| addition, as team members go through a thorough | outlets. However, in recent years, these surveys | improvements in guest appeal. Whilst we have |  |
| induction and training process there is an element | have been increasingly superseded by guest | compared to FY 2019 during FY 2021 and |  |
| of cost for each person who leaves the business. | reviews posted on Google, Facebook, Tripadvisor | FY 2022 due to the signiﬁcant impact Covid-19 |  |
| Therefore, it is important for the Board to monitor | and other review sites. In recognition of this trend, | had on trade, going forward we will revert to the |  |
| this measure. | we have changed our reported guest measure to | previous calculation of using the previous ﬁnancial |  |
|  | be an average feedback score across the major | year as a comparative. |  |
| FY 2022 performance | third-party feedback channels, with eﬀect from |  |  |
| Over the past two years turnover was suppressed | the end of FY 2022. | FY 2022 performance |  |

a

| by the impact of Covid-19 as there were minimal |  | Like-for-like sales | increased by 1.1% in FY 2022 |
| --- | --- | --- | --- |
| leavers during closure periods. In comparison to | FY 2022 performance | vs. FY 2019. Growth was driven by food sales |  |
| FY 2021, turnover in FY 2022 increased by | Our average feedback score across all major | with the strongest performances in our premium, |  |
| 36 ppts to 94%. This increase reﬂected the very | feedback channels was 4.3 out of 5.0 for FY 2022, | food-led brands. The ﬁrst half of FY 2022 was |  |
| challenging labour market with the industry | in line with our FY 2021 score and ahead of | assisted by a lower rate of VAT on food and |  |
| overall seeing higher levels of employee turnover | previous years. Improving this score remains a | non-alcoholic drinks at 12.5% compared to the |  |
| during the reopening and recovery period post | key focus of the business as we aim to create | full rate of 20% in FY 2019. |  |
| Covid-19 closures. Our ongoing focus is to deliver | memorable moments for our guests. There is a |  |  |
| and enhance our people promise to meet the | collection of Ignite projects underway to further |  |  |
| needs of our employees and improve retention. | improve this metric. |  |  |

## 94% 4.3 1.1%
### 1.3 1.1

|  | 3.5 | 2020 | 2021 |  |
| --- | --- | --- | --- | --- |
| 2018 | 2019 |  |  | 2022 |
|  |  | -3.5 | -9.6 |  |

### 84 81 56 58 94 3.9 4.0 4.2 4.3 4.3
2018 2019 2020 2021 2018 2019 2020 2021
Links to strategic priorities: 2 Links to strategic priorities: 1, 2 and 3 Links to strategic priorities: 1, 2 and 3
See pages 26 and 27 See pages 26 and 27 See pages 26 and 27
2022 2022
Mitchells & Butlers plc Annual Report and Accounts 2022 43
Introduction Strategic Report Governance Financial Statements Other Information

| 4. Incremental return on |  | 5. Adjusted operating |  |
| --- | --- | --- | --- |
|  | a |  | a |
| expansionary capital |  | proﬁt |  |
| Deﬁnition |  | Deﬁnition |  |
| Expansionary capital includes investments made |  | Operating proﬁt before separately disclosed |  |
| in new sites and investment in existing assets that |  | items as set out in the Group Income Statement. |  |
| materially changes the guest oﬀer. Incremental |  | Separately disclosed items are those which are |  |
| return is the growth in annual site EBITDA, |  | separately disclosed by virtue of their size or |  |
| expressed as a percentage of expansionary |  | incidence. Excluding these items allows an |  |
| capital. Is it important for the Board to monitor |  | understanding of the trading of the Group. |  |
| return on investment as it indicates the success |  | The Board monitors adjusted operating proﬁt |  |
| of the capital programme which underpins one |  | as one of the ﬁnancial health indicators, as it |  |
| of our three key strategic pillars, to build a |  | helps to reveal how eﬃciently the business is |  |
| balanced business. |  | being operated. |  |
| FY 2022 performance |  | FY 2022 performance |  |

a
The EBITDA return on all conversion and Adjusted operating proﬁt for the year of £240m
acquisition capital invested over last four years was signiﬁcantly higher than the prior year. This
was 18%. This level of return is not indicative of increase in proﬁt is predominantly due to the
the quality of the investment programme but impacts of Covid-19 during FY 2021, including
largely due to the reduced trading levels due to closure and reduced trading levels. FY 2022 was
Covid-19 restrictions that are captured in the notably lower than FY 2019, the last year pre
calculation. Our capital programme continues Covid-19, due to the negative impact of the
to be a key focus of the business and one which Omicron Covid-19 variant on trading in December
we believe will deliver signiﬁcant future value. 2021 and signiﬁcant cost headwinds, particularly
across food costs, labour and energy.
## £240m18%
### 29

| 16 | 21 | 6 | 2021 | 18 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  | 303 | 317 | 99 |  | 240 |  |
| 2018 | 2019 | 2020 |  | 2022 |  |  |  |  |  |  |
|  |  |  |  |  | 2018 | 2019 | 2020 | 2021 |  | a. The Directors use a number of alternative |

performance measures (‘APMs’) that are considered
critical to aid the understanding of the Group’s
Links to strategic priorities: 1 Links to strategic priorities: 1, 2 and 3 performance. Key measures are explained on pages
See pages 26 and 27 See pages 26 and 27 177 to 179 of this report.
### -0.8 2022
44 Strategic Report
## 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.
This does not represent a comprehensive list of Management support, involvement and
all of the risks that the Group faces but focuses on enforcement is fundamental to the success of our
those that are currently considered to be most risk management framework and members of the
relevant. Please also refer to how we link the key Executive Committee take responsibility for the
risks to our strategic priorities, on page 26. management of the speciﬁc risks associated with
their function. Our Group risk register clearly
Overview outlines the alignment of each key risk to an
Risk management is critical to the proper Executive Committee member and identiﬁes an
discharge of our corporate responsibilities and ‘action owner’, to ensure responsibilities are
to the delivery of shareholder value. Risk is at the formally aligned.
heart of everything we do as an organisation.
Therefore, the process for identifying and There is a robust and transparent process in place
assessing risks and opportunities for to provide an appropriate level of direction and
improvements is an integral and inseparable support in the identiﬁcation, assessment and
part of the management skills and processes management of risks across all areas of the
which are at the core of our business. business which have the potential to seriously
damage our ﬁnancial position, our shareholder
There is a formally established Risk Committee in value, our responsibilities to our staﬀ and guests,
place which continues to meet on a regular basis our reputation and our relationships with key
to review both the key risks and emerging risks stakeholders. The board has carried out an
facing the business. assessment of the Group’s emerging and principal
risks, resulting in the identiﬁcation, assessment
Key risks identiﬁed are reviewed and assessed by and management of risks across all areas of the
the Risk Committee in terms of their likelihood business. The principal risks are subject to review
and impact and recorded on the Group’s ‘Key Risk each quarter by the Audit Committee, which is
Heat Map’, in conjunction with associated agreed also attended by the Board.
risk mitigation plans. The processes that are used

| to identify emerging risks and manage known | Key risk heat map |
| --- | --- |
| risks are described in the Internal Control and Risk | The Key risk heat map below includes an |
| Management statement on pages 83 and 84. | 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.
Key risk heat map Our three lines of defence

| Risk event |  | High |  |  |
| --- | --- | --- | --- | --- |
|  |  |  | 9 | • Executive Committee |
| 1 | Borrowing covenants |  |  |  |

• Leadership group/management
### 1st

| 2 Sales performance |  |  |
| --- | --- | --- |
|  | 6 | • Internal controls and processes |
| 3 People planning and development |  | • Internal policies and procedures |
| 4 Business continuity and crisis management | 14 | • Training |

12
3

| 5 Information and cyber security |  |  |
| --- | --- | --- |
|  | 15 | • Financial authority limits |
| 6 Wage cost inﬂation |  | • Risk management processes |

### 2nd
5 1
7 Pension fund deﬁcit • Audit Committee
11
10
8 Failure to operate safely and legally • Risk Committee
2
Likelihood • Health and Safety Team
9 Cost of goods – price increases 7
• Technology specialists
10 Food supply chain safety
• Legal support
11 Health and lifestyle concerns 8
12 Environment and sustainability • Group Assurance
• Operational Practices Team
### 13 Enforced Government closure/trading 3rd
restrictions

|  | Low Impact High | 4 | 13 |
| --- | --- | --- | --- |
| 14 Introduction of carbon taxes and levies |  |  |  |
| 15 Increased severity of extreme weather events |  |  |  |

Mitchells & Butlers plc Annual Report and Accounts 2022 45
Introduction Strategic Report Governance Financial Statements Other Information
Risk category and description High-level controls/mitigating activities Movement
• The Group maintains suﬃcient headroom against the covenants. The Risk Increasing
### 1. Borrowing covenants
ﬁnance team conducts daily cash forecasting with periodic reviews at
the Treasury Committee (the role of which includes ensuring that the
There are risks that borrowing covenants are
Board Treasury Policy is adhered to, monitoring its operation and
breached because of circumstances such as:
agreeing appropriate strategies for recommendation to the Board).
• In addition, regular forecasting and testing of covenant compliance
ii. a change in the economic climate leading
is performed.
to reduced cash net inﬂows; or
• A detailed assessment of the mitigating risks is included in the long-term
ii. a material change in the valuation of the
viability statement on page 52.
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’.
• Right operational and commercial team and structure in place. Brand Risk Stable
### 2. Sales performance
alignment ensures the right research is done and is acted upon.
• Daily, weekly and periodic sales reporting, monitoring and scrutiny
This risk falls into the below main categories:
activity is in place.
• Our Eat Drink Share panel provides robust, quick and cost-eﬀective
Sales: There is a risk that declining sales,
research. This is our own panel of 27,000 of the Group’s guests, whom
concerns around consumer conﬁdence, increased
we can use for research purposes for quick and cost-eﬀective insights.
personal debt levels, squeezes on disposable
• Primary research in partnership with brand and category teams.
income and rising inﬂation individually, together
• Working with suppliers to tap into their research.
or in combination, may adversely aﬀect our
• Each brand has its own pricing strategy.
market share and proﬁtability, reducing headroom
• Price promotions are in line with the agreed strategy.
against securitisation tests.
• Sales training for management.
• Consumer and insight-led innovation process and development for
Consumer and market insight: If the Group
new brands.
fails to manage and develop its existing (and new)
• Reduce guest complaints by improving the local management of social
brands in line with consumer needs and market
media responses (e.g. Tripadvisor responses).
trends due to failure to obtain or use suﬃcient
• Increased digital marketing activity including new loyalty apps.
insight in a timely manner, this may lead to a
• Increased activity from takeaway and delivery oﬀerings.
decline in revenues and proﬁts.
• Online guest satisfaction survey to collect guest feedback. This
feedback, together with the results of research studies, is monitored and
Pricing and market changes: If price changes
evaluated by a dedicated guest insight team to ensure that the relevance
are not intelligently applied due to a lack of
to guests of the Group’s brands is maintained.
appreciation of market sensitivities and
• Our priority is to continue to protect our team members and guests,
elasticities, this may result in decreased revenue
providing an eating-out experience which can be enjoyed. We have
and proﬁt.
very strong health and safety practices already in place in our
businesses, which we will enhance and evolve to tackle the challenges
Risk Stable
we face. We will be transparent with guests as to these measures such
Overall, this risk is stable due to improved sales
that they can trust in us and will clearly communicate our expectations
performance following the lack of restrictions post
of guests to comply with the measures put in place.
the Covid-19 pandemic.
46 Strategic Report Risks and uncertainties continued
Risk category and description High-level controls/mitigating activities Movement
• The Group makes signiﬁcant investment in training to ensure that its Risk Increasing
### 3. People planning and
people have the right skills to perform their jobs successfully.
### development
• Furthermore, an employee survey is conducted annually to establish
employee satisfaction and engagement, and this is compared with other
The Group has a strong guest focus and so it is
companies, as well as previous surveys. Where appropriate, changes in Speciﬁcally in
important that it is able to attract, retain, develop
working practices are made in response to the ﬁndings of these surveys. London/South East
and motivate the best people with the right
• Remuneration packages are benchmarked to ensure that they remain
capabilities throughout the organisation. There is
competitive, and a talent review process is used to provide structured
a risk that, without the right people, our guest
succession planning. Please also refer to the Report on Directors’
service levels would be aﬀected.
remuneration, on pages 89 to 106.
• The apprenticeship programme will also assist in mitigating against the
The external recruitment activity over the
increasing risk in relation to non-UK workers. Please also refer to
previous year is challenging due to the lack of
Purpose in Action – Apprenticeships, on pages 04 and 05.
quality candidates being available. A further
• A new talent management system has been sourced and is planned
potential risk is the image of hospitality, given
to be implemented in FY 2023.
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 has in place crisis and continuity plans that are reviewed and Risk Stable
### 4. Business continuity and
refreshed regularly.
### crisis management
• 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
The Group relies on its food and drink supply
or no impact to staﬀ, given that all staﬀ have the appropriate resources
chain and the key IT systems underlying the
available to them in order to work remotely and in an eﬃcient manner.
business to serve its guests eﬃciently and
• We have assessed the risks associated with remote working and cyber
eﬀectively. Supply chain interruption, IT system
security and are conﬁdent that those areas are suitably controlled.
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.
Mitchells & Butlers plc Annual Report and Accounts 2022

47

|  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
48 Strategic Report Risks and uncertainties continued
Risk category and description High-level controls/mitigating activities Movement
• The Group maintains a robust programme of health and safety checks Risk Stable
### 8. Failure to operate safely
both within its restaurants, pubs and bars and throughout the
### and legally
supply chain.
• The dedicated Safety Assurance team use a number of technical
A major health and safety failure could lead to
partners including food technologists, microbiologists and allergen
illness, injury or loss of life or signiﬁcant damage
specialists to ensure that our food procedures are safe.
to the Group’s or a brand’s reputation.
• Regular independent audits of trading sites are performed to ensure that
procedures are followed and that appropriate standards are maintained.
Risk Stable
• If a business is identiﬁed as underperforming in terms of health and
Overall, the risk continues to be stable. In
safety standards, it is immediately targeted for improvement and
particular, allergen-related incidents and near
then reassessed.
misses have stabilised.
• 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.
In order to reduce the overall impact of costs increases, the Group leverages Risk Increasing
### 9. Cost of goods – price
its scale to drive competitive cost advantage and collaborates with suppliers
### increases
to increase eﬃciencies in the supply chain. The fragmented nature of the
food supply industry in the world commodity markets gives the Group the
Food: The cost of food for resale increases due
opportunity to source products from a number of alternative suppliers in
to changes in demand, food legislation, exchange
order to drive down cost. Consideration has been given to potential areas
rates and/or production costs and uncertainty of
such as supply chain risk (e.g. customs controls on imports), labour risk and
supply, leading to decreased proﬁts.
economic disruption. Key mitigating activities for food and drink are
detailed below:
Drinks: The cost of drinks for resale increases
due to changes in demand, legislation, exchange
Food:
rates and production costs, leading to
• A food procurement strategy is in place.
decreased proﬁts.
• Full reviews are carried out on key categories to ensure optimum value
is achieved in each category.
Utility costs: A number of external factors,
• A full range review was completed in FY 2022 ensuring the correct
including the result of the war in Ukraine, has
number of products and suppliers. This is regularly reviewed.
lead to an increased cost pressure on utility
• Regular reporting of current and projected inﬂation.
costs, for the Group.
• Good relationships with key suppliers.
Goods not for resale: Increases in the cost of
Drinks:
goods not for resale and utilities costs as a result
• Each drinks category has a clearly deﬁned strategic sourcing plan to
of increases in global demand and uncertainty of
ensure the Group’s scale is leveraged, the supply base is rationalised,
supply in producing nations can have a signiﬁcant
and consumer needs are met.
impact on the cost base, consequently
• Good relationships with key suppliers.
impacting margins.
• Supplier collaboration programmes are in place.
Risk Increasing
Energy:
The overall risk of cost inﬂation is increasing
• Ongoing review of energy purchasing policy (covering short-term and
given a number of factors, including:
medium-term energy purchasing).
• The Group currently spot purchases its energy requirements and also
• Rising UK inﬂation
enters into short and medium-term energy hedges as part of the overall
• Rising utility costs
energy purchasing strategy.
• Exchange rate movements
• Weekly Energy Cost Price & Forecast Reports are produced
• Labour shortages
and monitored.
• Raw material availability issues
• Trial of solar panels to reduce reliance on the grid.
• The impact of the war in Ukraine
• Energy Ambassadors complete energy audits in every business.
• Higher haulage and shipping costs
Please also refer to Purpose in Action – Sustainability on page 08.
• 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.
Mitchells & Butlers plc Annual Report and Accounts 2022 49
Introduction Strategic Report Governance Financial Statements Other Information
Risk category and description High-level controls/mitigating activities Movement
• The Group has a Safety Assurance team and uses a number of Risk Stable
### 10. Food supply chain safety
technical partners including food technologists, food safety experts,
microbiologists, allergy consultants, trading standards specialists
Malicious or accidental contamination in the
and nutritionists.
supply chain could lead to food goods for resale
• The Group uses a robust system of detailed product speciﬁcations.
being unﬁt for human consumption or being
• All food products are risk rated using standard industry deﬁnitions and
dangerous to consume. This could lead to
assessment of the way the products are used in the Group’s kitchens.
restrictions in supply which in turn cause an
Suppliers are then risk rated according to their products.
increase in cost of goods for resale and reduced
• Each food supplier is audited at least once per year in respect of safety
sales due to consumer fears and physical harm
and additionally in response to any serious food safety complaint
to guests and/or employees.
or incident.
• A robust response has been taken to manage allergens and the
Risk Stable
associated data within the menu cycle, coupled with a continuous
Risks facing the food supply chain safety are
review to ensure the controls in place remain appropriate.
regarded as stable.
• We monitor changing behaviour in relation to health and lifestyle issues Risk Increasing
### 11. Health and lifestyle
and adapt our brands to appeal to changing needs ensuring that the
### concerns
brands remain relevant and competitive.
• We have set targets for ongoing sugar and salt reduction.
Failure to respond to changing consumer
• A plan is in place to provide nutritional information for all brands to allow
expectations in relation to health and lifestyle
customers to make informed decisions. Please also refer to Purpose in
choices and our responsibility to facilitate those.
Action – Sustainability on page 08.
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 have set challenging targets in key areas such as greenhouse gas Risk Increasing
### 12. Environment and
emissions, food waste, recycling and use of plastics (see pages 32
### sustainability
and 33).
• We have completed an exercise to determine our baseline greenhouse
Climate change, biodiversity depletion and
gas emissions from which we have developed a plan to deliver our
environmental pollution present a risk to our
ambitions of reducing emissions by 25% by 2030, which has been
ability to source products, with food being
approved by the Board. Please also refer to our sustainability targets
particularly at risk.
on page 31.
• We are working with the World Resources Institute on their Cool Food
Risk Increasing
Pledge programme to reduce the emissions of food supply chain links,
The impact of extreme and longer-term shifts in
which is a signiﬁcant contributor to emissions globally.
weather patterns, natural resource depletion and
• All direct palm oil purchases continue to be sourced from Rainforest
other eﬀects of climate change could impact the
Alliance approved suppliers. Please also refer to our Value creation
business both ﬁnancially and reputationally.
story, on pages 38 to 41.
These factors could disrupt our supply chain and
• We are working with industry collaboration groups to develop a roadmap
the ability to source products due to reduced
to sourcing sustainable soy in our supply chain.
availability. Regulatory action to manage climate
• We are developing initiatives to reduce our consumption of natural
change could result in the introduction of
resources, with an electricity workstream live in the business, and gas
additional taxes or restrictions being imposed.
and water in the planning phases.
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.
50 Strategic Report Risks and uncertainties continued
Risk category and description High-level controls/mitigating activities Movement
• Contingency plans are in place to review and respond to enforced Risk Stable
### 13. Enforced Government
Government actions and/or severe business disruption or trading
### closure/trading restrictions
restrictions. These should be subject to a formal review.
• Business opening and closure processes have been updated.
There is a risk that the business could be
• Strong supply chain relationships are maintained to assist in the event
impacted by an enforced Government closure
of cancelling and/or returning stock orders.
or imposed severe trading restrictions, of part
• Robust processes are in place to manage Government furlough schemes.
or the whole of the estate, for example: regional
• The Group, and in particular the Safety and Security Team, is able to
and/or national and/or global pandemic,
adapt quickly and respond to a change in operational and functional
chemical and/or terrorist activity.
processes, as a result of a pandemic and/or business closures.
• Established communication cascade and mechanisms are in place for
A global pandemic may have a negative impact
employees, guests and suppliers.
on the Group’s operating and ﬁnancial
• IT infrastructure, hardware, systems and employee support is in place
performance and liquidity. An outbreak of a
to maintain remote working.
global virus may cause severe disruptions in the
• Key ﬁnancial controls have been reviewed, assessed and updated to
global economy which could adversely aﬀect
ensure they continue to be operated in the event of limited and/or no
the Group’s business or operations, as well as
access to either the Retail Support Centre or businesses.
the business or operations of third parties with
• A high-level review of lessons learned, following the Covid-19
whom the Group conducts business.
pandemic, has been undertaken to inform the required changes to
business planning and operating procedures.
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.
• The Group is a member of UK Hospitality Sustainability Committee Risk Stable
### 14. Introduction of carbon
which enables us to have foresight over potential policy changes
### taxes and levies
impacting the organisation.
• The Group has developed a Net Zero strategy with a target date of
This risk represents the impact on operating
2040. The strategy has been developed in partnership with an
costs of the business both directly through
independent third party and will be submitted for Science Based
taxation and indirectly through higher input
Targets initiative approval during FY 2023. Please also refer to our
costs which would result from the introduction
sustainability targets, outlined on page 31.
of taxation and levies attributed to greenhouse
• We have a number of initiatives underway designed to reduce our
gas emissions.
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
Risk Stable
date ahead of Government ambition will help to position the organisation
Qualitative assessment has identiﬁed this risk as
ahead of the market average. Please also refer to our Task Force on
both high in impact and likelihood over the short
Climate-related Financial Disclosures, on pages 28 to 31.
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.
Mitchells & Butlers plc Annual Report and Accounts 2022 51
Introduction Strategic Report Governance Financial Statements Other Information
Risk category and description High-level controls/mitigating activities Movement
• The weather has a high level of impact on trading levels across the Risk Stable
### 15. Increased severity of
Group and therefore monitoring weather forecasts in relation to
### extreme weather events
expected trading levels is a normal part of the ﬁnancial planning of
the Group.
This acute physical risk represents the risk to
• This monitoring activity will enable the Group to identify when patterns
both revenue and the supply chain of increased
of increased instances of extreme weather events begin to develop.
severe events. Revenue would be impacted
• In relation to site closure due to damage to buildings, such as during
through the interruption to trade caused by both
ﬂooding, we have insurance in place to recover the lost trade and
extremely hot weather and adverse weather
required repairs. Our experience during closure has meant that we have
such as rain and snow, and possible site closure
developed strategies to close sites at short notice, such that in the
as a result of ﬂooding. In addition, the availability
instance of extreme weather signiﬁcantly impacting trade we could
of products in the supply chain, in particular
close sites in order to mitigate some of the ﬁnancial losses which we
agricultural produce, could be impacted by
would be exposed to.
severe weather having an eﬀect on product
• To manage the risk associated with our supply chain, we monitor and
availability and input prices.
communicate with our suppliers closely giving us foresight over
potential supply issues. We also have suﬃcient breadth of products and
Risk Stable
dishes across our brands such that supply issues with one product could
Following a qualitative assessment, which
be mitigated through switching to a substitute. Please also refer to our
included a high-level review of previous
Task Force on Climate-related Financial Disclosures, on pages 28 to 31.
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.
52 Strategic Report
## Compliance statements

| Corporate Viability Disclosure | Key factors considered in the assessment of the | The Group’s three-year plan takes account of |  |
| --- | --- | --- | --- |
| In accordance with Provision 31 of the 2018 UK | Group’s prospects are a strong market position | these risks, in addition to the prevailing economic |  |
| Corporate Governance Code, the Directors have | with a broad range of brands and oﬀers trading | outlook and capital allocation decisions, alongside |  |
| undertaken an assessment, including sensitivity | from a well-positioned and largely freehold | limited mitigating activity such as improved |  |
| analysis, of the prospects of the Group for a | estate, supported by the resumption of capital | operational eﬃciencies (stock and labour |  |
| period of three years to September 2025. | investment focused on premiumisation of oﬀers | management and energy saving initiatives) to |  |
|  | and an appropriate remodel cycle, all anticipated | manage these costs. In the base case scenario the |  |
| Assessment period | to contribute to outperformance against the | Group remains within solvency covenant limits |  |
| Three years continues to be adopted as an | wider market. | and has access to suﬃcient liquidity to meet its |  |
| appropriate period of assessment as it aligns with |  | outgoings. It is noted that there is a requirement to |  |
| the Group’s planning horizon in a fast moving | Assessment of viability | reﬁnance the unsecured facilities and potentially |  |
| market subject to changing consumer tastes in | The current funding arrangements of the Group | increase the amount in February 2024. It is |  |
| addition to economic and political uncertainties, | consist of £1.4bn of long-term securitised debt | considered that this can be accommodated within |  |
| and is supported by three-year forecasts as | which amortises on a scheduled proﬁle over the | the debt capacity of the business given future |  |
| approved by the Board. This period also aligns | next 14 years. Securitisation covenants are tested | anticipated recovery in proﬁt and the strength |  |
| with the triennial process for pensions valuations, | quarterly, both on an annual and a half year basis, | of the creditor relationships exhibited in the |  |
| a consideration in respect of future cash ﬂows. | although as set out in the note to the ﬁnancial | reﬁnancing exercises during FY 2020 and |  |
| Beyond this period, performance is impacted by | statements on going concern, a reﬁnancing was | FY 2021, noting also that each year a further |  |
| global macroeconomic and other considerations | undertaken during the prior reporting period, | c. £120m of securitised debt is expected to have |  |
| which become increasingly diﬃcult to predict. | resulting in a number of waivers and amendments | been paid down. The resilience of this base case |  |
| As set out below, this is particularly so at the | through to January 2023 being obtained. | plan is then assessed through the application of |  |
| current time. | Unsecured committed facilities of £150m were | forecast analysis, focused in particular on growth |  |
|  | in place at the year end, having been extended | of demand and high levels of input cost inﬂation |  |
| Assessment of prospects | during the reﬁnancing and equity Open Oﬀer. | during the current ﬁnancial year as well as on |  |
| The Group’s ﬁnancial planning process comprises | These facilities expire within the three-year term | a longer-term basis. Sensitivities of the following |  |
| a detailed forecast for the next ﬁnancial year, | of this assessment, in February 2024. | risks described in the Annual Report have also |  |
| together with a projection for the following two |  | been applied individually to the base plan. In all |  |
| ﬁnancial years. | Following the end of the third national lockdown | scenarios the Group remains proﬁtable but with |  |
|  | in 2021 sales have returned to growth above | the following impact on liquidity and solvency |  |
| The Group’s strategy seeks to provide long-term | pre-pandemic levels such that the principal | based on ﬁnancial covenants (Risk event 1) on |  |
| direction to protect the viability of the business | short-term risks facing the business are now | both secured debt and unsecured facilities: |  |
| model given prevailing and evolving market | assessed to be the maintaining and generating of |  |  |
| and economic conditions. The Directors’ | further growth on this level of demand, in addition | • Declining Sales Performance (Risk event 2): |  |
| assessment of longer-term prospects has been | to increased cost inﬂation notably in energy, |  | Lower like-for-like sales growth rate in |
| made taking account of the current and expected | wage rates and utilities. The Group has reviewed |  | FY 2023, FY 2024 and FY 2025 of |
| future ﬁnancial position and the principal risks | a number of forecast scenarios and sensitivities |  | approximately 2% pa, with the outcome that |
| and uncertainties, as detailed within the | around these risks, including additional stress |  | covenants would be breached in the second |
| Annual Report. | testing that has been carried out on the Group’s |  | half of FY 2023 and beyond. |
|  | ability to continue in operation under | • Cost of Goods Price Increases (Risk event 9): |  |
| At the current time uncertainty facing the | unfavourable operating conditions. In making this |  | Increase in direct Cost of Goods (Drink and |
| business remains particularly high due both to | assessment the Group has taken the view that |  | Food) resulting in margins 2 ppts lower in the |
| challenging and potentially volatile conditions as | there will be no material further adverse impact of |  | second half of FY 2023, and 0.5 ppts lower |
| a result of the extended impact of both Covid-19 | Covid-19 (or any other pandemic) such that sales |  | through FY 2024 and FY 2025, with the |
| and Brexit, and to global political developments, | will continue to grow year-on-year. In particular |  | outcome that covenants would be breached |
| supply chain disruptions and uncertain | it is assumed that no further mandated closure |  | in the second half of FY 2023 and beyond. |
| government policy, and to increasing cost | or trading restrictions will be reintroduced. | • Increased utilities cost (Risk event 9): |  |
| headwinds in areas such as energy, wages and | Through the assessment period, the Group is |  | additional £20m costs in the (uncapped) |
| food costs. These are exacerbated by concerns | forecasting sales growth against last year |  | second half of FY 2023, with reductions |
| over consumer spending power in the face | remaining at close to current levels. Further, it |  | delayed until FY 2025, with the outcome that |
| of falling real wages. Longer-term risks are | assumes that on a general basis the current very |  | covenants would be breached in the second |
| further identiﬁed around evolving consumer | high levels of cost inﬂation will start to abate |  | half of FY 2023 and beyond. |
| demands and tastes and the economic and | beyond FY 2023 and that energy markets and | • Increased Wage Cost Inﬂation (Risk event 6): |  |
| political environment. | costs in particular will start to revert to closer to |  | 1.5% increase in statutory NLW wage rate in |
|  | historical levels in absolute terms through FY 2024 |  | FY 2023, with no forecast covenant breaches |
|  | leading to a recovery in proﬁtability over the |  | but limited, or no, headroom. |

assessment period.
Mitchells & Butlers plc Annual Report and Accounts 2022 53
Introduction Strategic Report Governance Financial Statements Other Information

| As noted above, in the base case there is a |  |  | Section 172 Companies Act statement |  | In carrying out these functions, the Board had |
| --- | --- | --- | --- | --- | --- |
| requirement to reﬁnance unsecured facilities |  |  | The Directors have acted in a way that they |  | regard to those stakeholders which it had |
| before February 2024 and potentially increase |  |  | considered, in good faith, to be most likely to |  | identiﬁed as being of signiﬁcant importance. |
| the amount. With Declining Sales Performance |  |  | promote the success of the Company for the |  | These are the Company’s shareholders, those |
| and Cost of Goods Price Increases this would |  |  | beneﬁt of its members as a whole and in doing |  | employees of the Mitchells & Butlers Group who |
| be required earlier, in FY 2023, as it would in |  |  | so have given regard, amongst other matters, |  | were likely to be aﬀected by the activities of the |
| a scenario representing an aggregation of all |  |  | to the following considerations in the decisions |  | Company (including their job security and |
| downside sensitivities. In all other individual |  |  | taken during the ﬁnancial period ended |  | entitlements in terms of pay, pensions and other |
| sensitivities reﬁnancing would not have to be |  |  | 24 September 2022: |  | beneﬁts), guests who purchase goods and |
| undertaken earlier than in FY 2024. |  |  |  |  | services provided by the Company, suppliers to |
|  |  |  | • the likely consequences of any decision in the |  | the Company, whether they are external to the |
| Viability statement |  |  |  | long term; | Mitchells & Butlers Group or within that group, |
| The Directors have concluded, based upon the |  |  | • the interests of the Company’s employees; |  | governmental authorities such as HMRC and |
| extent of the ﬁnancial planning assessment, |  |  | • the need to foster the Company’s business |  | regulatory bodies, the Trustees of the Group’s |
| sensitivity analysis, potential mitigating actions |  |  |  | relationships with suppliers, guests and | pension schemes, providers of ﬁnance to the |
| and current ﬁnancial position that there is a |  |  |  | others; | Group including its banks and bond holders, |
| reasonable expectation that the Group will have |  |  | • the impact of the Company’s operations on |  | real estate property counterparties (whether as |
| access to suﬃcient resources to continue in |  |  |  | the community and environment; | landlords or tenants) and those speciﬁc entities |
| operation and meet all its liabilities as they fall due |  |  | • the desirability for high standards of business |  | or individuals who are likely to be aﬀected by |
| over the three-year period to September 2025. |  |  |  | conduct; and | the outcome of the relevant matter falling for |
| However, due to the prevailing high level of |  |  | • the need to act fairly as between members |  | consideration on a case-by-case basis. |
| unpredictability and uncertainty concerning both |  |  |  | of the Company. |  |
| future demand and the persistence of high levels |  |  |  |  | There is a robust and transparent process in place |
| of cost inﬂation, the Directors do not believe that |  |  | The Board has a duty under Section 172 |  | to provide an appropriate level of direction and |
| the possibility of an unwaived breach of covenant |  |  | Companies Act 2006 to promote the success of |  | support in the identiﬁcation, assessment and |
| or shortfall in liquidity over the three-year period |  |  | the Company and, in doing so, must take account |  | management of risks across all areas of the |
| is remote. Under such a scenario the Directors |  |  | of the eﬀect on other stakeholders of how it |  | business which have the potential to seriously |
| believe that waivers should be obtained from |  |  | manages the business of the Company, whether |  | damage our ﬁnancial position, our shareholder |
| main stakeholders but this is not fully within the |  |  | these stakeholders are from within the Company, |  | value, our responsibilities to our staﬀ and guests, |
| Group’s control. Given this, and the material |  |  | in its group or outside the Company and its group. |  | our reputation and our relationships with key |
| uncertainty highlighted in the going concern |  |  | Throughout the year the Board has kept in mind |  | stakeholders. Established communication |
| assessment, the viability of the business over the |  |  | these responsibilities as it has supervised and |  | cascade and mechanisms are in place for |
| three-year assessment period remains uncertain. |  |  | monitored the business activities and prospects |  | employees, suppliers and guests: engagement |
|  |  |  | of the Company and as it has considered, and, |  | with employees is discussed on page 67 of the |
| Non-ﬁnancial information statement |  |  | where appropriate, made decisions relating to |  | Directors’ Report, which sets out the various |
| The Group has complied with the requirements of |  |  | strategic aspects of the Company’s aﬀairs. |  | platforms for employee communications, |
| s414CB of the Companies Act 2006 by including |  |  |  |  | facilitated by Dave Coplin, a Non-Executive |
| certain non-ﬁnancial information within the |  |  | In addition, the 2018 UK Corporate Governance |  | Director who acts as the ‘employee voice’; |
| report. This can be found as follows: |  |  | Code speciﬁcally requires that the Board should |  | engagement with key, critical suppliers is |
|  |  |  | understand the views of the Company’s key |  | addressed on page 75 of the Corporate |
| • Business model on pages 34 to 37. |  |  | stakeholders (including employees, suppliers, |  | Governance Statement which describes the |
| • Information regarding the following matters |  |  | customers and others) and keep stakeholder |  | supplier tiering process; and engagement with |
|  | can be found on the following pages: |  | engagement mechanisms under review so they |  | guests is discussed on page 101 of the Report |
|  | – Environmental matters on pages 32, 33, |  | remain eﬀective. The 2018 Code also recommends |  | on Directors’ remuneration which describes the |
|  |  | 40, and 41; | that there should be regular reporting as to how |  | mechanisms for providing guest feedback. |
|  | – Employees on page 39; |  | the Board has complied with this engagement |  |  |
|  | – Social matters on pages 38 to 41; |  | approach in its decision-making processes and |  | The Company’s culture is embodied in a set of |
|  | – Respect for human rights on pages 68, 81 |  | how the interests of diﬀerent shareholders have |  | PRIDE values of Passion, Respect, Innovation, |
|  |  | and 82; | been considered. |  | Drive and Engagement which underpin its key |
|  | – Anti-corruption and anti-bribery matters |  |  |  | priorities of People, Practices, Proﬁts and Guests. |
|  |  | on pages 81 and 82. |  |  | The Board observes these PRIDE values in |
| • Where principal risks have been identiﬁed in |  |  |  |  | discharging its everyday responsibilities in order |
|  | relation to any of the matters listed above, |  |  |  | to ensure that decisions taken are in line with the |
|  | these can be found on pages 44 to 51 |  |  |  | Company’s values and objectives. High standards |
|  | including a description of the business |  |  |  | of business conduct are expected, in furtherance |
|  | relationships, products and services which are |  |  |  | of which the Board has implemented a Code of |
|  | likely to cause adverse impacts in those areas |  |  |  | Ethics, which is fully described on pages 81 and |
|  | of risk, and a description of how the principal |  |  |  | 82 of the Corporate Governance Statement, |
|  | risks are managed. |  |  |  | and a declaration of compliance with the Modern |
| • All key performance indicators of the Group, |  |  |  |  | Slavery Act 2015 (including a Supplier Code of |
|  | including those non-ﬁnancial indicators, are on |  |  |  | Conduct) is dealt with on page 68 of the |
|  | pages 42 and 43. |  |  |  | Directors’ Report. Appropriate scrutiny of the |
| • The Financial review section on pages 55 to 58 |  |  |  |  | environmental impact of the Group’s activities |
|  | includes, where appropriate, references to, |  |  |  | is included in the Sustainability section of the |
|  | and additional explanations of, amounts |  |  |  | Strategic Report on pages 32 and 33. |

included in the accounts.
54 Strategic Report Compliance statements continued
Not all of those stakeholders’ interests fall for In reaching its decisions, the Board was mindful
consideration in each set of circumstances which of the need to seek to preserve the integrity of
the Board has to consider. However, as and when the Company’s business so that it could trade
a particular matter falls for review by the Board, successfully again after the impact of the Covid-19
it ﬁrst seeks to identify those stakeholders which pandemic had passed but that it would need to
are likely to be impacted by the decision of the allocate its resources in such a way as to ensure
Board, and then the Board discusses the creditors’ interests and the interests of other
respective interests of those stakeholders as well stakeholders such as employees and guests were
as the consistency (or otherwise) of the relevant not prejudiced. This led to a need for allocation
proposal with the Board’s existing, or any of cash resources in a prudent and carefully
proposed change(s) to its, strategic plan. controlled way whilst ensuring that, over time,
creditors received payment of amounts
Major matters considered by the Board during the properly due.
year related primarily to the eﬀect on the Group’s
business and its guests, employees and suppliers Board papers set out the rationale for the
of the continued impact of the Covid-19 proposals and the relevant decisions were made
pandemic, including the emergence of the after discussion amongst the Board members with
‘Omicron’ variant of the virus, and the implications appropriate legal, accounting, HR and treasury

| of rising cost inﬂation notably on food and utility | input. The processes implemented by the Board |
| --- | --- |
| costs driven by macro economic challenges and | included regular meetings to consider key |
| geopolitical issues including the conﬂict in | developments as well as the provision, refreshed |
| Ukraine. There were also similar considerations | during the ﬁnancial year, of training to Directors |
| made by the Board in relation to the Group’s | in relation to their responsibilities as directors of |
| German business and the impact of the | a limited company, including the responsibilities |
| continuing Covid-19 pandemic and costs | under Section 172 Companies Act 2006. |

pressures on its operations, creditors, employees,
regulatory bodies and other stakeholders, Speciﬁc consideration was given in the decision-
including regional and federal German making processes implemented by the Board to
Government authorities. how the manner in which the Company operated,
and the speciﬁc proposals it was asked to
In considering the implications of the Covid-19 consider, aligned to its strategic goals as described
pandemic and the other external factors referred on pages 26 and 27 and its agreed purpose as
to above, the Board looked not only at the position referred to on page 03.
and prospects of the Company, but also took
into consideration the wider Mitchells & Butlers The Board also conﬁrmed that, in discharging its
Group as a whole, in relation to the ﬁnancing responsibilities for management, supervision and
arrangements and the need to comply with the control of the Company’s business and its aﬀairs,
Group’s obligations of its securitisation it would seek to align to the Mitchells & Butlers
arrangements and other ﬁnancial arrangements. Group PRIDE Values of Passion, Respect,
Innovation, Drive and Engagement as set out
Having identiﬁed the relevant stakeholders and at page 35 of this Annual Report.
their interests in relation to speciﬁc matters or

| particular circumstances, the Board then assessed | Throughout this Annual Report we provide |
| --- | --- |
| the relevant weighting of those interests in | examples of how we take these considerations |
| considering and eventually reaching its | into account. The Board values the importance of |
| conclusions. This was of particular importance in | eﬀective stakeholder engagement and believes |
| relation to its decisions relating to the ongoing | that stakeholders’ views should be considered in |
| eﬀects of the Covid-19 pandemic, which included | its decision-making. Details of how we engage |
| the emergence of the ‘Omicron’ variant of the | with various stakeholders can be found on pages |
| virus, leading to an adverse impact over the | 38 to 41. |

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.
Mitchells & Butlers plc Annual Report and Accounts 2022 55
Introduction Strategic Report Governance Financial Statements Other Information
## 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

| The Group Income Statement discloses adjusted | Revenue | Unless otherwise noted, sales comparisons |
| --- | --- | --- |
| proﬁt and earnings per share information that | Total revenue of £2,208m (FY 2021 £1,065m) | below are on a three-year basis, to the same |
| excludes separately disclosed items to allow an | reﬂects a period of continuous trading, albeit | period in FY 2019, being the last full pre-Covid-19 |
| understanding of the trading performance of the | disrupted by the Omicron variant in the ﬁrst | ﬁnancial year. |
| Group. Separately disclosed items are those | quarter, as compared to the prior year which |  |

a
which are separately identiﬁed by virtue of their included substantial closures and restrictions Like-for-like sales for the year increased by 1.1%,
a
size or incidence. relating to Covid-19. Sales ﬁgures in the ﬁrst half comprising an increase in like-for-like food sales
a

|  | of the year include the beneﬁt of the temporary | of 5.2% and a decrease in like-for-like drink sales |
| --- | --- | --- |
| At the end of the period, the total estate | reduction in the rate of VAT on food and | of (4.1)%. |
| comprised 1,718 sites in the UK and Germany | non-alcoholic drink sales to 12.5%. |  |

of which 1,636 are directly managed.

|  | Statutory Adjusted |  |  |  |  | a |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| FY 2022 |  | FY 2021 |  | FY 2022 |  | FY 2021 |  |
|  | £m |  | £m |  | £m |  | £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%
Financial review continued56 Strategic Report
a

| Like-for-like sales | growth/(decline) against FY 2019: |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Weeks 1–15 |  | Weeks 16–28 |  | Weeks 29–42 |  | Weeks 43–52 |  |
|  |  |  | Q1 |  | Q2 |  | Q3 |  | 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)%
Sales growth in food was driven by premiumisation and other increases in We continue to work very hard to mitigate as much of the impact of these
spend per head, with the strongest performances in our premium, food-led cost increases as we can, both through driving sales growth and through
brands. Volumes for both food and drink were in double-digit decline against identifying and implementing further cost eﬃciencies, all executed under
FY 2019. 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
a
For the ten weeks since the period end like-for-like sales against FY 2019 year before mitigation, with operating margins remaining lower than
have increased by 9.2%. pre-Covid levels in the medium term.
Moving forward it will become more meaningful to use FY 2022 as a primary Government Support
a
comparator for like-for-like sales . On this basis, for the ten weeks since the Following the outbreak of the Covid-19 global pandemic in early 2020 and
a
period end, like-for-like sales have increased by 6.5%, comprising an the subsequent enforced closure of the business, M&B received a number of
a a
increase in like-for-like food sales of 1.9% and like-for-like drink sales growth diﬀerent areas of support from both local and central Government in the UK
of 12.1%, with both in volume growth. Total sales in this period grew by 7.3%. and in Germany. During the year, Government support was received in the
form of Local Authority Grants £3m (FY 2021 £11m), business rates relief
Separately disclosed items £5m (FY 2021 £75m), grants for loss of proﬁts in Germany £1m (FY 2021
Separately disclosed items are identiﬁed due to their nature or materiality £14m) and apprenticeship incentives £1m (FY 2021 £nil).
to help the reader form a view of overall and adjusted trading.
In the prior period, £210m of support was received in relation to the UK
A £117m reduction in value is recognised relating to valuation and Coronavirus Job Retention Scheme (‘CJRS’) and a further £9m of
impairment of properties, comprising a £86m impairment arising from the Government assistance for wages and salaries in Germany (Kurzarbeit).
revaluation of freehold and long leasehold sites, a £9m impairment of short
leasehold and unlicensed properties and a £22m impairment of right-of-use The Group also beneﬁted from a reduction in the rate of VAT from 20% to
assets. The £22m tax credit relates to these impairments. 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
There was a £1m net proﬁt arising on property disposals in the period. 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
a
Operating proﬁt and margins (FY 2021 £81m).
a
Adjusted operating proﬁt for the year was £240m (FY 2021 £29m),
a substantial increase on FY 2021 which was signiﬁcantly impacted by Interest
Covid-19 closures and restrictions. 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.
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. The net pensions ﬁnance charge was £2m (FY 2021 £3m). The net pensions
Statutory operating margin of 5.6% was 2.0 ppts lower than last year due to charge for next year is expected to remain at the same level.
the impact of separately disclosed property impairments.
Earnings per share
Inﬂationary cost pressures presented an increasing challenge both to our Basic earnings per share, after the separately disclosed items described
a
business and to the hospitality sector as a whole, especially through the above, were 2.2p (FY 2021 loss (11.5)p), adjusted earnings per share were
second half of the year. Inﬂationary costs were initially concentrated in the 18.0p (FY 2021 loss (13.6)p).
areas of energy, wages and food costs but progressively became evident
throughout most of the supply chain. Inﬂationary cost headwinds against The basic weighted average number of shares in the period was 595m and
FY 2019 totalled c. £220m during FY 2022, over the three year period, with the total number of shares issued at the balance sheet date was 597m.
energy cost increases contributing c. £70m, after consumption savings.
Mitchells & Butlers plc Annual Report and Accounts 2022

57

# 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
Financial review continued58 Strategic Report
Pensions Going concern
During the period, the trustees of the M&B Executive Pension Plan After considering forecasts, sensitivities and mitigating actions available to
(‘MABEPP’), working closely with the Company, have successfully management and having regard to risks and uncertainties, the Directors have
completed a full scheme buy-in with Legal and General Assurance Society a reasonable expectation that the Group has adequate resources to continue
Limited. This transaction eliminates substantially all remaining risk in this to operate within its borrowing facilities and covenants for a period of at least
scheme within the level of existing committed contributions. The MABEPP 12 months from the date of signing the ﬁnancial statements. However, given
makes up approximately 20% of the Company’s total pension obligations, the prevailing high level of unpredictability and uncertainty concerning both
with the vast majority of the balance being in the M&B Pension Plan (‘MABPP’). sales and, particularly, cost inﬂation, the Directors have concluded that a
material uncertainty exists which may cast signiﬁcant doubt over the Group’s
The latest triennial pension valuations of both schemes are assessed as at ability to trade as a going concern, in which case it may be unable to realise its
31 March 2022 (2019 £293m combined deﬁcit). MABEPP having already assets and discharge its liabilities in the normal course of business.
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 Accordingly, the ﬁnancial statements continue to be prepared on the going
improvement in the actuarial funding position. Once the valuations are concern basis but with material uncertainty arising from the impact of
agreed, the future contributions to be made by the Company until 2023 macroeconomic factors on the Group’s compliance with ﬁnancial covenants
should remain unchanged, but with all monies now being made into blocked and its liquidity. Full details are included in note 1.
escrow accounts.
a

| Net debt | and facilities |  | Tim Jones |
| --- | --- | --- | --- |
| Following the adoption of IFRS 16 in FY 2020, leases are now included in |  |  | Chief Financial Oﬃcer |
|  | a | a |  |
| net debt | . Net debt | at the period end was £1,679m, comprised of £1,198m | 6 December 2022 |

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
a. The Directors use a number of alternative performance measures (‘APMs’) that are
a
an analysis of net debt can be found in Notes 4.1 and 4.4 to the ﬁnancial considered critical to aid understanding of the Group’s performance. Key measures are
statements and at www.mbplc.com/infocentre/debtinformation/. explained on pages 177 to 179 of this report.
59Mitchells & Butlers plc Annual Report and Accounts 2022
Introduction Strategic Report Governance Financial Statements Other Information
## 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
60 Governance
## 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
The ﬁrst quarter of FY 2022 was once again
### As at 24 September 2022, the Company had more than
impacted by Covid-19, with the spread of the
### 46,000 employees and one of the key roles for the Board is Omicron variant, though the operating and
trading environment of the Group’s businesses
### to provide leadership for them and maintain the highest
has, in all material respects, returned to the
### possible standards of corporate governance. normal pattern of activities which existed prior
to the Covid-19 pandemic.

| The Company is required to report under the | FY 2022 has brought about additional reporting | Our broad range of Board talent covers a variety |
| --- | --- | --- |
| 2018 UK Corporate Governance Code (the ‘2018 | requirements in relation to climate change and full | of professional skills, and our diverse group of |
| Code’). The 2018 Code places emphasis on | details are included in that section of the Strategic | Non-Executive Directors continue to bring much |
| relationships between companies, shareholders | Report on pages 28 to 31. Phil Urban heads our | experience and challenge to the Board. Susan |
| and stakeholders. It also promotes the importance | climate change policy initiatives, and while this | Murray, our Senior Independent Director, |
| of establishing a corporate culture that is aligned | area remains a responsibility of the entire Board, | decided not to submit herself for re-election at |
| with the Company’s purpose and business | the Corporate Responsibility Committee manages | the 2022 Annual General Meeting in order to |
| strategy, promotes integrity and values diversity | and monitors the detail of the Group’s approach | concentrate on her other commitments and |
| and sets the expectations for reporting the | to this important topic. The organisational and | activities, and Jane Moriarty accepted the Board’s |
| Board’s involvement in these areas. Some of these | reporting structure for climate governance is set | invitation to become the Senior Independent |
| aspects of the 2018 Code are reﬂected in the | out on page 29 in our climate related disclosures. | Director with eﬀect from the end of the 2022 |
| Strategic Report on pages 10 to 58, which sets out |  | AGM. I would like to thank Susan for her |
| the Group’s strategy, progress and performance | During the year, the Board continued to work | dedicated service and unwavering support, |
| for the year. Meanwhile, the Board-focused | together to deal with the many and varied | particularly during the course of the pandemic. |
| corporate governance aspects of the 2018 Code | challenges arising from the ongoing consequences |  |
| are reﬂected in the Corporate Governance | of the pandemic, together with the continued |  |
| Statement on pages 73 to 84, which sets out | drain on cash resources. I am very grateful both |  |
| the Company’s compliance against published | to the Board and all our employees who pulled |  |
| governance requirements where there is | together so magniﬁcently to remain steadfast in |  |
| a narrative explanation as to how the Board | such diﬃcult circumstances. |  |

has approached compliance with, or in a few
limited areas divergence from, the Code’s best
practice guidance.
Mitchells & Butlers plc Annual Report and Accounts 2022 61
Introduction Strategic Report Governance Financial Statements Other Information

| We were very pleased to welcome Amanda | The annual appraisal of my performance as |
| --- | --- |
| Brown as a new Non-Executive Director, who | Chairman was carried out in FY 2022 by the |
| joined the Board with eﬀect from 4 July 2022 and | Senior Independent Director, Jane Moriarty, |
| at the same time, was appointed Chair of the | with the conclusions fed back to me. |

Remuneration Committee. She brings extensive
Human Resources skills to the Board and has The remainder of this Corporate Governance
previous experience of chairing a Remuneration Statement contains the narrative reporting
Committee. We look forward to working with her required by the 2018 Code, the Listing Rules and
to continue to develop the business and you can the Disclosure Guidance and Transparency Rules.
read her Report on Directors’ remuneration on I hope that you ﬁnd this Corporate Governance
page 89. Statement to be informative and helpful in relation
to this important topic.
Finally, our Company Secretary and General

| Counsel, Greg McMahon, stepped down from | We are committed to maintaining an active |
| --- | --- |
| his role on 31 August 2022 having been with us | dialogue with all our shareholders, and we |
| since 2013, and we wish him a long and happy | continue to oﬀer our institutional investors access |
| retirement. We are delighted to welcome his | to key senior management and our Investor |
| replacement, Andrew Freeman, to the Company. | Relations team. The Chair of each of our Audit |

Committee and Remuneration Committee and
My focus will continue to be on maintaining a the Senior Independent Director are available for
strong team, with a broad range of professional dialogue with shareholders on any signiﬁcant
backgrounds, experience from both within matters in relation to their areas of responsibility
our sector and in other industries and businesses if this is needed and you can read their reports on
and communication skills to drive further pages 85 and 89 respectively.
improvements where possible. From a
governance standpoint, the basic governance The Annual General Meeting will be held in
arrangements already in place are unchanged February 2023 and all shareholders are welcome
since FY 2021, with the exception of additional to attend. For those shareholders who cannot
procedures and reporting arrangements put in attend but would like to hear the proceedings, we
place in order to comply with the new climate will also supply a telephone listen-only facility. Full
change requirements. Certain aspects of the 2018 details are set out in the separate Notice of AGM
Code could not be, and were not, complied with published with this Annual Report.
in FY 2021 and this continued into FY 2022. These
deviations from the 2018 Code are fully explained I look forward to the year ahead, conﬁdent in the

| on pages 76 and 77 in the Corporate Governance | knowledge that the Company is led by a highly |
| --- | --- |
| Statement in line with the ‘Comply or Explain’ | competent, professional and motivated team. |
| regime which forms an intrinsic part of that | I also look forward to the support of you, our |
| 2018 Code. | shareholders, as our senior management team |

looks to rebuild the business and continues to
The 2018 Code states that there should be a focus on driving future proﬁt growth and creating
formal and rigorous annual evaluation of the additional shareholder value.
performance of the board, its committees,
the chair and individual directors and that the

| chair should consider having a regular externally | Bob Ivell |
| --- | --- |
| facilitated board evaluation. In FTSE 350 | Chairman |
| companies this should happen at least every three | Mitchells & Butlers plc |

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 For the Company’s latest ﬁnancial information
read the Board biographies on pages 62 and 63. Go to www.mbplc.com/investors
62 Governance
## Board of Directors
### A strong leadership team
### 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.
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

| Bob Ivell | Phil Urban | Tim Jones |
| --- | --- | --- |
| Non-Executive | Chief Executive | Chief Financial |
| Chairman |  | Oﬃcer |
| R N M C P | M E P | M E P |
| Appointed to the Board in May 2011, Bob has | Phil joined Mitchells & Butlers in January 2015 | Tim was appointed Chief Financial Oﬃcer in |
| over 40 years of extensive food and beverage | as Chief Operating Oﬃcer and became Chief | October 2010. Prior to joining the Company, |
| experience with a particular focus on food-led, | Executive in September 2015. Phil was previously | he held the position of Group Finance Director |
| managed restaurants, pubs and hotels. He is | Managing Director at Grosvenor Casinos, | for Interserve plc, a support services group. |
| currently a Non-Executive Director of Charles | a division of Rank Group and Chairman of the | Previously, he was Director of Financial |
| Wells Limited and a board member of UK | National Casino Forum. Prior to that, he was | Operations at Novar plc and held senior ﬁnancial |
| Hospitality. He was previously Senior | Managing Director for Whitbread’s Pub | roles both in the UK and overseas in the logistics |
| Independent Director of AGA Rangemaster | Restaurant Division, and for Scottish & Newcastle | company, Exel plc. Tim is a member of the |
| Group plc and Britvic plc, and a main board | Retail’s Restaurants and Accommodation | Institute of Chartered Accountants in England |
| Director of S&N plc as Chairman and Managing | Division. Phil has an MBA and is a qualiﬁed | and Wales and obtained an MA in Economics |
| Director of its Scottish & Newcastle retail division. | management accountant (‘CIMA’). | at Cambridge University. |

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.
Mitchells & Butlers plc Annual Report and Accounts 2022 63
Introduction Strategic Report Governance Financial Statements Other Information

| Amanda Brown | Keith Browne | Dave Coplin |
| --- | --- | --- |
| Non-Executive | Non-Executive | Non-Executive |
| Director | Director | Director |
| A R N C | P | A R N C |
| Amanda joined the Board in July 2022 as an | Appointed as a Non-Executive Director in | Appointed as an independent Non-Executive |
| independent Non-Executive Director. She is | September 2016, Keith is a nominated | Director in February 2016, Dave is the Chief |
| a Non-Executive Director and Chair of the | shareholder representative of Elpida Group | Executive Oﬃcer and founder of The Envisioners |
| Remuneration Committee of Micro Focus | Limited, which, as part of the Odyzean Group, | Limited. He was formerly the Chief Envisioning |
| International PLC and was formerly the Chief | is a signiﬁcant shareholder in Mitchells & Butlers. | Oﬃcer for Microsoft Limited, and is an |
| Human Resources Oﬃcer of Hiscox Limited. | He is a Non-Executive Director of Grove Limited, | established thought leader on the role of |
| She previously held senior executive roles | the holding company of Barchester Healthcare | technology in our personal and professional lives. |
| with Whitbread Group PLC, PepsiCo, Inc | Limited. Keith obtained a Bachelor of Commerce | For over 25 years he has worked across a range of |
| and Mars, Inc. Amanda is Chair of the | Degree from University College Dublin, qualiﬁed | industries and customer marketplaces, providing |
| Remuneration Committee. | as a chartered accountant in 1994 and | strategic advice and guidance around the role and |
|  | subsequently gained an MBA from University | optimisation of technology in modern society, |
|  | College Dublin. After joining KPMG Corporate | both inside and outside of the world of work. |
|  | Finance in 1996, he became a partner in the ﬁrm | Dave is also a Non-Executive Director of each of |
|  | in 2001 and Head of Corporate Finance in 2009. | the Pensions and Lifetime Savings Association |
|  | He retired from the partnership to operate as an | and Vianet Group plc. |

Independent Consultant in 2011.

| Eddie Irwin | Josh Levy | Jane Moriarty |
| --- | --- | --- |
| Non-Executive | Non-Executive | Senior Independent |
| Director | Director | Director |
| N C | R P | A R N C M |
| Appointed as a Non-Executive Director in | Appointed as a Non-Executive Director in | Appointed as an independent Non-Executive |
| March 2012, Eddie is a nominated shareholder | November 2015, Josh is a nominated shareholder | Director in February 2019, Jane is a Fellow of the |
| representative of Elpida Group Limited, which, | representative of Piedmont Inc., which, as part of | Institute of Chartered Accountants in Ireland, and |
| as part of the Odyzean Group, is a signiﬁcant | the Odyzean Group, is a signiﬁcant shareholder | currently a Non-Executive Director of Babcock |
| shareholder in Mitchells & Butlers. Eddie is | in Mitchells & Butlers. Josh is Chief Executive of | International Group PLC, and a Director of NG |
| Finance Director of Coolmore, a leading | Ultimate Finance Group, Chairman of Avenue | Bailey Group Limited, Quarto Group Inc., |
| thoroughbred bloodstock breeder with | Insurance and a Director of Tavistock Group. | Tennants Consolidated Limited, Nyrstar NV and |
| operations in Ireland, the USA and Australia | Josh previously worked in the Investment Banking | Martin’s Investments Limited. Jane was previously |
| and a Non-Executive Director of Grove Limited, | Division of Investec Bank. | a senior advisory partner with KPMG LLP. Jane is |
| the holding company of Barchester Healthcare |  | Chair of the Audit Committee. |

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.
64 Governance

# Directors' report

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.
Mitchells & Butlers plc Annual Report and Accounts 2022

65

# 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 |   |
| --- | --- | --- | --- |
|  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
66 Governance Directors' report continued

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 shareholders 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.

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  |
Mitchells & Butlers plc Annual Report and Accounts 2022

67

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.

#### 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 policies 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.

Introduction

Strategic Report

Governance

Financial Statements

Other Information
68 Governance Directors' report continued

# 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.

![img-0.jpeg](img-0.jpeg)

# 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.
Mitchells & Butlers plc Annual Report and Accounts 2022

69

### 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.

### 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.

Introduction

Strategic Report

Governance

Financial Statements

Other Information
70 Governance 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 Scope 1 and 2 emissions are reported for both FY 2022 and FY 2021 on a ﬁnancial year basis.
ﬁnancial statements
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.
Mitchells & Butlers plc Annual Report and Accounts 2022 71
Introduction Strategic Report Governance Financial Statements Other Information
Global GHG emissions and energy use data for FY 2022
Current reporting year FY 2022 Comparison reporting year FY 2021

|  |  |  |  | Global |  |  | Global |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | UK and | (excluding UK |  | UK and | (excluding UK |  | % Change |
|  |  | oﬀshore | and oﬀshore) Total |  | oﬀshore | and oﬀshore) Total |  | 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)
a
– (location-based) – – 69 – – 102 -32%
Intensity Ratio: tCO 2 e/turnover(£m)
a
– (market-based) – – 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
72 Govern ance
## Statement of Directors’ responsibilities in
## respect of the Annual Report and Accounts
The Directors are responsible for the maintenance and integrity of the
### The Directors are responsible for
corporate and ﬁnancial information included on the Company’s website.
### preparing the Annual Report and Accounts Legislation in the UK governing the preparation and dissemination of
ﬁnancial statements may diﬀer from legislation in other jurisdictions.
### and the Group and parent Company
### ﬁnancial statements in accordance with In accordance with Disclosure Guidance and Transparency Rule 4.1.14R,
the ﬁnancial statements will form part of the annual ﬁnancial report prepared
### applicable law and regulations.
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.
Company law requires the Directors to prepare Group and parent Company
ﬁnancial statements for each ﬁnancial year. Under that law they are required
Responsibility statement of the Directors in respect of the
to prepare the Group ﬁnancial statements in accordance with UK-adopted
annual ﬁnancial report
international accounting standards and applicable law and have elected to
We conﬁrm that to the best of our knowledge:
prepare the parent Company ﬁnancial statements on the same basis.
• the ﬁnancial statements, prepared in accordance with the applicable set
Under company law the Directors must not approve the ﬁnancial statements
of accounting standards, give a true and fair view of the assets, liabilities,
unless they are satisﬁed that they give a true and fair view of the state of
ﬁnancial position and proﬁt or loss of the Company and the undertakings
aﬀairs of the Group and parent Company and of the Group’s proﬁt or loss for
included in the consolidation taken as a whole; and
that period. In preparing each of the Group and parent Company ﬁnancial
• the Strategic Report includes a fair review of the development and
statements, the directors are required to:
performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a whole, together
• select suitable accounting policies and then apply them consistently;
with a description of the principal risks and uncertainties that they face.
• make judgements and estimates that are reasonable, relevant
and reliable;
We consider the Annual report and Accounts, taken as a whole, is fair,
• state whether they have been prepared in accordance with UK-adopted
balanced and understandable and provides the information necessary for
international accounting standards;
shareholders to assess the Group’s position and performance, business
• assess the Group and parent Company’s ability to continue as a going
model and strategy.
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
Tim Jones
have no realistic alternative but to do so.
Chief Financial Oﬃcer
6 December 2022
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.
Mitchells & Butlers plc Annual Report and Accounts 2022 73
Introduction Strategic Report Governance Financial Statements Other Information
## Corporate
## governance
## statement
## “This statement sets out our report to
## shareholders on the status of our
## corporate governance arrangements.”
### Bob Ivell
### Chairman
On a more informal basis, the Chairman, the Chief
### The Board is responsible for ensuring that the activities
Executive and the Chief Financial Oﬃcer regularly
### of the Group and its various businesses are conducted in report to the Board the views of larger shareholders
about the Company, and the other Non-Executive
### compliance with the law, regulatory requirements and
Directors are available to meet shareholders on
### rules, good practices, ethically and with appropriate and request and are oﬀered the opportunity to attend
meetings with larger shareholders.
### proper governance and standards.
The AGM provides a useful interface with
shareholders, many of whom are also guests in
This includes reviewing internal controls, ensuring Shareholder relations
our pubs, bars and restaurants. All proxy votes
that there is an appropriate balance of skills and The Board recognises that it is accountable to
received in respect of each resolution at the AGM
experience represented on the Board, compliance shareholders for the performance and activities
are counted and the balance for and against, and
with the applicable UK Corporate Governance of the Company. The Company regularly updates
any votes withheld, are indicated.
Code, which is issued by the Financial Reporting the market on its ﬁnancial performance, at the half
Council and which is available at www.frc.org.uk, year and full year results in May and December
At the January 2022 Annual General Meeting,
and maintaining appropriate relations with respectively, and by way of other announcements
the Company had four resolutions where 20%
shareholders and other stakeholders. as required. The content of these updates is
or more of votes cast were cast against the
available by webcast on the Company’s website
resolution. These were in respect of the annual
The latest ﬁnancial information for Mitchells & www.mbplc.com, together with general
report on remuneration, and the re-election of
Butlers and its Group of companies is included information about the Company so as to be
Bob Ivell (Chairman), Eddie Irwin and Josh Levy,
in the 2022 Annual Report and Accounts available to all shareholders. The Company has
and resulted in the Company featuring in the
(of which this Corporate Governance Statement a regular programme of dialogue with its larger
Investment Association’s public register of
forms part) and which is available online at: shareholders which provides an opportunity to
shareholder dissent. The Company’s response
www.mbplc.com/investors. discuss, on the basis of publicly available
to its inclusion in that register can be found in
information, the progress of the business.
the register itself and on the Company’s website
www.mbplc.com.
74 Governance Corporate governance statement continued

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.

#### **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.

#### **I. 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.
Mitchells & Butlers plc Annual Report and Accounts 2022

75

## 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.

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 Odyssean 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 Iwell, 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.

Introduction

Strategic Report

Governance

Financial Statements

Other Information
76 Governance Corporate governance statement continued

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 I 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).

#### 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 Ivel 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 Ivel 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 Ivel'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 Ivel'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.
Mitchells & Rutlers plc Annual Report and Accounts 2022

77

The members of the Odyzean Group made extremely significant investments in the Company and currently held 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.

### 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 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.

Introduction

Strategic Report

Governance

Financial Statements

Other Information
78 G overnance Corporate governance statement continued
Attendance levels at Board and Committee meetings
Audit Remuneration Nomination
Directors who served during the year Board Committee Committee 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:
Date Date of change
Directors who served during the year appointed of role
a
Bob Ivell Independent Non-Executive Director 09/05/11 14/07/11
a
Interim Chairman 14/07/11 26/10/11
Executive Chairman 26/10/11 12/11/12
Non-Executive Chairman 12/11/12 –
b
Keith Browne Non-Executive Director 22/09/16 –
Amanda Brown Independent Non-Executive Director 04/07/22 –
Dave Coplin Independent Non-Executive Director 29/02/16 –
b
Eddie Irwin Non-Executive Director 21/03/12 –
Tim Jones Chief Financial Oﬃcer 18/10/10 –
c
Josh Levy 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.
Mitchells & Butlers plc Annual Report and Accounts 2022

79

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.

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.

Introduction

Strategic Report

Governance

Financial Statements

Other Information
80 Governance Corporate governance statement continued

# 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  |

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/
Mitchells & Butlers plc Annual Report and Accounts 2022 81
Introduction Strategic Report Governance Financial Statements Other Information
Market Disclosure Committee A note of the actions agreed by, and the principal decisions of, the Executive
The EU Market Abuse Regulation (‘MAR’) which took eﬀect in July 2016, Committee, is supplied to the Board for information in order that Board
brought about substantial changes relating to announcements of material members can keep abreast of operational developments.
information about the Company and its aﬀairs, and relating to dealings in
shares or other securities by Directors and other senior managers, including General Purposes Committee
tighter controls on permitted ‘dealings’ during closed periods and the The General Purposes Committee comprises any two Executive Directors
handling of information relating to the Company. MAR requires companies or any one Executive Director together with a senior oﬃcer from an agreed
to keep a list of people aﬀected and the previous compliance regime and and restricted list of senior executives. It is always chaired by an Executive
timeframe were enhanced. Director. It attends to business of a routine nature and to administrative
matters, the principles of which have been agreed previously by the Board
As a result, a formal standing Committee of the Board was established, or an appropriate Committee.
the Market Disclosure Committee, which comprises the Chairman, the
Chief Executive, the Chief Financial Oﬃcer and an independent Non- Portfolio Development Committee
Executive Director. The executive review of property transactions and capital allocation to
signiﬁcant property matters such as site remodel and conversion plans
Corporate Responsibility Committee and the Company’s real estate strategy is carried out by the Portfolio
A Corporate Responsibility Committee was established in June 2019 and its Development Committee. This is not a formal Board Committee but
purpose is to allow more executive, leadership and functional management comprises the Chief Executive, the Chief Financial Oﬃcer, the Group
involvement in matters of corporate responsibility and sustainability. Property Director, and the Group General Counsel and Company Secretary.
Its Terms of Reference are on the Company’s website www.mbplc.com. It has delegated authority to approve certain transactions up to agreed
ﬁnancial limits and, above those authority levels, it makes recommendations
The Corporate Responsibility Committee comprises Bob Ivell (Chair), Eddie to the Board or the Property Committee.
Irwin, Jane Moriarty, Dave Coplin and Amanda Brown. The Chief Executive,
Phil Urban, is invited to attend regularly. Treasury Committee
The treasury operations of the Mitchells & Butlers Group are operated on
A multi-disciplinary operational and functional steering committee has been a centralised basis under the control of the Group Treasury department.
identiﬁed and tasked with carrying out ﬁrst level oversight of the work plan Although not a formal Board Committee, the Treasury Committee,
and roadmap approved by the Committee in FY 2021, with regular reports to which reports to the Chief Financial Oﬃcer but is subject to oversight
the Corporate Responsibility Committee. More details of the activities from the Audit Committee and, ultimately, the Board, has day-to-day
involved in this programme during the ﬁnancial year are set out on page 40. responsibility for:
Property Committee • liquidity management;
The Property Committee reviews property transactions which have been • investment of surplus cash;
reviewed and recommended by the Portfolio Development Committee, • funding, cash and banking arrangements;
without the need for submission of transactions to the full Board. The • interest rate and currency risk management;
Property Committee agrees to the overall strategic direction for the • guarantees, bonds, indemnities and any ﬁnancial encumbrances
management of the Group’s property portfolio on a regular basis and may including charges on assets; and
decide that a particular transaction should be referred to the Board for • relationships with banks and other market counterparties such as credit
consideration or approval. The Property Committee comprises Bob Ivell rating agencies.
(Committee Chair), Phil Urban, Tim Jones, Josh Levy, Keith Browne,
Jane Moriarty, Amanda Brown and Gary John. The Treasury Committee also works closely with the Finance Department to
review the impact of changes in relevant accounting practices and to ensure
Pensions Committee that treasury activities are disclosed appropriately in the Company’s accounts.
The Board has established a Pensions Committee to supervise and
manage the Company’s relationship with its various pension schemes and The Board delegates the monitoring of treasury activity and compliance to
their trustees. the Treasury Committee. It is responsible for monitoring the eﬀectiveness
of treasury policies and making proposals for any changes to policies or in
The Pensions Committee members are Bob Ivell (Committee Chair), respect of the utilisation of new instruments. The approval of the Board,
Tim Jones, Phil Urban, Keith Browne and Josh Levy. or a designated committee thereof, is required for any such proposals.
Throughout FY 2022 the work of the Pensions Committee focused primarily Code of ethics
on the monitoring of the performance of the Group’s pensions arrangements The Company has implemented business conduct guidelines describing
including the Mitchells & Butlers Executive Pension Plan moving to a buy-in the standards of behaviour expected from those working for the Company
transaction in December 2021 and both that scheme and the Mitchells & in the form of a code of ethics (the ‘Ethics Code’). The Ethics Code was
Butlers Pension Plan putting in place arrangements for implementing re-communicated to all employees in FY 2022 to ensure it was kept clearly
equalisation of guaranteed minimum pensions. in focus. Its aim is to promote honest and ethical conduct throughout our
business. The Ethics Code requires:
Executive Committee
The Executive Committee, which is chaired by the Chief Executive, consists • compliance with all applicable rules and regulations that apply to the
of the Executive Directors and certain other senior executives, namely Gary Company and its oﬃcers including compliance with the requirements
John (Group Property Director), Susan Martindale (Group HR Director), of the Bribery Act 2010;
Andrew Freeman (Group General Counsel and Company Secretary), Chris • the ethical handling of actual or apparent conﬂicts of interest between
Hopkins (Commercial and Marketing Director) and Susan Chappell, David internal and external, personal and professional relationships; and
Gallacher, Dennis Deare and Anna-Marie Mason (the Divisional Directors). • that any hospitality from suppliers must be approved in advance
by appropriate senior management, with a presumption against
The Executive Committee ordinarily meets at least every four weeks and has its acceptance.
day-to-day responsibility for the running of the Group’s business.
The Company takes a zero tolerance approach to bribery and has developed
It develops the Group’s strategy and annual revenue and capital budgets for an extensive Bribery Policy which is included in the Ethics Code. The Ethics
Board approval. It reviews and recommends to the Board any signiﬁcant Code requires employees to comply with the Bribery Policy.
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.
82 Governance Corporate governance statement continued
The Company also oﬀers an independently-administered, conﬁdential Climate change reporting
whistleblowing hotline for any employee wishing to report any concern 1. Reporting
that they feel would be inappropriate to raise with their line manager. All Reporting prior to 2021
whistleblowing allegations are reported to, and considered by, the Executive For periods beginning on or after 1 April 2019, The Companies (Directors’
Committee and a summary report (with details of any major concerns) is Report) and Limited Liability Partnerships (Energy and Carbon Report)
supplied to, and considered by, the Audit Committee at each of its meetings. Regulations 2018 required new or enhanced directors’ report disclosures
on greenhouse gas emissions and energy consumption. Quantitative and
Principle E and Provision 6 of the 2018 Code require the Board to be clear narrative disclosures on energy consumption and energy eﬃciency
how its approach to whistleblowing has changed from an Audit Committee- measures were added to the pre-existing greenhouse gas emissions
led approach to a Board-led approach. Although the Audit Committee disclosures. Additionally, the regulations brought in a new requirement to
continues to receive regular reports on whistleblowing activity, each set of report on the principal measures taken to increase energy eﬃciency if any
full Board papers also includes, as part of the report from the Group Risk such action has been taken in the organisation’s ﬁnancial year.
Director, the number and assessment of any whistleblowing reports received
and, where relevant, the actions taken in respect of reports which are, on The FY 2020 Strategic Report set out these principal measures but for
investigation, found to be credible. 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
The Board takes regular account of social, environmental and ethical matters FY 2022 is set out in the Strategic Report on pages 10 to 58.
concerning the Company through regular reports to the Board and
presentations to the Board at its strategy meetings. New mandatory reporting and disclosure requirements
The Task Force on Climate-related Financial Disclosures (‘TCFD’) was
Directors’ training includes environmental, social and governance (‘ESG’) established by the Financial Stability Board in 2015 and published its ﬁnal
matters and the Company Secretary is responsible for ensuring that report in June 2017. The report set out eleven recommended disclosures
Directors are made aware of and receive regular training in respect of these under four pillars to promote better disclosure and these are set out below:
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.
TCFD : four recommendations and eleven recommended disclosures
Recommendations
Governance Strategy Risk Management Metrics and Targets
Disclose the organisation’s Disclose the actual and potential Disclose how the organisation Disclose the metrics and targets
governance around climate- impacts of CRO on the identiﬁes, assesses and manages used to assess and manage relevant
related risks and opportunities organisation’s businesses, strategy, climate-related risks. CRO where such information
(‘CRO’). and ﬁnancial planning where such is material.
information is material.
Recommended Disclosures
(a) Describe the Board’s oversight (a) Describe the CRO the (a) Describe the organisation’s (a) Disclose the metrics used by the
of CRO. organisation has identiﬁed over the processes for identifying and organisation to assess CRO in line
short, medium and long term. assessing climate-related risks. with its strategy and risk
management process.

| (b) Describe management’s role in | (b) Describe the impact of CRO on | (b) Describe the organisation’s | (b) Disclose Scope 1, Scope 2 and, |
| --- | --- | --- | --- |
| assessing and managing CRO. | the organisation’s businesses, | processes for managing climate- | if appropriate, Scope 3 greenhouse |
|  | strategy and ﬁnancial planning. | related risks. | gas (‘GHG’) emissions and the |

related risks.

| (c) Describe the resilience of the | (c) Describe how processes for | (c) Describe the targets used by the |
| --- | --- | --- |
| organisation’s strategy, taking into | identifying, assessing and | organisation to manage CRO and |
| consideration diﬀerent climate- | managing climate-related risks are | performance against targets. |
| related scenarios, including a 2°C | integrated into the organisation’s |  |
| or lower scenario. | overall risk management. |  |

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.
Mitchells & Butlers plc Annual Report and Accounts 2022 83
Introduction Strategic Report Governance Financial Statements Other Information
The new Listing Rule Information, reporting and assurance
The new climate-related disclosure Listing Rule 9.8.6R(8) is a continuing In the 2021 Annual Report, the Company undertook to address the following
obligation for premium listed companies in annual reports for periods aspects of its readiness for TCFD reporting during FY 2022:
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. • whether climate-related management information was robust and ﬁt for
The rule requires companies to disclose: purpose. See pages 28 to 31 of the Strategic Report for further discussion
on this;
• whether they have made disclosures consistent with the four • the extent to which any external data, or external expertise that the
recommendations and eleven recommended disclosures set out in Company relied upon is reliable and credible;
section C of the TCFD Final Report in their annual ﬁnancial report; • whether the ﬁnance function has taken ownership of information and
• where these disclosures can be found in the annual report; and accounting around climate change and, if not, whether there are suﬃcient
• a ‘comply or explain’ obligation to explain: checks and balances to give conﬁdence in the information;
• if they have not included disclosures consistent with all of the TCFD’s • consideration of the ﬁndings of reporting reviews such as the FRC’s
recommendations and/or recommended disclosures, which disclosures climate change thematic review. Changes to annual report processes and
they have not included and the reasons for not including them; and/or reporting have been examined and implemented as necessary; and
• why they have included some or all of the disclosures in a document other • the level of internal or external oversight or assurance to which the
than their annual report. Company’s metrics will be subjected.
Where not all required TCFD disclosures have been provided, in addition to The Board is responsible for the Company’s internal risk management
explaining why, the annual report now also needs to explain: 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
• the timeframe for compliance; and this statement.
• the steps the company is taking or plans to take to achieve compliance.
Internal control and risk management
Institutional Investor requirements The Board has overall responsibility for the Group’s system of internal control
Institutional Investors will expect all listed companies to be reporting against and risk management and for reviewing its eﬀectiveness. In order to discharge
all four TCFD pillars and want those disclosures to be more meaningful and that responsibility, the Board has established the procedures necessary to
will be instructing their clients accordingly in relation to voting. They will also apply the 2018 Code for the period under review and to the date of approval
expect companies to include a statement in their annual report that the of the Annual Report. Such procedures are in line with the Financial
directors have considered material climate-related matters when preparing Reporting Council’s ‘Guidance on Risk Management, Internal Control and
and signing-oﬀ the company’s accounts. Related Financial and Business Reporting’ and are regularly reviewed by the
Audit Committee.
2. Actions being taken by the Company
Executive ownership The key features of the Group’s internal control and risk management
The Board tasked Phil Urban with spearheading the Company’s approach to systems include:
tackling climate change reporting across the organisation since he also chairs
the Executive Committee so can ensure focus at Executive Committee level. • Processes, including monitoring by the Board, in respect of:
Strategy i. ﬁnancial performance within a comprehensive ﬁnancial planning,
The Board is mindful of the business impacts relevant to the sector, and due accounting and reporting framework;
consideration of such is included when considering changes made across the ii. strategic plan achievement;
business in relation to climate change obligations. Going forward, this iii. capital investment and asset management performance, with detailed
important issue will continue to form part of the considerations taken into appraisal, authorisation and post-investment reviews; and
account by the Board when it is evaluating strategic decision and investment iv. consumer insight data and actions to assess the evolution of brands
priorities. Capital expenditure proposals submitted to the Board include and formats to ensure that they continue to be appealing and relevant
appropriate details on such aspects. to the Group’s guests.
Governance • An overall governance framework including:
Climate change issues are discussed at Board level and the Board has
speciﬁcally requested the Corporate Responsibility Committee to focus on i. clearly deﬁned delegations of authority and reporting lines;
ESG/sustainability matters. The Company’s required climate response/ ii. a comprehensive set of policies and procedures that employees are
transformation is a feature of agendas, with priority being given to ensuring required to follow; and
enough time is dedicated to the discussion. The Corporate Responsibility iii. the Group’s Ethics Code, in respect of which an annual conﬁrmation
Committee approved, and recommended to the Board, the Group’s of compliance is sought from all corporate employees.
sustainability roadmap through which it identiﬁed and agreed how to
manage climate-related issues. These initiatives were addressed in FY 2022 • The Risk Committee, a sub-committee of the Executive Committee,
when TCFD compliance became compulsory for the Company. which assists the Board, the Audit Committee and the Executive
Committee in managing the processes for identifying, evaluating,
Risk and Scenario analysis monitoring and mitigating risks. The Risk Committee, which continues to
During FY 2022, the Company developed a rigorous climate change scenario meet regularly, is chaired by the Group General Counsel and Company
impact analysis. The Audit Committee is tasked with ensuring it is satisﬁed Secretary and comprises Executive Committee members and other
that the scenarios are suﬃciently challenging, diverse and relevant, and also members of senior management from a cross-section of functions.
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.
84 Govern ance Corporate governance statement continued
The primary responsibilities of the Risk Committee are to: 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
i. advise the Executive Committee on the Company’s overall risk appetite provide reasonable and not absolute assurance against material
and risk strategy, taking account of the current and prospective misstatement or loss. In that context, in the opinion of the Audit Committee,
operating, legal, macroeconomic and ﬁnancial environments; the review did not indicate that the system was ineﬀective or unsatisfactory.
ii. advise the Executive Committee on the current and emerging risk To the extent that weaknesses in internal controls were identiﬁed, the Audit
exposures of the Company in the context of the Board’s overall risk Committee reviewed the audit ﬁndings, together with the remedial action
appetite and risk strategy; plans that were put in place, and sought conﬁrmation that all actions were
iii. promote the management of risk throughout the organisation; closed out in a timely manner. Through this process, material audit ﬁndings
iv. review and monitor the Company’s capability and processes to identify were presented to the Audit Committee, the necessary follow-up reviews
and manage risks; were completed and the results were reported to the Audit Committee, to
v. consider the identiﬁed key risks faced by the Company and new and ensure appropriate mitigation plans had been actioned. Please refer to the
emerging risks and consider the adequacy of mitigation plans in respect Audit Committee report, on pages 85 to 88.
of such risks; and
vi. where mitigation plans are regarded to be inadequate, recommend The Audit Committee is not aware of any change to this status up to the date
improvement actions. of approval of this Annual Report.
The Group’s risks identiﬁed by the processes that are managed by the Risk With regard to insurance against risk, it is not practicable to insure against
Committee, are described in the ‘Risks and uncertainties’ section on pages every risk to the fullest extent. The Group regularly reviews both the type
44 to 51. 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
More details of the work of the Risk Committee are included in the Audit and the likelihood and magnitude of the risks involved and the mitigation
Committee report on pages 85 to 88. which insurance might provide.
• 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.
Mitchells & Butlers plc Annual Report and Accounts 2022 85
Introduction Strategic Report Governance Financial Statements Other Information
## 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 | The Committee also ensured that the Group | Eﬀectiveness of internal controls and |
| --- | --- | --- |
| During recent years, as the purpose and | provided adequate resources to ensure that any | Group assurance and risk function |
| eﬀectiveness of external and internal audit | additional non-audit services required during the | The above eﬀorts provided the Committee with |
| procedures came under increasing public | year were obtained, where necessary, and the | a clear and detailed understanding of the principal |
| scrutiny, the Committee has ensured it has | Financial Reporting Council’s (FRC) evolving | ﬁnancial and operational risks throughout the |
| maintained an appropriate level of engagement | reporting requirements were adhered to. The | period (please also refer to the Group’s risks and |
| with the Chief Financial Oﬃcer and the Group | FRC performed a review of the Group’s 2021 | uncertainties, detailed on pages 44 to 51). The |
| Risk Director, other key individuals and their | annual report, the results of which were | Committee continued to focus on challenging the |
| teams who collectively provide an appreciation | communicated in a letter in April 2022. They | eﬀectiveness of internal controls, the robustness |
| and rigorous insight into how the Group functions | raised queries and recommendations to enhance | of assurance and risk management processes and |
| and reports. The Committee is very grateful for | future disclosures, which have been considered | in assessing the importance of, and acting as |
| the insight these interactions provide and this, | by the Committee, and which were actioned | required upon, all reported information received |
| in turn, signiﬁcantly assists the Committee in | promptly. This allowed the FRC to close their | from our external and internal auditors and |
| executing its oversight role and ensuring | enquiries in a satisfactory and timely manner. | third-party advisers. |
| conﬁdence in reporting to the wider Board. | The FRC review provides no assurance that the |  |
|  | annual report and accounts are correct in all | The Committee remains committed to |
| Engagement with external auditors, | material respects; the FRC’s role is not to verify | maintaining an open and constructive dialogue |
| internal auditors and other third-party | the information provided but to consider | on relevant audit matters with all shareholders. |
| advisers | compliance with reporting requirements, and the | Therefore, should you have any comments or |
| The Committee continued to engage formally, | letter was issued by FRC on the basis that the FRC | questions on any aspects of this report, or indeed |
| regularly and at an appropriate level of detail | (which includes the FRC’s oﬃcers, employees and | the wider ﬁnancial statements, may I respectfully |
| with our external auditors, internal auditors | agents) accepts no liability for reliance on this | ask you to please email myself, care of Adrian |
| (also externally resourced) and other third-party | letter by the company or any third party, including | Brannan, Group Risk Director, at company. |
| advisers as necessary. This has enabled the | but not limited to investors and shareholders. | secretariat@mbplc.com |

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.
Audit Committee report continued86 Governance
Remit and membership of the Audit Committee The role and responsibilities of the Audit Committee are to:
The main purpose of the Audit Committee is to review and maintain
oversight of the Group’s corporate governance, particularly with respect • review the Group’s public statements on internal control, risk management
to ﬁnancial reporting, internal control and risk management. The Audit and corporate governance compliance;
Committee’s responsibilities also include: • review the Group’s processes for detecting fraud, misconduct and
control weaknesses and to consider the Group’s response to any
• reviewing the processes for detecting fraud, misconduct and internal such occurrence;
control weaknesses; • review management’s evaluation of any change in internal controls over
• reviewing the eﬀectiveness of the Group Assurance function; and ﬁnancial reporting;
• overseeing the relationship with the external and internal auditors and • review with management, and the external auditor, Group ﬁnancial
other third-party advisers. statements required under UK legislation before submission to the Board;
• establish, review and maintain the role and eﬀectiveness of the internal
At the date of the 2022 Annual Report, the Audit Committee comprised audit function, Group Assurance and the risk function, whose objective is
three independent Non-Executive Directors: Jane Moriarty (Chair), Dave to provide independent assurance over the Group’s signiﬁcant processes
Coplin and Amanda Brown. In accordance with 2018 Code Provision 24 and controls, including those in respect of the Group’s principal risks;
the Board considers that Jane Moriarty has signiﬁcant, recent and relevant • assume direct responsibility for the appointment, compensation,
ﬁnancial experience. Biographies of all of the members of the Audit resignation, dismissal and the overseeing of the external auditor,
Committee, including a summary of their respective experience, appear including review of the external audit, its cost and eﬀectiveness;
on pages 62 and 63. • 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
The Audit Committee met at least quarterly during FY 2022. In each case, external auditor’s independence;
appropriate papers were distributed to the Committee members and other • oversee the process for dealing with complaints received by the Group
invited attendees, including, where and to the extent appropriate, regarding accounting, internal accounting controls or auditing matters
representatives of the external audit ﬁrm, the internal Group Assurance and any conﬁdential, anonymous submission by employees of concerns
function and other third-party advisers. regarding questionable accounting or auditing matters; and
• adopt and oversee a speciﬁc Code of Ethics for all employees which is
When appropriate, the Audit Committee augments the skills and experience consistent with the Group’s overall statement of business ethics.
of its members with advice from internal and external audit professionals,
for example, on matters such as developments in ﬁnancial reporting. Audit Key activities of the Audit Committee
Committee meetings are also attended, by invitation, by other members of Audit matters are reviewed at quarterly Audit Committee meetings
the Board including the Chairman, the Chief Executive and the Chief throughout the year at which detailed reports are presented for review.
Financial Oﬃcer, the Group General Counsel and Company Secretary, the The Audit Committee commissions reports from external advisers,
Group Risk Director and representatives of the external auditor, KPMG LLP. the Group Risk Director or Group management, either after consideration
The Audit Committee also has the opportunity to meet privately with the of the Group’s key risks or in response to developing issues.
external auditor not less than twice a year, without any member of
management present, in relation to audit matters. During the year, in order to fulﬁl the roles and responsibilities of the Audit
Committee, the following matters were considered:
The remuneration of the members of the Audit Committee is set out in the
Report on Directors’ remuneration on page 99. • the suitability of the Group’s accounting policies and practices;
• half year and full year ﬁnancial results;
Summary terms of reference • the scope and cost of the external audit;
A copy of the Audit Committee’s terms of reference is publicly available • the external auditor’s full year report;
within the Investor section of the Group’s website: • the appointment of the external auditor, KPMG LLP;
www.mbplc.com/pdf/audit_committee_terms.pdf • 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
The Audit Committee’s terms of reference were approved by the Committee safeguarding of audit independence;
and adopted by the Board in 2013. Those terms of reference speciﬁcally • the co-ordination of the activities and the work programmes of the
provide that they will be reviewed annually. They have been reviewed and internal and external audit functions;
updated as appropriate each year since and no changes were felt to be • the arrangements in respect of Group Assurance including its resourcing,
needed when they were reviewed in September 2022. Accordingly, in external support, the scope of the annual internal audit plan for FY 2022,
FY 2022 no material changes were made to the terms of reference of the the level of achievement of that plan and the scope of the annual internal
Audit Committee, but the work of the Audit Committee will be kept under audit plan for FY 2023;
review with the expectation that any such matters which come to light are • periodic internal control and assurance reports from Group Assurance;
included in the next annual review. • the Group’s risk management framework for the identiﬁcation and control
of key risks, its risk and assurance mitigation plan and the annual
The Audit Committee is authorised by the Board to review any activity within assessment of eﬀectiveness of controls;
the business. It is authorised to seek any information it requires from, and • review of the going concern and Corporate Viability Disclosures
require the attendance at any of its meetings of, any Director, any member of (a summary is reported on pages 58 and 52 respectively);
management and any employees, who are expected to co-operate with any • compliance with the Group’s Code of Ethics;
request made by the Audit Committee. • corporate governance developments;
• the status of material litigation involving the Group; and
The Audit Committee is authorised by the Board to obtain, at the Group’s • reports on allegations made via the Group’s whistleblowing procedures
expense, external legal or other independent professional advice and secure and the eﬀectiveness of these procedures, including a summary of
the attendance of outsiders with relevant experience and expertise, if it reports received during FY 2022.
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.
Mitchells & Butlers plc Annual Report and Accounts 2022

87

### 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.

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.

Introduction

Strategic Report

Governance

Financial Statements

Other Information
88 Governance Audit Committee report continued
External auditor appointment External audit annual assessment
Following Shareholder and Board approval, KPMG LLP was appointed as The Audit Committee assesses annually the qualiﬁcation, expertise,
the auditor in 2022, following a formal tender process in 2020 to ensure the resources and independence of the Group’s external auditor and the overall
continued objectivity, independence and value for money of the statutory eﬀectiveness of the audit process. The Chief Financial Oﬃcer, Group
audit. KPMG LLP is therefore responsible for undertaking the FY 2022 audit. General Counsel and Company Secretary, Audit Committee Chair and
Group Risk Director meet with the external auditor to discuss the audit,
The Audit Committee has considered the guidance in relation to rotation signiﬁcant risks and any key issues included on the Audit Committee’s
including the proposed transition rules which will be considered when agenda during the year.
recommending the appointment of the auditor in future years. The Group
has complied throughout FY 2022 with the provisions of The Statutory Audit Fair, balanced and understandable statement
Services for Large Companies Market Investigation (Mandatory Use of One of the key governance requirements of the Annual Report and Accounts
Competitive Tender Processes and Audit Committee Responsibilities) is for the report and accounts, taken as a whole, to be fair, balanced and
Order 2014. understandable, and that they provide the information necessary for
shareholders to assess the Group’s position, performance, business model
External auditor’s independence and strategy. Therefore, upon review of the ﬁnancial statements, the Audit
The external auditor should not provide non-audit services where it might Committee and the Board have conﬁrmed that they are satisﬁed with the
impair their independence or objectivity to do so. The Audit Committee has overall fairness, balance and clarity of the Annual Report and Accounts,
established a policy to safeguard the independence and objectivity of the which is underpinned by the following:
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 • review of the formal review processes at all levels to ensure the Annual
reference and is available on the Group’s website. Report and Accounts are factually correct;
• clear guidance being issued to all contributors to ensure a consistent
Pursuant to that policy the following services have been pre-approved by the approach; and
Audit Committee provided that the fees for such services do not exceed in • formal minutes of the Year End Working Group comprised of relevant
any year more than 70% of the average audit fee paid to that audit ﬁrm over internal functional representatives and appropriate external advisers.
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): Jane Moriarty
Chair of the Audit Committee
• audit services, including work related to the annual Group ﬁnancial 6 December 2022
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.
Mitchells & Butlers plc Annual Report and Accounts 2022 89
Introduction Strategic Report Governance Financial Statements Other Information
## 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 | In comparison with FY 2019, cost headwinds | The ongoing energy cost pressures make it |
| --- | --- | --- |
| The UK Hospitality industry has faced another | totalled £220m with energy costs contributing | essential that businesses look to innovation as |
| year of considerable challenge and volatility. | £70m. If energy costs had remained ﬂat, full year | a way to mitigate as far as possible increases that |
| In early December it became clear that concerns | Operating Proﬁt would have been broadly in | the business faces. These innovations have |
| relating to the emergence of the new Omicron | line with FY 2019 even when taking into account | ranged from the very straightforward, such as |
| variant were having an impact on consumer | the other cost increases. Given the impact of | appointing in-house energy champions to identify |
| conﬁdence, with the public encouraged to limit | Omicron in the ﬁrst quarter, this represents a very | opportunities to improve energy eﬃciency, to |
| socialising and this having a major detrimental | strong performance. | more sophisticated capital driven responses such |
| eﬀect on trading at the busiest period of the year. |  | as the installation of voltage optimisers. |
| By the half year, it was clear that a number of | The strategic priorities underpinning the |  |
| factors were having a sustained impact on driving | performance of the business have remained | Our capital investment plan is key to us building |
| up inﬂationary cost pressures, notably wages, | consistent for a number of years, with our | a balanced business and has continued despite |
| fuel and food costs, not only aﬀecting our own | aims being: | the ongoing uncertainty. Over FY 2022 c. 166 |
| cost base, but crucially threatening to impact |  | conversions and remodel projects were |
| consumer conﬁdence as inﬂation began to rise. | • build a balanced business, | completed, made possible by the strong |
|  | • instil a commercial culture and, | underlying ﬁnancial position of the Group, and |
| Against this backdrop the business has performed | • to drive an innovation agenda. | these projects continue to deliver good returns. |

well. By the start of FY 2022 sales had returned to
growth, and whilst the impact of the Omicron The Ignite programme of work continues to be
variant meant that sales over the four-week the engine room that drives progress across these
Christmas period fell on a like-for-like basis by priorities and has enabled the management team
over 10%, performance was strong in the period to be proactive in managing the impact of the
up to the start of December. Through the macroeconomic environment on the business.
remainder of the year like-for-like sales remained A range of new initiatives is now being introduced
in growth although overall proﬁtability continued alongside existing projects. These newer projects
to be impacted by the external factors set out include automated ordering for food and drinks,
above. Total sales for FY 2022 fell by 1.3% mainly and, more recently, the roll out commenced of
as a result of temporary closures in the ﬁrst automated scheduling tools. Both of these
a

| quarter, however, like-for-like sales | grew by 1.1% | initiatives improve eﬃciency and save our |  |
| --- | --- | --- | --- |
| over the full year. |  | managers time, allowing them to focus on | a. Compared to FY 2019, this being the last full pre-Covid |
|  |  | our guests. | ﬁnancial year. |

90 Governance Report on Directors' remuneration continued

# **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.

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.

# **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 reference 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.
Mitchells & Butlers plc Annual Report and Accounts 2022

91

### 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.

### 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* 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.

Introduction

Strategic Report

Governance

Financial Statements

Other Information
92 Governance Report on Directors' remuneration continued

- 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.

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

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.
Mitchells & Butlers plc Annual Report and Accounts 2022 93
Introduction Strategic Report Governance Financial Statements Other Information
## Remuneration at a glance
## 2022 Outcomes
### 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.
Chief Executive Fixed Pay Chief Financial Oﬃcer Fixed Pay

|  |  | £700,000 |  |  |  | £700,000 |
| --- | --- | --- | --- | --- | --- | --- |
|  |  | £600,000 |  |  |  | £600,000 |
|  |  | £500,000 |  |  |  | £500,000 |
|  |  | £400,000 |  |  |  | £400,000 |
|  |  | £300,000 |  |  |  | £300,000 |
| 2023 2022 2021 | 20192020 |  | 2023 | 2022 2021 | 20192020 |  |

Salary Pension Beneﬁts

| Annual Bonus |  | 2020–2022 PRSP |  |
| --- | --- | --- | --- |
| • LFL Sales growth of 1.1% |  | • PRSP had two measures, Operating |  |
| • Online Review scores at highest ever level |  |  | Cash Flow and Relative TSR |
| • Very strong employee engagement scores |  | • Each year of the performance period impacted by Covid |  |
| • Food safety scores at highest ever level |  | • Overall Operating Cash Flow of £835m |  |
| • FY 22 Operating Proﬁt of £240m |  |  | was well below the level required for threshold vesting |
| • Achieved 98.4% of Operating Proﬁt bonus target |  | • TSR also below threshold required for vesting |  |
| • Operating Proﬁt broadly at pre-pandemic levels had energy |  | • 2021 vesting was subject to a share price underpin that is |  |
|  | costs remained ﬂat |  | not yet met, therefore shares have not been released to |
| • 50% of the bonus award is deferred into shares |  |  | Executive Directors |

• Shares released after 12 and 24 months
Overall Outcome Overall Outcome
## 33.4% of salary 0% vesting
33.4% 0.0% 0.0% 0.0% 21.5% 0.0%
Historical outcomes Historical outcomes
2022 2021 2020 2022 2020 2021
94 Governance Report on Directors' remuneration continued

## Approach for 2023

### Components of remuneration

The remuneration package for the Executive Directors comprises both fixed and variable elements consistent with our remuneration principles.

Fixed:

![img-1.jpeg](img-1.jpeg)

### 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.

![img-2.jpeg](img-2.jpeg)

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%.

### Variable components

#### Annual bonus

No change to potential quantum – 100% of salary.

![img-3.jpeg](img-3.jpeg)

Half of any bonus payable will be deferred in the form of shares and released in equal parts after 12 and 24 months.

#### RSP

![img-4.jpeg](img-4.jpeg)

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.

### Executive Directors' shareholdings

#### Phil Urban (Shareholding requirement 250%)

![img-5.jpeg](img-5.jpeg)

#### Tim Jones (Shareholding requirement 200%)

![img-6.jpeg](img-6.jpeg)

■ Owned shares ■ Outstanding unvested awards ■ Current shareholding ■ Shareholding requirements

- 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.
Mitchells & Butlers plc Annual Report and Accounts 2022 95
Introduction Strategic Report Governance Financial Statements Other Information
## Additional remuneration information
Application of remuneration policy Chief Executive
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 Chief Financial Oﬃcer
In addition to the minimum, this reﬂects the amount payable for on-target
performance under the short-term and long-term incentive plans:
Long-term incentives £1,743,644
• 50% of maximum (50% of base salary for the Chief Executive and Chief Short-term incentives
£1,501,394 13.9%
Financial Oﬃcer) is payable under the short-term incentive plan; and Fixed pay
• 100% of the award is payable under the long-term incentive plan. £1,259,144
32.2% 27.8%
Maximum
In addition to the minimum, maximum payment is achieved under both the 38.5%
£677,000
short-term and long-term incentive plans such that:
£532,394 19.2% 32.3% 27.8% £524,000 22.5%
• 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. | 100% 42.3% |  | 35.5% | 30.5% | 100% | 77.5% |
| --- | --- | --- | --- | --- | --- | --- |
|  | Minimum | On-target Maximum |  | Maximum | FY 2021 | FY 2022 |
| Share price gain |  |  |  | +50% Share | Actual | Actual |
| This shows the impact a 50% increase in the share price would have on the |  |  |  | price gain |  |  |

RSP outcome.
Table 1
Pay ratios and gender pay

| Table 1 on the right sets out the Chief Executive pay ratio at the median, |  |  |  | Chief Executive pay ratio |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 25th and 75th percentiles. |  |  | P25 |  |  | P50 |  | P75 |
|  | Financial year | (lower quartile) |  |  | (median) |  | (upper quartile) |  |
| More detail in relation to the pay ratio calculation can be found on page 17. | 2022 53:1 47:1 45:1 |  |  |  |  |  |  |  |

2021 41:1 38:1 36:1
Table 2 on the right provides a summary of gender pay data for the Group.
2020 37:1 35:1 35:1
2019 120:1 112:1 106:1
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 Table 2
2022 results are broadly consistent with those seen prior to 2020, although it
is encouraging that across all four measures the gap has reduced. Gender Pay Gap
Share price gain
£2,073,500
2022 2021 2020 2019 2018 2017
Long-term incentives

|  |  |  | Financial year | % | % | % | % | % | % |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Share Price Gain Short-term incentives |  |  |  |  |  |  |  |  |  |
|  | £1,784,000 | 14.0% |  |  |  |  |  |  |  |
| Fixed pay |  |  | 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
£1,494,500
Mean Bonus Gap 11.0 21.0 24.6 33.5 38.5 27.6
32.5% 27.9%
Median Bonus Gap 0.0 33.3 5.2 15.4 29.2 20.6
38.7%
£807,000
£626,000 19.4% 32.5% 27.9% £624,000 22.9%

| 100% 41.9% |  | 35.0% | 30.2% | 100% | 77.1% |
| --- | --- | --- | --- | --- | --- |
| Minimum | On-target Maximum |  | Maximum | FY 2021 | FY 2022 |
|  |  |  | +50% Share | Actual | Actual |

price gain
96 Governance Report on Directors’ remuneration continued
Mitchells & Butlers’ remuneration principles Below are two practical examples of how the remuneration principles apply
When determining Executive Director remuneration policy, the to diﬀerent employee groups:
Remuneration Committee addresses each of the factors under Provision 40
of the 2018 UK Corporate Governance Code and these are also reﬂected in General Managers
our principles: 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
Shareholder alignment remains challenging in some geographical areas, with a shortage of
A high proportion of reward is delivered in the form of equity, ensuring high-calibre managers. As with Executive Directors, a high proportion of
Executives have strong alignment with shareholders. potential reward for this group is based on performance and the overall
structure is straightforward to understand. There is a lesser weighting on
Competitive equity, but all General Managers can participate in any of the all-employee
Providing reward that promotes the long-term success of the business share schemes, subject to qualifying service, thereby building their own
whilst enabling the attraction, retention and motivation of high-calibre stake in the business.
senior Executives.
Hourly Paid Employees
Performance-linked The recruitment market has become very challenging for the sector as a
A proportion of an Executive Director’s reward is linked to performance, with result of changes to immigration policy following Brexit. In addition, the
a clear line of sight between the outcomes of the business and the delivery of Covid-19 pandemic has seen many EU workers return home and some UK
shareholder value. workers leave the industry during the long periods of furlough. Therefore,
competitive pay remains a priority and, in particular, for skilled kitchen roles
Straightforward where there remains a shortage of high-quality talent and this has resulted in
The remuneration structure is simple to understand for participants and increased rates of pay for this group in particular. Although base pay for our
shareholders and is aligned to the strategic priorities of the business. 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
These same principles apply throughout the organisation and are adapted service charge is applied (100% of which is retained by the team with no
as appropriate for speciﬁc employee groups with a diﬀerent emphasis on administration charge), and, more broadly, the good performance of the
certain principles in comparison to Executive Directors. This is illustrated Company allows for more investment in pay. Pay structures for this group are
in the table on page 97 which sets out remuneration below Executive straightforward and, as with other employees, hourly paid team members
Director level. can participate in any of the all-employee share schemes, subject to
qualifying service.
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 Strong operating performance supports the Operating Proﬁt delivery is the main component of the annual bonus plan.
balanced business delivery and sustainability of the capital plan and
estate optimisation. 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 The Guest Health element of the annual bonus plan provides a strong
food and drink oﬀers in an environment that indicator of the success of each business. There is a clear correlation
guests want to enjoy. between strong Guest Health performance and sales performance.
High-quality engaged teams are fundamental to The engagement element of the annual bonus plan measures how our
the success of any business. teams feel about working for Mitchells & Butlers, and, in turn, the service
they provide to guests.
Instilling a more A commercial culture improves controls, Operating Proﬁt delivery is the main component of the annual bonus plan.
commercial culture eﬃciency, purchasing and pricing, driving both
improved cash ﬂow and operating performance.
Commercial decisions must be guest focused The Guest Health metric quickly demonstrates where decisions are right or
and beneﬁt from the input of customer feedback. wrong and Executives are incentivised to react.
Developing and evolving a commercial culture The employee engagement element of the annual bonus plan supports and
requires high levels of employee engagement and underpins the development of culture.
business awareness throughout the business.
Driving an Innovation at small and large scale is an engine The RSP enables a focus on innovation without the risk of being in conﬂict
innovation agenda for improved sales and, therefore, cash and with the achievement of performance targets that have been set over
proﬁt generation. a predetermined period.
Operating Proﬁt delivery is the main component of the annual bonus plan.
Guests’ expectations continue to increase, The Guest Health element of the annual plan provides valuable actionable
demanding higher standards of service and feedback and incentivises action.
digital capability.
Innovation involves change, and delivery of The employee engagement element of the annual bonus plan incentivises
change requires strong employee engagement. action to maintain and improve employee engagement.
Mitchells & Butlers plc Annual Report and Accounts 2022 97
Introduction Strategic Report Governance Financial Statements Other Information
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 |  | Bonus schemes for all | Measures and targets for | All employees can |
| --- | --- | --- | --- | --- |
| Executive Committee (8) | mid-market levels. | schemes align to the business | long-term incentive plans | participate in any of the |
|  |  | scorecard. | consistent for all | all-employee share |

Senior management (c. 40)

|  | Overall, increases |  | participants. | schemes, subject to |
| --- | --- | --- | --- | --- |
|  | (in percentage terms) | The majority of bonus |  | qualifying service, building |
| Retail Support Centre | consistent across all salaried | opportunity is linked to |  | a stake in the business. |
| (c. 1,050) | employee groups. | ﬁnancial performance. |  |  |

Retail managers (c. 5,100)

| Retail team members | Pay set in line with market | Our pay approach is aimed at providing regular and |
| --- | --- | --- |
| (c. 37,000) | requirements and closely | predictable earnings through competitive base pay for |
|  | monitored. | our retail team members. This is valued more highly |

than variable pay elements by retail team members and
Base pay for many is in line with our ‘competitive’ and ‘straightforward’
employees is ahead of the remuneration principles.
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.
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:
Remuneration Committee
Employee survey CEO roadshows Employee forum Overview of pay and Nominated
policy decisions Non-Executive
Outcomes reviewed by The CEO and CFO hold Elected representatives Director
the Remuneration regular roadshows that have direct access to the Committee members are
Committee and taken allow both support Executive Committee as updated on employee A Non-Executive
into account when centre colleagues and part of the forum and terms and conditions Director (Dave Coplin)
setting remuneration General Managers an where necessary and made aware of has been appointed to
policy. opportunity to discuss Executive remuneration signiﬁcant changes to engage with employees
business issues and matters, are brought to policies and other and report back to the
provide feedback. the attention of the pay-related matters. Board. Dave Coplin is
Remuneration a member of the
Committee Chair. Remuneration
Committee.
The Committee is regularly updated throughout the year on pay and conditions Obtaining and understanding the views of our employees, including in
applying to Group employees alongside other workforce-related matters. relation to Executive Remuneration, is an important consideration for the
Committee when developing and operating our overall approach to
Where signiﬁcant changes are proposed to employment conditions and remuneration across Mitchells & Butlers. In addition to our approach to
policies elsewhere in the Group, or there are important employee-related communicating with our employees, we also welcome feedback and all
projects underway, these are highlighted for the attention of the Committee employees are invited to take part in our employee engagement surveys.
at an early stage. Over the course of FY 2022, these updates have focused on These provide all employees with an opportunity to give anonymous
employee engagement, the challenges of the current recruitment landscape feedback on a wide range of topics of interest or concern to them.
and strategies to rebuild capability, including the reinvigoration of our The Committee reviews these results and any signiﬁcant concerns over
internal training and development routes, which also encompass our remuneration would be considered separately by the Committee and,
apprenticeship programmes. if appropriate, taken into account when determining the remuneration
approach and its implementation.
The Committee takes into account the base pay review budget applicable
to other employees when considering the pay of Executive Directors. The An employee forum is normally held twice every year, which gives an
Committee considers a broad range of reference points when determining opportunity for employees to ask questions of senior management via
policy and pay levels. These include external market benchmarks as well as elected representatives, and which from FY 2020 has been attended by
internal reference points. Any such reference points are set in an appropriate Dave Coplin. This forum was suspended during the pandemic but resumed
context and are not considered in isolation. 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.
98 Governance Report on Directors’ remuneration continued
In addition, in his role as the nominated Non-Executive Director, Dave Coplin The views of employees in relation to Executive Remuneration have been
undertakes a number of activities ranging from visits to our businesses to sought in the past and this issue was not proved to be an area of interest or
meet and discuss issues with employees to focus groups with speciﬁc concern for employees at this time. Our engagement survey has a section
employee groups such as Kitchen Managers. Dave meets regularly with that allows employees to anonymously raise any concerns they may have on
members of the Human Resources team and is also supporting the business any matter, and in 2022 there were over 11,000 comments recorded, none of
in how it may utilise technology to better communicate with all employees. which related to senior management pay. The Committee will continue to
explore how best to engage with employees on this issue.
## Annual report on remuneration
This section details the remuneration payable to the Executive and Committee activity during the year
Non-Executive Directors (including the Chairman) for the ﬁnancial period Following Imelda Walsh’s decision to step down from the Board and Chair
ended 24 September 2022 and how we intend to implement our of the Remuneration Committee in July 2021 and until the appointment of
remuneration policy for FY 2023. This report, along with the Chair’s annual Amanda Brown in July 2022, remuneration matters were dealt with at the
statement, will be subject to a single advisory vote at the 2023 AGM. main Board. Since July 2022 the Committee met once. Key remuneration
items considered over the year were as follows:
The Committee are cognisant of all guidance issued by institutional
shareholders and advisory agencies and take this into account during the October 2021 • CEO pay review
year based on the guidance in place at the start of our ﬁnancial year. It is (Main Board) • Executive Committee pay review
noted that guidance is regularly updated, and any changes will be taken into
• FY 2022 Annual bonus targets
consideration in the next relevant reporting period.
November 2021 • FY 2019 PRSP vesting outcome
(Main Board) • FY 2022 Restricted Share Plan award
Committee terms of reference
The Committee’s terms of reference were reviewed and updated in 2019 to • Employee engagement targets
take account of the 2018 UK Corporate Governance Code.
• Executive Director and Executive Committee
pay review
The Committee’s main responsibilities include:
• Employee engagement update

| • determining and making recommendations to the Board on the |  | March 2022 | • All employee share schemes |
| --- | --- | --- | --- |
|  | Company’s executive remuneration policy and its cost; | (Main Board) | • Restricted Share Plan approach for FY 2023 |
| • taking account of all factors necessary when determining the policy, the |  | April 2022 | • Approach to 2019 PRSP underpin |
|  | objective of which is to ensure that the remuneration policy promotes the | (Main Board) |  |

• Restricted Share Plan approach for FY 2023
long-term success of the Company;
• Employee engagement update
• determining the individual remuneration packages of the Executive
Directors and other senior Executives (including the Group General September 2022 • FY 2023 Annual Bonus Plan structure
Counsel and Company Secretary and all direct reports to the (Committee) • Employee conditions update
Chief Executive) and, in discussion with the Executive Directors,
• Governance update
the Company Chairman;
• All employee Share Scheme rules review
• having regard to the pay and employment conditions across the
Company when setting the remuneration of individuals under the remit
of the Committee; and Advice to the Committee
• aligning Executive Directors’ interests with those of shareholders by The Committee received advice from PwC LLP (‘PwC’) during the year.
providing the potential to earn signiﬁcant rewards where signiﬁcant PwC were appointed following a competitive tender process during 2018.
shareholder value has been delivered. PwC are signatories to the Remuneration Consultants Group Code of
Conduct and any advice received is governed by that Code. Total fees
Committee membership and operation payable in respect of remuneration advice to the Committee in the reporting
b
Committee members and their respective appointment dates are detailed in year totalled £8,375 and were charged on a time and materials basis.
the table below.
Advice was also received from the Company’s legal advisers, Freshﬁelds
Date of appointment to the Bruckhaus Deringer LLP, on the operation of the Company’s employee share
Name Committee
schemes and on corporate governance matters. Cliﬀord Chance LLP also
a
Amanda Brown 4 July 2022 provided advice in relation to pension schemes.
Bob Ivell 11 July 2013
a The Committee is satisﬁed that the advice received from its advisers was
Dave Coplin 29 February 2016
objective and independent and that the PwC engagement partner and the
Josh Levy 20 July 2017
team that provide remuneration advice to the Committee do not have any
a
Jane Moriarty 27 February 2019
connections that may impair their independence.
a. Independent Non-Executive Directors.
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.
Mitchells & Butlers plc Annual Report and Accounts 2022 99
Introduction Strategic Report Governance Financial Statements Other Information
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:
a b
Votes cast Votes for % Votes against % Votes withheld
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)

|  |  |  |  | Taxable |  | Short-term |  | Pension-related |  |  | Long-term |  |  |  |  |  | Total |  |  | Total |  |  | Total |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Basic salaries |  |  |  | beneﬁts | a | incentives |  |  | beneﬁts | b | incentives |  |  | Other | c | remuneration |  |  |  | ﬁxed pay |  | variable pay |  |  |
|  | £000 |  |  | £000 |  | £000 |  |  | £000 |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |  | £000 |  |
|  | FY | FY |  | FY | FY | FY | FY |  | FY | FY | FY | FY |  | FY | FY |  | FY | FY |  | FY | FY | FY |  | FY |
| 2022 |  | 2021 | 2022 |  | 2021 | 2022 | 2021 | 2022 |  | 2021 | 2022 | 2021 | 2022 |  | 2021 | 2022 |  | 2021 | 2022 |  | 2021 | 2022 |  | 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)

|  |  |  |  | Taxable |  | Short-term |  | Pension-related |  |  | Long-term |  |  |  |  |  | Total |  | Total |  |  | Total |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Fees |  |  | beneﬁts | d | incentives |  |  | beneﬁts |  | incentives |  |  | Other |  | remuneration |  |  | ﬁxed pay |  | variable pay |  |  |
|  | £000 |  |  | £000 |  | £000 |  |  | £000 |  | £000 |  |  | £000 |  |  | £000 |  | £000 |  |  | £000 |  |
|  | FY | FY |  | FY | FY | FY | FY |  | FY | FY | FY | FY |  | FY | FY |  | FY | FY | FY | FY | FY |  | FY |
| 2022 |  | 2021 | 2022 |  | 2021 | 2022 | 2021 | 2022 |  | 2021 | 2022 | 2021 | 2022 |  | 2021 | 2022 |  | 2021 | 2022 | 2021 | 2022 |  | 2021 |

Bob Ivell 284 284 1 – – – – – – – – – 285 284 285 284 – –
e
Ron Robson – 45 – – – – – – – – – – 45 45 – –
Eddie Irwin 53 53 – – – – – – – – – – 53 53 53 53 – –
Colin
f
Rutherford – 53 – – – – – – – – – – – 53 – 53 – –
f
Imelda Walsh – 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 – –
g
Susan Murray 22 66 – – – – – – – – – – 22 66 22 66 – –
Jane Moriarty 76 56 0.5 – – – – – – – – – 76.5 56 76.5 56 – –
Amanda
h
Brown 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.
100 Governance Report on Directors’ remuneration continued
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
b

| applying to the 2022 plan are set out below | : |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Threshold – 95% |  |  |  | Maximum – 103% |  |  |
|  |  |  | of Target |  | Target |  | of Target | Outcome |
|  |  |  | (% of salary | (% of salary |  |  | (% of salary | (% of salary |
|  |  |  | payable) |  | payable) |  | payable) | payable) |

a
Adjusted Operating Proﬁt £159.3m £167.7m £172.7m £165m
(70%) (Periods 8-13) (0%) (21.5%) (43%) (14.6%)
Outcome
Calculation of outcome Performance (% of salary
Threshold Target (% of salary payable) (Score) payable)
Guest Health (15%)

| Net Promoter Score (‘NPS’) 55.0 60.0 Each element is scored 1 if better than target, |  | 50.5 |  | 0 |
| --- | --- | --- | --- | --- |
|  | 0 if between threshold and target, and -1 if | (-1) | (3.75%) |  |
| Social Media Score 4.2 4.3 4.32 | below threshold. |  |  |  |

(+1)
• If the sum of these scores is +3 then
Complaints Ratio 0.80 0.70 0.79
maximum bonus is paid (15%).
(0)
• 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%).

|  | Threshold |  |  | Target | Maximum |  | Outcome |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | (% of salary |  | (% of salary |  | (% of salary |  | (% of salary |  |
|  | payable) |  |  | payable) | payable) |  | payable) |  |
| Employee Engagement |  | 78.5 |  | 79.5 |  | 80.5 |  | 80.8 |

a

| (10%) | (2.5%) | (5%) | (10%) | (10%) |
| --- | --- | --- | --- | --- |
| Food Safety |  | 98.5% |  | 99.5% |
| (5%) |  | (5%) |  | (5%) |

a. Payout is on a straight-line basis between points.
Financial measures The Operating Proﬁt target for the remainder of the ﬁnancial year was set
Operating Proﬁt (Outcome 14.6% out of 43%) following a reforecast of the business in the light of the escalating cost
In the hope of a more stable FY 2022, the Board set Operating Proﬁt targets pressures, notably in food and energy costs. This resulted in an Operating
at the start of the ﬁnancial year for the Company incentive schemes. By the Proﬁt target of £167.7m in respect of this period. The Board determined that
end of the ﬁrst quarter, a number of things had changed. The emergence of this pro-rata target was at least as challenging as the full year target and
the Omicron variant had a signiﬁcant impact on Christmas trading, the cost provided a fair and proportionate level of incentive for Executives in what
headwinds the business was facing were far in excess of those anticipated at would be a very challenging year.
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, As this target now covered a part year, the overall earnings opportunity for
increases in household energy costs. this element was reduced accordingly on a pro-rata basis from 70% to 43% of
base pay.
At the beginning of the second quarter, the Board reviewed performance
and, taking into account the signiﬁcant shift in the ﬁnancial outlook The same performance range applied to the revised target with earnings
concluded that the targets set were no longer appropriate for the c. 6,000 beginning to accrue at 95% of the target and maximum at 103% of target.
employees across the Group that we were trying to incentivise, at the same
time highlighting a signiﬁcant retention and motivation risk. The same approach to annual incentives was applied to all retail support
centre colleagues. For frontline management employees a pro-rata approach
The Board therefore determined it would be appropriate to set a target for was put in place on the same basis. In addition, where any bonus was earned
the ﬁnal eight periods of the year (April to end September) but with a by any employees in this group against the earlier period’s targets, this was
corresponding reduction in bonus opportunity. This approach applied to all also paid.
those employees eligible to participate in an incentive plan and included
c. 5,000 critical frontline managers as well as the Executive Team and The overall Operating Proﬁt outcome over the ﬁnancial year was £240m, and
Executive Directors. £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
For the Executive Directors, this meant that the ﬁnancial performance in 14.6% of salary out of 43%) for Executive Directors.
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.
Mitchells & Butlers plc Annual Report and Accounts 2022

101

# **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.

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).

|  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
102 Governance 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):
Market price
Nil Cost Options per share used
awarded during Basis of award to determine Actual/
c

|  | the year to | (% of basic | Award | the award |  |  | planned |  | Latest |  | Face value |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  | a |  |  |  |  | b |  |  |
| Executive Directors | 24/09/22 | annual salary) | date |  | (p) | vesting date |  | lapse date |  |  |  | £ |

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

|  |  | Shares |  |  |  |  |  | Market price |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | awarded |  |  | Market price |  |  |  | per share |  |  |
|  |  | during |  |  | per share |  | Normal | at normal |  | Lapsed |
|  |  | the year | Award |  | at award |  | vesting | vesting date |  | during |
| Executive Director | to 24/9/22 |  | date |  |  | (p) | date |  | (p) | 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).

|  |  | Number of |  |  |  |  | Number of |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | shares at |  | Granted | Lapsed | Exercised | shares at |  |
|  | 25 September |  |  | during the | during the | during the | 24 September |  |
| Executive Director Scheme |  |  | 2021 | period | period | period |  | 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
Mitchells & Butlers plc Annual Report and Accounts 2022

103

# **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 STDP.

c. Options granted under the Shares are 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
104 Governance Report on Directors' remuneration continued

# **Total shareholder return from September 2012 to September 2022 (released 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.

![img-7.jpeg](img-7.jpeg)

# **CEO earnings history**

|  Year ended | 28/09/13 | 27/09/14 | 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.
Mitchells & Butlers plc Annual Report and Accounts 2022

105

# **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.

|  Financial year | Chief Executive pay ratio  |   |   |   |
| --- | --- | --- | --- | --- |
|   |  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%)).

![img-8.jpeg](img-8.jpeg)

# **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
106 Governance 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 will continue to account for 70% of the overall opportunity.
- Delivery of a threshold level of financial performance will result in a payment of 75% 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.
Mitchells & Butlers plc Annual Report 2022 Accounts 2022

107

Introduction

Strategic Report

Governance

Financial Statements

Other Information

# 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
108 Financial Statements
## Independent auditor’s report to the
## members of Mitchells & Butlers plc
1. Our opinion is unmodiﬁed Basis for opinion
We have audited the ﬁnancial statements of Mitchells & Butlers plc We conducted our audit in accordance with International Standards on
(‘the Company’) for the 52 week period ended 24 September 2022 which Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities are
comprise the Group Income Statement, the Group Statement of described below. We believe that the audit evidence we have obtained is
Comprehensive Income, the Group and Company Balance Sheets, the a suﬃcient and appropriate basis for our opinion. Our audit opinion is
Group and Company Statements of Changes in Equity, the Group cash ﬂow consistent with our report to the audit committee.
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 We were ﬁrst appointed as auditor by the shareholders on 25 January 2022.
ﬁnancial statements. 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
In our opinion:
ethical requirements including the FRC Ethical Standard as applied to listed
public interest entities. No non-audit services prohibited by that standard
• the ﬁnancial statements give a true and fair view of the state of the
were provided.
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;
Overview
• the Group ﬁnancial statements have been properly prepared in
accordance with UK-adopted international accounting standards;
Materiality: £22m
• the parent Company ﬁnancial statements have been properly
Group ﬁnancial 0.44% total assets
prepared in accordance with UK accounting standards, including FRS
statements as a whole
101 Reduced Disclosure Framework; and
• the ﬁnancial statements have been prepared in accordance with the Coverage 95% Group assets
requirements of the Companies Act 2006. 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
Mitchells & Butlers plc Annual Report and Accounts 2022 109
Introduction Strategic Report Governance Financial Statements Other Information
2. Material uncertainty related to going concern
The risk Our response
Going Concern Disclosure quality Our procedures included:
Refer to page 87 (Audit The ﬁnancial statements
Committee Report), page 121 explain how the Board has Assessing transparency:
note 1 (accounting policy and formed a judgement that it is • We considered whether the going concern disclosure in note 1 to the ﬁnancial
ﬁnancial disclosures). appropriate to adopt the going statements gives a full and accurate description of the Directors’ assessment
concern basis of preparation of going concern, including the identiﬁed risks and, dependencies, and
We draw attention to note 1 to for the Group and parent related sensitivities.
the ﬁnancial statements which Company.
indicates that the maintenance Our assessment of management’s going concern assessment also included:
of growth in sales in the face of That judgement is based on an
pressure on consumer spending evaluation of the inherent risks Funding assessment:
power in an environment of to the Group’s and Company’s • We assessed the forecast cash position, available committed facilities and the
falling real wages, and the business model and how those Director’s assessment of the Group’s ability to comply with its covenants during
future outlook for cost inﬂation risks might aﬀect the Group’s the forecast period, to understand the ﬁnancial resources available to the Group
across the whole of the cost and Company’s ﬁnancial during the forecast period.
base but most notably in energy resources or ability to continue
prices, food costs and wages operations over a period of at Historical comparisons:
and salaries. The outlook for least a year from the date of • We assessed the ability of the Group to accurately forecast by comparing the most
these is highly uncertain and approval of the ﬁnancial recent year’s performance against budget and challenged the assumptions over
volatile, particularly energy statements. the going concern period based on historical performance. We also challenged
costs in the second half of the actual performance in recent years versus base case and downside case to
FY 2023, and will depend on Given the extent of the challenge the quantum of risks applied in the forecasts.
a number of factors including economic uncertainty • We considered the consistency of managements’ forecasts with other areas of the
consumer conﬁdence, global described by the Directors, audit, including the right-of-use asset impairment review and revaluation of
political developments and there is little judgement freehold and long leasehold properties.
supply chain disruptions and involved in the Directors’
government policy. These conclusion that risks and Key dependency assessment:
events and conditions, along circumstances described in • We evaluated how the model captures events and conditions that may cast
with the other matters note 1 to the ﬁnancial signiﬁcant doubt on the ability to continue as a going concern and evaluated
explained in note 1, constitute statements represent a material whether key assumptions were within a reasonable range, and assessed the
a material uncertainty that may uncertainty over the ability of plausible but severe downside scenarios, particularly whether those downside
cast signiﬁcant doubt on the the Group and Company to scenarios reﬂected plausible impacts of higher cost inﬂation and changes in
Group’s and the parent continue as a going concern for consumer behaviour on the business.
Company’s ability to continue a period of at least a year from
as a going concern. the date of approval of the Sensitivity analysis:
ﬁnancial statements. • We assessed the downside sensitivities to ensure that these represented severe
Our opinion is not modiﬁed in but plausible scenarios based on our knowledge of the business and sector and
respect of this matter. However, clear and full we considered the most recent trading results to form a holistic view of the Group.
disclosure of the facts and the
Directors’ rationale for the use Our sector experience:
of the going concern basis of • We assessed the forecasts and key assumptions by reference to our knowledge of
preparation, including that the business and the general market conditions including the potential risk of
there is a related material management bias. We critically assessed the impact of those market conditions on
uncertainty, is a key ﬁnancial sales and cost inﬂation assumptions included within the cashﬂow forecasts;
statement disclosure and so
was the focus of our audit in Evaluating Directors’ intent:
this area. Auditing standards • We evaluated the achievability of the actions the Directors consider they would
require that to be reported as take to improve the position should the risks materialise, taking into account the
a key audit matter. 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.
110 Financial Statements 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 | Subjective estimate | Our procedures included: |  |
| --- | --- | --- | --- |
| and long leasehold | The Group holds its freehold |  |  |
| restaurant and pub estate | and long leasehold property | Assessing valuation approach: |  |
| (£4,036 million; 2021 £4,277 | estate at fair value, with a | • We met with the Group’s external valuers and management to critically assess the |  |
| million) | revaluation taking place as at |  | valuation assumptions and methodology used in valuing the properties and the |
|  | the balance sheet date. We |  | market evidence used by the valuers to support their assumptions. We also |
| Refer to page 85 (Audit | determined that the valuation of |  | obtained an understanding of management’s involvement in the valuation process |
| Committee Report), page 133 | the Group’s property estate is a |  | to assess whether appropriate oversight had occurred. |
| note 3.1 (accounting policy and | major source of estimation |  |  |
| ﬁnancial disclosures). | uncertainty. | Assessing valuer’s credentials: |  |

• We critically assessed the independence, professional qualiﬁcation, competence
The valuation involves the use and experience of the internal and external valuers engaged by the Group.
of subjective assumptions, most

| notably the fair maintainable | Sensitivity analysis: |  |
| --- | --- | --- |
| trade and applicable trading | • We considered sensitivities to the overall valuation from changes to fair |  |
| multiples. Covid-19 introduced |  | maintainable trade and to valuation multiples. |

unprecedented levels of
disruption to business Benchmarking assumptions:
operations and this has reduced • We challenged the key assumptions, with the assistance of our own valuation
the available level of recent specialists, for a sample of properties by making a comparison to market
trading information used to comparable data.
inform these assumptions.
Assessing inputs:
These assumptions are • We vouched observable inputs used for a sample of assets in the valuation to
inherently subjective and small source documentation.
changes in the assumptions
used in the valuation could have Assessing outputs:
a signiﬁcant eﬀect on the • We evaluated and challenged the output of the valuations through the
carrying value in the balance identiﬁcation of higher risk assets with the assistance of our own valuation
sheet which we consider is specialists;
a fraud risk.
Assessing transparency:
The eﬀect of these matters is • We critically assessed the adequacy of the Group’s disclosures in relation to the
that, as part of our risk valuation of the estate and the sensitivity of changes in key assumptions
assessment, we determined
that the valuation of the We performed the tests above rather than seeking to rely on any of the Group’s
freehold and long leasehold controls because the nature of the balance is such that we would expect to obtain
restaurant and pub estate has audit evidence primarily through the detailed procedures described.
a high degree of estimation
uncertainty, with a potential Our results
range of reasonable outcomes We found the valuation of the freehold and long leasehold restaurant and pub estate
greater than our materiality for to be acceptable.
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.
Mitchells & Butlers plc Annual Report and Accounts 2022 111
Introduction Strategic Report Governance Financial Statements Other Information
The risk Our response

| Impairment of right-of-use | Subjective estimate | Our procedures included: |  |
| --- | --- | --- | --- |
| assets and short leasehold | The estimated recoverable |  |  |
| properties | amount of right-of-use assets | Assessing impairment triggers: |  |
| (£497 million; 2021 £530 | and short leasehold properties | • We assessed the appropriateness and completeness of impairment |  |
| million) | is subjective due to the inherent |  | triggers identiﬁed; |

uncertainty involved in
Refer to page 85 (Audit forecasting and discounting Benchmarking assumptions and historical comparison:
Committee Report), page 133 future cashﬂows at a CGU level. • We assessed and challenged the key assumptions through retrospective review
note 3.1 (accounting policy and and comparison to industry forecasts and other externally derived data, including

| ﬁnancial disclosures) and note | The impact of COVID-19 on |  | available sources for comparable companies. |
| --- | --- | --- | --- |
| 3.2 page 139. | recent trading patterns, |  |  |
|  | together with the current levels | Assessing allocation: |  |
|  | of cost inﬂation, increases the | • We evaluated the reasonableness of budget allocations to individual cash |  |
|  | degree of estimation |  | generating units (CGUs) through retrospective review and comparison to CGU |
|  | uncertainty. |  | speciﬁc factors |
|  | The eﬀect of these matters is | Sensitivity analysis: |  |
|  | that, as part of our risk | • We evaluated the appropriateness and likelihood of the sensitivities and their |  |
|  | assessment, we determined |  | impact on the overall impairment test outcome and assess whether additional |
|  | that the recoverable amount of |  | sensitivity analysis would have been appropriate. |

right of use assets and short
leasehold properties has a high Assessing inputs:
degree of estimation • We vouched observable inputs used for a sample of assets to source
uncertainty, with a potential documentation.
range of reasonable outcomes
greater than our materiality for Assessing transparency:
the ﬁnancial statements as a • We critically assessed the adequacy of the Group’s disclosures.
whole. In conducting our ﬁnal
audit work, we concluded that We performed the tests above rather than seeking to rely on any of the Group’s
reasonably possible changes to controls because the nature of the balance is such that we would expect to obtain
the value in use would not be audit evidence primarily through the detailed procedures described.
expected to result in material
impairment. 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 Low risk high value Our response
Company ‘s investment in The carrying amount of the We performed the tests below rather than seeking to rely on any of the Company’s
subsidiaries parent Company’s investments controls because the nature of the balance is such that we would expect to obtain
(£1,866 million; 2021 £1,616 in subsidiaries represents 74% audit evidence primarily through the detailed procedures described.

| million) | (2021 70%) of the Company’s |  |  |
| --- | --- | --- | --- |
|  | total assets. Their recoverability | Our procedures included: |  |
| Refer to page 174 note 5 to the | is not a high risk of misstatement |  |  |
| parent Company accounts | or subject to signiﬁcant | Test of detail: |  |
| (accounting policy and ﬁnancial | judgement. However, due to | • We compared the carrying amount of all investments with the relevant |  |
| disclosures). | their materiality in the context of |  | subsidiaries’ draft balance sheet to identify whether their net assets, being an |
|  | the parent Company ﬁnancial |  | approximation of their minimum recoverable amount, are in excess of their |
|  | statements, this is considered to |  | carrying amount and assess whether those subsidiaries have historically been |
|  | be the area that had the greatest |  | proﬁt-making. |

eﬀect on our overall parent
Company audit. 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.
112 Financial Statements Independent auditor’s report to the members of Mitchells & Butlers plc continued
4. Our application of materiality and an overview of the Audits for Group reporting purposes were performed by the Group audit
scope of our audit team. The components within the scope of our work accounted for 95% of
Materiality for the Group ﬁnancial statements as a whole was set at total Group assets, 94% of total proﬁts and losses that made up Group proﬁt
£22 million, determined with reference to a benchmark of total assets (of before tax and 89% of total Group revenue.
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 The audits were all performed to materiality levels set individually for each
majority of the total asset value is in the pub estate and these assets act as component and ranged from £7.5 million to £19.8 million.
security for the Group’s securitised borrowings and will therefore be a focus
of users of the accounts. The audit work performed was predominately substantive as we placed
limited reliance upon the Group’s internal control over ﬁnancial reporting.
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%).
£4,951 million £22 million
In line with our audit methodology, our procedures on individual account
£22m
balances and disclosures were performed to a lower threshold, performance Whole ﬁnancial statements
materiality, so as to reduce to an acceptable level the risk that individually materiality
immaterial misstatements in individual account balances add up to a material
£16.5m
amount across the ﬁnancial statements as a whole. Whole ﬁnancial statements
performance materiality
Performance materiality for the Group was set at 75% of materiality for the
£19.8m
consolidated ﬁnancial statements as a whole, which equates to £16.5 million
Range of materiality at 5
for the Group and £8.25 million for the parent Company We applied this
components (£7.5m–£19.8m)
percentage in our determination of performance materiality because we did
not identify any factors indicating an elevated level of risk. £1.1m
Misstatements reported to the
audit committee
In addition, we applied materiality of £10 million, to Group revenue for which
Group materiality
we believe misstatement of lesser amounts than materiality for the ﬁnancial
Group total assets
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.
Group total assets Total proﬁts and losses that made up Group revenue
Group proﬁt before tax
5% 6%
11%
## 95% 94% 89%
89%

|  | 95% |  | 94% |  |
| --- | --- | --- | --- | --- |
| Full scope for Group audit purposes 2022 95% |  | Full scope for Group audit purposes 2022 94% |  | Full scope for Group audit purposes 2022 89% |
| Residual components 5% |  | Residual components 6% |  | Residual components 11% |

Group total assets Group materiality
Mitchells & Butlers plc Annual Report and Accounts 2022 113
Introduction Strategic Report Governance Financial Statements Other Information
5. The impact of climate change in our audit 7. Fraud and breaches of laws and regulations
In planning our audit, we considered the potential impacts of climate change – ability to detect
on the Group’s business and its ﬁnancial statements. Identifying and responding to risks of material misstatement
due to fraud
The Group has set out its target to achieve zero greenhouse gas emissions by To identify risks of material misstatement due to fraud (‘fraud risks’) we
2040, for Scope 1, 2 and 3 emissions, zero operation waste to landﬁll by 2030 assessed events or conditions that could indicate an incentive or pressure
and to reduce food waste by 50% by 2030 (from FY 2019 baselines). to commit fraud or provide an opportunity to commit fraud. Our risk
assessment procedures included:
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, • Enquiring of Directors, the audit committee, internal audit and inspection
how the demand might be impacted by the price increases needed to of policy documentation as to the Group’s and Company’s high-level
recover these costs and the longer term changes in customer behaviour are policies and procedures to prevent and detect fraud, including the
still being assessed, as the Group considers how it will work towards meeting internal audit function, and the Group’s/Company’s channel for
these targets. ‘whistleblowing’, as well as whether they have knowledge of any actual,
suspected or alleged fraud.
As part of our audit we have performed a risk assessment, including making • Reading Board, audit committee, risk and remuneration committee
enquiries of management, reading board meeting minutes and applying our meeting minutes.
knowledge of the Group and sector in which it operates to understand the • Considering remuneration incentive schemes and performance targets
extent of the potential impact of climate change risk on the Group’s ﬁnancial for management and Directors
statements. Taking into account the nature of the business, we have not • Using analytical procedures to identify any unusual or unexpected
assessed climate related risk to be signiﬁcant to our audit this year. There was relationships.
no impact on our key audit matters. • Considering the existence of any signiﬁcant unusual transactions.
We also read the Group’s disclosure of climate related information in the We communicated identiﬁed fraud risks throughout the audit team and
front half of the annual report and considered consistency with the ﬁnancial remained alert to any indications of fraud throughout the audit.
statements and our knowledge gained from our ﬁnancial statement
audit work. As required by auditing standards, and taking into account possible
pressures to meet proﬁt targets, our overall knowledge of the control
6. Going concern environment, we perform procedures to address the risk of management
The Directors have prepared the ﬁnancial statements on the going concern override of controls, in particular the risk that Group and component
basis as they do not intend to liquidate the Group or the Company or to cease management may be in a position to make inappropriate accounting entries
their operations, and as they have concluded that the Group’s and the and the risk of bias in accounting estimates and judgements such as the
Company’s ﬁnancial position means that this is realistic for at least a year from valuation of the estate and impairment assumptions. On this audit we do not
the date of approval of the ﬁnancial statements (‘the going concern period’). believe there is a fraud risk related to revenue recognition because Group
As stated in section 2 of our report, they have also concluded that there is revenue is generated predominantly through the operation of pubs. This
a material uncertainty related to going concern. revenue contains no signiﬁcant judgements and is comprised of a large
number of small, simple transactions that are received in cash or credit card
An explanation of how we evaluated management’s assessment of going receivables at the point of sale. Therefore there is limited opportunity for
concern is set out in section 2 of our report. management to manipulate or to fraudulently post the volume of transactions
that would be required to have a material impact on revenue.
Our conclusions based on this work:
We also identiﬁed a fraud risk related to the valuation of the freehold and
• we consider that the Directors’ use of the going concern basis of long leasehold pub and restaurant estate. Further detail in respect of this
accounting in the preparation of the ﬁnancial statements is appropriate; area is set out in the key audit matter disclosures in section 3 of this report.
• 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 We performed procedures including:
going concern basis of accounting and their identiﬁcation therein of a
material uncertainty over the Group and Company’s use of that basis for • Identifying journal entries and other adjustments to test for all full scope
the going concern period, and we found the going concern disclosure in components based on risk criteria and comparing the identiﬁed entries
note 1 to be acceptable; and to supporting documentation. These included those posted by senior
• the related statement under the Listing Rules set out on page 52 is ﬁnance management/those posted to unusual accounts related to
materially consistent with the ﬁnancial statements and our audit knowledge. 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.
114 Financial Statements Independent auditor’s report to the members of Mitchells & Butlers plc continued
7. Fraud and breaches of laws and regulations 8. We have nothing to report on the other information in the
– ability to detect continued Annual Report
Identifying and responding to risks of material misstatement The Directors are responsible for the other information presented in the
due to non-compliance with laws and regulations Annual Report together with the ﬁnancial statements. Our opinion on the
We identiﬁed areas of laws and regulations that could reasonably be ﬁnancial statements does not cover the other information and, accordingly,
expected to have a material eﬀect on the ﬁnancial statements from our we do not express an audit opinion or, except as explicitly stated below,
general commercial and sector experience, and through discussion with any form of assurance conclusion thereon.
the Directors and other management (as required by auditing standards),
and from inspection of the Group’s regulatory and legal correspondence Our responsibility is to read the other information and, in doing so, consider
and discussed with the Directors and other management the policies and whether, based on our ﬁnancial statements audit work, the information
procedures regarding compliance with laws and regulations. therein is materially misstated or inconsistent with the ﬁnancial statements or
our audit knowledge. Based solely on that work we have not identiﬁed
As the Group is regulated, our assessment of risks involved gaining an material misstatements in the other information.
understanding of the control environment including the entity’s procedures
for complying with regulatory requirements. Strategic report and Directors’ report
Based solely on our work on the other information:
We communicated identiﬁed laws and regulations throughout our team and
remained alert to any indications of non-compliance throughout the audit. • we have not identiﬁed material misstatements in the strategic report and
the Directors’ report;
The potential eﬀect of these laws and regulations on the ﬁnancial statements • in our opinion the information given in those reports for the ﬁnancial 52
varies considerably. week period is consistent with the ﬁnancial statements; and
• in our opinion those reports have been prepared in accordance with the
Firstly, the Group is subject to laws and regulations that directly aﬀect the Companies Act 2006.
ﬁnancial statements including ﬁnancial reporting legislation (including related
companies legislation), distributable proﬁts legislation, pension legislation Directors’ remuneration report
and taxation legislation and we assessed the extent of compliance with these In our opinion the part of the Directors’ Remuneration Report to be audited
laws and regulations as part of our procedures on the related ﬁnancial has been properly prepared in accordance with the Companies Act 2006.
statement items.
Disclosures of emerging and principal risks and
Secondly, the Group is subject to many other laws and regulations where the longer-term viability
consequences of non-compliance could have a material eﬀect on amounts or We are required to perform procedures to identify whether there is a
disclosures in the ﬁnancial statements, for instance through the imposition of material inconsistency between the Directors’ disclosures in respect of
ﬁnes or litigation or the loss of the Group’s license to operate. We identiﬁed emerging and principal risks and the viability statement, and the ﬁnancial
the following areas as those most likely to have such an eﬀect: licensing statements and our audit knowledge.
regulations, responsible drinking regulations, planning and building
legislation, health and safety, data protection laws, anti-bribery, employment Based on those procedures, other than the material uncertainty related to
law, recognising the nature of the Group’s activities. Auditing standards limit going concern referred to above, we have nothing further material to add or
the required audit procedures to identify non-compliance with these laws draw attention to in relation to:
and regulations to enquiry of the Directors and other management and
inspection of regulatory and legal correspondence, if any. Therefore if • the Directors’ conﬁrmation within the viability statement page 52 that
a breach of operational regulations is not disclosed to us or evident from they have carried out a robust assessment of the emerging and principal
relevant correspondence, an audit will not detect that breach. risks facing the Group, including those that would threaten its business
model, future performance, solvency and liquidity;
Context of the ability of the audit to detect fraud or breaches • the Risks and uncertainties disclosures describing these risks and how
of law or regulation emerging risks are identiﬁed, and explaining how they are being
Owing to the inherent limitations of an audit, there is an unavoidable risk that managed and mitigated; and
we may not have detected some material misstatements in the ﬁnancial • the Directors’ explanation in the viability statement of how they have
statements, even though we have properly planned and performed our audit assessed the prospects of the Group, over what period they have done
in accordance with auditing standards. For example, the further removed so and why they considered that period to be appropriate, and their
non-compliance with laws and regulations is from the events and statement as to whether they have a reasonable expectation that the
transactions reﬂected in the ﬁnancial statements, the less likely the inherently Group will be able to continue in operation and meet its liabilities as
limited procedures required by auditing standards would identify it. they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualiﬁcations
In addition, as with any audit, there remained a higher risk of non-detection or assumptions.
of fraud, as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures We are also required to review the viability statement, set out on page 52
are designed to detect material misstatement. We are not responsible for under the Listing Rules. Based on the above procedures, we have concluded
preventing non-compliance or fraud and cannot be expected to detect that the above disclosures are materially consistent with the ﬁnancial
non-compliance with all laws and regulations. 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.
Mitchells & Butlers plc Annual Report and Accounts 2022 115
Introduction Strategic Report Governance Financial Statements Other Information
Corporate governance disclosures Auditor’s responsibilities
We are required to perform procedures to identify whether there is a Our objectives are to obtain reasonable assurance about whether the
material inconsistency between the Directors’ corporate governance ﬁnancial statements as a whole are free from material misstatement,
disclosures and the ﬁnancial statements and our audit knowledge. 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
Based on those procedures, we have concluded that each of the following is that an audit conducted in accordance with ISAs (UK) will always detect a
materially consistent with the ﬁnancial statements and our audit knowledge: material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate, they could
• the Directors’ statement that they consider that the annual report and reasonably be expected to inﬂuence the economic decisions of users taken
ﬁnancial statements taken as a whole is fair, balanced and understandable, on the basis of the ﬁnancial statements.
and provides the information necessary for shareholders to assess the
Group’s position and performance, business model and strategy; A fuller description of our responsibilities is provided on the FRC’s website at
• the section of the annual report describing the work of the Audit www.frc.org.uk/auditorsresponsibilities.
Committee, including the signiﬁcant issues that the audit committee
considered in relation to the ﬁnancial statements, and how these issues The Company is required to include these ﬁnancial statements in an annual
were addressed; and ﬁnancial report prepared using the single electronic reporting format
• the section of the annual report that describes the review of the speciﬁed in the TD ESEF Regulation. This auditor’s report provides no
eﬀectiveness of the Group’s risk management and internal assurance over whether the annual ﬁnancial report has been prepared in
control systems. accordance with that format.
We are required to review the part of the Corporate Governance Statement 11. The purpose of our audit work and to whom we owe our
relating to the Group’s compliance with the provisions of the UK Corporate responsibilities
Governance Code speciﬁed by the Listing Rules for our review. We have This report is made solely to the Company’s members, as a body, in
nothing to report in this respect. 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
9. We have nothing to report on the other matters on which we those matters we are required to state to them in an auditor’s report and for
are required to report by exception no other purpose. To the fullest extent permitted by law, we do not accept or
Under the Companies Act 2006, we are required to report to you if, assume responsibility to anyone other than the Company and the Company’s
in our opinion: members, as a body, for our audit work, for this report, or for the opinions we
have formed.
• 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 Simon Haydn-Jones
• the parent Company ﬁnancial statements and the part of the Directors’ (Senior Statutory Auditor)
Remuneration Report to be audited are not in agreement with the for and on behalf of KPMG LLP, Statutory Auditor

|  | accounting records and returns; or | Chartered Accountants |
| --- | --- | --- |
| • certain disclosures of Directors’ remuneration speciﬁed by law are not |  | One Snowhill |
|  | made; or | Snowhill Queensway |
| • we have not received all the information and explanations we require for |  | Birmingham |
|  | our audit. | B4 6GH |
| We have nothing to report in these respects. |  | 6 December 2022 |

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.
116 Financial Statements
## Group income statement
### For the 52 weeks ended 24 September 2022

|  |  |  |  | 2022 |  |  |  |  |  | 2021 |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  | 52 weeks |  |  |  |  |  | 52 weeks |  |  |  |
|  |  | Before |  |  |  |  |  | Before |  |  |  |  |  |
|  | separately |  |  | Separately |  |  |  | separately |  | Separately |  |  |  |
|  | disclosed |  |  | disclosed |  |  |  | disclosed |  | disclosed |  |  |  |
|  |  |  |  |  |  | a |  |  |  |  |  | a |  |
|  |  | items |  |  | items |  | Total | items |  |  | items |  | Total |
| Notes |  |  | £m |  | £m |  | £m |  | £m |  | £m |  | £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
b
EBITDA 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 18.0p 2.2p (13.6)p (11.5)p
– Diluted 2.5 18.0p 2.2p (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.
Mitchells & Butlers plc Annual Report and Accounts 2022 117
Introduction Strategic Report Governance Financial Statements Other Information
## Group statement of comprehensive income
### For the 52 weeks ended 24 September 2022

|  |  | 2022 |  | 2021 |
| --- | --- | --- | --- | --- |
|  | 52 weeks |  | 52 weeks |  |
| Notes |  | £m |  | £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)
138 83
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.
118 Financial Statements

# 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:

Chief Financial Officer
Mitchells & Butlers plc Annual Report and Accounts 2022

119

## 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
120 Financial Statements
## Group cash ﬂow statement
### For the 52 weeks ended 24 September 2022

|  |  | 2022 |  | 2021 |
| --- | --- | --- | --- | --- |
|  | 52 weeks |  | 52 weeks |  |
| Notes |  | £m |  | £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
a
Interest payments (67) (65)
a
Interest payments on interest rate swaps (33) (40)
a
Interest receipts on cross currency swap 1 1
a
Interest payments on cross currency swap (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)
b
Repayment of principal in respect of securitised debt 4.4 (115) (107)
b
Principal receipts on currency swap 4.4 20 17
b
Principal payments on currency swap 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.
Mitchells & Butlers plc Annual Report and Accounts 2022

121

# Notes to the consolidated financial statements

## Section I – Basis of preparation

### General information

Mitchells & Butlers plc (the Company) is a public limited company limited by 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.

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.

Introduction

Strategic Report

Governance

Financial Statements

Other Information
122 Financial Statements*Notes to the consolidated financial statements*^{}[] *continued*

## Section I – Basis of preparation *continued*

### 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 <10% 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.

### 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.
Mitchells & Butlers plc Annual Report and Accounts 2022

123

# **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
124 Financial Statements Notes to the consolidated ﬁnancial statements continued
### Section 2 – Results for the period
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 |  | 2021 |  | 2022 |  | 2021 |  | 2022 |  | 2021 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  | 52 weeks |  | 52 weeks |  | 52 weeks |  | 52 weeks |  |
|  | £m |  | £m |  | £m |  | £m |  | £m |  | £m |

Revenue – sales to third parties 2,117 1,009 91 56 2,208 1,065
a
Segment non-current assets 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.
Mitchells & Butlers plc Annual Report and Accounts 2022 125
Introduction Strategic Report Governance Financial Statements Other Information
The items identiﬁed in the current period are as follows:

|  |  | 2022 |  | 2021 |
| --- | --- | --- | --- | --- |
|  | 52 weeks |  | 52 weeks |  |
| Notes |  | £m |  | £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.
126 Financial Statements*Notes to the consolidated financial statements*^{}[] *continued*

## Section 2 – Results for the period *continued*

### 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 installments 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).
Mitchells & Butlers plc Annual Report and Accounts 2022 127
Introduction Strategic Report Governance Financial Statements Other Information
Government grants
The impact of grants received on the income statement is as follows:

|  |  | 2022 |  | 2021 |
| --- | --- | --- | --- | --- |
|  | 52 weeks |  | 52 weeks |  |
| Government grant scheme Income statement line impact |  | £m |  | £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 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £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 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £m |

a
Raw materials and food and drink consumables recognised as an expense 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
b
Property operating lease costs 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.
128 Financial Statements Notes to the consolidated ﬁnancial statements continued
### Section 2 – Results for the period continued
2.3 Revenue and operating costs continued
Employee costs

|  | 2022 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £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
a
UK Government grant – (210)
b
German Government grant – (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 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £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
a
Total audit fees 0.7 0.7
Other fees to auditor:
– audit-related assurance services – –
b
– other non-audit services – 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.
Mitchells & Butlers plc Annual Report and Accounts 2022 129
Introduction Strategic Report Governance Financial Statements Other Information
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 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £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%).
130 Financial Statements Notes to the consolidated ﬁnancial statements continued
### Section 2 – Results for the period continued
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 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £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 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £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 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £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)
Mitchells & Butlers plc Annual Report and Accounts 2022 131
Introduction Strategic Report Governance Financial Statements Other Information
Tax relating to items recognised directly in equity

|  | 2022 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £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 2021
£m £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 2021
£m £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.
Notes to the consolidated ﬁnancial statements continued132 Financial Statements
### Section 2 – Results for the period continued
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 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £m |

Proﬁt/(loss) for the period 13 (65)
Separately disclosed items, net of tax 94 (12)
a
Adjusted proﬁt/(loss) for the period 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 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £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 | 20212 |
| --- | --- | --- |
| 52 weeks |  | 52 weeks |
|  | pence | 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
a
Adjusted diluted earnings/(loss) per share 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.
Mitchells & Butlers plc Annual Report and Accounts 2022 133
Introduction Strategic Report Governance Financial Statements Other Information
### Section 3 – Operating assets and liabilities
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.
134 Financial Statements Notes to the consolidated ﬁnancial statements continued
### Section 3 – Operating assets and liabilities 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).
Mitchells & Butlers plc Annual Report and Accounts 2022

135

# **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
136 Financial Statements*Notes to the consolidated financial statements*^{}[] *continued*

## Section 3 – Operating assets and liabilities *continued*

### 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.
Mitchells & Butlers plc Annual Report and Accounts 2022 137
Introduction Strategic Report Governance Financial Statements Other Information
The impact of the revaluations/impairments described above is as follows:

|  | 2022 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £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.
Fixtures,
Land and ﬁttings and Net book
a
buildings equipment value
Number of pubs £m £m £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
Fixtures,
Land and ﬁttings and Net book
a
Number of buildings equipment value
pubs £m £m £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).
138 Financial Statements*Notes to the consolidated financial statements*^{}[] *continued*

# *Section 3 – Operating assets and liabilities**continued*

# **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**  |
Mitchells & Batters plc Annual Report and Accounts 2022

139

# 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
140 Financial Statements Notes to the consolidated ﬁnancial statements continued
### Section 3 – Operating assets and liabilities continued
3.2 Leases continued
Right-of-use assets
Right-of-use assets can be analysed as follows:
Land and
buildings Cars Total
£m £m £m
Cost
At 26 September 2020 535 5 540
a
Additions 24 1 25
Disposals (2) (1) (3)
Foreign currency movements (2) – (2)
At 25 September 2021 555 5 560
a
Additions 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.

|  | Carrying |  | Impairment |  | Carrying |  | Impairment |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | value | recognised |  |  | value | recognised |  |
|  |  | 2022 |  | 2022 |  | 2021 |  | 2021 |
| Note |  | £m |  | £m |  | £m |  | £m |

Short leasehold properties 3.1 117 (9) 129 (2)
Right-of-use assets 339 (22) 379 (8)
456 (31) 508 (10)
Mitchells & Batters plc Annual Report and Accounts 2022

141

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
142 Financial Statements Notes to the consolidated ﬁnancial statements continued
### Section 3 – Operating assets and liabilities continued
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 2021
£m £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 2021
£m £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).
Mitchells & Butlers plc Annual Report and Accounts 2022

143

### 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
Notes to the consolidated ﬁnancial statements continued144 Financial Statements
### Section 3 – Operating assets and liabilities continued
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 Dilapidation Total property
provisions provisions provisions
£m £m £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
Mitchells & Butlers plc Annual Report and Accounts 2022 145
Introduction Strategic Report Governance Financial Statements Other Information
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.
146 Financial Statements*Notes to the consolidated financial statements*^{}[] *continued*

# *Section 3 – Operating assets and liabilities**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.
Mitchells & Butlers plc Annual Report and Accounts 2022

147

### 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
148 Financial Statements Notes to the consolidated ﬁnancial statements continued
### Section 4 – Capital structure and ﬁnancing costs
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 2021
£m £m
Current
a,b
Securitised debt 113 110
c
Unsecured revolving credit facilities – (1)
d
Overdraft 17 25
Total current 130 134
Non-current
a,b
Securitised debt 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 2021
£m £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:
Principal outstanding

|  | Initial |  | Principal | Eﬀective |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| principal |  | repayment |  | interest |  | 24 September |  | 25 September |  |  |
| borrowed |  | period (all by |  |  | rate |  | 2022 |  | 2021 | Expected |

a
Tranche £m Interest instalments) % £m £m WAL
b
A1N 200 Floating 2011 to 2028 6.61 87 99 3 years
A2 550 Fixed – 5.57% 2003 to 2028 5.72 158 180 3 years
b c c
A3N 250 Floating 2011 to 2028 6.69 109 123 3 years
b
A4 170 Floating 2016 to 2028 6.37 103 116 3 years
b
AB 325 Floating 2020 to 2032 6.28 291 305 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
b
C2 50 Floating 2033 to 2034 6.47 50 50 11 years
b
D1 110 Floating 2034 to 2036 6.68 110 110 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).
Mitchells & Butlers plc Annual Report and Accounts 2022

149

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
Notes to the consolidated ﬁnancial statements continued150 Financial Statements
### Section 4 – Capital structure and ﬁnancing costs continued
4.2 Finance costs and income

|  | 2022 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £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).
Mitchells & Butlers plc Annual Report and Accounts 2022 151
Introduction Strategic Report Governance Financial Statements Other Information
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.
152 Financial Statements Notes to the consolidated ﬁnancial statements continued
### Section 4 – Capital structure and ﬁnancing costs 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.
Mitchells & Batters plc Annual Report and Accounts 2022

153

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
154 Financial Statements Notes to the consolidated ﬁnancial statements continued
### Section 4 – Capital structure and ﬁnancing costs continued
4.3 Financial instruments continued
The Group’s maximum credit exposure at the balance sheet date was:

|  |  | 12-month |  | Lifetime |  |  |
| --- | --- | --- | --- | --- | --- | --- |
| FVTPL |  |  | ECL |  | ECL | Total |
|  | £m |  | £m |  | £m | £m |

24 September 2022:
a
Cash and cash equivalents – 190 – 190
b
Trade receivables – – 13 13
b
Other receivables – 16 – 16
Other ﬁnancial assets – 21 – 21
Deﬁned beneﬁt pension blocked account – 9 – 9
c
Finance lease receivables – – 13 13
Derivatives 60 – – 60
25 September 2021:
a
Cash and cash equivalents – 227 – 227
b
Trade receivables – – 9 9
b
Other receivables – 12 – 12
c
Finance lease receivables – – 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 2021
£m £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.
Mitchells & Butlers plc Annual Report and Accounts 2022 155
Introduction Strategic Report Governance Financial Statements Other Information
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 2021
£m £m
a
Interest income 2 1
b
Interest expense – –
Proﬁt impact 2 1
c
Derivative ﬁnancial instruments (fair values) 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 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £m |

Gains arising during the period 180 32
Reclassiﬁcation adjustments for losses included in proﬁt or loss within ﬁnance costs 1 56
181 88
156 Financial Statements Notes to the consolidated financial statements continued

# Section 4 – Capital structure and financing costs continued

# 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)**  |
Mitchells & Butlers plc Annual Report and Accounts 2022 157
Introduction Strategic Report Governance Financial Statements Other Information
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 Current Current Non-current
assets assets liabilities liabilities Total
£m £m £m £m £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 |  |  |  |  |  | At |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 25 September |  |  | Cash | Fair value |  | 24 September |  |
|  | 2021 | movements |  | movements |  |  | 2022 |
|  | £m |  | £m |  | £m |  | £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 |  |  |  |  |  | At |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 26 September |  |  | Cash | Fair value |  | 25 September |  |
|  | 2020 | movements |  | movements |  |  | 2021 |
|  | £m |  | £m |  | £m |  | £m |

Cash ﬂow hedges (253) 40 32 (181)
Share options 1 – – 1
Total derivatives (252) 40 32 (180)
158 Financial Statements Notes to the consolidated financial statements continued

# Section 4 – Capital structure and financing costs 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)  |
Mitchells & Butlers plc Annual Report and Accounts 2022 159
Introduction Strategic Report Governance Financial Statements Other Information
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
2022 2021
Note £m £m
Cash and cash equivalents 207 252
Overdraft 4.1 (17) (25)
a
Cash and cash equivalents as presented in the cash ﬂow statement 190 227
Securitised debt 4.1 (1,447) (1,526)
Unsecured revolving credit facility 4.1 – 1
b
Derivatives hedging securitised debt 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 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £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)
160 Financial Statements Notes to the consolidated ﬁnancial statements continued
### Section 4 – Capital structure and ﬁnancing costs continued
4.4 Net debt continued
Movement in lease liabilities:

|  | 2022 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £m |

Opening lease liabilities (513) (541)
a
Additions (25) (22)
b
Covid-19 rent concessions – 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 | Cash ﬂow |  | Non-cash |  |  | Foreign |  |  | At |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 25 September |  | movements |  | movements |  |  | currency |  | 24 September |  |
|  | 2021 | in the period |  | in the period |  | movements |  |  |  | 2022 |
|  | £m |  | £m |  | £m |  |  | £m |  | £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) – –
a
Lease liabilities (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 | Cash ﬂow |  | Non-cash |  |  | Foreign |  |  | At |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 26 September |  | movements |  | movements |  |  | currency |  | 25 September |  |
|  | 2020 | in the period |  | in the period |  | movements |  |  |  | 2021 |
|  | £m |  | £m |  | £m |  |  | £m |  | £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
a
Lease liabilities (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.
Mitchells & Butlers plc Annual Report and Accounts 2022 161
Introduction Strategic Report Governance Financial Statements Other Information
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.
Notes to the consolidated ﬁnancial statements continued162 Financial Statements
### Section 4 – Capital structure and ﬁnancing costs continued
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 Executive plan Main plan Executive plan
years years years 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.

|  | Increase/ |  |  | Decrease/ |  |
| --- | --- | --- | --- | --- | --- |
|  | (decrease) |  |  | (increase) |  |
|  | in actuarial |  | in total pension |  |  |
|  | surplus |  |  | liabilities |  |
|  |  | 2022 |  |  | 2022 |
| 2022 |  | £m |  |  | £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
Mitchells & Butlers plc Annual Report and Accounts 2022 163
Introduction Strategic Report Governance Financial Statements Other Information

|  | Increase/ |  |  | Decrease/ |  |
| --- | --- | --- | --- | --- | --- |
|  | (decrease) |  |  | (increase) |  |
|  | in actuarial |  | in total pension |  |  |
|  |  | surplus |  | liabilities |  |
|  |  | 2021 |  |  | 2021 |
| 2021 |  | £m |  |  | £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.

|  |  | 2022 |  | 2021 |
| --- | --- | --- | --- | --- |
|  | 52 weeks |  | 52 weeks |  |
| Group income statement |  | £m |  | £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)

|  |  | 2022 |  | 2021 |
| --- | --- | --- | --- | --- |
|  | 52 weeks |  | 52 weeks |  |
| Group statement of comprehensive income |  | £m |  | £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
2022 2021
Group balance sheet £m £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)
a
Total pension liabilities (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).
164 Financial Statements Notes to the consolidated financial statements continued

# Section 4 – Capital structure and financing costs 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.
Mitchells & Butlers plc Annual Report and Accounts 2022 165
Introduction Strategic Report Governance Financial Statements Other Information
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 |  | 2021 |
| --- | --- | --- | --- |
| Sharesave |  | Sharesave |  |
|  | Plan |  | 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%
a
Volatility 41.9% 41.9%
b
Expected life (years) 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.
Weighted average

|  | Number of shares |  |  | exercise price |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2022 |  | 2021 | 2022 |  | 2021 |  |
| Sharesave Plan |  | m | m |  | p |  | 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).
166 Financial Statements Notes to the consolidated financial statements continued

# Section 4 – Capital structure and financing costs continued

# 4.6 Share-based payments continued

|  Share Incentive Plan | Number of shares  |   |
| --- | --- | --- |
|   |  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.

|  Restricted Share Plan | Number of shares  |   |
| --- | --- | --- |
|   |  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).

|  Performance Restricted Share Plan | Number of shares  |   |
| --- | --- | --- |
|   |  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.

|  Called up share capital | 2022 |   | 2021  |   |
| --- | --- | --- | --- | --- |
|   |  Number of shares | £m | Number of shares | £m  |
|  **Allotted, called up and fully paid** |  |  |  |   |
|  Ordinary shares of 8½%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.
Mitchells & Butlers plc Annual Report and Accounts 2022

167

# **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
Notes to the consolidated ﬁnancial statements continued168 Financial Statements
### Section 5 – Other notes
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 |  | 2021 |
| --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  |
|  | £m |  | £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 |  | 2021 |  | 2022 |  | 2021 |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  | 52 weeks |  | 52 weeks |  |
|  | £000 |  | £000 |  | £000 |  | £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).
Mitchells & Butlers plc Annual Report and Accounts 2022 169
Introduction Strategic Report Governance Financial Statements Other Information
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:
Country of Registration
Name of subsidiary incorporation 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
a
Mitchells & Butlers Germany GmbH Germany Service company
Mitchells & Butlers Finance plc England and Wales 04778667 Finance company
Other subsidiaries
b
Mitchells & Butlers (Property) Limited England and Wales 01299745 Property management
b
Standard Commercial Property Developments Limited England and Wales 00056525 Property development
a,b
Mitchells & Butlers Holdings (No.2) Limited England and Wales 06475790 Holding company
b
Mitchells & Butlers Holdings Limited England and Wales 03420338 Holding company
b
Mitchells & Butlers Leisure Holdings Limited 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
b
Mitchells & Butlers (IP) Limited England and Wales 04885717 Dormant
Mitchells & Butlers Acquisition Company England and Wales 05879733 Dormant
a,b
Mitchells & Butlers Retail Property Limited England and Wales 06301758 Non–trading
b
Mitchells and Butlers Healthcare Trustee Limited England and Wales 04659443 Healthcare trustee
c
ALEX Gaststätten Immobiliengesellschaft mbH Germany Property management
c
ALL BAR ONE Gaststätten Betriebsgesellschaft mbH Germany Leisure retailing
c
ALEX Alsterpavillon Immobilien GmbH & Co KG Germany Property management
c
ALEX Alsterpavillon Management GmbH Germany Management company
c
ALEX Gaststätten Management GmbH Germany Management company
c
Miller & Carter Gaststätten Betriebsgesellschaft mbH Germany Leisure retailing
d
Browns Restaurant (Brighton) Limited England and Wales 01564302 Dormant
d
Browns Restaurant (Bristol) Limited England and Wales 02351724 Dormant
d
Browns Restaurant (Cambridge) Limited England and Wales 01237917 Dormant
d
Browns Restaurant (London) Limited England and Wales 00291996 Dormant
d
Browns Restaurant (Oxford) Limited England and Wales 01730727 Dormant
d
Browns Restaurants Limited England and Wales 01001320 Dormant
d
Lander & Cook Limited 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.
170 Financial Statements Notes to the consolidated ﬁnancial statements continued
### Section 5 – Other notes 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.
Proportion of

|  |  | Country of incorporation |  | ownership | Proportion of voting |
| --- | --- | --- | --- | --- | --- |
| Name of associate Registered oﬃce |  |  | and operation Country of operation Nature of business | interest % | power interest % |
| 3Sixty Restaurants | 1st Floor St Georges House, |  |  |  |  |
| Limited | St Georges Road, Bolton, BL1 2DD England and Wales United Kingdom Leisure retailing 40 40 |  |  |  |  |
| Fatboy Pub Company | Ampney House, Falcon Close, |  |  |  |  |
| Limited | Quedgeley, Gloucester, GL2 4LS England and Wales United Kingdom Leisure retailing 25 25 |  |  |  |  |

5.3 Five year review

|  | 2022 |  | 2021 |  | 2020 |  | 2019 |  | 2018 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 52 weeks |  | 52 weeks |  | 52 weeks |  | 52 weeks |  | 52 weeks |  |
|  | £m |  | £m |  | £m |  | £m |  | £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
Mitchells & Butlers plc Annual Report and Accounts 2022

171

Mitchells & Butlers plc Company financial statements

# Company balance sheet

24 September 2022

|   | 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

Introduction

Strategic Report

Governance

Financial Statements

Other Information
172 Financial Statements*Mitchells & Butlers plc Company financial statements continued*

## Company statement of changes in equity

*For the 52 weeks ended 24 September 2022*

|   | 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.
Mitchells & Butlers plc Annual Report and Accounts 2022

173

# Notes to the Mitchells & Butlers plc Company 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.

Introduction

Strategic Report

Governance

Financial Statements

Other Information
174 Financial Statements*Notes to the Mitchells & Butlers plc Company financial statements continued*

## 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.
Mitchells & Butlers plc Annual Report and Accounts 2022

175

## 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
176 Financial Statements*Notes to the Mitchells & Butlers plc Company financial statements*^{}[] *continued*

## 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.
Mitchells & Butlers plc Annual Report and Accounts 2022 177
Introduction Strategic Report Governance Financial Statements Other Information
## Alternative performance measures
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 Group income statement
calculate net debt to EBITDA.
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 Group income statement
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.
Like-for-like sales excluding VAT Like-for-like sales excluding VAT beneﬁt reﬂects like-for-like sales growth excluding Group income statement
beneﬁt 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.
Adjusted earnings/(loss) per share Earnings/(loss) per share using proﬁt before separately disclosed items. Note 2.5
(EPS)
Net debt Net debt comprises cash and cash equivalents, cash deposits net of borrowings and Note 4.4
discounted lease liabilities. Presented on a constant currency basis due to the Note 4.3
inclusion of the ﬁxed exchange rate component of the cross currency swap.
Net debt: Adjusted EBITDA The multiple of net debt including lease liabilities, as per the balance sheet compared Note 4.4
against 52-week EBITDA before separately disclosed items which is a widely used Group income statement
leverage measure in the industry.
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.

|  |  | 2022 |  | 2019 | 2022 vs. 2019 |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 52 weeks |  | 52 weeks |  |  | LFL |
| Source |  | £m |  | £m |  | % |

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)%
178 Other Information Alternative performance measures continued
Drink sales

|  |  | 2022 |  | 2019 | 2022 vs. 2019 |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 52 weeks |  | 52 weeks |  |  | LFL |
| Source |  | £m |  | £m |  | % |

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

|  |  | 2022 |  | 2019 | 2022 vs. 2019 |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 52 weeks |  | 52 weeks |  |  | LFL |
| Source |  | £m |  | £m |  | % |

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

|  |  | 2022 |  | 2019 | 2022 vs. 2019 |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 52 weeks |  | 52 weeks |  |  | LFL |
| Source |  | £m |  | £m |  | % |

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.

|  |  | 2022 |  | 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 52 weeks |  | 52 weeks |  | Year-on-year |  |
| Source |  | £m |  | £m |  | % |

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.

|  |  | 2022 |  | 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 52 weeks |  | 52 weeks |  | Year-on-year |  |
| Source |  | £m |  | £m |  | % |

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%
Mitchells & Butlers plc Annual Report and Accounts 2022 179
Introduction Strategic Report Governance Financial Statements 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.
2022
52 weeks
Source £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

|  |  | 2021 |  | 2022 | 2022 | 2022 |
| --- | --- | --- | --- | --- | --- | --- |
|  | FY 2018–21 |  | FY 2019–21 |  | FY 2022 | Total |
| Source |  | £m |  | £m | £m | £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
a
Conversions and acquisitions 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.
180 Other Information
## Shareholder information Our brands

| Shareholder information | All of our popular brands have their |
| --- | --- |
| Contacts | own websites, helping our customers to |
| Registered oﬃce | ﬁnd the information they need straight |
| 27 Fleet Street | away. Latest food and drink menus, |

Birmingham B3 1JP
news and oﬀers, email newsletters,
Telephone 0121 498 4000
online bookings and details of new
Registered in England No. 4551498
openings are all available.
Registrar
Equiniti
Alex
Aspect House
www.dein-alex.de
Spencer Road
Lancing
All Bar One
West Sussex BN99 6DA
www.allbarone.co.uk
@allbarone
From the UK:
Telephone 0371 384 2065*
Browns
www.browns-restaurants.co.uk
From non-UK jurisdictions:
@BrownsBrasserie
Telephone +44 121 415 7088*
Ember Inns
For those with hearing loss, a textphone is available on 0371 384 2255*
www.emberinns.co.uk
for UK callers with compatible equipment.
@EmberInns
www.mbplc.com/investors/contacts/
Harvester
www.harvester.co.uk
* Lines are open 8.30am to 5.30pm (UK time), Monday to Friday, excluding public holidays
@HarvesterUK
in England & Wales.
Innkeeper’s Collection
Key dates
www.innkeeperslodge.com
These dates are indicative only and may be subject to change.
Annual General Meeting February 2023 Miller & Carter
www.millerandcarter.co.uk
Announcement of interim results May 2023
@MillerandCarter
Pre-close trading update September 2023
2023 ﬁnal results announcement November 2023 Nicholson’s
www.nicholsonspubs.co.uk
@Nicholsonspubs
In line with our sustainability strategy to lessen the negative impact of
our business, we have reduced the number of Annual Reports we have
O’Neill’s
printed this year. Once that supply is exhausted, we will not print any
www.oneills.co.uk
further copies, though the Annual Report will be available on our website
@ONeillsPubs
and can be printed from there if required, using the following link:
www.mbplc.com/investors/annualreport.
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
## Mitchells & Butlers online
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website gives you fast, direct access to
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182 Introduction
Mitchells & Butlers plc
27 Fleet Street
Birmingham B3 1JP
Tel: +44 (0)121 498 4000
Company Number: 4551498