## Annual Report ## and Accounts 2023 ![img-0.jpeg](img-0.jpeg) ![img-1.jpeg](img-1.jpeg) # **Annual Report** **and Accounts 2023** **Contents** # **Introduction** - 01 About us/Financial highlights/Environmental targets - 02 At a glance - 05 Welcome to Mitchells & Butlers - 06 Business in action # **Strategic Report** - 14 Chairman's statement - 16 Chief Executive's business review - 20 Our markets - 22 Our business model - 26 Value creation story - 30 Our strategic priorities - 32 Key performance indicators - 34 Our sustainability targets - 36 Task Force on Climate-related Financial Disclosures - 41 Risks and uncertainties - 48 Compliance statements - Corporate viability disclosure - Non-financial and sustainability information statement - Section 172 Companies Act statement - 51 Financial review # **Governance** - 56 Governance at a glance - 58 Chairman's introduction to governance - 60 Board of Directors - 62 Directors' report - 70 Statement of Directors' responsibilities in respect of the Annual Report and Accounts - 71 Corporate governance statement - 84 Audit Committee report - 88 Report on Directors' remuneration # **Financial Statements** - 120 Independent auditor's report to the members of Mitchells & Butlers plc - 128 Group income statement - 129 Group statement of comprehensive income - 130 Group balance sheet - 131 Group statement of changes in equity - 132 Group cash flow statement - 133 Notes to the consolidated financial statements - 186 Mitchells & Butlers plc Company financial statements - 188 Notes to the Mitchells & Butlers plc Company financial statements # **Other Information** - 192 Alternative performance measures - 196 Shareholder information ![img-2.jpeg](img-2.jpeg) ![img-3.jpeg](img-3.jpeg) Introduction Strategic Report Governance Financial Statements Other Information ## About us ## For 125 years the Group has been at the forefront of UK ## drinking and eating out, running many of the UK’s most ## beautiful and iconic pubs and restaurants. ## We are a leading operator of managed restaurants and pubs ## with 1,654 largely-freehold managed businesses representing ## some of the most popular brands and formats in the UK. ## Our scale is impressive. In FY 2023 we served over 100 million a ## meals, and over 330 million drinks. We employ over 50,000 ## people in pubs, bars and restaurants that are located across ## the length and breadth of the UK and in Germany. ## Our strategy remains focused on our three priority ## areas of building a more balanced business, instilling a ## commercial culture, and driving an innovation agenda, ## whilst pursuing our purpose of being the host of life’s ## memorable moments, bringing people and communities ## together through great experiences. ## Financial highlights Environmental targets c ## £2,503m Net Zero Revenue Greenhouse gas emissions by FY 2040 (Scope 1, 2 and 3) | £98m | | Zero | | --- | --- | --- | | Statutory operating profit | Operational waste to landfill by FY 2030 | | | £226m | | 50% | b | Adjusted operating profit | | Reduction in food waste by FY 2030 | | | | --- | --- | --- | --- | --- | | | Financial review | | Sustainability targets | | | | Go to page 51 | | | Go to page 34 | a. As at 30 September 2023. b. The Directors use a number of alternative performance measures (‘APMs’) that are considered critical to aid understanding of the Group’s performance. Key measures are explained on pages 192 to 195 of this report. c. As defined on page 40. NB. FY 2023 was a 53-week period, therefore for comparative purposes all year-on-year growth rates in the report are provided on a 52-week basis. Mitchells & Butlers plc Annual Report and Accounts 2023 01 Introduction ## Mitchells & Butlers ## at a glance ## Our brands Best Sustainable Pub Company ## Our strong portfolio of recognised and diversified brands March 2023 ## and formats is loved and trusted by our guests, with ## over 65% home-grown and over 80% in existence for over ## 20 years. ## Our purpose is to be the host of life’s memorable ## moments, bringing people and communities together ## through great experiences, with average guest review ## scores of 4.4 out of 5 in the year. Alex All Bar One Browns Castle 42 sites 48 sites 26 sites 102 sites EGO Ember Inns Harvester High Street 29 sites 149 sites 157 sites 72 sites Miller & Carter Nicholson’s O’Neill’s Premium Country Pubs 126 sites 80 sites 40 sites 125 sites Stonehouse Suburban Toby Carvery Vintage Inns 92 sites 238 sites 152 sites 176 sites 02 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ## Our people ## Over 50,000 ## employees, making us one of the largest employers in the industry ## 13% Staff turnover reduced by 13 percentage points due to the effective delivery of our People Promise ## Over 1,600 apprentices currently in learning Employees Covent Garden Go to page 27 London UK sales by region (FY 2023) ## Our pubs Scotland 5% ## 83% of pubs freehold and long leasehold with major investment planned every seven years The Fox Birmingham ## 1,654 managed businesses with favourable spread North East 3% of locations, price points and occasions leaves North West the business well-hedged against changes in 10% consumer taste Yorkshire and Humberside 8% East Midlands 5% West Midlands East of 15% England 8% Wales 4% London 21% South East (excluding London) South West 7% 14% The Sun Inn Barnes Mitchells & Butlers plc Annual Report and Accounts 2023 03 Introduction 04 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ## Welcome ## to Mitchells ## & Butlers ### Our purpose is to be the host of life’s memorable ### moments, bringing people and communities ### together through great experiences. ### We have put sustainability and respect for the ### environment at the core of everything we do; this ### was recognised when we won the award for Best ### Sustainable Pub Company at the Publican Awards ### in March 2023. ### Our continued focus on our Ignite programme ### of initiatives has driven cost efficiencies and ### increased sales in the year, whilst our successful ### capital investment programme continues to generate ### value from our estate. This, combined with our ### diverse portfolio of established brands and enviable ### estate locations, has helped us to deliver against ### this purpose with a strong performance in the year. ### We will continue to execute our strategy which we ### believe will enable us to continue to outperform the ### sector in the year to come. ### Phil Urban ### Chief Executive Over the next few pages, we showcase some of the elements of our offers and strategic initiatives, as well as the benefits from our scale that make our business different, allowing us both to achieve our purpose and grow market share. Mitchells & Butlers plc Annual Report and Accounts 2023 05 Introduction ## 52% of our General Managers promoted through internal succession. Automated team member scheduling introduced to ensure we have the right people working at the right times, to drive sales and reduce costs at quieter times. ## 9.1% ## 41 a like for like sales growth. initiatives currently in progress to improve guest care, enhance efficiency and grow profitable sales. 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 192 to 195 of this report. 06 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Our General Managers control, respond and resolve customer feedback and queries. ## 10% Our guest review scores have improved by 10% since introduced four years ago. Further delivery improvements made during the year, with all brands now offering click-and-collect and delivery options. ## 4.4 average guest review score out of 5. ### Business in Action – Service ## Delighting ## our guests ### We put the guest at the heart of every decision that we take. ### This, along with our obsession with how each pound converts ### to bottom-line profit, provides us with the commercial edge to ### deliver customer service excellence and grow market share. ### Delighting our guests is as much about culture and mindset ### as it is about specific procedures, with our high guest review ### scores testament to the work our teams continue to devote to ### this priority. Going forward, we will remain unstinting in our ### focus on this area. Chief Executive’s business review Go to page 16 Mitchells & Butlers plc Annual Report and Accounts 2023 07 Introduction ## Building ## partnerships We build long-term collaborative partnerships with our ## 1,640 suppliers. ## Updating our ## menus and ## making savings Continued progress on menu and product rationalisation resulting in further cost savings. ## New ## coffee offer New coffee offer introduced, with volume growth of 25% in All Bar One in first year since launch. 08 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ## Increasing ## product ## availability Auto-ordering, prep and par systems and training introduced for food and drink, driving increased product availability for guests. ## Monitoring ## guest feedback Our brand team monitors guest feedback and changes in consumer taste on a regular basis and shares this with our purchasing teams to improve our offers. ## Supplier ## engagement We engage with our suppliers to align our sustainability ambitions. ### Business in Action – Supply chain ## Bringing our ## offers to life ### Our supply chain provides the products which bring our offers ### to life. Our centralised procurement team works in partnership ### with our suppliers to build long-term collaborative relationships ### that prioritise the needs of our guests, reduce costs and enable ### our brands to evolve and innovate. ### Working with our suppliers to understand and reduce the ### environmental impact of our supply chain is pivotal to us ### achieving our sustainability targets, including prioritising high ### animal welfare standards. Value creation story Go to page 26 Mitchells & Butlers plc Annual Report and Accounts 2023 09 Introduction ## 151 investment projects in FY 2023. ### Business in Action – Investment ## Right offer in the ## right location ### One of our key strategic priorities is to build a more balanced ### business, through investing to ensure that we have the right offer ### in the right location with amenity levels that promote safety, reduce ### our environmental impact and compare favourably with ### those offered by our competitor set. ### We therefore strive to achieve a seven year cycle of major investment for ### each of our sites, to ensure that the quality of environments remains ### high. Within that cycle we regularly refresh our pubs and restaurants to ### maintain both safety and hygiene standards and to evolve our offers in ### line with changing guest tastes and innovations. Our strategic priorities Go to page 30 10 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ## £157m invested in our estate in FY 2023. Acquired the remaining 60% of Ego Restaurants in the year, a collection of Mediterranean- inspired pub restaurants, with scope for 20-30 conversions over next 3-5 years to Ego brand. ## 19% return on investment achieved in the year. Mitchells & Butlers plc Annual Report and Accounts 2023 11 Introduction ## 11% We have reduced our emissions by 11% from our FY 2019 baseline. ## Energy reduction Smart meters and volume optimisers installed across all businesses with regular energy audits delivering 3% reduction in usage in the year. ## 50 We have installed solar panels at 50 sites with further roll out planned for FY 2024. 12 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ## Tackling waste ## and recycling Recycled over 3 million litres of cooking oil across the estate. ## 97% We divert 97% of operational waste from landfill. ### Business in Action – Sustainability ## Our holistic approach ## to sustainability ### Our sustainability strategy is based around three pillars of reducing ### emissions, tackling waste and protecting biodiversity; delivering ### responsibly sourced products and menu options for everyone; and ### putting people front and centre by supporting our teams and the ### communities we serve. We have made good progress against the ### challenging targets we have set and are working in collaboration with ### our sector to galvanise change across the industry. Our sustainability targets Go to page 34 Mitchells & Butlers plc Annual Report and Accounts 2023 13 Strategic Report OUR PURPOSE ### To be the host ## Chairman’s of life’s memorable ### moments ## statement Welcome to Mitchells & Butlers Go to page 5 ## “During the period, our purpose to be the host of ## life’s memorable moments, bringing people and ## communities together through great experiences, ## has continued to be highly relevant.” Our purpose Our culture ### Over the last few years we have During the period, our purpose to be the host Our people have responded magnificently to ### responded professionally and of life’s memorable moments, bringing people the challenges we have faced over the last few ### energetically to the macro and communities together through great years. It’s their dedication, care and consideration experiences, has continued to be highly for guests and each other, as well as their ### events we have been presented relevant. Our pubs provide a critical resource passion for the places they live and work in, ### with. We have devoted our time at the centre of our communities for people to that has enabled us to deliver another year ### to managing the factors that meet and socialise. of robust results. ### were in our gift to control To support this purpose, we have countless I would like to thank all of them, including our ### to mitigate these challenges individual outlet-based initiatives in place to Executive Committee members, for all they provide wellbeing, support and sponsorship to have done for our guests and our business. ### and, because of this, we now numerous charities, individuals and organisations. ### emerge a fundamentally Our values | more efficient business. | At a corporate level, we have continued to | The values we hold ourselves accountable to | | --- | --- | --- | | | provide further support through partnerships | across the business are Passion, Respect, | | We are well positioned to benefit now that | with organisations such as Shelter and Social | Innovation, Drive and Engagement. We believe | | the macro issues are starting to subside, with | Bite, and at a brand level with charities such | that these foster the culture and environment | | inflationary cost headwinds beginning to abate. | as the Royal British Legion. | needed to enable our people to work collectively, | | This combined with our focus on driving both | | and in union with our stakeholders, to support | | sales growth and efficiencies should help us start | We were also delighted to be awarded the | our purpose. | | to rebuild our margins to pre-pandemic levels. | “Best Sustainable Pub Company” award at The | | | | 2023 Publican Awards, which is recognition of | Our pensioners | | This year our sales growth has remained ahead | the huge amount of ground that we’ve covered | In July we announced that the trustees of the | | of the market, with our guest scores at record | in addressing our climate impact. We have a | M&B Main Pension Plan, working closely with | | highs. This strong performance, coupled with | detailed programme of activity ahead of us, | the Group, had successfully completed a full | | the addition of Ego Restaurants into our stable | from deploying solar panels and going fully | scheme buy-in with Standard Life. This | | of brands, means that the outlook for FY 2024 | electric on our cook lines, to working with third | transaction follows on from the completion of | | is positive with the opportunity to further | parties to avoid food waste and helping those | the buy-in of the Executive Plan announced last | | outperform the sector and grow market share. | most in need in society. Aiming to operate | year and eliminates substantially all remaining | | Navigating the last three years has been hugely | sustainably is now just part of what we do, and | pensions risk in the Group. | | challenging for everyone in the business but we | it touches everyone within the organisation. | | feel we are now firmly back on our chosen path and that we have a bright future as a business to look forward to. 14 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ## “Our people have ## responded magnificently ## to the challenges we ## have faced over the last ## few years, with real ## determination, flexibility OUR PEOPLE ## and positivity. I would like ## to thank all of them for all Dedication, care ### and consideration for ## they have done for our ### guests and each other ## guests and our business.” Chief Executive’s Business Review Go to page 16 As a result, both schemes are now fully funded and the need for further contributions ceased in September this year. This positive development reflects our commitment to our pensioners both now and into the future. Our Board There have been no changes to the Board membership during the year. I believe we have a group of Non-Executive Directors with the right balance of experience and capability to guide the business forward successfully. My role will continue to be focused on ensuring that the Board functions in the best interests of all stakeholders, and that we maintain the right mix of complementary skills which enable us to achieve that aim. Further detail on the operation of the Board in the year can be found in the Governance section which starts on page 55. OUR VALUES Bob Ivell ### Passion, Respect, Chairman ### Innovation, Drive Mitchells & Butlers plc ### and Engagement Our business model Go to page 22 Mitchells & Butlers plc Annual Report and Accounts 2023 15 Strategic Report ## Chief Executive’s ## business review ## “The strengths of our business provide a strong platform for ## the future. We have an 83% freehold and long leasehold estate, ## with recognised and diversified brands across a broad range ## of consumer occasions, demographics and locations, and an ## experienced and proven management team with the focus to ## build on the momentum we now have.” | Business review | Sales remained resilient through the second | Our strategic priorities | | --- | --- | --- | | Total sales across the period were £2,503m | quarter with strong performances on key | The strengths of our business provide a strong | | with year-on-year growth driven by strong | trading dates and from our drink-led, city | platform for the future. We have an 83% | a | like-for-like sales | performance across all of our | centre pubs, especially in London, that | freehold and long leasehold estate, with | | --- | --- | --- | --- | | brands. Operating profit of £98m was £26m | | benefited from a further return to office | recognised and diversified brands across | | lower than the prior year, impacted both by | | working and recovery in tourism. Across the | a broad range of consumer occasions, | a | property portfolio valuation movements | quarter, we recorded like-for-like sales | growth | demographics and locations, and an | | --- | --- | --- | --- | | classified in separately disclosed items and the | of 6.4%, comprising drink sales growth of 9.9% | | experienced and proven management team | | inclusion last year of an additional £52m of non- | and food sales growth of 5.2%. | | with the focus to build on the momentum we | | recurring government support (in the form of | | | now have. We are focused on the strategic | | reduced VAT and grants). | Through the second half, sales performance | | pillars which began to turn the business’s | | | remained strong and our outperformance of | | performance around in 2018, remained at the | | Overall, we are very pleased with our 52-week | the market extended further. Despite a wetter | | heart of the business through the pandemic | a adjusted operating profit result of £221m, and cooler summer than the prior year, and continue to guide our growth: a before separately disclosed items, which like-for-like sales grew by 9.7% through the a reflects a strong performance in the face of second half, with all brands in like-for-like sales • Build a more balanced business considerable cost headwinds and a record growth and supported by sustained growth in • Instil a commercial culture a like-for-like sales outperformance against the both food and drink volumes. • Drive an innovation agenda market, as measured by the CGA Business | Tracker, of 2.7ppts. | The uncertainty and cost challenges the | Our Ignite programme of work remains at the | | --- | --- | --- | | | industry has faced have had an unavoidable | core of our long-term value creation plans. | | We made a good start to the financial year with | impact on market supply with a 3.6% net | The programme consists of a rolling total of | a | like-for-like sales | growth of 6.5% over the first | decline in pubs and restaurants in the year to | approximately 40 initiatives, with new | | --- | --- | --- | --- | | ten weeks, primarily driven by drink sales. | | October 2023 and a 13.2% net decline since the | workstreams being introduced in the period | | Growth then increased further in the final five | | start of the Covid-19 pandemic in March 2020 | replacing those fully implemented in the | | weeks of the first quarter due principally to last | | (CGA October Hospitality Market Monitor | business. Given the cost headwinds faced over | | year being impacted by the emergence of the | | 2023). Independent and tenanted businesses | the last year, we have been particularly focused | | Omicron variant which resulted in a downturn | | have made up the substantial majority of the | on initiatives which increase efficiency and | | in activity across much of the festive season. | | net closures. Given our strong estate and | productivity through enhancements such as | a | Like-for-like sales | for the quarter were up | portfolio of brands, we believe that we are | improved labour scheduling, cost-mitigating | | --- | --- | --- | --- | | 10.4% against FY 2022. | | well placed to continue to benefit from these | procurement strategies and energy | | | | changes in the competitive landscape. | consumption reduction. Energy reduction | projects in particular have helped to offset utility cost headwinds, as well as contribute towards our sustainability aims, including 16 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction OUR PEOPLE ### Our fantastic team ### of over 50,000 ### people is central to ### the performance of ### our business. Employees Go to page 27 | investment in solar panels, the roll out of | We remain committed to accelerating our | In June 2023 we completed the acquisition of | | --- | --- | --- | | voltage optimisers and the trial of internet- | digital strategy, which presents an opportunity | the remaining 60% stake in 3Sixty Restaurants | | connected control devices to lower electricity | for more personalised guest experiences. Our | Limited, owners of Ego Restaurants, having | | and gas consumption. In addition, our energy | strategy focuses on building the correct digital | acquired the initial 40% stake in August 2018. | | and sustainability ambassadors across the | and organisational capabilities to allow for | Ego is a collection of Mediterranean-inspired | | country support General Managers in the | quick activation of new channels and services | pubs and restaurants where guests can enjoy | | behavioural change needed to continue | as consumer behaviours change, allowing us to | freshly cooked food, cocktails, cask ales and | | reducing consumption in our sites, the | be at or near the forefront of digital advances in | wine from across the continent. It currently | | combined result being a reduction in energy | the sector. We have made significant progress | has 29 sites, including 16 that are leased from | | consumption of 3% versus last year and 14% | in recent years, for example our digital order | Mitchells & Butlers, and c. 1,000 employees. | | versus 2019. | at table facility, our streamlined online booking | We currently foresee scope for c. 20-30 | | | experience, and the development of own | conversions using the Ego format over the next | | We have also continued to focus on sales- | channel delivery capability seeking to drive | three to five years. This type of acquisition, | | driving initiatives, ensuring that General | sales and protect margins. | of a brand which provides a conversion | | Managers are equipped with the knowledge | | opportunity which complements our brand | | and tools to drive sales in their businesses. Each | Our capital programme continues to deliver | portfolio, allows us to generate value through | | of our General Managers attended a workshop | value by improving the competitive position | cost synergies of c. £3m as well as incremental | | designed to develop and enhance these skills | of our pubs and restaurants within their local | profit on conversion. | | as well as focusing on improving guest metrics | markets. We are committed to re-establishing | | | by delivering great experiences. We have also | a seven-year investment cycle, which was | People | | increased our capacity at peak times by opening | interrupted by Covid-19. This financial year | Our fantastic team of over 50,000 people is | | additional bookable covers across bars and | we have completed 151 investment projects, | central to the performance of our business, | | outside areas. The benefit of these workstreams | slightly fewer than last year but with a higher | delivering the all-important experiences guests | | is reflected in the broad-based like-for-like | proportion of larger projects, including 11 | have with us. We are delighted that our staff | a | sales | performance across all of our brands, | conversions of sites to brands such as Miller | turnover reduced this financial year to 81%, | | --- | --- | --- | --- | | supported by volume growth, as well as guest | | & Carter and Nicholson’s to enable them to | a return to pre-pandemic stability. Lower | | scores of over 4.1 in every one of our brands. | | optimise trading opportunities in their location. | turnover has a positive impact on guest | | | | We have also purchased six new sites (of which | experience and also holds commercial benefits | | Across a multi-location business, comprising | | four are freehold) either by buying in existing | due to the cost of training new team members. | | over 1,650 sites, execution of business change | | leases to give us assured tenancy of successful | We are also delighted that our team engagement | | will always be a key challenge when targeting | | sites, or by establishing new locations to | scores have continued to improve over the | | efficiencies. Consistent delivery of our Ignite | | broaden our offer in areas such as Edinburgh | course of the year and are now at record highs, | | initiatives has become an increased focus in | | airport, Cardiff, Sheffield and Middlesbrough. | demonstrating the commitment of our teams | | order to realise the full value of activities which | | We are continuing to see strong performances | to work together towards the shared goal of | | have been proven in other parts of the | | from our investment projects. | driving the future success of the business. | business. Therefore, in FY 2024, alongside new initiatives we will be focusing on extracting the full value of initiatives which have already been rolled out to the business, but which currently have inconsistent results. We already have the knowledge and experience to make these activities work, therefore targeted training and sharing of expertise should enable the full value of these initiatives to be realised. Mitchells & Butlers plc Annual Report and Accounts 2023 17 Strategic Report Chief Executive’s business review continued The recent employment environment has been • 50% reduction in food waste by 2030; Current trading and outlook challenging, and our centralised HR function aligned with the UN Sustainable Since the period end, we have been further a | has been focused on attracting the best talent, | | Development Goals we will halve food | encouraged by like-for-like sales | growth of | | --- | --- | --- | --- | --- | | enhancing performance through our | | waste in our supply chain and in sites by | 7.2%. The strength of our sales performance | | | development programmes and retaining teams | | 2030. As at the year end, we have achieved | continues to be broad-based across the brand | | | through progression opportunities. During the | | a 25% reduction in food waste from our | portfolio and underpinned by stable volumes, | | | period, over 50% of our General Manager | | 2019 baseline, driven by operational | giving us confidence that further opportunity | | | appointments were internal, which reflects the | | improvements and aided by partnerships | remains, although we are very mindful of the | | | strength of the pipeline of talent we have in the | | with Fareshare and Too Good to Go. This | potential implications of the cost of living | | | organisation. Our apprentice scheme forms | | performance reflects a 1% reduction of the | challenge facing guests. | | | part of our training and progression opportunity, | | intensity measure of grams of waste per | | | | and we believe it will provide excellent future | | meal from FY 2022. | Cost headwinds presented a significant | | | talent to our organisation, from front and back | | | challenge in FY 2023 but we are seeing clear | | | of house roles in our pubs and restaurants to | We have a number of initiatives underway to | | evidence that these are starting to abate. We | | | corporate roles in our head office. This financial | support these ambitions. Our network of | | now know that the National Living Wage will | | | year over 680 apprentices have joined our | Energy and Sustainability Ambassadors have | | increase by 9.8%, and be extended to everyone | | | business and 980 of our current employees | helped to facilitate a 3% reduction in energy | | over 21, from April next year, but a reduction | | | have enrolled onto one of the apprenticeship | consumption during the year driven by | | in energy prices and slowing food inflation, | | | opportunities open to them. Given the | behavioural change as well as investment in | | in particular, mean that anticipated overall cost | | | importance of developing and retaining chefs, | voltage optimisers. To reach our near-term Net | | headwinds for the year ahead are expected | | | we continue to grow our culinary capability via | Zero targets we are focused on removing gas as | | to reduce to c. £65m. This should allow us | | | our Chefs’ Academy and 187 of our chefs have | an energy source. To this aim, during the year | | to start to rebuild margins back towards | | | embarked on the Commis Chef apprenticeship | we collaborated with suppliers to develop | | pre-pandemic levels. | | | delivered by our award-winning tutors. | electric kitchen equipment, which is more | | | | | | operationally effective than their gas | | We are working hard to continue to drive sales | | | Sustainability | equivalents, and we are in the process of | | growth above the market, whilst both leveraging | | | We are committed to reducing the | testing the kit with teams. In addition, we have | | our buying power and further enhancing the | | | environmental impact of our business and have | opened two all-electric sites, trialling alternatives | | efficiency of our business. This allows us to face | | | set ambitious targets against which to measure | to gas boilers for heating and hot water, as well | | the future with a renewed level of confidence. | | | our progress: | as various insulation techniques. These trials | | | | will help to inform our future strategy for | • Net Zero emissions by 2040, including | | removal of gas. | Phil Urban | | --- | --- | --- | --- | | | Scope 1, 2 and 3 emissions; in the period we | | Chief Executive | | | reduced our emissions by 11% against our | Our sustainability strategy has a strong focus | Mitchells & Butlers plc | | | 2019 baseline, driven by reduced energy | on the positive impact we have on people and | | | | consumption, moving to 100% renewable | communities and we are proud to partner with | | | | electricity and reduced emissions in relation | Social Bite, a homelessness charity. Under the | | | | to employee travel as we transition our fleet | Jobs First programme, helping people back to | | | | towards hybrid and electric cars. On the | independence through long-term employment | | | | intensity measure of emissions to turnover, | opportunities, we were delighted to employ 10 | | | | our output of emissions has reduced by | people from their academy and hope to expand | | | | over 20% from our 2019 baseline and by | this in future years. In addition, we raised £140k | | | | 2% from FY 2022. We have submitted our | for Social Bite through fundraising activity and | | | | roadmap to Net Zero for Science Based | £160k for Shelter, another charity partner. | | Target initiative for approval and continue | | to be active members of the Zero Carbon | We remain focused on the delivery of our | | --- | --- | --- | | | Forum where we work collaboratively with | transition plan designed to reduce our climate | | | the ambition of decarbonising the | impact, evolving our plan in response to | | | hospitality industry as a whole. | emerging technologies, best practice and | | • Zero operational waste to landfill by 2030; | | collaborative opportunities. Meanwhile, we | | | we continued to make good progress in this | also aim to enhance our social impact through | | | area and currently divert 97% of operational | our own operations, by facilitating social | | | waste from landfill. We have also focused | mobility, as well as through our work with | | | on increasing the proportion of waste that | charitable partners. | we recycle and have improved our recycling performance to 59%. 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 192 to 195 of this report. 18 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Other InformationFinancial StatementsGovernanceIntroduction Mitchells & Butlers plc Annual Report and Accounts 2023 19 Strategic Report ## Our markets ## Like-for-like sales growth in the eating-out sector ## has continued to be robust despite the challenging ## macroeconomic factors. | The trading environment for the hospitality | Supply of pubs and restaurants has reduced | eating-out market going forward. Sales are well | | --- | --- | --- | | industry has remained challenging this year, | since March 2020 before the Covid-19 | above pre Covid-19 levels but over the last year | | with continued increases in the cost of living | pandemic, with the financial pressure of | there has been a reduction in demand as | | putting pressure on consumers. However, | closures and significant cost inflation in the | consumers have returned to visiting pubs and | | the market has continued to see sustained | supply chain, especially across food and | restaurants in person. | | like-for-like sales growth over the year, with | energy, forcing a large number of operators | | | improvements in cities’ performance, in | to close. According to the CGA Alix Partners | Digital technology became increasingly | | particular London, as more people return to | Market Recovery Monitor, between March | important in supporting the industry during | c offices following the Covid-19 pandemic. 2020 and September 2023 15,192 pubs and the Covid-19 pandemic and developments Sales growth across the market significantly restaurants have closed representing a net continue to accelerate. Guests are now more c | increased in December 2022 and January 2023 | reduction in supply of 13.2% | . In the 12 months | accustomed to digital elements of their | | --- | --- | --- | --- | | due principally to last year being impacted by | from October 2022 to September 2023, | | experience in pubs and restaurants, such as | | the emergence of the Omicron variant which | 3,766 closed, a net reduction of 3.6%, with | | scanning a QR code to access menus, and | d resulted in a downturn in activity across much independent and tenanted businesses ordering and paying on their mobiles. 41% of of the festive season. The lowest month of recording the substantial majority of net guests who eat out at least weekly prefer to use sales growth in the year was recorded in March closures. Given our strong estate and portfolio technology in hospitality and those guests who a 2023 at 1.4% , principally due to snow and wet of brands, we believe that we are well placed prefer to use technology on average have a d weather hampering sales. Over the Spring and to continue to benefit from these changes in 27% higher monthly spend than those who Summer months, sales growth increased to the competitive landscape. do not. There remains great opportunity a | between 5 and 8% | with cooler and wetter | | for technology to enhance guests’ experience | | --- | --- | --- | --- | | weather dampening sales across the sector. | | Post pandemic, home delivery is now well | and this will continue to be an increasing | | However, the resilience of trading in the year | | entrenched in consumer behaviour and is | differentiator in the market. | | gives us optimism for the future, although we | | expected to remain a significant part of the | | continue to remain mindful of the cost of living challenge facing our guests. September 2022 saw UK Consumer b Confidence fall to a record low of -49 , the worst overall index score since records began in 1974. Throughout the year, consumers have been squeezed under the pressure of the UK’s cost of living crisis driven by rapidly rising food prices, domestic fuel bills and mortgage payments. However, despite these factors, consumer confidence has improved over the b year to -21 in September 2023 and eating and drinking out remains the affordable luxury that many consumers are looking to prioritise and have prioritised in the past. The sector is focused on retaining current guests, creating experiences that can’t be replicated at home and delivering high levels of customer service to enhance trading levels further as confidence returns. 20 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction The implications of Brexit still remain for the UK Consumer Confidence Index sector, principally around the supply and cost of products and skilled workforce shortages, 0 especially in back-of-house roles. Risks in relation to procurement have continued to be well managed by mitigating for the potential -10 lack of availability of products, reviewing and updating contracts and maintaining strong -21 -20 commercial relationships with suppliers. -24 -25 Our apprenticeship programme has been a key -27 -30 -30 asset in managing the risk around workforce -30 shortage and remains a key focus for the -36 business going forward. -38 -40 -42 -44 -45 The global political and macroeconomic -47 -49 environments remain volatile and we will -50 continue to monitor the impact on our sector. We remain focused on our Ignite programme of initiatives and our successful capital investment -60 programme, driving cost efficiencies and Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep increased sales, and helping to offset demand 22 22 22 22 23 23 23 23 23 23 23 23 23 and cost pressures caused by external factors outside of our control. Source: GfK Consumer Confidence Index Our response to this competitive environment can be seen on pages 30 and 31 in our strategic priorities. Coffer CGA Business Tracker vs. FY 2022 16 14 15.0% 12 10 10.9% 8 7.8% 6 6.9% 6.7% 5.9% 5.6% 5.3% 4 3.9% 3.7% 2 1.5% 1.4% Sources: 0 a. Coffer CGA Business Tracker October 2023 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep b. GfK Consumer Confidence Index September 2023 22 22 22 23 23 23 23 23 23 23 23 23 c. CGA AlixPartners Market Recovery Monitor October 2023 d. Zonal GO Technology Report July 2023 Source: Coffer CGA Business Tracker Mitchells & Butlers plc Annual Report and Accounts 2023 21 Strategic Report ## Our business model ## The Mitchells & Butlers difference ## In this section, we outline the distinctive ## characteristics of Mitchells & Butlers that enable ## us to create value for our 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 Financial review Go to pages 51 to 54 ## Structural • Our diversified portfolio of leading brands and offers caters for various demographics and disposable income levels making us less susceptible to short-term changes to industry trading conditions • 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 At a glance Go to pages 2 and 3 22 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ## 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 Our sustainability targets Go to pages 34 and 35 ## 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 Mitchells & Butlers plc Annual Report and Accounts 2023 23 Strategic Report ## How we create value ## The Mitchells & Butlers difference ## Our business model is driven by our ### Our experience and ### ability to interpret ## understanding of our guests and our ability to ### guest feedback help ## evolve our brands and offers to reflect changes ### us understand what ## in their needs. 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 Suppliers Guests Employees 24 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Critical to the delivery of our offers is the Our success in creating these moments quality of our people, supply chain, estate consistently, safely and profitably creates and central functions, which provide the long-term value for our stakeholders. infrastructure 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 central functions… ## 50,259* 1,640 1,718 • Finance and Technology Employees Suppliers 1,718 Pubs, bars and restaurants • Human Resources • Legal and Risk • Marketing • Procurement • Property * As at 30 September 2023. ### The combination of our brands, people, supply chain, estate and ### central functions creates memorable moments for our guests. Local community Environment Investors Mitchells & Butlers plc Annual Report and Accounts 2023 25 Strategic Report ## Value creation story ## FY 2023 highlights ### GuestsSuppliers | Our annual supplier conference | Our suppliers provide the products which bring | | | --- | --- | --- | | allows us to communicate our business | our brand visions to life. Our guests’ tastes are | | | and sustainability priorities direct to | continuously evolving and our ability to meet | | | our suppliers | changing preferences at scale sets us apart | | | | from our competitors. | 4+ | | Our centralised procurement team | | Online review score of over 4 out of 5 | We build long-term and collaborative has developed strong relationships across the business partnerships with our suppliers. We work which have enabled us to minimise the closely with suppliers to ensure the needs impact of any supply chain disruptions of both businesses are met, and to ensure 99% of outlets with safety scores relationships are maintained. By working of 4 or 5 out of 5 together, we can develop new and innovative products with suppliers which help our brands adapt and evolve, building both of our businesses. Through these partnerships, we work to maintain transparency about Donated unavoidable surplus food our payment terms. in the supply chain in partnership with FareShare We work with suppliers to understand the environmental impact of our supply chain and to minimise the negative impact of production and transportation. We are working to ensure that all our suppliers can support our sustainability ambitions, including prioritising high animal welfare standards. Further detail on our sustainability strategy can be seen on pages 34 and 35. 26 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ### Guests Employees The satisfaction and enjoyment of our guests Growing and developing our internal We are proud of the learning and development is critical to the success of our business. We talent is a priority to address talent opportunities we offer and strive to provide always aim to exceed guests’ expectations and shortages progression opportunities to all our people. continually evolve our offers with that objective Over the past year we have increased the in mind. number of people promoted internally, Innovative recruitment and attraction particularly at the frontline. solutions ensuring the right people We collate guest feedback through online join our business channels and via our brand surveys which Regular development catch ups are held is reviewed centrally and used to provide throughout the year to support employees’ valuable insight to both our operations and progression and personal development. Employee wellbeing has never been brand marketing teams. more important We have two formal feedback surveys a year | We have always strived to achieve high safety | | providing the opportunity to gain insight | | --- | --- | --- | | and hygiene standards and have used this | The following table sets out our diversity | into employee satisfaction and to highlight | | strong base to evolve our ways of working for | balance between men and women at the end | opportunities to improve our offer as | | the challenges we face. We focus on ensuring | of FY 2023. | an employer. | high-quality, consistent practices across the Men Women business. We constantly review the new Employee forums are hosted by the Executive Board directors 7 2 procedures to ensure that both high safety Committee team members and enable all Other senior managers 28 15 | levels and guest satisfaction can be achieved. | | employees to raise issues via elected | | --- | --- | --- | | | All employees 23,713 26,546 | representatives, giving them the opportunity | | As ever, high-quality food and drink, served by | | to directly discuss any issues. | an engaged team, in an appealing environment Our people are central to our business, bringing remain key elements to providing our guests The welfare of our employees is of paramount brand visions to life through engaging interaction with memorable experiences, alongside the importance to us and we continually review with our guests and preparation of high-quality highest safety standards. We regularly assess the support we offer to employees across food and drink. changing guest preferences across these areas the business. to position our brands for success. Through our open and inclusive culture, we aim Dave Coplin, an independent Non-Executive to create an environment which allows our Director, is the nominated Board member people to develop and grow. Recruiting responsible for representing the employee effectively is important as it ensures that we voice at Board level. attract the right people that will thrive in our organisation. Increasingly, technology can be We are committed to providing equal helpful in supporting our recruitment activity, opportunities for all our employees. Our and enables us to market our job opportunities employee Diversity and Equality Policy ensures effectively in a very competitive environment. that every employee, without exception, is treated equally and fairly and that all our employees are aware of their responsibilities. Mitchells & Butlers plc Annual Report and Accounts 2023 27 Strategic Report Value creation story continued ### EnvironmentLocal community | Developed a nutritional roadmap | We have a long history of providing a central | Investment in FY 2023 in energy- | | --- | --- | --- | | focused on enhanced information and | hub to many communities where people have | reducing technology | | balanced choices | met and socialised for decades. | | Many of our brands are long-standing supporters of causes which resonate with the brand and its guests. For example, All Bar One supports Shelter with selected dishes including ## 97% ## £148m a donation, and Toby Carvery supports the Armed Forces. of operational waste diverted from tax paid in FY 2023 (not including tax landfill in FY 2023 collected, e.g. VAT) We are actively looking to enhance the positive impact we can have on local communities, Target to reduce our absolute Scope 1 Worked with Social Bite to help including supporting charities, providing career & 2 GHG emissions by 70% by 2030 vs provide employment to vulnerable opportunities, encouraging responsible 2019 and our absolute Scope 3 emissions people on their Jobs First programme drinking, and supporting health by enhancing by 28% over the same timeframe and providing information on the nutritional content of our meals. Over 95 tonnes of unavoidable surplus food donated to charities via FareShare during the last four years ## 25% Food waste reduction in FY 2023 vs 2019 baseline Committed to achieving Net Zero emissions by 2040 28 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ### Environment Investors | The natural environment provides the business | Strong stewardship through the | We maintain an open dialogue through our | | --- | --- | --- | | with the resources it needs to operate. We take | Covid-19 pandemic | investor relations programme. We update | | our responsibility to protect that environment | | investors and bondholders on financial and | | seriously and have set stretching targets to | | strategic performance through regular | Equity raise in FY 2021 gave strength reduce the negative impact of our business. performance updates and facilitate discussion to balance sheet through meetings, roadshows and our Annual We have aligned our objectives with the UN General Meeting. Sustainable Development Goals in order to Reporting on environmental, social focus our efforts on the global priorities. Our Board-level committees ensure that and governance issues enhanced | aim is to embed a sustainable way of doing | | appropriate time and focus are allocated to the | | --- | --- | --- | | business within our current operations such | | key areas of governance of the business and, | | that it becomes business as usual and we are | Our investors are made up of our shareholders | where necessary, expert third parties are | | doing that through a Board-level committee, | and bondholders who play an important role in | consulted. The Board provides a healthy level | | steering committee and focused workstreams | monitoring and safeguarding the governance | of challenge and debate on key areas and has | | with representatives from across the business. | of the Company. | been successful in moving the business forward. | | The food industry has an important part to play | We aim to demonstrate the responsible | The Executive Committee consists of members | | in climate change, as food supply chains are a | stewardship of the Company from a financial, | of management from across the business who | | significant factor in rising greenhouse gas | strategic, governance, environmental and | have a wealth of experience both within the | | emissions and in the reduction of biodiversity. | ethical perspective. We have a highly effective | hospitality industry and from other sectors. | | We have measured our baseline emissions and | Board, with Directors with various specialisms | Their biographies can be found on our website at | | have used this to create a roadmap for reduction | and backgrounds to best govern the Company. | www.mbplc.com/investors/our-management. | | which is one of our priority areas. We are also | Their biographies can be found on pages 60 | | | conscious of the food industry’s significant | and 61. | We recognise that it is important that our | | impact on biodiversity which is another area we | | investors have transparency over the operation | | are balancing within our future plans to reduce | | of our business and the full details of our | | the negative impact our organisation has on the | | governance procedures are set out on pages | | environment and to enhance the positive | | 71 to 83. | outcomes wherever possible. Further detail of our sustainability strategy can be found on pages 34 and 35. Mitchells & Butlers plc Annual Report and Accounts 2023 29 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 products each quarter, to maximise incremental underpin the activity within the business to programme of work, a wide range of sales. We remain confident in our ability to drive long-term sustainable growth and management improvement initiatives, deliver long-term and sustained efficiencies ultimately that enable us to achieve our delivered significant progress generating and business improvements through the a | purpose of being the host of life’s memorable | sustained like-for-like sales | growth and cost | existing Ignite programme. | | --- | --- | --- | --- | | moments, bringing people and communities | efficiencies. Two waves of Ignite initiatives | | | | together through great experiences. Through | previously rolled out have directly led to | | We believe that our three strategic pillars | | building a strong and efficient business we are | enhanced performance over a number of | | remain the crucial elements of the business | | able to focus on providing experiences which | areas, improving our trading levels and | | which will drive long-term growth. Through | | our team and guests enjoy being a part of, | increasing profitability pre-Covid 19. The third | | the Ignite workstream and our capital | | including processes which are sustainable and | wave of Ignite initiatives rolled out over the last | | programme, we will continue to unlock value in | | aim to bring people together throughout our | two years has continued this progress and | | these areas enhancing our competitive position | | supply chain. We have maintained consistency | helped to mitigate as many of the exceptional | | in the market. | | in our three strategic priorities over recent | cost headwinds across the supply chain as | | | | years and believe that continued focus in these | possible. We continue to focus on initiatives | | The table on page 31 outlines these strategic | | areas is key to retaining stability and driving | which enhance efficiency and productivity, | | priorities, our progress against them in FY 2023, | | growth in the business. Our three strategic | in areas such as automatic product ordering, | | our priorities for FY 2024 and their link to our | | pillars are: | enhanced labour scheduling, cost-mitigating | | sustainability strategy, risks and KPIs. | procurement strategies and energy • Build a more balanced business consumption reduction. Alongside efficiency • Instil a more commercial culture improvements, we have a number of projects • Drive an innovation agenda focused on sales growth and one of the most exciting new Ignite workstreams launched this year is focusing on further driving a ‘sales and volume culture’ across the organisation, including each site, district and brand, targeting selected ### “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 driving growth ### in the 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 192 to 195 of this report. 30 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ### 1. Build a more 2. Instil a more 3. Drive an ### balanced business commercial culture innovation 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 • To leverage the increasing role technology can play in by having the optimal trading brand or concept in guest experiences improving efficiency and guest experience each outlet, based on location, site characteristics and • To act quickly and decisively to remain competitive • To execute a digital strategy to engage with consumers local demographics in 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 environmental and remain competitive to guests, alongside meeting • To enhance processes to address Modern Day Slavery issues which impact our sector, finding innovative cash flow commitments threats in the supply chain solutions to pressing issues FY 2023 progress FY 2023 progress FY 2023 progress • Capital expenditure at £157m was £35m higher than • Launched a ‘sales and volume culture’ project across the • Expanded ‘Own Channel Delivery’ from exclusively prior year but still below planned as supply issues in organisation, which includes each site, district and brand Harvester to include selected Miller & Carter and Toby terms of material procurement, contractor availability targeting select products each quarter, to maximise Carvery sites, whereby guests can order a meal for and the timing on granting of planning consent remained incremental sales delivery through our own digital channels and the order a limiting factor • Continued progress on menu and product rationalisation is fulfilled by a third-party partner, Deliveroo • Completed 145 conversions and remodels, and acquired resulted in further cost savings • Continued to develop our ‘Order at Table’ platform with 4 new freehold and 2 new leasehold sites • Successfully rolled out automated team member enhancements to drive spend per head and the ability to • We opened our second Browns in a suburban location in scheduling across the estate to ensure we have the right accept a wider range of payment methods, such as December 2022 which is performing well and we are people on shift at the right time, to drive sales at peak Google Pay looking to trial further suburban Browns conversions and reduce costs at quieter times • Launched a new, premium Lavazza coffee offer into • We opened our second Arrowsmiths, our competitive • Increased usage of dynamic drinks pricing on selected Castle and Nicholson’s pubs, increasing quality and socialising darts concept, in January 2023, providing a key occasions and timeslots to grow sales spend per head strong return from secondary space in O’Neill’s • Intensified our guest focus with Ignite projects such as • Made further enhancements to our guest relationship • In June 2023, we acquired the remaining 60% of 3Sixty Guest Obsessed, where functional experts support our management including greater personalisation of email Restaurants Limited, owners of Ego Restaurants. Ego is frontline teams with targeted training, delivering record content, reducing cannibalisation of promotions a collection of Mediterranean-inspired pubs and guest review scores in FY 2023 • Further optimised the table bookings systems used across restaurants where guests can enjoy freshly cooked food, • Continued enhancements made to auto-ordering and our brands to ensure we have the best technology to cocktails, cask ales and wine from across the continent. prep and par systems and training for food and drink, maximise internal, external and secondary spaces bookings We currently foresee scope for c. 20-30 conversions driving increased product availability for guests • Launched a discount app for our suppliers, enabling them using the Ego format over the next three to five years • Completed the installation of voltage optimisers into the to enjoy 20% off food and drink Monday to Thursday • We are committed to re-establishing a seven year majority of the estate and we have achieved significant • Launched ‘Eat.Drink.Meet’ website with a collection investment cycle and this continues to be a key focus electricity consumption reductions of our premium city and country pubs available to be for the business • Installed oil monitors across the estate to reduce the searched, filtered and booked volume of cooking oil used • Completed the redevelopment of the Innkeepers • In collaboration with Stop The Traffik, published our Collection website, creating an improved booking performance against set KPIs to measure our experience and removing third-party agency costs effectiveness and progress on the issue of modern slavery and human trafficking FY 2024 priorities FY 2024 priorities FY 2024 priorities • There is a full capital programme planned for FY 2024 • Adapt to the changing environment within which we • A fifth wave of Ignite initiatives will provide fresh ideas • Focus on enhancing asset value through remodelling operate to maximise the profitability of each business and innovation sites where we believe increased value can be unlocked • Deliver a wide range of cost control initiatives across the • Continue to develop our order and pay-at-table • Make selective acquisitions where we feel they add estate under the Ignite programme including range technology with new features such as tabs, user value to the estate, and disposals where we feel we have management to deliver lower-cost alternatives experience improvements and further upselling extracted maximum value • Unlock the full benefits of automated team member opportunities • Realise conversion opportunities within the estate to the scheduling in every business • Grow ‘Own Channel Delivery’ to our other key delivery Ego format • Expand the trials of internet-connected control devices brands to increase margin • Invest in technologies, such as solar panels and for heating systems and kitchen equipment to reduce • Maximise new and existing external trading areas internet-connected control devices, to improve the energy consumption • Expand the number of sites available to be booked on energy efficiency of our estate • Increasingly leverage scale through central procurement the newly launched ‘Eat.Drink.Meet’ website, providing • Continue to maximise the utility of the secondary spaces and benchmarking our businesses guests with a wide range of options to choose from across the estate via a dedicated Ignite initiative across our portfolio Sustainability Sustainability Sustainability • Enhancing the sustainability credentials of our buildings • We communicate our sustainability ambitions on all • We have developed bespoke training on sustainability is a key priority brand websites and have built our communication on to enhance our team’s understanding of sustainability • During the year we have installed solar panels on 50 these topics through social media in appropriate brands challenges and how they can make a difference sites producing on-site renewable electricity and have • We have made good progress in reducing food waste, • We continue to identify ways to reduce the emissions plans to complete more sites in FY 2024 down by 25% in FY 2023 from FY 2019 baseline, of the food we serve through recipe adjustments and • Removing gas as an energy source from our sites is a key facilitated through reduced menu complexity and development of new lower emission dishes objective of our Net Zero roadmap. We continue to partnerships with Fareshare and Too Good To Go to • We have active and ongoing discussions with our develop our electric kitchen equipment and are trialling redistribute unavoidable waste suppliers on innovative ways to reduce the alternative options to gas boiler hot water systems • We are working in collaboration with our waste environmental impact of our supply chain • We have a team of sustainability ambassadors across the management providers and suppliers to reduce the • We are active members of the Zero Carbon Forum, business who have helped to drive behavioural change amount of waste generated by the business a cross-industry group which is focused on finding resulting in reduced energy consumption • Continue our work with Stop The Traffik to drive best solutions to help hospitality transition to a low • We have invested in energy consumption reducing practice in addressing Modern Day Slavery threats in carbon economy technology and will look for further opportunities to the supply chain • We have representation on the Hospitality Sector expand in future years • We are expanding our programme with Social Bite to Council Sustainability Group, making us part of the • We divert 97% of our operational waste from landfill and help provide employment to vulnerable people on their conversation with government for future legislative are focused on reducing overall volumes of waste whilst Jobs First programme changes to support enhanced sustainability in the sector increasing recycling rates | 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 41 to 47 | See pages 41 to 47 | See pages 41 to 47 | | Links to KPIs | Links to KPIs | Links to KPIs | | 2, 3, 4, 5 | 1, 2, 3, 5 | 2, 3, 5 | | See pages 32 and 33 | See pages 32 and 33 | See pages 32 and 33 | Mitchells & Butlers plc Annual Report and Accounts 2023 31 Strategic Report ## Key performance indicators ## Measuring performance ## We measure our performance against our strategy ## through five key performance indicators. ### 1. 2. 3. ### Staff turnover Guest review score Year-on-year same outlet a ### like-for-like sales | Definition | Definition | Definition | | --- | --- | --- | | The number of leavers in our retail businesses, | Our reported guest measure is an average | Sales in FY 2021 and 2022 were compared to | | expressed as a percentage of the average | feedback score across the major third-party | the sales in FY 2019, being the last full year | | number of retail employees. This like-for-like | feedback channels such as Google, Facebook, | pre-Covid-19. Sales this year are compared to | | measure excludes site management. The | Tripadvisor and other review sites. Improving | the sales in FY 2022 of all UK managed sites | | turnover measurement gives an indication of | this score remains a key focus of the business | that were trading in the two periods being | | the retention of retail staff and can help to | as we aim to create memorable moments for | compared, expressed as a percentage. | | identify if there is an arising retention issue in | our guests. | Like-for-like sales is an important indicator of | | any area of the business which could highlight | | how the business is performing in the context | | an engagement issue. In addition, as team | FY 2023 performance | of its previous performance, the long-term | | members go through a thorough induction and | Our average feedback score across all major | trend of which can reflect improvements in | | training process there is an element of cost for | feedback channels was 4.4 out of 5 for FY | guest appeal. | | each person who leaves the business. | 2023. The significant progress made in recent | | | Therefore, it is important for the Board to | years on guest feedback has been maintained | FY 2023 performance | | monitor this measure. | over the year, driven by a collection of Ignite | Like-for-like sales increased by 9.1% in FY 2023 | | | projects focusing on improving this metric and | vs. FY 2022, with strong trading throughout the | | FY 2023 performance | our managers’ continued commitment to | year, all brands in like-for-like sales growth and | | Retail staff turnover reduced by 13ppts to 81% | delivering excellent guest experiences. | volume growth in both food and drink. Growth | | during the year due to the effective delivery of | | remained consistently ahead of the market as | | our People Promise, to meet the needs of our | | measured against the Coffer CGA Business | | employees, driving improved retention. The | | Tracker, with increasing outperformance in the | | reduction in turnover reflects improves stability | Links to strategic priorities: 1, 2 and 3 | fourth quarter. | See pages 30 and 31 of teams across all levels. During FY 2020 and 2021, turnover was suppressed by the impact of Covid-19 as there were minimal leavers during closure periods. Links to strategic priorities: 1, 2 and 3 See pages 30 and 31 Links to strategic priorities: 2 See pages 30 and 31 ## 81% 4.4 9.1% 94% 4.4 9.1% 4.3 4.3 4.2 4.0 81% 81% 3.5% 1.1% 58% 56% -3.5% -9.6% 32 Annual Report and Accounts 2023 Mitchells & Butlers plc 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Strategic Report Governance Financial Statements Other InformationIntroduction ## 9.1% ### Like-for-like ### 4. 5. a ### sales increase a ### Incremental return on Adjusted operating profit ### in FY 2023 a ### expansionary capital Definition Definition Expansionary capital includes investments Operating profit before separately disclosed made in new sites and investment in existing items as set out in the Group Income Statement. assets that materially changes the guest offer. Separately disclosed items are those which Incremental return is the growth in annual site are separately disclosed by virtue of their size EBITDA, expressed as a percentage of or incidence. Excluding these items provides expansionary capital. Is it important for the both management and investors with useful Board to monitor return on investment as it additional information about the Group’s indicates the success of the capital programme performance and supports an effective which underpins one of our three key strategic comparison of the Group’s trading performance pillars, to build a balanced business. from one period to the next. The Board monitors adjusted operating profit as one of the financial FY 2023 performance health indicators, as it helps to reveal how The EBITDA return on all conversion and efficiently the business is being operated. acquisition capital invested over last four years was 19%. Returns continue to be impacted by FY 2023 performance a | high levels of cost inflation as well as a period | Adjusted operating profit | , on a 52-week basis | | --- | --- | --- | | of disruption caused by Covid-19. We remain | of £221m was £19m lower than the prior year | | | confident in the quality of the investment | which benefited from £52m of non-recurring | | | programme and committed to the re- | government support in response to Covid-19. | | | establishment of a seven year investment cycle. | Strong sales performance and enhancing | | | Our capital programme continues to be a key | operating efficiency helped to partially offset | | | focus of the business and one which we believe | significant cost inflation across the supply chain, | | | will deliver significant future value. | particularly in the areas of energy, wages and | | food costs during the year. Links to strategic priorities: 1 See pages 30 and 31 Links to strategic priorities: 1, 2 and 3 See pages 30 and 31 ## 19% £221m 21% £317m 19% 18% £240m £221m 6% £99m a. The Directors use a number of alternative £29m performance measures (‘APMs’) that are considered -0.8% critical to aid the understanding of the Group’s performance. Key measures are explained on pages 192 to 195 of this report. Mitchells & Butlers plc Annual Report and Accounts 2023 33 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Strategic Report ## Our sustainability targets ## Our strategy has been developed to align with the issues ## addressed by the UN Sustainable Development Goals ## 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 and | the issues addressed by the UN Sustainable | Development Goals which we believe we can | | are pleased with the progress we have made. | Development Goals and Paris Climate | have the greatest impact on, and have aligned | | Our ambition is to make sustainable operation | Agreement. We have committed to reducing | these to our strategic pillars as shown below. For | | part of the culture of the business and | the negative impact of our business model on | each of the pillars we have defined our objective, | | therefore, building the sustainability skills of | the environment in light of these objectives and | key actions and targets. Collaboration across our | | our existing teams has been a key focus during | look for opportunities to enhance our positive | industry and value chain is essential in order to | | the year. The Sustainability Steering | impact on society. Our Net Zero ambition has | facilitate progress; we are members of industry | | Committee oversees the development and | been developed to align with the Science | groups such as the UK Hospitality Sustainability | | progress of the Company strategy, supported | Based Targets initiative (‘SBTi’) methodology | Committee and Zero Carbon Forum, to share | | by three working groups aligned to the three | to keep global warming well below 2°C, | best practice with the intention of moving the | | pillars of the strategy. The Board provides | and our roadmap has been submitted to STBi | industry forward as a whole, and we are also | | challenge and insight and is regularly updated | for approval. | represented on the Hospitality Sector Council. | on progress, and team members across the | business receive communication on key | Details of the link between our sustainability | | --- | --- | | initiatives to drive engagement and enhance | strategy and our strategic pillars can be seen | | understanding of our objectives. | on page 31. | 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, tackling | | We strive to deliver responsibly sourced products and | | People are central to our business, we are focused on | | | waste and protecting biodiversity | | menu options for everyone | | supporting our teams and the communities we serve | | | Key actions | | Key actions | | Key actions | | | • We have made progress against our Net Zero | | • We continue to evolve our menus to support our | | • We have developed strategic partnerships with | | | | roadmap, which was built in collaboration with | | ambition of reducing food emissions | | charities, including Shelter and Social Bite | | | third-party experts, providing a detailed plan | • We work with suppliers across all categories to | | • We have expanded our programme with Social Bite, | | | | for decarbonisation | | understand and improve the environmental | | supporting vulnerable people back into employment | | • We have submitted our Net Zero roadmap to | | | credentials of the products we buy | • We raised £140k for Social Bite through Festival of | | | | Science Based Targets initiative for approval | • We have enhanced our animal welfare requirements | | | Kindness and Summer of Kindness | | • We are a founding and active member of the Zero | | | from suppliers | • We raised £160k for Shelter over the year | | | | Carbon Forum, bringing the industry together to | • Our supplier agreements set out sustainability | | • We have an enhanced employee wellbeing | | | | reduce emissions across the sector through shared | | expectations and standards supported by annual | | strategy and improved resources and tools available | | | learning and insights | | supplier conferences | | to employees | | • We continue to purchase 100% renewable electricity | | • We have maintained our focus on enhancing | | • Brand-driven relationships with local organisations | | | • We have begun a solar panel roll out, with 50 sites | | | the nutritional balance and information available | | and charities | | | completed in the year, allowing us to generate | | on menus | • Modern Day Slavery policies enhanced, with actual | | | | on-site renewable energy | • We source all direct palm oil purchases from | | | risk assessment completed, in partnership with Stop | | • We are in trial with solutions to enable us to remove | | | Rainforest Alliance Approved sources | | the Traffik | gas from the estate, including all electric kitchens • We have increased the proportion of operational waste diverted from landfill to 97% • Our target is to increase the recycling rate to 80% across the estate by 2030, currently 59%, through team engagement and working with suppliers on more sustainable packaging UN Sustainable Goal alignment UN Sustainable Goal alignment UN Sustainable Goal alignment 34 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Our targets | 1. Net Zero greenhouse gas | 2. Zero operational waste | 3. Food waste | | --- | --- | --- | | emissions by 2040 | to landfill | | | Target | Target | Target | | Achieve Net Zero greenhouse gas emissions by 2040 (absolute | Zero operational waste to landfill by 2030. | Reduce food waste by 50% by 2030 from our | | reduction of emissions, including Scope 1, 2 and 3) from our | | FY 2019 baseline. | FY 2019 baseline. We align our definition of Net Zero to the Science Based Target initiative corporate standard. Our Net Zero target includes our Scope 1,2 & 3 emissions, using an operational control approach. We have set a near-term target (pending validation from SBTi) to reduce our absolute Scope 1&2 GHG emissions 70% by 2030, compared to a 2019 base year (aligned to well below 2°C) and a target to reduce our absolute Scope 3 emissions 28% over the same timeframe. We have also set a long-term target (pending validation from SBTi) to reduce absolute GHG emissions from Scopes 1, 2 & 3 90% by 2040 from a 2019 base year 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. Performance Performance Performance Our Scope 1, 2 and 3 greenhouse gas emissions have decreased During the year we have diverted 97% of This year we have achieved a 25% reduction in food by 11% against our FY 2019 baseline in FY 2023. This reduction is operational waste from landfill putting us on track waste against our FY 2019 baseline. Significant primarily due to reduced energy consumption, moving to 100% to deliver our target of zero operational waste to progress has been made in food waste management renewable electricity, and reduced emissions in relation to landfill by 2030. In partnership with our waste in both our supply chain and in our sites and as a employee travel as we transition our fleet towards hybrid and management providers, we have run a bin result the intensity metric of kg of food waste per electric cars. On an intensity basis of emissions to turnover our optimisation programme, ensuring that all of our meal has reduced by 3% from FY 2022. output of emissions has reduced by over 20% from our 2019 sites have appropriate recycling and general waste baseline and by 2% from FY 2022. bins in the most accessible areas of the business, to We have remained focused on managing waste encourage improved segregation of waste. This, within the supply chain, particularly around menu Total Scope 1 and 2 emissions reduced by 6% in FY 2023 against alongside team engagement on our environmental changes and key dates, and have maintained our FY 2019 baseline year. The stated reduction is based on the ambitions, has helped us improve our recycling rate the progress made last year. Where possible we market-based calculation, which reflects both reduced to 59%. donate food which would otherwise go to waste consumption and the increased proportion of renewable electricity within the supply chain to Fareshare who purchased. Scope 1 emissions include direct emissions from We have targeted a recycling rate of 80% by 2030 redistribute the food to community groups who controlled or owned resources and Scope 2 emissions include and are working across a number of fronts to need it. During the period we donated 17 tonnes indirect emissions from the generation of purchased electricity, achieve an improvement in the proportion of waste of food through Fareshare. heating and cooling. The reduction of Scope 1 and 2 emissions has we recycle. We are working with suppliers to been driven by a focused reduction in energy consumption since reduce the volume of packaging entering our sites, In our sites, food waste reduction has been our baseline year. We have a team of energy ambassadors in place and to ensure that as much packaging as possible achieved through strengthened operational across the business who are trained to help fellow managers to can be recycled, as well as engaging teams in the procedures which reduce the level of waste reduce their energy consumption and to identify areas of positive environmental impact they can have by generated during the food prep process, including opportunity. In addition, we have installed voltage optimisers increasing recycling rates. We face challenges in accurate portion sizes from suppliers, as well as across 1,200 sites and have embarked on a solar panel roll out some geographies where recycling of materials is reduced menu complexity. The introduction of programme, enabling us to generate on-site renewable energy, not yet available and we continue to investigate auto-ordering has helped to improve the with 50 sites completed during the year. Against FY 2022 a opportunities to access recycling in these areas. forecasting of dish mix and therefore reduced significant reduction in energy consumption has been more than waste through spoilage. In addition, we have offset by the emissions associated with the acquisition of Ego as continued our roll out of Too Good To Go which well as increased fugitive emissions as enhanced data collection is now across six brands, saving on average has resulted in more accurate capture of volume of gas. over 15,000 meals a week from wastage. Our next focus is to understand the drivers of guest plate Our Scope 3 emissions which include all other indirect emissions waste in order to develop strategies targeting that occur in our value chain reduced by 11% versus our 2019 a reduction of waste returned to our kitchens baseline driven by reductions in emissions associated with the on plates. production of electricity thanks to reduced consumption, reduced emissions related to waste as a result of more responsible waste Unavoidable food waste from our pubs and management and emissions in relation to employee commuting. restaurants is sent to anaerobic digestion. The Scope 3 emissions represent 91% of our baseline footprint and digestion process itself creates biogas which is therefore are an important focus of our transition plan. We have then captured and used to generate electricity. completed a Net Zero roadmap, which we have submitted for Science Based Target initiative approval and have identified clear activities required to achieve our target reduction of Scope 3 emissions. Food emissions are the largest individual contributor to our footprint; we are focused on reducing the emissions of the ingredients on our menus through engagement with suppliers and have identified opportunities to adjust the recipes of dishes to reduce emissions. 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 | Mitchells & Butlers plc Annual Report and Accounts 2023 35 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 governance structure in ## relation to climate, our exposure to climate-related risks and opportunities, ## our strategic response to managing identified risks and opportunities and the ## key metrics we use. | We are pleased to confirm that we have | The Board of Mitchells & Butlers plc is | been designated by the Board to take a lead | | --- | --- | --- | | included climate-related financial disclosures | committed to delivering the purpose of the | role in oversight and development of the | | consistent with the TCFD recommendations | organisation; to be the host of life’s memorable | Company’s approach to climate-related issues. | | and recommended disclosures, except for | moments, and to do so in a way which reduces | Dave Coplin has, for the last 30 years, been | | scope 3 emissions, and in compliance with | the environmental harm caused by operations. | providing strategic advice and guidance on | | the FCA’s Listing Rule 9.8.6R(8). Our report | Our approach to climate enables us to evolve | driving innovation and transformation to | | addresses the four TCFD pillars: Governance, | our offers to meet changing consumer | organisations and governments both here in | | Strategy, Risk Management and Metrics and | expectations in order to realise potential | the UK and around the world giving him | | Targets. In preparing this information all of the | climate-related opportunity. We have | excellent experience in this role. The Committee | | guidance in Section C and E of the TCFD | developed a clear governance framework to | is made up of five Board members, Phil Urban | | Annex has been considered. Scope 3 emissions | support our assessment and response to | is invited to attend regularly. | | have not been disclosed for the current period. | climate-related matters. This framework has | | | Our intention is to disclose Scope 3 emissions | helped us to continue to make progress against | The Corporate Responsibility Committee | | on the conclusion of our rebasing for Forest, | our climate goals and to address challenges | meets at least twice a year to review progress | | Land and Agriculture targets as required by | faced by the industry as a whole. | utilising information provided by the | | Science Based Target initiative, allowing us to | | Sustainability Steering Committee. The | | begin disclosure on a basis which we expect to | Board oversight of climate-related | Sustainability Steering Committee, which is a | | remain consistent in future years. We anticipate | risks and opportunities | management level committee, provides regular | | our internal processes to be concluded at the | The Board is responsible for the long-term | update papers to the Corporate Responsibility | | end of 2024 with Science Based Target | success of Mitchells & Butlers plc and has an | Committee, including performance against | | initiative approval to follow. | established framework in place which enables | stated targets including Net Zero by 2040, | | | effective assessment and management of risks, | waste management and food waste reduction, | | Governance | including climate-related risks and opportunities. | as well as progress on key transition plan | | We, alongside our stakeholders, recognise that | Responsibility for ESG matters is managed | initiatives. The Board is updated at least | | the health of our planet is critical to the wellbeing | within the framework by the Corporate | annually on performance against targets and | | of society at large and that the food industry has | Responsibility Committee, a Board level | initiatives or investment, either underway or | | a significant part to play in addressing the current | committee, using insight from the Group Risk | future, which facilitate the attainment of our | | climate emergency. We also recognise that the | Committee on the assessment of climate- | goals. Ad hoc updates are provided where | | food industry will feel the effects of continued | related risks, the Group Audit Committee on | approval is required or a significant | | climate change ever more acutely which will | the financial consideration of climate-related | development is reported. As such climate- | | result in changes in consumer behaviour, | risks and the Group Remuneration Committee | related risks and opportunities form an | | advances in innovation and the evolution of | on the inclusion of climate-related metrics in | important part of the context from which | | leisure offers to adapt to changing needs. | remuneration. The Corporate Responsibility | the organisational strategy is considered | | | Committee is chaired by Bob Ivell and is led by | and developed, ensuring that the Group is | | | Dave Coplin, Non-Executive Director, who has | positioned to protect itself from financial and | Responding to TCFD TCFD Working group formed, supported by external advisers | 1. Gap analysis against current | 2. Climate-related risks and | 3. Analysis performed with a view to | | --- | --- | --- | | governance and procedures | opportunities workshops held | completing quantitative scenario analysis | | | across functions | in FY 2024 | Ongoing integration of TCFD FY 2023 disclosure including recommendations into practices governance, risk, strategy, metrics and targets 36 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Organisational and reporting structure for climate governance Key Internal governance structure Audit Nomination Risk Supporting committee structure Board of Directors Performance reviews, activity Responsibility Remuneration approval Approval decisions in accordance with governance thresholds Sustainability Steering Committee Portfolio Executive Development Committee Committee Resources CommunityFood and drink | reputational risks associated with climate. | experts the forum facilitates a collaborative | | • Our established risk management | | | --- | --- | --- | --- | --- | | This structure also enables the company to | approach to developing solutions, enabling the | | | framework and heat mapping (see page 41) | | benefit from the commercial opportunities of | industry to make progress at a faster pace than | | | was then used to establish which of those | | accelerating the sustainability programme in | if companies acted independently. | | | identified risks were likely to be material to | | order to align brand propositions with guests’ | | | | our business, being those with a high | | changing needs. When considering any | Risk management | | | likelihood and a high impact. Two risks were | | business planning activity the Board takes | In response to the TCFD requirements, last | | | identified to be material, and therefore have | | into consideration the broader context of its | year we performed a detailed review of the | | | now been included as principal risks, with | | trading environment, with details of the | climate-related risks and opportunities relevant | | | the results discussed and approved by the | | climate aspect provided by the Corporate | to the business. The resulting principal risks | | | Risk Committee. Our sustainability strategy | | Responsibility Committee. | were added to the risk register and are now | | | has been developed to mitigate those risks | | | assessed on a regular basis as part of the Risk | | | where possible with associated KPIs to track | | The Sustainability Steering Committee is a | Committee’s review. | | | progress, as well as risk indicator measures | | management level committee which has | | | | which identify if the impact of an identified | | responsibility for the continuous monitoring | Identifying, assessing and managing | | | risk is increasing. | | and evolution of the sustainability strategy. | climate-related risks and opportunities | | | | | The Committee oversees the three working | The following stages formed the process of | | All potential climate-related risks and | | | groups responsible for discrete areas of the | identifying and assessing climate-related risks | | opportunities are reassessed annually through | | | sustainability strategy: respect for the planet, | and opportunities last year: | | the Sustainability Steering Committee and Risk | | | pride in our offers and care for communities. | | | Committee. Analysis and response to risks are | | | The Sustainability Steering Committee meets | • Workshops were held with external third | | supported by TCFD guidance and evolving | | | with the working group leads every eight | | parties who reviewed Mitchells & Butlers | corporate best practice. Additional risks are | | | weeks, and receives supporting update papers | | operations before generating a list of | added to the principal risk register if the criteria | | | in advance of meetings. The meetings ensure | | climate-related risks and opportunities | to do so are met. | | | that the Sustainability Steering Committee | | relevant to the business. These were | | | | maintains oversight over sustainability activities | | considered alongside guidance from the | Through our membership and active involvement | | | which are in place across various business | | World Business Council for Sustainable | in industry-led organisations, such as the UK | | | functions, ensuring that our approach is | | Development (‘WBCSD’) Food, Agriculture | Hospitality Sustainability Committee and Zero | | | consistent and executed effectively. These | | and Forest Products TCFD Preparer Forum | Carbon Forum, and through regular dialogue | | | meetings also provide the foundation of the | | to formulate a list of all the climate-related | with suppliers, we will continue to collaborate | | | update information provided to the Board-level | | risks and opportunities which may impact | on our responses to climate risks and to seek | | | Corporate Responsibility Committee. The | | our organisation. | out opportunities to progress against our goals. | | | Sustainability Steering Committee also meets | • Workshops were held with representatives | | We engage actively with our suppliers on | | | on a monthly basis with members of the | | from relevant functions across the | sustainability issues, including at our annual | | | Executive Committee to inform management | | organisation to obtain a wide range of | supplier conference, and will be seeking to | | | on progress of key initiatives and to discuss any | | perspectives on the identified climate- | further progress alignment of objectives which | | | decisions required by the Executive Committee. | | related risks and opportunities. Using | will help manage climate risks through Scope 3 | | | | | expert knowledge of the business and its | emissions measurement and management. | | | To enhance executive level engagement and | | supply chain, experience from past events | | | | knowledge, the Director of Investor Relations | | and insight into guest behaviour, each risk | In considering our climate risks and | | | and Sustainability attends Executive | | and opportunity was assessed and opinions | opportunities we have assessed short-term | | | Committee meetings on an ad hoc basis to | | were gathered on future change and | risks as being between 0-3 years in line with | | | provide information on the key, climate-related | | perceived risk materiality. The output of the | how we assess our principal risks and viability | | | challenges facing the industry and how our | | workshops was a reduced list of risks and | statement; medium-term risks as being | | | sustainability strategy addresses these issues. | | opportunities which were considered to be | between 3-6 years; and long-term risks | | | | | most material to the organisation based on | between 6-20 years in line with our longer-term | | | In addition, to strengthen the response to | | this qualitative assessment. This process | contracts and climate commitments. | | | climate-related issues, the organisation is a | | helped to reinforce our response to | | | | founding member of the Zero Carbon Forum, | | TCFD requirements. | | | with Executive Committee member involvement. The Zero Carbon Forum is a hospitality group bringing members together to tackle environmental issues. With input from Mitchells & Butlers plc Annual Report and Accounts 2023 37 Strategic Report Task Force on Climate-related Financial Disclosures continued Climate-related risks and opportunities management and strategy Our analysis of climate-related risks and opportunities has identified the risk of the introduction of carbon taxes and the risk of increased severe weather events as material. Therefore, these risks have been included within our principal risks (see page 41). These risks are consistent across all of our locations. Quantitative analysis is not yet included as part of the financial planning process but will begin to be as we make progress against our transition plan. However, elements of the sustainability strategy are reflected in financial planning. Capital investment in sustainable technology and building development are considered at Group level and built into the annual capital plan and specific initiatives developed by brands to ensure optimal alignment with guest needs are factored in to brand budgeting assumptions. The financial, and environmental, impact of all sustainability initiatives are carefully tracked and reported to the Sustainability Steering Committee which in turn escalates any material impact to the Executive Committee. Our sustainability strategy is designed to mitigate the financial and reputational impact of climate-related risks and to capture the benefit of aligning our brand proposition to changing consumer needs. In particular, we have a well-developed transition plan to Net Zero, which has been designed in collaboration with third-party experts and submitted to Science Based Target initiative (‘SBTi’) for approval. Our Net Zero roadmap aligns with SBTi methodology to keep global warming well below 2°C. This detailed roadmap provides the benchmark against which performance can be tracked to a low emission economy, with our contribution clearly understood as well as that of our suppliers, such that we can influence others in our supply chain to reduce their emissions. Sustainability is a key priority for the Board and management and remains so despite the challenges currently faced by the industry as a whole. The impact of identified climate related risks and opportunities were considered in the context of a 2°C warming scenario, bringing to life the possible consequences for the business and its supply chain by utilising Met Office predictions of future weather events. In terms of physical risk, we performed a qualitative analysis of the possible increase in damage to properties under this warming scenario. We believe that we have a robust strategy in place to help mitigate an element of the risks posed. We have a centralised building management team who monitor the physical risk to our estate and our sustainability strategy is designed to address the transition risks identified. We are conscious that collaboration, particularly with the supply chain, will be vital in order to tackle the future challenges ahead. Identifying ways to develop commercially viable solutions to approach the environmental impact of the food supply chain, an area of greater risk, is a significant challenge and one on which we are working with industry bodies, supply chain partners and other hospitality businesses. Under a 4°C warming scenario whereby, according to Met Office predications, adverse weather events would be far more frequent, the impact of both our physical and transition risks are higher. From a physical risk perspective, due to sea level rises in this scenario, a small number of sites would enter the flood risk register and we would expect increased frequency of damage to properties caused by storms and extreme weather. We monitor the frequency of weather related damage to buildings centrally and would evolve an enhanced strategy to mitigate the risk under this scenario should this be the likely direction of travel. 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 41. 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 Changing consumer preferences towards costs of the business both directly through both revenue and the supply chain of increased products seen as better for the environment, taxation and indirectly through higher input severe events. Revenue would be impacted for example dietary shifts towards low carbon costs which would result from the introduction through the interruption to trade caused by products, presents an opportunity for the of taxation and levies attributed to greenhouse both extremely hot weather and adverse Group to position brands to appeal in an gas emissions. weather such as rain and snow, as well as evolving market. The breadth of brands within possible site closure resulting from flooding. the Group portfolio provides the opportunity Qualitative assessment has identified this risk In addition, the availability of products in the to test adapted brand propositions in a low risk as both high in impact and likelihood over the supply chain, in particular agricultural produce, way and to therefore be ahead of the market short to medium term. The introduction of a could be impacted by severe weather affecting when consumer preferences begin to change form of carbon taxation is likely to be introduced product availability and input prices. in the mass market. as pressure mounts for progress to be made against the Government ambition to achieve The qualitative assessment of potential Net Zero by 2050. revenue impact included a high-level review of previous interruption to trade resulting from extreme weather and considered scientific forecasts as to the likely increase in extreme weather events. Procurement information relating to previous disruption to supply chain due to localised weather events and geopolitical issues were reviewed and considered in the context of increased severe weather events. As a result of these assessments the risk has been identified as both high impact and high likelihood. 38 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Transition risk Physical risk Transition opportunity | 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 | All of the initiatives under the sustainability | | Sustainability Committee which enables us to | trading levels across the estate and therefore | strategy help to strengthen the Group’s | | have foresight over potential policy changes | monitoring weather forecasts in relation to | position in relation to environmental matters. | | impacting the organisation. | expected trading levels is a normal part of the | This allows our brands to communicate | | | financial planning of the business. | with 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 | a reputation for sustainable operations. | | developed in partnership with an independent | identify when patterns of increased instances | | | third party and has been submitted for Science | of extreme weather events begin to develop at | Our focus on achieving ambitious | | Based Targets initiative approval during | which point investment in mitigating action, | environmental targets will position the Group | | FY 2023. | such as installation of air conditioning, can be | well to benefit from changing consumer habits. | | | considered. In addition, our experience during | Our ability to trial proposition adaptations in | | We have a number of initiatives underway | Covid has meant that we have developed | appropriate brands to gauge guest reaction will | | designed to reduce our emissions in line with | strategies to close sites at short notice, such | ensure we are well prepared to make informed | | our Net Zero roadmap. The detailed plan for | that in the instance of extreme weather | decisions in the future as consumer preferences | | reduction will help to mitigate an element of | significantly impacting trade we could close | change. In addition, our scale and commitment | | potential cost, and a target date ahead of | sites in order to mitigate some of the financial | to our investment programme will enable the | | Government ambition will help to position the | losses which we would be exposed to. | Group to enhance the sustainability credentials | | organisation ahead of the market average. | | of its properties. | In relation to site closure due to damage to We are working closely with suppliers, buildings, such as during flooding, we have particularly in high emission categories, to insurance in place to recover the lost trade and support their pathway to carbon reduction required repairs and therefore does not which will help to mitigate an element of this represent a significant risk. risk. However, if input costs increased materially in response to carbon taxes margins To manage the risk associated with our supply would be at risk. chain, we monitor and communicate with our suppliers closely giving us foresight over potential supply issues. We also have sufficient breadth of products across our brands that supply issues with one product could be mitigated through switching to a substitute. We are also aware of emerging agricultural techniques which are less susceptible to weather conditions, such as vertical farming, and would consider these alternatives if the supply chain was likely to become severely impacted. | 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 and | | to be performed during FY 2024 will be to take | during FY 2024 will involve a detailed analysis | is used to inform brand evolution. In addition, | | the Group’s forecast carbon emissions, from | of extreme weather’s previous impact on trade | direct consumer feedback is used to highlight | | our Net Zero plan submitted for Science Based | to determine the potential impact on revenue. | changing guest preferences, and reactions to | | Targets initiative approval, and to apply DEFRA | To measure the potential impact on the supply | brand changes designed to enhance | | published carbon values over the short, | chain, we will review historical impacts of a | environmental credentials. | | medium and long term giving an estimate of the | variety of weather events and work with | | | potential financial impact of the introduction of | suppliers to gather insight as to their preparation | Alongside financial performance these metrics | | carbon taxes. | and planning for such events. The assumed | will inform the future evolution of our brands. | increase of extreme weather events will be derived from climate-science research and applied to two scenarios of degrees of climate warming over the short, medium and long-term time horizons to determine the potential financial impacts. Horizon Horizon Horizon Short – medium term Short – medium term Short – medium term Mitchells & Butlers plc Annual Report and Accounts 2023 39 Strategic Report Task Force on Climate-related Financial Disclosures continued Climate-related metrics The below metrics are used either to track the performance of strategies designed to mitigate the impact of the principal climate-related risks, or as an internal measure of risk exposure. These measures are not yet included within remuneration policies, however it is our intention to include a sustainability measure within the long-term incentive plan from FY 2024. Performance against our stated sustainability KPIs is provided on page 35. Current and historical greenhouse gas emissions, Scope 1 and 2, are available within the Streamlined Energy and Carbon Reporting framework and progress against our Net Zero roadmap is provided annually with details on the key initiatives within the sustainability section. Metric category Metric Group targets Link to identified risks 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 | | calculated in accordance with | using 2019 as our baseline year. | | | emissions Scope 1, 2 | | Greenhouse Gas Protocol guidance | | | | and 3 | | by an independent third party which | We align our definition of Net Zero to the | | | | | is checked and verified internally. | SBTi corporate standard. Our Net Zero | | | Unit of measure | | | target includes our Scope 1, 2 & 3 emissions, | | | tCO | 2 e | | using an operational control approach. | | We have set a near-term target (pending validation from SBTi) to reduce our absolute Scope 1 & 2 GHG emissions 70% by 2030, compared to a 2019 base year (aligned to well below 2°C) and a target to reduce our absolute Scope 3 emissions 28% over the same timeframe. We have also set a long-term target (pending validation from SBTi) to reduce absolute GHG emissions from Scopes 1, 2 & 3 90% by 2040 from a 2019 base year 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 total waste diverted from Yes – Group target set – Zero operational Carbon taxes and levies Waste management landfill, i.e. recycled or incinerated. Data is waste to landfill by 2030. provided by third parties and corroborated | Unit of measure | with internal information. | We underpin this target with an internal | | | --- | --- | --- | --- | | % of waste diverted | | metric on recycling, with an ambition to | | | from landfill | | achieve 80% of waste recycled by 2030. | | | Climate-related risk | Volume of food wasted. Data is provided | Yes – Group target set – Halve food waste | Carbon taxes and levies | | Food waste | by third parties and corroborated with | by 2030 from 2019 baseline. | | internal information. Unit of measure Volume of food waste generated Climate-related risk Proportion of total waste diverted from No target set, used as an internal measure Physical risk – increased Proportion of estate landfill, i.e. recycled or incinerated. Data is of risk exposure. instances of severe exposed to flood risk provided by a third party and corroborated weather events with internal information. Unit of measure % of estate Climate-related % and MWh of energy consumption which No target set, reported as an indicator Carbon taxes and levies opportunity is purchased from renewable sources. of progress. Transition to renewable Data is provided by third parties and energy reviewed internally. Unit of measure % and Megawatt Hour (‘MWh’) | Climate-related | Sustainability training made available to | Target 80% of General Managers to | Carbon taxes and levies | | --- | --- | --- | --- | | opportunity | all employees. | complete training and 90% of inductions | | | Workforce competence | | to have included sustainability. | | Sustainability included as part of the Unit of measure induction process. Number of employees to complete training 40 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ## 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 | Key risks identified are reviewed and assessed | There is a robust and transparent process in | | --- | --- | --- | | all of the risks that the Group faces but focuses | by the Risk Committee in terms of their | place to provide an appropriate level of | | on those that are currently considered to be most | likelihood and impact and recorded on the | direction and support in the identification, | | relevant. Please also refer to how we link the | Group’s ‘Key Risk Heat Map’, in conjunction | assessment and management of risks across all | | key risks to our strategic priorities, on page 31. | with associated agreed risk mitigation plans. | areas of the business which have the potential | | | The processes that are used to identify | to seriously damage our financial position, our | | Overview | emerging risks and manage known risks are | shareholder value, our responsibilities to our | | Risk management is critical to the proper | described in the Internal Control and Risk | staff and guests, our reputation and our | | discharge of our corporate responsibilities and | Management statement on pages 82 and 83. | relationships with key stakeholders. The Board | | to the delivery of shareholder value. Risk is at | | has carried out an assessment of the Group’s | | the heart of everything we do as an organisation. | Management support, involvement and | emerging and principal risks, resulting in the | | Therefore, the process for identifying and | enforcement is fundamental to the success of | identification, assessment and management | | assessing risks and opportunities for | our risk management framework and members | of risks across all areas of the business. The | | improvements is an integral and inseparable | of the Executive Committee take responsibility | principal risks are subject to review each | | part of the management skills and processes | for the management of the specific risks | quarter by the Audit Committee, which is also | | which are at the core of our business. | associated with their function. Our Group risk | attended by the Board. | register clearly outlines the alignment of each There is a formally established Risk Committee key risk to an Executive Committee member Key risk heat map in place which continues to meet on a regular and identifies an ‘action owner’, to ensure The Key risk heat map below includes an basis to review both the key risks and emerging responsibilities are formally aligned. indication of the likelihood of a ‘risk event’ risks facing the business. 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 key • Executive Committee ### 1st 1 Borrowing covenants • Leadership group/management 2 Sales performance 156 • Internal controls and processes 3 People planning and development • Internal policies and procedures 159 1514 1515 4 Business continuity and crisis management • Training 5 Information and cyber security 153 • Financial authority limits ### 2nd 6 Wage cost inflation • Risk management processes 152151 7 Pension fund deficit 15111512 • Audit Committee 8 Failure to operate safely and legally 1551510 • Risk Committee 9 Cost of goods – price increases Likelihood • Health and Safety Team 10 Food supply chain safety • Technology specialists 11 Health and lifestyle concerns 8 • Legal support 12 Environment and sustainability • Group Assurance ### 13 Enforced Government closure/trading 3rd • Operational Practices Team restrictions | | | | 4 | 7 13 | | | --- | --- | --- | --- | --- | --- | | 14 Introduction of carbon taxes and levies | | Rare Almost Certain | | | | | 15 Increased severity of extreme weather | | Low Catastrophic | | | | | | events | | | | Impact | Mitchells & Butlers plc Annual Report and Accounts 2023 41 Strategic Report Risks and uncertainties continued Risk category and description High-level controls/mitigating activities Movement • The Group maintains sufficient headroom against the Risk Decreasing ### 1. Borrowing covenants covenants. The finance team conducts daily cash forecasting with periodic reviews at the Treasury There are risks that borrowing covenants are breached Committee (the role of which includes ensuring that because of circumstances such as: the Board Treasury Policy is adhered to, monitoring its operation and agreeing appropriate strategies for i. a change in the economic climate leading to reduced recommendation to the Board). cash net inflows; or • Each period the Treasury Committee meets and formally ii. a material change in the valuation of the property portfolio. considers compliance with financial covenants and limits (both current and projected) for the following: Risk Decreasing – The securitisation (Free Cashflow and EBITDA to Following the Covid period, when covenant levels tested Debt Service). were either waived or reduced, the borrowing securitised – Non securitised bank facilities. covenants are now back at documented levels. During the – Liquidity Policy headroom. period the previous £150m unsecured facility was replaced – Compliance with all aspects of Board Treasury Policy. with a new unsecured facility of £200m to July 2026, which • In addition, regular forecasting and testing of covenant includes a reduction in the fixed cover charge covenant test compliance is performed. from 1.5x to 1.25x. • A detailed assessment of the mitigating risks is included in the Viability statement on page 49. As documented in the Going Concern note, the Directors have assessed a base case forecast and a severe but plausible downside scenario with headroom against all covenants and sufficient liquidity. Therefore the overall risk is decreasing. • Right operational and commercial team and structure Risk Stable ### 2. Sales performance in place. Brand alignment ensures the right research is done and is acted upon. This risk falls into the below main categories: • Daily, weekly and periodic sales reporting, monitoring and scrutiny activity is in place. Sales: There is a risk that declining sales, concerns around • Our Eat Drink Share panel provides robust, quick and consumer confidence, increased personal debt levels, cost-effective research. This is our own panel of 27,000 squeezes on disposable income and rising inflation of the Group’s guests, whom we can use for research individually, together or in combination, may adversely purposes for quick and cost-effective insights. affect our market share and profit, reducing headroom • Primary research in partnership with brand and against securitisation tests. category teams. • Working with suppliers to tap into their research. Consumer and market insight: If the Group fails to • Each brand has its own pricing strategy. manage and develop its existing (and new) brands in line • Price promotions are in line with the agreed strategy. with consumer needs and market trends due to failure to • Sales training for management. obtain or use sufficient insight in a timely manner, this may • Consumer and insight-led innovation process and lead to a decline in revenues and profits. development for new brands. • Reduce guest complaints by improving the local Pricing and market changes: If price changes are not management of social media responses (e.g. TripAdvisor intelligently applied due to a lack of appreciation of market responses). sensitivities and elasticities, this may result in decreased • Increased digital marketing activity including new revenue and profit. loyalty apps. • Increased activity from takeaway and delivery offerings. Risk Stable • Online guest satisfaction survey to collect guest Overall, this risk remains stable. feedback. This feedback, together with the results of research studies, is monitored and evaluated by a dedicated guest insight team to ensure that the relevance to guests of the brands is maintained. • Our priority is to continue to protect our team members and guests, providing an eating-out experience which can be enjoyed. We have very strong health and safety practices already in place in our businesses, which we will enhance and evolve to tackle the challenges we face. We will be transparent with guests as to these measures such that they can trust in us and will clearly communicate our expectations of guests to comply with the measures put in place. 42 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Risk category and description High-level controls/mitigating activities Movement • The Group makes significant investment in training to Risk Stable ### 3. People planning and development ensure that its people have the right skills to perform their jobs successfully. The Group has a strong guest focus and so it is important • Furthermore, an employee survey is conducted annually that it is able to attract, retain, develop and motivate the to establish employee satisfaction and engagement, and best people with the right capabilities throughout the this is compared with other companies, as well as previous organisation. There is a risk that, without the right people, surveys. Where appropriate, changes in working practices our guest service levels would be affected. are made in response to the findings of these surveys. • Remuneration packages are benchmarked to ensure that The external recruitment activity over the previous year has they remain competitive, and a talent review process is been challenging due to the lack of quality candidates being used to provide structured succession planning. Please available. A further potential risk is the image of hospitality, also refer to the Report on Directors’ remuneration, on given the recent pandemic impact. pages 88 to 118. • The apprenticeship programme will also assist in Retention is high amongst our Director and ‘head of mitigating against the increasing risk in relation to department’ populations which may lead to a perceived lack non-UK workers. Please also refer to the Chief of progression routes and hence unwanted loss of good Executive’s business review on pages 16 to 18. talent at lower levels. • Talent development and potential calibrations are carried out biannually to anticipate and address any Regarding retail labour, overall, there is a continued risk of a risks/issues. 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 highest concern, particularly given the decline in 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 Stable We have strong internal talent pools for a number of operational roles; however, it is sometimes difficult to recruit top Operations Director talent externally due to the competitive marketplace. Therefore, the risk remains stable. • The Group has in place crisis and continuity plans that Risk Stable ### 4. Business continuity and crisis are reviewed and refreshed regularly. ### management • New ways of working are in place for all Retail Support Centre staff, to ensure when the office is temporarily The Group relies on its food and drink supply chain and the closed to employees, there is little or no impact to staff, key IT systems underlying the business to serve its guests given that all staff have the appropriate resources efficiently and effectively. Supply chain interruption, IT available to them in order to work remotely and in an system failure or crises (such as terrorist activity or the threat efficient manner. of a further disease pandemic) might restrict sales or reduce • We have assessed the risks associated with remote operational effectiveness. working and cyber security and are confident that those areas are suitably controlled. 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 2023 43 Strategic Report Risks and uncertainties continued Risk category and description High-level controls/mitigating activities Movement • A detailed external review of cyber security processes is Risk Decreasing ### 5. Information and cyber security performed on a regular basis in order to highlight any gaps and address any challenges. As a result, a number There is a risk that inadequate disaster recovery plans and of further improvements have been made (and continue information security processes are in place to mitigate to be made) to strengthen overall security cyber controls. against a system outage, or failure to ensure appropriate • In addition, controls include: back-up facilities (covering key business systems and the – The work carried out by the Group’s cross-functional recovery of critical data) and loss of sensitive data. Information Security Steering Group. – Group Assurance IT controls reviews. Given the increase in the level and frequency of global – Implementation and revision of appropriate cyber cyber attacks, the likelihood of occurrence is therefore security governance policies and procedures. increasing, although current IT controls and monitoring – Ongoing security awareness initiatives continue tools are robust. to be undertaken. – A regular cycle of penetration testing. Risk of non-compliance with data protection laws is an – Increased focus on protecting the business against increasing risk for the business to ensure full compliance potential cyber attacks has resulted in the remains up to date. implementation of additional controls to mitigate against such risks. Risk Decreasing – The effective implementation of a business-wide data Overall, the risk is decreasing due to the ongoing review and protection compliance programme, including training improvement of cyber security controls. However, the of all relevant employees and contractors. increased activity, information security and reliance on IT – Systems, processes and controls have been reviewed systems continue to be a key focus to ensure critical IT and updated to ensure compliance with data systems are kept secure and tested frequently and any protection laws. vulnerabilities identified are addressed efficiently. • A detailed review of the risks associated with the Risk Stable ### 6. Wage cost inflation National Living Wage has been completed. This review has been undertaken at a strategic level to ensure that There is a risk that increased costs associated with further the Group carefully manages productivity and efficiency increases to the National Living Wage may adversely impact across the estate. upon overall operational costs. • We have successfully implemented a time and attendance system to improve the management controls and Risk Stable reporting of staff hours. The immediate and future impact of National Living Wage and wage inflation is kept under regular review with updates provided to the Executive Committee and Remuneration Committee, as appropriate. The assumptions on the cost headwind form part of the business costs forecasting and assumptions with any cost headwind risks being addressed specifically. Therefore, the overall risk is assessed as stable. • Full actuarial valuations are performed every three years Risk Decreasing ### 7. Pension fund deficit (or more frequently where required by the trustees). • Investment performance reports are reviewed each During the period, the Trustees of the Main Plan entered quarter by the Common Investment Fund (‘CIF’) Board. a Bulk Purchase Agreement with Standard Life, which • The Board Pensions Sub-Committee is in place to provides the Plan with sufficient funding to cover all known formalise discussions in respect of the actuarial valuation, member benefits of the scheme. alongside new corporate advisers. • In FY 2022, an Executive Committee pension scheme full During the prior period the Trustees of the Executive Plan buy-in was undertaken and in FY 2023 a Main Plan entered a Bulk Purchase Agreement with Legal & General scheme full buy-in was also completed. which provides the Plan with sufficient funding to cover all known member benefits of the scheme. During the year the Company made additional pension contributions, however as a result of the triennial valuation of the Group pension schemes as at 31 March 2022 agreed in December 2022, and the two Bulk Purchase Agreements, no further contributions by the Company to either Plan are expected. Risk Decreasing The Group has made significant additional contributions to reduce the funding deficit. 44 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Risk category and description High-level controls/mitigating activities Movement • The Group maintains a robust programme of health and Risk Stable ### 8. Failure to operate safely and legally safety checks both within its restaurants, pubs and bars and throughout the supply chain. A major health and safety failure could lead to illness, • The dedicated Safety Assurance team uses a number injury or loss of life or significant damage to the Group’s of technical partners including food technologists, or a brand’s reputation. microbiologists and allergen specialists to ensure that our food procedures are safe. Risk Stable • Regular independent audits of trading sites are Overall, the risk continues to be stable. In particular, performed to ensure that procedures are followed and allergen-related incidents and near misses have stabilised. that appropriate standards are maintained. • If a business is identified as underperforming in terms of health and safety standards, it is immediately targeted for improvement and then reassessed. • Food suppliers are required to meet the British Retail Consortium Global Standard for Food Safety and are subject to regular safety and quality audits. • Comprehensive health and safety training programmes are in place. In order to reduce the overall impact of costs increases, Risk Stable ### 9. Cost of goods – price increases the Group leverages its scale to drive competitive cost advantage and collaborates with suppliers to increase Food: The cost of food for resale increases due to changes efficiencies in the supply chain. The fragmented nature of in demand, food legislation, exchange rates and/or the food supply industry in the world commodity markets production costs and uncertainty of supply, leading to gives the Group the opportunity to source products from a decreased profits. number of alternative suppliers in order to drive down cost. Consideration has been given to potential areas such as Drinks: The cost of drinks for resale increases due to supply chain risk (e.g. customs controls on imports), labour changes in demand, legislation, exchange rates and risk and economic disruption. Key mitigating activities for production costs, leading to decreased profits. food and drink are detailed below: Utility costs: A number of external factors, including the Food: result of the war in Ukraine, has led to an increased cost • A food procurement strategy is in place. pressure on utility costs, for the Group. • Full reviews are carried out on key categories to ensure optimum value is achieved in each category. Goods not for resale: Increases in the cost of goods not • A full range review was completed in FY 2023 ensuring for resale and utilities costs as a result of increases in global the correct number of products and suppliers. This is demand and uncertainty of supply in producing nations can regularly reviewed. have a significant impact on the cost base, consequently • Regular reporting of current and projected inflation. impacting margins. • Good relationships with key suppliers. Risk Stable Drinks: The overall risk of inflation is easing given a number of • Each drinks category has a clearly defined strategic factors, including: sourcing plan to ensure the Group’s scale is leveraged, the supply base is rationalised, and consumer needs • Easing UK inflation are met. • Easing utility costs • Good relationships with key suppliers. • Improved availability of labour and raw materials • Supplier collaboration programmes are in place. • The annualisation of the impact of the war in Ukraine Energy: Mitigation to inflation is sought where possible through a • Ongoing review of energy purchasing policy (covering change of supplier, products, specification, range and an short-term and medium-term energy purchasing). ongoing review and monitoring of energy cost management. • The Group currently spot purchases its energy requirements and also enters into short and medium- term energy hedges as part of the overall energy purchasing strategy. • Energy Cost Price & Forecast Reports are produced and monitored. • Installation of solar panels at 50 sites to reduce reliance on the grid. • Energy Ambassadors complete energy audits in every business. Mitchells & Butlers plc Annual Report and Accounts 2023 45 Strategic Report Risks and uncertainties continued Risk category and description High-level controls/mitigating activities Movement • The Group has a Safety Assurance team and uses Risk Stable ### 10. Food supply chain safety a number of technical partners including food technologists, food safety experts, microbiologists, Malicious or accidental contamination in the supply chain allergy consultants, trading standards specialists could lead to food goods for resale being unfit for human and nutritionists. consumption or being dangerous to consume. This could • The Group uses a robust system of detailed product lead to restrictions in supply which in turn cause an increase specifications. in cost of goods for resale and reduced sales due to consumer • All food products are risk rated using standard industry fears and physical harm to guests and/or employees. definitions and assessment of the way the products are used in the Group’s kitchens. Suppliers are then risk Risk Stable rated according to their products. Risks facing the food supply chain safety are regarded • Each food supplier is audited at least once per year in as stable. respect of safety and additionally in response to any serious food safety complaint or incident. • A robust response has been taken to manage allergens and the associated data within the menu cycle, coupled with a continuous review in place to ensure the controls remain appropriate. • We monitor changing behaviour in relation to health and Risk Increasing ### 11. Health and lifestyle concerns lifestyle issues and adapt our brands to appeal to changing needs ensuring that the brands remain relevant Failure to respond to changing consumer expectations in and competitive. relation to health and lifestyle choices and our responsibility • We have set targets for ongoing sugar and salt reduction. to facilitate those. • A plan is in place to provide nutritional information for all brands to allow customers to make informed decisions. Risk Increasing Please also refer to Pride in our offers, on page 34. 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 Risk Increasing ### 12. Environment and sustainability greenhouse gas emissions, food waste, recycling and use of plastics (see pages 34 and 35). Climate change, biodiversity depletion and environmental • We have completed an exercise to determine our pollution present a risk to our ability to source products, baseline greenhouse gas emissions from which we have with food being particularly at risk. developed a plan to deliver our ambition of Net Zero emissions by 2040. Please also refer to our sustainability Risk Increasing targets on pages 34 and 35. The impact of extreme and longer-term shifts in weather • We are working with the World Resources Institute patterns, natural resource depletion and other effects of on their Cool Food Pledge programme to reduce the climate change could impact the business both financially emissions of food supply chain links, which is a and reputationally. These factors could disrupt our supply significant contributor to emissions globally. chain and the ability to source products due to reduced • All direct palm oil purchases continue to be sourced from availability. Regulatory action to manage climate change Rainforest Alliance approved suppliers. Please also refer could result in the introduction of additional taxes or to our Value creation story on pages 26 to 29. restrictions being imposed. The business also has a • We are working with industry collaboration groups to responsibility to continually aim to reduce its usage of develop a roadmap to sourcing sustainable soy in our natural resources and its negative impact on the climate. supply chain. Therefore, this risk continues to increase. • We are developing initiatives to reduce our consumption of natural resources, with an electricity workstream live in the business, and gas and water in the planning phases. 46 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Risk category and description High-level controls/mitigating activities Movement • Contingency plans are in place to review and respond to Risk Decreasing ### 13. Enforced Government closure/ enforced Government actions and/or severe business ### trading restrictions disruption or trading restrictions. These should be subject to a formal review. There is a risk that the business could be impacted by an • Business opening and closure processes have been updated. enforced Government closure or imposed severe trading • Strong supply chain relationships are maintained to assist restrictions, of part or the whole of the estate, for example: in the event of cancelling and/or returning stock orders. regional and/or national and/or global pandemic, chemical • Robust processes are in place to manage Government and/or terrorist activity. furlough schemes. • The Group, and in particular the Safety and Security A global pandemic may have a negative impact on the Team, is able to adapt quickly and respond to a change Group’s operating and financial performance and liquidity. in operational and functional processes, as a result of An outbreak of a global virus may cause severe disruptions a pandemic and/or business closures. in the global economy which could adversely affect the • Established communication cascade and mechanisms Group’s business or operations, as well as the business are in place for employees, guests and suppliers. or operations of third parties with whom the Group • IT infrastructure, hardware, systems and employee conducts business. support is in place to maintain remote working. • Key financial controls have been reviewed, assessed and Risk Decreasing updated to ensure they continue to be operated in the The frequency and nature of these risks arising are event of limited and/or no access to either the Retail unpredictable, as evidenced during the Covid-19 pandemic. Support Centre or businesses. However, given that Government trading restrictions have • A high-level review of lessons learned, following the been lifted, the associated risks to the business have stabilised. Covid-19 pandemic, has been undertaken to inform the required changes to business planning and operating procedures. • The Group is a member of the UK Hospitality Risk Stable ### 14. Introduction of carbon taxes Sustainability Committee which enables us to have ### and levies foresight over potential policy changes impacting the organisation. This risk represents the impact on operating costs of the • The Group has developed a Net Zero strategy with a business both directly through taxation and indirectly target date of 2040. The strategy has been developed in through higher input costs which would result from the partnership with an independent third party. Please also introduction of taxation and levies attributed to greenhouse refer to our sustainability targets, outlined on pages 34 gas emissions. and 35. • We have a number of initiatives underway designed to Risk Stable reduce our emissions in line with our Net Zero roadmap. Qualitative assessment has identified this risk as both high in The detailed plan for reduction will help to mitigate an impact and likelihood over the short to medium term. Whilst element of potential cost, and a target date ahead of the risk is currently assessed as stable, the introduction of a Government ambition will help to position the form of carbon taxation is likely to be introduced as pressure organisation ahead of the market average. Please also mounts for progress to be made against the Government refer to our Task Force on Climate-related Financial ambition to achieve Net Zero by 2050. Disclosures, on pages 36 to 40. • The weather has a high level of impact on trading levels Risk Stable ### 15. Increased severity of extreme across the Group and therefore monitoring weather ### weather events forecasts in relation to expected trading levels is a normal part of the financial planning of the Group. This acute physical risk represents the risk to both revenue • This monitoring activity will enable the Group to identify and the supply chain of increased severe events. Revenue when patterns of increased instances of extreme weather would be impacted through the interruption to trade caused events begin to develop. by both extremely hot weather and adverse weather such • In relation to site closure due to damage to buildings, as rain and snow, and possible site closure as a result of such as during flooding, we have insurance in place to flooding. In addition, the availability of products in the recover the lost trade and required repairs. Our supply chain, in particular agricultural produce, could be experience during closure has meant that we have impacted by severe weather having an effect on product developed strategies to close sites at short notice, such availability and input prices. that in the instance of extreme weather significantly impacting trade we could close sites in order to mitigate Risk Stable some of the financial losses which we would be exposed to. Following a qualitative assessment, which included a • To manage the risk associated with our supply chain, we high-level review of previous interruption to trade resulting monitor and communicate with our suppliers closely from extreme weather (as well as scientific forecasts as to giving us foresight over potential supply issues. We also the likely increase in extreme weather events), the overall have sufficient breadth of products and dishes across our risk is assessed as stable. brands such that supply issues with one product could be mitigated through switching to a substitute. Please also refer to our Task Force on Climate-related Financial Disclosures, on pages 36 to 40. Mitchells & Butlers plc Annual Report and Accounts 2023 47 Strategic Report ## Compliance statements | Corporate viability disclosure | Key factors considered in the assessment of the | The Group’s three year plan takes account | | | --- | --- | --- | --- | | In accordance with Provision 31 of the 2018 UK | Group’s prospects are a strong market position | of these risks, in addition to the prevailing | | | Corporate Governance Code, the Directors | with a diverse range of brands and offers | economic outlook and capital allocation | | | have undertaken an assessment, including | trading from a well-positioned and largely | decisions, alongside limited mitigating activity | | | sensitivity analysis, of the prospects of the Group | freehold estate, supported by capital | such as improved operational efficiencies | | | for a period of three years to September 2026. | investment focused on premiumisation of | (notably stock and labour management and | | | | offers and an appropriate remodel cycle, all | energy saving initiatives) to manage these | | | Assessment period | anticipated to contribute to outperformance | costs. In the base case scenario the Group | | | Three years continues to be adopted as an | against the wider market. | remains within solvency covenant limits and | | | appropriate period of assessment as it aligns | | has access to sufficient liquidity to meet its | | | with the Group’s planning horizon in a fast | Assessment of viability | outgoings. It is noted that there is a | | | moving market subject to changing consumer | The current funding arrangements of the Group | requirement to refinance the unsecured | | | tastes in addition to economic and political | consist of £1.3bn of long-term securitised debt | facilities near the end of the three year | | | uncertainties, and is supported by three year | which amortises on a scheduled profile over | assessment period, in July 2026. It is | | | forecasts as approved by the Board. Beyond | the next 13 years. Securitisation covenants are | considered that this can be accommodated | | | this period, performance is impacted by | tested quarterly, both on an annual and a half | within the debt capacity of the business given | | | domestic and global political, macroeconomic | year basis. As set out in the going concern | future anticipated recovery in profitability and | | | and other considerations which become | paragraph in section 1 of the consolidated | the strength of the creditor relationships | | | increasingly difficult to predict. As set out | financial statements a refinancing of the | exhibited in recent refinancing exercises, | | | below, this is particularly so at the current time. | Group’s unsecured committed facility was | noting also that each year a further c. £120m of | | | | undertaken during the reporting period. | securitised debt is expected to have been paid | | | Assessment of prospects | This facility is now for £200m, with financial | down. The resilience of this base case plan is | | | The Group’s financial planning process comprises | covenants tested half yearly, and expires | then assessed through the application of | | | a detailed forecast for the next financial year, | within the three year term of this assessment, | forecast analysis, focused in particular on | | | together with a projection for the following two | in July 2026. | growth of demand and levels of input cost | | | financial years. | | inflation during the current financial year as | | | | Following a year in which the Group has been | well as on a longer-term basis. Sensitivities | | | The Group’s strategy seeks to provide a strong | able to trade throughout without restrictions, | of the following risks described in the Annual | | | capital base and long-term direction to protect | sales have returned to above pre-pandemic | Report have also been applied individually to | | | the viability of the business model given | levels. The principal short-term risks facing the | the base plan. | | | prevailing and evolving market and economic | business are now therefore assessed to be the | | | | conditions. The Directors’ assessment of | generating of further growth on this level of | • Declining Sales Performance (Risk event 2): | | | longer-term prospects has been made taking | demand, in addition to mitigating cost inflation. | | 2% lower sales growth rate on average from | | account of the current and expected future | The Group has reviewed a number of forecast | | December 2023 to end of FY 2025 and 1.0% | | financial position and the principal risks | scenarios and sensitivities around these risks, | | lower in FY 2026; | | and uncertainties, as detailed within the | including additional stress testing that has been | • Cost of Goods Price Increases (Risk event | | | Annual Report. | carried out on the Group’s ability to continue in | | 9): 1.2% increase in direct Cost of Goods | | | operation under unfavourable operating | | (Drink and Food) in FY 2024, and 0.9% in | | At the current time uncertainty continues to | conditions. In making this assessment the | | FY 2025 and FY 2026; | | face the business as a result of global political | Group has taken the view that there will be no | • Increased Wage Cost Inflation (Risk event | | | developments, uncertain government policy, | material further adverse impact of Covid-19 (or | | 6): 1% increase in NLW wage rate in | | and cost headwinds. Longer-term risks are | any other pandemic) such that sales will | | FY 2024, FY 2025 and FY 2026; | | further identified around evolving consumer | continue to grow year on year. In particular it is | • Increased utilities cost (Risk event 9): | | | demands and tastes and the economic and | assumed that no further mandated closure or | | additional £10m in each of FY 2024, | | political environment. | trading restrictions will be reintroduced. | | FY 2025 and FY 2026; and | | | Through the assessment period, the Group is | • A scenario combining all of the above | | | | forecasting sales growth remaining slightly | | sensitivities which reduces operating profit | | | below current levels. Further, it is assumed that | | by £27m, £59m and £79m in FY 2024, | | | on a general basis the current very high levels | | FY 2025 and FY 2026 respectively. | of cost inflation seen through FY 2023 will start to abate into FY 2024 and that energy markets and costs will start to revert to closer to historical levels in absolute terms leading to a recovery in profitability over the assessment period. 48 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction | Liquidity and solvency based on financial | Section 172 Companies Act statement | | In carrying out these functions, the Board had | | --- | --- | --- | --- | | covenants (Risk event 1) on both secured debt | The Directors have acted in a way that they | | regard to those stakeholders which it had | | and unsecured facilities are assessed in all | considered, in good faith, to be most likely to | | identified as being of significant importance. | | scenarios. In all scenarios the Group continues | promote the success of the Company for the | | These are the Company’s shareholders, those | | to remain profitable with sufficient liquidity and | benefit of its members as a whole and in doing | | employees of the Mitchells & Butlers Group | | no forecast covenant breaches. | so have given regard, amongst other matters, | | who were likely to be affected by the activities | | | to the following considerations in the decisions | | of the Company (including their job security | | Viability statement | taken during the financial period ended | | and entitlements in terms of pay, pensions and | | The Directors have concluded, based upon the | 30 September 2023: | | other benefits), guests who purchase goods | | extent of the financial planning assessment, | | | and services provided by the Company, | | sensitivity analysis, potential mitigating actions | • the likely consequences of any decision | | suppliers to the Company, whether they are | | and current financial position that there is a | | in the long term; | external to the Mitchells & Butlers Group or | | reasonable expectation that the Group will have | • the interests of the Company’s employees; | | within that Group, governmental authorities | | access to sufficient resources to continue in | • the need to foster the Company’s | | such as HMRC and regulatory bodies, the | | operation and meet all its liabilities as they fall due | | business relationships with suppliers, | Trustees of the Group’s pension schemes, | | over the three year period to September 2026. | | guests and others; | providers of finance to the Group including its | | | • the impact of the Company’s operations | | banks and bondholders, real estate property | | Non-financial and sustainability | | on the community and environment; | counterparties (whether as landlords or | | information statement | • the desirability for high standards of | | tenants) and those specific entities or | | The Group has complied with the requirements | | business conduct; and | individuals who are likely to be affected by | | of s414CB of the Companies Act 2006 by | • the need to act fairly as between members | | the outcome of the relevant matter falling for | | including certain non-financial information | | of the Company. | consideration on a case-by-case basis. | within the report. This can be found as follows: | | | | The Board has a duty under Section 172 | There is a robust and transparent process in | | --- | --- | --- | --- | --- | | • Business model on pages 22 to 25. | | | Companies Act 2006 to promote the success | place to provide an appropriate level of | | • Information regarding the following matters | | | of the Company and, in doing so, must take | direction and support in the identification, | | | can be found on the following pages: | | account of the effect on other stakeholders of | assessment and management of risks across all | | | – Environmental matters on pages 34 to 40; | | how it manages the business of the Company, | areas of the business which have the potential | | | – Employees on page 27; | | whether these stakeholders are from within the | to seriously damage our financial position, | | | – Social matters on pages 26 to 29; | | Company, in its Group or outside the Company | our shareholder value, our responsibilities | | | – Respect for human rights on pages 66, | | and its Group. Throughout the year the Board | to our staff and guests, our reputation and | | | | 80 and 81; | has kept in mind these responsibilities as it has | our relationships with key stakeholders. | | | – Anti-corruption and anti-bribery matters | | supervised and monitored the business | Established communication cascade and | | | | on pages 80 and 81. | activities and prospects of the Company and | mechanisms are in place for employees, | | | | | as it has considered, and, where appropriate, | suppliers and guests: engagement with | | Where principal risks have been identified in | | | made decisions relating to strategic aspects of | employees is discussed on page 65 of the | | relation to any of the matters listed above, | | | the Company’s affairs. | Directors’ report, which sets out the various | | these can be found on pages 41 to 47 including | | | | platforms for employee communications, | | a description of the business relationships, | | | In addition, the 2018 UK Corporate Governance | facilitated by Dave Coplin, a Non-Executive | | products and services which are likely to | | | Code specifically requires that the Board | Director who acts as the ‘employee voice’; | | cause adverse impacts in those areas of risk, | | | should understand the views of the Company’s | engagement with key, critical suppliers is | | and a description of how the principal risks | | | key stakeholders (including employees, | addressed on page 73 of the Corporate | | are managed. | | | suppliers, customers and others) and keep | Governance Statement which describes the | | | | | stakeholder engagement mechanisms under | supplier tiering process; and engagement with | | • All key performance indicators of the | | | review so they remain effective. The 2018 | guests is discussed on page 110 of the Report | | | Group, including those non-financial | | Code also recommends that there should be | on Directors’ remuneration which describes | | | indicators, are on pages 32 and 33. | | regular reporting as to how the Board has | the mechanisms for providing guest feedback. | | • The Financial review section on pages 51 to | | | complied with this engagement approach in | | | | 54 includes, where appropriate, references | | its decision-making processes and how the | | | | to, and additional explanations of, amounts | | interests of different shareholders have | | | | included in the accounts. | | been considered. | | Mitchells & Butlers plc Annual Report and Accounts 2023 49 Strategic Report Compliance statements continued The Company’s culture is embodied in a set of In reaching its decisions, the Board was PRIDE values of Passion, Respect, Innovation, mindful of the need to seek to preserve the Drive and Engagement which underpin its key integrity of the Company’s business so as to priorities of People, Practices, Profits and allocate its resources in such a way as to ensure Guests. The Board observes these PRIDE values creditors’ interests and the interests of other in discharging its everyday responsibilities in stakeholders such as employees and guests order to ensure that decisions taken are in line were not prejudiced. with the Company’s values and objectives. | High standards of business conduct are | Board papers set out the rationale for the | | --- | --- | | expected, in furtherance of which the Board | proposals and the relevant decisions were | | has implemented a Code of Ethics, which is | made after discussion amongst the Board | | fully described on pages 80 and 81 of the | members with appropriate legal, accounting, | | Corporate Governance Statement, and | HR and treasury input. The processes | | a declaration of compliance with the Modern | implemented by the Board included regular | | Slavery Act 2015 (including a Supplier Code | meetings to consider key developments as well | | of Conduct) is dealt with on pages 66 and 67 | as the provision, refreshed during the financial | | of the Directors’ report. Appropriate scrutiny | year, of training to Directors in relation to their | | of the environmental impact of the Group’s | responsibilities as directors of a limited | | activities is included in the Sustainability | company, including the responsibilities under | | section of the Strategic Report on pages 34 | Section 172 Companies Act 2006. | and 35. Specific consideration was given in the | Not all of those stakeholders’ interests fall for | decision-making processes implemented by | | --- | --- | | consideration in each set of circumstances | the Board to how the manner in which the | | which the Board has to consider. However, | Company operated, and the specific proposals | | as and when a particular matter falls for review | it was asked to consider, aligned to its strategic | | by the Board, it first seeks to identify those | goals as described on pages 30 and 31 and its | | stakeholders which are likely to be impacted by | agreed purpose as referred to on page 05. | the decision of the Board, and then the Board discusses the respective interests of those The Board also confirmed that, in discharging stakeholders as well as the consistency (or its responsibilities for management, supervision otherwise) of the relevant proposal with the and control of the Company’s business and its Board’s existing, or any proposed change(s) affairs, it would seek to align to the Mitchells & to its, strategic plan. Butlers Group PRIDE Values of Passion, Respect, Innovation, Drive and Engagement Major matters considered by the Board during as set out at page 23 of this Annual Report. the year included the pressures faced by the | UK consumer in the face of rising costs and | Throughout this Annual Report we provide | | --- | --- | | interest rates, and the impact of unprecedented | examples of how we take these considerations | | cost headwinds on the business and wider UK | into account. The Board values the importance | | hospitality market. In considering these | of effective stakeholder engagement and | | external factors, the Board looked not only at | believes that stakeholders’ views should be | | the position and prospects of the Company, but | considered in its decision-making. Details of | | also took into consideration the wider Mitchells | how we engage with various stakeholders can | | & Butlers Group as a whole. Other matters | be found on pages 26 to 29. | considered by the Board included the re-financing of the unsecured Revolving Credit Facility and the acquisition of the remaining 60% of 3Sixty Restaurants Limited. Having identified the relevant stakeholders and their interests in relation to specific matters or particular circumstances, the Board then assessed the relevant weighting of those interests in considering and eventually reaching its conclusions, whilst being mindful of the need to comply with the Group’s obligations of its securitisation arrangements and other financial arrangements. 50 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ## Financial review ## Our financial and operating performance ## “On a statutory basis, sales were £2,503m (FY 2022 ## £2,208m). The loss before tax for the period of £(13)m ## (FY 2022 profit of £8m) was impacted by movements ## to the property portfolio valuation as well as significant ## cost headwinds during the financial year.” Tim Jones Chief Financial Officer | The Group Income Statement discloses | At the end of the period, the total estate | growth was broad-based, with growth across | | --- | --- | --- | | adjusted profit and earnings per share | comprised 1,718 sites in the UK and Germany | all brands, supported by volume growth in | | information that excludes separately disclosed | of which 1,654 are directly managed. | both food and drink. Excluding the impact of | | items to allow an understanding of the trading | | reduced rates of VAT in the first half of FY 2022, | a | performance of the Group. Separately | Revenue | like-for-like sales | growth across the period | | --- | --- | --- | --- | | disclosed items are identified by virtue of their | Total revenue of £2,503m (FY 2022 £2,208m) | was 11.3%. | | | size or incidence. | reflects a strong period of trading. | | | a The financial period being reported on was a Like-for-like sales for the period increased by 53-week period, therefore in order to facilitate 9.1%, comprising an increase in like-for-like a comparison to prior year, adjusted results food sales of 8.6% and an increase in like-for- a have been restated on a 52-week basis, as set like drink sales of 9.9%. Like-for-like sales out below. a | Statutory 53 week Adjusted | | | | | | 52 week | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | FY 2023 | | FY 2022 | | FY 2023 | | | FY 2022 | | | | £m | | £m | | £m | | | £m | Revenue 2,503 2,208 2,459 2,208 Operating profit 98 124 221 240 Profit/(loss) before tax (13) 8 112 124 Earnings/(loss) per share (0.7)p 2.2p 15.6p 18.0p Operating margin 3.9% 5.6% 9.0% 10.9% Mitchells & Butlers plc Annual Report and Accounts 2023 51 Strategic Report Financial review continued a | Like-for-like sales | growth against FY 2022: | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Weeks 1–15 | | Weeks 16–28 | | Weeks 29–42 | | Weeks 43–52 | | | | | | Q1 | | Q2 | | Q3 | | Q4 Weeks 1–52 | Food 6.4% 5.2% 11.6% 11.6% 8.6% Drink 15.5% 9.9% 7.4% 6.4% 9.9% Total 10.4% 6.4% 9.7% 9.7% 9.1% Against FY 2019, the last pre-covid year, like-for-like sales increased by Adjusted operating margin of 9.0% was 1.9ppts lower than prior period, 10.5% driven by spend-per-head with volumes down 8% for food and driven by the significant cost headwinds and the margin benefit of 12% for drinks. government support received in FY 2022. Statutory operating margin of 3.9% was 1.7ppts lower than last year due also to the impact of separately a For the eight weeks since the period end like-for-like sales against disclosed property impairments. FY 2023 have increased by 7.2%. Cost headwinds are now starting to abate and for FY 2024 are expected Separately disclosed items to be in the region of c. £65m, representing 3% of the overall cost base, Separately disclosed items are identified due to their nature or materiality including an expectation of energy cost reduction. to help the reader form a view of overall and adjusted trading. Interest A £131m reduction in value is recognised relating to valuation and Net finance costs of £108m for the period were £6m lower than last year, impairment of properties, comprising a £110m impairment arising from with annual amortisation reducing the value of securitised debt and the revaluation of freehold and long leasehold sites, a £6m impairment higher levels of interest income from cash balances. of short leasehold and unlicensed properties, a £14m impairment of right-of-use assets and a £1m impairment of goodwill. The £28m tax The net pensions finance charge was £3m (FY 2022 £2m). The net credit relates to these impairments. pensions charge for next year is expected to be £1m. Other separately disclosed items include a net profit arising on property Earnings per share disposals, a shortfall on an HMRC VAT claim on gaming machines and a Basic losses per share, after the separately disclosed items described number of items related to acquisition accounting for 3Sixty Restaurants above, were (0.7)p (FY 2022 earnings 2.2p), with adjusted earnings per Limited. These items net to an overall credit of £3m. share of 16.1p (FY 2022 18.0p). a Operating profit and margins The basic weighted average number of shares in the period was a Adjusted operating profit for the financial year was £221m 595m and the total number of shares issued at the balance sheet date (FY 2022 £240m). was 598m. FY 2023 benefited from £1m (FY 2022 £53m) of government support. The year-on-year adjusted operating profit increase, net of government support, of £33m reflects a strong underlying sales performance supported by efficiency gains to more than offset the cost headwinds of £175m faced in the period. 52 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ## Cash flow | | FY 2023 £m | FY 2022 £m | | --- | --- | --- | | EBITDA before movements in the valuation of the property portfolio | 362 | 374 | | Non-cash share-based payment and pension costs and other | 6 | 6 | | **Operating cash flow before movements in working capital and additional pension contributions** | **368** | **380** | | Working capital movement | (1) | 19 | | Pension deficit contributions | (8) | (44) | | **Cash flow from operations** | **359** | **355** | | Capital expenditure | (157) | (122) | | Acquisition of 3Sixty Restaurants Limited | (17) | – | | Cash acquired on acquisition of 3Sixty Restaurants Limited | 5 | – | | Net finance lease principal payments | (52) | (45) | | Interest on lease liabilities | (16) | (16) | | Net interest paid | (90) | (99) | | Tax | (3) | (2) | | Other | 1 | – | | **Net cash flow before bond amortisation** | **30** | **71** | | Mandatory bond amortisation | (116) | (110) | | **Net cash flow** | **(86)** | **(39)** | The business generated £362m of EBITDA before movements in the valuation of the property portfolio. Pension deficit contributions reduced to £8m as contributions for both the Executive and Main Plan schemes started to be paid into escrow accounts. No further contributions are now anticipated into these schemes. Capital expenditure increased by £35m to £157m with £11m of the increase in relation to investment in technology to enable progress against our sustainability goals, as analysed below. An investment of £17m was made to acquire the remaining 60% stake in 3Sixty Restaurants Ltd, owners of Ego Restaurants, partially offset by £5m cash acquired on acquisition. Before mandatory bond amortisation, cash inflow was £30m (FY 2022 £71m). After mandatory bond amortisation, cash outflow was £86m (FY 2022 outflow of £39m). ## Capital expenditure Capital expenditure of £157m (FY 2022 £122m) comprises £154m from the purchase of property, plant and equipment and £3m in relation to the purchase of intangible assets. Of the £157m spend, £90m relates to the completion of acquisitions, conversions and remodels, with the balance being essential maintenance and infrastructure spend which includes investment to enable our Net Zero transition. | | FY 2023 | | FY 2022 | | | --- | --- | --- | --- | --- | | | £m | Number | £m | Number | | **Maintenance and infrastructure** | **67** | | **39** | | | Remodels – refurbishment | 65 | 127 | 60 | 155 | | Remodels – expansionary | 4 | 7 | 2 | 5 | | Conversions | 11 | 11 | 6 | 6 | | Acquisitions – freehold | 9 | 4 | 14 | 3 | | Acquisitions – leasehold | 1 | 2 | 1 | 1 | | **Total return generating capital expenditure** | **90** | **151** | **83** | **170** | | **Total capital expenditure** | **157** | | **122** | | The four freehold acquisitions represent the purchase of two properties previously held as leasehold and two new sites. To enable our transition to Net Zero emissions we have invested in technologies which reduce our environmental impact. During the period we invested £3m on installing 50 sites with solar panels, with a further c. 150 sites identified for installation during FY 2024, and £8m on installing 1,200 voltage optimisers. These investments will underpin continued reduction in energy usage, which reduced by 3% in the period overall. Mitchells & Butlers plc Annual Report and Accounts 2023 53 Strategic Report # Financial review continued # 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 £192m (FY 2022 decrease of £282m). This reflects £116m impairment included as a separately disclosed item in the income statement and a £76m decrease in the revaluation reserve. In addition, there was a £14m impairment of right-of-use assets and a £1m impairment of goodwill, relating to an historic acquisition, included within separately disclosed items in the income statement. # Net debtᵃ and facilities Net debtᵃ at the period end was £1,633m, comprised of £1,170m non-lease liabilities and lease liabilities of £463m (FY 2022 £1,679m comprised of £1,198m non-lease liabilities and lease liabilities of £481m). During the period we successfully refinanced our unsecured debt facilities which were due to expire in February 2024. The new Revolving Credit Facility ('RCF') has been increased in size to £200m based on a wider banking group, including the continued support of all existing banks, and extends to July 2026. The RCF remains unsecured, with a negative pledge in favour of participating banks, and is based on two main financial covenants – net debt to EBITDA to not exceed 3.0 times (as before) and EBITDAR to rent plus interest of not less than 1.25 times (reduced from 1.5 times). Further details of existing debt arrangements and an analysis of net debtᵃ can be found in Note 4.4 to the financial statements and at www.mbplc.com/infocentre/debtinformation/. # Pensions During the period we were delighted to announce that the trustees of the M&B Main Pension Plan, working closely with the Company, successfully completed a full scheme buy-in with Standard Life. This transaction follows on from the completion of the buy-in of the Executive Plan announced last year and eliminates substantially all remaining pensions risk in the group. Following each buy-in, committed contributions were made into blocked escrow accounts, to a balance of £47m. As of September this year all contributions have ceased. The residual liability on the balance sheet of £22m (before tax) represents an unfunded unapproved pension top-up arrangement in respect of certain members of the M&B Executive Plan. # 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. Accordingly, the financial statements have been prepared on the going concern basis. Full details are included in Section 1 of the financial statements. # Approval of the Strategic Report Our strategic report on pages 14 to 54 has been reviewed and approved by the Board. # Tim Jones Chief Financial Officer 29 November 2023 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 192 to 195 of this report. 54 Annual Report and Accounts 2023 Mitchells & Batlers plc Introduction Governance Strategic Report Other InformationFinancial Statements ## 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 56 Governance at a glance 58 Chairman’s introduction to governance 60 Board of Directors 62 Directors’ report 70 Statement of Directors’ responsibilities in respect of the Annual Report and Accounts 71 Corporate governance statement 84 Audit Committee report 88 Report on Directors’ remuneration Mitchells & Butlers plc Annual Report and Accounts 2023 55 Governance ## Governance at a glance ## The Board believes that good corporate ## governance is essential to enable us to deliver ## our purpose for all our stakeholders. It remains ## a top priority for the Board. ## The Company is committed to the principles of ## the 2018 Corporate Governance Code published ## by the Financial Reporting Council, which sets out ## standards of good practice for listed companies. ## Governance highlights Highest ever retail engagement score Gender pay gap (for the Group) Focus areas for FY 2024 Growth ## 82.5 -1.7% Support and oversight of the growth of the ## Mean business via our Ignite programme, to drive See page 89 cost efficiencies and increase sales. Board and Committee See pages 30 and 31 ## meeting attendance 0.6% Strategy ## Median Deliver our strategic plan delivering targeted ## 100% and profitable growth. See page 113 The Board holds regular scheduled meetings See page 16 Executive Directors’ Company pension during the year and on an ad-hoc basis as contributions to be fully aligned with and when required. During the year eight Sustainability that of the wider workforce (4%) by Board meetings were held and the attendance • Continue to deliver emissions reduction 1 January 2024 is set out below. Members of the executive in line with our Net Zero roadmap; team attended Board meetings as and • Increase proportion of waste diverted See page 76 when appropriate. from landfill; • Decrease levels of food waste; and • Expand charitable partnerships. See page 18 Attendance levels at Board and Committee meetings People Audit Remuneration Nomination Directors who served during the year Board Committee Committee Committee • Roll out of a talent system which will further support the development of our Bob Ivell 8 (8) n/a 6 (6) 1 (1) internal talent pipeline; and Amanda Brown 8 (8) 4 (4) 6 (6) 1 (1) • Evolution of our employee value Keith Browne 8 (8) n/a n/a n/a proposition. Dave Coplin 8 (8) 4 (4) 6 (6) 1 (1) See page 18 Eddie Irwin 8 (8) n/a n/a 1 (1) Tim Jones 8 (8) n/a n/a n/a Risk Josh Levy 8 (8) n/a 6 (6) n/a Reduce the impact of key risks facing Jane Moriarty 8 (8) 4 (4) 6 (6) 1 (1) the business. Phil Urban 8 (8) n/a n/a n/a See pages 41 to 47 The numbers in brackets in the table above confirm how many meetings each Director was eligible to attend during the year. 56 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ## Board and Committee structure The Board Chairman Senior Non-Executive Bob Ivell Independent Directors The Chairman is accountable Director The Non-Executive Directors to shareholders for leading Jane Moriarty support and constructively the Board and ensuring the Board challenge the executive team. The Senior Independent Director receives timely, accurate information supports the Chairman on all to take good decisions for the benefit governance issues and provides a of all stakeholders. communication channel between the Chairman and the Non- Executive Directors. Committees Audit Remuneration Nomination Market Disclosure Committee Committee Committee Committee Chair – Jane Moriarty Chair – Amanda Brown Chair – Bob Ivell Chair – Bob Ivell See pages 84 to 87 See pages 88 to 118 See page 79 See page 79 Executive Directors Phil Urban (CEO) and Tim Jones (CFO) The Board has delegated the day-to-day running of the Group to the Chief Executive Officer. The Executive Directors make and implement operational decisions to run the Mitchells & Butlers business on a day-to-day basis. To support the Chief Executive Officer in discharging his responsibilities, he is supported by the Executive Committee. The Executive Committee is responsible for ensuring that each of the Group’s businesses and functions are managed effectively and that the key performance indicators of the Group, as approved by the Board, are achieved. The Executive Committee is chaired by the CEO which ensures the execution of the Company’s strategy and the day-to-day management of the business. Certain other responsibilities have been delegated to specialist committees and further details are given on pages 79 and 80. Board tenure for Chairman and Non-Executive Directors 1-3 years 1 4-7 years 3 8+ years 3 Mitchells & Butlers plc Annual Report and Accounts 2023 57 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 Company is required to report under Climate change reporting requirements ### As at 30 September 2023, the 2018 UK Corporate Governance Code continue to occupy the Board and details are ### the Company had more than (the ‘2018 Code’). The 2018 Code places included in that section of the Strategic Report 50,000 employees and one of emphasis on relationships between companies, on pages 36 to 40. Phil Urban heads our climate shareholders and stakeholders. It also promotes change policy initiatives, and while this area ### the key roles for the Board is the importance of establishing a corporate remains a responsibility of the entire Board, the ### to provide leadership for them culture that is aligned with the Company’s Corporate Responsibility Committee manages ### and maintain the highest purpose and business strategy, promotes and monitors the detail of the Group’s integrity and values diversity and sets the approach to this important topic. The ### possible standards of | | expectations for reporting the Board’s | organisational and reporting structure for | | --- | --- | --- | | corporate governance. | involvement in these areas. Some of these | climate governance is set out on page 37 in | | | aspects of the 2018 Code are reflected in | our climate-related disclosures. | the Strategic Report on pages 14 to 54, which | sets out the Group’s strategy, progress and | During the year, the Board continued to work | | --- | --- | | performance for the year. Meanwhile, the | together to deal with various trading challenges, | | Board-focused corporate governance aspects | particularly those related to inflationary cost | | of the 2018 Code are reflected in the Corporate | pressures. I am grateful both to the Board | | Governance Statement on pages 71 to 83, | and all our employees who worked to resolve | | which sets out the Company’s compliance | these issues. | against published governance requirements where there is a narrative explanation as to how the Board has approached compliance with, or in a few limited areas divergence from, the Code’s best practice guidance. 58 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction | This year our sales growth has remained ahead | The 2018 Code states that there should be | The Annual General Meeting will be held in | | --- | --- | --- | | of the market, with our guest scores at record | a formal and rigorous annual evaluation of the | January 2024 and all shareholders are welcome | | highs. This strong performance, coupled with | performance of the Board, its committees, the | to attend. For those shareholders who cannot | | the addition of Ego Restaurants into our stable | chair and individual directors and that the chair | attend but would like to hear the proceedings, | | of brands, means that the outlook for FY 2024 | should consider having a regular externally | we will also supply a telephone listen-only facility. | | is positive with the opportunity to further | facilitated Board evaluation. In FTSE 350 | Full details are set out in the separate Notice of | | outperform the sector and grow market share. | companies this should happen at least every | AGM published with this Annual Report. | | Navigating the last three years has been hugely | three years and an externally facilitated review | | | challenging for everyone in the business but we | of the Board’s effectiveness last took place in | I look forward to the year ahead, confident in | | feel we are now firmly back on our chosen path | 2018. Subsequently, the Board decided that | the knowledge that the Company is led by a | | and that we have a bright future as a business | the interests of shareholders would be better | highly competent, professional and motivated | | to look forward to. | served by the Board focusing on the business | team. I also look forward to the support of you, | | | and consequently no external evaluation has | our shareholders, as our senior management | | Our broad range of Board talent covers a variety | taken place since. The Board will review this | team looks to rebuild the business and continues | | of professional skills, and our diverse group of | approach as and when it feels it necessary to do | to focus on driving future profit growth and | | Non-Executive Directors continue to bring | so in the context of the circumstances in which | creating additional shareholder value. | | much experience and challenge to the Board. | the Group is operating. Although there was no | | formal evaluation carried out during the year, | My focus will continue to be on maintaining a | I remain satisfied that the skills, contributions | Bob Ivell | | --- | --- | --- | | strong team, with a broad range of professional | and experience of the Board are appropriate | Chairman | | backgrounds, experience from both within our | for the challenges faced by the Group during | Mitchells & Butlers plc | | sector and in other industries and businesses | the year and for the future. You can read the | | | and communication skills to drive further | Board biographies on pages 60 and 61. | | improvements where possible. From a governance standpoint, the basic governance The annual appraisal of my performance as For the Company’s latest financial information Go to www.mbplc.com/investors | arrangements already in place are unchanged | Chairman was carried out in FY 2023 by the | | --- | --- | | since FY 2022, with the exception of additional | Senior Independent Director, Jane Moriarty, | | procedures and reporting arrangements put in | with the conclusions fed back to me. | place in order to comply with climate change | and diversity reporting requirements. Certain | The remainder of this Corporate Governance | | --- | --- | | aspects of the 2018 Code could not be, and | Statement contains the narrative reporting | | were not, complied with in FY 2023. These | required by the 2018 Code, the Listing Rules | | deviations from the 2018 Code are fully | and the Disclosure Guidance and Transparency | | explained on pages 75 and 76 in the Corporate | Rules. I hope that you find this Corporate | | Governance Statement in line with the ‘Comply | Governance Statement to be informative and | | or Explain’ regime which forms an intrinsic part | helpful in relation to this important topic. | of that 2018 Code. We are committed to maintaining an active dialogue with all our shareholders, and we continue to offer our institutional investors access to key senior management and our Investor Relations team. The Chair of each of our Audit Committee and Remuneration Committee and the Senior Independent Director are available for dialogue with shareholders on any significant matters in relation to their areas of responsibility if this is needed and you can read their reports on pages 84 and 88 respectively. Mitchells & Butlers plc Annual Report and Accounts 2023 59 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 continues ### 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 Chairman Chief Executive Chief Financial 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 | he held the position of Group Finance Director | | managed restaurants, pubs and hotels. He is | previously Managing Director at Grosvenor | for Interserve plc, a support services group. | | currently a board member of UK Hospitality | Casinos, a division of Rank Group and | Previously, he was Director of Financial | | and was previously Senior Independent | Chairman of the National Casino Forum. | Operations at Novar plc and held senior | | Director of AGA Rangemaster Group plc and | Prior to that, he was Managing Director for | financial roles both in the UK and overseas | | Britvic plc, and a main board Director of S&N | Whitbread’s Pub Restaurant Division, and | in the logistics company, Exel plc. Tim is a | | plc as Chairman and Managing Director of its | for Scottish & Newcastle Retail’s Restaurants | member of the Institute of Chartered | | Scottish & Newcastle retail division. He has | and Accommodation Division. Phil has an | Accountants in England and Wales and | | also been Chairman of Carpetright plc, | MBA and is a qualified management | obtained an MA in Economics at | | Regent Inns, Park Resorts and David Lloyd | accountant (‘CIMA’). | Cambridge University. | 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. 60 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Amanda Brown Keith Browne Dave Coplin Non-Executive Director Non-Executive Director Non-Executive 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 of Entain plc and | shareholder representative of Elpida Group | Executive Officer and founder of The Envisioners | | Manchester Airport Group, and was formerly | Limited, which, as part of the Odyzean Group, | Limited. He was formerly the Chief Envisioning | | the Chief Human Resources Officer of Hiscox | is a significant shareholder in Mitchells & Butlers. | Officer for Microsoft Limited, and is an | | Limited, and was a Non-Executive Director and | He is a Non-Executive Director of Grove | established thought leader on the role of | | Chair of the Remuneration Committee of Micro | Limited, the holding company of Barchester | technology in our personal and professional | | Focus International PLC. She previously held | Healthcare Limited. Keith obtained a Bachelor | lives. For over 30 years he has worked across a | | senior executive roles with Whitbread Group | of Commerce Degree from University College | range of industries and customer marketplaces, | | PLC, PepsiCo, Inc and Mars, Inc. Amanda is | Dublin, qualified as a chartered accountant in | providing strategic advice and guidance | | Chair of the Remuneration Committee. | 1994 and subsequently gained an MBA from | around the role and optimisation of technology | | | University College Dublin. After joining KPMG | in modern society, both inside and outside of | | | Corporate Finance in 1996, he became a | the world of work. Dave is also a Non-Executive | | | partner in the firm in 2001 and Head of | Director of each of the Pensions and Lifetime | | | Corporate Finance in 2009. He retired from | Savings Association and Vianet Group plc. | the partnership to operate as an Independent Consultant in 2011. Eddie Irwin Josh Levy Jane Moriarty Non-Executive Director Non-Executive Director Senior Independent Director N C R P A R N C M | Appointed as a Non-Executive Director in | Appointed as a Non-Executive Director | Appointed as an independent Non-Executive | | --- | --- | --- | | March 2012, Eddie is a nominated shareholder | in November 2015, Josh is a nominated | Director in February 2019, Jane is a Fellow of | | representative of Elpida Group Limited, which, | shareholder representative of Piedmont Inc., | the Institute of Chartered Accountants in | | as part of the Odyzean Group, is a significant | which, as part of the Odyzean Group, is a | Ireland, and currently a Non-Executive | | shareholder in Mitchells & Butlers. Eddie is | significant shareholder in Mitchells & Butlers. | Director of Babcock International Group PLC, | | Finance Director of Coolmore, a leading | Josh is Chief Executive of Ultimate Finance | NG Bailey Group Limited, Quarto Group Inc., | | thoroughbred bloodstock breeder with | Group, Chairman of Avenue Insurance and | Tennants Consolidated Limited and Nyrstar | | operations in Ireland, the USA and Australia | a Director of Tavistock Group. Josh previously | NV. Jane was previously a senior advisory | | and a Non-Executive Director of Grove | worked in the Investment Banking Division | partner with KPMG LLP. Jane is Chair of the | | Limited, the holding company of Barchester | of Investec Bank. | Audit Committee. | Healthcare Limited. He graduated from University College Dublin with a Bachelor of Commerce Degree and he is a Fellow of both The Association of Chartered Certified Accountants and The Chartered Governance Institute. Mitchells & Butlers plc Annual Report and Accounts 2023 61 DIAVPRIBES # 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 2023, the Board is reporting under the 2018 Code. Further information is set out in the Strategic Report on pages 14 to 54 which examines the 'purpose' aspect of the 2018 Code and in the Corporate Governance Statement on pages 71 to 83, 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 53 weeks ended 30 September 2023. The Business review and Sustainability review of the Company and its subsidiaries are given on pages 16 to 18 and pages 34 and 35 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 41 to 47, 82 and 83, 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 32 and 33. 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 22 to 25 and in the statement made in compliance with Section 172 of the Companies Act 2006 set out on page 49. This report has been prepared under current legislation and guidance in force at the year end date. In addition, the material contained on pages 14 to 54 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 2023, the Group had activities in, and operated through, pubs, bars and restaurants in the United Kingdom and Germany. In June 2023, the Group completed the acquisition of the remaining 60% in 3Sixty Restaurants Limited, owners of Ego Restaurants. A summary of the performance of the business is set out on page 88. A full list of the Company's subsidiaries and their respective country of operation is given on page 184 of the Annual Report. ## Share capital and voting rights The Company's issued ordinary share capital as at 30 September 2023 comprised a single class of ordinary shares of which 597,726,859 shares were in issue and listed on the London Stock Exchange (24 September 2022 597,383,363 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 3,990,454 shares. Details of movements in the issued share capital can be found in note 4.7 to the financial statements on page 180. 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 period, shares with a nominal value of £29,340 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 period. 62 Annual Report and Accounts 2023 Mitchells & Batters plc Introduction Strategic Report Governance Financial Statements Other Information 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 116 in the Report on Directors' remuneration. ### Dividends No Final Dividend will be paid in respect of the financial period ended 30 September 2023 (FY 2022 nil). No Interim Dividend was paid during the period (FY 2022 nil). ### Interests in voting rights As at 30 September 2023, 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 30 September 2023 | Shareholder | Ordinary shares | % of share capital | | | --- | --- | --- | --- | | Odyzean Limited^{b} | 338,833,695 | 56.69% | Indirect 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 | 29,633,363 | 4.96% | Indirect holding | a. Based on the total voting rights figure as at 30 September 2023 of 597,726,859 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. No changes took place between 1 October 2023 and 29 November 2023. ### Directors Details of the Board Directors as at 29 November 2023 and their biographies are shown on pages 60 and 61. The Directors as at 30 September 2023 and their interests in shares are shown on page 116. 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 re-election. ### Major shareholder Board representation and relationship agreement The Company's largest shareholder is Odyzean Limited ('Odyzean'), which holds approximately 56.69% of the Company's issued share capital and was formed in 2021 to consolidate the shareholdings of the Company's then three largest shareholders, Piedmont Inc. ('Piedmont'), Elpida Group Limited ('Elpida') and Smoothfield Holding Limited ('Smoothfield') (together with Odyzean, the 'Odyzean Group') in connection with the Open Offer. The Board is grateful for the significant financial commitment provided by the Odyzean Group to the business, together with its 1,718 pubs and restaurants, and over 50,000 UK and German employees. The Company maintains excellent relations with the Odyzean Group, whose investment objectives are fully aligned with those of the Group. The Odyzean Group maintains a dialogue with the Board via their 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 the Company's shareholders and their duty to the Company. The Odyzean Group 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 and the Company, Piedmont 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 owns less than 16% of the Company any such shareholder Directors would be required to resign immediately. This Deed of Appointment also entitles Piedmont 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. 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', and the section headed 'Major shareholder Board representation and relationship agreement', both on this page, Odyzean, as the indirect holder of the separate shareholdings of Piedmont, Elpida and Smoothfield Holding Limited has disclosed its interest in 56.69% of the shares in the Company. Odyzean, however, does not directly hold any shares in the Company on its own behalf. Mitchells & Butlers plc Annual Report and Accounts 2023 63 Governance Directors’ report continued Directors’ indemnity The rules of certain of the Company’s share plans include provisions As permitted by the Articles of Association, each of the Directors has which apply in the event of a takeover or reconstruction, as set out in the benefit of an indemnity, which is a qualifying third-party indemnity Table 2 below. as defined by Section 234 of the Companies Act 2006. The indemnity was in force throughout the tenure of each Director during the period, Table 2: Provisions which apply in the event of a takeover and is currently in force. The Company also purchased and maintained or reconstruction throughout the period Directors’ and Officers’ liability insurance in Share plan Provision in the event of a takeover respect of itself and its Directors and the directors of any subsidiary of | the Company. No indemnity is provided for the Company’s auditor. | 2013 Performance | Awards vest pro rata to performance | | --- | --- | --- | | | Restricted Share Plan | and time elapsed and lapse six | | Articles of Association | | months later | | The Articles of Association may be amended by special resolution of the | 2013 Short Term Deferred | Bonus shares may be released or | | shareholders of the Company. | Incentive Plan and 2023 | exchanged for shares in the new | | | Short Term Deferred | controlling company | | Conflicts of interest | Incentive Plan | | The Company’s Articles of Association permit the Board to consider and, 2013 Sharesave Plan and Options may be exercised within six if it sees fit, authorise situations where a Director has an interest that 2023 Sharesave Plan months of a change of control conflicts, or may possibly conflict, with the interests of the Company Share Incentive Plan Free shares may be released or (‘Situational Conflicts’). The Board has a formal system in place for exchanged for shares in the new Directors to declare Situational Conflicts to be considered for authorisation controlling company by those Directors who have no interest in the matter being considered. Restricted Share Plan 2021 Awards are automatically released and In deciding whether to authorise a Situational Conflict, the non-conflicted replaced by an equivalent award in the Directors are required to act in the way they consider would be most new controlling company 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 During FY 2023, the 2013 Sharesave Plan, the Share Incentive Plan and Board believes that the systems it has in place for reporting and the 2013 Short Term Deferred Incentive Plan were renewed at the 2023 considering Situational Conflicts continue to operate effectively. AGM as their ten year life expired in January 2023. The renewed rules contain similar provisions to those of the expired plans in relation to a Related party transactions takeover or reconstruction of the Company. Internal controls are in place to ensure that any related party transactions involving Directors or their connected persons are carried out on an Shareholders approved the Company’s existing Directors’ remuneration arm’s-length basis and are properly recorded. policy (the ‘Existing Policy’) at the AGM in 2021 for a period of three years from the date of that meeting. That vote, which is binding on the The related party transactions in FY 2023 to which the Group was party Company, remains in force until 2024, and thus a new Directors’ are set out in note 5.2 to the financial statements. remuneration policy will require approval at the 2024 AGM. Further details are set out in the Report on Directors’ remuneration. Change of control provisions There are no significant agreements which contain provisions entitling Additional disclosures other parties to such agreements to exercise termination or other rights Other information that is relevant to the Directors’ report, and which is in the event of a change of control of the Company. incorporated by reference into this report, can be located as follows: There are no provisions in the Directors’ or employees’ service Page(s) agreements providing for compensation for loss of office or employment Future developments of the business 14 to 54 occurring because of a takeover. Research and development 22 to 25 Financial instruments and financial risk management 162 and 164 The trustee of the Company’s SIP will invite participants on whose Greenhouse gas emissions 67 to 69 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 Corporate governance statement 71 to 83 lead to a change of control of the Company, participants may direct it Employee involvement 66 to accept the offer or agree to the transaction. The trustee of the Employees with disabilities 65 Mitchells & Butlers Employee Benefit Trust may, having consulted with Non-financial reporting 14 to 54 the Company, vote or abstain from voting in respect of any shares it holds Stakeholder engagement 73 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 Section 172 statement 49 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. 64 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information 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 | 88 to 118 | | 2. Allotment of shares during the period | 180 | | 3. Significant contracts | 63 | | 4. Significant related party agreements | 63 | | 5. Relationship agreement | 63 | | **Information required by Listing Rule 9.8.6R** | | | 6. Directors' interests | 116 | | 7. Significant shareholders (DTR 5) | 63 | | 8. Going concern statement | 54 | | 9. Statement of corporate governance | 71 to 83 | | 10. Details of Directors' service contracts | 117 | | 11. Climate-related financial disclosures consistent with TCFD | 36 to 40 | | 12. Board diversity | 74 | 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 14 to 54 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 49,150 people in FY 2023 (FY 2022 45,408). 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 88. 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 2023 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. Mitchells & Butlers plc Annual Report and Accounts 2023 65 Government 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-4.jpeg](img-4.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 Sharesave Plan (both the 2013 and 2023 versions) 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 88 to 118. The Company also operates three other plans on a selective basis, which are the 2013 Performance Restricted Share Plan, the Short Term Deferred Incentive Plan (both the 2013 and 2023 versions) and the Restricted Share Plan 2021. 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. No shares were purchased by the employee benefit trust during FY 2023. ## 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 2024 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. 66 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information 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. ### 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 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 £200m of unsecured committed bank facilities (increased by £50m during the year). Further information regarding these arrangements is set out on page 54 and is also included in note 4.1 to the financial statements on page 160. 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. 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 prior 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 extended on a SONIA basis in July 2023. ### 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. Accordingly, the financial statements have been prepared on the going concern basis. Full details are included in Section 1 of the financial statements. ### 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, ventilation, lighting, and catering including the refrigeration and preparation of food and drink. Location-based GHG emissions per £m turnover have decreased by 7% in FY 2023 in comparison to FY 2022. Market-based GHG emissions per £m turnover have decreased by 8% for the same period. However, the absolute emissions for Scope 1 and 2 (location and market-based) emissions have increased by 5%. This is due to the following key factors: 1. FY 2023 contains an additional seven days when compared to FY 2022. 2. The GHG conversion factor used to convert electricity consumption into CO₂e saw a 7% increase when compared to 2022. This is due to an increase in natural gas use in electricity generation and a decrease in renewable generation in the UK grid. This is the primary contributor to the increase in Scope 2 emissions for FY 2023 vs FY 2022. 3. A 7% reduction in the location-based intensity ratio has been realised through the efficiency measures that we have rolled out, in combination with the increase in revenue generated in FY 2023. We have also continued with our commitment to purchase a green, REGO-backed supply of electricity from renewable sources in FY 2023. Mitchells & Butlers plc Annual Report and Accounts 2023 67 Governance Directors' report continued Table 3: Mitchells & Butlers' carbon reporting disclosure | Assessment parameters | | | --- | --- | | Assessment year | FY 2023 | | Consolidation approach | Financial control | | Boundary summary | All bars and restaurants either owned or under operational control during FY 2023 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 Liquefied Petroleum Gas ('LPG') 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 although an indication of Scope 3 performance is given on page 35). | | Consistency with the financial statements | Scope 1 and 2 emissions are reported for both FY 2023 and FY 2022 on a financial year basis. Franchise sites are excluded as they are responsible for arranging and paying for their own energy. Alex sites in Germany are included. Emissions are based on UK-average emissions per outlet multiplied by the number of Alex sites. These sites make up the non-UK aspect of this report. | | Exclusions | **Scope 1** – Wood, charcoal, and kerosene are excluded because each of these amounts to less than 1% of total emissions which falls below the materiality threshold. **Scope 1** – Corporate mileage is excluded because collectively it amounts to less than 1% of total emissions which falls below the materiality threshold. | | Emission factor data source | All carbon emission factors used are sourced from the UK Government GHG conversion factors for company reporting 2023. | | 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 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. | | Target | Emissions during FY 2022 are provided for comparative purposes. | ### Energy efficiency action taken During FY 2023 we increased our deployment of local renewable energy and low carbon technology sources including solar photovoltaic and air source heat pumps. Improved building fabric energy efficiency has been achieved by increasing insulation levels and improving losses at glazed areas. Improvements in heating efficiency have also been achieved by using liquid additives to improve heat transfer efficiency. We have introduced improved control of energy use by adopting Internet of Things ('IoT') control for lighting, catering, and heating/cooling systems. During 2023 we commenced a series of energy audits to identify further opportunities to reduce energy consumption across our estate. In addition to the technological solutions adopted we have also worked hard to improve our staff awareness and engagement in energy use and carbon emissions. We have a team of energy ambassadors who work across the business to drive consumption reductions. Our energy ambassadors are trained to support General Managers to investigate and resolve issues resulting in energy exceedances and to identify opportunities for optimizing energy use and reducing consumption. ### 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. 68 \_\_\_\_\_ Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Global GHG emissions and energy use data for FY 2023 Current reporting year FY 2023 Comparison reporting year FY 2022 Global | | | UK and | Global (excluding | UK and | (excluding UK | % Change | | --- | --- | --- | --- | --- | --- | --- | | | | offshore | UK and offshore) Total | offshore | and offshore) Total | year-on-year | | Scope 1 tCO | 2 e | | | | | | (location-based) 88,960 2,342 91,302 84,892 2,386 87,278 5% Scope 2 tCO 2 e (location-based) 67,156 1,769 68,925 63,876 1,795 65,671 5% Total Scope 1 & 2 emissions tCO 2 e (location-based) 156,116 4,111 160,227 148,768 4,181 152,949 5% Total Scope 1 & 2 emissions tCO 2 e (market-based) 89,222 4,111 93,333 84,892 4,181 89,073 5% Energy Consumption used to calculate the above emissions: kWh 731,867,092 19,356,686 751,223,778 742,837,490 20,879,255 763,716,745 -2% Intensity Ratio: tCO 2 e/turnover(£m) a – (location-based) – – 64 – – 69 -7% Intensity Ratio: tCO 2 e/turnover(£m) a – (market-based) – – 37 – – 40 -8% a. Intensity ratios based on the turnover for FY 2022 of £2,208m and for FY 2023 of £2,503m. 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 29 November 2023 Mitchells & Butlers plc Annual Report and Accounts 2023 69 Governance ## 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 preparing the corporate and financial information included on the Company’s website. ### Annual Report and Accounts and the Group Legislation in the UK governing the preparation and dissemination of ### and parent Company financial statements in financial statements may differ from legislation in other jurisdictions. ### accordance with applicable law and regulations. In accordance with Disclosure Guidance and Transparency Rule (‘DTR’) 4.1.16R, the financial statements will form part of the annual financial Company law requires the Directors to prepare Group and parent report prepared under DTR 4.1.17R and 4.1.18R. The auditor’s report on Company financial statements for each financial year. Under that law these financial statements provides no assurance over whether the annual they are required to prepare the Group financial statements in financial report has been prepared in accordance with those requirements. accordance with UK-adopted international accounting standards and applicable law and have elected to prepare the parent Company financial Responsibility statement of the Directors in respect of the statements in accordance with UK accounting standards and applicable annual financial report law, including FRS 101 Reduced Disclosure Framework. We confirm that to the best of our knowledge: Under company law the Directors must not approve the financial • the financial statements, prepared in accordance with the applicable statements unless they are satisfied that they give a true and fair view of set of accounting standards, give a true and fair view of the assets, the state of affairs of the Group and parent Company and of the Group’s liabilities, financial position and profit or loss of the Company and the profit or loss for that period. In preparing each of the Group and parent undertakings included in the consolidation taken as a whole; and Company financial statements, the directors are required to: • the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and • select suitable accounting policies and then apply them consistently; the undertakings included in the consolidation taken as a whole, • make judgements and estimates that are reasonable, relevant together with a description of the principal risks and uncertainties and reliable; that they face. • for the Group financial statements, state whether they have been prepared in accordance with UK-adopted international We consider the Annual Report and Accounts, taken as a whole, is fair, accounting standards; balanced and understandable and provides the information necessary • for the parent Company financial statements, state whether for shareholders to assess the Group’s position and performance, applicable UK accounting standards have been followed, subject business model and strategy. to any material departures disclosed and explained in the parent Company financial statements; • assess the Group and parent Company’s ability to continue as a Tim Jones going concern, disclosing, as applicable, matters related to going Chief Financial Officer concern; and 29 November 2023 • use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors’ report, Report on Directors’ remuneration and Corporate Governance Statement that comply with that law and those regulations. 70 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ## Corporate ## governance ## statement ## “This statement sets out our report to ## shareholders on the status of our corporate ## governance arrangements.” Bob Ivell Chairman This includes reviewing internal controls, Shareholder relations ### The Board is responsible for ensuring that there is an appropriate balance The Board recognises that it is accountable to ### ensuring that the activities of skills and experience represented on the shareholders for the performance and activities ### of the Group and its various Board, compliance with the applicable UK of the Company. The Company regularly Corporate Governance Code, which is issued updates the market on its financial performance, ### businesses are conducted by the Financial Reporting Council and which is at the half year and full year results in May and ### in compliance with the law, available at www.frc.org.uk, and maintaining November respectively, and by way of other ### regulatory requirements appropriate relations with shareholders and announcements as required. The content of other stakeholders. these updates is available by webcast on the ### and rules, good practices, Company’s website www.mbplc.com, together ethically and with appropriate The latest financial information for Mitchells & with general information about the Company Butlers and its Group of companies is included so as to be available to all shareholders. ### and proper governance in the 2023 Annual Report and Accounts (of The Company has a regular programme of ### and standards. which this Corporate Governance Statement dialogue with its larger shareholders which forms part) and which is available online at: provides an opportunity to discuss, on the basis www.mbplc.com/investors. of publicly available information, the progress of the business. On a more informal basis, the Chairman, the Chief Executive and the Chief Financial Officer regularly report to the Board the views of larger shareholders about the Company, and the other Non-Executive Directors are available to meet shareholders on request and are offered the opportunity to attend meetings with larger shareholders. Mitchells & Butlers plc Annual Report and Accounts 2023 71 Governance # Corporate governance statement continued The AGM provides a useful interface with shareholders, many of whom are also guests in our pubs, bars and restaurants. All proxy votes received in respect of each resolution at the AGM are counted and the balance for and against, and any votes withheld, are indicated. At the January 2023 Annual General Meeting, the Company had one resolution where 20% or more of votes cast were cast against the resolution which was in respect of approval of the annual report on remuneration, and resulted in the Company featuring in the Investment Association's public register of shareholder dissent. Our understanding was that there were three principal issues which led to the vote against, namely the decision to review the bonus targets and award a bonus for FY 2022; the alignment of executive director and all-employee pensions; and the RSP award for the CFO. The alignment of executive director and all-employee pensions will be completed on 1 January 2024 and in relation to the other issues raised, and as in previous years, the Company's response to its inclusion in that register can be found in the register itself and on the Company's website www.mbplc.com. That open letter in reply to the Investment Association sets out the Company's position, in that no further action or engagement with shareholders is currently planned in relation to these topics, and the latest position remains as set out in the published letter. 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. No 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 74. **Corporate governance arrangements during FY 2023** In FY 2023 the Board maintained its regular set of scheduled meetings. The details of the number of meetings of the Board and the Audit and Remuneration Committees in the period are set out on page 56. The Executive Committee, which is the principal operational decision-making forum of the Group, continued with its monthly cycle of meetings in FY 2023, 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. - 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. - menopause awareness training for employees and line managers. # Corporate governance code reporting For FY 2023, 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 79 and its Terms of Reference are on the Company's website www.mbplc.com. # Alignment to the 2018 Code As part of its alignment with the 2018 Code, the following operational and administrative framework is in place. # 1. Enhanced Board engagement with the workforce and wider stakeholders The 2018 Code recommends that the Board should consider wider stakeholder views, in particular implementing arrangements for gathering the views of the workforce. The 2018 Code permits a designated Non-Executive Director to fill this role and in 2019 the Board designated Dave Coplin for this role. The purpose of this appointment under the 2018 Code is to gather employee views, ensure employee views are taken into account in Board discussions and decision-making, and engage with the workforce to explain how executive remuneration aligns with the Company's remuneration policy. This commenced in FY 2019 with Dave Coplin being introduced to those executive managers who could help ensure that meetings and site visits were effective. Progress has continued to date, and is back on track post the disruption caused in prior years by the various Covid-related lockdowns. 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 2023 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 88. 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. 72 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ## 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 Mitchell & 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 49 and 50. 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 Mitchell & 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 Mitchell & 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 14 to 54. ### 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 26 to 29. 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). Mitchell & Butlers plc Annual Report and Accounts 2023 73 Governance # Corporate governance statement continued ## 3. Board composition and diversity ### a. Board composition The Board is currently comprised of nine members whose biographies are outlined on pages 60 and 61. These are the Chairman, Chief Executive and Chief Financial Officer, three independent Non-Executive Directors and three Non-Executive Directors. Two independent Non-Executive Directors, representing 22% of the Board's Directors, are female, one of whom (Jane Moriarty) is also the Senior Independent Director. The Chairman, Bob Ivell, has served on the Board since May 2011. None of the Directors are from a minority ethnic background (as defined in the Listing Rules). The shareholder representative Non-Executive Directors are nominated by Piedmont and Elpida, who, together with Smoothfield, are subsidiaries of Odyzean, the Company's largest shareholder, which holds approximately 57% of the Company's issued share capital. Further information relating to the Odyzean Group and the specific nomination rights held by Piedmont and Elpida is set out on page 63. The Board acknowledges that the Chairman's period of tenure on the Board does not meet the best practice recommendations of the UK Corporate Governance Code and the level of Board diversity does not meet the targets set out in the Listing Rules and, whilst this overall composition of the Board remains a matter for continuous review, it should be noted that in the prospectus published by the Company on 22 February 2021 in connection with the Open Offer, the Company confirmed that the Odyzean Group had indicated that it: (a) would disregard specific corporate governance requirements around tenure; (b) intended to review the composition of the Board, which may result in less focus on compliance with UK Corporate Governance Code recommendations in the future; and (c) the time and cost devoted by the senior management team to public company matters should be reduced. The Company has received no indication of a change in approach on these issues from the Odyzean Group. The composition of the Board is set out in the following tables as required by LR 9.8.6R(10). The underlying information was collected directly from the relevant individuals. ### Gender identity and sex | Number of Board members | Percentage of the Board | Number of senior positions on the Board (CEO, CFO, SID and Chair) | Number in executive management | Percentage of executive management | | --- | --- | --- | --- | --- | | Men | 78 | 3 | 7 | 70 | | Women | 22 | 1 | 3 | 30 | ### Ethnic background | Number of Board members | Percentage of the Board | Number of senior positions on the Board (CEO, CFO, SID and Chair) | Number in executive management | Percentage of executive management | | --- | --- | --- | --- | --- | | White British or other White (including minority-white groups) | 100 | 4 | 10 | 100 | | Mixed/Multiple Ethnic Groups | – | – | – | – | | Asian/Asian British | – | – | – | – | | Black/African/Caribbean/Black British | – | – | – | – | | Other ethnic group, including Arab | – | – | – | – | | Not specified/prefer not to say | – | – | – | – | ### b. Board diversity Principle J of the 2018 Code states that boards are encouraged to 'promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths' through their appointments and succession planning. The purpose is to ensure that there is a balance of views from different genders and other experiences and skill sets around the board table so that decision-making can be made with good oversight of all relevant factors. Dave Coplin has been identified by the Board as the Director responsible for oversight of the Company's diversity and inclusion arrangements. The Company has had a Board Diversity Policy in place for some time, but during FY 2019 it was also agreed that talent pipeline presentations to the Board should include the extent to which diversity aspects have been taken into account in development plans/recruitment, and that ethnicity and disability reporting should be addressed, to the extent that the Company has reliable data. Talent pipeline presentations were put on hold during Covid-19 restrictions, but resumed in FY 2021 and continued in FY 2022 and FY 2023. Gender Pay Gap data is already overseen by the Remuneration Committee and details are set out on page 113 of the Report on Directors' remuneration. 74 \_\_\_\_\_ Annual Report and Accounts 2023 Mitchells & Batters plc Introduction Strategic Report Governance Financial Statements Other Information #### 4. Proportionate executive remuneration This is dealt with on pages 113 and 114 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 30 September 2023 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 a Board Committee, a Board effectiveness review and executive pension contributions. 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 84 to 87 and page 79 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 2023. 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 period 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 74. During the year, there were five separate areas of divergence from full compliance with the 2018 Code, as set out below by reference to specific paragraphs in the 2018 Code. #### 1. Chairman's tenure (Provision 19) Provision 19 of the 2018 Code states: "The chair should not remain in post beyond nine years from the date of their first appointment to the board. To facilitate effective succession planning and the development of a diverse board, this period can be extended for a limited time, particularly in those cases where the chair was an existing non-executive director on appointment. A clear explanation should be provided." Bob Ivell was appointed to the Board in May 2011 and, as such, his appointment extended beyond the normal nine year tenure, which expired in May 2020. The Board had already reviewed this in advance in 2019 and concluded that it was appropriate that he should remain in place as Chairman. Mr Ivell's extensive industry experience and his involvement with such influential bodies as UK Hospitality, have been of great assistance to the Company in addressing the ongoing challenges of energy prices, inflationary cost pressures, the demanding trading environment and dampened consumer confidence. The requirement for a stable and experienced Board in such circumstances, and it being an inappropriate time for the Board to be considering changes in the existing arrangements, meant that no further consideration was given in FY 2023 to Provision 19 of the 2018 Code, in relation to Bob Ivell's Chair tenure. This will remain the case while the Company continues to deal with the rebuilding of its business. #### 2. Composition of the Board (Provision 11) Throughout the year, Provision 11 of the 2018 Code, which requires that at least half the board, excluding the chair, should be non-executive directors whom the board considers to be independent, was not complied with. Accordingly, this had consequential implications on the composition of the Remuneration Committee. The Board does not comply fully with the requirement for at least half of its members to be independent, due to the presence of three shareholder representatives on the Board, representing members of the Odyzean Group. These shareholders maintain a dialogue via their representatives on the Board, all of whom are careful to ensure that there is no conflict between that role and their duty to the Board and other shareholders. The members of the Odyzean Group made extremely significant investments in the Company and currently hold approximately 57% of the Company's issued share capital. The Board considers their investment objectives to be fully aligned with those of the Group and of other shareholders. The Board maintains excellent relations with its major shareholders and considers their commitment to be a significant factor in the ongoing stability of the Board, particularly as a result of their strong support of the Board's long-term strategy, including the recent Ignite initiatives. Their continued investment and presence on the Board adds value as the Group works towards common goals, and in pursuit of the Company's published strategy. In particular, the members of the Odyzean Group have been very supportive of the Board's actions when the Company had to deal with the forced closure of the business during the Covid-19 pandemic, followed by the need for an Open Offer in FY 2021, which they subscribed for in full. Their respective representatives continued to offer valuable advice and experience while the Board considered options in the face of such unprecedented circumstances. Mitchells & Butlers plc Annual Report and Accounts 2023 75 Governance # Corporate governance statement continued 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 2023, the Company had (and continues to have) fully functioning Nomination, Audit and Remuneration Committees as required by the 2018 Code. #### 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. As set out on page 63, under the terms of the Deed of Appointment between the Company and Piedmont, 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) As reported on page 59, the Chairman has kept the skills, contributions and experience of the Board members under close review throughout FY 2023. 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 2023, either internally or externally facilitated. The Board will consider if it is appropriate to carry out such an evaluation, whether internal or using an external facilitator, in FY 2024. The information required by Disclosure Guidance and Transparency Rule ('DTR') 7.1 is set out in the Audit Committee report on pages 84 to 87. 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 62 to 69. ### 5. Executive pension contributions (Code provision 38) The Company is not yet fully compliant with Provision 38 of the 2018 Code which sets out that pension contribution rates for executive directors should be aligned with those available to the wider workforce. As detailed on page 90, the Company has put in place a phased strategy to address this non-compliance, pursuant to which any increase in the base pay of Executive Directors will be entirely offset by an equivalent reduction in their cash equivalent pension contributions until such pension contributions are aligned with the wider workforce. Full compliance with Provision 38 is therefore expected to be achieved during FY 2024, at which time the pension allowance paid to all Executive Directors is expected to have reduced to 4%, in line with the wider workforce. This is consistent with the approach the Company has previously communicated in its remuneration policy, which was approved by shareholders in 2021. ### Board composition The Board started the year with nine Directors and the table on page 77 lists the composition of the Board during the year. There were no changes to the Board during FY 2023. No further significant changes to the leadership and oversight of the Group by its Board and its Committees are currently being considered. ### 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 2023 there were eight Board meetings. There were also four meetings of the Audit Committee, six meetings of the Remuneration Committee and one meeting of the Nomination Committee. The table in the Governance at a Glance section on page 56 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 2023, 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 2024. 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. 76 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Directors The following were Directors of the Company during the year ended 30 September 2023: 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 – Amanda Brown Independent Non-Executive Director 04/07/22 – b Keith Browne Non-Executive Director 22/09/16 – 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 – Phil Urban Chief Executive 27/09/15 – a. Independent while in the role specified. b. Nominated shareholder representative of Elpida. c. Nominated shareholder representative of Piedmont. At the start of the year, the Board was made up of seven male and Division of responsibilities between Chairman and two female Directors and there were no changes during the year, Chief Executive meaning that at the year end, the Board consisted of seven male and In accordance with Provision 9 of the 2018 Code, the roles of Chairman two female Directors. and Chief Executive should not be exercised by the same individual. The Executive Directors have service contracts. The Chairman and each The division of responsibilities between the Chairman and the Chief of the Non-Executive Directors have letters of appointment. Copies of Executive is clearly established as required by Principle G of the 2018 the respective service contracts or letters of appointment of all the Code and these are set out in writing and have been agreed by the members of the Board are available on the Company’s website. In Board. In particular, it has been agreed in writing that the Chairman addition, they are available for inspection at the registered office of the shall be responsible for running the Board and shall provide advice Company during normal business hours and at the place of the Annual and assistance to the Chief Executive. He also chairs the Nomination General Meeting from at least 15 minutes before, and until the end of, Committee, is a member of the Remuneration Committee and attends, the meeting. by invitation, meetings of the Audit Committee. He also chairs the Market Disclosure Committee, Corporate Responsibility Committee, At the Company’s forthcoming Annual General Meeting in 2024, all the the Property Committee and the Pensions Committee. Directors will be required to stand for annual re-election, in accordance with the Company’s Articles of Association. Their biographical details It is also agreed in writing that the Chief Executive has responsibility for as at 29 November 2023 are set out on pages 60 and 61, including their all aspects of the Group’s overall commercial, operational and strategic main commitments outside the Company. In addition, Provision 18 of the development. He chairs the Executive Committee (details of which 2018 Code requires that the papers accompanying the resolutions to appear on page 80) and attends the Nomination, Remuneration and elect or re-elect directors, set out the specific reasons why the individual Audit Committees by invitation, not necessarily for the entirety of such director’s contribution is, and continues to be, important to the meetings depending upon the subject matter. He is also a member of Company’s long-term sustainable success and this information is the Market Disclosure Committee, the Property Committee and the included in the Notice of Meeting. Pensions Committee. Provision 15 of the 2018 Code states that full-time executive directors The segregation of responsibilities between the Chairman and the Chief should not take on more than one non-executive directorship in a FTSE Executive is set out in the Company’s Corporate Governance Compliance 100 company or other significant appointments. The Mitchells & Butlers Statement, which is available on our website, www.mbplc.com. policy is that Executive Directors may be permitted to accept one external Non-Executive Director appointment with the Board’s prior approval All other Executive Directors (currently just the Chief Financial Officer) and as long as this is not likely to lead to conflicts of interest. During and all other members of the Executive Committee report to the FY 2023, neither of the Executive Directors held any such external Chief Executive. 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. Mitchells & Butlers plc Annual Report and Accounts 2023 77 Governance # Corporate governance statement continued # **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 75. With effect from 1 January 2024, the Chairman's fee will remain unchanged. # **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** Jane Moriarty was appointed Senior Independent Director on 25 January 2022. 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 2023, 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, 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, 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 115, the Non-Executive Directors received no remuneration from the Company during the year. There will be no increase in the fees of the Non-Executive Directors in January 2024. This applies to the base fee, the fee paid to Non-Executive Directors for chairing a Committee, the role of Senior Independent Director, and the fee paid to Dave Coplin for his role as the Board representative for 'employee voice'. 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. # **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 84 to 87 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 88 to 118. Amanda Brown was appointed Chair of the Remuneration Committee on her appointment to the Board on 4 July 2022. 78 \_\_\_\_\_ Annual Report and Accounts 2023 Mitchells & Batters plc Introduction Strategic Report Governance Financial Statements Other Information ## 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 30/09/23 | | --- | --- | --- | | Bob Ivell (Chair) | 11/07/13 | Yes | | Amanda Brown | 04/07/22 | Yes | | Dave Coplin | 29/02/16 | Yes | | Eddie Irwin | 11/07/13 | Yes | | Jane Moriarty | 27/02/19 | Yes | 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 44% female and 56% 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 80. 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. There was one meeting of the Nomination Committee in FY 2023, and when appointments are made, its members are consulted about and support 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 74, 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 and end of FY 2023 there were nine Board directors, of which two were female (22%). 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 74. The Company has a Diversity and Equality Policy (last updated in April 2022), which applies in relation to employees of the Mitchells & Butlers Group, and which can be found in the Value Creation story on page 27. The aim of the policy is to promote equal opportunities in employment regardless of age, disability, gender reassignment, marital or civil partner status, pregnancy or maternity, race (including colour, nationality, ethnic or national origin), religion or belief, sex, or sexual orientation. 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/ ## Market Disclosure Committee The EU Market Abuse Regulation ('MAR') which took effect in July 2016, brought about substantial changes relating to announcements of material information about the Company and its affairs, and relating to dealings in shares or other securities by Directors and other senior managers, including tighter controls on permitted 'dealings' during closed periods and the handling of information relating to the Company. MAR requires companies to keep a list of people affected and the previous compliance regime and timeframe were enhanced. As a result, a formal standing Committee of the Board was established, the Market Disclosure Committee, which comprises the Chairman, the Chief Executive, the Chief Financial Officer and an independent Non-Executive Director. ## Corporate Responsibility Committee A Corporate Responsibility Committee was established in June 2019 and its purpose is to allow more executive, leadership and functional management involvement in matters of corporate responsibility and sustainability. Its Terms of Reference are on the Company's website www.mbplc.com. The Corporate Responsibility Committee comprises Bob Ivell (Chair), Eddie Irwin, Jane Moriarty, Dave Coplin and Amanda Brown. The Chief Executive, Phil Urban, is invited to attend regularly. A multi-disciplinary operational and functional steering committee has been identified and tasked with carrying out first level oversight of the work plan and roadmap approved by the Committee in FY 2021. Mitchells & Butlers plc Annual Report and Accounts 2023 79 Governance Corporate governance statement continued Property Committee Portfolio Development Committee The Property Committee reviews property transactions which have The executive review of property transactions and capital allocation to been reviewed and recommended by the Portfolio Development significant property matters such as site remodel and conversion plans Committee, without the need for submission of transactions to the full and the Company’s real estate strategy is carried out by the Portfolio Board. The Property Committee agrees to the overall strategic direction Development Committee. This is not a formal Board Committee but for the management of the Group’s property portfolio on a regular basis comprises the Chief Executive, the Chief Financial Officer, the Group and may decide that a particular transaction should be referred to the Property Director, and the Group General Counsel and Company Board for consideration or approval. The Property Committee comprises Secretary. It has delegated authority to approve certain transactions Bob Ivell (Committee Chair), Phil Urban, Tim Jones, Josh Levy, Keith up to agreed financial limits and, above those authority levels, it makes Browne, Jane Moriarty, Amanda Brown and Gary John. recommendations to the Board or the Property Committee. Pensions Committee Treasury Committee The Board has established a Pensions Committee to supervise and The treasury operations of the Mitchells & Butlers Group are operated manage the Company’s relationship with its various pension schemes on a centralised basis under the control of the Group Treasury department. and their trustees. Although not a formal Board Committee, the Treasury Committee, which reports to the Chief Financial Officer but is subject to oversight The Pensions Committee members are Bob Ivell (Committee Chair), from the Audit Committee and, ultimately, the Board, has day-to-day Tim Jones, Phil Urban, Keith Browne and Josh Levy. responsibility for: Throughout FY 2023 the work of the Pensions Committee focused • liquidity management; primarily on the monitoring of the performance of the Group’s pensions • investment of surplus cash; arrangements including the Mitchells & Butlers Pension Plan moving to • funding, cash and banking arrangements; a full buy-in transaction during the year. Pension deficit contributions in • interest rate and currency risk management; respect of this plan ceased at the end of FY 2023. This transaction follows • guarantees, bonds, indemnities and any financial encumbrances on from the completion of the buy-in of the Executive Plan announced including charges on assets; and last year and eliminates substantially all remaining pensions risk in • relationships with banks and other market counterparties such the Group. as credit rating agencies. Executive Committee The Treasury Committee also works closely with the Finance Department The Executive Committee, which is chaired by the Chief Executive, to review the impact of changes in relevant accounting practices and to consists of the Executive Directors and certain other senior executives, ensure that treasury activities are disclosed appropriately in the namely Gary John (Group Property Director), Susan Martindale (Group Company’s accounts. HR Director), Andrew Freeman (Group General Counsel and Company Secretary), Chris Hopkins (Commercial and Marketing Director) and The Board delegates the monitoring of treasury activity and compliance Susan Chappell, David Gallacher, Dennis Deare and Anna-Marie Mason to the Treasury Committee. It is responsible for monitoring the (the Divisional Directors). Dennis Deare, Divisional Director for effectiveness of treasury policies and making proposals for any changes Premium, has made the decision to retire at the end of December 2023 to policies or in respect of the utilisation of new instruments. The and Anna-Marie Mason will take on the Divisional Director role for approval of the Board, or a designated committee thereof, is required Premium Division as of 1 January 2024. A process to appoint Anna- for any such proposals. Marie’s successor to her current role in Pubs Division is underway. Code of ethics The Executive Committee ordinarily meets at least every four weeks and The Company has implemented business conduct guidelines describing has day-to-day responsibility for the running of the Group’s business. the standards of behaviour expected from those working for the Company in the form of a code of ethics (the ‘Ethics Code’). The Ethics It develops the Group’s strategy and annual revenue and capital budgets Code was re-communicated to all employees in FY 2023 to ensure it was for Board approval. It reviews and recommends to the Board any kept clearly in focus. Its aim is to promote honest and ethical conduct significant investment proposals. This Committee monitors the financial throughout our business. The Ethics Code requires: and operational performance of the Group and allocates resources within the budgets agreed by the Board. It considers employment issues, • compliance with all applicable rules and regulations that apply to the ensures the Group has an appropriate pool of talent and develops senior Company and its officers including compliance with the requirements management workforce planning and succession plans. of the Bribery Act 2010; • the ethical handling of actual or apparent conflicts of interest A note of the actions agreed by, and the principal decisions of, the between internal and external, personal and professional Executive Committee, is supplied to the Board for information in order relationships; and that Board members can keep abreast of operational developments. • that any hospitality from suppliers must be approved in advance by appropriate senior management, with a presumption against General Purposes Committee its acceptance. The General Purposes Committee comprises any two Executive Directors or any one Executive Director together with a senior officer from an agreed and restricted list of senior executives. It is always chaired by an Executive Director. It attends to business of a routine nature and to administrative matters, the principles of which have been agreed previously by the Board or an appropriate Committee. 80 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction The Company takes a zero tolerance approach to bribery and has The Board takes regular account of social, environmental and ethical developed an extensive Bribery Policy which is included in the Ethics matters concerning the Company through regular reports to the Board Code. The Ethics Code requires employees to comply with the and presentations to the Board at its strategy meetings. Bribery Policy. Directors’ training includes environmental, social and governance The Company also offers an independently-administered, confidential (‘ESG’) matters and the Company Secretary is responsible for ensuring whistleblowing hotline for any employee wishing to report any concern that Directors are made aware of and receive regular training in respect that they feel would be inappropriate to raise with their line manager. of these important areas. The Chief Executive, Phil Urban, is ultimately All whistleblowing allegations are reported to, and considered by, the responsible for ESG matters, which includes climate change reporting, Executive Committee and a summary report (with details of any major which is dealt with in the next section. concerns) is supplied to, and considered by, the Audit Committee at each of its meetings. Climate change reporting 1. Reporting Principle E and Provision 6 of the 2018 Code require the Board to be Current mandatory reporting and disclosure requirements clear how its approach to whistleblowing has changed from an Audit The Task Force on Climate-related Financial Disclosures (‘TCFD’) was Committee-led approach to a Board-led approach. Although the Audit established by the Financial Stability Board in 2015 and published its final Committee continues to receive regular reports on whistleblowing report in June 2017. The report sets out 11 recommended disclosures activity, each set of full Board papers also includes, as part of the report under four pillars to promote better disclosure and these are set out below: from the Group Risk Director, the number and assessment of any whistleblowing reports received and, where relevant, the actions taken in respect of reports which are, on investigation, found to be credible. 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 related risks and opportunities organisation’s businesses, climate-related risks. relevant CRO where such (‘CRO’). strategy, and financial planning information is material. where such information is material. Recommended Disclosures (a) Describe the Board’s (a) Describe the CRO the a) Describe the organisation’s (a) Disclose the metrics used by oversight of CRO. organisation has identified over processes for identifying and the organisation to assess CRO in the short, medium and long term. assessing climate-related risks. line with its strategy and risk management process. | (b) Describe management’s role | (b) Describe the impact of CRO | (b) Describe the organisation’s | (b) Disclose Scope 1, Scope 2 | | --- | --- | --- | --- | | in assessing and managing CRO. | on the organisation’s businesses, | processes for managing | and, if appropriate, Scope 3 | | | strategy and financial planning. | climate-related risks. | greenhouse gas (‘GHG’) | emissions and the related risks. | (c) Describe the resilience of the | (c) Describe how processes for | (c) Describe the targets used by | | --- | --- | --- | | organisation’s strategy, taking | identifying, assessing and | the organisation to manage CRO | | into consideration different | managing climate-related risks | and performance against targets. | | climate-related scenarios, | are integrated into the | | | including a 2°C or lower scenario. | organisation’s overall risk | | management. For FY 2023, 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 36 to 40 of the Strategic Report. Mitchells & Butlers plc Annual Report and Accounts 2023 81 Governance Corporate governance statement continued Listing Rule Risk and scenario analysis Climate-related disclosure Listing Rule 9.8.6R(8) is a continuing During FY 2022, the Company developed a rigorous climate change obligation for premium listed companies in annual reports for periods scenario impact analysis. In FY 2023 we reassessed all of the climate commencing on or after 1 January 2021 and thereafter, and requires related risks identified in the FY 2022 process, as well as an analysis of companies to disclose: any emerging risks. The established risk assessment framework was used to assess the materiality of climate risks. There were no changes to • whether they have made disclosures consistent with the four the identified principal climate risks as a result of this process. The Audit recommendations and 11 recommended disclosures set out in Committee is tasked with ensuring it is satisfied that the scenarios are section C of the TCFD Final Report in their annual financial report; sufficiently challenging, diverse and relevant, and also ensuring through • where these disclosures can be found in the annual report; and this process and the Risk Committee that its risk monitoring activity • a ‘comply or explain’ obligation to explain: appropriately addresses climate change risks for the Company. – if they have not included disclosures consistent with all of the Further details are set out on pages 36 to 40 of the Strategic Report. TCFD’s recommendations and/or recommended disclosures, which disclosures they have not included and the reasons for not Information, reporting and assurance including them; and/or The Board considers it good practice to assess whether climate-related – why they have included some or all of the disclosures in management information is robust and fit for purpose. Pages 36 to 40 of a document other than their annual report. the Strategic Report set out the extent to which the Group relies on external data, and the emissions table on page 69 of the Directors’ report Where not all required TCFD disclosures have been provided, in addition relies on external expertise, which is reviewed internally, and that is to explaining why, the annual report also needs to explain: considered by the Board to be reliable and credible. • the timeframe for compliance; and The Risk Committee considers the findings of reporting reviews such • the steps the company is taking or plans to take to achieve compliance. as the FRC’s climate change thematic review and FY 2023 has involved changes to annual report processes and reporting. An internal audit was Institutional investor requirements carried out in 2022 in respect of those Company metrics which are Institutional investors expect all listed companies to be reporting against subject to internal review and oversight. There is currently no external all four TCFD pillars and want those disclosures to be meaningful and will assurance to which the Company’s metrics are subjected, but this aspect be instructing their clients accordingly in relation to voting. They also is being actively considered by the Risk Committee. expect companies to include a statement in their annual report that the directors have considered material climate-related matters when The Board is responsible for the Company’s internal risk management preparing and signing-off the company’s accounts. system, in respect of which more details can be found in the ‘Risks and uncertainties’ section of this report, and in the following section 2. Actions being taken by the Company of this statement. Executive ownership The Board tasked Phil Urban with spearheading the Company’s Internal control and risk management approach to tackling climate change reporting across the organisation The Board has carried out a robust assessment of the Company’s since he also chairs the Executive Committee so can ensure focus at emerging and principal risks. The Board has completed its assessment, Executive Committee level. and has presented a description of its principal risks, what procedures are in place to identify emerging risks, and an explanation of how these Strategy are being managed or mitigated, on pages 41 to 47. The Board is mindful of the business impacts relevant to the sector, and due consideration of such is included when considering changes The Board has overall responsibility for the Group’s system of internal made across the business in relation to climate change obligations. control and risk management and for reviewing its effectiveness. In order Going forward, this important issue will continue to form part of the to discharge that responsibility, the Board has established the procedures considerations taken into account by the Board when it is evaluating necessary to apply the 2018 Code for the period under review and to the strategic decision and investment priorities. Capital expenditure date of approval of the Annual Report. Such procedures are in line with proposals submitted to the Board include appropriate details on the Financial Reporting Council’s ‘Guidance on Risk Management, such aspects. Internal Control and Related Financial and Business Reporting’ and are regularly reviewed by the Audit Committee. Governance Climate change issues are discussed at Board level and the Board has The key features of the Group’s internal control and risk management specifically requested the Corporate Responsibility Committee to focus systems include: on ESG/sustainability matters. The Company’s required climate response/transformation is a feature of agendas, with priority being • Processes, including monitoring by the Board, in respect of: given to ensuring enough time is dedicated to the discussion. The Corporate Responsibility Committee approved, and recommended to i. financial performance within a comprehensive financial planning, the Board, the Group’s sustainability roadmap through which it identified accounting and reporting framework; and agreed how to manage climate-related issues. These initiatives were ii. strategic plan achievement; first addressed in FY 2022 when TCFD compliance became compulsory iii. capital investment and asset management performance, with for the Company and is ongoing. detailed appraisal, authorisation and post-investment reviews; and iv. consumer insight data and actions to assess the evolution of brands and formats to ensure that they continue to be appealing and relevant to the Group’s guests. 82 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction • An overall governance framework including: In accordance with the 2018 Code, during the year the Audit Committee completed (and reported to the Board its conclusions in i. clearly defined delegations of authority and reporting lines; respect of) its annual review of the effectiveness of the Group’s risk ii. a comprehensive set of policies and procedures that employees are management and internal control systems, including financial, required to follow; and operational and compliance controls. iii. the Group’s Ethics Code, in respect of which an annual confirmation of compliance is sought from all corporate employees. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and, as such, • The Risk Committee, a sub-committee of the Executive Committee, it can only provide reasonable and not absolute assurance against which assists the Board, the Audit Committee and the Executive material misstatement or loss. In that context, in the opinion of the Audit Committee in managing the processes for identifying, evaluating, Committee, the review did not indicate that the system was ineffective or monitoring and mitigating risks. The Risk Committee, which unsatisfactory. To the extent that weaknesses in internal controls were continues to meet regularly, is chaired by the Group General Counsel identified, the Audit Committee reviewed the audit findings, together and Company Secretary and comprises Executive Committee with the remedial action plans that were put in place, and sought members and other members of senior management from a confirmation that all actions were closed out in a timely manner. cross-section of functions. Through this process, material audit findings were presented to the Audit Committee, the necessary follow-up reviews were completed and the The primary responsibilities of the Risk Committee are to: results were reported to the Audit Committee, to ensure appropriate mitigation plans had been actioned. Please refer to the Audit Committee i. advise the Executive Committee on the Company’s overall risk report, on pages 84 to 87. appetite and risk strategy, taking account of the current and prospective operating, legal, macroeconomic and financial The Audit Committee is not aware of any change to this status up to the environments; date of approval of this Annual Report. ii. advise the Executive Committee on the current and emerging risk exposures of the Company in the context of the Board’s overall risk With regard to insurance against risk, it is not practicable to insure appetite and risk strategy; against every risk to the fullest extent. The Group regularly reviews both iii. promote the management of risk throughout the organisation; the type and amount of external insurance that it buys with guidance iv. review and monitor the Company’s capability and processes to from an external independent broker, bearing in mind the availability of identify and manage risks; such cover, its cost and the likelihood and magnitude of the risks involved v. consider the identified key risks faced by the Company and new and and the mitigation which insurance might provide. emerging risks and consider the adequacy of mitigation plans in respect of such risks; and vi. where mitigation plans are regarded to be inadequate, recommend improvement actions. The Group’s risks identified by the processes that are managed by the Risk Committee, are described in the ‘Risks and uncertainties’ section on pages 41 to 47. More details of the work of the Risk Committee are included in the Audit Committee report on pages 84 to 87. • 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 70. Mitchells & Butlers plc Annual Report and Accounts 2023 83 Governance ## Audit Committee ## report ## “On behalf of the Board, I present the report of ## the Audit Committee for the financial period ended ## 30 September 2023.” Jane Moriarty Chair of the Audit Committee | Introduction | Engagement with external auditors, | Effectiveness of internal controls and | | --- | --- | --- | | During recent years, as the purpose and | internal auditors and other third- | Group assurance and risk function | | effectiveness of external and internal audit | party advisers | The above efforts provided the Committee | | procedures came under increasing public | The Committee continued to engage formally, | with a clear and detailed understanding of the | | scrutiny, the Committee has ensured it has | regularly and at an appropriate level of detail | principal financial and operational risks | | maintained an appropriate level of engagement | with our external auditors, internal auditors | throughout the period (please also refer to the | | with the Chief Financial Officer and the Group | (also externally resourced) and other third- | Group’s risks and uncertainties, detailed on | | Risk Director, other key individuals and their | party advisers as necessary. This has enabled | pages 41 to 47). The Committee continued to | | teams who collectively provide an appreciation | the Committee to maintain an appropriate | focus on challenging the effectiveness of internal | | and rigorous insight into how the Group | understanding of how our auditors and | controls, the robustness of assurance and risk | | functions and reports. The Committee is very | advisers interact and test our comprehensive | management processes and in assessing the | | grateful for the insight these interactions | risk functions. The Committee’s engagement | importance of, and acting as required upon, all | | provide and this, in turn, significantly assists | during the auditing and advisory process | reported information received from our external | | the Committee in executing its oversight role | enables it to convey confidence in their | and internal auditors and third-party advisers. | | and ensuring confidence in reporting to the | collective fieldwork conclusions. | | | wider Board. | | The Committee remains committed to | | | The Committee also ensured that the Group | maintaining an open and constructive dialogue | | | provided adequate resources to ensure that | on relevant audit matters with all shareholders. | | | any additional non-audit services required | Therefore, should you have any comments | | | during the year were obtained, where | or questions on any aspects of this report, | | | necessary, and the Financial Reporting | or indeed the wider financial statements, may | | | Council’s (‘FRC’) evolving reporting | I respectfully ask you to please email myself, | | | requirements were adhered to. | care of Adrian Brannan, Group Risk Director, | at company.secretariat@mbplc.com 84 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Remit and membership of the Audit Committee The Audit Committee is authorised by the Board to review any activity The main purpose of the Audit Committee is to review and maintain within the business. It is authorised to seek any information it requires oversight of the Group’s corporate governance, particularly with respect from, and require the attendance at any of its meetings of, any Director, to financial reporting, internal control and risk management. The Audit any member of management and any employees, who are expected to Committee’s responsibilities also include: co-operate with any request made by the Audit Committee. • reviewing the processes for detecting fraud, misconduct and internal The Audit Committee is authorised by the Board to obtain, at the Group’s control weaknesses; expense, external legal or other independent professional advice and • reviewing the effectiveness of the Group Assurance function; and secure the attendance of outsiders with relevant experience and • overseeing the relationship with the external and internal auditors expertise, if it considers this necessary. and other third-party advisers. The Chair of the Audit Committee reports to the Board meeting At the date of the 2023 Annual Report, the Audit Committee comprised following each Committee meeting on the Committee’s work and the three independent Non-Executive Directors: Jane Moriarty (Chair), Board receives a copy of the minutes of each meeting. Amanda Brown and Dave Coplin. In accordance with 2018 Code Provision 24 the Board considers that Jane Moriarty has significant, The role and responsibilities of the Audit Committee are to: recent and relevant financial experience. Biographies of all of the members of the Audit Committee, including a summary of their • review the Group’s public statements on internal control, risk respective experience, appear on pages 60 and 61. management and corporate governance compliance; • review the Group’s processes for detecting fraud, misconduct and The Audit Committee met at least quarterly during FY 2023. In each control weaknesses and to consider the Group’s response to any case, appropriate papers were distributed to the Committee members such occurrence; and other invited attendees, including, where and to the extent appropriate, • review management’s evaluation of any change in internal controls representatives of the external audit firm, the internal Group Assurance over financial reporting; function and other third-party advisers. • review with management, and the external auditor, Group financial statements required under UK legislation before submission to When appropriate, the Audit Committee augments the skills and the Board; experience of its members with advice from internal and external audit • establish, review and maintain the role and effectiveness of the professionals, for example, on matters such as developments in financial internal audit function, Group Assurance and the risk function, whose reporting. Audit Committee meetings are also attended, by invitation, by objective is to provide independent assurance over the Group’s other members of the Board including the Chairman, the Chief Executive significant processes and controls, including those in respect of the and the Chief Financial Officer, the Group General Counsel and Group’s principal risks; Company Secretary, the Group Risk Director and representatives of • assume direct responsibility for the appointment, compensation, the external auditor, KPMG LLP. The Audit Committee also has the resignation, dismissal and the overseeing of the external auditor, opportunity to meet privately with the external auditor not less than including review of the external audit, its cost and effectiveness; twice a year, without any member of management present, in relation • pre-approve non-audit work to be carried out by the external auditor to audit matters. and the fees to be paid for that work, together with the monitoring of the external auditor’s independence; The remuneration of the members of the Audit Committee is set out in • oversee the process for dealing with complaints received by the the Report on Directors’ remuneration on page 115. Group regarding accounting, internal accounting controls or auditing matters and any confidential, anonymous submission by employees of Summary terms of reference concerns regarding questionable accounting or auditing matters; and A copy of the Audit Committee’s terms of reference is publicly available • adopt and oversee a specific Code of Ethics for all employees which is within the Investor section of the Group’s website: www.mbplc.com/ consistent with the Group’s overall statement of business ethics. pdf/audit_committee_terms.pdf The Audit Committee’s terms of reference were approved by the Committee and adopted by the Board in 2013. Those terms of reference specifically provide that they will be reviewed annually. They have been reviewed and updated as appropriate each year since and no changes were felt to be needed when they were reviewed in September 2023. Accordingly, in FY 2023 no material changes were made to the terms of reference of the Audit Committee, but the work of the Audit Committee will be kept under review with the expectation that any such matters which come to light are included in the next annual review. Mitchells & Butlers plc Annual Report and Accounts 2023 85 Governance # Audit Committee report continued # Key activities of the Audit Committee Audit matters are reviewed at quarterly Audit Committee meetings throughout the year at which detailed reports are presented for review. The Audit Committee commissions reports from external advisers, the Group Risk Director or Group management, either after consideration of the Group's key risks or in response to developing issues. During the year, in order to fulfil the roles and responsibilities of the Audit Committee, the following matters were considered: - the suitability of the Group's accounting policies and practices; - half year and full year financial results; - the scope and cost of the external audit; - the external auditor's full year report; - the reappointment of the external auditor, KPMG LLP; - any non-audit work carried out by the auditor and trends in the non-audit fees in accordance with the Committee's policy to ensure the safeguarding of audit independence; - the co-ordination of the activities and the work programmes of the internal and external audit functions; - the arrangements in respect of Group Assurance including its resourcing, external support, the scope of the annual internal audit plan for FY 2023, the level of achievement of that plan and the scope of the annual internal audit plan for FY 2024; - periodic internal control and assurance reports from Group Assurance; - the Group's risk management framework for the identification and control of key risks, its risk and assurance mitigation plan and the annual assessment of effectiveness of controls; - review of the Corporate Viability Disclosure on pages 48 and 49; - compliance with the Group's Code of Ethics; - corporate governance developments; - the status of material litigation involving the Group; and - reports on allegations made via the Group's whistleblowing procedures and the effectiveness of these procedures, including a summary of reports received during FY 2023. # 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 consolidated financial statements on pages 133 to 185. 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. The Corporate Viability Disclosure is on pages 48 and 49. - **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. - **Impairment of short leasehold properties and right-of-use assets** – Short leasehold properties, right-of-use assets and unlicensed land and buildings are held at cost less depreciation and impairment. Impairment includes management judgement to determine site level profit and cash flow forecasts, and the appropriate allocation of overhead costs to those cash flows. In addition, the value in use calculation includes estimations of the discount rate and long-term growth rate. - **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 136. 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 2023 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 2024 internal audit plan. The principal objectives of the internal audit plan for FY 2023 were, and remain for FY 2024: - 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. 86 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ## Risk management framework As disclosed in the 'Risk and uncertainties' section on pages 41 to 47 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 2023, 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. The Board also receives a report on whistleblowing in the Group General Counsel and Company Secretary's regular report to Board meetings. ## External auditor appointment Following shareholder and Board approval, KPMG LLP was appointed as the auditor in 2022, following a formal tender process in 2020 to ensure the continued objectivity, independence and value for money of the statutory audit. KPMG LLP is therefore responsible for undertaking the FY 2023 audit. The Audit Committee has considered the guidance in relation to rotation including the proposed transition rules which will be considered when recommending the appointment of the auditor in future years. The Group has complied throughout FY 2023 with the provisions of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014. ## External auditor's independence The external auditor should not provide non-audit services where it might impair their independence or objectivity to do so. The Audit Committee has established a policy to safeguard the independence and objectivity of the Group's external auditor. That policy was reviewed in FY 2023 and a copy of it is appended to the Audit Committee's terms of reference and is available on the Group's website. Pursuant to that policy, services that have been pre-approved by the Audit Committee (i.e. covenant reporting) do not exceed in any year more than 70% of the average audit fee paid to that audit firm over the past three years, unless prior approval has been obtained from the FRC. 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 in note 2.3 of the financial statements on page 140. ## External audit annual assessment The Audit Committee assesses annually the qualification, expertise, resources and independence of the Group's external auditor and the overall effectiveness of the audit process. The Chief Financial Officer, Group General Counsel and Company Secretary, Audit Committee Chair and Group Risk Director meet with the external auditor to discuss the audit, significant risks and any key issues included on the Audit Committee's agenda during the year. During the year, the FY 2022 audit of Mitchells & Butlers plc by KPMG was reviewed by the FRC's Audit Quality Review team ('AQR') as part of the FRC's annual inspection of audit firms. There were no 'key findings' reported in the inspection and one 'other finding' was reported in relation to historical data used in the valuation of the freehold estate. KPMG have agreed a proposed action with the FRC in relation to this and have confirmed that this has been incorporated into planned procedures for the FY 2023 audit. The Committee was pleased to note that the AQR identified an area of good practice in relation to the robust challenge of management's property valuation model. ## Fair, balanced and understandable statement One of the key governance requirements of the Annual Report and Accounts is for the report and accounts, taken as a whole, to be fair, balanced and understandable, and that they provide the information necessary for shareholders to assess the Group's position, performance, business model and strategy. Therefore, upon review of the financial statements, the Audit Committee and the Board have confirmed that they are satisfied with the overall fairness, balance and clarity of the Annual Report and Accounts, which is underpinned by the following: - review of the formal review processes at all levels to ensure the Annual Report and Accounts are factually correct; - clear guidance being issued to all contributors to ensure a consistent approach; and - formal minutes of the Year End Working Group comprised of relevant internal functional representatives and appropriate external advisers. Jane Moriarty Chair of the Audit Committee 29 November 2023 Mitchells & Butlers plc Annual Report and Accounts 2023 87 Governance ## Report on Directors’ ## remuneration ## “I am pleased to present the Directors’ Remuneration Report in respect of the ## financial period which ended on 30 September 2023. This includes our revised ## remuneration policy which is aligned with our purpose and strategy, showing ## the importance we place on delivering exceptional financial performance whilst ## also making progress for the benefit of all our stakeholders.” Amanda Brown Chair of the Remuneration Committee | Dear Shareholder, | As the year progressed, the Board was very | Importantly, the excellent financial performance | | --- | --- | --- | | I am pleased to present this year’s Directors’ | encouraged by trading over the first half of | has been alongside very good results across | | Remuneration Report on behalf of the | the year. Our broad portfolio of brands and | our scorecard of non-financial measures, with | | Remuneration Committee (‘the Committee’). | locations meant that we were well placed to | record Employee Engagement and Guest | | This year the report introduces our new | capitalise on the return to office working, city | Health scores, and strong safety performance. | | remuneration policy and how it will be | centres becoming stronger, tourist numbers | We have consistently proven the link between | | implemented. The report also provides context | recovering and guests across the country | employee engagement, Guest Health and | | and insight into our pay arrangements for | continuing to enjoy the hospitality sector. | like-for-like sales growth and this correlation | | Executive Directors and Non-Executive | | can clearly be seen in this year’s performance. | | Directors, including the assessment of FY 2023 | Like-for-like sales continued to grow further as the | | | performance and pay. | year progressed, with performance strong across | I am also pleased that we continue to make | | | our portfolio of brands, and ended up over the | good progress against our sustainability targets | | The new remuneration policy will be put | year at a record high of 9.1%. This performance | (Net Zero by 2040, zero operational waste to | | forward for shareholder consideration and | has been driven by volume and spend per head | landfill by 2030 and to reduce food waste by | | a binding vote at the 2024 AGM whilst the | growth in both food and drink, and importantly | 50% by 2030). Notable highlights this year | | remuneration report, describing how the | extended our outperformance against the market | include 97% of our operational waste being | a | current policy was put into practice during | across the full year to 2.7% | , our best ever | diverted from landfill and a 25% reduction in | | --- | --- | --- | --- | | FY 2023 and how the new policy will be | market performance over a financial year. | | food waste from the FY 2019 baseline. Overall, | | implemented in FY 2024, will be put to an | | | our emissions have reduced by 11% from the | | advisory vote at the 2024 AGM. | Performance has therefore been well ahead | | 2019 baseline. | of expectations, with our Adjusted Operating b | Background and business context | Profit | over the year surpassing our targets | Going forward we remain focused on executing | | --- | --- | --- | --- | | At the beginning of the financial year, external | and requiring upgrades during the year to | | the drivers of this strong performance, including | | market conditions across the UK hospitality | consensus. This has also been reflected in our | | our Ignite programme of growth and efficiency | | industry were very uncertain with real fears of | share price which increased by more than 50% | | initiatives and our capital investment | | a downturn in consumer confidence as a result | over the course of the financial year. This is an | | programme which, combined with our diverse | | of the cost of living crisis and unprecedented | outstanding achievement and could only be | | portfolio of established brands and enviable | | cost headwinds, notably from food, utilities and | achieved because of the hard work and | | estate locations, leaves us well positioned to | | wages, which in total were expected to be | commitment from all our employees. | | continue to outperform the sector. | c. £175m as we headed into FY 2023. a As measured vs the Coffer CGA Business Tracker b 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 192 to 195 of this report 88 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ## Remuneration in FY 2023 ### Annual Bonus #### Financial measures – Adjusted Operating Profit (outcome 70% out of 70%) Financial targets were set against a backdrop of a highly uncertain environment with a wide range of macroeconomic factors, including rising inflation and increases in food and energy costs coupled with a cost of living crisis that would impact on the spending power of consumers across the economy. The financial targets set by the Committee at the beginning of FY 2023 were extremely stretching particularly in the context of this highly difficult and uncertain environment. At the start of the year we anticipated that the business would face cost headwinds of c. £175m in FY 2023 whilst no longer benefiting from the £52m of Covid-19 related government support received in FY 2022. An on target performance would, therefore require a sales uplift above 5% combined with cost efficiencies of at least £80m. The actual total sales result for FY 2023 was £122m ahead of budget and on a like-for-like basis increased by 9.1% vs. FY 2022, with strong trading performance across our portfolio of brands. As a measure of post-pandemic recovery, sales in FY 2023 were £222m higher than in FY 2019. Adjusted Operating Profit in FY 2023 was £226m, which was at the top of the range of consensus forecasts. This has been achieved through strong sales performance combined with the delivery of a number of our Ignite initiatives to mitigate the significant cost increases mentioned earlier. As set out in last year's remuneration report, targets for the annual bonus were set for the whole year but given the uncertainty, the Committee agreed that these targets would be reviewed at the end of the first quarter of FY 2023. Taking account of performance in the first quarter, the forecast cost increases and continued uncertainty for the remainder of the year, the Committee concluded that the targets were still appropriate and no changes were made. The performance described above is therefore measured on the original full year target with no adjustment. #### Non-financial measures – (outcome 25% 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. Bonus can only be earned if 97.5% of the Adjusted Operating Profit target is achieved. Guest Health performance is measured as a combination of online review scores and guest complaints. Over the year our online review scores have averaged 4.38, representing a best ever score for this measure. Very good progress has also been made on guest complaints, which are measured as a percentage of complaints received for every 1,000 meals served. Again, performance has been very strong in this area with progress made throughout FY 2023. This combined performance has resulted in a maximum payment for this element. Employee engagement is measured at two points during the year. In June employees are invited to complete a comprehensive survey, 'YourSay', and this is supplemented by a shorter pulse survey in February. This year around two thirds of employees completed each survey and the overall score across the two surveys was 82.5, a record high for employee engagement resulting in a maximum payment for this element. Food safety is measured by reference to the National Food Hygiene Rating System ('NFHRS') which is based on the number of businesses achieving a 4 or 5 rating. Although the outcome was very strong at 98.9%, it fell just short of the very demanding target set at the start of the year and therefore no bonus is payable in respect of this element. ## 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 outcome is reflective of strong over-performance, in particular with sales improving as the year progressed. Management's actions have been squarely aimed at mitigating strong cost headwinds through sales and volume growth, delivery of the Ignite programme of initiatives and disciplined cost management. The strong performance over the year has been achieved without adversely affecting our employees' experience both at work and financially, which was especially important given the very real cost of living pressures. We are proud of the performance over the year, which was achieved through hard work and in a manner which is consistent with our core values and culture. In taking all these factors into account, the Committee was satisfied that the overall formulaic outcome against our targets was consistent with our performance over the year and as such no discretion was exercised when determining the resultant annual bonuses. As a result of this review of performance, bonuses of 95% of base pay (95% of the maximum) were awarded to our CEO and CFO respectively. ## FY 2021 RSP Vesting During FY 2021, share awards were made to Phil Urban and Tim Jones under the Restricted Share Plan ('RSP') to the value of 100% of their respective salaries. Vesting of the RSP was subject to the satisfactory assessment of performance against three qualitative underpins, discussed in further detail on pages 110 and 111. The Committee is satisfied that these have been met and, as such, the 2021 RSP award will vest on 1 December 2023. In addition, the Committee carefully reviewed whether the Executive Directors might unduly benefit from a windfall gain on these awards. Taking into consideration a number of factors, including the current share price (219p) compared with the share price at the time of the grant (308p) and share price movements over the period, the Committee has concluded that participants will not benefit from a windfall gain on the FY 2021 RSP awards and therefore has determined that no adjustment is required. ## 2023 Remuneration Policy Review The end of the current three year policy is approaching and shareholders will be asked to vote on a new policy at the 2024 AGM. Over the last year, the Committee has carried out a thorough review of Executive remuneration at Mitchells & Butlers. As Remuneration Committee Chair, I spoke to every member of the Board to get input on how we can ensure our revised policy supports the Company's strategic priorities and the interests of our shareholders, as well as being competitive to attract, retain and motivate key talent and reflect developments in market practice and investor guidance. Based on this feedback, a draft policy was circulated to our largest shareholders, representing over 90% of our share capital, as well as ISS, Glass Lewis and the Investment Association. I am delighted that we received responses from around two thirds of those we wrote to and had meetings with a number of shareholders and proxy agencies. The feedback from these meetings was constructive and helped to shape the final version of the policy and the clarity of the disclosure. Mitchells & Butlers plc Annual Report and Accounts 2023 89 Governance # Report on Directors' remuneration continued The main change in the new remuneration policy is the move from a Restricted Share Plan ('RSP') to a Performance Share Plan ('PSP'). When designing our last remuneration policy in 2021 we were doing so in the context of the global pandemic; a truly black swan event. The Committee had to respond to this and introduced an RSP to replace our traditional performance-based long-term incentive plan. As we explained at the time, we wanted to ensure Executive Directors could focus on making the right long-term decisions for the business without being concerned about the alignment of these to incentive plan targets and also to provide a greater certainty of reward to aid retention at a time when the stability of a high-quality management team was paramount. In addition to this, the external environment in which we were operating at the time meant it was not possible to set meaningful and robust long-term incentive targets. The Committee believes that the current policy, including the RSP, has operated as intended over the last three years through a significant period of uncertainty, which has had a dramatic impact on our industry. In reviewing the new policy, the Committee concluded that returning to a performance-based long-term incentive plan would deliver stronger alignment with our strategic objectives. The previous performance-based share plan was working well prior to the pandemic and the fundamentals of the business have not changed. Whilst the trading environment for the hospitality sector remains challenging, the Committee is strongly of the view that a PSP will provide a better opportunity to directly link vesting outcomes to the delivery of our strategy and the realisation of its benefits for shareholders. This change is intended as a return to our normal long-term incentive approach and we do not anticipate reintroducing an RSP. In summary the Committee believes that this change to a performance-based plan is appropriate for the following reasons: - **Better alignment with the strategic priorities of the business** – the Committee has determined that returning to a performance share plan delivers stronger alignment with the business strategy by supporting and rewarding higher performance and accelerated delivery of our key performance objectives. In addition, whilst not the primary driver of the Committee's decision, the Committee is now confident that it is now possible to set targets that management can be held accountable for. - **Increased alignment to shareholder experience** – the Committee feels it is important that our Executive Directors are incentivised and rewarded for performance that ensures that long-term sustainable value is created for all our stakeholders. The Board is proud that our results for FY 2023 indicate that we are outperforming the sector. Whilst a performance-based long-term incentive will provide an opportunity to reward outperformance, underperformance will lead to lower outcomes than provided under the current RSP, which the Committee feels will also more closely align the Executive Directors with shareholders. In addition to returning to a PSP, our revised policy includes the following updates: - **Pension contributions** – the maximum company pension contribution for existing Executive Directors has been aligned with the wider workforce pension contribution rate (currently 4% of salary); - **Malus and clawback provisions** – the trigger events have been updated to include payments based on erroneous or misleading data in line with the FRC's Guidance on Board Effectiveness. There are no other material changes to our current remuneration policy. # Shareholder consultation As mentioned earlier, we were pleased to engage directly with a significant majority of our shareholders during the consultation process, as well as with the proxy agencies. The Committee is grateful to our shareholders who have taken the time to consider the proposals, speak with us and provide valuable feedback. We have taken the feedback on board throughout the consultation process and note that the final proposals reflect changes as a result of this consultation. We are pleased to report that the feedback overall has been very positive in respect of the proposed policy. Shareholders understood the rationale behind the proposed changes, and the significant majority were supportive of the move from the RSP to a PSP. Where shareholders had concerns, these were mostly focused on understanding how long we intend to operate the PSP for, acknowledging that we have operated the RSP for one policy cycle. We clarified in our response to shareholders that the RSP was very much a result of the specific and unique circumstances caused by external events (the pandemic). We therefore confirmed that the intention and expectation of the Committee is to retain the PSP for the foreseeable future. See table on following page for a summary of key remuneration policy discussions and changes made following the consultation. # Remuneration for FY 2024 # Fixed Pay (Base Pay, Pensions and Benefits) In reviewing Executive Director salaries, the Committee took account of market positioning and the level of increases applied to Executive Directors in other organisations, but most importantly felt that the increases applied to Executives should be below that of other colleagues and especially those in frontline positions. Overall pay increases have been 7.7% over the year with hourly paid frontline employees who are typically the lowest paid employees in the Group, seeing the largest increases. With effect from 1 January 2024 Phil Urban's salary will increase to £607,500 (4.9%) and Tim Jones's to £508,000 (4.9%). In line with our intention to reduce pension allowances for Executive Directors to the average employer contribution, the pension allowance paid to Executive Directors will reduce to 4%, in line with the general workforce from 1 January 2024. There are no changes to the benefits available to Executive Directors. # Annual Bonus The Committee believes that the annual bonus scheme for FY 2023 was successful in driving the right behaviours across the business, and as such has determined that the annual bonus scheme for FY 2024 will be unchanged other than an amendment to the safety element which will now encompass all four areas of safety performance that are measured across the business, rather than just focusing on food safety. The maximum opportunity will remain at 100% of salary for our Executive Directors. 90 Annual Report and Accounts 2023 Mitchells & Batters plc Strategic Report Governance Financial Statements Other InformationIntroduction Shareholder consultation summary The table below summarises the key remuneration policy discussions and changes following the consultation: Initial Proposal Shareholder Feedback Response Change from RSP to PSP. Overall support for a return to I hope that our disclosure makes clear that the move to an RSP was in a PSP, but given the change is response to a specific event. We do not anticipate any future switch happening after one policy cycle back to an RSP. some shareholders wanted reassurance that the change was intended to be for the long term. At least 50% of the PSP award Some shareholders were The intention of the Policy was to provide the flexibility, if required, to will be based on the concerned that there could be an rebalance the weighting of financial and non-financial performance achievement of financial overweighting on non-financial measures, including strategic or ESG measures, ahead of each grant to | measures, the remainder based | elements, and asked if it was ever | best reflect the strategic priorities of the business. | | --- | --- | --- | | on non-financial, strategic or | likely that measures would have | | | ESG measures. | such a weighting towards | Having considered the feedback provided the Committee changed | | | non-financial, strategic or ESG | the policy so that at least 70% of awards will be assessed against | | | measures in practice. | financial measures. | | The PSP would have an | Shareholders asked if the use of | It was confirmed to shareholders that the policy wording included a | | exceptional maximum award | the exceptional maximum would | commitment to consult if this maximum was to be used, other than in | | of 250% | be subject to consultation. | exceptional circumstances such as recruitment. | We have also decided to extend this same principle to the annual bonus exceptional maximum. We believe this provides greater consistency within our Policy and greater transparency for shareholders. Executive Directors’ Pension Noted and welcomed Alignment to the workforce average of 4% will be achieved in Contributions to align to that of by shareholders. January 2024. the wider workforce. Alignment of Clawback and Noted and welcomed The trigger events have been updated to include payments based Malus Provisions to latest by shareholders. on erroneous or misleading data. FRC guidance. Increased Executive Director Noted and welcomed The shareholding requirement for the CEO remains at 250% of salary Shareholding requirements by shareholders. and 200% for other Executive Directors. introduced alongside the RSP to be retained. Performance Share Plan (‘PSP’) award FY 2024 to FY 2026 In conclusion, I hope that the contents of this letter demonstrate that during A PSP award is due to be made in respect of the FY 2024-FY 2026 the year we have engaged constructively with our major shareholders, performance period. This will be the first PSP under the new plan. taking into account both historic questions and a number of areas where the proposed policy required either explanation or adjustment. The Committee carefully considered an appropriate PSP opportunity level for our Executive Directors to reflect the inclusion of stretching Alongside the review of policy, we are confident as a committee that the performance targets with the associated upside and downside potential existing remuneration policy has been implemented responsibly and in a of awards compared with RSP. When considering the overall level of manner which supports and recognises the very strong performance which remuneration for the Executive Directors and factors such as their role the business has delivered during FY 2023, whilst being cognisant of the and experience, as well as opportunity levels at companies of comparable wider economic context including appropriate governance considerations. size and complexity, the Committee concluded that a normal maximum of 200% of salary results in an appropriate positioning. This also results My aim as Committee Chair is to engage constructively with shareholders in an incentive mix which is significantly weighted towards long-term seeking to balance the interests of all key stakeholders including our performance, which the Committee believes is critical during this stage employees, customers and suppliers. I very much hope that this letter of our business recovery and aligns to our overall strategy. and the remainder of the remuneration report demonstrate this commitment to a high-quality dialogue. I look forward to your continued The Committee undertook a thorough review of the performance engagement and hope you will join the Board in supporting our FY 2023 measures that will apply to the first awards to be granted under the new outcomes and the proposed remuneration policy at the 2024 AGM. PSP and concluded that the following measures and weightings (as a percentage of maximum) will apply: Operating Cashflow (70%), Earnings Per Share (‘EPS’) growth (20%) and a sustainability measure (10%) based Amanda Brown on reduction in Scope 1, 2 & 3 emissions. Full details of the proposed Chair of the Remuneration Committee performance measures and targets for the first awards are set out on 29 November 2023 page 112. Mitchells & Butlers plc Annual Report and Accounts 2023 91 Governance Report on Directors’ remuneration continued ## Remuneration at a glance ### FY 2023 Performance Remuneration key: Base pay Benefits Pension Annual bonus Long-term incentives 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. ### Summary of Executive Directors’ Total Remuneration The charts below set out the CEO and CFO earnings history from 2016 onwards, this being the first full year Phil Urban was in place as CEO. Phil Urban Tim Jones £1,925 Chief Executive Chief Financial Officer (£’000) (£’000) £1,570 £1,392 £1,318 £382 £879 £320 £514 £807 £760 | | | | | | | | £552 | | | | | | | £677 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | £624 | | £423 | | £624 | £182 | | | | £638 | | | | | | | £613 | | £146 | | | | | | | | | | | | | | | | | | | | | | £40 | | | | | | | | £462 | | | | | | £553 | | £64 | | | £526 | | £354 | | £524 | £152 | | | £89 | £91 | £89 | £91 | | £76 | | | £515 | | £122 | | | | | | | | | | | | | | £15 | | | | | £465 | | | £34 | | | | | | £70 | | | | | | | | | | £53 | | | | | | | | £14 | £15 | | £75 | £76 | £75 | £76 | | £63 | | | | £15 | £15 | £16 | £16 | | | | | | | | | | | | | | | | | | £15 | | | | | | | | £59 | | | £16 | | | | | | | | | | | £16 | | | | £14 | £15 | | | | | | | | | | | £15 | | £16 | £16 | | | | | £15 £509 £518 £509 £516 £468 £534 £546 £581 £425 £434 £425 £432 £391 £447 £457 £486 ### Mitchells & Butlers’ remuneration principles When determining Executive Director remuneration policy, the Straightforward Remuneration Committee addresses each of the factors under Provision The remuneration structure is simple to understand for participants and 40 of the 2018 UK Corporate Governance Code and these are also shareholders and is aligned to the strategic priorities of the business. reflected in our principles: These same principles apply throughout the organisation and are Shareholder alignment adapted as appropriate for specific employee groups with a different A high proportion of reward is delivered in the form of equity, ensuring emphasis on certain principles in comparison to Executive Directors. Executives have strong alignment with shareholders. This is illustrated in the table on page 96 which sets out remuneration below Executive Director level. Competitive Providing reward that promotes the long-term success of the business For senior management, a much greater proportion of the overall reward whilst enabling the attraction, retention and motivation of high-calibre package is performance-linked and therefore is variable and at risk, senior Executives. whereas for our hourly paid colleagues a greater weighting applies to the competitive and straightforward principles as these factors are more Performance-linked important to the attraction and retention of these employees. A significant proportion of an Executive Director’s reward is linked to performance, with a clear line of sight between the outcomes of the business and the delivery of shareholder value. 92 Annual Report and Accounts 2023 Mitchells & Butlers plc 2016 2017 2018 2019 2020 2021 2022 2023 2016 2017 2018 2019 2020 2021 2022 2023 Strategic Report Governance Financial Statements Other InformationIntroduction | | 9.1% | 2.7% | 4.38 | 82.5 | | --- | --- | --- | --- | --- | | Like-for-Like Sales Growth | | Market outperformance | Record guest review scores | Best ever employee | | | | over the year | | engagement score | ### FY 2023 Annual Bonus The information below summarises the FY 2023 annual bonus performance for our Executive Directors. | | Maximum | | Threshold Target Maximum Outcome Achieved | | | | --- | --- | --- | --- | --- | --- | | | | % | | | % | | Adjusted operating profit 70% £193.2m £203.4m £209.5m | | | | 70% | | + £16.5m Actual: £226m Guest health 15% 0 1 2 15% (combined guest review and complaints score, see page 109 for more details) Actual: 2 Employee engagement 10% 79.5 80.5 81.5 10% + 1 Actual: 82.5 Food safety 5% 99.5% 99.5% 99.5% 0% Actual: 98.94% Total 100% 95% ### Appropriateness of remuneration decisions The Committee continued to review the appropriateness of remuneration decisions, including incentive outcomes. In doing so, it considered overall business performance as well as the wider experience of our key stakeholders, namely our customers, colleagues, supplier partners and shareholders and our wider communities. Balancing the needs of all our stakeholders continues to be at the heart of our purpose. In particular, the Committee considered the following factors throughout the year in determining remuneration decisions: Key stakeholder Factors considered by the Committee Customers • Year-on-year improvements in Guest Health Scores • Very strong safety scores Colleagues • The number of eligible employees receiving a bonus payout in the year • Number of apprentices in learning • Investments in pay and benefits, including the introduction of a team feeding and drinking policy • Health and wellbeing initiatives such as upweighted financial wellbeing, focus on menopause awareness • Skills development programmes Suppliers • Close working relationships maintained during supply chain challenges • Accreditations e.g. Tier 3 Business Benchmark on Farm Animal Welfare rating Shareholders • Delivered another strong year outperforming peers • Share price improving steadily through the year • Continued to pay down debt and secured a buy in on both pension plans Community • Work with Social Bite • Strategic charity partnership with Shelter Mitchells & Butlers plc Annual Report and Accounts 2023 93 Governance Report on Directors’ remuneration continued ## Summary of our revised remuneration policy ## and its implementation for FY 2024 On the assumption that the proposed policy is approved at the 2024 AGM, the table below summarises the key elements and how we plan to implement the policy specifically for 2024. | | | Changes from prior | Implementation for | | --- | --- | --- | --- | | | Policy | policy 2024 2025 2026 2027 2028 | 2024 | | | Increases in line with wider workforce, | No changes | Phil Urban: | | Base pay | except for exceptional circumstances. | | £6 0 7,5 0 0 | Tim Jones: £508,000 Benefits normally include (but are not No changes In line with Benefits limited to) private healthcare, life FY 2023. assurance, annual health check, employee assistance programme, use of a Company vehicle or cash equivalent, and discounts on food and associated drinks purchased in our businesses. Private healthcare is provided for the Executive, spouse or partner and dependent children. Executive Directors’ contributions Alignment with Phil Urban: 4% of Pension aligned with the wider workforce wider workforce salary. pension rate (currently 4% of salary). Tim Jones: 4% of salary. | | Normal maximum of 100% of salary. | No changes | The following | | --- | --- | --- | --- | | Short-term | | | maximum | | incentives | At least 50% of performance | | opportunities will | | | conditions to be based on financial | | apply in FY 2024. | measures, the remainder based on | non-financial or personal business | Phil Urban: 100% | | --- | --- | | objectives. | of salary. | | 50% of the award to be deferred as | Tim Jones: 100% | | shares and released in two equal | of salary. | tranches, after 12 and 24 months. | | Normal maximum of 200% of salary, | Change from | The following | | --- | --- | --- | --- | | Long-term | exceptional maximum of 250% | RSP | maximum | | incentives | of salary. | | opportunities will | apply in FY 2024. Performance will be measured over no less than three financial years. Phil Urban: 200% of salary. At least 70% of the award will be based on the achievement of Tim Jones: 200% financial measures, the remainder of salary. based on non-financial, strategic or ESG measures. Vesting after three years, with a two-year holding period post-vesting | Shareholding | 250% of salary for the CEO; 200% of | No changes | Phil Urban: | | --- | --- | --- | --- | | requirement | salary for all other Executive Directors. | | 148% | | | All Executive Directors are required to | | Tim Jones: | | | maintain shareholding requirements | | 133% | in full for two years post-cessation. 94 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ## Alignment of Executive ## pay to strategy The table below sets out how the three strategic priorities of the business align to Executive remuneration: Annual Strategic priority Link to Executive remuneration Bonus PSP Building a more Strong operating performance supports Adjusted Operating Profit delivery is the main balanced business the delivery and sustainability of the capital component of the annual bonus plan. plan and estate optimisation. Operating Cashflow supports cumulative cash generation to enable debt repayment whilst EPS incentivises profit recovery. A more balanced business delivers brands The Guest Health element of the annual bonus plan and food and drink offers in an provides a strong indicator of the success of each environment that guests want to enjoy. business. There is a clear correlation between strong Guest Health performance and sales performance. High-quality engaged teams are The engagement element of the annual bonus plan fundamental to the success of measures how our teams feel about working for any business. Mitchells & Butlers, and, in turn, the service they provide to guests. Instilling a more A commercial culture improves controls, Adjusted Operating Profit delivery is the main commercial efficiency, purchasing and pricing, driving component of the annual bonus plan. culture both improved cash flow and operating performance. Cash flow is the main component of the PSP. Commercial decisions must be guest- The Guest Health metric quickly demonstrates where focused and benefit from the input of decisions are right or wrong and Executives are customer feedback. incentivised to react. Developing and evolving a commercial The employee engagement element of the annual culture requires high levels of employee bonus plan supports and underpins the development engagement and business awareness. of culture. Driving an Innovation at small and large scale is an Adjusted Operating Profit delivery is the main innovation engine for improved sales and, therefore, component of the annual bonus plan. agenda cash and profit generation. Operating Cashflow and EPS make up the majority of the PSP performance assessment. Guests’ expectations continue to increase, The Guest Health element of the annual plan provides demanding higher standards of service and valuable actionable feedback and incentivises action. digital capability. Innovation involves change, and delivery The employee engagement element of the annual of change requires strong employee bonus plan incentivises action to maintain and improve engagement. employee engagement. Mitchells & Butlers plc Annual Report and Accounts 2023 95 Governance Report on Directors’ remuneration continued ## How our policy cascades to colleagues ## and workforce engagement 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 Annual bonus Long-term incentives All-employee share plans | Executive Directors (2) Pay broadly around | | Bonus schemes for all | Measures and targets | All employees can | | --- | --- | --- | --- | --- | | Executive Committee (8) | mid-market levels. | schemes align to the | for long-term incentive | participate in any of the | | | | business scorecard. | plans consistent for all | all-employee share | Senior management Overall, increases (in participants. schemes, subject to (c. 40) percentage terms) The majority of bonus qualifying service, Retail Support Centre consistent across all opportunity is linked to building a stake in the (c. 1,080) salaried employee groups. financial performance. business. Retail managers (c. 5,200) | Retail team members | Pay set in line with market | Our pay approach is aimed at providing regular and | | --- | --- | --- | | (c. 39,000) | 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 charges, 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 Committee members Committee and taken allow both support the Executive are updated on A Non-Executive into account when centre colleagues and Committee as part of employee terms and Director (Dave Coplin) setting remuneration General Managers an the forum and where conditions and made has been appointed to policy. opportunity to discuss necessary Executive aware of significant engage with employees business issues and remuneration matters changes to policies and and report back to the provide feedback. are brought to the other pay-related Board. Dave Coplin is attention of the matters. a member of the Remuneration Remuneration Committee Chair. Committee. 96 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction The Committee is regularly updated on pay and conditions applying to An employee forum is normally held twice every year, which gives an Group employees alongside other workforce-related matters. opportunity for employees to ask questions of senior management via elected representatives, and which from FY 2020 has been attended Where significant changes are proposed to employment conditions and by Dave Coplin. In 2023, two forums were held in March 2023 and policies elsewhere in the Group, or there are important employee- September 2023. The Executive team finds these forums very valuable, related projects underway, these are highlighted for the attention of the as the format allows for a more in-depth discussion and understanding Committee at an early stage. Over the course of FY 2023, these updates that is not possible through other channels such as surveys. have again focused on employee engagement, the significant progress made in addressing the talent shortages following the pandemic, the In addition, in his role as the nominated Non-Executive Director, evolution of our benefits offering to support employees during the cost Dave Coplin undertakes a number of activities ranging from visits to our of living crisis, for example through the introduction of a heavily businesses to meet and discuss issues with employees, to focus groups discounted team feeding offer and the continued focus on evolving our with specific employee groups such as Kitchen Managers. Dave meets internal training and development routes, which also encompass our regularly with members of the Human Resources team and is also apprenticeship programmes. supporting the business in how it may utilise technology to better communicate with all employees. The Committee takes into account the base pay review budget applicable to other employees when considering the pay of Executive The views of employees in relation to Executive remuneration have been Directors. The Committee considers a broad range of reference points sought in the past and this issue was not proved to be an area of interest when determining policy and pay levels. These include external market or concern for employees at this time. Our engagement survey has a benchmarks as well as internal reference points. Any such reference section that allows employees to anonymously raise any concerns they points are set in an appropriate context and are not considered in isolation. may have on any matter, and in 2023 there were over 20,000 comments recorded, none of which related to senior management pay. The Committee Obtaining and understanding the views of our employees, including will continue to explore how best to engage with employees on this issue. in relation to Executive Remuneration, is an important consideration for the Committee when developing and operating our overall approach to remuneration across Mitchells & Butlers. In addition to our approach to communicating with our employees, we also welcome feedback and all employees are invited to take part in our employee engagement surveys. These provide all employees with an opportunity to give anonymous feedback on a wide range of topics of interest or concern to them. The Committee reviews these results and any significant concerns over remuneration would be considered separately by the Committee and, if appropriate, taken into account when determining the remuneration approach and its implementation. Mitchells & Butlers plc Annual Report and Accounts 2023 97 Governance Report on Directors’ remuneration continued ## Directors’ remuneration policy Introduction Our last policy was approved by shareholders in 2021 and therefore will come to the end of its approved three year period in 2024. Over the last few months, the Committee has carried out a thorough review of Executive remuneration and has received input from all Board members, with the aim of ensuring it supports the Company’s strategic priorities and the interests of our shareholders. The Committee has also considered the need to remain competitive to attract, retain and motivate key Executive talent and reflect developments in market practice and investor guidance. The Committee, and the Board, believe that, taken as a whole, the remuneration policy should drive behaviours which are consistent with the Company’s purpose and values and reward Directors for creating long-term sustainable value for all our stakeholders. 2023 remuneration policy engagement It was important to the Committee that it received the views and feedback from our largest shareholders before finalising the changes to our revised policy. We summarise in the table below the details of the consultation exercise: Engagement events Dates Investor participation* Share capital represented* Initial letter sent to major shareholders July 2023 18 investors 89% Shareholder engagement, including follow-up meetings and July – September 12 investors 71% responding to questions via email 2023 Close-out letter sent to broader shareholder population October 2023 18 investors 89% * Including Odyzean Limited The principal proxy advisory firms were also consulted throughout the remuneration policy process. Our proposed 2024 remuneration policy As discussed in the Chair’s letter, the Committee has concluded that returning to a performance-based long-term incentive plan would deliver stronger alignment with our strategic objectives. Whilst the trading environment for the hospitality sector remains challenging, the Committee is strongly of the view that a performance share plan (‘PSP’) will provide a better opportunity to directly link vesting outcomes to the delivery of our strategy and the realisation of its benefits for shareholders. Therefore, the principal changes proposed are summarised in the table below: Element Key change Rationale for proposed change Returning to a PSP as our Returning to a PSP delivers stronger alignment with the business Long-term incentives long-term incentive plan. strategy by supporting and rewarding higher performance and accelerated delivery of our key performance objectives. Whilst a performance-based long-term incentive provides an opportunity to reward outperformance, underperformance will lead to lower outcomes than provided under the current RSP, which more closely aligns the Executive Directors with shareholders. Commitment to consulting Provides greater consistency within our policy and greater Annual bonus shareholders prior to using the transparency for shareholders. annual bonus exceptional maximum other than in exceptional circumstances, such as recruitment. Alignment of current Executive In line with previous commitments and to align with investor Pension Directors’ contributions with the expectations and market best practice. wider workforce rate (currently 4% of salary). Malus and clawback Circumstances in which recovery Aligns the trigger events with all of the circumstances listed in the provisions provisions may apply updated to FRC’s Guidance on Board Effectiveness. include payments based on erroneous or misleading data. 98 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Policy table The table below summarises each element of the remuneration policy applicable to Executive Directors. Base salary Purpose and link to strategy Provides a sound basis on which to attract and retain Executives of appropriate calibre to deliver the strategic objectives of the Group. To reflect the market value of the role, personal contribution, experience and competence. Operation Salaries are normally subject to annual review, typically effective from 1 January. Salary levels may be influenced by: • role, experience or performance; • Group profitability and prevailing market conditions; and • periodic external benchmarking of similar roles at comparable companies by size and sector. Payable four-weekly throughout the year. Pensionable. Opportunity The general policy is to set salaries broadly around mid-market levels with increases (in percentage terms) typically in line with that of the Company’s UK workforce. Percentage increases beyond those granted to the wider workforce may be awarded in certain circumstances such as when there is a change in the individual’s role or responsibility or where there has been a fundamental change in the scale or nature of the Company. In addition, and in line with the pay approach for other salaried employees, a higher increase may be made where an individual had been appointed to a new role at below market salary while gaining experience. Subsequent demonstration of strong performance may result in a salary increase that is higher than for the wider workforce. In line with the pay approach for other employees, there may also be circumstances where the Committee agrees to pay above mid-market levels to secure or retain an individual who is considered, in the judgement of the Committee, to possess significant and relevant experience which is required to enable the delivery of the Company’s strategy. Performance metrics Executive Directors’ performance is a factor considered when determining salaries. Performance is reviewed in line with the established performance review process in place across the Group. Recovery or withholding No recovery or withholding provisions apply. Mitchells & Butlers plc Annual Report and Accounts 2023 99 Governance Report on Directors’ remuneration continued Annual Performance Bonus (cash and shares) Purpose and link to strategy Provides a direct link between annual performance and reward. Incentivises the achievement of key measures linked to Company strategy. Deferred bonus, awarded in shares, provides a retention element and additional alignment of interests to shareholders. Operation The Committee determines the bonus payment level after the year end by reference to performance targets previously set by the Committee. Up to half of any bonus award is payable in cash. At least half of any bonus award is deferred as shares under the terms of the Short Term Deferred Incentive Plan (‘STDIP’) below. Key terms of the STDIP are: • Deferred bonus share awards are normally released in two equal amounts 12 and 24 months after deferral subject to continued employment (or good leaver status). • At the discretion of the Committee dividends paid between grant and vesting may accrue on vested shares. • Shares which vest, after the settlement of income tax and national insurance must be retained until the relevant shareholding guideline has been met. Non-pensionable. Opportunity Currently the normal maximum payment is 100% of salary. The annual bonus rules include an annual award limit of 150% of salary. Any increase to the normal maximum of 100% of salary, other than in exceptional circumstances such as recruitment, would be subject to prior consultation with leading investors, if appropriate. Performance metrics Performance is measured relative to financial, non-financial or personal business objectives in the year aligned with the Company’s strategic priorities. At least 50% of the bonus will be based on financial measures. This may be a single measure or a mix of metrics as determined by the Committee. The remainder may be based on non-financial measures or personal business objectives. The bonus measures are reviewed annually and the Committee has the discretion to vary the mix of measures, introduce new measures taking into account the strategic focus of the Company, or to align the measurement of any measure to a specific performance period within the year. No bonus is payable under the financial element(s) unless a demanding threshold level of performance is achieved. As the bonus is subject to performance conditions, any deferred bonus is not subject to further performance conditions but remains subject to recovery and withholding provisions. The Committee may alter the bonus outcome if it considers that the payout is inconsistent with the Company’s overall performance taking account of any factors it considers relevant. This will help ensure that payouts reflect overall Company performance during the period. The Committee will consult with leading investors if appropriate before any exercise of its discretion to increase the bonus outcome. Recovery or withholding Recovery and withholding provisions apply where there has been a material misstatement or restatement of any audited financial accounts or other data; or the assessment of any performance condition, terms or conditions in respect of an award or payment were based on error, or inaccurate or misleading information; or the Committee determines that there has occurred at any time a serious misdemeanour or serious misconduct by the Participant; or the Committee determines that the Participant has engaged in conduct that has resulted in or could reasonably result in reputational damage to the Company and/or the Group; or there is a corporate failure of the Company or any company within the Group which the Committee reasonably considers to be material in the context of the Group and the failure is, in the reasonable view of the Committee, attributable to the actions or behaviours of one or more individuals. 100 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Long Term Incentive Plan (Performance Share Plan, ‘PSP’) Purpose and link to strategy To align the interests of senior Executives with sustained long-term value creation. Incentivises participants to grow the business for the long term in line with the Company’s strategy. To provide an element of retention through and beyond the performance period. Operation Discretionary awards may be made each year, normally taking the form of nil or nominal cost options. Awards have a three year performance and vesting period. At the discretion of the Committee, vested options may attract Dividend Accrued Shares between award and the end of the vesting or holding period. A two year post-vesting holding period applies which requires awards to be retained for a period of two years from the end of the vesting period, except for shares sold to pay income tax and national insurance upon exercise/vesting. Shares, which vest, after the settlement of income tax and National Insurance, must be retained until the relevant shareholding policy is met. Opportunity The normal maximum annual award is up to 200% of base salary for the CEO and CFO. The PSP rules include an annual award limit of 250% of salary. Any increase to the normal maximum of 200% of salary, other than in exceptional circumstances such as recruitment, would be subject to prior consultation with leading investors, if appropriate. Performance metrics Performance will be measured over no less than three financial years. Awards will be subject to the achievement of stretching targets designed to incentivise performance in support of the Group’s strategy and business objectives. The Committee has the flexibility to vary the mix of measures or to introduce new measures for each award, taking into account business priorities at the time of grant. At least 70% of the award will be based on the achievement of financial measures, the remainder based on non-financial, strategic or ESG measures. Up to 25% of each element may vest for threshold performance, with 100% vesting for maximum performance. The Committee may alter the vesting outcome if it considers that the level of vesting is inconsistent with the Company’s overall performance taking account of any factors it considers relevant. This will help ensure that vesting reflects overall Company performance during the period. The Committee would consult with leading investors if appropriate, before any exercise of its discretion to increase the vesting outcome. Recovery or withholding Recovery and withholding provisions apply where there has been a material misstatement or restatement of any audited financial accounts or other data; or the assessment of any performance condition, terms or conditions in respect of an award were based on error, or inaccurate or misleading information; or the Committee determines that there has occurred at any time a serious misdemeanour or serious misconduct by the Participant; or the Committee determines that the Participant has engaged in conduct that has resulted in or could reasonably result in reputational damage to the Company and/or the Group; or there is a corporate failure of the Company or any company within the Group which the Committee reasonably considers to be material in the context of the Group and the failure is, in the reasonable view of the Committee, attributable to the actions or behaviours of one or more individuals. Mitchells & Butlers plc Annual Report and Accounts 2023 101 Governance Report on Directors’ remuneration continued Restricted Share Plan Elements of previous Long Term Incentive Plan policy which will continue to apply at all times until the final award is due to vest in 2025 Purpose and link to strategy Incentivises participants over the long term to implement the Company’s strategy and deliver long-term sustained performance. To align the interests of senior Executives with those of shareholders by providing Executives with a material shareholding. To provide an element of retention through and beyond the vesting period. Operation No future awards will be granted to the Executive Directors under the RSP. Shares vest at the end of a three year period subject to: • the Executive Director’s continued employment at the date of vesting; and • the satisfaction of an underpin as determined by the Remuneration Committee whereby the Committee can adjust vesting for business, individual and wider Company performance. A two-year holding period will apply following the three year vesting period for all awards granted to the Executive Directors. Upon vesting, sufficient shares may be sold to pay tax and National Insurance on the shares. At the discretion of the Committee vested options may attract Dividend Accrued Shares between award and the end of the vesting or holding period. Opportunity 100% of base salary for the CEO and CFO. Performance metrics No specific performance conditions are required for the vesting of Awards but there will be an underpin in that the Remuneration Committee will have the discretion to adjust vesting taking into account business, individual and wider Company performance. Recovery or withholding Recovery and withholding provisions apply where there has been a material misstatement or restatement of any audited financial accounts or other data, or the Committee determines that there has occurred at any time a serious misdemeanour or serious misconduct by the Participant, or the Committee determines that the Participant has engaged in conduct that has resulted in or could reasonably result in reputational damage to the Company and/or the Group; or there is a corporate failure of the Company or any company within the Group which the Committee reasonably considers to be material in the context of the Group. Pension (or cash allowance) Purpose and link to strategy To provide a market-aligned retirement benefit. Operation Contribution towards a Company or personal pension scheme and/or a cash allowance in lieu of Company pension contributions, or a combination of both. Opportunity The Company contribution is 4% of base salary or any future higher percentage of base salary agreed, of base salary, in line with the wider workforce. Existing Executive Directors are, and new incumbents will be, aligned with the wider workforce. Performance metrics No performance metrics apply. Recovery or withholding No recovery or withholding provisions apply. 102 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Other benefits Purpose and link to strategy To provide competitive and market-aligned benefits to assist in retaining and attracting Executives. Operation Benefits normally include (but are not limited to) private healthcare, life assurance, annual health check, employee assistance programme, use of a Company vehicle or cash equivalent, and discounts on food and associated drinks purchased in our businesses. Private healthcare is provided for the Executive, spouse or partner and dependent children. Discount vouchers are provided on the same basis to all employees and can be redeemed in any of our managed businesses provided the purchase is a personal, not a business, expense. Executive Directors may participate in any of the Company’s all-employee share schemes (e.g. Sharesave and SIP) on the same basis as all other employees and in line with prevailing HMRC limits. Relocation or the temporary provision of accommodation may be offered where the Company requires a Director to relocate. Expatriate allowances may be offered where required. Travel and, if relevant, related expenses such as accommodation may be reimbursed on a gross of tax basis. Executive Directors may become eligible for any new benefits introduced to a wider set of other Group employees. Opportunity In line with market practice, the value of benefits may vary from year to year depending on the cost to the Company from third-party suppliers. Performance metrics No performance metrics apply. Recovery or withholding No recovery or withholding provisions apply other than if relocation costs were provided. A proportion of any relocation costs may be recovered where a Director leaves the employment of the Group within two years of appointment or date of relocation. Shareholding policy Purpose and link to strategy To align the interests of the Executive Directors with shareholders and promote a long-term approach to risk management. Operation The Chief Executive is expected to hold and maintain Mitchells & Butlers’ shares to the value of a minimum of 250% of base salary. Other Executive Directors are expected to hold and maintain Mitchells & Butlers’ shares to the value of a minimum of 200% of base salary. Except for those sold to cover the acquisition cost together with the associated income tax and National Insurance contributions, Executive Directors will be required to retain shares arising from share schemes until the minimum level of ownership required has been achieved. Only shares owned outright by the Executive Director or a connected person are included. Shares or share options which are subject to a performance condition are not included. Deferred shares and options which are vested but unexercised, are included. Executive Directors are expected to retain a post-cessation shareholding requirement equal to the shareholding guideline for two years post-departure. In the event that a leaver has not met the relevant shareholding requirement at the point of cessation of employment, they would be required to retain their full pre-cessation shareholding for two years. These post-cessation requirements are subject to transitional arrangements for existing Executive Directors; only those shares vesting from 24 March 2021 (the date that the post-cessation shareholder policy was approved), including unvested awards under incentive plans and deferred shares, are included in the post-cessation holding requirement. Shares purchased by Executives from their own resources are not covered by the post-cessation policy. Opportunity n/a Performance metrics n/a Recovery or withholding n/a Mitchells & Butlers plc Annual Report and Accounts 2023 103 Governance Report on Directors’ remuneration continued Chairman and Non-Executive Director fees Fees Purpose and link to strategy To attract and retain Non-Executive Directors of appropriate calibre and experience. Operation Payable in cash, four-weekly throughout the year. Fees are normally reviewed annually, with any increase usually taking effect from 1 January each year. The Chairman’s fee is reviewed annually by the Committee (without the Chairman present). Fee levels for the Non-Executive Directors are determined by the Company Chairman and Executive Directors by reference to companies of similar size and sector, as well as time commitment and responsibilities. Non-Executive Directors receive an additional fee for chairing a committee. Where a Non-Executive Director undertakes additional responsibilities, other than the chairing of a committee, additional fees may be set. Travel, accommodation and other related expenses incurred in carrying out the role will be paid by the Company including, if relevant, any gross-up for tax. Opportunity Current fee levels are shown in the annual report on remuneration. Fee levels may be increased, taking into account factors such as the time commitment of the role and market levels in companies of comparable size and complexity. In exceptional circumstances, if there is a temporary yet material increase in the time commitments for Non-Executive Directors, the Board may pay extra fees to recognise the additional workload. Performance metrics No performance metrics apply. Recovery or withholding No recovery or withholding applies. Non-Executive Directors do not participate in the Company’s bonus arrangements, share schemes, benefit schemes (other than the all-employee discount voucher scheme) or pension plans. Notes to the policy table Selection of performance measures and targets The Committee selects annual bonus performance measures each year to incentivise Executive Directors to achieve key financial targets and individual and/or strategic performance measures intended to ensure that Executive Directors are incentivised to deliver across a range of objectives for which they are accountable. The measures that will apply for the 2024 plan are set out on page 112. The Committee selects performance measures that will apply to PSP awards that are aligned with the Company’s objective of delivering sustainable long-term value to shareholders. The measures that will apply to awards granted in FY 2024 are set on page 112. The Committee has retained flexibility to review the measures in advance of each award to ensure that the measures selected are fully aligned with the strategy prevailing at the time the awards are granted. Notwithstanding this, the Committee would, if appropriate, seek to consult with major shareholders in advance of any material change to the choice or weighting of the PSP performance measures. The relevant targets for the annual bonus and PSP are set with reference to internal and external forecasts, the Group’ strategic targets and the interests of shareholders. Targets are set to provide a sustainable balance of risk and reward to ensure that, whilst being motivational for participants, maximum payments are only made for stretching performance. 104 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Illustrations of remuneration policy On-target The charts below show an estimate of the remuneration that could In addition to the minimum, this reflects the amount payable for on-target be received by Executive Directors under the proposed new policy. performance under the short- and long-term incentive plans: The charts also show the impact of a 50% increase in share price on the LTIP outcome. • 50% of maximum (50% of base salary for the Chief Executive and Chief Financial Officer) is payable under the short-term incentive Chief Executive plan; and • 50% of maximum (100% of base salary for the Chief Executive and Chief Financial Officer) is payable under the PSP. £2,962,800 Maximum £2,469,300 19.5% In addition to the minimum, maximum payment is achieved under both the short and long-term incentive plans such that: • 100% of base salary is payable under the short-term incentive plan for £1,558,050 £1,570,000 the Chief Executive and Chief Financial Officer; and | | 49.2% | 39.1% | | | | | --- | --- | --- | --- | --- | --- | | | | | 24.3% | • 200% of base salary for the Chief Executive and Chief Financial | | | 39.0% | | | | | Officer is payable under the PSP. | £807,000 £646,800 19.5% 24.6% 19.5% 35.2% 22.6% Share price gain This shows the impact a 50% increase in the share price would have on | 100% | 41.5% | 26.2% | | 21.9% | 77.4% | 40.5% | the maximum PSP outcome. | | --- | --- | --- | --- | --- | --- | --- | --- | | Minimum | On-target Maximum | | Maximum | | FY 2022 | FY 2023 | | | | | | +50% Share | | Actual | Actual | Differences in remuneration policy between Executive | | | | | price gain | | | | Directors and other employees | The overall approach to reward for employees across the workforce is Share price gain Long-term incentives a key reference point when setting the remuneration of the Executive Short-term incentives Fixed pay Directors and the Committee is updated on a regular basis by the Group HR Director on a wide range of people-related matters, including pay policies. When reviewing the salaries of the Executive Directors, the Chief Financial Officer Committee pays close attention to pay and employment conditions across the wider workforce and in normal circumstances the increase for Executive Directors will be no higher than the average increase for the general workforce. Whilst the Company does not directly consult with £2,576,320 employees as part of the process of reviewing Executive Director pay and formulating the remuneration policy, the Company does receive an £2,068,320 19.7% update and feedback from the broader employee population on a bi-annual basis using an engagement survey which includes a number of questions relating to remuneration. Employees also have the opportunity £1,306,320 £1,318,000 to raise questions through elected representatives who sit on our 49.1% 39.5% employee forum which is normally held twice a year, and is attended by 24.3% 38.9% the Chief Executive and other members of the Executive team, along £677,000 £544,320 19.4% 24.6% 19.7% 35.0% with the Non-Executive Director responsible for employee voice. 22.5% 100% 41.7% 26.3% 21.1% 77.5% 40.7% The key difference between the remuneration of Executive Directors and that of our other employees is that, overall, at senior levels, Minimum On-target Maximum Maximum FY 2022 FY 2023 remuneration is increasingly long term. In particular, long-term incentives +50% Share Actual Actual price gain (via the PSP) are provided only to the most senior Executives to align the interests of senior Executives with those of shareholders, by providing Share price gain Long-term incentives a material shareholding. Short-term incentives Fixed pay The Company operates HMRC-approved all-employee share plans (Sharesave and SIP) enabling all our employees to become shareholders The performance scenarios demonstrate the proportion of maximum in the Company. remuneration which would be payable in respect of each remuneration element at each of the performance levels. In developing these scenarios, Consideration of shareholder views the following assumptions have been made: The Committee takes the views of the shareholders seriously and these views are a key factor in determining remuneration policy and its Minimum implementation. The Committee consulted its major shareholders and Only the fixed elements of remuneration are payable. The fixed element the main shareholder representative bodies (IA, ISS and Glass Lewis) on consists of base salary, benefits and pension. Base salary is the salary the proposed new policy and held a number of meetings during the effective from 1 January 2024. Benefits are based on actual FY 2023 consultation process. The Committee is grateful for the time taken by figures and include company car, healthcare and taxable expenses. these bodies to consider the Committee proposals and provide feedback, Pension is aligned with the rate available to the wider workforce (4%). and was pleased that the majority of shareholders were supportive of the new policy. Mitchells & Butlers plc Annual Report and Accounts 2023 105 Governance Report on Directors’ remuneration continued Legacy arrangements For the avoidance of doubt, the Committee may approve payments to satisfy commitments agreed prior to the approval of this remuneration policy, for example, those outstanding and unvested incentive awards which have been disclosed to shareholders in previous remuneration reports. The Committee may also approve payments outside of this remuneration policy in order to satisfy legacy arrangements made to an employee prior to (and not in contemplation of) promotion to the Board of Directors. All historic awards that were granted but remain outstanding, remain eligible to vest based on their original award terms. Incentive plan discretions The Committee will operate the incentive plans described in the policy table according to their respective rules, the policy set out above and in accordance with the Listing Rules, applicable legislation and HMRC guidance where relevant. The Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and administration of these plans. These include (but are not limited to) the following: • who participates in the plans; • the timing of grant of award and/or payment; • the size of award and/or payment, subject to policy limits; • the choice of (and adjustment of) performance measures, targets and underpins for each incentive plan taking into account the specific circumstances at the time and the rules of each plan; • discretion relating to the measurement of performance in the event of a change of control or reconstruction; • determination of a good leaver (in addition to any specified categories) for incentive plan purposes based on the rules of each plan and the appropriate treatment under the plan rules; and • adjustments required in certain circumstances (e.g. rights issues, corporate restructuring, on a change of control and special dividends). Any use of the above discretions would, where relevant, be explained in the annual report on Directors’ remuneration and may, as appropriate, be the subject of consultation with the Company’s major shareholders. Executive Directors’ service contracts The table below summarises key elements of the service contracts applicable to Executive Directors: Notice period • Executive Directors are employed under service contracts that may be terminated at any time on up to one year’s notice from the Company and on a minimum of six months’ notice from the Executive Director. a • Any payment made in lieu of notice would comprise base salary only and may be payable in instalments in line with the established salary payment dates until the expiry of the notice period or, if earlier, may be the date on which alternative employment or other engagement is secured with the same or higher base salary. If employment is secured at a lower rate of base salary, subsequent instalments of the payment in lieu of notice may be reduced by the value of alternative income. A payment may be made in lieu of unused holiday entitlement. • Service contracts contain a provision enabling the Company to put the Executive Director on garden leave after notice to terminate the service contract has been given by either party. During this period, the Executive will be entitled to base salary only. There is no enhanced provision on a change of control. a. This arrangement applies to Phil Urban and any future Executive Director appointments. Any payments in lieu of notice in respect of Tim Jones, who is employed on a legacy contract, will comprise base salary and contractual benefits only. Termination policy In the event that the Company terminates an Executive Director’s service contract other than in accordance with the terms of his contract, the Committee will act in the best interests of the Company and ensure there is no reward for failure. When determining what compensation, if any, is to be paid to the departing Executive Director, the Committee will give full consideration to the circumstances of the termination, the Executive Director’s performance, the terms of the service contract relating to notice and payments in lieu of notice, and the obligation of that Executive Director to mitigate any loss which may be suffered as a result. Although the Company would seek to minimise termination costs, the Committee may in appropriate circumstances provide other elements in a leaving Director’s termination package, including (without limitation): compensation for the waiver of statutory rights in exchange for the Director executing a settlement agreement; payment of the leaving Director’s legal fees in connection with his termination arrangements; and payment of outplacement fees. In addition, the Committee may determine that the Director should continue to be engaged by the Company on consultancy or other terms following cessation of his directorship. In the event that a participant ceases to be an employee of the Company, treatment of outstanding awards under the Group’s incentive plans will be determined based on the relevant plan rules. 106 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Component Approach • If an Executive Director’s employment with the Group ends during the financial year, normally any Annual Performance Bonus entitlement to bonus for that year is forfeited. However, if the individual is considered a “good leaver” i.e. leaves by reason of ill-health, injury, disability, retirement, redundancy, death or sale of the employing business or company or if the Committee so decides in any other case, at the Committee’s discretion the Executive Director may receive a bonus pro-rated to time employed in the year or to such later date as the Committee may decide. In such circumstances, at least half of any bonus awarded will normally be deferred as shares under the terms of the STDIP. • If an Executive Director ceases employment following the end of the financial year but before payment of the bonus in respect of that year, there is no entitlement to a bonus but the Committee may, at its discretion, pay a bonus for that year. Any such bonus, will normally be deferred as shares under the terms of the STDIP. • If an Executive Director ceases employment prior to the release of Bonus Award Shares under the STDIP Deferred Bonus Shares for the same specified good leaver reasons as set out above, the Committee, at its discretion, may release the Bonus Award Shares (and associated Dividend Accrued Shares) at the date of termination. Otherwise, the shares will be released on the normal release date. If the Director leaves for any other reason, their entitlement to Bonus Award Shares (and associated Dividend Accrued Shares) is forfeited, unless the Committee decides otherwise. • If an Executive Director dies before an Award under the PSP or RSP has vested, vesting of the award (and LTIP associated Dividend Accrued Shares) will occur as soon as practicable based on performance and on a time pro-rated basis. • If the Executive Director ceases employment for the same defined good leaver reasons as are specified above, the PSP Award (and associated Dividend Accrued Shares) will vest following the end of the normal performance period and on a time pro-rated basis. If employment ceases for any other reason, the Award will normally lapse, unless the Committee decides otherwise (except that if employment ceases by reason of gross misconduct the PSP Award (and associated Dividend Accrued Shares) must lapse). • If an Executive Director ceases employment as a good leaver under the Restricted Share Plan (‘RSP’), their award will normally vest at the normal vesting date subject to consideration of the underpins on a time pro-rated basis. Unless the Committee decides otherwise, the shares will be subject to a holding period of two years after vesting. If employment ceases for any other reason, the Award will normally lapse. All-Employee Plans • The Committee has no discretion in relation to shares or options held under the all-employee share plans (SIP and Sharesave); on termination these will vest, become exercisable or lapse in accordance with the legislation. External directorships Executive Directors may accept one external non-executive appointment with the Company’s prior approval, as long as this is not likely to lead to conflicts of interest. Non-Executive Directors Non-Executive Directors, including the Company Chairman, do not have service contracts but serve under letters of appointment. Non-Executive Directors’ appointments are terminable without notice and with no entitlement to compensation. Payment of fees will cease immediately on termination. Copies of both 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. Mitchells & Butlers plc Annual Report and Accounts 2023 107 Governance Report on Directors’ remuneration continued Recruitment of Executive Directors When hiring a new Executive Director, the Committee would generally seek to align their remuneration package with the remuneration policy outlined in this section. Component Approach Where it is necessary to appoint a replacement or additional Executive Director, the Committee will set a base Base salary salary appropriate to the calibre, experience and responsibilities of the new appointee and in line with our policy. Base salaries may be set at an initially lower level compared with the previous incumbent with the intention of increasing salary at a higher than usual rate as the Executive gains experience in the role. Benefits (including pension, Company vehicle or cash allowance, healthcare, life assurance, health check and, Benefits where applicable, relocation assistance) would be consistent with the principles of the policy as set out above. New appointees will be eligible to participate in the Company’s personal pension scheme and/or a cash Pension allowance in lieu of Company pension contributions, or a combination of both in line with the policy as set out above. Variable pay The maximum level of variable pay is 400% of base salary (150% in relation to annual cash bonus/STDIP and 250% in relation to the PSP). In relation to annual bonus, the structure described in the policy table will normally apply to new appointees with the relevant maximum being pro-rated to reflect the proportion of the year served. Depending on the timing and responsibilities of the appointment, it may be necessary to set different annual bonus/STDIP performance measures and targets than those applicable to other Executive Directors. ‘Buy-out’ awards The Committee may offer additional cash and/or share-based elements in order to ‘buy-out’ remuneration relinquished on leaving a former employer. Any buy-out awards are not included within the maximum level of variable pay set out above. In the event that such a buy-out is necessary to secure the services of an Executive Director then the structure of any award or payment will mirror, as far as is possible, the arrangements in place at the incoming Executive Director’s previous employer. Any share awards made in this regard may have no performance conditions, or different performance conditions, or a shorter vesting period compared to the Company’s existing plans, as appropriate. Shareholders will be informed of any buy-out arrangements at the time of the Executive Director’s appointment. For an internal appointment, existing pension arrangements may continue to operate but any Company contribution to the defined contribution scheme or payment in lieu of Company contributions to the defined contribution scheme would be expected to align with policy on appointment. Employees may continue as employee deferred members of the defined benefit plan, which is closed to future accrual. Any variable pay element awarded in respect of the prior role would be allowed to pay out according to its terms, adjusted as relevant to take into account the appointment. In addition, any other previously awarded entitlements would continue, and be disclosed in the next annual report on Directors’ remuneration. Similarly, if an Executive Director is appointed following a merger or an acquisition of a company, legacy terms and conditions may be honoured. Recruitment of Non-Executive Directors Non-Executive Directors’ fees are set by the Chairman and Executive Directors’, and the Chairman’s fee is set by the Remuneration Committee. Chairman The Committee will recommend to the Board a fee appropriate to the calibre, experience and responsibilities of the new appointee. Other Non-Executive Directors The fee will be set in line with the fee structure for Non-Executive Directors in place at the date of appointment. Alignment to the Corporate Governance Code The proposed policy continues to take account of the 2018 Code. In addition, when setting the new policy, the Remuneration Committee addressed each of the factors set out under Provision 40 of the Code. The PSP plan is simple in its operation and provides clarity by aligning the interests of management with both the business strategy and shareholders. The terms and conditions of the plan provide for a three year performance period followed by a two year holding period. As demonstrated in the scenario charts, remuneration outcomes are predictable, and the performance targets required to achieve payouts result in proportional payouts. This is in addition to the discretion to override formulaic outcomes at vesting. The recovery provisions in both the annual bonus plan and PSP and the introduction of post-cessation holding periods enables the Committee to have appropriate regard to risk considerations. The Committee believes that overall, the policy drives behaviours consistent with the Company’s purpose and values which are focused on the long-term future of the Company throughout the business cycle. 108 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction ## Annual report on remuneration This section details the remuneration payable to the Executive and Non-Executive Directors (including the Chairman) for the financial period ended 30 September 2023 and how we intend to implement our remuneration policy for FY 2024. This report, along with the Chair’s annual statement, will be subject to a single advisory vote at the 2024 AGM. Pay outcomes The tables and related disclosures set out on pages 109 to 118 on Directors’ remuneration, deferred annual bonus share awards (‘STDIP’), PRSP and RSP share options, Share Incentive Plan, Save as You Earn Plan (‘SAYE’) and pension benefits have been audited by KPMG LLP where explicitly indicated. Executive Directors’ remuneration The table below sets out the single figure remuneration received by the Executive Directors during the reporting year and prior year. Executive Directors (audited by KPMG) | | | | | Taxable | | Short-term | | Pension-related | | | Long-term | | | | | | Total | | | Total | | | Total | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | a | | | | | b | | c | | | d | | | | | | | | | | | Basic salaries | | | | benefits | | 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 | | 2023 | | 2022 | 2023 | | 2022 | 2023 | 2022 | 2023 | | 2022 | 2023 | 2022 | 2023 | | 2022 | 2023 | | 2022 | 2023 | | 2022 | 2023 | | 2022 | Phil Urban 581 546 15 15 552 182 40 64 382 – 3 3 1,573 810 639 628 934 182 Tim Jones 486 457 16 15 462 152 34 53 320 – 2 2 1,320 679 538 527 782 152 Sub-total Executive Directors 1,067 1,003 31 30 1,014 334 74 117 702 – 5 5 2,893 1,489 1,177 1,155 1,716 334 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. The value of the RSP vesting is based on the average share price in the last three months of the financial year (219.8p) multiplied by the number of shares vesting. d. Includes free shares awarded under the SIP. Annual bonus a | Details of the measures and targets applying to the 2023 annual bonus 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) | b Adjusted Operating Profit £193.2m £203.4m £209.5m £226.0m (70%) (53 weeks) (7.5%) (35%) (70%) (70%) Outcome Calculation of outcome Performance (% of salary Threshold Target (% of salary payable) (Score) payable) Guest Health (15%) Each element is scored 1 if better than target, 0 if between threshold and target, and -1 if below threshold. | Social Media Score 4.27 4.37 • If the sum of these scores is +2 then | | | 4.38 | | 2 | | --- | --- | --- | --- | --- | --- | | | | maximum bonus is paid (15%). | (+1) | (15%) | | | Complaints Ratio 0.85 0.75 0.72 | • If the sum of these scores is +1 then an | | | | | | | | on-target payment would be made (7.5%). | (0) | | | • 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 | | 79.5 | | 80.5 | | 81.5 | | 82.5 | a | (10%) | (2.5%) | (5%) | (10%) | (10%) | | --- | --- | --- | --- | --- | | Food Safety | | 99.5% | | 98.9% | | (5%) | | (5%) | | (0%) | a. The measures, targets and outcomes are not audited. b. Payout is on a straight-line basis between points. Mitchells & Butlers plc Annual Report and Accounts 2023 109 Governance # Report on Directors' remuneration continued # Financial measures # Adjusted Operating Profit (Outcome 70% out of 70%) Financial targets were set against a backdrop of a highly uncertain environment with a wide range of macroeconomic factors, including rising inflation and increases in food and energy costs coupled with a cost of living crisis that would impact on the spending power of consumers across the economy. The financial targets set by the Committee at the beginning of FY 2023 were extremely stretching particularly in the context of this highly difficult and uncertain environment. At the start of the year we anticipated that the business would face cost headwinds of c. £175m in FY 2023 whilst no longer benefiting from the £52m of Covid-19 related government support received in FY 2022. An on target performance would, therefore, require a sales uplift above 5% combined with cost efficiencies of at least £80m. The actual total sales result for FY 2023 was £122m ahead of budget and on a like-for-like basis increased by 9.1% versus FY 2022, with strong trading performance across our portfolio of brands. As a measure of post pandemic recovery, sales in FY 2023 were £222m higher than in FY 2019. Adjusted Operating Profit in FY 2023 was £226m, which was at the top of the range of consensus forecasts. This has been achieved through strong sales performance combined with the delivery of a number of our Ignite initiatives to mitigate the significant cost increases mentioned earlier. As set out in last year's remuneration report, targets for the annual bonus were set for the whole year but given the uncertainty, the Committee agreed that these targets would be reviewed at the end of the first quarter of FY 2023. Taking account of performance in the first quarter, the forecasted cost increases and continued uncertainty for the remainder of the year, the Committee concluded that the targets were still appropriate, and no changes were made. The performance described above is therefore measured on the original full year target with no adjustment. # Non-financial measures The non-financial measures encompass Guest Health, Employee Engagement and Food Safety, and form an important part of the annual incentive plan. Bonus can only be earned if 97.5% of the Adjusted Operating Profit target is achieved. # Guest Health (15% out of 15%) Guest Health performance is measured as a combination of online review scores and guest complaints. Over the year our online review scores have averaged 4.38, representing a best ever score for this measure. Very good progress has also been made on guest complaints, which are measured as a percentage of complaints received for every 1,000 meals served. Again, performance has been very strong in this area building on progress made across FY 2023. This combined performance has resulted in a maximum payment for this element. # Employee Engagement (10% out of 10%) Employee engagement is measured at two points during the year. In June employees are invited to complete a comprehensive survey, 'YourSay', and this is supplemented by a shorter pulse survey in February. This year around two thirds of employees completed a survey and the overall score across the two surveys was 82.5, a record high for employee engagement resulting in a maximum payment for this element. # Food Safety (0% out of 5%) Food safety is measured by reference to the National Food Hygiene Rating System ('NFHRS') which is based on the number of businesses achieving a 4 or 5 rating. Although the outcome was very strong at 98.9% it fell just short of the very demanding target set at the start of the year and therefore no bonus is payable in respect of this element. # Overall outcome The total bonus awarded to Executive Directors is 95% of salary, resulting in bonus payments of £552,078 and £461,975 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 2021/23 RSP vesting During FY 2021 share awards were made to Phil Urban and Tim Jones under the terms of the RSP to the value of 100% of their respective salaries. Awards were subject to a performance underpin, meaning that the Committee took into account the following factors (amongst other things) when determining whether to exercise its discretion to adjust the number of shares vesting: | Underpin condition | Commentary | | --- | --- | | • 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; | No adjustments were made to any bonus outcomes during the vesting period. The approval of any annual bonus payout is subject to a robust quality of earnings assessment that considers all aspects of scorecard performance and a range of other performance factors to determine if the annual bonus outcome was consistent with overall business performance. This annual assessment is then used as a basis to assess performance against these factors over the course of the RSP vesting period. | | • 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 | There were no issues that caused material damage to the reputation of the Company. | 110 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Underpin condition Commentary • that the business has a stable and The Board believes that the business continues to have a stable capital structure and also notes appropriate capital structure in place that during the period our unsecured debt facilities were successfully renegotiated. following the cessation of restrictions on trade due to the Covid-19 pandemic The new Revolving Credit Facility (‘RCF’) has been increased in size to £200m based on a wider that enables the recovery of the business banking group, including the continued support of all existing banks, and extends for a further and execution of the Company’s three years to July 2026. strategic priorities. Therefore, having reviewed each underpin condition, the Committee determined that awards should vest in full. In addition, no discretion was exercised by the Committee in respect of share price depreciation over the period. Long-term incentive awards made during FY 2023 An award for FY 2023/25 was made to the Chief Executive and the Chief Financial Officer in December 2022 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 that enables 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 | 30/09/23 | annual salary) | | date | | (p) | vesting date | | lapse date | | | | £ | Phil Urban 412,490 100 Dec 2022 133.7 Dec 2025 Feb 2026 555,212 Tim Jones 345,175 100 Dec 2022 133.7 Dec 2025 Feb 2026 464,606 Total 757,665 1,019,818 a. Market price is the average of the middle market quotations 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 (134.6p). 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 30/9/23 | | date | | | (p) | | date | | | (p) | period | Phil Urban 1,343 14/9/23 223 14/9/26 n/a – Tim Jones 1,113 14/9/23 223 14/9/26 n/a – Total 2,456 – Directors’ entitlements under the Partnership Share element of the SIP are set out as part of the Directors’ interests table on page 116. Executive Directors: Implementation of remuneration policy in FY 2024 Fixed Pay (Base Pay, Pensions and Benefits) The current level of inflation is putting pressure on pay increases. Overall pay increases have been 7.7% over the year with hourly paid frontline employees who are typically the lowest paid employees in the Group, seeing the largest increases. With effect from 1 January 2024 Phil Urban’s salary will increase to £607,500 (4.9%) and Tim Jones’s to £508,000 (4.9%). In line with our intention to reduce pension allowances for Executive Directors to the average employer contribution, the pension allowance paid to Executive Directors will reduce to 4%, in line with the general workforce. There are no changes to the benefits available to Executive Directors. Mitchells & Butlers plc Annual Report and Accounts 2023 111 DIAVITRATES # Report on Directors' remuneration continued # Annual Bonus The Committee believes that the annual bonus scheme for FY 2023 was successful in driving the right behaviours across the business and as such has determined that the annual bonus scheme for FY 2024 will be broadly the same 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. 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 Overall safety performance. - The non-financial elements will only be payable if a threshold level of financial performance is achieved. For FY 2024 this will be unchanged at 97.5% of Adjusted 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. # Performance Share Plan ('PSP') award FY 2024 to FY 2026 A PSP award is due to be made in respect of the 2024-2026 performance period subject to shareholder approval of the plan. This will be the first PSP under the new plan. The Committee has undertaken a thorough review of the performance measures that will apply to the first awards to be granted under the new PSP and these are summarised in the table below: | 2024 – 2026 PSP performance conditions | Weighting (% of maximum) | Threshold | Maximum | | --- | --- | --- | --- | | Operating Cashflow (£m) | 70% | 1,296 | 1,368 | | EPS Growth (% CAGR) | 20% | 21.4 | 25.9 | | Sustainability – reduction in Scope 1, 2 & 3 emissions tCO_{2}e | 10% | -53,619 | -53,619 | # Additional remuneration disclosures # Payment for loss of office No payments for loss of office were made in the year ended 30 September 2023. # Payments to past Directors No payments were made to any past Directors in the year ended 30 September 2023. # Total shareholder return from September 2013 to September 2023 (rebased to 100) This graph shows the value, by 30 September 2023, of £100 invested in Mitchells & Butlers plc on 30 September 2013, compared with the value of £100 invested in the FTSE 250 and the FTSE All Share Travel and Leisure indices. ![img-5.jpeg](img-5.jpeg) 112 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ## CEO earnings history | Year ended | 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 | 30/9/23 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Phil Urban** | | | | | | | | | | | | Single figure remuneration (£000) | – | – | 613 | 770 | 819 | 1,684 | 553 | 627 | 810 | **1,573** | | Annual bonus outcome (% of max) | – | – | – | 28 | 39 | 82 | – | – | 33 | **95** | | LTIP vesting outcome (% of max) | – | – | – | – | – | 47.5 | – | – | – | **100** | | **Alistair Darby** | | | | | | | | | | | | Single figure remuneration (£000) | 642 | 878 | – | – | – | – | – | – | – | – | | Annual bonus outcome (% of max) | – | – | – | – | – | – | – | – | – | – | | LTIP vesting outcome (% of max) | n/a | 19.0 | – | – | – | – | – | – | – | – | ## Pay ratios The table below sets out the Chief Executive pay ratio at the median, 25th and 75th percentiles for 2023. 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 six 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) | | **2023** | **Option C** | **86:1** | **82:1** | **78:1** | | 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 30 September 2023. 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 charges, 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 | 581,134 | 18,218 | 18,964 | 20,002 | | Total pay | 1,568,037 | 18,218 | 18,964 | 20,058 | 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 and the first vesting under the RSP. The Committee believes that the ratio is broadly consistent with that of other organisations in the hospitality and retail sectors. 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. 5,200 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. ## Gender Pay Gap The 2023 mean Gender Pay Gap for the Group is -1.7% (2022, 5.6%) and the median Gender Pay Gap is 0.6% (2022, 2.2%). The mean bonus gap is 24.3% (2022 11.0%) and the median bonus gap is 26.3 (2022, 0.0%). Mitchells & Butlers plc Annual Report and Accounts 2023 113 Governance # Report on Directors' remuneration continued # Year-on-year change in remuneration of Directors compared to an average employee | | 2023 | | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Salary/Fees | Bonus | Benefits | Salary/Fees | Bonus | Benefits | Salary/Fees | Bonus | Benefits | | **Average employee** | **8.7%** | **422.3%** | **-6.3%** | 5.6% | 32.2% | -14.0% | 1.2% | 81.6% | 6.3% | | **Executive Directors** | | | | | | | | | | | Phil Urban | 6.5% | 202.9% | 4.3% | 2.2% | 100.0% | 3.1% | 0.00% | 0.00% | -1.4% | | Tim Jones | 6.5% | 203.0% | 2.2% | 2.2% | 100.0% | 5.9% | 0.00% | 0.00% | -3.3% | | **Non-Executive Directors** | | | | | | | | | | | Bob Ivell | 4.8% | – | 180.0% | 0.0% | 0.0% | -60.4% | 0.0% | 0.0% | -25.4% | | Eddie Irwin | 4.8% | – | – | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0% | | Dave Coplin | 4.8% | – | 967.9% | 0.0% | 0.0% | -93.2% | 0.0% | 0.0% | -74.0% | | Josh Levy | 4.8% | – | – | 0.0% | 0.0% | -100.0% | 0.0% | 0.0% | 225.1% | | Keith Browne | 4.8% | – | – | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | -59.2% | | Jane Moriarty | 8.7% | – | 197.3% | 34.8% | 0.0% | -54.3% | 24.5% | 0.0% | 443.9% | | Amanda Brown | 354.0% | – | – | 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. 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 115. The increase in fees for Amanda Brown in FY 2023 reflects that she was only in position for a short period in FY 2022. # Relative importance of spend on pay £m Figures shown for wages and salaries consist of all earnings, including bonus. In FY 2023, £2.9m (0.36%) was paid to Executive and Non-Executive Directors (2022 £1.5m (0.1%)). ![img-6.jpeg](img-6.jpeg) # Fees for external directorships No external non-executive directorships were held by either Executive Director during the year to 30 September 2023. 114 Annual Report and Accounts 2023 Mitchells & Batlers plc Strategic Report Governance Financial Statements Other InformationIntroduction Chairman and Non-Executive Directors Non-Executive Directors (audited by KPMG) The table below set out the single figure remuneration received by the Non-Executive Directors during the reporting year and prior year. Taxable Short-term Pension-related Long-term Total Total Total a | | Fees | | benefits | | 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 | | 2023 | | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | | 2022 | 2023 | 2022 | 2023 | | 2022 | 2023 | | 2022 | 2023 | | 2022 | 2023 | | 2022 | Bob Ivell 298 284 2 1 – – – – – – – – 300 285 300 285 – – Eddie Irwin 55 53 – – – – – – – – – – 55 53 55 53 – – Josh Levy 55 53 0.5 – – – – – – – – – 55.5 53 55.5 53 – – Dave Coplin 69 66 0.5 – – – – – – – – – 69.5 66 69.5 66 – – Keith Browne 55 53 – – – – – – – – – – 55 53 55 53 – – b Susan Murray – 22 – – – – – – – – – – – 22 – 22 – – Jane Moriarty 83 76 1 0.5 – – – – – – – – 84 76.5 84 76.5 – – c Amanda Brown 69 15 1 – – – – – – – – – 70 15 70 15 – – Sub-total Non-Executive Directors 684 622 5 1.5 – – – – – – – – 689 623.5 689 623.5 – – Total Executive Directors and Non-Executive Directors 1,751 1,625 36 31.5 1,014 334 74 117 702 – 5 5 3,582 2,112.5 1,866 1,778.5 1,716 334 a. 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). b. Susan Murray stepped down from the Board on 25 January 2022. c. Amanda Brown was appointed to the Board on 4 July 2022. Non-Executive Directors: Implementation of remuneration policy in FY 2024 The Chairman’s fee and those of the Non Executive Directors were increased in January 2022. No increase will apply in 2024. Directors’ shareholdings and share interests 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 | | | | 24 September | | | during the | during the | during the | 30 September | | | | Executive Director Scheme | | | 2022 | period | period | period | | | 2023 | Phil Urban PRSP 342,596 – 253,113 – 89,483 RSP 400,617 412,490 – – 813,107 STDIP – 68,152 – – 68,152 SAYE 7,031 – – – 7,031 Total 750,244 480,642 253,113 – 977,773 Tim Jones PRSP 200,598 – 148,216 – 52,382 RSP 335,157 345,175 – – 680,332 STDIP – 57,027 – – 57,027 SAYE – – – – Total 535,755 402,202 148,216 – 789,741 Gains made by the Executive Directors in relation to share options during FY 2023 were nil. In the prior year both Phil Urban and Tim Jones exercised options under the SAYE scheme and the resultant gain was £2,377 for each Director. 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 30 September 2023 was 148% of his basic annual salary (2022 119.3%) and Tim Jones’s shareholding was 133% of his basic annual salary (2022 109.6%) 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. Mitchells & Butlers plc Annual Report and Accounts 2023 115 Governance # Report on Directors' remuneration continued # Executive Directors' shareholdings ![img-7.jpeg](img-7.jpeg) Executive Directors' shareholdings are calculated based on the average share price over the final three months of the financial period; for FY 2023 this was 219.8p (FY 2022 173.1p). The interests of the Directors in the ordinary shares of the Company as at 24 September 2022 and 30 September 2023 are as set out below (audited by KPMG): | | 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 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | | **Executive Directors** | | | | | | | | | | | | | | | | Phil Urban | 388,139 | 385,742 | – | – | 68,152 | – | 7,031 | 7,031 | 902,590 | 743,213 | – | – | 1,365,912 | 1,135,986 | | Tim Jones | 294,259 | 292,092 | – | – | 57,027 | – | – | – | 732,714 | 535,755 | – | – | 1,084,000 | 827,847 | | **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 | 6,000 | 2,836 | – | – | – | – | – | – | – | – | – | – | 6,000 | 2,836 | | Josh Levy | – | – | – | – | – | – | – | – | – | – | – | – | – | – | | Keith Browne | – | – | – | – | – | – | – | – | – | – | – | – | – | – | | Jane Moriarty | – | – | – | – | – | – | – | – | – | – | – | – | – | – | | Amanda Brown | – | – | – | – | – | – | – | – | – | – | – | – | – | – | | **Total** | **749,503** | **741,775** | **–** | **–** | **125,179** | **–** | **7,031** | **7,031** | **1,635,304** | **1,278,968** | **–** | **–** | **2,517,017** | **2,027,774** | a. Includes Free Shares and Partnership Shares granted under the SIP. b. Deferred bonus awards granted under the STDIP. c. Options granted under the Sharesave as detailed in the table on page 115. d. Options granted under the PRSP or RSP as detailed in the table on page 115. 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 127 and 128 shares respectively under the Partnership Share element of the Share Incentive Plan between the end of the financial period and 29 November 2023. 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 30 September 2023 was 226p and the range during the year to 30 September 2023 was 102p to 236.2p per share. The Executive Directors as a group beneficially own 0.1% of the Company's shares. 116 \_\_\_\_\_ Annual Report and Accounts 2023 Mitchells & Batlers plc Introduction Strategic Report Governance Financial Statements Other Information ## Service contracts and Letters of Appointment ### Executive Directors 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. ### 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 2024 AGM. 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 2024 AGM. ### Mitchells & Butlers Remuneration Committee #### Committee terms of reference The Committee's terms of reference were reviewed and updated in 2019 to take account of the 2018 UK Corporate Governance Code. The Committee's main responsibilities include: - determining and making recommendations to the Board on the Company's Executive remuneration policy and its cost; - taking account of all factors necessary when determining the remuneration policy, the objective of which is to ensure that the policy promotes the long-term success of the Company; - determining the individual remuneration packages of the Executive Directors and other senior Executives (including the Group General Counsel and Company Secretary and all direct reports to the Chief Executive) and, in discussion with the Executive Directors, the Company Chairman; - having regard to the pay and employment conditions across the Company when setting the remuneration of individuals under the remit of the Committee; and - aligning Executive Directors' interests with those of shareholders by providing the potential to earn significant rewards where significant shareholder value has been delivered. ### Committee membership and operation Committee members and their respective appointment dates are detailed in the table below. | Name | Date of appointment to the Committee | | --- | --- | | Amanda Brown^{a} | 4 July 2022 | | Bob Ivell | 11 July 2013 | | Dave Coplin^{a} | 29 February 2016 | | Josh Levy | 20 July 2017 | | Jane Moriarty^{a} | 27 February 2019 | a. Independent Non-Executive Directors. ### Committee activity during the year During the year the Committee met six times. Key remuneration items considered over the year were as follows: | October 2022 | Annual Bonus Targets Salary Reviews Annual Bonus and 2020/2022 PRSP update | | --- | --- | | November 2022 | 2022 Bonus – Confirmation of outcome 2020 PRSP Vesting outcome Final approval of RSP plan operation | | March 2023 | Confirmation of targets for Annual Bonus AGM Voting outcomes Remuneration policy approach and timeline | | April 2023 | Remuneration policy design and PSP structure PSP measures | | July 2023 | Remuneration policy review Approval of PSP | | September 2023 | Remuneration policy review 2024 Annual Bonus Plan structure Employee engagement | ### Advice to the Committee The Committee received advice from PwC LLP ('PwC') during the year. PwC were appointed following a competitive tender process during 2018. PwC are signatories to the Remuneration Consultants Group Code of Conduct and any advice received is governed by that Code. Total fees payable in respect of remuneration advice to the Committee in the reporting year totalled £66,250$^{a}$ and were charged on a time and materials basis. Advice was also received from the Company's legal advisers, Freshfields Bruckhaus Deringer LLP, on the operation of the Company's employee share schemes and on corporate governance matters. Clifford Chance LLP also provided advice in relation to pension schemes. The Committee is satisfied that the advice received from its advisers was objective and independent and that the PwC engagement partner and the team that provide remuneration advice to the Committee do not have any connections that may impair their independence. Members of management including Susan Martindale, the Group HR Director, and Craig Provett, the Director of Compensation and Benefits, are invited to attend meetings on remuneration matters where appropriate. They are not present when matters affecting their own remuneration arrangements are discussed. The Company Chairman does not attend Board or Committee meetings when his remuneration is under review. Phil Urban and Tim Jones were present at meetings where the Company's long-term and short-term incentive arrangements and share schemes were discussed. However, each declared an interest in the matters under review and did not vote on their own arrangements. b. Fees are shown net of VAT. 20% VAT was paid on the advisers' fees shown above. Mitchells & Butlers plc Annual Report and Accounts 2023 117 Governance # Report on Directors' remuneration continued # Previous AGM voting outcomes At the last AGM (held on 8 February 2023), a resolution on the annual report on remuneration was subject to an advisory vote. The table below sets out details of this advisory vote at the 2023 AGM, and also the outcome of the vote on our remuneration policy at the 2021 AGM: | | Votes cast | Votes for^{a} | % | Votes against | % | Votes withheld^{b} | | --- | --- | --- | --- | --- | --- | --- | | Approval of annual report on remuneration | 519,324,549 | 407,632,174 | 78.49 | 111,692,375 | 21.51 | 52,492 | | 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. The Board was disappointed by the level of votes against the resolution to approval the annual report on remuneration at the 2023 AGM. The Board sought to set out the rationale for the key decisions taken in relation to remuneration, which they firmly believed were in the best interests of all shareholders. The Directors' Remuneration Report has been approved by the Board of Mitchells & Butlers plc. Amanda Brown Chair of the Remuneration Committee 29 November 2023 118 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information # Financial Statements 53 weeks ended 30 September 2023 Details the financial performance of the Group in FY 2023 in comparison to its performance in prior years. In this section 120 Independent auditor's report to the members of Mitchells & Butlers plc 128 Group income statement 129 Group statement of comprehensive income 130 Group balance sheet 131 Group statement of changes in equity 132 Group cash flow statement Notes to the consolidated financial statements 133 Section 1 – Basis of preparation 136 Section 2 – Results for the period 136 2.1 Segmental analysis 136 2.2 Separately disclosed items 137 2.3 Revenue and operating costs 140 2.4 Taxation 143 2.5 Earnings per share 144 Section 3 – Operating assets and liabilities 144 3.1 Property, plant and equipment 149 3.2 Leases 153 3.3 Impairment 154 3.4 Working capital 156 3.5 Provisions 157 3.6 Goodwill and other intangible assets 159 3.7 Associates 160 Section 4 – Capital structure and financing costs 160 4.1 Borrowings 162 4.2 Finance costs and income 162 4.3 Financial instruments 171 4.4 Net debt 173 4.5 Pensions 178 4.6 Share-based payments 180 4.7 Equity 182 Section 5 – Other notes 182 5.1 Acquisitions 183 5.2 Related party transactions 184 5.3 Subsidiaries and associates 186 Mitchells & Butlers plc Company financial statements 188 Notes to the Mitchells & Butlers plc Company financial statements Mitchells & Butlers plc Annual Report and Accounts 2023 119 Financial Statements # Independent auditor's report to the members of Mitchells & Butlers plc ## 1. Our opinion is unmodified We have audited the financial statements of Mitchells & Butlers plc ("the Company") for the 53 week period ended 30 September 2023 which comprise the Group Income Statement, the Group Statement of Comprehensive Income, the Group and Company Balance Sheets, the Group and Company Statements of Changes in Equity, the Group cash flow statement and the related notes, including the accounting policies within notes 1 to 5.3 of the Group financial statements and notes 1 to 10 of the Company financial statements. ### In our opinion: - the financial statements give a true and fair view of the state of the Group's and of the parent Company's affairs as at 30 September 2023 and of the Group's loss for the 53 week period then ended; - the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards; - the parent Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework; and - the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. ## Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ('ISAs (UK)') and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee. We were first appointed as auditor by the shareholders on 25 January 2022. The period of total uninterrupted engagement is for the 2 financial periods ended 30 September 2023. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided. ## Overview | **Materiality:** | £23m (2022: £22m) | | --- | --- | | Group financial statements as a whole | 0.48% (2022: 0.44%) of total assets | | **Coverage** | 94% (2022: 95%) of Group total assets | | **Key audit matters** | **vs 2022** | | **Recurring risks** | Valuation of the freehold and long leasehold restaurant and pub estate | | | Going concern | | | Recoverability of parent Company investment in subsidiaries | 120 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Other InformationIntroduction Financial Statements 2. 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. We summarise below the 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 Subjective estimate We performed the tests below rather than seeking to rely on any of the Group’s freehold and long The Group holds its freehold controls because the nature of the balance is such that we would expect to obtain leasehold restaurant and long leasehold property audit evidence primarily through the detailed procedures described. and pub estate estate at fair value, with a revaluation taking place as at Our procedures included: (£4,086 million; 2022: each balance sheet date. We £4,036 million) determined that the valuation Assessing valuation approach: of the Group’s property estate We met with the Group’s external valuers and the relevant Group management to Refer to page 86 (Audit is a major source of estimation critically assess the valuation assumptions and methodology used in valuing the Committee Report) and uncertainty. properties and the market evidence used by the valuers to support their assumptions. pages 144 to 148 We also obtained an understanding of the relevant Group management’s involvement (accounting policy and The valuation involves the in the valuation process to assess whether appropriate oversight had occurred. financial disclosures). determination of estimates, most notably the fair Assessing valuer’s credentials: maintainable trade (‘FMT’) and We critically assessed the independence, professional qualification, competence applicable trading multiples by and experience of the internal and external valuers engaged by the Group. brand and location. Sensitivity analysis: These estimations are We considered sensitivities to the overall valuation from changes to fair maintainable inherently subjective and small trade and to valuation multiples. changes in the assumptions used to value the Group’s Benchmarking assumptions: estate could have a potential We challenged the key assumptions, with the assistance of our own valuation range of reasonable outcomes specialists, for a sample of properties by making a comparison to market greater than our materiality for comparable data. the financial statements as a whole. Comparing valuations: We compared the sum of discounted cash flows to the Group’s market capitalisation Business risks related to audit to assess the reasonableness of those cash flows which were consistent with those risks include: used to help inform our assessment of FMT. • Economic environment Assessing inputs: (cost inflation) and We agreed observable inputs used for a sample of assets in the valuation to consumer changes (post source documentation. COVID-19 demographic changes) have led to Assessing outputs: increased uncertainty of We evaluated and challenged the output of the valuations through the identification future performance based of higher risk assets with the assistance of our own valuation specialists by comparing on historic trends. to similar asset performance. We also considered recent brand performance in • Capital market sentiment relation to key inputs such as forecast revenue and the impact of inflation on of the sector remains in historical margin assumptions. recovery and the sector has been trading below its Assessing transparency: historical levels, leading to We critically assessed the adequacy of the Group’s disclosures in relation to the a deficit between market valuation of the estate and the sensitivity of changes in key assumptions. capitalisation and asset carrying value of the Group Our results as a whole. We found the valuation of the freehold and long leasehold restaurant and pub estate to be acceptable (2022: acceptable). Mitchells & Butlers plc Annual Report and Accounts 2023 121 Financial Statements Independent auditor’s report to the members of Mitchells & Butlers plc continued 2. Key audit matters: our assessment of risks of material misstatement continued The risk Our response Going Concern Disclosure quality We considered whether these risks could plausibly affect the liquidity and covenant Refer to page 86 (Audit The financial statements compliance in the going concern period by assessing the directors’ sensitivities over Committee Report) and explain how the Board has the level of available financial resources and covenant thresholds indicated by the page 133 and 134 formed a judgement that it is Group’s financial forecasts taking account of severe, but plausible, adverse effects (financial disclosures). appropriate to adopt the going that could arise from these risks individually and collectively. concern basis of preparation for the Group and the parent Our procedures included: Company. That judgement is based on an evaluation of the Funding assessment: inherent risks to the Group’s We assessed the forecast cash position, available committed facilities and the business model and how those directors’ assessment of the Group’s ability to comply with its covenants for a period risks might affect the Group’s of at least 12 months from the date of approval of the financial statements (‘forecast financial resources or ability to period)’, to understand the financial resources available to the Group during the continue operations over a forecast period. period of at least 12 months from the date of approval of Historical comparisons: the financial statements. We assessed the ability of the Group to accurately forecast by comparing the most recent financial year’s performance against budget and challenged the assumptions The risks most likely to over the going concern period based on historical performance. We also compared adversely affect the Group’s the actual performance in recent years versus base case and downside case to available financial resources challenge the quantum of risks applied in the forecasts. and metrics relevant to debt covenants over this We considered the consistency of the directors’ forecasts with other areas of our period were: audit, including our work on right-of-use asset impairment and revaluation of freehold and long leasehold properties. • Maintenance of sales growth in the face of Key dependency assessment: pressure on consumer We evaluated how the cash flow model captures events and conditions that may spending power cast significant doubt on the ability to continue as a going concern and evaluated • Future outlook for cost whether key assumptions were within a reasonable range, and assessed the inflation specifically in plausible but severe downside scenarios, particularly whether those downside food costs, drink costs, scenarios reflected plausible impacts of higher cost inflation and changes in energy prices and wages consumer behaviour on the business. and salaries. Sensitivity analysis: There are also less predictable We assessed the downside sensitivities to check whether these represented severe but realistic second order but plausible scenarios based on our knowledge of the business and sector and we impacts, such as impact of considered the most recent trading results to form a holistic view of the Group. global political developments, supply chain disruptions and Our sector experience: government policy. We assessed the forecasts and key assumptions by reference to our knowledge of the business and the general market conditions including the potential risk of The risk for our audit was management bias. We critically assessed the impact of those market conditions on whether or not those risks sales and cost inflation assumptions included within the cash flow forecasts; were such that they amounted to a material uncertainty that Evaluating directors’ intent: may have cast significant We evaluated the achievability of the actions the directors consider they would take doubt about the ability to to improve the position should the risks materialise, taking into account the extent to continue as a going concern. which the directors can control the timing and outcome of these. Had they been such, then that fact would have been required Assessing transparency: to have been disclosed. We considered whether the going concern disclosure in note 1 to the financial statements gives a full and accurate description of the directors’ assessment of going concern, including the identified risks and, dependencies, and related sensitivities. Our results We found the going concern disclosure in note 1 without any material uncertainty to be acceptable (2022: with a material uncertainty to be acceptable). 122 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Other InformationIntroduction Financial Statements The risk Our response Recoverability of Low risk high value We performed the tests below rather than seeking to rely on any of the parent parent Company’s The carrying amount of the Company’s controls because the nature of the balance is such that we would expect investment in parent Company’s to obtain audit evidence primarily through the detailed procedures described. | subsidiaries | investments in subsidiaries | | | --- | --- | --- | | | represents 74% (2022 74%) | Our procedures included: | | (£1,866 million; 2022: | of the Company’s total assets. | | | £1,866 million) | Their recoverability is not a | Test of detail: | | | high risk of misstatement or | We compared the carrying amount of all investments with the relevant subsidiaries’ | | Refer to note 5 on page | subject to significant | draft balance sheet to identify whether their net assets, being an approximation of | | 189 (accounting policy | judgement. However, due to | their minimum recoverable amount, are in excess of their carrying amount and | | financial disclosures). | their materiality in the context | assess whether those subsidiaries have historically been profit-making. | of the parent Company financial statements, this is Comparing valuations: considered to be the area that For the investments where the carrying amount exceeds the net asset value, we had the greatest effect on our compared the carrying amount of the investment to the directors’ assessment of fair overall parent Company audit. value less costs to sell or value in use whichever is higher. Benchmarking assumptions: We assessed and challenged the key assumptions in the fair value less costs to sell and value in use calculations 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 and Group’s net assets to assess the reasonableness of those cash flows. Our results We found the parent Company’s conclusion that there is no impairment of its investments in subsidiaries to be acceptable (2022: acceptable). We continue to perform procedures over impairment of right-of-use assets and short leasehold properties. However, as any reasonable changes to the assumptions will not lead to a material misstatement, we have not considered this as a key audit matter and, therefore, it is not separately identified in this report as such. Mitchells & Butlers plc Annual Report and Accounts 2023 123 Financial Statements Independent auditor’s report to the members of Mitchells & Butlers plc continued 3. Our application of materiality and an overview of the Of the Group’s 6 (2022: 6) reporting components, we subjected 5 scope of our audit (2022: 6) to full scope audits for group purposes and 1 (2022: Nil) to Materiality for the Group financial statements as a whole was set at specified risk-focused audit procedures. The latter were not individually £23 million (2022: £22 million), determined with reference to a financially significant enough to require a full scope audit for group benchmark of total assets, of which it represents 0.48% (2022: 0.44%) purposes, but did present specific individual risks that needed to be which we consider to be appropriate given the sector in which the entity addressed. We conducted reviews of financial information (including operates; the majority of total asset value is in the pub estate and these enquiry) at a further 41 (2022: 40) non-significant components as these assets act as security for the Group’s securitised borrowings and will components are not quantitively or qualitatively significant. therefore be a focus of users of the accounts. The components within the scope of our work accounted for the Materiality for the parent Company financial statements as a whole was percentages illustrated below. set at £18.7 million (2022: £11 million), determined with reference to a benchmark of parent Company total assets, of which it represents 0.74% We subjected 1 (2022: Nil) components to specified risk-focused audit (2022: 0.44%). procedures over borrowings, derivative financial instruments, cash and cash equivalents, deferred tax asset, finance costs, finance income and In line with our audit methodology, our procedures on individual account cash flow hedges. balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually For the residual components, we performed analysis at an aggregated immaterial misstatements in individual account balances add up to a group level to re-examine our assessment that there were no significant material amount across the financial statements as a whole. risks of material misstatement within these. Performance materiality was set at 75% (2022: 75%) of materiality for the The scope of the audit work performed was predominately substantive financial statements as a whole, which equates to £17.2 million (2022: as we placed limited reliance upon the Group’s internal control over £16.5 million) for the Group and £13.8 million (2022: £8.25 million) for financial reporting. the parent Company. We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk. £4,802 million £23 million (2022: £4.951 million) (2022: £22 million) In addition, we applied materiality of £16.4 million, to Group revenue and cash and cash equivalents (2022: £10.0 million to Group revenue), for £23m Whole financial statements which we believe misstatement of lesser amounts than materiality for the materiality (2022: £22m) financial statements as a whole could reasonably be expected to influence £17.2m the Company’s members’ assessment of the financial performance of Whole financial statements the Group. performance materiality (2022: £16.5m) We agreed to report to the Audit Committee any corrected or £20.7m uncorrected identified misstatements exceeding £1.15 million (2022: Range of materiality at 5 £1.1 million), in addition to other identified misstatements that warranted components (£11.5m–£20.7m) (2022: £7.5m–£19.8m) reporting on qualitative grounds. £1.15m Misstatements reported to the Group total assets audit committee (2022: £1.1m) Group materiality 6% 12% 18% 5% 6% 11% | Group total assets | 26% | | | | | --- | --- | --- | --- | --- | | | | 94% | 82% | 88% | | | | (2022: 95%) | (2022: 94%) | (2022: 89%) | 55% 27% | | | 68% | | 94% | | | --- | --- | --- | --- | --- | --- | | | 95% | | | | 89% | | Group total assets | | | Group materiality | | | 88% Total profits and losses that made Group revenue up Group profit before tax Full scope for group audit purposes 2023 Specified risk-focused audit procedures 2023 Full scope for group audit purposes 2022 Residual components 124 Annual Report and Accounts 2023 Mitchells & Butlers plc | Full scope for group audit purposes 2023 Full scope for group audit purposes 2023 | | --- | | Specified risk-focused audit procedures 2023 Specified risk-focused audit procedures 2023 | | Full scope for group audit purposes 2022 Full scope for group audit purposes 2022 | | Residual components Residual components | Strategic Report Governance Other InformationIntroduction Financial Statements 4. The impact of climate change in our audit However, as we cannot predict all future events or conditions and as In planning our audit, we considered the potential impacts of climate subsequent events may result in outcomes that are inconsistent with change on the Group’s business and its financial statements. judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the parent Company The Group has set out its target to achieve zero greenhouse gas will continue in operation. emissions by 2040, for Scope 1, 2 and 3 emissions, zero operation waste to landfill by 2030 and to reduce food waste by 50% by 2030 6. Fraud and breaches of laws and regulations – ability (from FY 2019 baselines). to detect Identifying and responding to risks of material misstatement However, whilst the Group has set targets to be carbon neutral by 2050, due to fraud the consequences, in terms of investment, of the gross cost of this To identify risks of material misstatement due to fraud (‘fraud risks’) transition, how the demand might be impacted by the price increases we assessed events or conditions that could indicate an incentive or needed to recover these costs and the longer term changes in customer pressure to commit fraud or provide an opportunity to commit fraud. behaviour are still being assessed, as the Group considers how it will Our risk assessment procedures included: work towards meeting these targets. • Enquiring of directors, the audit committee, internal audit and As part of our audit we have performed a risk assessment, including inspection of policy documentation as to the Group’s and parent making enquiries of management, reading board meeting minutes and Company’s high-level policies and procedures to prevent and detect applying our knowledge of the Group and sector in which it operates to fraud, including the internal audit function, and the Group’s and understand the extent of the potential impact of climate change risk on parent Company’s channels for ‘whistleblowing’, as well as whether the Group’s financial statements. Taking into account the nature of the they have knowledge of any actual, suspected or alleged fraud. business, we have not assessed climate related risk to be significant to • Reading Board, audit committee, risk and remuneration committee our audit this financial year. There was no impact on our key audit matters. meeting minutes. • Considering remuneration incentive schemes and performance We also read the Group’s disclosure of climate related information in targets for directors and other management. the front half of the annual report and considered consistency with the • Using analytical procedures to identify any unusual or unexpected financial statements and our knowledge gained from our financial relationships. statement audit work. • Considering the existence of any significant unusual transactions. 5. Going concern We communicated identified fraud risks throughout the audit team and The directors have prepared the financial statements on the going remained alert to any indications of fraud throughout the audit. concern basis as they do not intend to liquidate the Group or the parent Company or to cease their operations, and as they have concluded that As required by auditing standards, and taking into account possible the Group’s and the parent Company’s financial position means that this pressures to meet profit targets, our overall knowledge of the control is realistic. They have also concluded that there are no material environment, we perform procedures to address the risk of management uncertainties that could have cast significant doubt over their ability to override of controls, in particular the risk that Group and component continue as a going concern for at least 12 months from the date of management may be in a position to make inappropriate accounting approval of the financial statements (“the going concern period”). entries and the risk of bias in accounting estimates and judgements such as the valuation of the estate and impairment assumptions. On this audit An explanation of how we evaluated management’s assessment of going we do not believe there is a fraud risk related to revenue recognition concern is set out in the related key audit matter in section 2 of this report. because Group revenue is generated predominantly through the operation of pubs. This revenue contains no significant judgements and is comprised Our conclusions based on this work: of a large number of small, simple transactions that are received in cash or credit card receivables at the point of sale. Therefore there is limited • we consider that the directors’ use of the going concern basis of opportunity for management to manipulate or to fraudulently post the accounting in the preparation of the financial statements is appropriate; volume of transactions that would be required to have a material impact • we have not identified, and concur with the directors’ assessment on revenue. that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the We also identified a fraud risk related to the valuation of the freehold and Group’s or parent Company’s ability to continue as a going concern long leasehold pub and restaurant estate. Further detail in respect of this for the going concern period; area is set out in the key audit matter disclosures in section 2 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 We performed procedures including: the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and parent Company’s • Identifying journal entries and other adjustments to test for all full use of that basis for the going concern period, and we found the going scope components based on risk criteria and comparing the identified concern disclosure in note 1 to be acceptable; and entries to supporting documentation. These included those posted • the related statement under the Listing Rules set out on page 54 by senior finance management/those posted to unusual accounts is materially consistent with the financial statements and our related to revenue, cash and borrowings, operating costs/other audit knowledge. expenses, seldom used accounts and those that move costs out of EBITDA. • Evaluated the business purpose of significant unusual transactions. • Assessed whether the judgements made in making accounting estimates are indicative of a potential bias. Mitchells & Butlers plc Annual Report and Accounts 2023 125 Financial Statements Independent auditor’s report to the members of Mitchells & Butlers plc continued 6. Fraud and breaches of laws and regulations – ability 7. We have nothing to report on the other information in the 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 We identified areas of laws and regulations that could reasonably be the financial statements does not cover the other information and, expected to have a material effect on the financial statements from our accordingly, we do not express an audit opinion or, except as explicitly general commercial and sector experience, and through discussion with stated below, 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, and discussed with the directors and other management the policies and consider whether, based on our financial statements audit work, the procedures regarding compliance with laws and regulations. information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work As the Group is regulated, our assessment of risks involved gaining an we have not identified 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 • we have not identified material misstatements in the strategic report the audit. and the directors’ report; • in our opinion the information given in those reports for the financial The potential effect of these laws and regulations on the financial year is consistent with the financial statements; and statements varies considerably. • in our opinion those reports have been prepared in accordance with the Companies Act 2006. Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including Directors’ remuneration report related companies legislation), distributable profits legislation, pension In our opinion the part of the Directors’ Remuneration Report to be legislation and taxation legislation and we assessed the extent of compliance audited has been properly prepared in accordance with the Companies with these laws and regulations as part of our procedures on the related Act 2006. financial statement items. Disclosures of emerging and principal risks and longer-term viability Secondly, the Group is subject to many other laws and regulations where We are required to perform procedures to identify whether there is a the consequences of non-compliance could have a material effect on material inconsistency between the directors’ disclosures in respect of amounts or disclosures in the financial statements, for instance through emerging and principal risks and the viability statement, and the financial the imposition of fines or litigation or the loss of the Group’s license to statements and our audit knowledge. operate. We identified the following areas as those most likely to have such an effect: licensing regulations, responsible drinking regulations, Based on those procedures, we have nothing material to add or draw planning and building legislation, health and safety, data protection laws, attention to in relation to: anti-bribery, employment law, recognising the nature of the Group’s activities. Auditing standards limit the required audit procedures to • the directors’ confirmation on page 82 that they have carried out identify non-compliance with these laws and regulations to enquiry of a robust assessment of the emerging and principal risks facing the the directors and other management and inspection of regulatory and Group, including those that would threaten its business model, future legal correspondence, if any. Therefore if a breach of operational performance, solvency and liquidity; regulations is not disclosed to us or evident from relevant • the Risks and uncertainties disclosures describing these risks and correspondence, an audit will not detect that breach. how emerging risks are identified, and explaining how they are being managed and mitigated; and Context of the ability of the audit to detect fraud or breaches • the directors’ explanation in the viability statement of how they have of law or regulation assessed the prospects of the Group, over what period they have Owing to the inherent limitations of an audit, there is an unavoidable done so and why they considered that period to be appropriate, and risk that we may not have detected some material misstatements in the their statement as to whether they have a reasonable expectation that financial statements, even though we have properly planned and the Group will be able to continue in operation and meet its liabilities performed our audit in accordance with auditing standards. For example, as they fall due over the period of their assessment, including any the further removed non- compliance with laws and regulations is from related disclosures drawing attention to any necessary qualifications the events and transactions reflected in the financial statements, the less or assumptions. likely the inherently limited procedures required by auditing standards would identify it. We are also required to review the viability statement, set out on pages 48 and 49 under the Listing Rules. Based on the above procedures, we In addition, as with any audit, there remained a higher risk of non- have concluded that the above disclosures are materially consistent with detection of fraud, as these may involve collusion, forgery, intentional the financial statements and our audit knowledge. omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are Our work is limited to assessing these matters in the context of only the not responsible for preventing non-compliance or fraud and cannot be knowledge acquired during our financial statements audit. As we cannot expected to detect non- compliance with all laws and regulations. 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 parent Company’s longer-term viability. 126 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Other InformationIntroduction Financial Statements Corporate governance disclosures Auditor’s responsibilities We are required to perform procedures to identify whether there is Our objectives are to obtain reasonable assurance about whether the a 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 Based on those procedures, we have concluded that each of the guarantee that an audit conducted in accordance with ISAs (UK) will following is materially consistent with the financial statements and our always detect a material misstatement when it exists. Misstatements can audit knowledge: arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic • the directors’ statement that they consider that the annual report decisions of users taken on the basis of the financial statements. and financial statements taken as a whole is fair, balanced and understandable, and provides the information necessary for A fuller description of our responsibilities is provided on the FRC’s shareholders to assess the Group’s position and performance, website at www.frc.org.uk/auditorsresponsibilities. business model and strategy; • the section of the annual report describing the work of the Audit The Company is required to include these financial statements in an Committee, including the significant issues that the audit committee annual financial report prepared under Disclosure Guidance and considered in relation to the financial statements, and how these Transparency Rule (“DTR”) 4.1.17R and 4.1.18R. This auditor’s report issues were addressed; and provides no assurance over whether the annual financial report has been • the section of the annual report that describes the review of the prepared in accordance with those requirements. effectiveness of the Group’s risk management and internal control systems. 10. The purpose of our audit work and to whom we owe our responsibilities We are required to review the part of the Corporate Governance This report is made solely to the Company’s members, as a body, in Statement relating to the Group’s compliance with the provisions of the accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our UK Corporate Governance Code specified by the Listing Rules for our audit work has been undertaken so that we might state to the Company’s review. We have nothing to report in this respect. members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, 8. We have nothing to report on the other matters on which we do not accept or assume responsibility to anyone other than the we are required to report by exception Company and the Company’s members, as a body, for our audit work, Under the Companies Act 2006, we are required to report to you if, for this report, or for the opinions we have formed. in our opinion: • adequate accounting records have not been kept by the parent Simon Haydn-Jones Company, or returns adequate for our audit have not been received (Senior Statutory Auditor) from branches not visited by us; or for and on behalf of KPMG LLP, Statutory Auditor • the parent Company financial statements and the part of the Chartered Accountants Directors’ Remuneration Report to be audited are not in agreement One Snowhill | | with the accounting records and returns; or | Snowhill Queensway | | --- | --- | --- | | • certain disclosures of directors’ remuneration specified by law are not | | Birmingham | | | made; or | B4 6GH | • we have not received all the information and explanations we require for our audit. 29 November 2023 We have nothing to report in these respects. 9. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 70, 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. Mitchells & Butlers plc Annual Report and Accounts 2023 127 Financial Statements ## Group income statement ### For the 53 weeks ended 30 September 2023 | | | | | 2023 | | | | | | | 2022 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 53 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 2,503 – 2,503 2,208 – 2,208 Operating costs before depreciation, amortisation and movements in the valuation of the property portfolio 2.2, 2.3 (2,145) – (2,145) (1,836) – (1,836) Share in associates’ results 3.7 1 – 1 1 – 1 Net profit arising on property disposals 2.2, 2.3 – 3 3 – 1 1 b EBITDA before movements in the valuation of the property portfolio 359 3 362 373 1 374 Depreciation, amortisation and movements in the valuation of the property portfolio 2.2, 2.3 (133) (131) (264) (133) (117) (250) Operating profit/(loss) 226 (128) 98 240 (116) 124 Finance costs 4.2 (116) – (116) (115) – (115) Finance income 4.2 8 – 8 1 – 1 Net pensions finance charge 4.2, 4.5 (3) – (3) (2) – (2) Profit/(loss) before tax 115 (128) (13) 124 (116) 8 Tax (charge)/credit 2.2, 2.4 (19) 28 9 (17) 22 5 Profit/(loss) for the period 96 (100) (4) 107 (94) 13 Earnings/(loss) per ordinary share – Basic 2.5 16.1p (0.7p) 18.0p 2.2p – Diluted 2.5 16.1p (0.7p) 18.0p 2.2p 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 192 to 195 of this Report. The notes on pages 133 to 185 form an integral part of these consolidated financial statements. All results relate to continuing operations. 128 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Other InformationIntroduction Financial Statements ## Group statement of comprehensive income ### For the 53 weeks ended 30 September 2023 | | | 2023 | | 2022 | | --- | --- | --- | --- | --- | | | 53 weeks | | 52 weeks | | | Notes | | £m | | £m | (Loss)/profit for the period (4) 13 Items that will not be reclassified subsequently to profit or loss: Unrealised loss on revaluation of the property portfolio 3.1 (76) (187) Remeasurement of pension liability 4.5 42 41 Tax relating to items not reclassified 2.4 5 32 (29) (114) Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations (1) 2 Cash flow hedges: – (Losses)/gains arising during the period 4.3 (9) 180 – Reclassification adjustments for items included in profit or loss 4.3 30 1 Tax relating to items that may be reclassified 2.4 (5) (45) 15 138 Other comprehensive (expense)/income after tax (14) 24 Total comprehensive (expense)/income for the period (18) 37 The notes on pages 133 to 185 form an integral part of these consolidated financial statements. Mitchells & Butlers plc Annual Report and Accounts 2023 129 Financial Statements # Group balance sheet 30 September 2023 | | Notes | 2023 £m | 2022 £m | | --- | --- | --- | --- | | **Assets** | | | | | Goodwill and other intangible assets | 3.6 | 17 | 14 | | Property, plant and equipment | 3.1 | 4,086 | 4,194 | | Right-of-use assets | 3.2 | 327 | 339 | | Interests in associates | 3.7 | – | 6 | | Finance lease receivables | 3.2 | 11 | 12 | | Other receivables | 3.4 | 47 | – | | Deferred tax asset | 2.4 | 4 | 4 | | Derivative financial instruments | 4.3 | 33 | 56 | | **Total non-current assets** | | **4,525** | **4,625** | | Inventories | 3.4 | 25 | 23 | | Trade and other receivables | 3.4 | 123 | 90 | | Current tax asset | | – | 1 | | Finance lease receivables | 3.2 | 1 | 1 | | Derivative financial instruments | 4.3 | 2 | 4 | | Cash and cash equivalents | 4.4 | 126 | 207 | | **Total current assets** | | **277** | **326** | | **Total assets** | | **4,802** | **4,951** | | **Liabilities** | | | | | Pension liabilities | 4.5 | (1) | (42) | | Trade and other payables | 3.4 | (491) | (408) | | Current tax liabilities | | (2) | – | | Borrowings | 4.1 | (144) | (130) | | Lease liabilities | 3.2 | (33) | (53) | | **Total current liabilities** | | **(671)** | **(633)** | | Pension liabilities | 4.5 | (21) | (22) | | Borrowings | 4.1 | (1,186) | (1,334) | | Lease liabilities | 3.2 | (430) | (428) | | Derivative financial instruments | 4.3 | (7) | (28) | | Deferred tax liabilities | 2.4 | (348) | (354) | | Provisions | 3.5 | (9) | (9) | | **Total non-current liabilities** | | **(2,001)** | **(2,175)** | | **Total liabilities** | | **(2,672)** | **(2,808)** | | **Net assets** | | **2,130** | **2,143** | | **Equity** | | | | | Called up share capital | 4.7 | 51 | 51 | | Share premium account | 4.7 | 357 | 357 | | Capital redemption reserve | 4.7 | 3 | 3 | | Revaluation reserve | 4.7 | 951 | 1,009 | | Own shares held | 4.7 | (5) | (5) | | Hedging reserve | 4.7 | (4) | (20) | | Translation reserve | 4.7 | 14 | 15 | | Retained earnings | | 763 | 733 | | **Total equity** | | **2,130** | **2,143** | The notes on pages 133 to 185 form an integral part of these consolidated financial statements. The consolidated financial statements were approved by the Board and authorised for issue on 29 November 2023. They were signed on its behalf by: Chief Financial Officer 130 \_\_\_\_\_ Annual Report and Accounts 2023*Mitchells & Batters plc* Introduction Strategic Report Governance Financial Statements Other Information # Group statement of changes in equity For the 53 weeks ended 30 September 2023 | | 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 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 income/(expense)** | – | – | – | (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 | | Loss for the period | – | – | – | – | – | – | – | (4) | (4) | | Other comprehensive (expense)/income | – | – | – | (58) | – | 16 | (1) | 29 | (14) | | **Total comprehensive (expense)/income** | – | – | – | (58) | – | 16 | (1) | 25 | (18) | | Credit in respect of share-based payments | – | – | – | – | – | – | – | 5 | 5 | | **At 30 September 2023** | **51** | **357** | **3** | **951** | **(5)** | **(4)** | **14** | **763** | **2,130** | The notes on pages 133 to 185 form an integral part of these consolidated financial statements. Mitchells & Butlers plc Annual Report and Accounts 2023 \_\_\_\_\_ 131 Financial Statements ## Group cash flow statement ### For the 53 weeks ended 30 September 2023 | | | 2023 | | 2022 | | --- | --- | --- | --- | --- | | | 53 weeks | | 52 weeks | | | Notes | | £m | | £m | Cash flow from operations Operating profit 98 124 Add back/(deduct): Movement in the valuation of the property portfolio 2.2 131 117 Net profit arising on property disposals 2.2 (3) (1) Loss on disposal of fixtures, fittings and equipment 2 – Depreciation of property, plant and equipment 2.3 93 93 Amortisation of intangibles 2.3 4 4 Depreciation of right-of-use assets 2.3 36 36 Cost charged in respect of share-based payments 4.6 5 4 Administrative pension costs 4.5 5 4 Share of associates results 3.7 (1) (1) Settlement of pre existing lease contracts 2.2 3 – Fair value gain on associate 2.2 (5) – Operating cash flow before movements in working capital and additional pension contributions 368 380 Increase in inventories (2) (3) Increase in trade and other receivables (42) (19) Increase in trade and other payables 44 42 Decrease in provisions (1) (1) Additional pension contributions 4.5 (8) (44) Cash flow from operations 359 355 a Interest payments (95) (67) a Interest payments on interest rate swaps (7) (33) a Interest receipts on cross currency swap 7 1 a Interest payments on cross currency swap (4) (1) Other interest paid – lease liabilities 4.4 (16) (16) Borrowing facility fees paid (2) – Interest received 9 1 Tax paid (3) (2) Net cash from operating activities 248 238 Investing activities Acquisition of 3Sixty Restaurants Limited 5.1 (17) – Cash acquired on acquisition of 3Sixty Restaurants Limited 5.1 5 – Purchases of property, plant and equipment (154) (117) Purchases of intangible assets (3) (5) Proceeds from sale of property, plant and equipment 3 1 Finance lease principal repayments received 1 3 Net cash used in investing activities (165) (118) Financing activities Issue of ordinary share capital 4.7 – 1 Purchase of own shares 4.7 – (2) b Repayment of principal in respect of securitised debt 4.4 (121) (115) b Principal receipts on currency swap 4.4 21 20 b Principal payments on currency swap 4.4 (16) (15) Cash payments for the principal portion of lease liabilities 4.4 (53) (48) Net cash used in financing activities (169) (159) Net decrease in cash and cash equivalents (86) (39) Cash and cash equivalents at the beginning of the period 4.4 190 227 Foreign exchange movements (1) 2 Cash and cash equivalents at the end of the period 4.4 103 190 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 133 to 185 form an integral part of these consolidated financial statements. 132 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information # Notes to the consolidated financial statements ## Section 1 – 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 196. 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 14 to 54. The Group is required to prepare its consolidated financial statements in accordance with UK-adopted International Financial Reporting Standards ('IFRSs') 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 30 September 2023 includes 53 trading weeks and the comparative period ended 24 September 2022 includes 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. ### 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 14 to 54. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are also described within the Financial review on pages 51 to 54. Note 4.3 to the consolidated financial statements includes the Group's objectives, policies and processes for managing capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit and liquidity risks. 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 the Group and Company financial statements after assessing the impact of identified principal risks and their possible adverse impact on financial performance, specifically revenue and cash flows throughout the going concern period, being at least 12 months from the date of signing of these financial statements. The challenges presented to the hospitality sector of Covid-19, Brexit and more recently high and persistent cost inflation (both for the business and its customers) have resulted in reduced levels of profits and operating cash flow since March 2020. These factors cast a 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 and the Company 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 £1.3bn as at the end of the year. These are secured against the majority of the Group's properties and its future income streams. The principal repayment period varies by class of note with maturity dates ranging from 2023 to 2036. During the year the Group completed a refinancing of its unsecured credit facility. The new facility of £200m is committed and remains unsecured, with a negative pledge in favour of participating banks, and has a maturity date in July 2026. At the balance sheet date there were no drawings under this facility. 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 30 September 2023 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. The unsecured facility also has two main financial covenants, based on the performance of the unsecured estate: the ratio of EBITDAR to rent plus interest (at a minimum of 1.25 times) and Net debt to EBITDA (to be no more than 3.0 times), both tested on a half-yearly basis (for the prior four quarters). In the year ahead the main uncertainties facing the Group are considered to be the maintenance of growth in sales in the face of pressure on consumer spending power, and cost inflation. The outlook for these is uncertain 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 base case forward trading forecast in which they have considered the Group's current financial position. This forecast assumes mid single digit growth in sales across the year, a rate slightly below the level generated in recent months. Cost inflation is assumed to abate from the historic high levels last year, with some deflation in energy costs, blending at an expected net increase of approximately three percent across the cost base of the business of approximately £2bn. Under this base case the Group is able to stay within securitisation and committed facility financial covenants 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 mitigation activity is taken including lower capital expenditure on site remodel activity and a flex down of labour and site costs in line with reduced sales. In this scenario sales are assumed to remain in growth but at an initial level of one percent, falling to three percent, below the base case forecast. Unmitigated cost inflation is also higher in the areas of food, labour and energy. In this downside scenario the Group is again able to stay within securitisation and committed facility financial covenants, whilst maintaining sufficient liquidity. Mitchells & Butlers plc Annual Report and Accounts 2023 133 Financial Statements Notes to the consolidated financial statements continued # Section 1 – Basis of preparation continued # Going concern continued Furthermore, the Directors have considered a reverse stress test analysis, to review the headroom below which trading could fall beyond the downside scenario before the earlier of financial covenants becoming breached, or available liquidity becoming insufficient. This analysis indicates that on consistent cost assumptions, sales would be able to fall a further 3.3% (being approximately one percent down on FY 2023) throughout the forecast period before financial covenants were breached when tested at Q4 FY 2024 being the last full testing period within the 12 month going concern assessment period. In this scenario the Group would still have sufficient available liquidity. After due consideration of these factors, the Directors therefore believe that it remains appropriate to prepare the financial statements of the Group and the Company on a going concern basis. A review of longer-term viability is provided on page 48 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. # 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 affect 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, with the exception of 3Sixty Restaurants Limited and Ego Restaurants Holdings Limited that are prepared to 1 October 2023 (see note 5.3). Intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated on consolidation. # 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 = €1.16 (2022 £1 = €1.18), 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 = €1.15 (2022 £1 = €1.12) and £1 = $1.22 (2022 £1 = $1.09) respectively. 134 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ### 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 | | --- | --- | | *Amendments to IAS 37 (Onerous Contracts – cost of fulfilling a contract)* | The amendments specify which costs an entity includes in determining the cost of fulfilling a contract for the purpose of assessing whether the contract is onerous. The amendments apply for annual reporting periods beginning on or after 1 January 2022. The amendments have no impact on the contracts of the Group that are identified as onerous, as all costs associated with fulfilling the lease contracts are allocated in the assessment of whether a lease is onerous. As such there is no change to the leases assessed as onerous, or the resulting onerous lease provision shown in note 3.5. | | *International Tax Reform – Pillar 2 model Rules – Amendments to IAS 12* | The amendments were endorsed on 19 July 2023, and provide a temporary mandatory exception from deferred tax accounting for the top-up tax, which is effective immediately, and require new disclosures about the Pillar 2 exposure from 31 December 2023. Further details are provided in note 2.4. | The following standards and interpretations have been adopted by the Group in these consolidated financial statements for the first time, with no impact. | Accounting standard | Effective date | | --- | --- | | *Amendments to IFRS 3 (Reference to the Conceptual Framework)* | 1 January 2022 | | *Amendments to IAS 16 (PPE – proceeds before intended use)* | 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 | ### 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 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 IAS 1 (Classification of Liabilities as Current or Non-current)* | 1 January 2024 | 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, with the selection of assumptions for calculation of the defined benefit pension liability removed in the current period due to the reduced sensitivity to the assumptions following the main plan buy-in (see note 4.5). Significant accounting estimates: The significant accounting estimate 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, is: - 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 and right-of-use assets – see note 3.3 Other sources of estimation uncertainty are described in: - Impairment review of short leasehold properties and right-of-use assets – see note 3.3 Mitchells & Butlers plc Annual Report and Accounts 2023 135 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 | | | --- | --- | --- | --- | --- | --- | --- | | | 2023 53 weeks £m | 2022 52 weeks £m | 2023 53 weeks £m | 2022 52 weeks £m | 2023 53 weeks £m | 2022 52 weeks £m | | Revenue – sales to third parties | 2,387 | 2,117 | 116 | 91 | 2,503 | 2,208 | | Segment non-current assets^{a} | 4,442 | 4,524 | 46 | 41 | 4,488 | 4,565 | a. Includes balances relating to intangibles, property, plant and equipment, right-of-use assets, investments in associates, finance lease receivables and non-current other 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: - A refund in relation to the settlement of a long-standing claim with HMRC regards gaming duty is separately disclosed due to its size on initial recognition. - 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. - Costs associated with acquisitions – all costs directly associated with acquisition of subsidiaries, including fair value adjustment to the associate carrying value and settlement of pre-existing lease contracts, within the Group are reported separately due to the nature of the transaction as they are not considered to be part of the adjusted trade performance of the Group. 136 Annual Report and Accounts 2023 Mitchells & Batlers plc Introduction Strategic Report Governance Financial Statements Other Information The items identified in the current period are as follows: | | Notes | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | --- | | **Separately disclosed items** | | | | | Gaming machine settlement | a | (1) | – | | Fair value adjustment to investment in 3Sixty Restaurants Limited | b | 5 | – | | Settlement of pre-existing lease contracts on acquisition of 3Sixty Restaurants Limited | c | (3) | – | | Costs associated with the acquisition of 3Sixty Restaurants Limited | d | (1) | – | | Total separately disclosed items recognised within operating costs | | – | – | | Net profit arising on property disposals | | 3 | 1 | | Movement in the valuation of the property portfolio: | | | | | – Impairment charge arising from the revaluation of freehold and long leasehold properties | e | (110) | (86) | | – Net impairment of short leasehold and unlicensed properties | f | (6) | (9) | | – Net impairment of right-of-use assets | g | (14) | (22) | | – Net impairment of goodwill | h | (1) | – | | Net movement in the valuation of the property portfolio | | (131) | (117) | | **Total separately disclosed items before tax** | | **(128)** | **(116)** | | Tax credit relating to above items | | 28 | 22 | | **Total separately disclosed items after tax** | | **(100)** | **(94)** | a. During the period £19m has been received from HMRC, relating to VAT on gaming machine income for the period 2005 to 2012, including interest. An estimate of £20m for the amount receivable was recognised in the 52 weeks ended 25 September 2021 as a separately disclosed item. As a result, the shortfall of £1m has been recognised. b. During the period, the Group acquired the remaining 60% of share capital of 3Sixty Restaurants Limited, after having a 40% interest since April 2018. As a result of this acquisition achieved in stages, the Group has applied the principles of IFRS 3 and remeasured the 40% interest to fair value at acquisition (see note 5.1 for further details). c. As a result of the acquisition of 3Sixty Restaurants Limited, a loss has been recognised at acquisition for the settlement of pre-existing lease contracts, due to the terms of the contracts being below to market terms (see note 5.1). d. Relates to integration costs, restructuring costs and legal and professional fees incurred in the acquisition of 3Sixty Restaurants Limited on 18 June 2023. e. 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. f. Impairment of short leasehold and unlicensed properties where their carrying values exceed their recoverable amounts, net of reversals of past impairments. See note 3.3 for further details. g. Impairment of right-of-use assets where their carrying values exceed their recoverable amounts, net of reversals of past impairments. See note 3.3 for further details. h. Impairment of goodwill where the carrying value exceeds the recoverable amount. See note 3.3 for further details. ## 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. Mitchells & Butlers plc Annual Report and Accounts 2023 137 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 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. 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 . 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. In prior periods, as part of its response to the Covid-19 pandemic, the UK Government introduced a scheme to enable an employer to receive up to an additional £3,000 per apprentice, where the apprentice commenced employment between 1 August 2020 and 31 January 2022. The payment is phased with amounts due in equal instalments at 90 days and 365 days after employment commenced and is recognised on receipt of cash. Local Authority grants During the prior period, following the EU Court ruling on State Aid aggregation, the Group recognised an additional £2m of Covid-19 support, subject to the individual caps applicable in both the UK and Germany. In addition, 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. As a result, a further £1m of grants were recognised. German Government grants In the prior period, following the impact of the Omicron variant, grant claims were made for costs incurred during periods of significantly lower sales under an extension of the Bridging Aid scheme. Revenue Revenue is analysed as follows: | | 2023 | | 2022 | | --- | --- | --- | --- | | 53 weeks | | 52 weeks | | | | £m | | £m | Food 1,323 1,166 Drink 1,092 957 Services 87 80 Other – Local Authority grants (UK and Germany) – 3 Other – German Government grants for loss of profits – 1 Other – Apprenticeship incentives 1 1 2,503 2,208 Revenue from services includes rent receivable from unlicensed properties and leased operations of £9m (2022 £9m). 138 Annual Report and Accounts 2023 Mitchells & Butlers plc Government grants The impact of grants received on the income statement is as follows: Government grant scheme Income statement line impact 2023 53 weeks £m 2022 52 weeks £m Local Authority Grants (UK and Germany) Revenue – other – 3 Grants for loss of profits in Germany Revenue – other – 1 Apprenticeship incentives Revenue – other 1 1 Total Government grants received 1 5 VAT In addition to the above grants, in the prior period, the Group benefited from a reduction in the rate of VAT from 20% to 12.5% applied for the six month period from 1 October 2021 until 31 March 2022. The estimated impact of this on food and drink revenue in the current period is £nil (2022 £43m). Business rates The Group also benefited from business rates relief in the prior period. Across all sites within the UK, this is an estimated saving of £nil (2022 £5m). Introduction Strategic Report Governance Financial Statements Other Information ## Operating costs Operating costs are analysed as follows: | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | Raw materials and food and drink consumables recognised as an expense^{a} | **673** | 556 | | Changes in inventory of finished goods and work in progress | **(2)** | (3) | | Employee costs | **878** | 758 | | Hire of plant and machinery | **23** | 21 | | Property operating lease costs^{b} | **8** | 9 | | Utility costs | **161** | 152 | | Business rates | **86** | 91 | | Other pub costs | **257** | 207 | | Other central costs | **61** | 45 | | Operating costs before depreciation and amortisation | **2,145** | 1,836 | | Net profit arising on property disposals | **(3)** | (1) | | Depreciation of property, plant and equipment (note 3.1) | **93** | 93 | | Depreciation of right-of-use assets (note 3.2) | **36** | 36 | | Amortisation of intangible assets (note 3.6) | **4** | 4 | | Net movement in the valuation of the property portfolio (note 2.2) | **131** | 117 | | Depreciation, amortisation and movements in the valuation of the property portfolio | **264** | 250 | | **Total operating costs** | **2,406** | 2,085 | 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. ## Employee costs | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | Wages and salaries | **795** | 684 | | Share-based payments (note 4.6) | **5** | 4 | | Social security costs | **61** | 54 | | Pensions (note 4.5) | **17** | 16 | | **Total employee costs** | **878** | 758 | The four-weekly average number of employees including part-time employees was 48,003 retail employees (2022 44,335) and 1,147 support employees (2022 1,073). Information regarding key management personnel is included in note 5.2. 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 in the information labelled as audited by KPMG on pages 109 to 116. Mitchells & Butlers plc Annual Report and Accounts 2023 139 Financial Statements Notes to the consolidated financial statements continued ## Section 2 – Results for the period continued ### 2.3 Revenue and operating costs continued #### Auditor remuneration | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | Fees payable to the Group's auditor for the: | | | | – audit of the consolidated financial statements | 0.3 | 0.2 | | – audit of the Company's subsidiaries' financial statements | 0.6 | 0.5 | | **Total audit fees^{a}** | **0.9** | **0.7** | | Other fees to auditor: | | | | – audit-related assurance services | – | – | | **Total non-audit fees** | **–** | **–** | | **Total fees** | **0.9** | **0.7** | a. Auditor's remuneration of £0.8m (2022 £0.6m) was paid in the UK and £0.1m (2022 £0.1m) was paid in Germany. ### 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. 140 \_\_\_\_\_ Annual Report and Accounts 2023 Mitchells & Batlers plc Introduction Strategic Report Governance Financial Statements Other Information # **Taxation – Group income statement** | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | Current tax: | | | | – Corporation tax | (5) | (3) | | – Amounts over-provided in prior periods | – | 1 | | Total current tax charge | (5) | (2) | | Deferred tax: | | | | – Origination and reversal of temporary differences | 11 | 3 | | – Effect of changes in UK tax rate | 3 | 4 | | Total deferred tax credit | 14 | 7 | | Total tax credit in the Group income statement | 9 | 5 | | Further analysed as tax relating to: | | | | Profit before separately disclosed items | (19) | (17) | | Separately disclosed items | 28 | 22 | | | 9 | 5 | The standard rate of corporation tax applied to the reported (loss)/profit is 22.0% (2022 19.0%). The tax credit (2022 credit) in the Group income statement for the period is higher than (2022 lower) the standard rate of corporation tax in the UK. The differences are reconciled below: | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | (Loss)/profit before tax | (13) | 8 | | Taxation credit/(charge) at the UK standard rate of corporation tax of 22.0% (2022 19.0%) | 3 | (1) | | Expenses not deductible | (1) | (2) | | Permanent benefits | 5 | 4 | | Tax credit in respect of change in UK tax rate | 3 | 4 | | Adjustment in respect of prior periods | – | 1 | | Effect of different tax rates of subsidiaries in other jurisdictions | (1) | (1) | | **Total tax credit in the Group income statement** | **9** | **5** | Taxation for other jurisdictions is calculated at the rates prevailing in those jurisdictions. | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | **Deferred tax in the Group income statement:** | | | | Accelerated capital allowances | (14) | (12) | | Retirement benefit obligations | – | (8) | | Unrealised losses on revaluations | 28 | 23 | | Tax losses – UK | – | (9) | | Tax losses – Interest restriction | – | 13 | | **Total deferred tax credit in the Group income statement** | **14** | **7** | Mitchells & Butlers plc Annual Report and Accounts 2023 \_\_\_\_\_ 141 Financial Statements Notes to the consolidated financial statements continued # Section 2 – Results for the period continued # 2.4 Taxation continued # Taxation – other comprehensive income | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | Deferred tax: | | | | Items that will not be reclassified subsequently to profit or loss: | | | | – Unrealised losses due to revaluations – revaluation reserve | 18 | 46 | | – Unrealised gains due to revaluations – retained earnings | (4) | (5) | | – Remeasurement of pension liability | (9) | (9) | | | 5 | 32 | | Items that may be reclassified subsequently to profit or loss: | | | | – Cash flow hedges | (5) | (45) | | **Total tax charge recognised in other comprehensive income** | – | (13) | # Tax relating to items recognised directly in equity | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | Deferred tax: | | | | – Tax charge related to share-based payments | – | (1) | # Taxation – Group balance sheet The deferred tax assets and liabilities recognised in the Group balance sheet are shown below: | | 2023 £m | 2022 £m | | --- | --- | --- | | **Deferred tax assets:** | | | | Retirement benefit obligation (note 4.5) | 5 | 14 | | Derivative financial instruments | 3 | 8 | | Tax losses – UK | 43 | 43 | | Share-based payments | 2 | 2 | | Right-of-use assets | 6 | 6 | | Tax losses – Interest restriction | 13 | 13 | | **Total deferred tax assets** | 72 | 86 | | **Deferred tax liabilities:** | | | | Accelerated capital allowances | (72) | (57) | | Rolled over and held over gains | (164) | (164) | | Unrealised gains on revaluations | (176) | (211) | | Depreciated non-qualifying assets | (4) | (4) | | **Total deferred tax liabilities** | (416) | (436) | | **Total** | (344) | (350) | At 30 September 2023, the Group has netted off deferred tax assets of £68m (2022 £82m) 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: | | 2023 £m | 2022 £m | | --- | --- | --- | | Deferred tax assets (after offsetting) | 4 | 4 | | Deferred tax liabilities (after offsetting) | (348) | (354) | | **Net deferred tax liability** | (344) | (350) | 142 Annual Report and Accounts 2023 Mitchells & Batters plc Introduction Strategic Report Governance Financial Statements Other Information ### Unrecognised tax allowances At the balance sheet date the Group had unrecognised tax allowances of £90m in respect of unclaimed capital allowances (2022 £95m) available for offset against future profits. A deferred tax asset has not been recognised on tax allowances with a value of £22m (2022 £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 24 September 2022 and 30 September 2023. The Group is within the Pillar Two income tax legislation, which is effective for financial periods beginning on or after 31 December 2023. The Group is currently assessing the impact of the legislation on its future financial performance and although it does not anticipate that the legislation will have a material impact on the Group's results, this cannot be confirmed until the assessment has been completed. ### 2.5 Earnings/(loss) per share Basic earnings per share ('EPS') has been calculated by dividing the profit 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 per share, the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares. Adjusted earnings 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 used for the earnings per share calculations are as follows: | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | (Loss)/profit for the period | (4) | 13 | | Separately disclosed items, net of tax | 100 | 94 | | Adjusted profit for the period^{a} | 96 | 107 | a. Adjusted profit 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 192 to 195 of this report. The number of shares used for the earnings/(loss) per share calculations are as follows: | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | Basic weighted average number of ordinary shares | 595 | 595 | | Effect of dilutive potential ordinary shares: | | | | – Contingently issuable shares | – | 1 | | Diluted weighted average number of shares | 595 | 596 | | | 2023 53 weeks pence | 2022 52 weeks pence | | **Basic earnings/(loss) per share** | | | | Basic (loss)/earnings per share | (0.7p) | 2.2p | | Separately disclosed items net of tax per share | 16.8p | 15.8p | | Adjusted basic earnings per share^{a} | 16.1p | 18.0p | | **Diluted earnings/(loss) per share** | | | | Diluted earnings per share | (0.7p) | 2.2p | | Adjusted diluted earnings per share^{a} | 16.1p | 18.0p | a. Adjusted earnings 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 192 to 195 of this report. At 30 September 2023, 7,323,559 (2022 4,839,607) 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 2023 143 Financial Statements Notes to the consolidated financial statements continued ### Section 3 – Operating assets and liabilities 144 Annual Report and Accounts 2023 Mitchells & Butlers plc 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. Land and buildings include leasehold improvements on long and short leases. 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, performed at 30 September 2023, is determined via annual third-party inspection of 20% of the sites with the aim that all sites are individually valued approximately every five years. The valuation utilises estimates of fair maintainable trade and valuation multiples, with 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. The revaluation determined by the annual inspection 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. Properties are valued as fully operational entities, to include fixtures and fittings but excluding stock, personal goodwill and estimated fair value of tenant’s fixtures and fittings. The 80% of the freehold and long leasehold estate which is not subject to a third-party valuation in the period is instead revalued internally by management. The Group’s external valuer provides advice to management in relation to their internal valuation. This valuation is performed using the same principles applied in determining FMT and FMOP for the externally valued estate together with using the same multiples as those applied by the external valuer. Sites impacted by expansionary capital investment in the preceding twelve months are reviewed for impairment only, based on estimated annualised post investment fair maintainable trade against the carrying value of the asset. Where the value of land and buildings derived purely from a multiple applied to the fair maintainable trade misrepresents the underlying asset value, 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). Strategic Report Governance Other InformationIntroduction Financial Statements Mitchells & Butlers plc Annual Report and Accounts 2023 145 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. Further details of the impairment policy are provided in the impairment note 3.3. Accounting judgements Revaluation of freehold and long leasehold properties The revaluation methodology is determined, with advice from CBRE, independent chartered surveyors and incorporates 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. In the current and prior period judgement has been applied to establish the basis of fair maintainable trade that a willing third-party buyer would assume. The estimation of fair maintainable trade is derived from the individual profit and loss accounts of pubs and restaurants and is inclusive of the trading margins earned by the Group but exclusive of any head office costs. This represents the Group’s best view of the value that would be attributed by other reasonably efficient operators. In the current period the prevailing reported profits have been negatively impacted by high and sustained cost inflation, notably in food and energy price increases driven by the Ukraine conflict. In the current period, turnover (‘FMT’) has been determined using recent site performance however the inflationary pressures are not expected to fully impact onsite valuations and as such, FMOP has been determined to include an adjustment to current margins. In the prior period ending 24 September 2022 judgement was made to adjust both turnover and margin for the impact of the Omicron variant of Covid-19 in November 2021 and the recovery in trade thereafter, and high cost inflation on margin. Where sites have been impacted by expansionary capital investment in the preceding twelve months, the fair maintainable trade has been determined by estimating both FMT and FMOP by reference to post-investment forecasts and turnover trends post opening. For the purposes of the valuation, and in order to group together properties of a similar nature, groupings by brand are applied for which standard multiples have been established through third-party inspections of 20% of the freehold and long leasehold licensed property estate. Judgements are applied in assessing multiples on the basis of market evidence of transaction prices and nature of the overall offer within the local market, with specific consideration given to geographical location, ancillary revenue such as accommodation sales from bedrooms and lease terms for long leasehold sites. Further judgement is required when a spot valuation is applied where the property value derived purely from a multiple applied to the fair maintainable trade misrepresents the underlying asset value with consideration given to the level of trade and location characteristics. 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’). Adjustments have been made to pub and restaurant trading margins to reflect the margin impacts of recent cost inflation which are expected to persist into the level of FMOP used by third-party, reasonably efficient operators in arriving at a transaction price. The impact of inflation across drink and food, labour, energy and other pub operating costs in the current period compared to pre Covid has been assessed and adjusted individually. In aggregate approximately 2.5% of the total margin reduction reported in the current period against pre Covid trade is expected to recover in the short to medium term and has been included in estimated fair maintainable trade. The estimation of valuation multiples is derived from the valuers knowledge of market evidence of transaction prices for similar properties. In the current period the multiples adopted reflect a slight easing of demand for freehold property caused by the lower profit margins in the sector. 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 147. The carrying value of properties to which these estimates apply is £3,933m (2022 £4,036m). Financial Statements Notes to the consolidated financial statements continued # Section 3 – Operating assets and liabilities continued # 3.1 Property, plant and equipment continued # 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 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 | | Acquired through business combinations (note 5.1) | 26 | 3 | 29 | | Additions | 36 | 115 | 151 | | Disposals^{a} | (7) | (93) | (100) | | Net decrease from property revaluation | (186) | – | (186) | | Impairment of short leasehold properties | (1) | (5) | (6) | | Exchange differences | – | (1) | (1) | | **At 30 September 2023** | **3,699** | **942** | **4,641** | | **Accumulated depreciation** | | | | | 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 | | Provided during the period | 5 | 88 | 93 | | Disposals^{a} | (5) | (92) | (97) | | Exchange differences | – | (1) | (1) | | **At 30 September 2023** | **80** | **475** | **555** | | **Net book value** | | | | | **At 30 September 2023** | **3,619** | **467** | **4,086** | | At 24 September 2022 | 3,751 | 443 | 4,194 | | At 25 September 2021 | 3,996 | 446 | 4,442 | a. Includes assets which are fully depreciated and have been removed from the fixed asset register. Land and buildings include leasehold improvements on long and short leases with a net book value of £294m (2022 £304m). Certain assets with a net book value of £39m (2022 £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 £3,446m (2022 £3,577m), 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 30 September 2023 includes £16m (2022 £17m) of assets in the course of construction. 146 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ## Revaluation of freehold and long leasehold properties The fair value has been determined by estimations of fair maintainable trade and brand valuation multiples. Consideration has been given to current cost inflationary pressures notably on food, labour, energy and other pub operating costs, as well as location, quality of the pub restaurant and recent market transactions in the sector. In the current period, property multiples have been reduced, which is a reflection of the current demand in the freehold licensed property market and fair maintainable trade includes adjusted fair maintainable operating profit ('FMOP') margins. ## 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 In the current period, fair maintainable trade has declined by 4% as a result of changes in trade and the impact of the FMOP margin adjustment excluding the sites with investment in the current period which are only assessed for impairment. Judgement has been applied to determine the adjusted FMOP by assessing the extent that current levels of inflation are 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 FMOP margins fall to the levels reported through the reporting period the fair maintainable trade used as the basis in property valuations may decline by a further 6%. Assuming multiples remain stable, and without applying any further judgement on the resulting property valuation, this would generate an approximate £188m 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 0.2, which is considered to be within the range of reasonably possible outcomes for future movements in multiples. It is estimated that a 0.2 change in the multiple would generate an approximate £78m 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 as described in the impairment note 3.3. A net impairment of £6m (2022 £9m) has been recognised against short leasehold and unlicensed properties in the period. ## Revaluation and impairment recognised 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. The impact of the revaluations/impairments described above is as follows: | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | **Group income statement** | | | | Revaluation deficit charged as an impairment | (162) | (115) | | Reversal of past revaluation deficits | 52 | 29 | | Total impairment charge arising from the revaluation | (110) | (86) | | Impairment of short leasehold and unlicensed properties (note 3.3) | (11) | (9) | | Reversal of past impairments of short leasehold and unlicensed properties (note 3.3) | 5 | – | | Net impairment of short leaseholds and unlicensed properties | (6) | (9) | | Total impairment charge recognised in the income statement | (116) | (95) | | **Group statement of other comprehensive income** | | | | Unrealised revaluation surplus | 162 | 60 | | Reversal of past revaluation surplus | (238) | (247) | | Total movement recognised in other comprehensive income | (76) | (187) | | **Net decrease in property, plant and equipment** | (192) | (282) | 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. Mitchells & Butlers plc Annual Report and Accounts 2023 147 Financial Statements Notes to the consolidated financial statements continued # Section 3 – Operating assets and liabilities continued # 3.1 Property, plant and equipment continued The number of pubs included in the revaluation and the resulting valuation of these properties is reconciled to the total value of property, plant and equipment below. | | Number of pubs | Land and buildings £m | Fixtures, fittings and equipment £m | Net book value^{a} £m | | --- | --- | --- | --- | --- | | **30 September 2023** | | | | | | Freehold properties | 1,330 | 3,298 | 368 | 3,666 | | Long leasehold properties | 94 | 236 | 31 | 267 | | Total revalued properties | 1,424 | 3,534 | 399 | 3,933 | | Short leasehold properties | | 58 | 55 | 113 | | Unlicensed properties | | 16 | 2 | 18 | | Other non-pub assets | | 1 | 5 | 6 | | Assets under construction | | 10 | 6 | 16 | | **Total property, plant and equipment** | | **3,619** | **467** | **4,086** | | **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** | a. The carrying value of freehold and long leasehold properties based on their historical cost is £2,503m and £171m respectively (2022 £2,549m and £177m). The tables below show, by class of asset, the number of properties that have been valued within each FMOP and multiple banding: | | Valuation multiple applied to FMOP | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | Over 10 times | 9 to 10 times | 8 to 9 times | 7 to 8 times | Under 7 times | Total | | **30 September 2023** | | | | | | | | Number of pubs in each FMOP income banding: | | | | | | | | < £200k p.a. | 83 | 42 | 174 | 179 | 17 | 495 | | £200k to £360k p.a. | 10 | 116 | 205 | 80 | 14 | 425 | | > £360k p.a. | 53 | 112 | 264 | 51 | 24 | 504 | | | **146** | **270** | **643** | **310** | **55** | **1,424** | | Valuation multiple applied to FMOP | | | | | | | | | 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 FMOP 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** | Movements in valuation multiples between financial periods are the result of changes in property market conditions. The average weighted multiple is 8.7 (2022 8.9). 148 Annual Report and Accounts 2023 Mitchells & Batters plc Strategic Report Governance Other InformationIntroduction Financial Statements Mitchells & Butlers plc Annual Report and Accounts 2023 149 Capital commitments 2023 £m 2022 £m Contracts placed for expenditure on property, plant and equipment not provided for in the consolidated financial statements 12 28 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 • 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 for impairment in accordance with IAS 36 Impairment of Assets, as described in the policy in the impairment note 3.3. 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 £m | Cars £m | Total £m | | --- | --- | --- | --- | | **Cost** | | | | | At 25 September 2021 | 555 | 5 | 560 | | Additions^{a} | 24 | 2 | 26 | | Disposals | (13) | (1) | (14) | | Foreign currency movements | 2 | – | 2 | | At 24 September 2022 | 568 | 6 | 574 | | Acquired through business combinations (note 5.1) | 6 | – | 6 | | Additions^{a} | 32 | 4 | 36 | | Disposals | (12) | – | (12) | | Foreign currency movements | (2) | – | (2) | | **At 30 September 2023** | **592** | **10** | **602** | | **Accumulated depreciation and impairment** | | | | | 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 | | Provided during the period | 35 | 1 | 36 | | Disposals | (10) | – | (10) | | Impairment | 14 | – | 14 | | **At 30 September 2023** | **271** | **4** | **275** | | **Net book value** | | | | | **At 30 September 2023** | **321** | **6** | **327** | | At 24 September 2022 | 336 | 3 | 339 | | At 25 September 2021 | 377 | 2 | 379 | 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 is £2m (2022 £2m). #### Impairment review of right-of-use assets Right-of-use assets are reviewed for impairment by comparing site recoverable amounts to their carrying values. Impairment is considered at a cash-generating unit level. A net impairment of £14m (2022 £22m) has been recognised against right-of-use assets in the period. Details of the impairment review at a cash-generating unit level are disclosed in note 3.3. 150 \_\_\_\_\_ Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ## Lease liabilities A maturity analysis of the undiscounted future lease payments used to calculate the lease liabilities is shown below. | | 2023 £m | 2022 £m | | --- | --- | --- | | **Amounts payable under lease liabilities** | | | | Due within one year | **49** | 68 | | Due between one and two years | **52** | 42 | | Due between two and three years | **51** | 47 | | Due between three and four years | **42** | 43 | | Due between four and five years | **47** | 38 | | Due between five and ten years | **160** | 162 | | Due between ten and fifteen | **115** | 113 | | Due between fifteen and twenty | **66** | 73 | | Due between twenty and twenty five years | **18** | 24 | | Due between twenty five and thirty years | **11** | 12 | | Due after thirty years | **79** | 80 | | Total undiscounted lease liabilities | **690** | 702 | | Less: impact of discounting | **(227)** | (221) | | **Present value of lease liabilities** | **463** | 481 | | Analysed as: | | | | Current lease liabilities – principal amounts due within twelve months | **33** | 53 | | Non-current lease liabilities – principal amounts due after twelve months | **430** | 428 | | | **463** | 481 | ## Leases – Group as lessor ### Accounting policy 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. Mitchells & Butlers plc Annual Report and Accounts 2023 \_\_\_\_\_ 151 Financial Statements Notes to the consolidated financial statements continued ### Section 3 – Operating assets and liabilities continued 3.2 Leases continued 152 Annual Report and Accounts 2023 Mitchells & Butlers plc 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. 2023 £m 2022 £m Amounts receivable under finance leases Due within one year 1 1 Due between one and two years 1 1 Due between two and three years 1 1 Due between three and four years 1 1 Due between four and five years 2 1 Due after five years 9 20 Total undiscounted lease payments receivable 15 25 Less: unearned finance income (3) (12) Present value of lease payments receivable 12 13 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 11 12 12 13 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 (2022 £nil). 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: 2023 £m 2022 £m Due within one year 10 9 Due between one and two years 9 8 Due between two and three years 8 8 Due between three and four years 7 6 Due between four and five years 6 6 Due after five years 35 34 75 71 The total value of future minimum sub-lease rental receipts included above is £4m (2022 £4m). Introduction Strategic Report Governance Financial Statements Other Information ### 3.3 Impairment #### Accounting policies ##### Impairment – Property, plant and equipment, right-of-use assets and goodwill As described in the property, plant and equipment policy (note 3.1), the lease accounting policy (note 3.2) and the goodwill policy (note 3.5), impairment reviews are considered at a cash-generating unit level, with this being an individual outlet. The carrying value of assets for an individual outlet, comprise the property, plant and equipment value, the associated right-of-use asset and any attributable goodwill. At each balance sheet date, the Group assesses whether there is any indication that the carrying value of assets for individual outlets may be impaired. If any such impairment indicator exists then an impairment loss is recognised whenever the carrying value of the outlet exceeds its recoverable amount, which is determined as the higher of the value in use, or fair value less costs to sell for each outlet. 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. Changes in outlet earnings or cash flows, the discount rate applied to those cash flows, or the estimate of fair value less costs of disposal 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. An impairment reversal is only recognised where there is a change in circumstances or favourable events since the last impairment test impacting estimates used to determine recoverable amounts, not where it results from the passage of time. In addition to the cash-generating unit level impairment review performed for individual outlets, the overall Group's cash-generating units are grouped together to ensure that the corporate level assets are also considered for impairment. #### Accounting judgements ##### Impairment review of cash-generating units – property, plant and equipment, right-of-use assets and goodwill For the individual outlet level 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 2024 to FY 2026 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. #### Other sources of estimation uncertainty ##### Impairment review of cash-generating units – property, plant and equipment, right-of-use assets and goodwill The impairment review requires two key sources of estimation uncertainty in calculating the value in use: the estimation of forecast cash flows for each site and the selection of an appropriate discount rate. The discount rate is applied consistently to each cash-generating unit. A sensitivity of changes in forecast cash flows and the discount rate is provided on page 154. The carrying value of assets to which these estimates apply is £442m (2022 £458m). #### Impairment review of cash-generating units, comprising property, plant and equipment, right-of-use assets and goodwill Recoverable amount is determined as the higher of the value in use, or fair value less costs to sell for each outlet. Value in use calculations use forecast trading performance pre-tax cash flows, for years 1 to 3. These include steady growth in revenue and a gradual recovery in operating margins as annual cost inflation eases, albeit that costs remain ahead of historical levels. In the short to medium term, over the three year forecast period, no allowances have been made for any potential impact activity related to climate change, as the impacts of this on future cash flows or capital expenditure cannot yet be reasonably estimated or allocated to cash-generating units. The forecast cash flows are discounted by applying a pre-tax discount rate of 11.00% (2022 9.65%) and a long-term growth rate of 2.0% from year 4 (2022 2.0%). The long-term growth rate is applied to the net cash flows and is based on up-to-date economic data points. Mitchells & Butlers plc Annual Report and Accounts 2023 \_\_\_\_\_ 153 Financial Statements Notes to the consolidated financial statements continued # Section 3 – Operating assets and liabilities continued # 3.3 Impairment continued In summary, the carrying value of the cash-generating units and impairment charges and reversals recognised against those cash-generating units is as follows. | | Note | Carrying value 2023 £m | Impairment charges 2023 £m | Impairment reversals 2023 £m | Net impairment 2023 £m | | --- | --- | --- | --- | --- | --- | | Short leasehold properties | 3.1 | 113 | (11) | 5 | (6) | | Right-of-use assets | 3.2 | 327 | (27) | 13 | (14) | | Goodwill | 3.6 | 2 | (1) | – | (1) | | | | 442 | (39) | 18 | (21) | | | Note | Carrying value 2022 £m | Impairment charges 2022 £m | Impairment reversals 2022 £m | Net impairment 2022 £m | | --- | --- | --- | --- | --- | --- | | Short leasehold properties | 3.1 | 117 | (9) | – | (9) | | Right-of-use assets | 3.2 | 339 | (22) | – | (22) | | Goodwill | 3.6 | 2 | – | – | – | | | | 458 | (31) | – | (31) | # Impairment review of corporate level assets In addition to the cash-generating unit level impairment review performed, 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 impairment of corporate assets has been recognised in the current period (2022 £nil) and the Directors consider that it is not a reasonable expectation that a material impairment could occur in FY 2024 (2022 same expectation for FY 2023). # Sensitivity analysis Changes in forecast cash flows or the discount rate could impact the impairment charge recognised against the cash-generating units, and corporate level assets. # 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 2024 to FY 2026 that was in place at the balance sheet date. Should future cash flows decline by 5%, this would result in an increase of £8m to the net impairment charge 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 recent periods, the discount rate used in impairment reviews has moved by c. 1.0%. An increase of 1.0% in the discount rate would result in an increase of £5m to the net impairment charge recognised. # 3.4 Working capital # Inventories # Accounting policy 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: | | 2023 £m | 2022 £m | | --- | --- | --- | | Goods held for resale | 25 | 23 | # 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). 154 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information Trade and other receivables can be analysed as follows: ### Current | | 2023 £m | 2022 £m | | --- | --- | --- | | Trade receivables | 17 | 13 | | Other receivables | 16 | 16 | | Gaming machine settlement receivable^{a} | – | 20 | | Prepayments | 32 | 11 | | Other financial assets^{b} | 58 | 21 | | Defined benefit pension blocked account^{c} | – | 9 | | **Total trade and other receivables** | **123** | **90** | ### Non-current | | 2023 £m | 2022 £m | | --- | --- | --- | | Defined benefit pension blocked accounts^{c} | 47 | – | a. Amount recognised at 24 September 2022 related to an expected claim amount due from HMRC in relation to a claim for VAT on gaming machines, which has been settled in the current period (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 prior period, and contributions to the MABEPP scheme have been paid into a blocked account since conclusion of the 2022 actuarial valuation during the current period (see note 4.5 for further details). 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 (2022 £3m) 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: | | 2023 £m | 2022 £m | | --- | --- | --- | | Trade payables | 100 | 106 | | Other taxation and social security | 100 | 87 | | Accrued charges | 182 | 151 | | Deferred income | 29 | 23 | | Other payables | 22 | 20 | | Other financial liabilities^{a} | 58 | 21 | | **Total trade and other payables** | **491** | **408** | 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. Mitchells & Butlers plc Annual Report and Accounts 2023 \_\_\_\_\_ 155 Financial Statements Notes to the consolidated financial statements continued ### Section 3 – Operating assets and liabilities continued 156 Annual Report and Accounts 2023 Mitchells & Butlers plc 3.5 Provisions Accounting policy Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are measured using the Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material. Onerous property provisions represent the expected unavoidable losses on onerous and vacant property leases and comprise the net lease commitment (fixed service charges) not expected to be covered by operating revenue after all other operating costs. The provision is calculated on a site by site basis with a provision being made for the remaining committed lease term, where a lease is considered to be onerous. Other contractual dilapidations costs are also recorded as provisions as appropriate. Provisions The provision for unavoidable losses on onerous property leases has been set up to cover fixed service charge payments of vacant or loss-making properties. The provision for dilapidation costs has been set up to cover the estimated future dilapidation claims from landlords on leases that are within five years of expiry. Provisions can be analysed as follows: Onerous property provisions £m Dilapidation provisions £m Total property provisions £m At 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 Provided in the period 1 2 3 Utilised in the period (2) – (2) Released in the period – (1) (1) At 30 September 2023 2 7 9 Strategic Report Governance Other InformationIntroduction Financial Statements Mitchells & Butlers plc Annual Report and Accounts 2023 157 3.6 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. Brands Brand intangible assets recognised on acquisition are amortised on a straight-line basis over their estimated useful lives (20 years) within operating costs. Brand intangibles are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. Financial Statements Notes to the consolidated financial statements continued ## Section 3 – Operating assets and liabilities continued ### 3.6 Goodwill and other intangible assets continued #### Intangible assets Intangible assets can be analysed as follows: | | Goodwill £m | Brands £m | Computer software £m | Total £m | | --- | --- | --- | --- | --- | | **Cost** | | | | | | At 25 September 2021 | 7 | – | 18 | 25 | | Additions | – | – | 5 | 5 | | Disposals | – | – | (3) | (3) | | At 25 September 2022 | 7 | – | 20 | 27 | | Acquired through business combinations (note 5.1) | 1 | 5 | – | 6 | | Additions | – | – | 4 | 4 | | Disposals | – | – | (6) | (6) | | **At 30 September 2023** | **8** | **5** | **18** | **31** | | **Accumulated amortisation and impairment** | | | | | | At 25 September 2021 | 5 | – | 7 | 12 | | Provided during the period | – | – | 4 | 4 | | Disposals | – | – | (3) | (3) | | At 24 September 2022 | 5 | – | 8 | 13 | | Provided during the period | – | – | 4 | 4 | | Impairment | 1 | – | – | 1 | | Disposals | – | – | (4) | (4) | | **At 30 September 2023** | **6** | **–** | **8** | **14** | | **Net book value** | | | | | | **At 30 September 2023** | **2** | **5** | **10** | **17** | | At 24 September 2022 | 2 | – | 12 | 14 | | At 25 September 2021 | 2 | – | 11 | 13 | #### Goodwill and brands With the exception of goodwill, there are no intangible assets with indefinite useful lives. All amortisation charges have been expensed through operating costs. Brand intangibles have been recognised as part of business combinations (see note 5.1). Brand intangibles are amortised over their estimated useful lives and have an average remaining useful life of 20 years. #### Impairment review All goodwill was recognised as part of business combinations. Goodwill has been allocated to cash-generating units, being individual outlets, to test for impairment. An impairment charge of £1m (2022 £nil) has been recognised in the current period. Further details of the impairment review are provided in note 3.3. The carrying values of acquired brands are subject to impairment review if changes in events or circumstances give indication the brand value may be impaired, of which there have been none in the current period. 158 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ### 3.7 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 25 September 2021 | 5 | | Share in associates results | 1 | | At 24 September 2022 | 6 | | Share in associates results | 1 | | Fair value adjustment as a result of business combination (note 2.2) | 5 | | Disposal of associate as a result of business combination | (12) | | **At 30 September 2023** | – | The carrying value of associates relates to £nil (2022 £6m) for 3Sixty Restaurants Limited and £nil (2022 £nil) for Fatboy Pub Company Limited. Details of these associates are provided in note 5.2. In August 2018, the Group acquired 40% of the share capital of 3Sixty Restaurants Limited for £4m, together with a put and call option that would enable the Group to purchase the remaining 60% share capital at a future date. During the period, the Group has exercised the call option, resulting in the acquisition of the remaining 60% of share capital of 3Sixty Restaurants Limited. As a result, at acquisition, the carrying value of the investment in 3Sixty Restaurants Limited of £7m was revised to fair value of £12m, with a gain of £5m recognised as a separately disclosed item within the income statement (see note 2.2). 3Sixty Restaurants Limited is no longer recognised as an associate and has been consolidated as a subsidiary from 18 April 2023, the date on which control passed to the Group. Further details of the business combination are provided in note 5.1. Mitchells & Butlers plc Annual Report and Accounts 2023 159 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: | | 2023 £m | 2022 £m | | --- | --- | --- | | **Current** | | | | Securitised debt^{a,b} | 123 | 113 | | Unsecured revolving credit facilities^{c} | (2) | – | | Overdrafts^{d} | 23 | 17 | | Total current | 144 | 130 | | **Non-current** | | | | Securitised debt^{a,b} | 1,186 | 1,334 | | **Total borrowings** | **1,330** | **1,464** | a. Further details of the assets pledged as security against the securitised debt are given on page 146. b. Stated net of deferred issue costs. c. At 30 September 2023 the amount of £2m (2022 £nil) 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). | | 2023 £m | 2022 £m | | --- | --- | --- | | **Analysis by year of repayment** | | | | Due within one year or on demand | 144 | 130 | | Due between one and two years | 164 | 182 | | Due between two and five years | 435 | 412 | | Due after five years | 587 | 740 | | **Total borrowings** | **1,330** | **1,464** | # 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: | Tranche | Initial principal borrowed £m | Interest | Principal repayment period (all by instalments) | Effective interest rate % | Principal outstanding | | Expected WAL^{a} | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | 30 September 2023 £m | 24 September 2022 £m | | | A1N | 200 | Floating | 2011 to 2028 | 6.61^{b} | 75 | 87 | 3 years | | A2 | 550 | Fixed – 5.57% | 2003 to 2028 | 5.72 | 136 | 158 | 3 years | | A3N | 250 | Floating | 2011 to 2028 | 6.69^{b} | 93^{c} | 109^{c} | 3 years | | A4 | 170 | Floating | 2016 to 2028 | 6.37^{b} | 89 | 103 | 3 years | | AB | 325 | Floating | 2020 to 2032 | 6.28^{b} | 276 | 291 | 6 years | | B1 | 350 | Fixed – 5.97% | 2003 to 2023 | 6.12 | 5 | 26 | 0 years | | B2 | 350 | Fixed – 6.01% | 2015 to 2028 | 6.12 | 240 | 255 | 3 years | | C1 | 200 | Fixed – 6.47% | 2029 to 2030 | 6.56 | 200 | 200 | 6 years | | C2 | 50 | Floating | 2033 to 2034 | 6.47^{b} | 50 | 50 | 10 years | | D1 | 110 | Floating | 2034 to 2036 | 6.68^{b} | 110 | 110 | 12 years | | | 2,555 | | | | **1,274** | **1,389** | | 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 £127m (2022 £168m). Therefore the exchange difference on the A3N notes is £34m (2022 £59m). Principal outstanding above is reconciled to the principal outstanding and carrying value of securitised debt as disclosed on page 161 as follows. 160 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information | | 2023 £m | 2022 £m | | --- | --- | --- | | Principal outstanding | 1,274 | 1,389 | | A3N US$ notes exchange difference | 34 | 59 | | Principal outstanding at spot rate | 1,308 | 1,448 | | Deferred issue costs | (2) | (3) | | Accrued interest | 3 | 2 | | Carrying value at end of period | 1,309 | 1,447 | 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 SOFR | 0.71% | | 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% (2022 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 133 and 134. At 30 September 2023, Mitchells & Butlers Retail Limited had cash and cash equivalents of £54m (2022 £61m). Of this amount £4m (2022 £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: | | 2023 £m | 2022 £m | | --- | --- | --- | | Principal outstanding at beginning of period | 1,448 | 1,527 | | Principal repaid during the period | (121) | (115) | | Net principal receipts on cross currency swap | 5 | 5 | | Exchange on translation of dollar loan notes | (24) | 31 | | Principal outstanding at end of period | 1,308 | 1,448 | | Deferred issue costs | (2) | (3) | | Accrued interest | 3 | 2 | | Carrying value at end of period | 1,309 | 1,447 | ### Liquidity facility Under the terms of the securitisation, the Group holds a liquidity facility of £295m provided by two counterparties. The amount drawn at 30 September 2023 is £nil (2022 £nil). ### Unsecured revolving credit facilities In the prior period, the Group held a single unsecured committed revolving credit facility of £150m. During the period, the unsecured committed revolving credit facility of £150m was cancelled and replaced by a new unsecured committed revolving credit facility of £200m, which expires on 20 July 2026. The amount drawn at 30 September 2023 is £nil (2022 £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 133 and 134. Mitchells & Butlers plc Annual Report and Accounts 2023 161 Financial Statements Notes to the consolidated financial statements continued ### Section 4 – Capital structure and financing costs continued 162 Annual Report and Accounts 2023 Mitchells & Butlers plc 4.2 Finance costs and income 2023 53 weeks £m 2022 52 weeks £m Finance costs Interest on securitised debt (89) (94) Interest on other borrowings (11) (5) Interest on lease liabilities (16) (16) Total finance costs (116) (115) Finance income Interest receivable – cash 8 1 Net pensions finance charge (note 4.5) (3) (2) 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 twelve-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, twelve-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within twelve months after the reporting date. Definition of default The Group considers financial assets 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). 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. Strategic Report Governance Other InformationIntroduction Financial Statements Mitchells & Butlers plc Annual Report and Accounts 2023 163 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. Financial Statements Notes to the consolidated financial statements continued ### Section 4 – Capital structure and financing costs continued 4.3 Financial instruments continued Accounting policies continued 164 Annual Report and Accounts 2023 Mitchells & Butlers plc 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 £200m. The terms of the securitisation and the revolving credit facilities contain various financial covenants. Compliance with these covenants is monitored by Group Treasury. The Group also has uncommitted credit facilities of £5m. Introduction Strategic Report Governance Financial Statements Other Information 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. 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 | | --- | --- | --- | --- | --- | --- | --- | --- | | **30 September 2023** | | | | | | | | | Securitised debt – loan notes | (206) | (204) | (203) | (203) | (202) | (696) | (1,714) | | Derivative financial liabilities (settled net) | – | (2) | (2) | (2) | (1) | (3) | (10) | | Derivative financial asset receipts | 27 | 27 | 27 | 27 | 27 | 7 | 142 | | Derivative financial asset payments | (21) | (20) | (20) | (20) | (20) | (5) | (106) | | Fixed rate: Securitised debt | (200) | (199) | (198) | (198) | (196) | (697) | (1,688) | | Lease liabilities | (49) | (52) | (51) | (42) | (47) | (449) | (690) | | Trade payables | (100) | – | – | – | – | – | (100) | | Other payables | (22) | – | – | – | – | – | (22) | | Accrued charges | (182) | – | – | – | – | – | (182) | | Other financial liabilities | (58) | – | – | – | – | – | (58) | #### 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) | #### 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 'A1/1' (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. At the period end a collateral amount of £58m (2022 £21m) is held by the Group and 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 (2022 £50m). The Group held investments with eleven counterparties during the year (2022 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. Mitchells & Butlers plc Annual Report and Accounts 2023 165 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: | | FVTPL £m | 12-month ECL £m | Lifetime ECL £m | Total £m | | --- | --- | --- | --- | --- | | **30 September 2023:** | | | | | | Cash and cash equivalents^{a} | – | 103 | – | 103 | | Trade receivables^{b} | – | – | 17 | 17 | | Other receivables^{b} | – | 16 | – | 16 | | Other financial assets | – | 58 | – | 58 | | Defined benefit pension blocked account | – | 47 | – | 47 | | Finance lease receivables^{c} | – | – | 12 | 12 | | Derivatives | 35 | – | – | 35 | | **24 September 2022:** | | | | | | Cash and cash equivalents^{a} | – | 190 | – | 190 | | Trade receivables^{b} | – | – | 13 | 13 | | Other receivables^{b} | – | 16 | – | 16 | | Other financial assets | – | 21 | – | 21 | | Defined benefit pension blocked account | – | 9 | – | 9 | | Finance lease receivables^{c} | – | – | 13 | 13 | | Derivatives | 60 | – | – | 60 | 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 3.4. 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. Total capital at the balance sheet date is as follows: | | 2023 £m | 2022 £m | | --- | --- | --- | | Net debt excluding leases (note 4.4) | 1,170 | 1,198 | | Total equity | 2,130 | 2,143 | | **Total capital** | **3,300** | **3,341** | # 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 £127m (2022 £168m) 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 (2022 £nil) impact on the reported Group profit and £12m (2022 £12m) 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. 166 Annual Report and Accounts 2023 Mitchells & Butlers plc 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 £1.3bn 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 prior period. During the prior 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 prior period to 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 previously referencing US dollar LIBOR transitioned 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. As part of the transition, all of the Group's hedge relationships were reviewed and these continue to be highly effective. Hedge documentation was 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 was 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: | | 2023 £m | 2022 £m | | --- | --- | --- | | Interest income^{a} | 2 | 2 | | Interest expense^{b} | – | – | | Profit impact | 2 | 2 | | Derivative financial instruments (fair values)^{c} | 31 | 40 | | Total equity | 33 | 42 | 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: | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | (Losses)/gains arising during the period | (9) | 180 | | Reclassification adjustments for losses included in profit or loss within finance costs | 30 | 1 | | | 21 | 181 | Mitchells & Butlers plc Annual Report and Accounts 2023 167 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 | | | **2023** | | | | | | Interest rate risk | | | | | | – 10 interest rate swaps | 693 | – | (7) | 21 | | Foreign exchange risk | | | | | | – Cross currency swap | 93 | 35 | – | (24) | | **2022** | | | | | | Interest rate risk | | | | | | – 10 interest rate swaps | 750 | – | (28) | 181 | | Foreign exchange risk | | | | | | – Cross currency swap | 109 | 59 | – | 31 | 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% (2022 4.81%). 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 SOFR 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 30 September 2023 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 | (3) | – | (3) | – | (3) | | Counterparty B – interest rate swaps | (4) | – | (4) | 35 | 31 | | Net interest rate swaps | (7) | – | (7) | 35 | 28 | | Counterparty B – cross currency swap liability | (94) | 94 | – | – | – | | Counterparty B – cross currency swap asset | 129 | (94) | 35 | (35) | – | | Net cross currency swap | 35 | – | 35 | (35) | – | | **Total** | **28** | **–** | **28** | **–** | **28** | 168 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information 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** | ### Share options In August 2018, a put and call option agreement was entered into, to allow the Group to acquire the remaining 60% share capital of the associate, 3Sixty Restaurants Limited, at any point in time after 1 April 2023. The initial 40% investment was purchased on 1 August 2018 for £4m, and during the period, the Group exercised the call option to acquire the remaining 60% of the share capital (see note 3.7). As a result, the option was revalued at acquisition date of 18 April 2023, to £1m and has been subsequently derecognised as part of the business combination (see note 5.1). ### Fair values of derivative financial instruments The fair values of the derivative financial instruments were measured at 30 September 2023 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 | | | | Total £m | | --- | --- | --- | --- | --- | --- | | | Non-current assets £m | Current assets £m | Current liabilities £m | Non-current liabilities £m | | | Derivatives at fair value designated in cash flow hedges: | | | | | | | – Interest rate swaps | – | – | – | (7) | (7) | | – Cross currency swap | 33 | 2 | – | – | 35 | | **30 September 2023** | **33** | **2** | **–** | **(7)** | **28** | | 24 September 2022 | 56 | 4 | – | (28) | 32 | ### 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 4.4. Movements in derivative values for the 53 weeks ended 30 September 2023 are represented by: | | At 24 September 2022 £m | Cash movements £m | Fair value movements £m | At 30 September 2023 £m | | --- | --- | --- | --- | --- | | Cash flow hedges | 31 | (1) | (2) | 28 | | Share options | 1 | – | (1) | – | | **Total derivatives** | **32** | **(1)** | **(3)** | **28** | Movements in derivative values for the 52 weeks ended 24 September 2022 are represented by: | | At 25 September 2021 £m | Cash movements £m | Fair value movements £m | At 24 September 2022 £m | | --- | --- | --- | --- | --- | | Cash flow hedges | (181) | 33 | 179 | 31 | | Share options | 1 | – | – | 1 | | **Total derivatives** | **(180)** | **33** | **179** | **32** | Mitchells & Butlers plc Annual Report and Accounts 2023 169 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: | | 2023 | | 2022 | | | --- | --- | --- | --- | --- | | | Carrying value £m | Fair value £m | Carrying value £m | Fair value £m | | Financial assets at amortised cost: | | | | | | – Cash and cash equivalents (note 4.4) | 126 | 126 | 207 | 207 | | – Trade receivables (note 3.4) | 17 | 17 | 13 | 13 | | – Other receivables (note 3.4) | 16 | 16 | 16 | 16 | | – Other financial assets (note 3.4) | 58 | 58 | 21 | 21 | | – Defined benefit pension blocked account (note 3.4) | 47 | 47 | 9 | 9 | | – Finance lease receivables (note 3.2) | 12 | 12 | 13 | 13 | | | **276** | **276** | **279** | **279** | | Financial assets – derivatives at FVTPL: | | | | | | – Derivative instruments in designated hedge accounting relationships (note 4.3) | 35 | 35 | 59 | 59 | | – Share options (note 4.3) | – | – | 1 | 1 | | | **35** | **35** | **60** | **60** | | Financial liabilities at amortised cost: | | | | | | – Borrowings (note 4.1) | (1,330) | (1,162) | (1,464) | (1,180) | | – Lease liabilities (note 3.2) | (463) | (463) | (481) | (481) | | – Trade payables (note 3.4) | (100) | (100) | (106) | (106) | | – Accrued charges (note 3.4) | (182) | (182) | (151) | (151) | | – Other payables (note 3.4) | (22) | (22) | (20) | (20) | | – Other financial liabilities (note 3.4) | (58) | (58) | (21) | (21) | | | **(2,155)** | **(1,987)** | **(2,243)** | **(1,959)** | | Financial liabilities – derivatives at FVTPL: | | | | | | – Derivative instruments in designated hedge accounting relationships (note 4.3) | (7) | (7) | (28) | (28) | 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 30 September 2023 | Level 1 £m | Level 2 £m | Level 3 £m | Total £m | | --- | --- | --- | --- | --- | | **Financial assets:** | | | | | | Currency swaps | – | 35 | – | 35 | | **Financial liabilities:** | | | | | | Interest rate swaps | – | (7) | – | (7) | | | – | 28 | – | 28 | 170 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information | 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 3.7) | – | – | 1 | 1 | | **Financial liabilities:** | | | | | | Interest rate swaps | – | (28) | – | (28) | | | – | 31 | 1 | 32 | #### 4.4 Net debt ##### Accounting policies ##### Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and other short-term highly liquid deposits with an original maturity at acquisition of three months or less. Cash held on deposit with an original maturity at acquisition of more than three months is disclosed as other cash deposits. In the cash flow statement, cash and cash equivalents are shown net of bank overdrafts that are repayable on demand and form an integral part of the Group's cash management. ##### Net debt Net debt comprises cash and cash equivalents, cash deposits net of borrowings and discounted lease liabilities. Net debt is presented on a constant currency basis, due to the inclusion of the fixed exchange rate component of the cross currency swap (as described in note 4.3). Cash flows on the interest rate and cross currency swaps are shown within interest paid in the Group cash flow statement. ##### Net debt | | Note | 2023 £m | 2022 £m | | --- | --- | --- | --- | | Cash and cash equivalents | | **126** | 207 | | Overdraft | 4.1 | **(23)** | (17) | | Cash and cash equivalents as presented in the cash flow statement^{a} | | **103** | 190 | | Securitised debt | 4.1 | **(1,309)** | (1,447) | | Unsecured revolving credit facility | 4.1 | **2** | – | | Derivatives hedging securitised debt^{b} | 4.1 | **34** | 59 | | Net debt excluding leases | | **(1,170)** | (1,198) | | Lease liabilities | 3.2 | **(463)** | (481) | | **Net debt including leases** | | **(1,633)** | (1,679) | a. Cash and cash equivalents, in the cash flow statement, are presented net of an overdraft within a cash pooling arrangement, relating to various entities across the Group. 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 | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | **Net decrease in cash and cash equivalents** | **(86)** | (39) | | Add back cash flows in respect of other components of net debt: | | | | Principal repayments on securitised debt | **121** | 115 | | Principal receipts on cross currency swap | **(21)** | (20) | | Principal payments on cross currency swap | **16** | 15 | | **Decrease in net debt arising from cash flows** | **30** | 71 | | Movement in capitalised debt issue costs net of accrued interest | **(1)** | (1) | | **Decrease in net debt excluding leases** | **29** | 70 | | Opening net debt excluding leases | **(1,198)** | (1,270) | | Foreign exchange movements on cash | **(1)** | 2 | | **Closing net debt excluding leases** | **(1,170)** | (1,198) | Mitchells & Butlers plc Annual Report and Accounts 2023 171 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: | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | Opening lease liabilities | (481) | (513) | | Acquired through business combinations (note 5.1) | (5) | – | | Additions^{a} | (35) | (25) | | Interest charged during the period (note 4.2) | (16) | (16) | | Repayment of principal | 53 | 48 | | Payment of interest | 16 | 16 | | Disposals | 4 | 11 | | Foreign currency movements | 1 | (2) | | **Closing lease liabilities** | **(463)** | **(481)** | a. Additions to lease liabilities include new leases and lease extensions or rent reviews relating to existing leases. The movement in net debt including leases for the 53 weeks ended 30 September 2023 is represented by: | | At 24 September 2022 £m | Cash flow movements in the period £m | Non-cash movements in the period £m | Foreign currency movements £m | At 30 September 2023 £m | | --- | --- | --- | --- | --- | --- | | Securitised debt | (1,447) | 121 | (3) | 20 | (1,309) | | Derivatives hedging securitised debt | 59 | (5) | – | (20) | 34 | | | (1,388) | 116 | (3) | – | (1,275) | | Revolving credit facilities | – | 2 | – | – | 2 | | Lease liabilities^{a} | (481) | 69 | (52) | 1 | (463) | | Total liabilities arising from financing activities | (1,869) | 187 | (55) | 1 | (1,736) | | Cash and cash equivalents | 190 | (86) | – | (1) | 103 | | **Net debt including leases** | **(1,679)** | **101** | **(55)** | **–** | **(1,633)** | a. Cash movements of £69m relate to £53m 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 24 September 2022 is represented by: | | At 25 September 2021 £m | Cash flow movements in the period £m | Non-cash movements in the period £m | Foreign currency movements £m | At 24 September 2022 £m | | --- | --- | --- | --- | --- | --- | | Securitised debt | (1,526) | 115 | – | (36) | (1,447) | | Derivatives hedging securitised debt | 28 | (5) | – | 36 | 59 | | | (1,498) | 110 | – | – | (1,388) | | Revolving credit facilities | 1 | – | (1) | – | – | | Lease liabilities^{a} | (513) | 64 | (30) | (2) | (481) | | Total liabilities arising from financing activities | (2,010) | 174 | (31) | (2) | (1,869) | | Cash and cash equivalents | 227 | (39) | – | 2 | 190 | | **Net debt including leases** | **(1,783)** | **135** | **(31)** | **–** | **(1,679)** | a. Cash movements of £64m relate to £48m repayment of principal on lease liabilities and £16m of interest paid on lease liabilities. 172 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Other InformationIntroduction Financial Statements Mitchells & Butlers plc Annual Report and Accounts 2023 173 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. IFRIC 14 limits the measurement of a net defined benefit asset to the lower of the surplus in the defined benefit plan and the asset ceiling. As the Company does not have an unconditional right to recover any surplus from the pension plans, no actuarial surplus can be recognised. Actuarial surplus/(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. Measurement of scheme assets and liabilities MABPP – buy-in policy transaction During the current period, the Trustees of the MABPP entered a Bulk Purchase Agreement (‘BPA’) with Standard Life. The resulting policies have been set up to provide the plan with sufficient funding to cover the majority of known member benefits of the scheme, leaving c. £27m of uninsured benefits which the Trustees will meet using the remaining Plan assets. The difference between the buy-in purchase price and the defined benefit obligation covered by the policies has been accounted for in other comprehensive income. The accounting treatment has been 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. The Company has not yet made a decision to move to buy-out. Financial Statements Notes to the consolidated financial statements continued # Section 4 – Capital structure and financing costs continued # 4.5 Pensions continued # MABEPP – buy-in policy transaction During the prior period, the Trustees of the MABEPP entered a Bulk Purchase Agreement ('BPA') with Legal and General Assurance Society Limited. The resulting policy was 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 was accounted for in other comprehensive income. The accounting treatment was 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. The Company had not made a decision, and has still not made a decision, to move to buy-out. # Actuarial valuation The actuarial valuations used for IAS 19 (revised) purposes are based on the results of the latest full actuarial valuation carried out as at 31 March 2022, which completed in December 2022, and updated by the schemes' independent qualified actuaries to 30 September 2023. Schemes' assets are stated at market value at 30 September 2023 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: | | 2023 | | 2022 | | | --- | --- | --- | --- | --- | | | Main plan | Executive plan | Main plan | Executive plan | | Discount rate | 5.7% | 5.7% | 5.3% | 5.3% | | Pensions increases – RPI max 5% | 3.1% | 3.1% | 3.2% | 3.2% | | Inflation rate – RPI | 3.3% | 3.3% | 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 2022 actuarial valuation. A summary of the average life expectancies assumed is as follows: | | 2023 | | 2022 | | | --- | --- | --- | --- | --- | | | Main plan years | Executive plan years | Main plan years | Executive plan years | | Male member aged 65 (current life expectancy) | 20.9 | 22.9 | 20.9 | 23.4 | | Male member aged 45 (life expectancy at 65) | 22.3 | 24.3 | 22.7 | 24.5 | | Female member aged 65 (current life expectancy) | 23.8 | 24.7 | 23.2 | 24.3 | | Female member aged 45 (life expectancy at 65) | 25.2 | 26.1 | 25.3 | 26.3 | 174 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ### Minimum funding requirements The results of the 2022 actuarial valuation, which was completed in December 2022, show a marginal surplus. As a result of the 2022 actuarial valuation, the Company subsequently agreed a revised schedule of contributions for both the MABPP and MABEPP schemes. For the MABEPP, the agreement confirms that from December 2022, payments into the "Blocked Account" that commenced after completion of the buy-in transaction in the prior period have been suspended. For the MABPP, there was no change to the remaining contributions due, which have been paid in full during the current period. However, all contributions since December 2022 have been made into a new "Blocked Account". As the scheme is in surplus, these payments are no longer considered a minimum funding requirement and therefore are not recognised as plan assets. As a result, the Blocked Accounts for MABEPP and MABPP are recognised within non-current other receivables (note 3.4) as recovery of these amounts is expected. The amount recognised as at 30 September 2023 is £47m (2022 is £9m). In addition, under IFRIC 14, an additional liability is recognised to offset the actuarial surplus, due to the asset ceiling, as the Company does not have an unconditional right to a refund of the surplus. As a result of the above changes, the resulting net pension liability as at 30 September 2023 of £22m relates solely to the MABETUS plan, with a total of £47m in "Blocked" accounts across the MABPP and MABEPP schemes, recognised in non-current other receivables. ### 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. It should be noted that the sensitivities have reduced significantly at 30 September 2023 from the prior period end, as a result of the MABPP buy-in transaction. | | Increase/ (decrease) in actuarial surplus 2023 £m | Decrease/ (increase) in total pension liabilities 2023 £m | | --- | --- | --- | | **2023** | | | | 1.9% increase in discount rate | 4 | 4 | | 0.3% increase in inflation rate | (2) | (2) | | Additional one year decrease to life expectancy | – | – | | **2022** | | | | 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 | 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. Mitchells & Butlers plc Annual Report and Accounts 2023 175 Financial Statements Notes to the consolidated financial statements continued ## Section 4 – Capital structure and financing costs continued ### 4.5 Pensions continued #### 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. It should be noted that the above risks have been largely mitigated in the current period due to the impact of the MABPP buy-in in the current period, and the MABPP buy-in in the prior period. #### Amounts recognised in respect of defined benefit schemes The following amounts relating to the Group's defined benefit and defined contribution arrangements have been recognised in the Group income statement and Group statement of comprehensive income. | Group income statement | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | **Operating profit:** | | | | Employer contributions (defined contribution plans) (note 2.3) | (17) | (16) | | Administrative costs (defined benefit plans) | (5) | (4) | | Charge to operating profit | (22) | (20) | | **Finance costs:** | | | | Net pensions finance income on actuarial surplus | 14 | 8 | | Additional pensions finance charge due to asset ceiling/minimum funding | (17) | (10) | | Net finance charge in respect of pensions | (3) | (2) | | **Total charge** | **(25)** | **(22)** | | Group statement of comprehensive income | 2023 53 weeks £m | 2022 52 weeks £m | | Return on scheme assets and effects of changes in assumptions | (153) | (161) | | Movement in pension liabilities recognised due to asset ceiling/minimum funding | 195 | 202 | | Remeasurement of pension liabilities | 42 | 41 | | Group balance sheet | 2023 £m | 2022 £m | | Fair value of schemes' assets | 1,434 | 1,699 | | Present value of schemes' liabilities | (1,313) | (1,442) | | Actuarial surplus in the schemes | 121 | 257 | | Additional liabilities recognised due to asset ceiling/minimum funding | (143) | (321) | | Total pension liabilities^{a} | (22) | (64) | | Associated deferred tax asset (note 2.4) | 5 | 14 | a. The total pension liabilities of £22m (2022 £64m) is presented as a £1m current liability (2022 £42m) and a £21m non-current liability (2022 £22m). 176 \_\_\_\_\_ Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information The movement in the fair value of the schemes' assets in the period is as follows: | | Schemes' assets | | | --- | --- | --- | | | 2023 £m | 2022 £m | | Fair value of schemes' assets at beginning of period | **1,699** | 2,808 | | Interest income | **88** | 53 | | Remeasurement loss: | | | | – Loss on schemes' assets (excluding amounts included in net finance charge) | **(277)** | (1,119) | | Additional employer contributions | **8** | 44 | | Benefits paid | **(79)** | (83) | | Administration costs | **(5)** | (4) | | **At end of period** | **1,434** | 1,699 | Changes in the present value of defined benefit obligation are as follows: | | Defined benefit obligation | | | --- | --- | --- | | | 2023 £m | 2022 £m | | Present value of defined benefit obligation at beginning of period | **(1,442)** | (2,438) | | Interest cost | **(74)** | (45) | | Benefits paid | **79** | 83 | | Remeasurement losses: | | | | – Effect of changes in demographic assumptions | **47** | – | | – Effect of changes in financial assumptions | **82** | 1,024 | | – Effect of experience adjustments | **(5)** | (66) | | **At end of period^{a}** | **(1,313)** | (1,442) | a. The defined benefit obligation comprises £22m (2022 £23m) relating to the MABETUS unfunded plan and £1,291m (2022 £1,419m) relating to the funded plans. The weighted average duration of the defined benefit obligation is 13 years (2022 14 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: | | 2023 £m | 2022 £m | | --- | --- | --- | | Cash and equivalents | **67** | 175 | | Pooled investment funds: | | | | – Real estate debt | **23** | 30 | | – Infrastructure debt | – | 92 | | Debt instruments: | | | | – Bonds | – | 1,321 | | – Secured income debt | **79** | 360 | | – Gilt repurchase transactions | – | (574) | | Forward foreign exchange contracts | **1** | (1) | | MABPP insurance policies | **983** | – | | MABEPP insurance policy | **281** | 296 | | **Fair value of assets** | **1,434** | 1,699 | The actual investment return achieved on schemes' assets over the period was a loss of 12.0% (2022 loss of 38.0%), which represented a loss of £189m (2022 loss of £1,063m). Virtually all bonds have quoted prices in active markets and are classified as Level 1 instruments. 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 53 weeks ended 30 September 2023 the Group paid £16m (2022 £16m) in respect of the defined contribution arrangements, with an additional £4m (2022 £3m) outstanding as at the period end. Mitchells & Butlers plc Annual Report and Accounts 2023 377 Financial Statements Notes to the consolidated financial statements continued ## Section 4 – Capital structure and financing costs continued ### 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 £5m (2022 £4m). The Group had five equity-settled share schemes (2022 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 88 to 118. 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 | | 2023 | 2022 | | --- | --- | --- | | Share Incentive Plan | 228.0p | 206.4p | | Short Term Deferred Incentive Plan | 134.6p | – | | Restricted Share Plan | 134.6p | 244.4p | The following table sets out weighted average information about how the fair value of the Sharesave Plan option grants were calculated. | Valuation model | 2023 Sharesave Plan | 2022 Sharesave Plan | | --- | --- | --- | | | Black-Scholes | Black-Scholes | | Weighted average share price | 228.0p | 206.4p | | Exercise price | 211.0p | 199.0p | | Expected dividend yield | – | – | | Risk-free interest rate | 4.30% | 2.32% | | Volatility^{a} | 42.2% | 41.9% | | Expected life (years)^{b} | 4.1 | 4.1 | | Weighted average fair value of grants during the period | 94.1p | 76.5p | 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. 178 \_\_\_\_\_ Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Other InformationIntroduction Financial Statements Mitchells & Butlers plc Annual Report and Accounts 2023 179 Scheme movements in the period The tables below summarise the movements in outstanding options during the period for each scheme. Number of shares Weighted average exercise price Sharesave Plan 2023 m 2022 m 2023 p 2022 p Outstanding at the beginning of the period 5.7 5.4 223.5 238.3 Granted 2.0 2.2 211.0 199.0 Exercised – (0.3) – 224.4 Forfeited (1.1) (1.2) 228.7 243.9 Expired (1.0) (0.4) 216.0 225.9 Outstanding at the end of the period 5.6 5.7 219.5 223.5 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 (2022 between 199.0p and 256.0p) and the weighted average remaining contract life was 3.1 years (2022 2.9 years). The number of forfeited shares in the period includes 744,873 (2022 726,485) cancellations. Sharesave plan options were exercised on a range of dates. The average share price through the period was 174.9p (2022 218.7p). Number of shares Share Incentive Plan 2023 m 2022 m Outstanding at the beginning of the period 2.1 1.9 Granted 0.3 0.4 Exercised (0.2) (0.2) Outstanding at the end of the period 2.2 2.1 Exercisable at the end of the period 1.4 1.3 Options under the Share Incentive Plan are capable of remaining within the SIP trust indefinitely while participants continue to be employed. Number of shares Restricted Share Plan 2023 m 2022 m Outstanding at the beginning of the period 2.4 1.0 Granted 2.4 1.4 Outstanding at the end of the period 4.8 2.4 Exercisable at the end of the period – – The weighted average remaining contract life of the RSP options was 1.5 years (2022 1.8 years). Number of shares Performance Restricted Share Plan 2023 m 2022 m Outstanding at the beginning of the period 1.8 3.6 Exercised – – Forfeited – – Expired (1.3) (1.8) Outstanding at the end of the period 0.5 1.8 Exercisable at the end of the period – – The weighted average remaining contract life of the PRSP options was 0.1 years (2022 0.1 years). Financial Statements Notes to the consolidated financial statements continued ## Section 4 – Capital structure and financing costs continued ### 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 | 2023 | | 2022 | | | --- | --- | --- | --- | --- | | | Number of shares | £m | Number of shares | £m | | **Allotted, called up and fully paid** | | | | | | Ordinary shares of 8½%p each | | | | | | At start of period | **597,383,363** | **51** | 596,618,849 | 51 | | Share capital issued^{a} | **343,496** | – | 764,514 | – | | **At end of period** | **597,726,859** | **51** | 597,383,363 | 51 | a. During the period, the Company issued 343,496 (2022 764,514) shares at nominal value under share option schemes, for consideration of £29,340 (2022 £65,302). 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. #### 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 £nil (2022 £1m) 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. 180 \_\_\_\_\_ Annual Report and Accounts 2023 Mitchells & Batters plc Introduction Strategic Report Governance Financial Statements Other Information ## 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 nil shares at a cost of £nil (2022 1,000,000 shares at a cost of £2m) and subscribed for 339,240 shares (2022 440,652) at a cost of £nil (2022 £nil). The employee share trusts released 195,457 (2022 261,839) shares to employees on the exercise of options and other share awards for a total consideration of £nil (2022 £nil). The 3,990,454 shares held by the trusts at 30 September 2023 had a market value of £9m (2022 3,846,671 shares held had a market value of £6m). 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 30 September 2023, the trustees, Equiniti Share Plan Trustees Limited, held 2,235,495 (2022 2,091,712) shares in the Company. Of these shares, 1,112,099 (2022 1,289,854) shares are available to employees, 1,112,172 (2022 756,585) 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 11,224 (2022 45,273) 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 30 September 2023, the trustees, Sanne Fiduciary Services Limited, were holding 1,754,959 (2022 1,754,959) 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 £2,227m at 30 September 2023 (2022 £2,207m). Its ability to distribute these reserves by way of dividends is restricted by the securitisation covenants (see note 4.1). Mitchells & Butlers plc Annual Report and Accounts 2023 \_\_\_\_\_ 181 Financial Statements Notes to the consolidated financial statements continued ### Section 5 – Other notes 182 Annual Report and Accounts 2023 Mitchells & Butlers plc 5.1 Acquisitions In August 2018, the Group acquired 40% of the share capital of 3Sixty Restaurants Limited for £4m, together with a put and call option that would enable the Group to purchase the remaining 60% share capital at a future date. On 18 April 2023, the Group exercised the call option, resulting in the acquisition of the remaining 60% of share capital of 3Sixty Restaurants Limited, for £17m, with the purchase completing on 18 June 2023. The date of the option exercise, 18 April 2023, is considered to be the date at which control passed to the Group, and therefore consolidation has taken place from that date. At acquisition, the carrying value of the investment in 3Sixty Restaurants Limited of £7m was revised to fair value of £12m, with a gain of £5m recognised as a separately disclosed item within the income statement (see note 2.2). In addition, the pre-existing property leases that existed between the Group and 3Sixty Restaurants Limited have been treated as settled at the acquisition date, with a resulting £3m loss recognised as a separately disclosed item within the income statement (see note 2.2). The amounts recognised in respect of identifiable assets and liabilities relating to the acquisition were as follows. Fair value on acquisition £m Land and buildings 26 Fixtures, fittings and equipment 3 Right-of-use assets 6 Brand intangible 5 Cash and cash equivalents 5 Trade and other receivables 1 Trade and other payables (8) Lease liabilities (5) Deferred tax liability (8) Net identifiable assets of 3Sixty Restaurants Limited 25 Goodwill 1 Fair value of assets and liabilities 26 Consideration: Cash consideration for purchase of the remaining 60% interest 17 Less: cash and cash equivalents acquired (5) Net cash outflow on acquisition 12 Plus: Fair value of the existing 40% interest at acquisition 12 Less: settlement of pre-existing contracts (3) Net consideration 21 Goodwill of £1m has arisen on the acquisition of 3Sixty Restaurants Limited primarily through the benefits that will be gained from cost synergies that will be obtained on joining the Group and future conversions of other Group outlets. The brand intangible has been fair valued by reference to an estimated royalty income based on forecast cash flows for 3Sixty Restaurants Limited over the expected useful life of 20 years. Acquisition costs, relating to restructuring costs, integration and legal and professional fees, amounted to £1m and have been charged to the income statement and recognised within separately disclosed items during the period (see note 2.2). 3Sixty Restaurants Limited has contributed £18m to revenue and £1m to the Group’s operating profit for the period between acquisition date and the balance sheet date. If 3Sixty Restaurants Limited had been included as a subsidiary since the start of the financial period, it would have contributed £45m revenue and £3m to the Group’s operating profit. Introduction Strategic Report Governance Financial Statements Other Information ## 5.2 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: | | 2023 53 weeks £m | 2022 52 weeks £m | | --- | --- | --- | | Short-term employee benefits | 6 | 4 | Movements in share options held by the Directors of Mitchells & Butlers plc are summarised in the Report on Directors' remuneration in the information labelled as audited by KPMG on pages 109 to 115. ### 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. As disclosed in note 5.1, 3Sixty Restaurants Limited has been acquired during the period and from 18 April 2023 is treated as a subsidiary under control of the Group. Disclosures below for 3Sixty Restaurants Limited relate to the period up to 18 April 2023 only. The Group has entered into the following transactions with the associates: | | 3Sixty Restaurants Limited | | Fatboy Pub Company Limited | | | --- | --- | --- | --- | --- | | | 2023 53 weeks £000 | 2022 52 weeks £000 | 2023 53 weeks £000 | 2022 52 weeks £000 | | Rent charged | 640 | 1,180 | 100 | 60 | | Sales of goods and services | 419 | 782 | 4 | 4 | | | 1,059 | 1,962 | 104 | 64 | The balance due from Fatboy Pub Company at 30 September 2023 was £10,000 (2022 £nil), net of a provision of £179,000 (2022 £179,000). Mitchells & Butlers plc Annual Report and Accounts 2023 \_\_\_\_\_ 183 Financial Statements Notes to the consolidated financial statements continued ## Section 5 – Other notes continued ### 5.3 Subsidiaries and associates #### Subsidiaries Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. Mitchells & Butlers plc is the ultimate controlling party and the beneficial owner of all of the equity share capital, either itself or through subsidiary undertakings, of the following companies: | Name of subsidiary | Country of incorporation | Registration Number | Nature of business | | --- | --- | --- | --- | | **Principal operating subsidiaries** | | | | | Mitchells & Butlers Retail Limited | England and Wales | 00024542 | Leisure retailing | | Mitchells & Butlers Retail (No. 2) Limited | England and Wales | 03959664 | Leisure retailing | | Ha Ha Bar & Grill Limited | England and Wales | 06295359 | Leisure retailing | | Orchid Pubs & Dining Limited | England and Wales | 06754332 | Leisure retailing | | 3Sixty Restaurants Limited | England and Wales | 07540663 | Leisure retailing | | ALEX Gaststätten Gesellschaft mbH & Co KG | Germany | | Leisure retailing | | Midco 1 Limited | England and Wales | 05835640 | Property leasing company | | Mitchells & Butlers Leisure Retail Limited | England and Wales | 01001181 | Service company | | Mitchells & Butlers Germany GmbH^{a} | Germany | | Service company | | Mitchells & Butlers Finance plc | England and Wales | 04778667 | Finance company | | **Other subsidiaries** | | | | | Mitchells & Butlers (Property) Limited^{b} | England and Wales | 01299745 | Property management | | Standard Commercial Property Developments Limited^{b} | England and Wales | 00056525 | Property development | | Mitchells & Butlers Holdings (No.2) Limited^{b,b} | England and Wales | 06475790 | Holding company | | Mitchells & Butlers Holdings Limited^{b} | England and Wales | 03420338 | Holding company | | Mitchells & Butlers Leisure Holdings Limited^{b} | England and Wales | 02608173 | Holding company | | Mitchells & Butlers Retail Holdings Limited | England and Wales | 04887979 | Holding company | | Ego Restaurants Holdings Limited | England and Wales | 06425958 | Holding company | | Old Kentucky Restaurants Limited | England and Wales | 00465905 | Trademark ownership | | Mitchells & Butlers (IP) Limited^{b} | England and Wales | 04885717 | Dormant | | Mitchells & Butlers Retail Property Limited^{b,b} | England and Wales | 06301758 | Non-trading | | Mitchells and Butlers Healthcare Trustee Limited^{b} | England and Wales | 04659443 | Healthcare trustee | | ALEX Gaststätten Immobiliengesellschaft mbH^{c} | Germany | | Property management | | ALL BAR ONE Gaststätten Betriebsgesellschaft mbH^{c} | Germany | | Leisure retailing | | ALEX Alsterpavillon Immobilien GmbH & Co KG^{c} | Germany | | Property management | | ALEX Alsterpavillon Management GmbH^{c} | Germany | | Management company | | ALEX Gaststätten Management GmbH^{c} | Germany | | Management company | | Miller & Carter Gaststätten Betriebsgesellschaft mbH^{c} | Germany | | Leisure retailing | | Browns Restaurant (Brighton) Limited^{d} | England and Wales | 01564302 | Dormant | | Browns Restaurant (Bristol) Limited^{d} | England and Wales | 02351724 | Dormant | | Browns Restaurant (Cambridge) Limited^{d} | England and Wales | 01237917 | Dormant | | Browns Restaurant (London) Limited^{d} | England and Wales | 00291996 | Dormant | | Browns Restaurant (Oxford) Limited^{d} | England and Wales | 01730727 | Dormant | | Browns Restaurants Limited^{d} | England and Wales | 01001320 | Dormant | | Lander & Cook Limited^{d} | England and Wales | 11160005 | Dormant | a. Shares held directly by Mitchells & Butlers plc. b. These companies are exempt from the requirement to prepare individual audited financial statements in respect of the 53 week period ended 30 September 2023 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 2023 (2022 30 September 2022). d. These companies are exempt from the requirement to prepare and file individual financial statements in respect of the 53 week period ended 30 September 2023 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. 184 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Other InformationIntroduction Financial Statements Mitchells & Butlers plc Annual Report and Accounts 2023 185 Associates Details of the Company’s associates, held indirectly, are as follows. Shares in these associates were acquired in the prior period. Name of associate Registered office Country of incorporation and operation Country of operation Nature of business Proportion of ownership interest % Proportion of voting power interest % Fatboy Pub Company Limited Ampney House, Falcon Close, Quedgeley, Gloucester, GL2 4LS England and Wales United Kingdom Leisure retailing 25 25 Financial Statements Mitchells & Butlers plc Company financial statements # Company balance sheet 30 September 2023 | | Notes | 2023 £m | 2022 £m | | --- | --- | --- | --- | | **Non-current assets** | | | | | Investments in subsidiaries | 5 | 1,866 | 1,866 | | Amounts owed by subsidiary undertakings | 6 | 430 | 381 | | Deferred tax asset | 9 | 10 | 19 | | | | **2,306** | **2,266** | | **Current assets** | | | | | Trade and other receivables | 6 | 205 | 176 | | Cash and cash equivalents | | 21 | 76 | | | | **226** | **252** | | **Current liabilities** | | | | | Pension liabilities | 4 | (1) | (42) | | Borrowings | 8 | (23) | (17) | | Trade and other payables | 7 | (315) | (287) | | | | **(339)** | **(346)** | | **Non-current liabilities** | | | | | Pension liabilities | 4 | (21) | (22) | | **Net assets** | | **2,172** | **2,150** | | **Equity** | | | | | Called up share capital | 10 | 51 | 51 | | Share premium account | 10 | 357 | 357 | | Capital redemption reserve | | 3 | 3 | | Own shares held | 10 | (5) | (5) | | Retained earnings | | 1,766 | 1,744 | | **Total equity** | | **2,172** | **2,150** | The Company reported a loss for the 53 weeks ended 30 September 2023 of £16m (52 weeks ended 24 September 2022 profit of £250m). The Company financial statements were approved by the Board and authorised for issue on 29 November 2023. They were signed on its behalf by: **Tim Jones** Chief Financial Officer The accounting policies and the notes on pages 188 to 191 form an integral part of these Company financial statements. Registered Number: 04551498 186 \_\_\_\_\_ Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information # Company statement of changes in equity For the 53 weeks ended 30 September 2023 | | Share capital £m | Share premium £m | Capital redemption reserve £m | Own shares held £m | Retained earnings £m | Total equity £m | | --- | --- | --- | --- | --- | --- | --- | | **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 and rate change of pension liability | – | – | – | – | (9) | (9) | | Total comprehensive income | – | – | – | – | 282 | 282 | | Share capital issued | – | 1 | – | – | – | 1 | | Purchase of own shares | – | – | – | (2) | – | (2) | | Credit in respect of employee share schemes | – | – | – | – | 4 | 4 | | **At 24 September 2022** | 51 | 357 | 3 | (5) | 1,744 | 2,150 | | Loss after taxation | – | – | – | – | (16) | (16) | | Remeasurement of pension liability | – | – | – | – | 42 | 42 | | Deferred tax on remeasurement of pension liability | – | – | – | – | (9) | (9) | | Total comprehensive income | – | – | – | – | 17 | 17 | | Credit in respect of employee share schemes | – | – | – | – | 5 | 5 | | **At 30 September 2023** | **51** | **357** | **3** | **(5)** | **1,766** | **2,172** | Details of each reserve are provided in note 4.7 to the consolidated financial statements. Mitchells & Butlers plc Annual Report and Accounts 2023 187 Financial Statements # 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. ### Going concern The Directors have adopted the going concern basis in preparing these financial statements, as described in section 1 of the consolidated financial statements. ### 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 loss after tax of £16m (2022 profit of £250m), less dividends of £nil (2022 £nil). ### Audit remuneration Auditor's remuneration for audit services to the Company was £30,000 (2022 £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 | | 2023 53 weeks | 2022 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 in the information labelled as audited by KPMG on pages 109 to 116. The charge recognised for share-based payments in the period is £1m (2022 £1m). 188 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ## 4. Pensions ### Accounting policy The accounting policy for pensions is disclosed in the consolidated financial statements in note 4.5. ### Pension liability At 30 September 2023 the Company's pension liability was £22m (2022 £64m). Of this amount, £1m (2022 £42m) is a current liability and £21m (2022 £22m) 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 173 to 177. The pension amounts and disclosures included in note 4.5 to the consolidated financial statements are equivalent to those applicable for the Company. ## 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 for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable, or that there is evidence that past impairments may be reversed. Impairment reviews are performed by comparing the recoverable amount with carrying value. Recoverable amount is deemed as being either future discounted cash flows 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 25 September 2021 | 3,495 | | Additions^{a} | 250 | | At 24 September 2022 | 3,745 | | Additions | – | | **At 30 September 2023** | **3,745** | | **Provision** | | | At 25 September 2021 | 1,879 | | Impairment | – | | At 24 September 2022 | 1,879 | | Impairment | – | | **At 30 September 2023** | **1,879** | | **Net book value** | | | **At 30 September 2023** | **1,866** | | At 24 September 2022 | 1,866 | | At 25 September 2021 | 1,616 | a. During the prior period the Company subscribed for 1 ordinary share), of £1 nominal value, at a subscription price of £250m 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. Certain subsidiary companies are exempt from the requirement to prepare individual audited financial statements in respect of the 53 week period ended 30 September 2023 by virtue of sections 479A and 479C of the Companies Act 2006. In addition, certain other companies are exempt from the requirement to prepare and file individual financial statements in respect of the 53 week period ended 30 September 2023 by virtue of sections 394A and 448A of the Companies Act 2006. For further details, see note 5.3 of the consolidated financial statements for a full list of subsidiaries and associates. Mitchells & Butlers plc Annual Report and Accounts 2023 189 Financial Statements # Notes to the Mitchells & Butlers plc Company financial statements continued ### 5. Investments in subsidiaries continued #### 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 11.00% (2022 9.65%) and a long-term growth rate of 2.0% (2022 2.0%). 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, and there are no triggers to indicate any impairment should be reversed. For the investment impairment review, judgement has been applied to determine the most appropriate forecast to use as a result of the impact of cost inflation on site profits. Forecasts for cash flows of trading subsidiaries have been based on the overall Group forecast for FY 2024 to 2026 that was in place at the balance sheet date. The assumptions are consistent with those used in the impairment review performed at a cash-generating unit level as disclosed in the consolidated financial statements in note 3.3. The assessment is not sensitive to these key assumptions. ### 6. Trade and other receivables | | 2023 £m | 2022 £m | | --- | --- | --- | | **Non-current** | | | | Amounts owed by subsidiary undertakings | 383 | 381 | | Defined benefit pension blocked accounts^{a} | 47 | – | | | **430** | **381** | | | 2023 £m | 2022 £m | | **Current** | | | | Amounts owed by subsidiary undertakings | 204 | 165 | | Prepayments | 1 | 2 | | Defined benefit pension blocked accounts^{a} | – | 9 | | | **205** | **176** | a. Contributions to the MABEPP scheme have been paid into a blocked account since the scheme buy-in that took place during the prior period, and contributions to the MABEPP scheme have been paid into a blocked account since conclusion of the 2022 actuarial valuation during the current period (see note 4.5 for further details). Amounts owed by subsidiary undertakings are repayable on demand. However, £383m (2022 £381m) of these amounts are disclosed as non-current as they are not expected to be settled within the next twelve 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 | | 2023 £m | 2022 £m | | --- | --- | --- | | Amounts owed to subsidiary undertakings^{a} | 313 | 286 | | Other payables | 2 | 1 | | | **315** | **287** | 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. 190 \_\_\_\_\_ Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ## 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: | | 2023 £m | 2022 £m | | --- | --- | --- | | **Current** | | | | Bank overdraft | 23 | 17 | | **Total borrowings** | **23** | **17** | ### Unsecured revolving credit facility The Company holds an uncommitted gross overdraft facility of £50m (2022 £50m) as part of the Group's notional pooling arrangements with a net facility limit of £5m (2022 £5m) across the participating Group companies. The amount drawn at 30 September 2023 is £23m (2022 £17m). ## 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 25 September 2021 | 36 | | Charged to income statement – pensions | (8) | | Charged to other comprehensive income – pensions | (9) | | At 24 September 2022 | 19 | | Charged to other comprehensive income – pensions | (9) | | **At 30 September 2023** | **10** | Analysed as tax timing differences related to: | | 2023 £m | 2022 £m | | --- | --- | --- | | Pensions | 5 | 14 | | Tax losses^{a} | 4 | 4 | | Share-based payments | 1 | 1 | | | **10** | **19** | 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. ### 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 2023 391 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. As FY 2023 is a 53-week period, in order to aid comparability with prior years we have provided a 52-week result. The 52-week result is derived by removing the 53rd week of the financial year. FY 2022 was a 52-week year. 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 EBITDA before separately disclosed items is used to calculate net debt to EBITDA. Group income statement 52-week Adjusted EBITDA EBITDA on a 52-week basis, adjusted to remove the 53rd week of the period, APM D before separately disclosed items is used to 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 52-week adjusted operating profit Operating profit before separately disclosed items adjusted to remove the 53rd APM B week of the period. 52-week revenue Revenue adjusted to remove the 53rd week of the year. APM B Like-for-like sales growth Like-for-like sales growth reflects the sales performance against the comparable APM A period in the prior year of UK managed pubs, bars and restaurants that were trading in the two periods being compared, unless marketed for disposal. 52-week like-for-like sales growth Like-for-like sales growth reflects the sales performance against the comparable APM A period in the prior year of UK managed pubs, bars and restaurants that were trading in the two periods being compared, unless marketed for disposal. Adjusted to remove 53rd week of the period. Like-for-like sales excluding VAT Like-for-like sales excluding VAT benefit reflects like-for-like sales growth APM A benefit excluding the benefit of the temporary reduction in the rate of VAT on food and non-alcoholic drink sales to 12.5% in the first half of FY 2022. Adjusted earnings per share (‘EPS’) Earnings per share using profit before separately disclosed items. Note 2.5 52- week adjusted earnings per Earnings per share using profit before separately disclosed items adjusted for 53rd APM C share (‘EPS’) week of period. Net debt Net debt comprises cash and cash equivalents, cash deposits net of borrowings Note 4.4 and discounted lease liabilities. Presented on a constant currency basis due to the inclusion of the fixed exchange rate component of the cross currency swap. Net debt : Adjusted EBITDA The multiple of net debt including lease liabilities, as per the balance sheet APM D compared against 52-week EBITDA before separately disclosed items, which is a widely used leverage measure in the industry. Net debt : Adjusted 52-week The multiple of net debt including lease liabilities, as per the balance sheet APM D EBITDA compared against 52-week EBITDA before separately disclosed items, which is a widely used leverage measure in the industry. Adjusted for 53rd week of the period. FY 2023 52-week reconciliation A 53-week accounting period occurs every five years. FY 2023 was a 53-week APM E period and therefore presentation of a 52-week basis provides useful comparability to previous financial years. Return on capital Return generating capital includes investments made in new sites and investment APM F 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. 192 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Strategic Report Governance Financial Statements Other Information ### A. Like-for-like sales The sales this year compared to the sales in the previous year of all UK managed sites that were trading in the two periods being compared, 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 is provided on a 52-week basis. | | Source | 2023 £m | 2022 £m | Year-on-year % | | --- | --- | --- | --- | --- | | Reported revenue | Income statement | 2,503 | 2,208 | 13.4% | | Adjust for 53rd week | APM E | (44) | – | – | | Less 52-week non like-for-like sales and income | | (311) | (239) | 30.1% | | **52-week like-for-like sales** | | **2,148** | **1,969** | **9.1%** | | Less like-for-like sales VAT benefit | | – | (39) | – | | **52-week like-for-like sales basis excl. VAT benefit** | | **2,148** | **1930** | **11.3%** | ### Drink sales | | Source | 2023 £m | 2022 £m | Year-on-year % | | --- | --- | --- | --- | --- | | Reported drink revenue | Note 2.3 | 1,092 | 957 | 14.1% | | Adjust for 53rd week | | (20) | – | – | | Less 52-week non like-for-like drink sales | | (117) | (88) | 33.0% | | **52-week drink like-for-like sales** | | **955** | **869** | **9.9%** | ### Food sales | | Source | 2023 £m | 2022 £m | Year-on-year % | | --- | --- | --- | --- | --- | | Reported food revenue | Note 2.3 | 1,323 | 1,166 | 13.5% | | Adjust for 53rd week | | (23) | – | – | | Less 52-week non like-for-like food sales | | (171) | (126) | 35.7% | | **52-week food like-for-like sales** | | **1,129** | **1,040** | **8.6%** | ### Other sales | | Source | 2023 £m | 2022 £m | Year-on-year % | | --- | --- | --- | --- | --- | | Reported other revenue | Note 2.3 | 87.8 | 85.2 | 3.3% | | Adjust for 53rd week | | (1.5) | – | – | | Less non like-for-like other sales | | (41.6) | (41.8) | 0.5% | | **52 week other like-for-like sales** | | **44.7** | **43.4** | **3.0%** | ### 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 nature. Excluding these items allows a more effective comparison of the Group's trading performance from one period to the next. | | Source | 2023 £m | 2022 £m | Year-on-year % | | --- | --- | --- | --- | --- | | Operating profit | Income statement | 98 | 124 | (21.0)% | | Separately disclosed items | Income statement | 128 | 116 | 10.3% | | **Adjusted operating profit** | Income statement | **226** | **240** | **(5.8)%** | | Adjusted operating profit 53rd week | APM E | (5) | – | – | | **52-week adjusted operating profit** | | **221** | **240** | **(7.9)%** | | Reported revenue | Income statement | 2,503 | 2,208 | 13.4% | | Revenue 53rd week | APM E | (44) | – | – | | 52-week revenue | | 2,459 | 2,208 | 11.4% | | **52-week adjusted operating margin** | | **9.0%** | **10.9%** | **(1.9)ppts** | Mitchells & Butlers plc Annual Report and Accounts 2023 \_\_\_\_\_ 193 Other information # Alternative performance measures continued # **C. Adjusted earnings (loss) per share** Earnings per share using profit before separately disclosed items. Separately disclosed items are those which are separately identified by virtue of their size or nature. Excluding these items allows a more effective comparison of the Group's trading performance from one period to the next. | | Source | 2023 £m | 2022 £m | Year-on-year % | | --- | --- | --- | --- | --- | | Profit/(loss) for the period | Income statement | (4) | 13 | (130.8)% | | Add back separately disclosed items | Income statement | 100 | 94 | 6.4 | | **Adjusted profit** | | **96** | 107 | (10.3)% | | Adjusted profit 53rd week | | (3) | – | – | | **52-week adjusted profit** | | **93** | 107 | (13.1)% | | Basic weighted average number of shares | Note 2.5 | 595 | 595 | – | | **Adjusted earnings per share** | | **16.1p** | – | – | | **52-week adjusted earnings per share** | | **15.6p** | 18.0p | (13.3)% | # **D. Net Debt: 52-week 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 IFRS16. Adjusted 52-week EBITDA is used for this measure to prevent distortions in performance resulting from separately disclosed items. | | Source | 2023 £m | 2022 £m | Year-on-year % | | --- | --- | --- | --- | --- | | **Net Debt including leases** | Note 4.4 | **1,633** | 1,679 | (2.7)% | | **EBITDA** | Income statement | **362** | 374 | (3.2)% | | Add back separately disclosed items | Income statement | (3) | (1) | (200)% | | EBITDA 53rd week | APM E | (7) | – | – | | **Adjusted 52-week EBITDA** | | **352** | 373 | (5.6)% | | **Net debt : Adjusted 52-week EBITDA** | | **4.6** | 4.5 | 2.2% | # **E. FY 2023 52-week reconciliation** A 53-week accounting period occurs every five years. FY 2023 was a 53-week period and therefore presentation of a 52-week basis provides useful comparability to previous financial years. | | Source | 2023 52 weeks | 2023 Week 53 | 2023 53 weeks | | --- | --- | --- | --- | --- | | Revenue | Income statement | £2,459m | £44m | £2,503m | | Adjusted EBITDA | Income statement | £352m | £7m | £359m | | Adjusted operating profit | Income statement | £221m | £5m | £226m | | Adjusted PBT | Income statement | £112m | £3m | £115m | | Adjusted profit for the period | Income statement | £93m | £3m | £96m | | Adjusted EPS | Income statement | 15.6p | 0.5p | 16.1p | 194 \_\_\_\_\_ Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report Governance Financial StatementsIntroduction Other Information F. 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. Return on expansionary capital | | | 2022 | | 2023 | | 2023 | 2023 | | --- | --- | --- | --- | --- | --- | --- | --- | | | FY 2019-22 | | FY 2020-22 | | FY 2023 | | Total | | Source | | £m | | £m | | £m | £m | Maintenance and infrastructure 151 91 67 158 Remodel – refurbishment 188 123 65 188 Non-expansionary capital 339 214 132 346 Remodel expansionary 9 5 4 9 a Conversions and acquisitions 30 14 11 25 Expansionary capital for return calculation 39 19 15 34 Expansionary capital open < 3 periods pre year end 37 30 10 40 Total capital 52-week Cash flow 415 263 157 420 Adjusted 52-week EBITDA Income statement 1,230 794 352 1,146 Non-incremental EBITDA 1,223 790 350 1,140 Incremental EBITDA 7 4.3 1.9 6.2 Return on expansionary capital 18% 22% 13% 18.5% a. Conversion and acquisition capital is net of capex incurred for projects which have been open for less than 3 periods pre year end. Mitchells & Butlers plc Annual Report and Accounts 2023 195 Other Information ## Shareholder information Contacts Registered office 27 Fleet Street Birmingham B3 1JP Telephone 0121 498 4000 Registered in England No. 4551498 Registrar Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA Telephone +44 (0) 371 384 2065* For deaf and speech impaired customers, we welcome calls via Relay UK. Please see www.relayuk.bt.com for more information. www.mbplc.com/investors/contacts/ * Lines are open 8.30am to 5.30pm (UK time), Monday to Friday, excluding public holidays in England & Wales. Key dates These dates are indicative only and may be subject to change. Annual General Meeting January 2024 Announcement of interim results May 2024 Pre-close trading update September 2024 2024 final results announcement November 2024 In line with our sustainability strategy to lessen the negative impact of our business, we have reduced the number of Annual Reports we have printed this year. Once that supply is exhausted, we will not print any further copies, though the Annual Report will be available on our website and can be printed from there if required, using the following link: www.mbplc.com/investors/annualreport. 196 Annual Report and Accounts 2023 Mitchells & Butlers plc ## Mitchells & Butlers online ### Mitchells & Butlers’ comprehensive ### website gives you fast, direct access to ### a wide range of Company information. • Downloadable Annual Report and Accounts • Latest investor news and press releases • Brand news and offers • Responsibility policies • Find a local restaurant or pub • Sign up for latest news To find out more go to: www.mbplc.com Design and production: Gather Printed by: Park Communications Limited This report is printed on recycled paper using vegetable- based inks. Pages 01 to 120 are printed on Revive 100 Silk ® manufactured from FSC Recycled certified fibre derived from 100% pre and post-consumer waste. Pages 121 to 196 ® are printed on Revive 100 Offset manufactured from FSC Recycled 100% post-consumer waste. All material is manufactured in accordance with ISO certified standards for environmental, quality and energy management and is carbon balanced. Both the manufacturing paper mill and printer are registered to the Environmental Management ® System ISO 14001 and are Forest Stewardship Council (‘FSC’) chain-of-custody certified. Tel: +44 (0)121 498 4000 Company Number: 4551498 ### Mitchells & Butlers plc 27 Fleet Street Birmingham B3 1JP