Mitchells & Butlers Annual Report 2023

Plain-text annual report

Mitchells and Butlers Annual Report Annual Report and Accounts 2023 and Accounts 2023 Annual Report Contents and Accounts 2023 Contents Introduction About us/Financial highlights/Environmental 01 About us/Financial targets highlights/Environmental targets At a glance 02 At a glance 05 Welcome to Welcome to Mitchells and Butlers Mitchells & Butlers 06 Business in action Business in action Strategic Report Strategic Report 14 Chairman’s statement Chairmans statement Chief Executives business review 16 Chief Executive’s business Compliance statements including, Corporate 48 Compliance statements viability disclosure, Non-financial – Corporate viability and sustainability information statement, Section 172 Companies – Non-financial and sustainability information Act statement statement disclosure – Section 172 Companies Act statement 51 Financial review Financial review Governance Governance Governance at a glance 56 Governance at a glance Chairmans introduction to governance 58 Chairman’s introduction to Financial Statements Financial Statements Independent auditors report to the members of 120 Independent auditor’s Mitchells & Butlers plc report to the members of Mitchells & Butlers plc Group income statement 128 Group income statement Group statement of comprehensive income 129 Group statement of comprehensive income 130 Group balance sheet Group balance sheet 131 Group statement of changes Group statement of changes in equity in equity Group cash flow statement 132 Group cash flow statement Notes to the consolidated financial statements 133 Notes to the consolidated financial statements Mitchells & Butlers plc Company financial statements 186 Mitchells & Butlers plc Company financial statements review Our markets 20 Our markets Our business model 22 Our business model Value creation story 26 Value creation story 30 Our strategic priorities Our strategic priorities 32 Key performance indicators Key performance indicators 34 Our sustainability targets Our sustainability targets 36 Task Force on Climate-related Task Force on Climate-related Financial Disclosures Board of Directors governance 60 Board of Directors 62 Directors’ report 70 Statement of Directors’ Directors report Statement of Directors responsibilities responsibilities in respect in respect of the Annual of the Annual Report and Report and Accounts Accounts Financial Disclosures Risks and uncertainties 41 Risks and uncertainties 71 Corporate governance Corporate governance statement statement Audit Committee report 84 Audit Committee report Report on Directors remuneration 88 Report on Directors’ remuneration 188 Notes to the Mitchells & Notes to the Mitchells & Butlers plc Company financial statements Butlers plc Company financial statements Other Information Other Information Alternative performance measures 192 Alternative performance measures Shareholder information 196 Shareholder information Introduction 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 meals, and Our scale is impressive. In FY 2023 we served over 100 million meals, and over 330 million drinks. We employ over 50,000a over 330 million drinks. We employ over 50,000 (As at 30 September people in pubs, bars and restaurants that are located across 2023.) people in pubs, bars and restaurants that are located the length and breadth of the UK and in Germany. 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 ﾣ2,503 Million Revenue £2,503m Revenue £98m ﾣ98 million Statutory operating profit. ﾣ226 Million Adjusted operating profit (The Directors use a number of alternative performance Statutory operating profit measures (APMs) that are considered critical to aid understanding of the Groups performance. Key measures are explained on pages 192 Adjusted operating profitb to 195 of this report.) £226m Net Zeroc Net Zero (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 Greenhouse gas emissions by FY 2040 52-week basis) Greenhouse gas emissions (Scope 1, 2 and 3) by FY 2040 (Scope 1, 2 and 3). Zero Operational waste to landfill by FY 2030. 50% Reduction in food waste by FY 2030. Operational waste to landfill by FY 2030 Zero 50% Reduction in food waste by FY 2030 Financial review Go to page 51 Sustainability targets 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 Strategic ReportGovernanceFinancial StatementsOther InformationIntroduction Mitchells & Butlers at a glance Best Sustainable Pub Company March 2023 Our brands Our brands Our strong portfolio of recognised and diversified brands and formats is loved and trusted by our guests, with over 65% Our strong portfolio of recognised and diversified brands home-grown and over 80% in existence for over 20 years. 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: 42 sites Alex 42 sites All Bar One: 48 All Bar One sites 48 sites Browns: 26 Browns sites 26 sites Castle: 102 sites Castle 102 sites EGO: 29 EGO 29 sites sites Ember Inns: 149 Ember Inns sites 149 sites Harvester: 157 Harvester sites 157 sites High Street: 72 High Street sites 72 sites Miller and Carter: 126 sites Miller & Carter 126 sites Nicholsons: 80 sites Nicholson’s 80 sites ONeills: 40 O’Neill’s sites 40 sites Premium Country Pubs: 125 sites Premium Country Pubs 125 sites Stonehouse: 92 Stonehouse sites 92 sites Suburban: 238 Suburban sites 238 sites Toby Carvery: 152 Toby Carvery 152 sites sites Vintage Inns: 176 Vintage Inns sites 176 sites 02 Annual Report and Accounts 2023 Mitchells & Butlers plc Introduction Our people Over 50,000 employees, Over 50,000 making us one employees, of the largest employers making us one of the largest employers in in the industry the industry 13% 13% Staff turnover reduced by 13 percentage points due to the effective delivery of our People Promise Staff turnover reduced by 13 percentage points due to the effective delivery of our People Promise Over 1,600 apprentices currently in learning Over 1,600 apprentices currently in learning Employees Go to page 27 Covent Garden London UK sales by region (FY 2023) UK sales by region (FY 2023) Our pubs 83% of pubs freehold and long leasehold 83% with major investment planned every seven years of pubs freehold and long leasehold with major investment planned every seven years 1,654 1,654 managed businesses with favourable spread of locations, price points and occasions leaves the business managed businesses with favourable spread well-hedged against changes in of locations, price points and occasions leaves consumer taste the business well-hedged against changes in consumer taste Wales 4% Wales 4% South West 7% South West 7% The Sun Inn Barnes Scotland 5% Scotland 5% The Fox Birmingham North East 3% North East 3% North West 10% North West 10% Yorkshire and Humberside 8% Yorkshire and Humberside 8% West Midlands 15% West Midlands 15% East Midlands 5% East Midlands 5% East of England East of 8% England 8% London 21% London 21% South East (excluding South East (excluding London) London) 14% 14% Mitchells & Butlers plc Annual Report and Accounts 2023 03 Strategic ReportGovernanceFinancial StatementsOther InformationIntroduction 04 Annual Report and Accounts 2023 Mitchells & Butlers plc IntroductionWelcome 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 Strategic ReportGovernanceFinancial StatementsOther InformationIntroduction 52% 52% of our General Managers promoted through internal of our General Managers succession. 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. 41initiatives currently in 41 initiatives currently in progress to improve guest care, enhance efficiency and grow profitable sales. progress to improve guest care, enhance efficiency and grow profitable sales. 9.1% like for like sales growth. (The Directors use a number of alternative performance measures (APMs) that are considered critical to aid the understanding of the Groups performance. Key measures are explained on pages 192 to 195 of this report. ) like for like salesa growth. 9.1% 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 IntroductionOur guest review scores have improved by 10% since introduced four years ago. 10%Our guest review scores have improved by 10% since introduced four years ago. Our General Managers control, Our General Managers respond and resolve control, respond and resolve customer feedback customer feedback and queries. and queries. 4.4 average guest review score out of 5. 4.4 average guest review score out of 5. Further delivery improvements Further delivery made during improvements made the year, with all brands during the year, with all now offering click-and-collect brands now offering and delivery click-and-collect and options. delivery options. Business in Action – Service Business in Action - Service Delighting Delighting our guests 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 Strategic ReportGovernanceFinancial StatementsOther InformationIntroduction Building partnerships Building partnerships We build long-term collaborative We build long-term collaborative partnerships partnerships with our with our 1,640 suppliers. 1,640 suppliers. Updating our menus and Updating our making savings 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 IntroductionIncreasing 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 Business in Action Supply chain. Bringing our offers to life 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 Strategic ReportGovernanceFinancial StatementsOther InformationIntroduction 151 investment projects in FY 2023. Business in Action – Investment Business in Action Investment. Right offer in the Right offer in the right location 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. 10 Annual Report and Accounts 2023 Mitchells & Butlers plc Our strategic priorities Go to page 30 Introductionﾣ157 million invested in our estate in FY 2023. £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% 19% return on investment achieved in the year. return on investment achieved in the year. Mitchells & Butlers plc Annual Report and Accounts 2023 11 Strategic ReportGovernanceFinancial StatementsOther InformationIntroduction 11% We have reduced our emissions by 11% from our FY We have reduced our emissions by 11% from our 2019 baseline. FY 2019 baseline. Energy reduction. Smart meters and Energy reduction volume optimisers installed across Smart meters and volume optimisers all businesses with regular energy installed across all businesses with audits delivering 3% reduction regular energy audits delivering 3% in usage in the year. reduction in usage in the year. 50 We have installed solar panels at 50 sites with further roll out planned for FY 2024. 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 IntroductionTackling waste and recycling. Recycled Tackling waste over 3 million litres of cooking and recycling oil across the estate. Recycled over 3 million litres of cooking oil across the estate. We divert 97% of operational waste from landfill. 97%We divert 97% of operational waste from landfill. Business in Action – Sustainability Business in Action Sustainability. Our holistic approach Our holistic approach to sustainability 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 ReportGovernanceFinancial StatementsOther InformationIntroduction Chairman’s statement “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 To be the host of life’s memorable moments Welcome to Mitchells & Butlers Go to page 5 Over the last few years we have responded professionally and energetically to the macro events we have been presented with. We have devoted our time to managing the factors that were in our gift to control to mitigate these challenges and, because of this, we now emerge a fundamentally more efficient business. We are well positioned to benefit now that the macro issues are starting to subside, with inflationary cost headwinds beginning to abate. This combined with our focus on driving both sales growth and efficiencies should help us start to rebuild our margins to pre-pandemic levels. This year our sales growth has remained ahead of the market, with our guest scores at record highs. This strong performance, coupled with the addition of Ego Restaurants into our stable of brands, means that the outlook for FY 2024 is positive with the opportunity to further outperform the sector and grow market share. Navigating the last three years has been hugely challenging for everyone in the business but we feel we are now firmly back on our chosen path and that we have a bright future as a business to look forward to. Our purpose Our purpose During the period, our purpose to be the host During the period, our purpose to be the host of lifes of life’s memorable moments, bringing people memorable moments, bringing people and and communities together through great communities together through great experiences, experiences, has continued to be highly has continued to be highly relevant. relevant. Our pubs provide a critical resource Our pubs provide a critical resource at the at the centre of our communities for people to centre of our communities for people to meet and meet and socialise. socialise. Our culture Our culture Our people have responded magnificently to the challenges Our people have responded magnificently to the challenges we have faced over the last few we have faced over the last few years. years. It’s their dedication, care and consideration Its their dedication, care and consideration for guests and each other, as well as their for guests and each other, as well as passion for the places they live and work in, their passion for the places they live and work in, that has enabled us to deliver another year that has enabled us to deliver another year of robust of robust results. results. To support this purpose, we have countless individual outlet-based initiatives in place to provide wellbeing, support and sponsorship to numerous charities, individuals and organisations. At a corporate level, we have continued to provide further support through partnerships with organisations such as Shelter and Social Bite, and at a brand level with charities such as the Royal British Legion. We were also delighted to be awarded the “Best Sustainable Pub Company” award at The 2023 Publican Awards, which is recognition of the huge amount of ground that we’ve covered in addressing our climate impact. We have a detailed programme of activity ahead of us, from deploying solar panels and going fully electric on our cook lines, to working with third parties to avoid food waste and helping those most in need in society. Aiming to operate sustainably is now just part of what we do, and it touches everyone within the organisation. I would like to thank all of them, including our Executive Committee members, for all they have done for our guests and our business. Our values Our values The values we hold ourselves accountable to across The values we hold ourselves accountable to the business are Passion, Respect, Innovation, across the business are Passion, Respect, Drive and Engagement. We believe that Innovation, Drive and Engagement. We believe these foster the culture and environment needed that these foster the culture and environment needed to enable our people to work collectively, to enable our people to work collectively, and and in union with our stakeholders, to support in union with our stakeholders, to support our purpose. our purpose. Our pensioners Our pensioners In July we announced that the trustees of the In July we announced that the trustees of the M and M&B Main Pension Plan, working closely with B Main Pension Plan, working closely with the the Group, had successfully completed a full Group, had successfully completed a full scheme scheme buy-in with Standard Life. This buy-in with Standard Life. This transaction transaction follows on from the completion of follows on from the completion of the buy-in the buy-in of the Executive Plan announced last of the Executive Plan announced last year and year and eliminates substantially all remaining eliminates substantially all remaining pensions pensions risk in the Group. risk in the Group. 14 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic Report “Our people have responded magnificently to the challenges we have faced over the last few years, with real determination, flexibility and positivity. I would like to thank all of them for all they have done for our guests and our business.” 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 Our Board There have been no changes to the Board membership during There have been no changes to the Board the year. I believe we have a group of Non-Executive Directors membership during the year. I believe we have with the right balance of experience and capability to a group of Non-Executive Directors with the guide the business forward successfully. 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. Bob Ivell. Chairman. Mitchells Bob Ivell and Butlers plc Chairman Mitchells & Butlers plc OUR PEOPLE Dedication, care and consideration for guests and each other Chief Executive’s Business Review Go to page 16 OUR VALUES Passion, Respect, Innovation, Drive and Engagement Our business model Go to page 22 Mitchells & Butlers plc Annual Report and Accounts 2023 15 GovernanceFinancial StatementsOther InformationIntroductionStrategic 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 Total sales across the period were ﾣ2,503 million with year-on-year Total sales across the period were £2,503m growth driven by strong like-for-like sales (The Directors with year-on-year growth driven by strong use a number of alternative performance measures (APMs) like-for-like salesa performance across all of our that are considered critical to aid the understanding brands. Operating profit of £98m was £26m of the Groups performance. Key measures are lower than the prior year, impacted both by explained on pages 192 to 195 of this report.) performance across all of our brands. Operating profit of ﾣ98 million was ﾣ26 million property portfolio valuation movements lower than the prior year, impacted both by property portfolio classified in separately disclosed items and the valuation movements classified in separately disclosed items inclusion last year of an additional £52m of non- and the inclusion last year of an additional ﾣ52 million of non- recurring government support (in the form of recurring government support (in the form of reduced VAT and reduced VAT and grants). grants). Overall, we are very pleased with our 52-week adjusted operating profita result of £221m, before separately disclosed items, which reflects a strong performance in the face of considerable cost headwinds and a record like-for-like salesa outperformance against the market, as measured by the CGA Business Tracker, of 2.7ppts. We made a good start to the financial year with like-for-like salesa growth of 6.5% over the first ten weeks, primarily driven by drink sales. Growth then increased further in the final five weeks of the first quarter due principally to last year being impacted by the emergence of the Omicron variant which resulted in a downturn in activity across much of the festive season. Like-for-like salesa for the quarter were up 10.4% against FY 2022. Sales remained resilient through the second quarter with strong performances on key trading dates and from our drink-led, city centre pubs, especially in London, that benefited from a further return to office working and recovery in tourism. Across the quarter, we recorded like-for-like salesa growth of 6.4%, comprising drink sales growth of 9.9% and food sales growth of 5.2%. Through the second half, sales performance remained strong and our outperformance of the market extended further. Despite a wetter and cooler summer than the prior year, like-for-like salesa grew by 9.7% through the second half, with all brands in like-for-like salesa growth and supported by sustained growth in both food and drink volumes. The uncertainty and cost challenges the industry has faced have had an unavoidable impact on market supply with a 3.6% net decline in pubs and restaurants in the year to October 2023 and a 13.2% net decline since the start of the Covid-19 pandemic in March 2020 (CGA October Hospitality Market Monitor 2023). Independent and tenanted businesses have made up the substantial majority of the net closures. Given our strong estate and portfolio of brands, we believe that we are well placed to continue to benefit from these changes in the competitive landscape. Our strategic priorities 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. We are focused on the strategic pillars which began to turn the business’s performance around in 2018, remained at the heart of the business through the pandemic and continue to guide our growth: • Build a more balanced business Instil a commercial culture • • Drive an innovation agenda Our Ignite programme of work remains at the core of Our Ignite programme of work remains at the our long-term value creation plans. The programme core of our long-term value creation plans. The programme consists of a rolling total of consists of a rolling total of approximately approximately 40 initiatives, with new 40 initiatives, with new workstreams workstreams being introduced in the period being introduced in the period replacing replacing those fully implemented in the those fully implemented in the business. Given business. Given the cost headwinds faced over the cost headwinds faced over the last year, the last year, we have been particularly focused we have been particularly focused on initiatives on initiatives which increase efficiency and which increase efficiency and productivity productivity through enhancements such as through enhancements such as improved improved labour scheduling, cost-mitigating labour scheduling, cost-mitigating procurement procurement strategies and energy strategies and energy consumption reduction. 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 ReportOUR PEOPLE Our fantastic team of over 50,000 people is central to the performance of our business. Employees Go to page 27 We remain committed to accelerating our digital strategy, which presents an opportunity for more personalised guest experiences. Our strategy focuses on building the correct digital and organisational capabilities to allow for quick activation of new channels and services as consumer behaviours change, allowing us to be at or near the forefront of digital advances in the sector. We have made significant progress in recent years, for example our digital order at table facility, our streamlined online booking experience, and the development of own channel delivery capability seeking to drive sales and protect margins. Our capital programme continues to deliver value by improving the competitive position of our pubs and restaurants within their local markets. We are committed to re-establishing a seven-year investment cycle, which was interrupted by Covid-19. This financial year we have completed 151 investment projects, slightly fewer than last year but with a higher proportion of larger projects, including 11 conversions of sites to brands such as Miller & Carter and Nicholson’s to enable them to optimise trading opportunities in their location. We have also purchased six new sites (of which four are freehold) either by buying in existing leases to give us assured tenancy of successful sites, or by establishing new locations to broaden our offer in areas such as Edinburgh airport, Cardiff, Sheffield and Middlesbrough. We are continuing to see strong performances from our investment projects. In June 2023 we completed the acquisition of the remaining 60% stake in 3Sixty Restaurants Limited, owners of Ego Restaurants, having acquired the initial 40% stake in August 2018. Ego is a collection of Mediterranean-inspired pubs and restaurants where guests can enjoy freshly cooked food, cocktails, cask ales and wine from across the continent. It currently has 29 sites, including 16 that are leased from Mitchells & Butlers, and c. 1,000 employees. We currently foresee scope for c. 20-30 conversions using the Ego format over the next three to five years. This type of acquisition, of a brand which provides a conversion opportunity which complements our brand portfolio, allows us to generate value through cost synergies of c. £3m as well as incremental profit on conversion. People People Our fantastic team of over 50,000 people is Our fantastic team of over 50,000 people is central central to the performance of our business, to the performance of our business, delivering delivering the all-important experiences guests the all-important experiences guests have have with us. We are delighted that our staff with us. We are delighted that our staff turnover turnover reduced this financial year to 81%, reduced this financial year to 81%, a return a return to pre-pandemic stability. Lower to pre-pandemic stability. Lower turnover has turnover has a positive impact on guest a positive impact on guest experience and also experience and also holds commercial benefits holds commercial benefits due to the cost of training due to the cost of training new team members. new team members. We are also delighted We are also delighted that our team engagement that our team engagement scores have continued scores have continued to improve over the to improve over the course of the year and course of the year and are now at record highs, are now at record highs, demonstrating the commitment demonstrating the commitment of our teams of our teams to work together towards to work together towards the shared goal of the shared goal of driving the future success driving the future success of the business. of the business. Energy reduction projects in particular have helped to offset utility investment in solar panels, the roll out of cost headwinds, as well as contribute towards our sustainability voltage optimisers and the trial of internet- aims, including investment in solar panels, the roll connected control devices to lower electricity out of voltage optimisers and the trial of internet- connected and gas consumption. In addition, our energy control devices to lower electricity and gas consumption. and sustainability ambassadors across the In addition, our energy and sustainability ambassadors across the country support General Managers in country support General Managers in the the behavioural change needed to continue reducing consumption behavioural change needed to continue in our sites, the combined result being a reduction reducing consumption in our sites, the in energy consumption of 3% versus last year and 14% combined result being a reduction in energy versus 2019. consumption of 3% versus last year and 14% versus 2019. We have also continued to focus on sales- driving initiatives, ensuring that General Managers are equipped with the knowledge and tools to drive sales in their businesses. Each of our General Managers attended a workshop designed to develop and enhance these skills as well as focusing on improving guest metrics by delivering great experiences. We have also increased our capacity at peak times by opening additional bookable covers across bars and outside areas. The benefit of these workstreams is reflected in the broad-based like-for-like salesa performance across all of our brands, supported by volume growth, as well as guest scores of over 4.1 in every one of our brands. Across a multi-location business, comprising over 1,650 sites, execution of business change will always be a key challenge when targeting efficiencies. Consistent delivery of our Ignite initiatives has become an increased focus in order to realise the full value of activities which have been proven in other parts of the 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 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Current trading and outlook Since the period end, we have been further Once the period end, we have been further encouraged by like-for-like sales growth of 7.2%. (The Directors use a number encouraged by like-for-like salesa growth of of alternative performance measures (APMs) that 7.2%. The strength of our sales performance are considered critical to aid the understanding of the Groups continues to be broad-based across the brand performance. Key measures are explained on pages portfolio and underpinned by stable volumes, 192 to 195 of this report. ) The strength of our sales performance giving us confidence that further opportunity continues to be broad-based across the brand portfolio and underpinned by stable volumes, giving us confidence remains, although we are very mindful of the that further opportunity remains, although we are very potential implications of the cost of living mindful of the potential implications of the cost of living challenge challenge facing guests. facing guests. Cost headwinds presented a significant challenge in FY 2023 but we are seeing clear evidence that these are starting to abate. We now know that the National Living Wage will increase by 9.8%, and be extended to everyone over 21, from April next year, but a reduction in energy prices and slowing food inflation, in particular, mean that anticipated overall cost headwinds for the year ahead are expected to reduce to c. £65m. This should allow us to start to rebuild margins back towards pre-pandemic levels. We are working hard to continue to drive sales growth above the market, whilst both leveraging our buying power and further enhancing the efficiency of our business. This allows us to face the future with a renewed level of confidence. Phil Urban Chief Executive Mitchells & Butlers plc Chief Executive’s business review continued The recent employment environment has been challenging, and our centralised HR function has been focused on attracting the best talent, enhancing performance through our development programmes and retaining teams through progression opportunities. During the period, over 50% of our General Manager appointments were internal, which reflects the strength of the pipeline of talent we have in the organisation. Our apprentice scheme forms part of our training and progression opportunity, and we believe it will provide excellent future talent to our organisation, from front and back of house roles in our pubs and restaurants to corporate roles in our head office. This financial year over 680 apprentices have joined our business and 980 of our current employees have enrolled onto one of the apprenticeship opportunities open to them. Given the importance of developing and retaining chefs, we continue to grow our culinary capability via our Chefs’ Academy and 187 of our chefs have embarked on the Commis Chef apprenticeship delivered by our award-winning tutors. Sustainability Sustainability We are committed to reducing the environmental impact We are committed to reducing the environmental impact of our business and have of our business and have set ambitious targets set ambitious targets against which to measure against which to measure our progress: our progress: • Net Zero emissions by 2040, including Scope 1, 2 and 3 emissions; in the period we reduced our emissions by 11% against our 2019 baseline, driven by reduced energy consumption, moving to 100% renewable electricity and reduced emissions in relation to employee travel as we transition our fleet towards hybrid and electric cars. On the intensity measure of emissions to turnover, our output of emissions has reduced by over 20% from our 2019 baseline and by 2% from FY 2022. We have submitted our roadmap to Net Zero for Science Based Target initiative for approval and continue to be active members of the Zero Carbon Forum where we work collaboratively with the ambition of decarbonising the hospitality industry as a whole. • Zero operational waste to landfill by 2030; we continued to make good progress in this area and currently divert 97% of operational waste from landfill. We have also focused on increasing the proportion of waste that we recycle and have improved our recycling performance to 59%. • 50% reduction in food waste by 2030; aligned with the UN Sustainable Development Goals we will halve food waste in our supply chain and in sites by 2030. As at the year end, we have achieved a 25% reduction in food waste from our 2019 baseline, driven by operational improvements and aided by partnerships with Fareshare and Too Good to Go. This performance reflects a 1% reduction of the intensity measure of grams of waste per meal from FY 2022. We have a number of initiatives underway to support these ambitions. Our network of Energy and Sustainability Ambassadors have helped to facilitate a 3% reduction in energy consumption during the year driven by behavioural change as well as investment in voltage optimisers. To reach our near-term Net Zero targets we are focused on removing gas as an energy source. To this aim, during the year we collaborated with suppliers to develop electric kitchen equipment, which is more operationally effective than their gas equivalents, and we are in the process of testing the kit with teams. In addition, we have opened two all-electric sites, trialling alternatives to gas boilers for heating and hot water, as well as various insulation techniques. These trials will help to inform our future strategy for removal of gas. Our sustainability strategy has a strong focus on the positive impact we have on people and communities and we are proud to partner with Social Bite, a homelessness charity. Under the Jobs First programme, helping people back to independence through long-term employment opportunities, we were delighted to employ 10 people from their academy and hope to expand this in future years. In addition, we raised £140k for Social Bite through fundraising activity and £160k for Shelter, another charity partner. We remain focused on the delivery of our transition plan designed to reduce our climate impact, evolving our plan in response to emerging technologies, best practice and collaborative opportunities. Meanwhile, we also aim to enhance our social impact through our own operations, by facilitating social mobility, as well as through our work with charitable partners. 18 Annual Report and Accounts 2023 Mitchells & Butlers plc a. The Directors use a number of alternative performance measures (‘APMs’) that are considered critical to aid the understanding of the Group’s performance. Key measures are explained on pages 192 to 195 of this report. Strategic ReportIntroduction Strategic Report Governance Financial Statements Other Information Mitchells & Butlers plc Annual Report and Accounts 2023 19 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 industry has remained The trading environment for the hospitality challenging this year, with continued increases in the industry has remained challenging this year, cost of living putting pressure on consumers. However, the with continued increases in the cost of living market has continued to see sustained like-for-like sales growth putting pressure on consumers. However, over the year, with improvements in cities performance, the market has continued to see sustained in particular London, as more people return to offices following the Covid-19 pandemic. Sales growth across the like-for-like sales growth over the year, with market significantly increased in December 2022 and January improvements in cities’ performance, in 2023 due principally to last year being impacted by the particular London, as more people return to emergence of the Omicron variant which resulted in a downturn offices following the Covid-19 pandemic. in activity across much of the festive season. The lowest Sales growth across the market significantly month of sales growth in the year was recorded in March increased in December 2022 and January 2023 2023 at 1.4% (Coffer CGA Business Tracker October 2023), principally due to snow and wet weather hampering sales. due principally to last year being impacted by Over the Spring and Summer months, sales growth increased the emergence of the Omicron variant which to between 5 and 8% (Coffer CGA Business Tracker resulted in a downturn in activity across much October 2023) with cooler and wetter weather dampening of the festive season. The lowest month of sales across the sector. However, the resilience of trading sales growth in the year was recorded in March in the year gives us optimism for the future, although we continue to remain mindful of the cost of living challenge facing 2023 at 1.4%a, principally due to snow and wet our guests. weather hampering sales. Over the Spring and Summer months, sales growth increased to between 5 and 8%a with cooler and wetter weather dampening sales across the sector. However, the resilience of trading in the year gives us optimism for the future, although we continue to remain mindful of the cost of living challenge facing our guests. Supply of pubs and restaurants has reduced since March 2020 Supply of pubs and restaurants has reduced before the Covid-19 pandemic, with the financial pressure since March 2020 before the Covid-19 of closures and significant cost inflation in the supply pandemic, with the financial pressure of chain, especially across food and energy, forcing a large closures and significant cost inflation in the number of operators to close. According to the CGA Alix supply chain, especially across food and Partners Market Recovery Monitor, between March 2020 and September 2023 15,192 (CGA AlixPartners Market Recovery energy, forcing a large number of operators Monitor October 2023) pubs and restaurants have closed to close. According to the CGA Alix Partners representing a net reduction in supply of 13.2% (CGA AlixPartners Market Recovery Monitor, between March Market Recovery Monitor October 2023). In the 12 2020 and September 2023 15,192c pubs and months from October 2022 to September 2023, 3,766 closed, restaurants have closed representing a net a net reduction of 3.6%, with independent and tenanted businesses recording the substantial majority of net closures. reduction in supply of 13.2%c. In the 12 months Given our strong estate and portfolio of brands, we believe from October 2022 to September 2023, that we are well placed to continue to benefit from these 3,766 closed, a net reduction of 3.6%, with changes in the competitive landscape. independent and tenanted businesses recording the substantial majority of net closures. Given our strong estate and portfolio of brands, we believe that we are well placed to continue to benefit from these changes in the competitive landscape. Post pandemic, home delivery is now well entrenched in consumer behaviour and is expected to remain a significant part of the eating-out market going forward. Sales are well above pre Covid-19 levels but over the last year there has been a reduction in demand as consumers have returned to visiting pubs and restaurants in person. Digital technology became increasingly important in supporting Digital technology became increasingly the industry during the Covid-19 pandemic and developments important in supporting the industry during continue to accelerate. Guests are now more accustomed the Covid-19 pandemic and developments to digital elements of their experience in pubs and restaurants, continue to accelerate. Guests are now more such as scanning a QR code to access menus, and accustomed to digital elements of their ordering and paying on their mobiles. 41% (Zonal GO Technology Report July 2023) of guests who eat out at least weekly experience in pubs and restaurants, such as prefer to use technology in hospitality and those guests scanning a QR code to access menus, and who prefer to use technology on average have a 27% (Zonal ordering and paying on their mobiles. 41%d of GO Technology Report July 2023) higher monthly spend guests who eat out at least weekly prefer to use than those who do not. There remains great opportunity for technology in hospitality and those guests who technology to enhance guests experience and this will continue to be an increasing differentiator in the market. prefer to use technology on average have a 27%d higher monthly spend than those who do not. There remains great opportunity for technology to enhance guests’ experience and this will continue to be an increasing differentiator in the market. September 2022 saw UK Consumer Confidence fall to a record September 2022 saw UK Consumer low of -49 (GfK Consumer Confidence Index September Confidence fall to a record low of -49b, the 2023), the worst overall index score since records worst overall index score since records began began in 1974. Throughout the year, consumers have in 1974. Throughout the year, consumers have been squeezed under the pressure of the UKs cost of been squeezed under the pressure of the UK’s living crisis driven by rapidly rising food prices, domestic fuel bills and mortgage payments. However, despite these factors, cost of living crisis driven by rapidly rising food consumer confidence has improved over the year to -21 prices, domestic fuel bills and mortgage (GfK Consumer Confidence Index September 2023) in September payments. However, despite these factors, 2023 and eating and drinking out remains the affordable consumer confidence has improved over the luxury that many consumers are looking to prioritise year to -21b in September 2023 and eating and and have prioritised in the past. The sector is focused drinking out remains the affordable luxury that on retaining current guests, creating experiences that cant be replicated at home and delivering high levels of many consumers are looking to prioritise and customer service to enhance trading levels further as confidence have prioritised in the past. The sector is returns. 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 ReportThe implications of Brexit still remain for the sector, principally around the supply and cost of products and skilled workforce shortages, especially in back-of-house roles. Risks in relation to procurement have continued to be well managed by mitigating for the potential lack of availability of products, reviewing and updating contracts and maintaining strong commercial relationships with suppliers. Our apprenticeship programme has been a key asset in managing the risk around workforce shortage and remains a key focus for the business going forward. The global political and macroeconomic environments remain volatile and we will continue to monitor the impact on our sector. We remain focused on our Ignite programme of initiatives and our successful capital investment programme, driving cost efficiencies and increased sales, and helping to offset demand and cost pressures caused by external factors outside of our control. Our response to this competitive environment can be seen on pages 30 and 31 in our strategic priorities. Sources: a. Coffer CGA Business Tracker October 2023 b. GfK Consumer Confidence Index September 2023 c. CGA AlixPartners Market Recovery Monitor October 2023 UK Consumer Confidence Index 0 -10 Graph showing the Consumer Confidence Index. From Sep 22 to Sep 23 it has increased from -49 to -21. Source: GfK Consumer Confidence Index -20 -30 -25 -30 -21 -27 -30 -24 -36 -38 -42 -44 -45 -47 -49 -40 -50 -60 Sep 22 Oct 22 Nov 22 Dec 22 Jan 23 Feb 23 Mar 23 Apr 23 May 23 Jun 23 Jul 23 Aug 23 Sep 23 Source: GfK Consumer Confidence Index Coffer CGA Business Tracker vs. FY 2022 Coffer CGA Business Tracker vs. FY 2022 16 Graph showing the Coffer CGA Business Tracker vs. FY 2022. Source: Coffer CGA Business Tracker. 14 12 10 8 6 4 2 0 15.0% 10.9% 7.8% 6.9% 6.7% 5.6% 5.9% 5.3% 3.7% 3.9% 1.5% Oct 22 Nov 22 Dec 22 Jan 23 Feb 23 1.4% Mar 23 Apr 23 May 23 Jun 23 Jul 23 Aug 23 Sep 23 d. Zonal GO Technology Report July 2023 Source: Coffer CGA Business Tracker Mitchells & Butlers plc Annual Report and Accounts 2023 21 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Our business model: The Mitchells and Butlers difference 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 ReportEnvironmental • 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 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report How we create value: The Mitchells and Butlers difference How we create value The Mitchells & Butlers difference Our business model is driven by our understanding of our guests and our ability to evolve our brands Our business model is driven by our and offers to reflect changes in their needs. Critical to the delivery of our offers is the quality understanding of our guests and our ability to of our people, supply chain, estate and central functions, which provide the infrastructure through which our brands deliver memorable moments to our guests. Our success evolve our brands and offers to reflect changes in creating these moments consistently, safely and profitably creates long-term value for our stakeholders. in their needs. 1. Our experience and ability Our experience and to interpret guest feedback ability to interpret help us understand guest feedback help what our guests us understand what want. our guests want. 1 4 Occasion Amenity Environment Examples would be Choice, Hygiene, Amenity, Environment, Occasion, Safety and Value. Safety Choice Value Hygiene Everything we learn about our guests’ requirements is fed back. Creating memorable moments generates value for stakeholders. 5 Suppliers Guests Employees 24 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic ReportCritical to the delivery of our offers is the quality of our people, supply chain, estate and central functions, which provide the infrastructure through which our brands deliver memorable moments to our guests. Our success in creating these moments consistently, safely and profitably creates long-term value for our stakeholders. 2 2. Understanding what Understanding our guests want what our guests influences every want influences element of our brands every element and offers. of our brands and offers. 3 3. The combination of our brands, people, Everything we do is… supply chain, estate and central functions creates memorable moments for our guests. Everything we do is Supplied by Supplied by our supply chain… our supply chain of 1,640 Suppliers 1,640 Suppliers Everything we do is realised within Realised within our estate… our estate. 1,718 Pubs, bars and restaurants 1,718 1,718 Pubs, bars and restaurants Everything we do is Supported Supported and and managed by our managed by our central central functions: functions… • Finance and Technology • Human Resources • Legal and Risk • Marketing • Procurement • Property Everything we do is run Run by our people… by our 50,259 Employees As at 30 September 2023. Employees 50,259* * As at 30 September 2023. The combination of our brands, people, supply chain, estate and central functions creates memorable moments for our guests. 4. Everything we learn about our guests requirements is fed back. Suppliers, Guests, employees 5. Creating memorable moments generates value for stakeholders. They are created by Suppliers, Guests, Employees, Local community, the Environment and Investors. Local community Environment Investors Mitchells & Butlers plc Annual Report and Accounts 2023 25 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Value creation story: Financial Year Value creation story 2023 highlights FY 2023 highlights Suppliers Our annual supplier conference allows us to communicate Our annual supplier conference our business and sustainability priorities allows us to communicate our business direct to our suppliers and sustainability priorities direct to our suppliers Our suppliers provide the products which bring our brand visions to life. Our guests’ tastes are continuously evolving and our ability to meet changing preferences at scale sets us apart from our competitors. Our centralised procurement team has developed strong Our centralised procurement team relationships which have enabled us to minimise has developed strong relationships the impact of any supply chain disruptions which have enabled us to minimise the impact of any supply chain disruptions Guests Guests 4+Online review score of over 4 out of 5 Online review score of over 4 out of across the business 5 across the business 99% of outlets with safety scores of 99% of outlets with safety scores of 4 or 5 out of 5 4 or 5 out of 5 Donated unavoidable surplus food in the supply Donated unavoidable surplus food chain in partnership with FareShare in the supply chain in partnership with FareShare We build long-term and collaborative partnerships with our suppliers. We work closely with suppliers to ensure the needs of both businesses are met, and to ensure relationships are maintained. By working together, we can develop new and innovative products with suppliers which help our brands adapt and evolve, building both of our businesses. Through these partnerships, we work to maintain transparency about our payment terms. We work with suppliers to understand the environmental impact of our supply chain and to minimise the negative impact of production and transportation. We are working to ensure that all our suppliers can support our sustainability ambitions, including prioritising high animal welfare standards. Further detail on our sustainability strategy can be seen on pages 34 and 35. 26 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic ReportGuests Employees The satisfaction and enjoyment of our guests is critical to the success of our business. We always aim to exceed guests’ expectations and continually evolve our offers with that objective in mind. We collate guest feedback through online channels and via our brand surveys which is reviewed centrally and used to provide valuable insight to both our operations and brand marketing teams. We have always strived to achieve high safety and hygiene standards and have used this strong base to evolve our ways of working for the challenges we face. We focus on ensuring high-quality, consistent practices across the business. We constantly review the new procedures to ensure that both high safety levels and guest satisfaction can be achieved. As ever, high-quality food and drink, served by an engaged team, in an appealing environment remain key elements to providing our guests with memorable experiences, alongside the highest safety standards. We regularly assess changing guest preferences across these areas to position our brands for success. Growing and developing our internal talent is a priority Growing and developing our internal to address talent shortages talent is a priority to address talent shortages Innovative recruitment and attraction solutions ensuring Innovative recruitment and attraction the right people join our business solutions ensuring the right people join our business Employee wellbeing has never been more Employee wellbeing has never been more important important The following table sets out our diversity balance The following table sets out our diversity balance between men and women at the end between men and women at the end of of FY 2023. Financial Year 2023. Type Board directors Other senior managers All employees Men 7 28 23,713 Women 2 15 26,546 Our people are central to our business, bringing brand visions to life through engaging interaction with our guests and preparation of high-quality food and drink. Through our open and inclusive culture, we aim to create an environment which allows our people to develop and grow. Recruiting effectively is important as it ensures that we attract the right people that will thrive in our organisation. Increasingly, technology can be helpful in supporting our recruitment activity, and enables us to market our job opportunities effectively in a very competitive environment. We are proud of the learning and development opportunities we offer and strive to provide progression opportunities to all our people. Over the past year we have increased the number of people promoted internally, particularly at the frontline. Regular development catch ups are held throughout the year to support employees’ progression and personal development. We have two formal feedback surveys a year providing the opportunity to gain insight into employee satisfaction and to highlight opportunities to improve our offer as an employer. Employee forums are hosted by the Executive Committee team members and enable all employees to raise issues via elected representatives, giving them the opportunity to directly discuss any issues. The welfare of our employees is of paramount importance to us and we continually review the support we offer to employees across the business. Dave Coplin, an independent Non-Executive Director, is the nominated Board member responsible for representing the employee voice at Board level. We are committed to providing equal opportunities for all our employees. Our employee Diversity and Equality Policy ensures 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 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Value creation story continued Local community Environment Developed a nutritional roadmap focused on enhanced Developed a nutritional roadmap information and balanced choices focused on enhanced information and balanced choices We have a long history of providing a central hub to many communities where people have met and socialised for decades. Investment in Financial Year 2023 in energy- Investment in FY 2023 in energy- reducing technology reducing technology ﾣ148 million tax paid in Financial Year 2023 (not including tax collected, e.g. VAT) £148m tax paid in FY 2023 (not including tax collected, e.g. VAT) Worked with Social Bite to help provide employment Worked with Social Bite to help to vulnerable people on their Jobs First provide employment to vulnerable programme people on their Jobs First programme Over 95 tonnes of unavoidable surplus food donated Over 95 tonnes of unavoidable surplus to charities via FareShare during the last four food donated to charities via FareShare years during the last four years Many of our brands are long-standing supporters of causes which resonate with the brand and its guests. For example, All Bar One supports Shelter with selected dishes including a donation, and Toby Carvery supports the Armed Forces. We are actively looking to enhance the positive impact we can have on local communities, including supporting charities, providing career opportunities, encouraging responsible drinking, and supporting health by enhancing and providing information on the nutritional content of our meals. 97% 97% of operational waste diverted from landfill in Financial Year 2023 of operational waste diverted from landfill in FY 2023 Target to reduce our absolute Scope 1 & 2 GHG emissions Target to reduce our absolute Scope 1 by 70% by 2030 vs 2019 and our absolute & 2 GHG emissions by 70% by 2030 vs Scope 3 emissions by 28% over the same 2019 and our absolute Scope 3 emissions by 28% over the same timeframe timeframe 25% 25% Food waste reduction in Financial Year 2023 vs 2019 baseline Food waste reduction in FY 2023 vs 2019 baseline Committed to achieving Net Zero emissions Committed to achieving Net Zero emissions by 2040 by 2040 28 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic ReportEnvironment Investors Strong stewardship through the Covid-19 Strong stewardship through the Covid-19 pandemic pandemic Equity raise in Financial Year 2021 gave Equity raise in FY 2021 gave strength to balance sheet strength to balance sheet Reporting on environmental, social and Reporting on environmental, social and governance issues enhanced governance issues enhanced Our investors are made up of our shareholders and bondholders who play an important role in monitoring and safeguarding the governance of the Company. We aim to demonstrate the responsible stewardship of the Company from a financial, strategic, governance, environmental and ethical perspective. We have a highly effective Board, with Directors with various specialisms and backgrounds to best govern the Company. Their biographies can be found on pages 60 and 61. We maintain an open dialogue through our investor relations programme. We update investors and bondholders on financial and strategic performance through regular performance updates and facilitate discussion through meetings, roadshows and our Annual General Meeting. Board-level committees ensure that appropriate time and focus are allocated to the key areas of governance of the business and, where necessary, expert third parties are consulted. The Board provides a healthy level of challenge and debate on key areas and has been successful in moving the business forward. The Executive Committee consists of members of management from across the business who have a wealth of experience both within the hospitality industry and from other sectors. Their biographies can be found on our website at www.mbplc.com/investors/our-management. We recognise that it is important that our investors have transparency over the operation of our business and the full details of our governance procedures are set out on pages 71 to 83. The natural environment provides the business with the resources it needs to operate. We take our responsibility to protect that environment seriously and have set stretching targets to reduce the negative impact of our business. We have aligned our objectives with the UN Sustainable Development Goals in order to focus our efforts on the global priorities. Our aim is to embed a sustainable way of doing business within our current operations such that it becomes business as usual and we are doing that through a Board-level committee, steering committee and focused workstreams with representatives from across the business. The food industry has an important part to play in climate change, as food supply chains are a significant factor in rising greenhouse gas emissions and in the reduction of biodiversity. We have measured our baseline emissions and have used this to create a roadmap for reduction which is one of our priority areas. We are also conscious of the food industry’s significant impact on biodiversity which is another area we are balancing within our future plans to reduce the negative impact our organisation has on the environment and to enhance the positive outcomes wherever possible. Further detail of our sustainability strategy can be found on pages 34 and 35. Mitchells & Butlers plc Annual Report and Accounts 2023 29 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Our strategic priorities Our strategic priorities Maintaining our consistent three strategic priorities Maintaining our consistent three strategic priorities Through building a strong and efficient business we are able to focus on providing experiences which our team and guests enjoy being a part of. Our strategic priorities are the pillars which underpin the activity within the business to drive long-term sustainable growth and ultimately that enable us to achieve our purpose of being the host of life’s memorable moments, bringing people and communities together through great experiences. Through building a strong and efficient business we are able to focus on providing experiences which our team and guests enjoy being a part of, including processes which are sustainable and aim to bring people together throughout our supply chain. We have maintained consistency in our three strategic priorities over recent years and believe that continued focus in these areas is key to retaining stability and driving growth in the business. Our three strategic pillars are: • Build a more balanced business • Instil a more commercial culture • Drive an innovation agenda Focusing on these areas through our Ignite programme of work, a wide range of management improvement initiatives, delivered significant progress generating sustained like-for-like salesa growth and cost efficiencies. Two waves of Ignite initiatives previously rolled out have directly led to enhanced performance over a number of areas, improving our trading levels and increasing profitability pre-Covid 19. The third wave of Ignite initiatives rolled out over the last two years has continued this progress and helped to mitigate as many of the exceptional cost headwinds across the supply chain as possible. We continue to focus on initiatives which enhance efficiency and productivity, in areas such as automatic product ordering, enhanced labour scheduling, cost-mitigating procurement strategies and energy consumption reduction. Alongside efficiency improvements, we have a number of projects 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 30 Annual Report and Accounts 2023 Mitchells & Butlers plc products each quarter, to maximise incremental sales. We remain confident in our ability to deliver long-term and sustained efficiencies and business improvements through the existing Ignite programme. We believe that our three strategic pillars remain the crucial elements of the business which will drive long-term growth. Through the Ignite workstream and our capital programme, we will continue to unlock value in these areas enhancing our competitive position in the market. The table on page 31 outlines these strategic priorities, our progress against them in FY 2023, our priorities for FY 2024 and their link to our sustainability strategy, risks and KPIs. “We have maintained consistency in our three strategic priorities over recent years and believe that continued focus in these areas is key to retaining stability and 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. Strategic Report1. Build a more balanced business 2. Instil a more commercial culture 3. Drive an 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 each outlet, based on location, site characteristics and local demographics • To maintain the amenity level of the estate such that we operate safely, reduce our impact on the environment and remain competitive to guests, alongside meeting cash flow commitments guest experiences improving efficiency and guest experience • To act quickly and decisively to remain competitive • To execute a digital strategy to engage with consumers in our fast-changing marketplace across a variety of platforms • To provide training and development opportunities which allow our people to thrive within the business • To enhance processes to address Modern Day Slavery threats in the supply chain • To facilitate new product and concept development • To utilise our scale and position to lead on environmental issues which impact our sector, finding innovative solutions to pressing issues FY 2023 progress • Capital expenditure at £157m was £35m higher than prior year but still below planned as supply issues in terms of material procurement, contractor availability and the timing on granting of planning consent remained a limiting factor FY 2023 progress • Launched a ‘sales and volume culture’ project across the organisation, which includes each site, district and brand targeting select products each quarter, to maximise incremental sales • Continued progress on menu and product rationalisation • Completed 145 conversions and remodels, and acquired resulted in further cost savings 4 new freehold and 2 new leasehold sites • Successfully rolled out automated team member • We opened our second Browns in a suburban location in December 2022 which is performing well and we are looking to trial further suburban Browns conversions • We opened our second Arrowsmiths, our competitive socialising darts concept, in January 2023, providing a strong return from secondary space in O’Neill’s In June 2023, we acquired the remaining 60% of 3Sixty Restaurants Limited, owners of Ego Restaurants. Ego is a collection of Mediterranean-inspired pubs and restaurants where guests can enjoy freshly cooked food, cocktails, cask ales and wine from across the continent. We currently foresee scope for c. 20-30 conversions using the Ego format over the next three to five years • • We are committed to re-establishing a seven year investment cycle and this continues to be a key focus for the business • • scheduling across the estate to ensure we have the right people on shift at the right time, to drive sales at peak and reduce costs at quieter times Increased usage of dynamic drinks pricing on selected key occasions and timeslots to grow sales Intensified our guest focus with Ignite projects such as Guest Obsessed, where functional experts support our frontline teams with targeted training, delivering record guest review scores in FY 2023 • Continued enhancements made to auto-ordering and prep and par systems and training for food and drink, driving increased product availability for guests • • Completed the installation of voltage optimisers into the majority of the estate and we have achieved significant electricity consumption reductions Installed oil monitors across the estate to reduce the volume of cooking oil used In collaboration with Stop The Traffik, published our performance against set KPIs to measure our effectiveness and progress on the issue of modern slavery and human trafficking • FY 2023 progress • Expanded ‘Own Channel Delivery’ from exclusively Harvester to include selected Miller & Carter and Toby Carvery sites, whereby guests can order a meal for delivery through our own digital channels and the order is fulfilled by a third-party partner, Deliveroo • Continued to develop our ‘Order at Table’ platform with enhancements to drive spend per head and the ability to accept a wider range of payment methods, such as Google Pay • Launched a new, premium Lavazza coffee offer into Castle and Nicholson’s pubs, increasing quality and spend per head • Made further enhancements to our guest relationship management including greater personalisation of email content, reducing cannibalisation of promotions • Further optimised the table bookings systems used across our brands to ensure we have the best technology to maximise internal, external and secondary spaces bookings • Launched a discount app for our suppliers, enabling them to enjoy 20% off food and drink Monday to Thursday • Launched ‘Eat.Drink.Meet’ website with a collection of our premium city and country pubs available to be searched, filtered and booked • Completed the redevelopment of the Innkeepers Collection website, creating an improved booking experience and removing third-party agency costs FY 2024 priorities • There is a full capital programme planned for FY 2024 • Focus on enhancing asset value through remodelling sites where we believe increased value can be unlocked • Make selective acquisitions where we feel they add value to the estate, and disposals where we feel we have extracted maximum value FY 2024 priorities • Adapt to the changing environment within which we operate to maximise the profitability of each business • Deliver a wide range of cost control initiatives across the estate under the Ignite programme including range management to deliver lower-cost alternatives • Unlock the full benefits of automated team member FY 2024 priorities • A fifth wave of Ignite initiatives will provide fresh ideas and innovation • Continue to develop our order and pay-at-table technology with new features such as tabs, user experience improvements and further upselling opportunities • Realise conversion opportunities within the estate to the scheduling in every business • Grow ‘Own Channel Delivery’ to our other key delivery • Ego format Invest in technologies, such as solar panels and internet-connected control devices, to improve the energy efficiency of our estate • Continue to maximise the utility of the secondary spaces across the estate via a dedicated Ignite initiative • Expand the trials of internet-connected control devices for heating systems and kitchen equipment to reduce energy consumption Increasingly leverage scale through central procurement and benchmarking our businesses • Sustainability • Enhancing the sustainability credentials of our buildings Sustainability • We communicate our sustainability ambitions on all is a key priority • During the year we have installed solar panels on 50 sites producing on-site renewable electricity and have plans to complete more sites in FY 2024 • Removing gas as an energy source from our sites is a key objective of our Net Zero roadmap. We continue to develop our electric kitchen equipment and are trialling alternative options to gas boiler hot water systems • We have a team of sustainability ambassadors across the business who have helped to drive behavioural change resulting in reduced energy consumption • We have invested in energy consumption reducing technology and will look for further opportunities to expand in future years • We divert 97% of our operational waste from landfill and are focused on reducing overall volumes of waste whilst increasing recycling rates brand websites and have built our communication on these topics through social media in appropriate brands • We have made good progress in reducing food waste, down by 25% in FY 2023 from FY 2019 baseline, facilitated through reduced menu complexity and partnerships with Fareshare and Too Good To Go to redistribute unavoidable waste • We are working in collaboration with our waste management providers and suppliers to reduce the amount of waste generated by the business • Continue our work with Stop The Traffik to drive best practice in addressing Modern Day Slavery threats in the supply chain • We are expanding our programme with Social Bite to help provide employment to vulnerable people on their Jobs First programme brands to increase margin • Maximise new and existing external trading areas • Expand the number of sites available to be booked on the newly launched ‘Eat.Drink.Meet’ website, providing guests with a wide range of options to choose from across our portfolio Sustainability • We have developed bespoke training on sustainability to enhance our team’s understanding of sustainability challenges and how they can make a difference • We continue to identify ways to reduce the emissions of the food we serve through recipe adjustments and development of new lower emission dishes • We have active and ongoing discussions with our suppliers on innovative ways to reduce the environmental impact of our supply chain • We are active members of the Zero Carbon Forum, a cross-industry group which is focused on finding solutions to help hospitality transition to a low carbon economy • We have representation on the Hospitality Sector Council Sustainability Group, making us part of the conversation with government for future legislative changes to support enhanced sustainability in the sector Links to Key Risks: 1, 2, 3, Links to Key Risks 8, 9, 11, 12, 13, 15. See 1, 2, 3, 8, 9, 11, 12, 13, 15 pages 41 to 47 See pages 41 to 47 Links to KPIs: 2, 3, 4, 5. Links to KPIs See pages 32 and 33 2, 3, 4, 5 See pages 32 and 33 Links to Key Risks: 1, 2, 3, 6, Links to Key Risks 8, 9, 11, 12, 13, 15. See pages 1, 2, 3, 6, 8, 9, 11, 12, 13, 15 41 to 47 See pages 41 to 47 Links to KPIs: 1, 2, 3, 5. Links to KPIs See pages 32 and 33 1, 2, 3, 5 See pages 32 and 33 Links to Key Risks: 1, 2, 4, Links to Key Risks 5, 8, 11, 12, 13, 14. See 1, 2, 4, 5, 8, 11, 12, 13, 14 pages 41 to 47 See pages 41 to 47 Links to KPIs: 2, 3, 5. See Links to KPIs pages 32 and 33. 2, 3, 5 See pages 32 and 33 Mitchells & Butlers plc Annual Report and Accounts 2023 31 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Key performance indicators: Measuring performance Key performance indicators Measuring performance We measure our performance against our strategy through five key performance indicators. 1. Staff turnover 2. Guest review score Definition Our reported guest measure is an average feedback score across the major third-party feedback channels such as Google, Facebook, Tripadvisor and other review sites. Improving this score remains a key focus of the business as we aim to create memorable moments for our guests. FY 2023 performance Our average feedback score across all major Our average feedback score across all major feedback channels was 4.4 out of 5 for FY 2023. The significant progress feedback channels was 4.4 out of 5 for FY made in recent years on guest feedback has been maintained 2023. The significant progress made in recent over the year, driven by a collection of Ignite projects years on guest feedback has been maintained focusing on improving this metric and our managers over the year, driven by a collection of Ignite continued commitment to delivering excellent guest projects focusing on improving this metric and experiences. our managers’ continued commitment to delivering excellent guest experiences. Links to strategic priorities: 1, 2 and 3 See pages 30 and 31 Definition The number of leavers in our retail businesses, expressed as a percentage of the average number of retail employees. This like-for-like measure excludes site management. The turnover measurement gives an indication of the retention of retail staff and can help to identify if there is an arising retention issue in any area of the business which could highlight an engagement issue. In addition, as team members go through a thorough induction and training process there is an element of cost for each person who leaves the business. Therefore, it is important for the Board to monitor this measure. FY 2023 performance Retail staff turnover reduced by 13ppts to 81% during the year due to the effective delivery of our People Promise, to meet the needs of our employees, driving improved retention. The reduction in turnover reflects improves stability 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: 2 See pages 30 and 31 3. Year-on-year same outlet like-for-like 3. Year-on-year same outlet sales like-for-like salesa Definition Sales in FY 2021 and 2022 were compared to the sales in FY 2019, being the last full year pre-Covid-19. Sales this year are compared to the sales in FY 2022 of all UK managed sites that were trading in the two periods being compared, expressed as a percentage. Like-for-like sales is an important indicator of how the business is performing in the context of its previous performance, the long-term trend of which can reflect improvements in guest appeal. FY 2023 performance Like-for-like sales increased by 9.1% in FY 2023 Like-for-like sales increased by 9.1% in FY 2023 vs. FY 2022, with strong trading throughout the year, all brands in like-for-like sales vs. FY 2022, with strong trading throughout the growth and volume growth in both food and drink. Growth remained year, all brands in like-for-like sales growth and consistently ahead of the market as measured against volume growth in both food and drink. Growth the Coffer CGA Business Tracker, with increasing outperformance remained consistently ahead of the market as in the fourth quarter. measured against the Coffer CGA Business Tracker, with increasing outperformance in the fourth quarter. Links to strategic priorities: 1, 2 and 3 See pages 30 and 31 81% 94% 81% 4.4 81% Graph showing staff turnover Graph showing Guest statistics.2019 Review Score. 81%, 2020 2019 4.4, 2020 56%, 2021 58%, 4.2, 2021 4.3, 2022 2022 94%, 2023 4.3, 2023 4.4 81% 2023 2023 2022 2022 2020 2020 2021 2021 2019 2019 58% 56% 4.4 4.3 4.3 4.2 4.0 32 Annual Report and Accounts 2023 Mitchells & Butlers plc 9.1% Graph showing year on year sales. 2019 3.5%, 2020 -3.5%, 2021 -9.6%, 2022 1.1%, 2023 9.1% 9.1% 3.5% 1.1% -3.5% -9.6% 2020 2021 2022 2023 2019 Strategic Report9.1% Like-for-like salesa increase in FY 2023 4. Incremental return on expansionary 4. Incremental return on capital expansionary capitala Definition Expansionary capital includes investments made in new sites and investment in existing assets that materially changes the guest offer. Incremental return is the growth in annual site EBITDA, expressed as a percentage of expansionary capital. Is it important for the Board to monitor return on investment as it indicates the success of the capital programme which underpins one of our three key strategic pillars, to build a balanced business. FY 2023 performance The EBITDA return on all conversion and acquisition capital invested over last four years was 19%. Returns continue to be impacted by high levels of cost inflation as well as a period of disruption caused by Covid-19. We remain confident in the quality of the investment programme and committed to the re- establishment of a seven year investment cycle. Our capital programme continues to be a key focus of the business and one which we believe will deliver significant future value. 5. Adjusted operating profit 5. Adjusted operating profita Definition Operating profit before separately disclosed items as set out in the Group Income Statement. Separately disclosed items are those which are separately disclosed by virtue of their size or incidence. Excluding these items 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. The Board monitors adjusted operating profit as one of the financial health indicators, as it helps to reveal how efficiently the business is being operated. FY 2023 performance Adjusted operating profita, on a 52-week basis Adjust operating profit, on a 52-week basis of ﾣ221m of £221m was £19m lower than the prior year was ﾣ19m lower than the prior year which benefited which benefited from £52m of non-recurring from ﾣ52m of non-recurring government support government support in response to Covid-19. in response to Covid-19. Strong sales performance Strong sales performance and enhancing and enhancing operating efficiency helped operating efficiency helped to partially offset to partially offset significant cost inflation across significant cost inflation across the supply chain, the supply chain, particularly in the areas of energy, particularly in the areas of energy, wages and wages and food costs during the year. 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 21% 19% Graph showing Incremental return on expansionary capital. 2019 21%, 2020 6%, 2021 -0.8%, 2022 18%, 2023 19% £317m 19% 18% Graph showing Adjusted £221m operating profit. 2019 ﾣ317m, 2020 ﾣ99m, 2021 ﾣ29m, 2022 ﾣ240m, 2023 ﾣ221m £221m £240m £99m £29m 6% -0.8% 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Page Note: The Directors use a number of alternative performance a. The Directors use a number of alternative measures (APMs) that are considered critical performance measures (‘APMs’) that are considered to aid the understanding of the Groups performance. critical to aid the understanding of the Group’s performance. Key measures are explained on pages Key measures are explained on pages 192 to 195 192 to 195 of this report. of this report. Mitchells & Butlers plc Annual Report and Accounts 2023 33 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Our sustainability targets Our strategy has been developed to align with the issues addressed Our strategy has been developed to align with the issues addressed by the UN Sustainable Development Goals 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 sustainability of our operations since 2019 and are pleased with the progress we have made. Our ambition is to make sustainable operation part of the culture of the business and therefore, building the sustainability skills of our existing teams has been a key focus during the year. The Sustainability Steering Committee oversees the development and progress of the Company strategy, supported by three working groups aligned to the three pillars of the strategy. The Board provides challenge and insight and is regularly updated on progress, and team members across the business receive communication on key initiatives to drive engagement and enhance understanding of our objectives. Sustainability strategic pillars Sustainability strategic pillars Our strategy has been developed to align with the issues addressed by the UN Sustainable Development Goals and Paris Climate Agreement. We have committed to reducing the negative impact of our business model on the environment in light of these objectives and look for opportunities to enhance our positive impact on society. Our Net Zero ambition has been developed to align with the Science Based Targets initiative (‘SBTi’) methodology to keep global warming well below 2°C, and our roadmap has been submitted to STBi for approval. We have identified the UN Sustainable Development Goals which we believe we can have the greatest impact on, and have aligned these to our strategic pillars as shown below. For each of the pillars we have defined our objective, key actions and targets. Collaboration across our industry and value chain is essential in order to facilitate progress; we are members of industry groups such as the UK Hospitality Sustainability Committee and Zero Carbon Forum, to share best practice with the intention of moving the industry forward as a whole, and we are also represented on the Hospitality Sector Council. Details of the link between our sustainability strategy and our strategic pillars can be seen on page 31. 1. Respect for the planet 2. Pride in our offers 3. Care for communities Objective We are committed to reducing our emissions, tackling waste and protecting biodiversity Objective We strive to deliver responsibly sourced products and menu options for everyone Objective People are central to our business, we are focused on supporting our teams and the communities we serve Key actions • We continue to evolve our menus to support our ambition of reducing food emissions • We work with suppliers across all categories to understand and improve the environmental credentials of the products we buy Key actions • We have developed strategic partnerships with charities, including Shelter and Social Bite • We have expanded our programme with Social Bite, supporting vulnerable people back into employment • We raised £140k for Social Bite through Festival of • We have enhanced our animal welfare requirements Kindness and Summer of Kindness from suppliers • Our supplier agreements set out sustainability expectations and standards supported by annual supplier conferences • We raised £160k for Shelter over the year • We have an enhanced employee wellbeing strategy and improved resources and tools available to employees • We have maintained our focus on enhancing • Brand-driven relationships with local organisations the nutritional balance and information available on menus • We source all direct palm oil purchases from Rainforest Alliance Approved sources and charities • Modern Day Slavery policies enhanced, with actual risk assessment completed, in partnership with Stop the Traffik Key actions • We have made progress against our Net Zero roadmap, which was built in collaboration with third-party experts, providing a detailed plan for decarbonisation • We have submitted our Net Zero roadmap to Science Based Targets initiative for approval • We are a founding and active member of the Zero Carbon Forum, bringing the industry together to reduce emissions across the sector through shared learning and insights • We continue to purchase 100% renewable electricity • We have begun a solar panel roll out, with 50 sites completed in the year, allowing us to generate on-site renewable energy • We are in trial with solutions to enable us to remove 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 ReportOur targets 1. Net Zero greenhouse gas emissions by 2040 Target Achieve Net Zero greenhouse gas emissions by 2040 (absolute reduction of emissions, including Scope 1, 2 and 3) from our FY 2019 baseline. 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 Our Scope 1, 2 and 3 greenhouse gas emissions have decreased by 11% against our FY 2019 baseline in FY 2023. This reduction is primarily due to reduced energy consumption, moving to 100% renewable electricity, and reduced emissions in relation to employee travel as we transition our fleet towards hybrid and electric cars. On an intensity basis of emissions to turnover our output of emissions has reduced by over 20% from our 2019 baseline and by 2% from FY 2022. Total Scope 1 and 2 emissions reduced by 6% in FY 2023 against our FY 2019 baseline year. The stated reduction is based on the market-based calculation, which reflects both reduced consumption and the increased proportion of renewable electricity purchased. Scope 1 emissions include direct emissions from controlled or owned resources and Scope 2 emissions include indirect emissions from the generation of purchased electricity, heating and cooling. The reduction of Scope 1 and 2 emissions has been driven by a focused reduction in energy consumption since our baseline year. We have a team of energy ambassadors in place across the business who are trained to help fellow managers to reduce their energy consumption and to identify areas of opportunity. In addition, we have installed voltage optimisers across 1,200 sites and have embarked on a solar panel roll out programme, enabling us to generate on-site renewable energy, with 50 sites completed during the year. Against FY 2022 a significant reduction in energy consumption has been more than offset by the emissions associated with the acquisition of Ego as well as increased fugitive emissions as enhanced data collection has resulted in more accurate capture of volume of gas. Our Scope 3 emissions which include all other indirect emissions that occur Our Scope 3 emissions which include all other indirect emissions in our value chain reduced by 11% versus our 2019 baseline driven by that occur in our value chain reduced by 11% versus our 2019 reductions in emissions associated with the production of electricity thanks baseline driven by reductions in emissions associated with the to reduced consumption, reduced emissions related to waste as a result production of electricity thanks to reduced consumption, reduced of more responsible waste management and emissions in relation to emissions related to waste as a result of more responsible waste employee commuting. Scope 3 emissions represent 91% of our baseline management and emissions in relation to employee commuting. footprint and therefore are an important focus of our transition plan. Scope 3 emissions represent 91% of our baseline footprint and We have completed a Net Zero roadmap, which we have submitted for therefore are an important focus of our transition plan. We have Science Based Target initiative approval and have identified clear activities completed a Net Zero roadmap, which we have submitted for required to achieve our target reduction of Scope 3 emissions. Food Science Based Target initiative approval and have identified clear emissions are the largest individual contributor to our footprint; we are activities required to achieve our target reduction of Scope 3 focused on reducing the emissions of the ingredients on our menus through emissions. Food emissions are the largest individual contributor engagement with suppliers and have identified opportunities to adjust to our footprint; we are focused on reducing the emissions of the the recipes of dishes to reduce emissions. We will continue to progress ingredients on our menus through engagement with suppliers in this area with the aim of reducing the emissions of our menus across and have identified opportunities to adjust the recipes of dishes all brands, which is a key focus for achieving Net Zero. 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. Target to achieve Net Zero greenhouse gas emissions by 2040 Zero Target to achieve Net Zero greenhouse gas emissions by 2040 2. Zero operational waste to landfill Target Target Zero operational waste to landfill by 2030. Zero operational waste to landfill by 2030. 3. Food waste Target Reduce food waste by 50% by 2030 from our FY 2019 baseline. Performance During the year we have diverted 97% of operational waste from landfill putting us on track to deliver our target of zero operational waste to landfill by 2030. In partnership with our waste management providers, we have run a bin optimisation programme, ensuring that all of our sites have appropriate recycling and general waste bins in the most accessible areas of the business, to encourage improved segregation of waste. This, alongside team engagement on our environmental ambitions, has helped us improve our recycling rate to 59%. We have targeted a recycling rate of 80% by 2030 and are working across a number of fronts to achieve an improvement in the proportion of waste we recycle. We are working with suppliers to reduce the volume of packaging entering our sites, and to ensure that as much packaging as possible can be recycled, as well as engaging teams in the positive environmental impact they can have by increasing recycling rates. We face challenges in some geographies where recycling of materials is not yet available and we continue to investigate opportunities to access recycling in these areas. Performance This year we have achieved a 25% reduction in food waste against our FY 2019 baseline. Significant progress has been made in food waste management in both our supply chain and in our sites and as a result the intensity metric of kg of food waste per meal has reduced by 3% from FY 2022. We have remained focused on managing waste within the supply chain, particularly around menu changes and key dates, and have maintained the progress made last year. Where possible we donate food which would otherwise go to waste within the supply chain to Fareshare who redistribute the food to community groups who need it. During the period we donated 17 tonnes of food through Fareshare. In our sites, food waste reduction has been achieved through strengthened operational procedures which reduce the level of waste generated during the food prep process, including accurate portion sizes from suppliers, as well as reduced menu complexity. The introduction of auto-ordering has helped to improve the forecasting of dish mix and therefore reduced waste through spoilage. In addition, we have continued our roll out of Too Good To Go which is now across six brands, saving on average over 15,000 meals a week from wastage. Our next focus is to understand the drivers of guest plate waste in order to develop strategies targeting a reduction of waste returned to our kitchens on plates. Unavoidable food waste from our pubs and restaurants is sent to anaerobic digestion. The digestion process itself creates biogas which is then captured and used to generate electricity. Zero Target to achieve zero operational waste to landfill by 2030 Target to achieve zero operational waste to landfill by 2030 50% Target to reduce food waste by 50% Target to reduce food waste by 50% by 2030 by 2030 Mitchells & Butlers plc Annual Report and Accounts 2023 35 GovernanceFinancial StatementsOther InformationIntroductionStrategic 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 included climate-related financial disclosures consistent with the TCFD recommendations and recommended disclosures, except for scope 3 emissions, and in compliance with the FCA’s Listing Rule 9.8.6R(8). Our report addresses the four TCFD pillars: Governance, Strategy, Risk Management and Metrics and Targets. In preparing this information all of the guidance in Section C and E of the TCFD Annex has been considered. Scope 3 emissions have not been disclosed for the current period. Our intention is to disclose Scope 3 emissions on the conclusion of our rebasing for Forest, Land and Agriculture targets as required by Science Based Target initiative, allowing us to begin disclosure on a basis which we expect to remain consistent in future years. We anticipate our internal processes to be concluded at the end of 2024 with Science Based Target initiative approval to follow. Governance We, alongside our stakeholders, recognise that the health of our planet is critical to the wellbeing of society at large and that the food industry has a significant part to play in addressing the current climate emergency. We also recognise that the food industry will feel the effects of continued climate change ever more acutely which will result in changes in consumer behaviour, advances in innovation and the evolution of leisure offers to adapt to changing needs. The Board of Mitchells & Butlers plc is committed to delivering the purpose of the organisation; to be the host of life’s memorable moments, and to do so in a way which reduces the environmental harm caused by operations. Our approach to climate enables us to evolve our offers to meet changing consumer expectations in order to realise potential climate-related opportunity. We have developed a clear governance framework to support our assessment and response to climate-related matters. This framework has helped us to continue to make progress against our climate goals and to address challenges faced by the industry as a whole. Board oversight of climate-related risks and opportunities The Board is responsible for the long-term success of Mitchells & Butlers plc and has an established framework in place which enables effective assessment and management of risks, including climate-related risks and opportunities. Responsibility for ESG matters is managed within the framework by the Corporate Responsibility Committee, a Board level committee, using insight from the Group Risk Committee on the assessment of climate- related risks, the Group Audit Committee on the financial consideration of climate-related risks and the Group Remuneration Committee on the inclusion of climate-related metrics in remuneration. The Corporate Responsibility Committee is chaired by Bob Ivell and is led by Dave Coplin, Non-Executive Director, who has been designated by the Board to take a lead role in oversight and development of the Company’s approach to climate-related issues. Dave Coplin has, for the last 30 years, been providing strategic advice and guidance on driving innovation and transformation to organisations and governments both here in the UK and around the world giving him excellent experience in this role. The Committee is made up of five Board members, Phil Urban is invited to attend regularly. The Corporate Responsibility Committee meets at least twice a The Corporate Responsibility Committee year to review progress utilising information provided by the Sustainability meets at least twice a year to review progress Steering Committee. The Sustainability Steering Committee, utilising information provided by the which is a management level committee, provides regular Sustainability Steering Committee. The update papers to the Corporate Responsibility Committee, Sustainability Steering Committee, which is a including performance against stated targets including Net Zero by 2040, waste management and food waste management level committee, provides regular reduction, as well as progress on key transition plan initiatives. update papers to the Corporate Responsibility The Board is updated at least annually on performance Committee, including performance against against targets and initiatives or investment, either stated targets including Net Zero by 2040, underway or future, which facilitate the attainment of our goals. waste management and food waste reduction, Ad hoc updates are provided where approval is required or a significant development is reported. As such climate- as well as progress on key transition plan related risks and opportunities form an important part of initiatives. The Board is updated at least the context from which the organisational strategy is considered annually on performance against targets and and developed, ensuring that the Group is positioned initiatives or investment, either underway or to protect itself from financial and reputational risks associated future, which facilitate the attainment of our with climate. This structure also enables the company to benefit from the commercial opportunities of accelerating goals. Ad hoc updates are provided where the sustainability programme in order to align brand approval is required or a significant propositions with guests changing needs. When considering development is reported. As such climate- any business planning activity the Board takes into related risks and opportunities form an consideration the broader context of its trading environment, important part of the context from which with details of the climate aspect provided by the Corporate the organisational strategy is considered Responsibility Committee. and developed, ensuring that the Group is positioned to protect itself from financial and Responding to TCFD Responding to TCFD The following items are a Graph showing TCFD procedure and how they are related. TCFD Working group formed, supported by TCFD Working group formed, external advisers supported by external advisers 1. Gap analysis against current governance 1. Gap analysis against current and procedures governance and procedures 2. Climate-related risks and opportunities 2. Climate-related risks and opportunities workshops held workshops held across across functions functions 3. Analysis performed with a view to completing 3. Analysis performed with a view to completing quantitative scenario analysis quantitative scenario analysis in FY in FY 2024 2024 Ongoing integration of TCFD recommendations Ongoing integration of TCFD into practices recommendations into practices FY 2023 disclosure including governance, FY 2023 disclosure including risk, strategy, metrics and governance, risk, strategy, metrics and targets targets 36 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic ReportOrganisational and reporting structure for climate governance Key Board of Directors Responsibility Remuneration Audit Risk Nomination Internal governance structure Supporting committee structure Performance reviews, activity approval Approval decisions in accordance with governance thresholds Executive Committee Portfolio Development Committee Sustainability Steering Committee Resources Food and drink Community reputational risks associated with climate. This structure also enables the company to benefit from the commercial opportunities of accelerating the sustainability programme in order to align brand propositions with guests’ changing needs. When considering any business planning activity the Board takes into consideration the broader context of its trading environment, with details of the climate aspect provided by the Corporate Responsibility Committee. The Sustainability Steering Committee is a management level committee which has responsibility for the continuous monitoring and evolution of the sustainability strategy. The Committee oversees the three working groups responsible for discrete areas of the sustainability strategy: respect for the planet, pride in our offers and care for communities. The Sustainability Steering Committee meets with the working group leads every eight weeks, and receives supporting update papers in advance of meetings. The meetings ensure that the Sustainability Steering Committee maintains oversight over sustainability activities which are in place across various business functions, ensuring that our approach is consistent and executed effectively. These meetings also provide the foundation of the update information provided to the Board-level Corporate Responsibility Committee. The Sustainability Steering Committee also meets on a monthly basis with members of the Executive Committee to inform management on progress of key initiatives and to discuss any decisions required by the Executive Committee. To enhance executive level engagement and knowledge, the Director of Investor Relations and Sustainability attends Executive Committee meetings on an ad hoc basis to provide information on the key, climate-related challenges facing the industry and how our sustainability strategy addresses these issues. In addition, to strengthen the response to climate-related issues, the organisation is a founding member of the Zero Carbon Forum, with Executive Committee member involvement. The Zero Carbon Forum is a hospitality group bringing members together to tackle environmental issues. With input from experts the forum facilitates a collaborative approach to developing solutions, enabling the industry to make progress at a faster pace than if companies acted independently. Risk management In response to the TCFD requirements, last year we performed a detailed review of the climate-related risks and opportunities relevant to the business. The resulting principal risks were added to the risk register and are now assessed on a regular basis as part of the Risk Committee’s review. Identifying, assessing and managing climate-related risks and opportunities The following stages formed the process of identifying and assessing climate-related risks and opportunities last year: • Workshops were held with external third parties who reviewed Mitchells & Butlers operations before generating a list of climate-related risks and opportunities relevant to the business. These were considered alongside guidance from the World Business Council for Sustainable Development (‘WBCSD’) Food, Agriculture and Forest Products TCFD Preparer Forum to formulate a list of all the climate-related risks and opportunities which may impact our organisation. • Workshops were held with representatives from relevant functions across the organisation to obtain a wide range of perspectives on the identified climate- related risks and opportunities. Using expert knowledge of the business and its supply chain, experience from past events and insight into guest behaviour, each risk and opportunity was assessed and opinions were gathered on future change and perceived risk materiality. The output of the workshops was a reduced list of risks and opportunities which were considered to be most material to the organisation based on this qualitative assessment. This process helped to reinforce our response to TCFD requirements. • Our established risk management framework and heat mapping (see page 41) was then used to establish which of those identified risks were likely to be material to our business, being those with a high likelihood and a high impact. Two risks were identified to be material, and therefore have now been included as principal risks, with the results discussed and approved by the Risk Committee. Our sustainability strategy has been developed to mitigate those risks where possible with associated KPIs to track progress, as well as risk indicator measures which identify if the impact of an identified risk is increasing. All potential climate-related risks and opportunities are reassessed annually through the Sustainability Steering Committee and Risk Committee. Analysis and response to risks are supported by TCFD guidance and evolving corporate best practice. Additional risks are added to the principal risk register if the criteria to do so are met. Through our membership and active involvement in industry-led organisations, such as the UK Hospitality Sustainability Committee and Zero Carbon Forum, and through regular dialogue with suppliers, we will continue to collaborate on our responses to climate risks and to seek out opportunities to progress against our goals. We engage actively with our suppliers on sustainability issues, including at our annual supplier conference, and will be seeking to further progress alignment of objectives which will help manage climate risks through Scope 3 emissions measurement and management. In considering our climate risks and opportunities we have assessed short-term risks as being between 0-3 years in line with how we assess our principal risks and viability statement; medium-term risks as being between 3-6 years; and long-term risks between 6-20 years in line with our longer-term contracts and climate commitments. Mitchells & Butlers plc Annual Report and Accounts 2023 37 GovernanceFinancial StatementsOther InformationIntroductionStrategic 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 Introduction of carbon taxes and levies Risk Increased severity of extreme weather events Risk Adjusting brand propositions to appeal to changing consumer preferences Category Operational costs Category Acute Category Category Revenue Revenue Description This risk represents the impact on operating costs of the business both directly through taxation and indirectly through higher input costs which would result from the introduction of taxation and levies attributed to greenhouse gas emissions. Qualitative assessment has identified this risk as both high in impact and likelihood over the short to medium term. The introduction of a form of carbon taxation is likely to be introduced as pressure mounts for progress to be made against the Government ambition to achieve Net Zero by 2050. Description This acute physical risk represents the risk to both revenue and the supply chain of increased severe events. Revenue would be impacted through the interruption to trade caused by both extremely hot weather and adverse weather such as rain and snow, as well as possible site closure resulting from flooding. In addition, the availability of products in the supply chain, in particular agricultural produce, could be impacted by severe weather affecting product availability and input prices. Description Changing consumer preferences towards products seen as better for the environment, for example dietary shifts towards low carbon products, presents an opportunity for the Group to position brands to appeal in an evolving market. The breadth of brands within the Group portfolio provides the opportunity to test adapted brand propositions in a low risk way and to therefore be ahead of the market when consumer preferences begin to change in the mass market. The qualitative assessment of potential 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 ReportTransition risk Physical risk Transition opportunity Approach to risk/opportunity management All of the initiatives under the sustainability strategy help to strengthen the Group’s position in relation to environmental matters. This allows our brands to communicate with guests on environmental issues with consistency across the portfolio and to build a reputation for sustainable operations. Our focus on achieving ambitious environmental targets will position the Group well to benefit from changing consumer habits. Our ability to trial proposition adaptations in appropriate brands to gauge guest reaction will ensure we are well prepared to make informed decisions in the future as consumer preferences change. In addition, our scale and commitment to our investment programme will enable the Group to enhance the sustainability credentials of its properties. Approach to risk/opportunity management We are a member of the UK Hospitality Sustainability Committee which enables us to have foresight over potential policy changes impacting the organisation. We have developed a Net Zero strategy with a target date of 2040. The strategy has been developed in partnership with an independent third party and has been submitted for Science Based Targets initiative approval during FY 2023. We have a number of initiatives underway designed to reduce our emissions in line with our Net Zero roadmap. The detailed plan for reduction will help to mitigate an element of potential cost, and a target date ahead of Government ambition will help to position the organisation ahead of the market average. We are working closely with suppliers, particularly in high emission categories, to support their pathway to carbon reduction which will help to mitigate an element of this risk. However, if input costs increased materially in response to carbon taxes margins would be at risk. Approach to risk/opportunity management The weather has a high level of impact on trading levels across the estate and therefore monitoring weather forecasts in relation to expected trading levels is a normal part of the financial planning of the business. This monitoring activity will enable us to identify when patterns of increased instances of extreme weather events begin to develop at which point investment in mitigating action, such as installation of air conditioning, can be considered. In addition, our experience during Covid has meant that we have developed strategies to close sites at short notice, such that in the instance of extreme weather significantly impacting trade we could close sites in order to mitigate some of the financial losses which we would be exposed to. In relation to site closure due to damage to buildings, such as during flooding, we have insurance in place to recover the lost trade and required repairs and therefore does not represent a significant risk. To manage the risk associated with our supply chain, we monitor and communicate with our suppliers closely giving us foresight over potential supply issues. We also have sufficient breadth of products 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 The approach to the quantitative assessment The approach to the quantitative assessment to be to be performed during FY 2024 will be to take performed during FY 2024 will be to take the Groups the Group’s forecast carbon emissions, from forecast carbon emissions, from our Net our Net Zero plan submitted for Science Based Zero plan submitted for Science Based Targets Targets initiative approval, and to apply DEFRA initiative approval, and to apply DEFRA published published carbon values over the short, carbon values over the short, medium and medium and long term giving an estimate of the long term giving an estimate of the potential financial potential financial impact of the introduction of impact of the introduction of carbon taxes. carbon taxes. Future measurement considerations Future measurement considerations The quantitative assessment to be performed The quantitative assessment to be performed during FY 2024 will during FY 2024 will involve a detailed analysis involve a detailed analysis of extreme weathers previous impact on trade to determine the potential impact on revenue. To of extreme weather’s previous impact on trade measure the potential impact on the supply chain, we will review to determine the potential impact on revenue. historical impacts of a variety of weather events and work To measure the potential impact on the supply with suppliers to gather insight as to their preparation and chain, we will review historical impacts of a planning for such events. The assumed increase of extreme variety of weather events and work with weather events will be derived from climate-science research suppliers to gather insight as to their preparation and applied to two scenarios of degrees of climate warming over the short, medium and long-term time horizons to and planning for such events. The assumed determine the potential financial impacts. increase of extreme weather events will be derived from climate-science research and applied to two scenarios of degrees of climate warming over the short, medium and long-term time horizons to determine the potential financial impacts. Future measurement considerations Future measurement considerations Consumer insight is continuously reviewed and Consumer insight is continuously reviewed and is used is used to inform brand evolution. In addition, to inform brand evolution. In addition, direct consumer direct consumer feedback is used to highlight feedback is used to highlight changing guest changing guest preferences, and reactions to preferences, and reactions to brand changes brand changes designed to enhance designed to enhance environmental credentials. environmental credentials. Alongside financial performance these metrics will inform the future evolution of our brands. Horizon Horizon Short – medium term Short - medium term Horizon Horizon Short – medium term Short - medium term Horizon Horizon Short – medium term Short - medium term Mitchells & Butlers plc Annual Report and Accounts 2023 39 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Task Force on Climate-related Financial Disclosures continued Climate-related metrics 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, 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 or as an internal measure of risk exposure. These measures are not yet included within remuneration policies, however it is our intention to include 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 a sustainability measure within the long-term incentive plan from FY 2024. Performance against our stated sustainability KPIs is provided on page 35. and progress against our Net Zero roadmap is provided annually with details on the key initiatives within the sustainability section. 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. Link to identified risks and opportunities Carbon taxes and levies Metric category Metric Group targets Climate-related risk: Greenhouse Climate-related risk gas emissions Greenhouse gas emissions Scope 1, 2 Scope 1, 2 and and 3 3. Unit of measure tCO2e Absolute Scope 1,2 and 3 emissions calculated in accordance with Greenhouse Gas Protocol guidance by an independent third party which is checked and verified internally. Unit of measure tCO2e Yes – Group target set, Net Zero by 2040 using 2019 as our baseline year. We align our definition of Net Zero to the SBTi corporate standard. Our Net Zero target includes our Scope 1, 2 & 3 emissions, using an operational control approach. We have set a near-term target (pending 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. Yes – Group target set – Zero operational waste to landfill by 2030. Carbon taxes and levies We underpin this target with an internal metric on recycling, with an ambition to achieve 80% of waste recycled by 2030. Yes – Group target set – Halve food waste by 2030 from 2019 baseline. Carbon taxes and levies No target set, used as an internal measure of risk exposure. Physical risk – increased instances of severe weather events No target set, reported as an indicator of progress. Carbon taxes and levies Target 80% of General Managers to complete training and 90% of inductions to have included sustainability. Carbon taxes and levies Climate-related risk: Waste Climate-related risk management. Unit Waste management of measure: % of waste Unit of measure diverted from landfill % of waste diverted from landfill Climate-related risk: Food Climate-related risk waste. Unit of measure: Food waste Volume of food Unit of measure waste generated Volume of food waste generated Proportion of total waste diverted from landfill, i.e. recycled or incinerated. Data is provided by third parties and corroborated with internal information. Volume of food wasted. Data is provided by third parties and corroborated with internal information. Climate-related risk: Proportion Climate-related risk of estate exposed Proportion of estate exposed to flood risk to flood risk. Unit of measure: % of estate Unit of measure % of estate Proportion of total waste diverted from landfill, i.e. recycled or incinerated. Data is provided by a third party and corroborated with internal information. % and MWh of energy consumption which is purchased from renewable sources. Data is provided by third parties and reviewed internally. Climate-related opportunity: Climate-related opportunity Transition to Transition to renewable renewable energy. Unit energy of measure: % and Megawatt Hour (MWh) Unit of measure % and Megawatt Hour (‘MWh’) Climate-related opportunity: Climate-related Workforce competence. opportunity Workforce competence Unit of measure: Number of employees Unit of measure to complete training Number of employees to complete training Sustainability training made available to all employees. Sustainability included as part of the induction process. 40 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic ReportRisks and uncertainties Risks and uncertainties Keeping risk under control 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 all of the risks that the Group faces but focuses on those that are currently considered to be most relevant. Please also refer to how we link the key risks to our strategic priorities, on page 31. Overview Risk management is critical to the proper discharge of our corporate responsibilities and to the delivery of shareholder value. Risk is at the heart of everything we do as an organisation. Therefore, the process for identifying and assessing risks and opportunities for improvements is an integral and inseparable part of the management skills and processes which are at the core of our business. There is a formally established Risk Committee in place which continues to meet on a regular basis to review both the key risks and emerging risks facing the business. Key risks identified are reviewed and assessed by the Risk Committee in terms of their likelihood and impact and recorded on the Group’s ‘Key Risk Heat Map’, in conjunction with associated agreed risk mitigation plans. The processes that are used to identify emerging risks and manage known risks are described in the Internal Control and Risk Management statement on pages 82 and 83. Management support, involvement and enforcement is fundamental to the success of our risk management framework and members of the Executive Committee take responsibility for the management of the specific risks associated with their function. Our Group risk register clearly outlines the alignment of each key risk to an Executive Committee member and identifies an ‘action owner’, to ensure responsibilities are formally aligned. Key risk heat map Information and cyber security Risk key Risk key 1 Borrowing covenants 2 Sales performance 3 People planning and development 4 Business continuity and crisis management 5 6 Wage cost inflation 7 Pension fund deficit 8 Failure to operate safely and legally 9 Cost of goods – price increases 10 Food supply chain safety 11 Health and lifestyle concerns 12 Environment and sustainability 13 Enforced Government closure/trading d o o h i l e k i L restrictions 14 Introduction of carbon taxes and levies 15 Increased severity of extreme weather events i n a t r e C t s o m A l 159 156 1514 1515 153 1512 1511 151 1510 152 155 e r a R Low 4 7 8 13 3rd Catastrophic Impact There is a robust and transparent process in place to provide an appropriate level of direction and support in the identification, assessment and management of risks across all areas of the business which have the potential to seriously damage our financial position, our shareholder value, our responsibilities to our staff and guests, our reputation and our relationships with key stakeholders. The Board has carried out an assessment of the Group’s emerging and principal risks, resulting in the identification, assessment and management of risks across all areas of the business. The principal risks are subject to review each quarter by the Audit Committee, which is also attended by the Board. Key risk heat map The Key risk heat map below includes an indication of the likelihood of a ‘risk event’ occurring in relation to each of the principal risks and the expected magnitude of the impact of each such event. Our three lines of defence 1st • Executive Committee • Leadership group/management Internal controls and processes • • Internal policies and procedures • Training 2nd • Financial authority limits • Risk management processes • Audit Committee • Risk Committee • Health and Safety Team • Technology specialists • Legal support • Group Assurance • Operational Practices Team Mitchells & Butlers plc Annual Report and Accounts 2023 41 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Risks and uncertainties continued Risk category and description 1. Borrowing covenants There are risks that borrowing covenants are breached because of circumstances such as: i. a change in the economic climate leading to reduced cash net inflows; or ii. a material change in the valuation of the property portfolio. Risk Decreasing Risk Decreasing Following the Covid period, when covenant levels tested Following the Covid period, when covenant levels tested were either were either waived or reduced, the borrowing securitised waived or reduced, the borrowing securitised covenants are covenants are now back at documented levels. During the now back at documented levels. During the period the previous period the previous £150m unsecured facility was replaced ﾣ150m unsecured facility was replaced with a new unsecured with a new unsecured facility of £200m to July 2026, which facility of ﾣ200m to July 2026, which includes a reduction includes a reduction in the fixed cover charge covenant test in the fixed cover charge covenant test from 1.5x to 1.25x. from 1.5x to 1.25x. • High-level controls/mitigating activities High-level controls/mitigating activities • The Group maintains sufficient headroom against the covenants. The finance team conducts daily cash forecasting with periodic reviews at the Treasury Committee (the role of which includes ensuring that the Board Treasury Policy is adhered to, monitoring its operation and agreeing appropriate strategies for recommendation to the Board). Movement Risk Decreasing • Each period the Treasury Committee meets and formally considers compliance with financial covenants and limits (both current and projected) for the following: – The securitisation (Free Cashflow and EBITDA to Debt Service). – Non securitised bank facilities. – Liquidity Policy headroom. – Compliance with all aspects of Board Treasury Policy. In addition, regular forecasting and testing of covenant compliance is performed. • A detailed assessment of the mitigating risks is included As documented in the Going Concern note, the Directors have As documented in the Going Concern note, the Directors assessed a base case forecast and a severe but plausible have assessed a base case forecast and a severe but plausible downside scenario with headroom against all downside scenario with headroom against all covenants covenants and sufficient liquidity. Therefore the overall risk and sufficient liquidity. Therefore the overall risk is decreasing. is decreasing. 2. Sales performance 2. Sales performance This risk falls into the below main categories: in the Viability statement on page 49. High-level controls/mitigating activities • Right operational and commercial team and structure in place. Brand alignment ensures the right research is done and is acted upon. • Daily, weekly and periodic sales reporting, monitoring Risk Stable Sales: There is a risk that declining sales, concerns around consumer Sales: There is a risk that declining sales, concerns around consumer confidence, increased personal debt levels, confidence, increased personal debt levels, squeezes squeezes on disposable income and rising inflation on disposable income and rising inflation individually, individually, together or in combination, may adversely together or in combination, may adversely affect our affect our market share and profit, reducing headroom market share and profit, reducing headroom against securitisation against securitisation tests. tests. and scrutiny activity is in place. • Our Eat Drink Share panel provides robust, quick and cost-effective research. This is our own panel of 27,000 of the Group’s guests, whom we can use for research purposes for quick and cost-effective insights. • Primary research in partnership with brand and category teams. • Working with suppliers to tap into their research. • Each brand has its own pricing strategy. • Price promotions are in line with the agreed strategy. • Sales training for management. • Consumer and insight-led innovation process and development for new brands. • Reduce guest complaints by improving the local • management of social media responses (e.g. TripAdvisor responses). Increased digital marketing activity including new loyalty apps. Increased activity from takeaway and delivery offerings. • • Online guest satisfaction survey to collect guest feedback. This feedback, together with the results of research studies, is monitored and evaluated by a dedicated guest insight team to ensure that the relevance to guests of the 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. Consumer and market insight: If the Group fails to manage and Consumer and market insight: If the Group fails to manage and develop its existing (and new) brands in line develop its existing (and new) brands in line with consumer with consumer needs and market trends due to failure to needs and market trends due to failure to obtain or obtain or use sufficient insight in a timely manner, this may use sufficient insight in a timely manner, this may lead to a lead to a decline in revenues and profits. decline in revenues and profits. Pricing and market changes: If price changes are not intelligently Pricing and market changes: If price changes are not intelligently applied due to a lack of appreciation of market applied due to a lack of appreciation of market sensitivities sensitivities and elasticities, this may result in decreased and elasticities, this may result in decreased revenue revenue and profit. and profit. Risk Stable Risk Stable Overall, this risk remains stable. Overall, this risk remains stable. 42 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic ReportRisk category and description High-level controls/mitigating activities High-level controls/mitigating activities Movement Risk Stable • The Group makes significant investment in training to ensure that its people have the right skills to perform their jobs successfully. • Furthermore, an employee survey is conducted annually to establish employee satisfaction and engagement, and this is compared with other companies, as well as previous surveys. Where appropriate, changes in working practices are made in response to the findings of these surveys. • Remuneration packages are benchmarked to ensure that they remain competitive, and a talent review process is used to provide structured succession planning. Please also refer to the Report on Directors’ remuneration, on pages 88 to 118. • The apprenticeship programme will also assist in mitigating against the increasing risk in relation to non-UK workers. Please also refer to the Chief Executive’s business review on pages 16 to 18. • Talent development and potential calibrations are carried out biannually to anticipate and address any risks/issues. 3. People planning and development The Group has a strong guest focus and so it is important that it is able to attract, retain, develop and motivate the best people with the right capabilities throughout the organisation. There is a risk that, without the right people, our guest service levels would be affected. The external recruitment activity over the previous year has been challenging due to the lack of quality candidates being available. A further potential risk is the image of hospitality, given the recent pandemic impact. Retention is high amongst our Director and ‘head of department’ populations which may lead to a perceived lack of progression routes and hence unwanted loss of good talent at lower levels. Regarding retail labour, overall, there is a continued risk of a lack of quality of internal and external pipeline for key roles resulting in open vacancies or poor-quality appointments, leading to poor performance, reduced quality of service and loss of sales. There is a previous lack of consistent skills training affecting guest satisfaction and employee engagement and retention. Kitchen Manager attraction and attrition continues to be the 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 Risk Stable We have strong internal talent pools for a number of We have strong internal talent pools for a number of operational roles; however, operational roles; however, it is sometimes difficult to recruit it is sometimes difficult to recruit top Operations Director talent externally due to the competitive marketplace. Therefore, the risk remains stable. top Operations Director talent externally due to the competitive marketplace. Therefore, the risk remains stable. 4. Business continuity and crisis management The Group relies on its food and drink supply chain and the key IT systems underlying the business to serve its guests efficiently and effectively. Supply chain interruption, IT system failure or crises (such as terrorist activity or the threat of a further disease pandemic) might restrict sales or reduce operational effectiveness. Risk Stable Overall, the risk is stable. Staff have the resources and ability to work remotely rather than rely on access to the Retail Support Centre. High-level controls/mitigating activities • The Group has in place crisis and continuity plans that Risk Stable are reviewed and refreshed regularly. • New ways of working are in place for all Retail Support Centre staff, to ensure when the office is temporarily closed to employees, there is little or no impact to staff, given that all staff have the appropriate resources available to them in order to work remotely and in an efficient manner. • We have assessed the risks associated with remote working and cyber security and are confident that those areas are suitably controlled. Mitchells & Butlers plc Annual Report and Accounts 2023 43 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Risks and uncertainties continued Risk category and description High-level controls/mitigating activities High-level controls/mitigating activities Movement Risk Decreasing Risk Stable • A detailed external review of cyber security processes is performed on a regular basis in order to highlight any gaps and address any challenges. As a result, a number of further improvements have been made (and continue to be made) to strengthen overall security cyber controls. In addition, controls include: – The work carried out by the Group’s cross-functional • Information Security Steering Group. – Group Assurance IT controls reviews. – Implementation and revision of appropriate cyber security governance policies and procedures. – Ongoing security awareness initiatives continue to be undertaken. – A regular cycle of penetration testing. – Increased focus on protecting the business against potential cyber attacks has resulted in the implementation of additional controls to mitigate against such risks. – The effective implementation of a business-wide data protection compliance programme, including training of all relevant employees and contractors. – Systems, processes and controls have been reviewed and updated to ensure compliance with data protection laws. High-level controls/mitigating activities • A detailed review of the risks associated with the National Living Wage has been completed. This review has been undertaken at a strategic level to ensure that the Group carefully manages productivity and efficiency across the estate. • We have successfully implemented a time and attendance system to improve the management controls and reporting of staff hours. 5. Information and cyber security There is a risk that inadequate disaster recovery plans and information security processes are in place to mitigate against a system outage, or failure to ensure appropriate back-up facilities (covering key business systems and the recovery of critical data) and loss of sensitive data. Given the increase in the level and frequency of global cyber attacks, the likelihood of occurrence is therefore increasing, although current IT controls and monitoring tools are robust. Risk of non-compliance with data protection laws is an increasing risk for the business to ensure full compliance remains up to date. Risk Decreasing Risk Decreasing Overall, the risk is decreasing due to the ongoing review and Overall, the risk is decreasing due to the ongoing review and improvement of cyber security controls. However, the increased activity, information security and improvement of cyber security controls. However, the reliance on IT systems continue to be a key focus to ensure critical IT systems increased activity, information security and reliance on IT are kept secure and tested frequently and any vulnerabilities identified are systems continue to be a key focus to ensure critical IT addressed efficiently. systems are kept secure and tested frequently and any vulnerabilities identified are addressed efficiently. 6. Wage cost inflation There is a risk that increased costs associated with further increases to the National Living Wage may adversely impact upon overall operational costs. Risk Stable Risk Stable The immediate and future impact of National Living Wage 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 and wage inflation is kept under regular review with updates Remuneration Committee, as appropriate. The assumptions on the cost headwind provided to the Executive Committee and Remuneration form part of the business costs forecasting and assumptions with any cost Committee, as appropriate. The assumptions on the cost headwind risks being addressed specifically. Therefore, the overall risk is assessed headwind form part of the business costs forecasting and as stable. assumptions with any cost headwind risks being addressed specifically. Therefore, the overall risk is assessed as stable. High-level controls/mitigating activities Risk Decreasing • Full actuarial valuations are performed every three years (or more frequently where required by the trustees). Investment performance reports are reviewed each quarter by the Common Investment Fund (‘CIF’) Board. • • The Board Pensions Sub-Committee is in place to • formalise discussions in respect of the actuarial valuation, alongside new corporate advisers. In FY 2022, an Executive Committee pension scheme full buy-in was undertaken and in FY 2023 a Main Plan scheme full buy-in was also completed. 7. Pension fund deficit During the period, the Trustees of the Main Plan entered a Bulk Purchase Agreement with Standard Life, which provides the Plan with sufficient funding to cover all known member benefits of the scheme. During the prior period the Trustees of the Executive Plan entered a Bulk Purchase Agreement with Legal & General 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 Risk Decreasing The Group has made significant additional contributions to reduce The Group has made significant additional contributions the funding deficit. to reduce the funding deficit. 44 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic ReportRisk category and description High-level controls/mitigating activities High-level controls/mitigating activities 8. Failure to operate safely and legally A major health and safety failure could lead to illness, injury or loss of life or significant damage to the Group’s or a brand’s reputation. Risk Stable Risk Stable Overall, the risk continues to be stable. In particular, allergen-related incidents Overall, the risk continues to be stable. In particular, and near misses have stabilised. allergen-related incidents and near misses have stabilised. • The Group maintains a robust programme of health and safety checks both within its restaurants, pubs and bars and throughout the supply chain. • The dedicated Safety Assurance team uses a number of technical partners including food technologists, microbiologists and allergen specialists to ensure that our food procedures are safe. • Regular independent audits of trading sites are • performed to ensure that procedures are followed and that appropriate standards are maintained. If a business is identified as underperforming in terms of health and safety standards, it 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. Movement Risk Stable • Comprehensive health and safety training programmes High-level controls/mitigating activities are in place. 9. Cost of goods – price increases Food: The cost of food for resale increases due to changes in demand, food legislation, exchange rates and/or production costs and uncertainty of supply, leading to decreased profits. Drinks: The cost of drinks for resale increases due to changes in demand, legislation, exchange rates and production costs, leading to decreased profits. Utility costs: A number of external factors, including the result of the war in Ukraine, has led to an increased cost pressure on utility costs, for the Group. Goods not for resale: Increases in the cost of goods not for resale and utilities costs as a result of increases in global demand and uncertainty of supply in producing nations can have a significant impact on the cost base, consequently impacting margins. Risk Stable Risk Stable The overall risk of inflation is easing given a number The overall risk of inflation is easing given a number of of factors, including: factors, including: • Easing UK inflation • Easing utility costs • Improved availability of labour and raw materials • The annualisation of the impact of the war in Ukraine Mitigation to inflation is sought where possible through a change of supplier, products, specification, range and an ongoing review and monitoring of energy cost management. Risk Stable In order to reduce the overall impact of costs increases, the Group leverages its scale to drive competitive cost advantage and collaborates with suppliers to increase efficiencies in the supply chain. The fragmented nature of the food supply industry in the world commodity markets gives the Group the opportunity to source products from a number of alternative suppliers in order to drive down cost. Consideration has been given to potential areas such as supply chain risk (e.g. customs controls on imports), labour risk and economic disruption. Key mitigating activities for food and drink are detailed below: Food: Food: • A food procurement strategy is in place. • Full reviews are carried out on key categories to ensure optimum value is achieved in each category. • A full range review was completed in FY 2023 ensuring the correct number of products and suppliers. This is regularly reviewed. • Regular reporting of current and projected inflation. • Good relationships with key suppliers. Drinks: Drinks: • Each drinks category has a clearly defined strategic sourcing plan to ensure the Group’s scale is leveraged, the supply base is rationalised, and consumer needs are met. • Good relationships with key suppliers. • Supplier collaboration programmes are in place. Energy: Energy: • Ongoing review of energy purchasing policy (covering short-term and medium-term energy purchasing). • The Group currently spot purchases its energy requirements and also enters into short and medium- term energy hedges as part of the overall energy purchasing strategy. • 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 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Risks and uncertainties continued Risk category and description 10. Food supply chain safety Malicious or accidental contamination in the supply chain could lead to food goods for resale being unfit for human consumption or being dangerous to consume. This could lead to restrictions in supply which in turn cause an increase in cost of goods for resale and reduced sales due to consumer fears and physical harm to guests and/or employees. Risk Stable Risk Stable Risks facing the food supply chain safety are regarded Risks facing the food supply chain safety are regarded as stable. as stable. 11. Health and lifestyle concerns Failure to respond to changing consumer expectations in relation to health and lifestyle choices and our responsibility to facilitate those. Risk Increasing Risk Increasing There is an increasing level of focus from media and There is an increasing level of focus from media and Government on health and obesity issues. This heightened consumer awareness has increased consumer Government on health and obesity issues. This heightened awareness of the health implications of their eating and drinking choices, consumer awareness has increased consumer awareness of and it is important that we continue to evolve our offers to facilitate consumers the health implications of their eating and drinking choices, to make informed decisions. Failure to meet these expectations could and it is important that we continue to evolve our offers to have both a financial and reputational impact on the business. Therefore, this facilitate consumers to make informed decisions. Failure to risk is increasing. meet these expectations could have both a financial and reputational impact on the business. Therefore, this risk is increasing. 12. Environment and sustainability Climate change, biodiversity depletion and environmental pollution present a risk to our ability to source products, with food being particularly at risk. Risk Increasing Risk Increasing The impact of extreme and longer-term shifts in weather patterns, natural resource The impact of extreme and longer-term shifts in weather depletion and other effects of climate change could impact the business patterns, natural resource depletion and other effects of both financially and reputationally. These factors could disrupt our supply climate change could impact the business both financially chain and the ability to source products due to reduced availability. Regulatory and reputationally. These factors could disrupt our supply action to manage climate change could result in the introduction of chain and the ability to source products due to reduced additional taxes or restrictions being imposed. The business also has a responsibility to continually aim to reduce its usage of natural resources and its availability. Regulatory action to manage climate change negative impact on the climate. Therefore, this risk continues to increase. could result in the introduction of additional taxes or restrictions being imposed. The business also has a responsibility to continually aim to reduce its usage of natural resources and its negative impact on the climate. Therefore, this risk continues to increase. High-level controls/mitigating activities High-level controls/mitigating activities • The Group has a Safety Assurance team and uses a number of technical partners including food technologists, food safety experts, microbiologists, allergy consultants, trading standards specialists and nutritionists. • The Group uses a robust system of detailed product specifications. • All food products are risk rated using standard industry definitions and assessment of the way the products are used in the Group’s kitchens. Suppliers are then risk rated according to their products. • Each food supplier is audited at least once per year in respect of safety and additionally in response to any serious food safety complaint or incident. • A robust response has been taken to manage allergens and the associated data within the menu cycle, coupled with a continuous review in place to ensure the controls remain appropriate. Movement Risk Stable High-level controls/mitigating activities • We monitor changing behaviour in relation to health and Risk Increasing lifestyle issues and adapt our brands to appeal to changing needs ensuring that the brands remain relevant and competitive. • We have set targets for ongoing sugar and salt reduction. • A plan is in place to provide nutritional information for all brands to allow customers to make informed decisions. Please also refer to Pride in our offers, on page 34. High-level controls/mitigating activities • We have set challenging targets in key areas such as Risk Increasing greenhouse gas emissions, food waste, recycling and use of plastics (see pages 34 and 35). • We have completed an exercise to determine our baseline greenhouse gas emissions from which we have developed a plan to deliver our ambition of Net Zero emissions by 2040. Please also refer to our sustainability targets on pages 34 and 35. • We are working with the World Resources Institute on their Cool Food Pledge programme to reduce the emissions of food supply chain links, which is a significant contributor to emissions globally. • All direct palm oil purchases continue to be sourced from Rainforest Alliance approved suppliers. Please also refer to our Value creation story on pages 26 to 29. • We are working with industry collaboration groups to develop a roadmap to sourcing sustainable soy in our supply chain. • We are developing initiatives to reduce our consumption of natural resources, with an electricity workstream live in the business, and gas and water in the planning phases. 46 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic ReportRisk category and description High-level controls/mitigating activities High-level controls/mitigating activities 13. Enforced Government closure/ trading restrictions There is a risk that the business could be impacted by an enforced Government closure or imposed severe trading restrictions, of part or the whole of the estate, for example: regional and/or national and/or global pandemic, chemical and/or terrorist activity. A global pandemic may have a negative impact on the Group’s operating and financial performance and liquidity. An outbreak of a global virus may cause severe disruptions in the global economy which could adversely affect the Group’s business or operations, as well as the business or operations of third parties with whom the Group conducts business. Risk Decreasing Risk Decreasing The frequency and nature of these risks arising are unpredictable, as evidenced The frequency and nature of these risks arising are during the Covid-19 pandemic. However, given that Government trading unpredictable, as evidenced during the Covid-19 pandemic. restrictions have been lifted, the associated risks to the business have stabilised. However, given that Government trading restrictions have been lifted, the associated risks to the business have stabilised. • Contingency plans are in place to review and respond to enforced Government actions and/or severe business disruption or trading restrictions. These should be subject to a formal review. • Business opening and closure processes have been updated. • Strong supply chain relationships are maintained to assist in the event of cancelling and/or returning stock orders. • Robust processes are in place to manage Government furlough schemes. • The Group, and in particular the Safety and Security Team, is able to adapt quickly and respond to a change in operational and functional processes, as a result of a pandemic and/or business closures. • Established communication cascade and mechanisms • are in place for employees, guests and suppliers. IT infrastructure, hardware, systems and employee support is in place to maintain remote working. • Key financial controls have been reviewed, assessed and updated to ensure they continue to be operated in the event of limited and/or no access to either the Retail Support Centre or businesses. • A high-level review of lessons learned, following the Covid-19 pandemic, has been undertaken to inform the required changes to business planning and operating procedures. Movement Risk Decreasing High-level controls/mitigating activities 14. Introduction of carbon taxes and levies This risk represents the impact on operating costs of the business both directly through taxation and indirectly through higher input costs which would result from the introduction of taxation and levies attributed to greenhouse gas emissions. Risk Stable Risk Stable Qualitative assessment has identified this risk as both high in impact and likelihood Qualitative assessment has identified this risk as both high in over the short to medium term. Whilst the risk is currently assessed as stable, impact and likelihood over the short to medium term. Whilst the introduction of a form of carbon taxation is likely to be introduced as pressure the risk is currently assessed as stable, the introduction of a mounts for progress to be made against the Government ambition to achieve form of carbon taxation is likely to be introduced as pressure Net Zero by 2050. mounts for progress to be made against the Government ambition to achieve Net Zero by 2050. 15. Increased severity of extreme weather events This acute physical risk represents the risk to both revenue and the supply chain of increased severe events. Revenue would be impacted through the interruption to trade caused by both extremely hot weather and adverse weather such as rain and snow, and possible site closure as a result of flooding. In addition, the availability of products in the supply chain, in particular agricultural produce, could be impacted by severe weather having an effect on product availability and input prices. Risk Stable Risk Stable Following a qualitative assessment, which included a high-level review Following a qualitative assessment, which included a of previous interruption to trade resulting from extreme weather high-level review of previous interruption to trade resulting (as well as scientific forecasts as to the likely increase in from extreme weather (as well as scientific forecasts as to extreme weather events), the overall risk is assessed as stable. the likely increase in extreme weather events), the overall risk is assessed as stable. • The Group is a member of the UK Hospitality Risk Stable Sustainability Committee which enables us to have foresight over potential policy changes impacting the organisation. • The Group has developed a Net Zero strategy with a target date of 2040. The strategy has been developed in partnership with an independent third party. Please also refer to our sustainability targets, outlined on pages 34 and 35. • We have a number of initiatives underway designed to reduce our emissions in line with our Net Zero roadmap. The detailed plan for reduction will help to mitigate an element of potential cost, and a target date ahead of Government ambition will help to position the organisation ahead of the market average. Please also refer to our Task Force on Climate-related Financial Disclosures, on pages 36 to 40. High-level controls/mitigating activities • The weather has a high level of impact on trading levels across the Group and therefore monitoring weather forecasts in relation to expected trading levels is a normal part of the financial planning of the Group. Risk Stable • • This monitoring activity will enable the Group to identify when patterns of increased instances of extreme weather events begin to develop. In relation to site closure due to damage to buildings, such as during flooding, we have insurance in place to recover the lost trade and required repairs. Our experience during closure has meant that we have developed strategies to close sites at short notice, such that in the instance of extreme weather significantly impacting trade we could close sites in order to mitigate some of the financial losses which we would be exposed to. • To manage the risk associated with our supply chain, we monitor and communicate with our suppliers closely giving us foresight over potential supply issues. We also have sufficient breadth of products and dishes across our brands such that supply issues with one product could be mitigated through switching to a substitute. Please also refer to our Task Force on Climate-related Financial Disclosures, on pages 36 to 40. Mitchells & Butlers plc Annual Report and Accounts 2023 47 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Compliance statements Corporate viability disclosure Corporate viability disclosure In accordance with Provision 31 of the 2018 UK In accordance with Provision 31 of the 2018 UK Corporate Governance Code, the Directors have undertaken an assessment, Corporate Governance Code, the Directors including sensitivity analysis, of the prospects of the have undertaken an assessment, including Group for a period of three years to September 2026. sensitivity analysis, of the prospects of the Group for a period of three years to September 2026. Assessment period Assessment period Three years continues to be adopted as an appropriate period of Three years continues to be adopted as an assessment as it aligns with the Groups planning horizon in appropriate period of assessment as it aligns a fast moving market subject to changing consumer tastes in with the Group’s planning horizon in a fast addition to economic and political uncertainties, and is supported moving market subject to changing consumer by three year forecasts as approved by the Board. Beyond tastes in addition to economic and political this period, performance is impacted by domestic and global political, macroeconomic and other considerations which uncertainties, and is supported by three year become increasingly difficult to predict. As set out below, forecasts as approved by the Board. Beyond this is particularly so at the current time. this period, performance is impacted by domestic and global political, macroeconomic and other considerations which become increasingly difficult to predict. As set out below, this is particularly so at the current time. Assessment of prospects Assessment of prospects The Groups financial planning process comprises The Group’s financial planning process comprises a detailed forecast for the next financial a detailed forecast for the next financial year, together with a projection for the following two year, together with a projection for the following financial years. two financial years. The Group’s strategy seeks to provide a strong capital base and long-term direction to protect the viability of the business model given prevailing and evolving market and economic conditions. The Directors’ assessment of longer-term prospects has been made taking account of the current and expected future financial position and the principal risks and uncertainties, as detailed within the Annual Report. At the current time uncertainty continues to face the business as a result of global political developments, uncertain government policy, and cost headwinds. Longer-term risks are further identified around evolving consumer demands and tastes and the economic and political environment. Key factors considered in the assessment of the Group’s prospects are a strong market position with a diverse range of brands and offers trading from a well-positioned and largely freehold estate, supported by capital investment focused on premiumisation of offers and an appropriate remodel cycle, all anticipated to contribute to outperformance against the wider market. Assessment of viability Assessment of viability The current funding arrangements of the Group consist of ﾣ1.3bn The current funding arrangements of the Group of long-term securitised debt which amortises on a scheduled consist of £1.3bn of long-term securitised debt profile over the next 13 years. Securitisation covenants which amortises on a scheduled profile over are tested quarterly, both on an annual and a half year the next 13 years. Securitisation covenants are basis. As set out in the going concern paragraph in section 1 of the consolidated financial statements a refinancing of tested quarterly, both on an annual and a half the Groups unsecured committed facility was undertaken during year basis. As set out in the going concern the reporting period. This facility is now for ﾣ200m, with financial paragraph in section 1 of the consolidated covenants tested half yearly, and expires within the three financial statements a refinancing of the year term of this assessment, in July 2026. Group’s unsecured committed facility was undertaken during the reporting period. This facility is now for £200m, with financial covenants tested half yearly, and expires within the three year term of this assessment, in July 2026. Following a year in which the Group has been able to trade throughout without restrictions, sales have returned to above pre-pandemic levels. The principal short-term risks facing the business are now therefore assessed to be the generating of further growth on this level of demand, in addition to mitigating cost inflation. The Group has reviewed a number of forecast scenarios and sensitivities around these risks, including additional stress testing that has been carried out on the Group’s ability to continue in operation under unfavourable operating conditions. In making this assessment the Group has taken the view that there will be no material further adverse impact of Covid-19 (or any other pandemic) such that sales will continue to grow year on year. In particular it is assumed that no further mandated closure or trading restrictions will be reintroduced. Through the assessment period, the Group is forecasting sales growth remaining slightly below current levels. Further, it is assumed that on a general basis the current very high levels 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. The Group’s three year plan takes account of these risks, in addition to the prevailing economic outlook and capital allocation decisions, alongside limited mitigating activity such as improved operational efficiencies (notably stock and labour management and energy saving initiatives) to manage these costs. In the base case scenario the Group remains within solvency covenant limits and has access to sufficient liquidity to meet its outgoings. It is noted that there is a requirement to refinance the unsecured facilities near the end of the three year assessment period, in July 2026. It is considered that this can be accommodated within the debt capacity of the business given future anticipated recovery in profitability and the strength of the creditor relationships exhibited in recent refinancing exercises, noting also that each year a further c. £120m of securitised debt is expected to have been paid down. The resilience of this base case plan is then assessed through the application of forecast analysis, focused in particular on growth of demand and levels of input cost inflation during the current financial year as well as on a longer-term basis. Sensitivities of the following risks described in the Annual Report have also been applied individually to the base plan. • Declining Sales Performance (Risk event 2): 2% lower sales growth rate on average from December 2023 to end of FY 2025 and 1.0% lower in FY 2026; • • Cost of Goods Price Increases (Risk event 9): 1.2% increase in direct Cost of Goods (Drink and Food) in FY 2024, and 0.9% in FY 2025 and FY 2026; Increased Wage Cost Inflation (Risk event 6): 1% increase in NLW wage rate in FY 2024, FY 2025 and FY 2026; Increased utilities cost (Risk event 9): additional £10m in each of FY 2024, FY 2025 and FY 2026; and • • A scenario combining all of the above sensitivities which reduces operating profit by £27m, £59m and £79m in FY 2024, FY 2025 and FY 2026 respectively. 48 Annual Report and Accounts 2023 Mitchells & Butlers plc Strategic ReportLiquidity and solvency based on financial covenants (Risk event 1) on both secured debt and unsecured facilities are assessed in all scenarios. In all scenarios the Group continues to remain profitable with sufficient liquidity and no forecast covenant breaches. Viability statement Viability statement The Directors have concluded, based upon the extent of the financial The Directors have concluded, based upon the planning assessment, sensitivity analysis, potential mitigating extent of the financial planning assessment, actions and current financial position that there is a reasonable sensitivity analysis, potential mitigating actions expectation that the Group will have access to sufficient and current financial position that there is a resources to continue in operation and meet all its liabilities reasonable expectation that the Group will have as they fall due over the three year period to September 2026. access to sufficient resources to continue in operation and meet all its liabilities as they fall due over the three year period to September 2026. Non-financial and sustainability information statement Non-financial and sustainability information statement The Group has complied with the requirements of s414CB The Group has complied with the requirements of the Companies Act 2006 by including certain of s414CB of the Companies Act 2006 by non-financial information within the report. This including certain non-financial information within the report. This can be found as follows: can be found as follows: Section 172 Companies Act statement Section 172 Companies Act statement The Directors have acted in a way that they considered, The Directors have acted in a way that they in good faith, to be most likely to promote considered, in good faith, to be most likely to the success of the Company for the benefit promote the success of the Company for the of its members as a whole and in doing so have benefit of its members as a whole and in doing so have given regard, amongst other matters, given regard, amongst other matters, to the following to the following considerations in the decisions considerations in the decisions taken during taken during the financial period ended the financial period ended 30 September 2023: 30 September 2023: • the likely consequences of any decision in the long term; the interests of the Company’s employees; • • the need to foster the Company’s business relationships with suppliers, guests and others; • the impact of the Company’s operations on the community and environment; • the desirability for high standards of business conduct; and • the need to act fairly as between members of the Company. In carrying out these functions, the Board had regard to those stakeholders which it had identified as being of significant importance. These are the Company’s shareholders, those employees of the Mitchells & Butlers Group who were likely to be affected by the activities of the Company (including their job security and entitlements in terms of pay, pensions and other benefits), guests who purchase goods and services provided by the Company, suppliers to the Company, whether they are external to the Mitchells & Butlers Group or within that Group, governmental authorities such as HMRC and regulatory bodies, the Trustees of the Group’s pension schemes, providers of finance to the Group including its banks and bondholders, real estate property counterparties (whether as landlords or tenants) and those specific entities or individuals who are likely to be affected by the outcome of the relevant matter falling for consideration on a case-by-case basis. • Business model on pages 22 to 25. • Information regarding the following matters can be found on the following pages: – Environmental matters on pages 34 to 40; – Employees on page 27; – Social matters on pages 26 to 29; – Respect for human rights on pages 66, 80 and 81; – Anti-corruption and anti-bribery matters on pages 80 and 81. Where principal risks have been identified in relation to any of the matters listed above, these can be found on pages 41 to 47 including a description of the business relationships, products and services which are likely to cause adverse impacts in those areas of risk, and a description of how the principal risks are managed. • All key performance indicators of the Group, including those non-financial indicators, are on pages 32 and 33. • The Financial review section on pages 51 to 54 includes, where appropriate, references to, and additional explanations of, amounts included in the accounts. The Board has a duty under Section 172 Companies Act 2006 to promote the success of the Company and, in doing so, must take account of the effect on other stakeholders of how it manages the business of the Company, whether these stakeholders are from within the Company, in its Group or outside the Company and its Group. Throughout the year the Board has kept in mind these responsibilities as it has supervised and monitored the business activities and prospects of the Company and as it has considered, and, where appropriate, made decisions relating to strategic aspects of the Company’s affairs. In addition, the 2018 UK Corporate Governance Code specifically requires that the Board should understand the views of the Company’s key stakeholders (including employees, suppliers, customers and others) and keep stakeholder engagement mechanisms under review so they remain effective. The 2018 Code also recommends that there should be regular reporting as to how the Board has complied with this engagement approach in its decision-making processes and how the interests of different shareholders have been considered. There is a robust and transparent process in place to provide an appropriate level of direction and support in the identification, assessment and management of risks across all areas of the business which have the potential to seriously damage our financial position, our shareholder value, our responsibilities to our staff and guests, our reputation and our relationships with key stakeholders. Established communication cascade and mechanisms are in place for employees, suppliers and guests: engagement with employees is discussed on page 65 of the Directors’ report, which sets out the various platforms for employee communications, facilitated by Dave Coplin, a Non-Executive Director who acts as the ‘employee voice’; engagement with key, critical suppliers is addressed on page 73 of the Corporate Governance Statement which describes the supplier tiering process; and engagement with guests is discussed on page 110 of the Report on Directors’ remuneration which describes the mechanisms for providing guest feedback. Mitchells & Butlers plc Annual Report and Accounts 2023 49 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report In reaching its decisions, the Board was mindful of the need to seek to preserve the integrity of the Company’s business so as to allocate its resources in such a way as to ensure creditors’ interests and the interests of other stakeholders such as employees and guests were not prejudiced. Board papers set out the rationale for the proposals and the relevant decisions were made after discussion amongst the Board members with appropriate legal, accounting, HR and treasury input. The processes implemented by the Board included regular meetings to consider key developments as well as the provision, refreshed during the financial year, of training to Directors in relation to their responsibilities as directors of a limited company, including the responsibilities under Section 172 Companies Act 2006. Specific consideration was given in the decision-making processes implemented by the Board to how the manner in which the Company operated, and the specific proposals it was asked to consider, aligned to its strategic goals as described on pages 30 and 31 and its agreed purpose as referred to on page 05. The Board also confirmed that, in discharging its responsibilities for management, supervision and control of the Company’s business and its affairs, it would seek to align to the Mitchells & Butlers Group PRIDE Values of Passion, Respect, Innovation, Drive and Engagement as set out at page 23 of this Annual Report. Throughout this Annual Report we provide examples of how we take these considerations into account. The Board values the importance of effective stakeholder engagement and believes that stakeholders’ views should be considered in its decision-making. Details of how we engage with various stakeholders can be found on pages 26 to 29. Compliance statements continued The Company’s culture is embodied in a set of PRIDE values of Passion, Respect, Innovation, Drive and Engagement which underpin its key priorities of People, Practices, Profits and Guests. The Board observes these PRIDE values in discharging its everyday responsibilities in order to ensure that decisions taken are in line with the Company’s values and objectives. High standards of business conduct are expected, in furtherance of which the Board has implemented a Code of Ethics, which is fully described on pages 80 and 81 of the Corporate Governance Statement, and a declaration of compliance with the Modern Slavery Act 2015 (including a Supplier Code of Conduct) is dealt with on pages 66 and 67 of the Directors’ report. Appropriate scrutiny of the environmental impact of the Group’s activities is included in the Sustainability section of the Strategic Report on pages 34 and 35. Not all of those stakeholders’ interests fall for consideration in each set of circumstances which the Board has to consider. However, as and when a particular matter falls for review by the Board, it first seeks to identify those stakeholders which are likely to be impacted by the decision of the Board, and then the Board discusses the respective interests of those stakeholders as well as the consistency (or otherwise) of the relevant proposal with the Board’s existing, or any proposed change(s) to its, strategic plan. Major matters considered by the Board during the year included the pressures faced by the UK consumer in the face of rising costs and interest rates, and the impact of unprecedented cost headwinds on the business and wider UK hospitality market. In considering these external factors, the Board looked not only at the position and prospects of the Company, but also took into consideration the wider Mitchells & Butlers Group as a whole. Other matters 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 ReportFinancial review Financial review Our financial and operating performance Our financial and operating performance On a statutory basis, sales were ﾣ2,503m (FY 2022 ﾣ2,208m). “On a statutory basis, sales were £2,503m (FY 2022 The loss before tax for the period of ﾣ13m (FY 2022 £2,208m). The loss before tax for the period of £(13)m (FY 2022 profit of £8m) was impacted by movements profit of ﾣ8m) was impacted by movements to the property to the property portfolio valuation as well as significant portfolio valuation as well as significant cost headwinds cost headwinds during the financial year.” during the financial year. Tim Jones Chief, Financial Tim Jones Officer Chief Financial Officer The Group Income Statement discloses adjusted profit and earnings per share information that excludes separately disclosed items to allow an understanding of the trading performance of the Group. Separately disclosed items are identified by virtue of their size or incidence. The financial period being reported on was a 53-week period, therefore in order to facilitate comparison to prior year, adjusted results have been restated on a 52-week basis, as set out below. At the end of the period, the total estate comprised 1,718 sites in the UK and Germany of which 1,654 are directly managed. Revenue Revenue Total revenue of £2,503m (FY 2022 £2,208m) Total revenue of ﾣ2,503m (FY 2022 ﾣ2,208m) reflects a strong period of trading. reflects a strong period of trading. Like-for-like sales for the period increased by 9.1%, comprising Like-for-like salesa for the period increased by an increase in like-for-like food sales of 8.6% and 9.1%, comprising an increase in like-for-like an increase in like-for- like drink sales of 9.9%. Like-for-like food salesa of 8.6% and an increase in like-for- sales like drink sales of 9.9%. Like-for-like salesa growth was broad-based, with growth across all brands, supported growth was broad-based, with growth across by volume growth in both food and drink. Excluding the all brands, supported by volume growth in impact of reduced rates of VAT in the first half of FY 2022, like-for-like both food and drink. Excluding the impact of sales growth across the period was 11.3%. (The Directors reduced rates of VAT in the first half of FY 2022, use a number of alternative performance measures (APMs) like-for-like salesa growth across the period that are considered critical to aid the understanding of the Groups performance. Key measures are was 11.3%. explained on pages 192 to 195 of this report.) Type Revenue Operating profit Profit/(loss) before tax Earnings/(loss) per share Operating margin Adjusteda 52 week Statutory 53 Week: Statutory 53 week FY 2023 Financial £m Year 2,503 2023, Million 98 Pounds (13) (0.7)p 3.9% Statutory 53 FY 2022 Week: Financial £m Year 2,208 2022, Million 124 Pounds 8 2.2p 5.6% Adjusted 52 FY 2023 Week: Financial £m Year 2,459 2023, Million 221 Pounds 112 15.6p 9.0% Adjusted 52 Week: FY 2022 Financial £m Year 2,208 2022, Million 240 Pounds 124 18.0p 10.9% Mitchells & Butlers plc Annual Report and Accounts 2023 51 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Financial review continued Like-for-like sales growth against FY 2022: Like-for-like salesa growth against FY 2022: Type Food Drink Total Weeks 1–15 Q1 6.4% 15.5% 10.4% Weeks 16–28 Q2 5.2% 9.9% 6.4% Weeks 29–42 Q3 11.6% 7.4% 9.7% Weeks 43–52 Q4 11.6% 6.4% 9.7% Weeks 1–52 8.6% 9.9% 9.1% Against FY 2019, the last pre-covid year, like-for-like sales increased by 10.5% driven by spend-per-head with volumes down 8% for food and 12% for drinks. For the eight weeks since the period end like-for-like salesa against FY 2023 have increased by 7.2%. Separately disclosed items Separately disclosed items Separately disclosed items are identified due to their nature or materiality to help the reader form a Separately disclosed items are identified due to their nature or materiality view of overall and adjusted trading. to help the reader form a view of overall and adjusted trading. A £131m reduction in value is recognised relating to valuation and impairment of properties, comprising a £110m impairment arising from the revaluation of freehold and long leasehold sites, a £6m impairment of short leasehold and unlicensed properties, a £14m impairment of right-of-use assets and a £1m impairment of goodwill. The £28m tax credit relates to these impairments. Adjusted operating margin of 9.0% was 1.9ppts lower than prior period, driven by the significant cost headwinds and the margin benefit of 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 disclosed property impairments. Cost headwinds are now starting to abate and for FY 2024 are expected to be in the region of c. £65m, representing 3% of the overall cost base, including an expectation of energy cost reduction. Interest Net finance costs of £108m for the period were £6m lower than last year, with annual amortisation reducing the value of securitised debt and higher levels of interest income from cash balances. The net pensions finance charge was £3m (FY 2022 £2m). The net pensions charge for next year is expected to be £1m. Other separately disclosed items include a net profit arising on property disposals, a shortfall on an HMRC VAT claim on gaming machines and a number of items related to acquisition accounting for 3Sixty Restaurants Limited. These items net to an overall credit of £3m. Earnings per share Earnings per share Basic losses per share, after the separately disclosed items described above, were (0.7)p (FY 2022 earnings 2.2p), with adjusted earnings per share of 16.1p (FY 2022 18.0p). Operating profit and margins Operating profit and marginsa Adjusted operating profita for the financial year was £221m (FY 2022 £240m). Adjusted operating profit for the financial year was ﾣ221m (FY 2022 ﾣ240m). The basic weighted average number of shares in the period was 595m and the total number of shares issued at the balance sheet date was 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 Strategic ReportCash flow Type EBITDA before movements in the valuation of the property portfolio Non-cash share-based payment and pension costs and other Operating cash flow before movements in working capital and additional pension contributions Working capital movement Pension deficit contributions Cash flow from operations Capital expenditure Acquisition of 3Sixty Restaurants Limited Cash acquired on acquisition of 3Sixty Restaurants Limited Net finance lease principal payments Interest on lease liabilities Net interest paid Tax Other Net cash flow before bond amortisation Mandatory bond amortisation Net cash flow The business generated £362m of EBITDA before movements in the valuation of the property portfolio. Financial Year 2023, FY 2023 £m Million Pounds 362 6 368 (1) (8) 359 (157) (17) 5 (52) (16) (90) (3) 1 30 (116) (86) Financial Year FY 2022 £m 2022, 374 Million 6 Pounds 380 19 (44) 355 (122) – – (45) (16) (99) (2) – 71 (110) (39) Blank Blank Blank 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 Capital expenditure of ﾣ157m (FY 2022 ﾣ122m) comprises ﾣ154m from the purchase of property, plant and equipment and ﾣ3m in relation to the purchase of intangible Capital expenditure of £157m (FY 2022 £122m) comprises £154m from the purchase of property, plant and equipment and £3m in relation to the assets. Of the ﾣ157m spend, ﾣ90m relates to the completion of acquisitions, conversions and remodels, with the balance being essential maintenance purchase of intangible assets. Of the £157m spend, £90m relates to the completion of acquisitions, conversions and remodels, with the balance being and infrastructure spend which includes investment to enable our Net Zero transition. essential maintenance and infrastructure spend which includes investment to enable our Net Zero transition. Type Maintenance and infrastructure Remodels – refurbishment Remodels – expansionary Conversions Acquisitions – freehold Acquisitions – leasehold Total return generating capital expenditure Total capital expenditure Financial Year 2023, Number blank Number FY 2023 Financial Year 2023, £m Million Pounds 67 65 4 11 9 1 90 157 blank 127 7 11 4 2 151 FY 2022 Financial Year £m 2022, Million 39 Pounds 60 2 6 14 1 83 122 Financial Number Year blank 2022, 155 Number 5 6 3 1 170 blank 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 GovernanceFinancial StatementsOther InformationIntroductionStrategic Report Financial review continued Property In line with our property valuation policy, a red book valuation of the freehold and In line with our property valuation policy, a red book valuation of the long leasehold estate has been completed in conjunction with the independent freehold and long leasehold estate has been completed in conjunction property valuer, CBRE. In addition, the Group has undertaken an with the independent property valuer, CBRE. In addition, the Group has impairment review on short leasehold and unlicensed properties. The overall undertaken an impairment review on short leasehold and unlicensed property portfolio valuation of c. ﾣ4bn has decreased by ﾣ192m (FY 2022 properties. The overall property portfolio valuation of c. £4bn has decreased by £192m (FY 2022 decrease of £282m). This reflects £116m decrease of ﾣ282m). This reflects ﾣ116m impairment included as a separately impairment included as a separately disclosed item in the income disclosed item in the income statement and a ﾣ76m decrease in the statement and a £76m decrease in the revaluation reserve. In addition, revaluation reserve. In addition, there was a ﾣ14m impairment of right-of-use there was a £14m impairment of right-of-use assets and a £1m impairment assets and a ﾣ1m impairment of goodwill, relating to an historic acquisition, of goodwill, relating to an historic acquisition, included within separately included within separately disclosed items in the income statement. disclosed items in the income statement. Net debt and facilities Net debta and facilities Net debt at the period end was ﾣ1,633m, comprised of ﾣ1,170m non-lease liabilities and lease liabilities Net debta at the period end was £1,633m, comprised of £1,170m of ﾣ463m (FY 2022 ﾣ1,679m comprised of ﾣ1,198m non-lease liabilities and lease liabilities non-lease liabilities and lease liabilities of £463m (FY 2022 £1,679m of ﾣ481m). (The Directors use a number of alternative performance measures (APMs) comprised of £1,198m non-lease liabilities and lease liabilities of £481m). that are considered critical to aid the understanding of the Groups performance. Key measures are explained on pages 192 to 195 of this report. ) 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 debt (The Directors use Further details of existing debt arrangements and an analysis of a number of alternative performance measures (APMs) that are considered critical net debta can be found in Note 4.4 to the financial statements and at to aid the understanding of the Groups performance. Key measures are explained www.mbplc.com/infocentre/debtinformation/. on pages 192 to 195 of this report. ) can be found in Note 4.4 to the financial statements and at Pensions During the period we were delighted to announce that the trustees of During the period we were delighted to announce that the trustees of the M&B the M&B Main Pension Plan, working closely with the Company, Main Pension Plan, working closely with the Company, successfully completed successfully completed a full scheme buy-in with Standard Life. This a full scheme buy-in with Standard Life. This transaction follows on transaction follows on from the completion of the buy-in of the Executive from the completion of the buy-in of the Executive Plan announced last year Plan announced last year and eliminates substantially all remaining and eliminates substantially all remaining pensions risk in the group. 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 After considering forecasts, sensitivities and mitigating actions available to management and having regard to risks and uncertainties, the and having regard to risks and uncertainties, the Directors have a Directors have a reasonable expectation that the Group has adequate reasonable expectation that the Group has adequate resources to continue to resources to continue to operate within its borrowing facilities and operate within its borrowing facilities and covenants for a period of at least 12 covenants for a period of at least 12 months from the date of signing the months from the date of signing the financial statements. Accordingly, the financial financial statements. Accordingly, the financial statements have been statements have been prepared on the going concern basis. Full details prepared on the going concern basis. Full details are included in Section are included in Section 1 of the financial statements. 1 of the financial statements. Approval of the Strategic Report Approval of the Strategic Report Our strategic report on pages 14 to 54 has been reviewed and approved Our strategic report on pages 14 to 54 has been reviewed and approved by the by the Board. Board. Tim Jones Chief Financial Officer 29 November 2023 54 Annual Report and Accounts 2023 Mitchells & Butlers plc a. The Directors use a number of alternative performance measures (‘APMs’) that are considered critical to aid the understanding of the Group’s performance. Key measures are explained on pages 192 to 195 of this report. Strategic ReportGovernance 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 Governance at a glance 56 Governance at a glance Chairmans introduction to governance 58 Chairman’s introduction to governance 60 Board of Directors Board of Directors Directors report 62 Directors’ report Statement of Directors responsibilities in respect of the Annual 70 Statement of Directors’ responsibilities in Report and Accounts respect of the Annual Report and Accounts Corporate governance statement 71 Corporate governance statement Audit Committee report 84 Audit Committee report Report on Directors remuneration 88 Report on Directors’ remuneration Mitchells & Butlers plc Annual Report and Accounts 2023 55 Other InformationFinancial StatementsStrategic ReportIntroductionGovernance 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 Highest ever retail engagement score 82.5 score: 82.5 See page 89 Board and Committee Board and Committee meeting attendance meeting attendance: 100% 100% The Board holds regular scheduled meetings during the year and on an ad-hoc basis as and when required. During the year eight Board meetings were held and the attendance is set out below. Members of the executive team attended Board meetings as and when appropriate. Gender pay gap (for the Group) Gender pay gap (for -1.7% the Group) - Mean: Mean -1.7%. Median: 0.6% 0.6% Median See page 113 Focus areas for FY 2024 Growth: Support and oversight of the growth of Growth the business via our Ignite programme, to drive Support and oversight of the growth of the cost efficiencies and increase sales. business via our Ignite programme, to drive cost efficiencies and increase sales. See pages 30 and 31 Strategy: Deliver our strategic plan delivering targeted Strategy and profitable growth. Deliver our strategic plan delivering targeted and profitable growth. Executive Directors Company pension contributions Executive Directors’ Company pension to be fully aligned with that of the wider contributions to be fully aligned with workforce (4%) by 1 January 2024 that of the wider workforce (4%) by 1 January 2024 See page 76 • See page 16 Sustainability Sustainability • Continue to deliver emissions reduction in line with our Net Zero roadmap; Increase proportion of waste diverted from landfill; Attendance levels at Board and Committee meetings Directors who served during the year Bob Ivell Amanda Brown Keith Browne Dave Coplin Eddie Irwin Tim Jones Josh Levy Jane Moriarty Phil Urban Board 8 (8) 8 (8) 8 (8) 8 (8) 8 (8) 8 (8) 8 (8) 8 (8) 8 (8) Audit Committee n/a 4 (4) n/a 4 (4) n/a n/a n/a 4 (4) n/a Remuneration Committee 6 (6) 6 (6) n/a 6 (6) n/a n/a 6 (6) 6 (6) n/a Nomination Committee 1 (1) 1 (1) n/a 1 (1) 1 (1) n/a n/a 1 (1) n/a 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 • Decrease levels of food waste; and • Expand charitable partnerships. See page 18 People People • Roll out of a talent system which will further support the development of our internal talent pipeline; and • Evolution of our employee value proposition. See page 18 Risk: Reduce the impact of key risks facing Risk the business. Reduce the impact of key risks facing the business. See pages 41 to 47 GovernanceBoard and Committee structure Chairman, Bob Ivell: The Chairman is accountable Chairman to shareholders for leading the Bob Ivell Board and ensuring the Board receives The Chairman is accountable timely, accurate information to take to shareholders for leading good decisions for the benefit of all stakeholders. the Board and ensuring the Board receives timely, accurate information to take good decisions for the benefit of all stakeholders. The Board Senior Independent Director, Jane Moriarty: Senior The Senior Independent Director Independent supports the Chairman on all governance Director issues and provides a communication Jane Moriarty channel between the Chairman and the Non- Executive Directors. The Senior Independent Director supports the Chairman on all governance issues and provides a communication channel between the Chairman and the Non- Executive Directors. Committees Non-Executive Directors: The Non-Executive Non-Executive Directors support and Directors constructively challenge the executive The Non-Executive Directors team. support and constructively challenge the executive team. Audit Committee Chair Audit Jane Moriarty Committee Remuneration Committee Chair Remuneration Amanda Brown Committee Chair – Jane Moriarty Chair – Amanda Brown Nomination Committee Nomination Committee Chair Bob Ivell Chair – Bob Ivell Market Disclosure Committee Market Disclosure Committee 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 Phil Urban (CEO) and Tim Jones (CFO) Directors make and implement operational decisions to run the Mitchells Butlers business on a day-to-day basis. To support the Chief Executive The Board has delegated the day-to-day running of the Group to the Chief Executive Officer. The Executive Directors make and Officer in discharging his responsibilities, he is supported by the Executive Committee. 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: 1-3 years 3. 8+ years: 4-7 years 3. 8+ years 1 3 3 Mitchells & Butlers plc Annual Report and Accounts 2023 57 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Chairman’s introduction to governance Dear fellow shareholders, I have pleasure “Dear fellow shareholders, I have pleasure in updating you on our progress in corporate in updating you on our progress in governance over the past year.” corporate governance over the past year. Bob Ivell Bob Ivell, Chairman Chairman As at 30 September 2023, the Company had more than 50,000 employees and one of the key roles for the Board is to provide leadership for them and maintain the highest possible standards of corporate governance. The Company is required to report under the 2018 UK Corporate Governance Code (the ‘2018 Code’). The 2018 Code places emphasis on relationships between companies, shareholders and stakeholders. It also promotes the importance of establishing a corporate culture that is aligned with the Company’s purpose and business strategy, promotes integrity and values diversity and sets the expectations for reporting the Board’s involvement in these areas. Some of these aspects of the 2018 Code are reflected in the Strategic Report on pages 14 to 54, which sets out the Group’s strategy, progress and performance for the year. Meanwhile, the Board-focused corporate governance aspects of the 2018 Code are reflected in the Corporate Governance Statement on pages 71 to 83, which sets out the Company’s compliance against published governance requirements where there is a narrative explanation as to how the Board has approached compliance with, or in a few limited areas divergence from, the Code’s best practice guidance. Climate change reporting requirements continue to occupy the Board and details are included in that section of the Strategic Report on pages 36 to 40. Phil Urban heads our climate change policy initiatives, and while this area remains a responsibility of the entire Board, the Corporate Responsibility Committee manages and monitors the detail of the Group’s approach to this important topic. The organisational and reporting structure for climate governance is set out on page 37 in our climate-related disclosures. During the year, the Board continued to work together to deal with various trading challenges, particularly those related to inflationary cost pressures. I am grateful both to the Board and all our employees who worked to resolve these issues. 58 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceThe Annual General Meeting will be held in January 2024 and all shareholders are welcome to attend. For those shareholders who cannot attend but would like to hear the proceedings, we will also supply a telephone listen-only facility. Full details are set out in the separate Notice of AGM published with this Annual Report. I look forward to the year ahead, confident in the knowledge that the Company is led by a highly competent, professional and motivated team. I also look forward to the support of you, our shareholders, as our senior management team looks to rebuild the business and continues to focus on driving future profit growth and creating additional shareholder value. Bob Ivell, Chairman, Mitchells Bob Ivell and Butlers plc Chairman Mitchells & Butlers plc For the Companys latest financial information Go to For the Company’s latest financial information www.mbplc.com/investors Go to www.mbplc.com/investors This year our sales growth has remained ahead of the market, with our guest scores at record highs. This strong performance, coupled with the addition of Ego Restaurants into our stable of brands, means that the outlook for FY 2024 is positive with the opportunity to further outperform the sector and grow market share. Navigating the last three years has been hugely challenging for everyone in the business but we feel we are now firmly back on our chosen path and that we have a bright future as a business to look forward to. Our broad range of Board talent covers a variety of professional skills, and our diverse group of Non-Executive Directors continue to bring much experience and challenge to the Board. My focus will continue to be on maintaining a strong team, with a broad range of professional backgrounds, experience from both within our sector and in other industries and businesses and communication skills to drive further improvements where possible. From a governance standpoint, the basic governance arrangements already in place are unchanged since FY 2022, with the exception of additional procedures and reporting arrangements put in place in order to comply with climate change and diversity reporting requirements. Certain aspects of the 2018 Code could not be, and were not, complied with in FY 2023. These deviations from the 2018 Code are fully explained on pages 75 and 76 in the Corporate Governance Statement in line with the ‘Comply or Explain’ regime which forms an intrinsic part of that 2018 Code. The 2018 Code states that there should be a formal and rigorous annual evaluation of the performance of the Board, its committees, the chair and individual directors and that the chair should consider having a regular externally facilitated Board evaluation. In FTSE 350 companies this should happen at least every three years and an externally facilitated review of the Board’s effectiveness last took place in 2018. Subsequently, the Board decided that the interests of shareholders would be better served by the Board focusing on the business and consequently no external evaluation has taken place since. The Board will review this approach as and when it feels it necessary to do so in the context of the circumstances in which the Group is operating. Although there was no formal evaluation carried out during the year, I remain satisfied that the skills, contributions and experience of the Board are appropriate for the challenges faced by the Group during the year and for the future. You can read the Board biographies on pages 60 and 61. The annual appraisal of my performance as Chairman was carried out in FY 2023 by the Senior Independent Director, Jane Moriarty, with the conclusions fed back to me. The remainder of this Corporate Governance Statement contains the narrative reporting required by the 2018 Code, the Listing Rules and the Disclosure Guidance and Transparency Rules. I hope that you find this Corporate Governance Statement to be informative and helpful in relation to this important topic. We are committed to maintaining an active dialogue with all our shareholders, and we continue to offer our institutional investors access to key senior management and our Investor Relations team. The Chair of each of our Audit Committee and Remuneration Committee and the Senior Independent Director are available for dialogue with shareholders on any significant matters in relation to their areas of responsibility if this is needed and you can read their reports on pages 84 and 88 respectively. Mitchells & Butlers plc Annual Report and Accounts 2023 59 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Board of Directors A strong leadership team 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 Phil Urban, Chief Executive. Phil Urban Chief Executive Market Disclosure Committee, Executive Committee, Pensions Committee M P E Tim Jones, Chief Financial Officer. Tim Jones Chief Financial Officer Market Disclosure Committee, Executive Committee, Pensions Committee M P E Phil joined Mitchells & Butlers in January 2015 as Chief Operating Officer and became Chief Executive in September 2015. Phil was previously Managing Director at Grosvenor Casinos, a division of Rank Group and Chairman of the National Casino Forum. Prior to that, he was Managing Director for Whitbread’s Pub Restaurant Division, and for Scottish & Newcastle Retail’s Restaurants and Accommodation Division. Phil has an MBA and is a qualified management accountant (‘CIMA’). Tim was appointed Chief Financial Officer in October 2010. Prior to joining the Company, he held the position of Group Finance Director for Interserve plc, a support services group. Previously, he was Director of Financial Operations at Novar plc and held senior financial roles both in the UK and overseas in the logistics company, Exel plc. Tim is a member of the Institute of Chartered Accountants in England and Wales and obtained an MA in Economics at Cambridge University. P R C N M Bob Ivell, Non-Executive Chairman. Bob Ivell Non-Executive Chairman Remuneration Committee, Nomination Committee, Market Disclosure Committee, Corporate Responsibility Committee, Pensions Committee Appointed to the Board in May 2011, Bob has over 40 years of extensive food and beverage experience with a particular focus on food-led, managed restaurants, pubs and hotels. He is currently a board member of UK Hospitality and was previously Senior Independent Director of AGA Rangemaster Group plc and Britvic plc, and a main board Director of S&N plc as Chairman and Managing Director of its Scottish & Newcastle retail division. He has also been Chairman of Carpetright plc, Regent Inns, Park Resorts and David Lloyd Leisure Limited, and was Managing Director of Beefeater Restaurants, one of Whitbread’s pub restaurant brands, and a Director of The Restaurant Group. Bob is Chair of the Nomination Committee, the Pensions Committee, the Market Disclosure Committee and the Corporate Responsibility Committee. 60 Annual Report and Accounts 2023 Mitchells & Butlers plc Governance R C A N Amanda Brown, Non-Executive Amanda Brown Director. Non-Executive Director Audit Committee, Remuneration Committee, Nomination Committee, Corporate Responsibility Committee Amanda joined the Board in July 2022 as an independent Non-Executive Director. She is a Non-Executive Director of Entain plc and Manchester Airport Group, and was formerly the Chief Human Resources Officer of Hiscox Limited, and was a Non-Executive Director and Chair of the Remuneration Committee of Micro Focus International PLC. She previously held senior executive roles with Whitbread Group PLC, PepsiCo, Inc and Mars, Inc. Amanda is Chair of the Remuneration Committee. Keith Browne. Non-Executive Keith Browne Director Non-Executive Director Pensions Committee P Appointed as a Non-Executive Director in September 2016, Keith is a nominated shareholder representative of Elpida Group Limited, which, as part of the Odyzean Group, is a significant shareholder in Mitchells & Butlers. He is a Non-Executive Director of Grove Limited, the holding company of Barchester Healthcare Limited. Keith obtained a Bachelor of Commerce Degree from University College Dublin, qualified as a chartered accountant in 1994 and subsequently gained an MBA from University College Dublin. After joining KPMG Corporate Finance in 1996, he became a partner in the firm in 2001 and Head of Corporate Finance in 2009. He retired from the partnership to operate as an Independent Consultant in 2011. R C A N Dave Coplin, Non-Executive Director Dave Coplin Non-Executive Director Audit Committee, Remuneration Committee, Nomination Committee, Corporate Responsibility Appointed as an independent Non-Executive Committee Director in February 2016, Dave is the Chief Executive Officer and founder of The Envisioners Limited. He was formerly the Chief Envisioning Officer for Microsoft Limited, and is an established thought leader on the role of technology in our personal and professional lives. For over 30 years he has worked across a range of industries and customer marketplaces, providing strategic advice and guidance around the role and optimisation of technology in modern society, both inside and outside of the world of work. Dave is also a Non-Executive Director of each of the Pensions and Lifetime Savings Association and Vianet Group plc. R Josh Levy, Non-Executive Director Josh Levy Non-Executive Director Remuneration P Committee, Pensions Committee Appointed as a Non-Executive Director in November 2015, Josh is a nominated shareholder representative of Piedmont Inc., which, as part of the Odyzean Group, is a significant shareholder in Mitchells & Butlers. Josh is Chief Executive of Ultimate Finance Group, Chairman of Avenue Insurance and a Director of Tavistock Group. Josh previously worked in the Investment Banking Division of Investec Bank. N Eddie Irwin, Non-Executive Director Eddie Irwin Non-Executive Director Nomination Committee, C Corporate Responsibility Committee Appointed as a Non-Executive Director in March 2012, Eddie is a nominated shareholder representative of Elpida Group Limited, which, as part of the Odyzean Group, is a significant shareholder in Mitchells & Butlers. Eddie is Finance Director of Coolmore, a leading thoroughbred bloodstock breeder with operations in Ireland, the USA and Australia and a Non-Executive Director of Grove Limited, the holding company of Barchester Healthcare Limited. He graduated from University College Dublin with a Bachelor of Commerce Degree and he is a Fellow of both The Association of Chartered Certified Accountants and The Chartered Governance Institute. R C A N Jane Moriarty, Senior Independent Director Jane Moriarty Senior Independent Director Audit Committee, Remuneration M Committee, Nomination Committee, Corporate Responsibility Committee, Appointed as an independent Non-Executive Market Disclosure Director in February 2019, Jane is a Fellow of Committee the Institute of Chartered Accountants in Ireland, and currently a Non-Executive Director of Babcock International Group PLC, NG Bailey Group Limited, Quarto Group Inc., Tennants Consolidated Limited and Nyrstar NV. Jane was previously a senior advisory partner with KPMG LLP. Jane is Chair of the Audit Committee. Mitchells & Butlers plc Annual Report and Accounts 2023 61 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Directors’ report The Boards responsibilities in respect of the Company include: The Board’s responsibilities in respect of the Company include: • Determining the overall business and commercial strategy • • Reviewing the annual operating budget and financial plans and Identifying the Company’s long-term objectives 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 Companys latest financial information Go to For the Company’s latest financial information Go to www.mbplc.com/investors 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 Areas of operation During FY 2023, the Group had activities in, and operated through, pubs, During FY 2023, the Group had activities in, and operated through, pubs, bars and bars and restaurants in the United Kingdom and Germany. In June 2023, restaurants in the United Kingdom and Germany. In June 2023, the Group the Group completed the acquisition of the remaining 60% in 3Sixty completed the acquisition of the remaining 60% in 3Sixty Restaurants Limited, Restaurants Limited, owners of Ego Restaurants. A summary of the owners of Ego Restaurants. A summary of the performance of the business performance of the business is set out on page 88. 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 Share capital and voting rights The Company’s issued ordinary share capital as at 30 September 2023 The Companys issued ordinary share capital as at 30 September 2023 comprised comprised a single class of ordinary shares of which 597,726,859 shares a single class of ordinary shares of which 597,726,859 shares were were in issue and listed on the London Stock Exchange (24 September in issue and listed on the London Stock Exchange (24 September 2022 597,383,363 2022 597,383,363 shares). The rights and obligations attaching to the shares). The rights and obligations attaching to the ordinary shares ordinary shares of the Company are contained within the Company’s of the Company are contained within the Companys Articles of Association. 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 & Butlers plc GovernanceThe 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 Dividends No Final Dividend will be paid in respect of the financial period ended 30 September No Final Dividend will be paid in respect of the financial period ended 2023 (FY 2022 nil). No Interim Dividend was paid during the period 30 September 2023 (FY 2022 nil). No Interim Dividend was paid during (FY 2022 nil). the period (FY 2022 nil). Interests in voting rights Interests in voting rights As at 30 September 2023, the Company was aware of the significant holdings of voting rights (3% As at 30 September 2023, the Company was aware of the significant or more) in its shares shown in Table 1 below. 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 Odyzean Limitedb Odyzean Limited (Note Standard Life B) Aberdeen plc Standard Life Aberdeen plc (rights to recall lent shares) Lansdowne Partners (UK) LLP Ordinary shares 338,833,695 29,260,403 Holding Type % of share % of share capitala capital (Note A) 56.69% Indirect holding 4.90% Indirect holding 170,000 0.03% Indirect holding 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 Directors Details of the Board Directors as at 29 November 2023 and their biographies are Details of the Board Directors as at 29 November 2023 and their shown on pages 60 and 61. The Directors as at 30 September 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. 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 Major shareholder Board representation and relationship agreement The Company’s largest shareholder is Odyzean Limited (‘Odyzean’), The Companys largest shareholder is Odyzean Limited (Odyzean), which which holds approximately 56.69% of the Company’s issued share holds approximately 56.69% of the Companys issued share capital and capital and was formed in 2021 to consolidate the shareholdings of the was formed in 2021 to consolidate the shareholdings of the Companys then Company’s then three largest shareholders, Piedmont Inc. (‘Piedmont’), three largest shareholders, Piedmont Inc. (Piedmont), Elpida Group Limited Elpida Group Limited (‘Elpida’) and Smoothfield Holding Limited (Elpida) and Smoothfield Holding Limited (Smoothfield) (together (‘Smoothfield’) (together with Odyzean, the ‘Odyzean Group’) in with Odyzean, the Odyzean Group) in connection with the Open connection with the Open Offer. 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 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Directors’ report continued Directors indemnity Directors’ indemnity As permitted by the Articles of Association, each of the Directors has As permitted by the Articles of Association, each of the Directors has the benefit of an indemnity, the benefit of an indemnity, which is a qualifying third-party indemnity which is a qualifying third-party indemnity as defined by Section 234 of the Companies Act 2006. The indemnity was in force throughout the tenure of each Director during the as defined by Section 234 of the Companies Act 2006. The indemnity period, and is currently in force. The Company also purchased and maintained throughout the was in force throughout the tenure of each Director during the period, period Directors and Officers liability insurance in respect of itself and its Directors and the and is currently in force. The Company also purchased and maintained directors of any subsidiary of the Company. No indemnity is provided for the Companys auditor. throughout the period Directors’ and Officers’ liability insurance in respect of itself and its Directors and the directors of any subsidiary of the Company. No indemnity is provided for the Company’s auditor. Articles of Association Articles of Association The Articles of Association may be amended by special resolution of the shareholders The Articles of Association may be amended by special resolution of the of the Company. shareholders of the Company. Conflicts of interest Conflicts of interest The Companys Articles of Association permit the Board to consider and, if it sees fit, authorise situations The Company’s Articles of Association permit the Board to consider and, where a Director has an interest that conflicts, or may possibly conflict, with the interests if it sees fit, authorise situations where a Director has an interest that of the Company (Situational Conflicts). The Board has a formal system in place for Directors conflicts, or may possibly conflict, with the interests of the Company to declare Situational Conflicts to be considered for authorisation by those Directors who have no interest in the matter being considered. In deciding whether to authorise a Situational (‘Situational Conflicts’). The Board has a formal system in place for Conflict, the non-conflicted Directors are required to act in the way they consider would Directors to declare Situational Conflicts to be considered for authorisation be most likely to promote the success of the Company for the benefit of all shareholders, and by those Directors who have no interest in the matter being considered. they may impose limits or conditions when giving authorisation, or subsequently, if they think this In deciding whether to authorise a Situational Conflict, the non-conflicted is appropriate. The Board believes that the systems it has in place for reporting and considering Directors are required to act in the way they consider would be most Situational Conflicts continue to operate effectively. likely to promote the success of the Company for the benefit of all shareholders, and they may impose limits or conditions when giving authorisation, or subsequently, if they think this is appropriate. The Board believes that the systems it has in place for reporting and considering Situational Conflicts continue to operate effectively. Related party transactions Related party transactions Internal controls are in place to ensure that any related party transactions involving Internal controls are in place to ensure that any related party transactions Directors or their connected persons are carried out on an arms-length involving Directors or their connected persons are carried out on an basis and are properly recorded. arm’s-length basis and are properly recorded. The related party transactions in FY 2023 to which the Group was party are set out in note 5.2 to the financial statements. The rules of certain of the Company’s share plans include provisions which apply in the event of a takeover or reconstruction, as set out in Table 2 below. Table 2: Provisions which apply in the event of a takeover or reconstruction Share plan 2013 Performance Restricted Share Plan 2013 Short Term Deferred Incentive Plan and 2023 Short Term Deferred Incentive Plan 2013 Sharesave Plan and 2023 Sharesave Plan Share Incentive Plan Restricted Share Plan 2021 Provision in the event of a takeover Awards vest pro rata to performance and time elapsed and lapse six months later Bonus shares may be released or exchanged for shares in the new controlling company Options may be exercised within six months of a change of control Free shares may be released or exchanged for shares in the new controlling company Awards are automatically released and replaced by an equivalent award in the new controlling company During FY 2023, the 2013 Sharesave Plan, the Share Incentive Plan and the 2013 Short Term Deferred Incentive Plan were renewed at the 2023 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 takeover or reconstruction of the Company. Shareholders approved the Company’s existing Directors’ remuneration 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 Company, remains in force until 2024, and thus a new Directors’ remuneration policy will require approval at the 2024 AGM. Further details are set out in the Report on Directors’ remuneration. Change of control provisions Change of control provisions There are no significant agreements which contain provisions entitling There are no significant agreements which contain provisions entitling other parties other parties to such agreements to exercise termination or other rights to such agreements to exercise termination or other rights in the event in the event of a change of control of the Company. of a change of control of the Company. Additional disclosures Additional disclosures Other information that is relevant to the Directors report, and which is incorporated by reference Other information that is relevant to the Directors’ report, and which is into this report, can be located as follows: incorporated by reference into this report, can be located as follows: There are no provisions in the Directors’ or employees’ service agreements providing for compensation for loss of office or employment occurring because of a takeover. The trustee of the Company’s SIP will invite participants on whose behalf it holds shares to direct it how to vote in respect of those shares, and, if there is an offer for the shares or other transaction which would lead to a change of control of the Company, participants may direct it to accept the offer or agree to the transaction. The trustee of the Mitchells & Butlers Employee Benefit Trust may, having consulted with the Company, vote or abstain from voting in respect of any shares it holds or accept or reject an offer relating to shares in any way it sees fit, and it may take all or any of the following matters into account: the long-term interests of beneficiaries; the non-financial interests of beneficiaries; the interests of beneficiaries in their capacity as employees or former employees; the interests of future beneficiaries; and considerations of a local, moral, ethical, environmental or social nature. Disclosure Type Future developments of the business Research and development Financial instruments and financial risk management Greenhouse gas emissions Corporate governance statement Employee involvement Employees with disabilities Non-financial reporting Stakeholder engagement Section 172 statement Page(s) 14 to 54 22 to 25 162 and 164 67 to 69 71 to 83 66 65 14 to 54 73 49 64 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceDisclosures required pursuant to the Listing Rules can be found on the following Disclosures required pursuant to the Listing Rules can be found on the pages: following pages: 1. Long-term incentive schemes 2. Allotment of shares during the period 3. Significant contracts 4. Significant related party agreements 5. Relationship agreement Information Group 1. Long-term incentive schemes Information Information required by Listing Rule 9.8.4R required by Listing Rule 9.8.4R 6. Directors interests Information Information required by Listing Rule 9.8.6R required by Listing Rule 9.8.6R 6. Directors’ interests 7. Significant shareholders (DTR 5) 8. Going concern statement 9. Statement of corporate governance 10. Details of Directors’ service contracts 11. Climate-related financial disclosures consistent with TCFD 12. Board diversity Page(s) 88 to 118 180 63 63 63 Blank 116 63 54 71 to 83 117 36 to 40 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 Employment policies The Group employed an average of 49,150 people in FY 2023 (FY 2022 45,408). The Group employed an average of 49,150 people in FY 2023 (FY 2022 Through its diversity policy, the Company seeks to ensure that every employee, 45,408). Through its diversity policy, the Company seeks to ensure that without exception, is treated equally and fairly and that all employees every employee, without exception, is treated equally and fairly and that all employees are aware of their responsibilities. 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 Employee engagement Mitchells & Butlers engages with its employees on a regular basis and in a number Mitchells & Butlers engages with its employees on a regular basis and of ways to suit their different working patterns and this is discussed further in a number of ways to suit their different working patterns and this is in the Report on Directors remuneration on page 88. Engagement includes: 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; ‘Mable’, the Mitchells & Butlers online learning platform; • a dedicated intranet for the Retail Support Team and Retail Management; • • 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 polices and the views of employees in relation to Executive pay can be found on page 97. We provide opportunities for employees to give their feedback to the Company in a number of ways, from team or shift meetings in pubs, bars and restaurants and engagement surveys for all employees to the Mitchells & Butlers Business Forum. Business Forum representatives collect questions from employees across the Company and put them to members of the Executive Committee. The questions and answers are communicated to employees. Mitchells & Butlers plc Annual Report and Accounts 2023 65 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Directors’ report continued The Mitchells Butlers People Promise The Mitchells & Butlers ‘People Promise’ Our clearly defined people promise enables us to differentiate our employment Our clearly defined people promise enables us to differentiate our proposition, and the diagram below illustrates in more detail the employment proposition, and the diagram below illustrates in more detail the elements of our people promise. Clearly, pay is a very elements of our people promise. Clearly, pay is a very important element important element but other factors also play an important part but other factors also play an important part of the overall value proposition, of the overall value proposition, which is known internally as our which is known internally as our People Promise. ‘People Promise’. Share ownership Share ownership Mitchells & Butlers is keen to encourage greater employee involvement in the Mitchells & Butlers is keen to encourage greater employee involvement Groups performance through share ownership. It operates two HMRC approved in the Group’s performance through share ownership. It operates two all-employee plans, which are the Sharesave Plan (both the 2013 and HMRC approved all-employee plans, which are the Sharesave Plan 2023 versions) and the Share Incentive Plan (which includes Partnership (both the 2013 and 2023 versions) and the Share Incentive Plan (which shares). Further details on the plans are set out in the Report on Directors includes Partnership shares). Further details on the plans are set out in remuneration on pages 88 to 118. 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 Responsible alcohol policy Mitchells and Butlers operates the Challenge 21 policy in all our businesses across Mitchells & Butlers operates the Challenge 21 policy in all our businesses England and Wales, a Challenge 25 policy in our Scottish and similar policies across England and Wales, a Challenge 25 policy in our Scottish in Northern Ireland and Germany. The requires that any guest attempting businesses and similar policies in Northern Ireland and Germany. The to buy alcohol who appears the age of 21 in England, Wales or Northern policy requires that any guest attempting to buy alcohol who appears Ireland (or 25 in must provide an acceptable form of proof of age ID to under the age of 21 in England, Wales or Northern Ireland (or 25 in confirm they are over 18 before they can be served. We employ similar across 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 the various regions of Germany in order to comply with laws. 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 Political donations The Company made no political donations during the year and intends to maintain The Company made no political donations during the year and intends its policy of not making such payments. It will, however, as a precautionary to maintain its policy of not making such payments. It will, however, as measure to avoid inadvertent breach of the law, seek shareholder a precautionary measure to avoid inadvertent breach of the law, seek authority at its 2024 AGM to make limited donations or incur limited shareholder authority at its 2024 AGM to make limited donations or incur political expenditure, although it has no intention of using the authority. limited political expenditure, although it has no intention of using the authority. Modern Slavery Act 2015 Modern Slavery Act 2015 In accordance with the requirements of the Modern Slavery Act, during the period the Board reviewed, In accordance with the requirements of the Modern Slavery Act, during updated and approved the Companys Modern Slavery Act compliance statement, which the period the Board reviewed, updated and approved the Company’s was signed on behalf of the Board by Phil Urban. A copy of that statement can be accessed Modern Slavery Act compliance statement, which was signed on behalf on the Companys website: of the Board by Phil Urban. A copy of that statement can be accessed on the Company’s website, www.mbplc.com. Our people value opportunities for progression, challenge within their role, fair rewards and a safe working environment. Our research has also shown that, in normal times, unlike some industries and employers, Mitchells & Butlers offers a number of important differentiators which our employees value: • Flexibility and convenience: Mitchells & Butlers has always promoted a flexible approach to working from the frontline through to our support centre. The Covid-19 pandemic has further demonstrated how flexibility and convenience are ever more important factors for employees across all employee groups. • More job satisfaction: As part of our research, we learnt that working for Mitchells & Butlers gave employees a strong sense of family and that employees put a high value on the day-to-day variety of work. This comes through very strongly in our survey results. • A great atmosphere: Undoubtedly working in hospitality, especially at the frontline, is hard work. However, we also know that it can be great fun. Our aim at Mitchells & Butlers is to make the working environment as fun and friendly as possible whilst ensuring that guests receive great service. It remains the case that employees have begun to reassess what is important to them and their work following the Covid-19 pandemic and now in response to cost of living pressures. In addition, other industries have been able to demonstrate how they now can offer careers that provide some elements of our proposition in a way not seen before, for example through very flexible working arrangements. It is therefore important to review and refresh our research so that our ‘People Promise’ evolves and remains relevant to current and prospective team members. We expect ourpeople to SERVE WITH PRIDE (as they have since 1898!) In return, We expect our people to we offer: Like many employers, opportunities SERVE WITH PRIDE for progression, challenge, fair rewards & safety and security But unlike many employers, also: Like many employers, opportunities for progression, challenge, fair rewards & safety and security In return, we offer: (as they have since 1898!) But unlike many employers, also: A better lifestyle, because of the flexibility and convenience A better lifestyle, because of the flexibility and convenience More job satisfaction, because of the sense of community, the feeling of belonging, the shared purpose, More job satisfaction, because of the sense of community, the variety of work and pride the feeling of belonging, the shared in their achievements purpose, the variety of work and pride in their achievements A great atmosphere, because its both fun and friendly A great atmosphere, because it’s both fun and friendly All this adds up to our big promise – that you’ll All this adds up to our big promise that youll love every moment N U F 66 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceThis 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. 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 Going concern After considering forecasts, sensitivities and mitigating actions available to management After considering forecasts, sensitivities and mitigating actions available to management and having regard to risks and uncertainties, the and having regard to risks and uncertainties, the Directors have Directors have a reasonable expectation that the Group has adequate a reasonable expectation that the Group has adequate resources to continue resources to continue to operate within its borrowing facilities and to operate within its borrowing facilities and covenants for a period of covenants for a period of at least 12 months from the date of signing the at least 12 months from the date of signing the financial statements. Accordingly, financial statements. Accordingly, the financial statements have been the financial statements have been prepared on the going concern prepared on the going concern basis. Full details are included in Section basis. Full details are included in Section 1 of the financial statements. 1 of the financial statements. Annual General Meeting Annual General Meeting The notice convening the Annual General Meeting is contained in a circular sent The notice convening the Annual General Meeting is contained in a to shareholders with this report and includes full details of the resolutions circular sent to shareholders with this report and includes full details of proposed. the resolutions proposed. Auditor Auditor KPMG LLP has expressed its willingness to continue in office as auditor KPMG LLP has expressed its willingness to continue in office as auditor of the of the Company and its reappointment will be put to shareholders at the Company and its reappointment will be put to shareholders at the AGM. AGM. Funding and liquidity risk Funding and liquidity risk In order to ensure that the Group’s long-term funding strategy is aligned In order to ensure that the Groups long-term funding strategy is aligned with its strategic objectives, the Treasury Committee regularly assesses the maturity profile of the Groups debt, alongside with its strategic objectives, the Treasury Committee regularly assesses the prevailing financial projections and three year plan. This enables it to ensure that funding the maturity profile of the Group’s debt, alongside the prevailing financial levels are appropriate to support the Groups plans. projections and three year plan. This enables it to ensure that funding levels are appropriate to support the Group’s plans. Events after the balance sheet date Events after the balance sheet date There are no post-balance sheet events to report. There are no post-balance sheet events to report. Greenhouse gas (GHG) emissions statement Greenhouse gas (‘GHG’) emissions statement The Group generates GHG emissions throughout its estate of bars and restaurants for heating, The Group generates GHG emissions throughout its estate of bars and cooling, ventilation, lighting, and catering including the refrigeration and preparation of restaurants for heating, cooling, ventilation, lighting, and catering food and drink. 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. 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. Mitchells & Butlers plc Annual Report and Accounts 2023 67 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Directors’ report continued Table 3: Mitchells & Butlers’ carbon reporting disclosure Assessment parameters Assessment year Consolidation approach Boundary summary Scope Data FY 2023 Financial control All bars and restaurants either owned or under operational control during FY 2023 were included. 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). 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. 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. Consistency with the financial statements Exclusions Emission factor data source Assessment methodology Materiality threshold Estimation Scope 1 – Corporate mileage is excluded because collectively it amounts to less than 1% of total emissions which falls below the materiality threshold. All carbon emission factors used are sourced from the UK Government GHG conversion factors for company reporting 2023. Environmental Reporting Guidelines: including Streamlined Energy and Carbon Reporting Guidelines March 2019. All emission types estimated to contribute >1% of total emissions are included. Scope 1 – Fugitive Emissions are partially estimated due to unknown gas types for some sites. Intensity threshold Target Scope 1 & 2 – Electricity & Gas consumption uses a pro-rata estimate for supplies that do not have complete data in the reporting year. Emissions are stated in tonnes CO2e 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. Emissions during FY 2022 are provided for comparative purposes. Energy efficiency action taken 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. During FY 2023 we increased our deployment of local renewable energy and low carbon technology sources including solar photovoltaic and air Improved building fabric energy efficiency has been achieved by increasing insulation levels and improving losses at glazed areas. Improvements in heating source heat pumps. Improved building fabric energy efficiency has been achieved by increasing insulation levels and improving losses at glazed efficiency have also been achieved by using liquid additives to improve heat transfer efficiency. We have introduced improved control of energy use by areas. Improvements in heating efficiency have also been achieved by using liquid additives to improve heat transfer efficiency. We have introduced adopting Internet of Things (IoT) control for lighting, catering, and heating/cooling systems. During 2023 we commenced a series of energy audits to identify improved control of energy use by adopting Internet of Things (‘IoT’) control for lighting, catering, and heating/cooling systems. During 2023 we further opportunities to reduce energy consumption across our estate. 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 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. 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 GovernanceGlobal GHG emissions and energy use data for FY 2023 UK and offshore - Financial Year 2023 UK and offshore Global (excluding Total - Financial Current reporting year FY 2023 Year UK Global (excluding 2023 and offshore) UK and offshore) - Financial 2,342 Year 2023 Total - Financial UK and offshore Global (excluding Comparison reporting year FY 2022 Year UK - Financial Global (excluding UK UK and 2022 and offshore) Year offshore and offshore) - Financial 2022 2,386 Year 2022 91,302 84,892 87,278 Total Total 68,925 63,876 1,795 65,671 % Change year-on-year % Change year-on-year 1,769 67,156 88,960 156,116 Scope 1 tCO2e (location-based) Scope 1 tCO2e (location-based) Scope 2 tCO2e (location-based) Scope 2 tCO2e (location-based) Total Scope 1 & 2 emissions tCO2e Total Scope 1 & 2 emissions tCO2e (location-based) (location-based) Total Scope 1 & 2 emissions tCO2e Total Scope 1 & 2 emissions tCO2e (market-based) (market-based) Energy Consumption used to calculate the above emissions: kWh Intensity Ratio: tCO2e/turnover(ﾣm) Intensity Ratio: tCO2e/turnover(£m) – (location-based)a (location-based) Intensity Ratio: tCO2e/turnover(ﾣm) Intensity Ratio: tCO2e/turnover(£m) (Note a) – (market-based)a (market-based) (Note a) a. Intensity ratios based on the turnover for FY 2022 of £2,208m and for FY 2023 of £2,503m. 731,867,092 89,222 4,111 4,111 blank blank blank blank – – – – 160,227 148,768 4,181 152,949 93,333 84,892 4,181 89,073 19,356,686 751,223,778 742,837,490 20,879,255 763,716,745 blank blank 64 37 blank blank – – – – 69 40 5% 5% 5% 5% -2% -7% -8% Disclosure of information to auditor 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 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 is no relevant audit information (as defined by Section 418(3) of the Companies Act 2006) of which the Companys auditor is unaware and each Director 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 has taken all steps that ought to have been taken to make themselves aware of any relevant audit information and to establish that the Companys auditor 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 is aware of that information. 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 Andrew Freeman Secretary 29 November 2023 Group General Counsel and Company Secretary 29 November 2023 Mitchells & Butlers plc Annual Report and Accounts 2023 69 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Statement of Directors’ responsibilities in respect of the Annual Report and Accounts The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. In accordance with Disclosure Guidance and Transparency Rule (‘DTR’) 4.1.16R, the financial statements will form part of the annual financial report prepared under DTR 4.1.17R and 4.1.18R. The auditor’s report on these financial statements provides no assurance over whether the annual financial report has been prepared in accordance with those requirements. Responsibility statement of the Directors in respect of the annual financial report Responsibility statement of the Directors in respect of the annual financial report We confirm that to the best of our knowledge: We confirm that to the best of our knowledge: • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and • the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. Tim Jones, Chief Financial Tim Jones Officer, 29 November Chief Financial Officer 2023 29 November 2023 The Directors are responsible for preparing the Annual Report and Accounts and the Group and parent Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with UK-adopted international accounting standards and applicable law and have elected to prepare the parent Company financial statements in accordance with UK accounting standards and applicable law, including FRS 101 Reduced Disclosure Framework. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of the Group’s profit or loss for that period. In preparing each of the Group and parent Company financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable, relevant and reliable; • for the Group financial statements, state whether they have been prepared in accordance with UK-adopted international accounting standards; • for the parent Company financial statements, state whether applicable UK accounting standards have been followed, subject 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 going concern, disclosing, as applicable, matters related to going concern; and • use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors’ report, Report on Directors’ remuneration and Corporate Governance Statement that comply with that law and those regulations. 70 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceCorporate governance statement “This statement sets out our report to This statement sets out our report to shareholders shareholders on the status of our corporate on the status of our corporate governance arrangements.” governance arrangements. Bob Bob Ivell Ivell, Chairman Chairman The Board is responsible for ensuring that the activities of the Group and its various businesses are conducted in compliance with the law, regulatory requirements and rules, good practices, ethically and with appropriate and proper governance and standards. This includes reviewing internal controls, ensuring that there is an appropriate balance of skills and experience represented on the Board, compliance with the applicable UK Corporate Governance Code, which is issued by the Financial Reporting Council and which is available at www.frc.org.uk, and maintaining appropriate relations with shareholders and other stakeholders. www.frc.org.uk The latest financial information for Mitchells & Butlers and its Group of companies is included in the 2023 Annual Report and Accounts (of which this Corporate Governance Statement forms part) and which is available online at: www.mbplc.com/investors. www.mbplc.com/investors. Shareholder relations Shareholder relations The Board recognises that it is accountable to shareholders for the performance and activities of the Company. The Company regularly updates the market on its financial performance, at the half year and full year results in May and November respectively, and by way of other announcements as required. The content of these updates is available by webcast on the Company’s website www.mbplc.com, together with general information about the Company so as to be available to all shareholders. The Company has a regular programme of dialogue with its larger shareholders which provides an opportunity to discuss, on the basis of publicly available information, the progress of the business. www.mbplc.com 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 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance 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. Corporate governance code reporting Corporate governance code reporting For FY 2023, the Company has reported under the 2018 For FY 2023, the Company has reported under the 2018 Code. Its requirements are: 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 Alignment to the 2018 Code As part of its alignment with the 2018 Code, the following operational As part of its alignment with the 2018 Code, the following operational and administrative framework is in place. and administrative framework is in place. 1. Enhanced Board engagement with the workforce and wider stakeholders 1. Enhanced Board engagement with the workforce and wider stakeholders The 2018 Code recommends that the Board should consider wider stakeholder views, in particular The 2018 Code recommends that the Board should consider wider implementing arrangements for gathering the views of the workforce. The 2018 Code permits stakeholder views, in particular implementing arrangements for a designated Non-Executive Director to fill this role and in 2019 the Board designated Dave gathering the views of the workforce. The 2018 Code permits a Coplin for this role. The purpose of this appointment under the 2018 Code is to gather employee designated Non-Executive Director to fill this role and in 2019 the Board 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 designated Dave Coplin for this role. The purpose of this appointment the Companys remuneration policy. This commenced in FY 2019 with Dave Coplin being introduced under the 2018 Code is to gather employee views, ensure employee to those executive managers who could help ensure that meetings and site visits were effective. views are taken into account in Board discussions and decision-making, Progress has continued to date, and is back on track post the disruption caused in prior years and engage with the workforce to explain how executive remuneration by the various Covid-related lockdowns. 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. 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 Corporate governance arrangements during FY 2023 In FY 2023 the Board maintained its regular set of scheduled meetings. The details In FY 2023 the Board maintained its regular set of scheduled meetings. of the number of meetings of the Board and the Audit and Remuneration The details of the number of meetings of the Board and the Audit and Committees in the period are set out on page 56. 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 Employee wellbeing arrangements and workplace implications The Company has an established wellbeing strategy that encompasses five pillars of wellbeing: social, The Company has an established wellbeing strategy that encompasses environmental, physical, mental and financial. Within these pillars there are a range of resources five pillars of wellbeing: social, environmental, physical, mental and and tools available for line managers and employees to access, including: 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. 72 Annual Report and Accounts 2023 Mitchells & Butlers plc Governance2. A clear business strategy aligned with a healthy corporate company culture 2. A clear business strategy aligned with a healthy corporate company culture In July 2018 the Financial Reporting Council published Guidance on the Strategic In July 2018 the Financial Reporting Council published ‘Guidance on Report, strengthening the link between the purpose of the Strategic the Strategic Report’, strengthening the link between the purpose of Report and the Directors duty under Section 172 of the Companies the Strategic Report and the Directors’ duty under Section 172 of the Act 2006, to promote the success of the Company. The requirement Companies Act 2006, to promote the success of the Company. The under the Companies Act 2006 is that the Strategic Report must inform requirement under the Companies Act 2006 is that the Strategic Report must inform members of the Company, and help them assess, how the members of the Company, and help them assess, how the Directors have Directors have performed their duty under Section 172 to promote the performed their duty under Section 172 to promote the success of the Company. success of the Company. The revised guidance encourages companies The revised guidance encourages companies to consider the broader to consider the broader matters that may impact upon the performance matters that may impact upon the performance of the Company over the of the Company over the longer term including the interests of wider longer term including the interests of wider stakeholders, and it is now established stakeholders, and it is now established Mitchells & Butlers practice that Mitchells & Butlers practice that strategic proposals put to the Companys strategic proposals put to the Company’s Board meetings include Board meetings include a requirement to consider the Directors a requirement to consider the Directors’ duties under Section 172. duties under Section 172. A detailed explanation of the manner in which A detailed explanation of the manner in which the Board has discharged the Board has discharged its responsibilities under Section 172 is set out its responsibilities under Section 172 is set out in the Compliance in the Compliance Statements on pages 49 and 50. Statements on pages 49 and 50. 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: 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. The specific provisions of Section 172 require Directors to act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole and, in doing so, have regard to the interests of other stakeholders. The specific requirements of Section 172 are that Boards should consider: • the likely consequences of decisions in the long term; • the interests of the Company’s employees; • the fostering of business relationships with suppliers, customers and others; • the impact of the Company’s operations on the community and the environment; • the desirability of the Company maintaining a reputation for high standards of business conduct; and • the need to act fairly as between members of the Company. The 2018 Code specifically requires that the Board should understand the views of the Company’s key stakeholders (including employees, suppliers, customers and others) and keep stakeholder engagement mechanisms under review so they remain effective. The 2018 Code also recommends that there should be regular reporting as to how the Board has complied with this engagement approach in its decision-making processes and how the interests of different shareholders have been considered. The 2018 Code sets out a series of aspects to be taken into account in demonstrating the Board has complied with its Section 172 responsibilities. These are listed below, together with Company procedures which align Mitchells & Butlers’ corporate behaviour with the spirit and values of the 2018 Code and how the Board has employed its oversight of the Company’s purpose. This purpose is set out in more detail in the Strategic Report. Details of how the Board achieves these are given in the Strategic Report on pages 14 to 54. c. Training and awareness c. Training and awareness There is an induction process for all Directors on appointment and the Group General There is an induction process for all Directors on appointment and the Counsel and Company Secretary is available to all Directors, whether of Group General Counsel and Company Secretary is available to all the Company or any of the subsidiaries, for consultation and guidance on matters Directors, whether of the Company or any of the subsidiaries, for consultation and guidance on matters of governance in relation to any of governance in relation to any aspects of the affairs of any part of the Group. aspects of the affairs of any part of the Group. As circumstances or new As circumstances or new areas develop, whether in the operations of the areas develop, whether in the operations of the business or externally, business or externally, appropriate training will be considered to ensure that appropriate training will be considered to ensure that each Director is each Director is involved in decision-making and oversight with the benefit of involved in decision-making and oversight with the benefit of the correct the correct amount of knowledge as to what is relevant for consideration. 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 d. Information Board paper procedures now contain specific references to the factors referred Board paper procedures now contain specific references to the factors to in Section 172 of the Companies Act 2006, so they can be brought referred to in Section 172 of the Companies Act 2006, so they can be to the Boards attention where appropriate. brought to the Board’s attention where appropriate. a. Culture a. Culture Mitchells & Butlers has in place a set of PRIDE values of Passion, Respect, Innovation, Mitchells & Butlers has in place a set of PRIDE values of Passion, Respect, Drive and Engagement which underpin its key priorities of People, Practices, Innovation, Drive and Engagement which underpin its key priorities of Profits and Guests. The Board observes these PRIDE values in discharging People, Practices, Profits and Guests. The Board observes these PRIDE its everyday responsibilities and considering decisions and proposals values in discharging its everyday responsibilities and considering decisions and proposals and encourages all levels of the organisation and encourages all levels of the organisation to do so. to do so. b. Strategy b. Strategy In demonstrating that the Board is promoting the success of the Company and In demonstrating that the Board is promoting the success of the Company and taking decisions with regard to their long-term impact, the Board taking decisions with regard to their long-term impact, the Board must ensure must ensure it has in place, and regularly reviews, its agreed strategy. it has in place, and regularly reviews, its agreed strategy. e. Policies and processes e. Policies and processes The business has an existing comprehensive suite of policies and processes The business has an existing comprehensive suite of policies and across a wide spectrum of its operations and practices and these processes across a wide spectrum of its operations and practices and are updated, revised and re-communicated regularly. these are updated, revised and re-communicated regularly. f. Stakeholder engagement f. Stakeholder engagement Engagement with the workforce is addressed above and engagement Engagement with the workforce is addressed above and engagement with guests with guests is dealt with through the Guest Health initiatives and this is is dealt with through the Guest Health initiatives and this is explained in explained in our Value Creation story on pages 26 to 29. Engagement our Value Creation story on pages 26 to 29. Engagement with key, critical suppliers with key, critical suppliers is addressed through the supplier is addressed through the supplier segmentation tiering process where segmentation tiering process where we consult with suppliers on a we consult with suppliers on a regular basis. This varies from monthly interaction regular basis. This varies from monthly interaction to annual reviews, to annual reviews, depending on where the supplier appears on the depending on where the supplier appears on the Company’s tier 1 to tier Companys tier 1 to tier 4 ranking (which is a multi-factor process involving 4 ranking (which is a multi-factor process involving criticality, volume, criticality, volume, spend size and availability of substitute products). spend size and availability of substitute products). Mitchells & Butlers plc Annual Report and Accounts 2023 73 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Corporate governance statement continued 3. Board composition and diversity 3. Board composition and diversity a. Board composition 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 The Board is currently comprised of nine members whose biographies are outlined on pages 60 and 61. These are the Chairman, Chief Executive and Directors and three Non-Executive Directors. Two independent Non-Executive Directors, representing 22% of the Boards Directors, are female, one of whom (Jane Moriarty) is also the Chief Financial Officer, three independent Non-Executive Directors and three Non-Executive Directors. Two independent Non-Executive Directors, 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). 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. Number of senior positions on the Board (CEO, CFO, SID and Chair) 3 1 Percentage of the Board 78 22 Number in executive management 7 3 Percentage of executive management 70 30 Gender identity and sex Number of Board members Men Women Ethnic background Number of Board members Number of Board members White British or other White (including minority-white groups) White British or other White (including minority-white groups) Mixed/Multiple Ethnic Groups Mixed/Multiple Ethnic Groups Asian/Asian British Asian/Asian British Black/African/Caribbean/Black British Black/African/Caribbean/Black British Other ethnic group, including Arab Other ethnic group, including Arab Not specified/prefer not to say Not specified/prefer not to say 100 blank blank blank blank blank Percentage of the Board Number of senior Number of senior positions on the positions Board (CEO, CFO, SID and Chair) on the 4 4 Board (CEO, – blank CFO, SID – blank and Chair) blank – blank – – blank Percentage of the Board 100 – – – – – Number in executive Number in management executive management 10 – – – – – Percentage of Percentage executive of executive management management 100 100 – blank – blank blank – blank – – blank 10 blank blank blank blank blank b. Board diversity 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 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 strengths’ through their appointments and succession planning. The purpose is to ensure that there is a balance of views from different genders and with good oversight of all relevant factors. 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 & Butlers plc Governance4. Proportionate executive remuneration 4. Proportionate executive remuneration This is dealt with on pages 113 and 114 of the Report on Directors’ This is dealt with on pages 113 and 114 of the Report on Directors remuneration. remuneration. 1. Chairmans tenure (Provision 19) 1. Chairman’s tenure (Provision 19) Provision 19 of the 2018 Code states: Provision 19 of the 2018 Code states: Corporate governance Corporate governance The Board is committed to high standards of corporate governance. The Board considers The Board is committed to high standards of corporate governance. that the Company has complied throughout the year ended 30 September The Board considers that the Company has complied throughout the 2023 with all the Provisions and best practice guidance of the 2018 Code year ended 30 September 2023 with all the Provisions and best practice except certain specific aspects related to Chairmans tenure, Board composition, guidance of the 2018 Code except certain specific aspects related to the constitution of a Board Committee, a Board effectiveness review Chairman’s tenure, Board composition, the constitution of a Board and executive pension contributions. This Corporate Governance Statement Committee, a Board effectiveness review and executive pension contributions. This Corporate Governance Statement addresses the addresses the areas where, for reasons specific to Mitchells & Butlers, areas where, for reasons specific to Mitchells & Butlers, there are there are divergences from the 2018 Code as described below. 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 Compliance with the Code Except for the matters which are explained below (in line with the comply or explain Except for the matters which are explained below (in line with the concept), the Company complied fully with the Principles and Provisions ‘comply or explain’ concept), the Company complied fully with the of the 2018 Code throughout the financial period in respect of which Principles and Provisions of the 2018 Code throughout the financial this statement is prepared (and continues to do so as at the date of this statement). 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 Explanation for non-compliance with parts of the Code The current Board consists of the two Executive Directors and the Chairman, the three Independent The current Board consists of the two Executive Directors and the Non-Executive Directors and three representative directors of the Odyzean Group which Chairman, the three Independent Non-Executive Directors and three holds approximately 57% of the issued share capital. The Board does not currently intend to change representative directors of the Odyzean Group which holds approximately this arrangement and believes that, despite not strictly complying with the 2018 Code, the current 57% of the issued share capital. The Board does not currently intend to structure strengthens corporate governance as it is both representative of the Companys shareholder base and demonstrates the Odyzean Groups ongoing commitment and support to the change this arrangement and believes that, despite not strictly complying overall strategy and management of the Company. 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. “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) 2. Composition of the Board (Provision 11) Throughout the year, Provision 11 of the 2018 Code, which requires that Throughout the year, Provision 11 of the 2018 Code, which requires that at least at least half the board, excluding the chair, should be non-executive half the board, excluding the chair, should be non-executive directors whom directors whom the board considers to be independent, was not the board considers to be independent, was not complied with. Accordingly, complied with. Accordingly, this had consequential implications on the this had consequential implications on the composition of the Remuneration composition of the Remuneration Committee. 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 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance 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 3. Constitution of Committees Throughout FY 2023, the Company had (and continues to have) fully functioning Throughout FY 2023, the Company had (and continues to have) fully Nomination, Audit and Remuneration Committees as required by functioning Nomination, Audit and Remuneration Committees as the 2018 Code. required by the 2018 Code. Remuneration Committee (Code Provision 32) Remuneration Committee (Code Provision 32) The Remuneration Committee is not fully compliant with the relevant Provisions The Remuneration Committee is not fully compliant with the relevant of the 2018 Code. Provision 32 of the 2018 Code specifies that the Remuneration Provisions of the 2018 Code. Provision 32 of the 2018 Code specifies Committee should consist of independent Non-Executive Directors that the Remuneration Committee should consist of independent and the Remuneration Committee included the presence of a representative Non-Executive Directors and the Remuneration Committee included the of a major shareholder who is a member of the Odyzean Group. presence of a representative of a major shareholder who is a member of As set out on page 63, under the terms of the Deed of Appointment between the Odyzean Group. As set out on page 63, under the terms of the Deed the Company and Piedmont, Piedmont is entitled to have a Director attend, of Appointment between the Company and Piedmont, Piedmont is entitled to have a Director attend, and receive all the papers relating to, and receive all the papers relating to, meetings of the Remuneration Committee. meetings of the Remuneration Committee. The Board has, in the The Board has, in the circumstances, agreed that Mr Levy should be circumstances, agreed that Mr Levy should be a member of the a member of the Committee. The Board has carefully considered the implications Committee. The Board has carefully considered the implications of this of this arrangement and has concluded that it constitutes a valid exception arrangement and has concluded that it constitutes a valid exception under the comply or explain regime of the 2018 Code, in that the 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, shareholder concerned is committed to the progression and growth of has made a substantial financial commitment and is fully supportive the Company, has made a substantial financial commitment and is fully of the Groups strategy. All the shareholder representatives have significant supportive of the Group’s strategy. All the shareholder representatives commercial and financial experience and make a substantial contribution have significant commercial and financial experience and make a to the Committees and the Group remains fully committed to working substantial contribution to the Committees and the Group remains fully with them on matters affecting the Group and its activities in the future. committed to working with them on matters affecting the Group and its activities in the future. 4. Board Effectiveness Review (Provision 21) 4. Board Effectiveness Review (Provision 21) As reported on page 59, the Chairman has kept the skills, contributions and experience of the Board As reported on page 59, the Chairman has kept the skills, contributions members under close review throughout FY 2023. 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. Board composition Board composition The Board started the year with nine Directors and the table on page 77 lists the 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 composition of the Board during the year. There were no changes to the Board to the Board during FY 2023. No further significant changes to the during FY 2023. No further significant changes to the leadership and oversight leadership and oversight of the Group by its Board and its Committees of the Group by its Board and its Committees are currently being considered. are currently being considered. The Board The Board The Board is responsible to all stakeholders, including its shareholders, for the strategic direction, The Board is responsible to all stakeholders, including its shareholders, development and control of the Group. It approves strategic plans and annual capital and for the strategic direction, development and control of the Group. revenue budgets. It reviews significant investment proposals and the performance of past investments It approves strategic plans and annual capital and revenue budgets. and maintains oversight, supervision and control of the Groups operating and financial It reviews significant investment proposals and the performance of past performance. It monitors the Groups overall system of internal controls, governance and investments and maintains oversight, supervision and control of the 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 Group’s operating and financial performance. It monitors the Group’s have been reserved for the main Board. 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. 5. Executive pension contributions (Code provision 38) 5. Executive pension contributions (Code provision 38) The Company is not yet fully compliant with Provision 38 of the 2018 Code which The Company is not yet fully compliant with Provision 38 of the 2018 sets out that pension contribution rates for executive directors should be Code which sets out that pension contribution rates for executive aligned with those available to the wider workforce. As detailed on page 90, directors should be aligned with those available to the wider workforce. the Company has put in place a phased strategy to address this non-compliance, 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 pursuant to which any increase in the base pay of Executive Directors base pay of Executive Directors will be entirely offset by an equivalent will be entirely offset by an equivalent reduction in their cash equivalent reduction in their cash equivalent pension contributions until such pension contributions until such pension contributions are aligned with pension contributions are aligned with the wider workforce. Full the wider workforce. Full compliance with Provision 38 is therefore expected compliance with Provision 38 is therefore expected to be achieved to be achieved during FY 2024, at which time the pension allowance during FY 2024, at which time the pension allowance paid to all Executive paid to all Executive Directors is expected to have reduced to 4%, in Directors is expected to have reduced to 4%, in line with the wider line with the wider workforce. This is consistent with the approach the Company workforce. This is consistent with the approach the Company has has previously communicated in its remuneration policy, which was approved previously communicated in its remuneration policy, which was by shareholders in 2021. approved by shareholders in 2021. 76 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceDirectors The following were Directors of the Company during the year ended 30 September 2023: Date appointed Role Directors who served Directors who served during the year during year Bob Ivell Bob Ivell Bob Ivell Bob Ivell Bob Ivell Amanda Brown Amanda Brown Keith Browne (Nominated Keith Browneb Dave Coplin shareholder Dave Coplin Eddie Irwinb Eddie Irwin (Nominated representative Tim Jones Tim Jones shareholder of Elpida) Josh Levy (Nominated Josh Levyc representative shareholder Jane Moriarty Jane Moriarty of Elpida) Jane Moriarty representative Phil Urban Phil Urban of Piedmont) Independent Non-Executive Director (Independent while in the Independent Non-Executive Directora Interim Chairman (Independent while in the role specified) Interim Chairmana role specified.) Executive Chairman Executive Chairman Non-Executive Chairman Non-Executive Chairman Independent Non-Executive Director Independent Non-Executive Director Non-Executive Director Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Non-Executive Director Non-Executive Director Chief Financial Officer Chief Financial Officer Non-Executive Director Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Senior Independent Director Senior Independent Director Chief Executive Chief Executive 09/05/11 14/07/11 26/10/11 12/11/12 04/07/22 22/09/16 29/02/16 21/03/12 18/10/10 13/11/15 27/02/19 25/01/22 27/09/15 Date appointed 09/05/11 14/07/11 26/10/11 12/11/12 04/07/22 22/09/16 29/02/16 21/03/12 18/10/10 13/11/15 27/02/19 25/01/22 27/09/15 Date of change Date of change of role of role 14/07/11 14/07/11 26/10/11 26/10/11 12/11/12 12/11/12 blank – blank – blank – blank – – blank blank – blank – 25/01/22 25/01/22 – blank – blank 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 two female Directors and there were no changes during the year, meaning that at the year end, the Board consisted of seven male and two female Directors. Division of responsibilities between Chairman and Chief Executive Division of responsibilities between Chairman and Chief Executive In accordance with Provision 9 of the 2018 Code, the roles of Chairman and Chief In accordance with Provision 9 of the 2018 Code, the roles of Chairman Executive should not be exercised by the same individual. and Chief Executive should not be exercised by the same individual. The Executive Directors have service contracts. The Chairman and each of the Non-Executive Directors have letters of appointment. Copies of the respective service contracts or letters of appointment of all the members of the Board are available on the Company’s website. In addition, they are available for inspection at the registered office of the Company during normal business hours and at the place of the Annual General Meeting from at least 15 minutes before, and until the end of, the meeting. At the Company’s forthcoming Annual General Meeting in 2024, all the Directors will be required to stand for annual re-election, in accordance with the Company’s Articles of Association. Their biographical details as at 29 November 2023 are set out on pages 60 and 61, including their main commitments outside the Company. In addition, Provision 18 of the 2018 Code requires that the papers accompanying the resolutions to elect or re-elect directors, set out the specific reasons why the individual director’s contribution is, and continues to be, important to the Company’s long-term sustainable success and this information is included in the Notice of Meeting. The division of responsibilities between the Chairman and the Chief Executive is clearly established as required by Principle G of the 2018 Code and these are set out in writing and have been agreed by the Board. In particular, it has been agreed in writing that the Chairman shall be responsible for running the Board and shall provide advice and assistance to the Chief Executive. He also chairs the Nomination Committee, is a member of the Remuneration Committee and attends, by invitation, meetings of the Audit Committee. He also chairs the Market Disclosure Committee, Corporate Responsibility Committee, the Property Committee and the Pensions Committee. It is also agreed in writing that the Chief Executive has responsibility for all aspects of the Group’s overall commercial, operational and strategic development. He chairs the Executive Committee (details of which appear on page 80) and attends the Nomination, Remuneration and Audit Committees by invitation, not necessarily for the entirety of such meetings depending upon the subject matter. He is also a member of the Market Disclosure Committee, the Property Committee and the Pensions Committee. Provision 15 of the 2018 Code states that full-time executive directors should not take on more than one non-executive directorship in a FTSE 100 company or other significant appointments. The Mitchells & Butlers policy is that Executive Directors may be permitted to accept one external Non-Executive Director appointment with the Board’s prior approval and as long as this is not likely to lead to conflicts of interest. During FY 2023, neither of the Executive Directors held any such external directorship, nor did they hold any other significant appointments, as a director or otherwise, and that remains the case as at the date of this Annual Report. The segregation of responsibilities between the Chairman and the Chief Executive is set out in the Company’s Corporate Governance Compliance Statement, which is available on our website, www.mbplc.com. All other Executive Directors (currently just the Chief Financial Officer) and all other members of the Executive Committee report to the Chief Executive. Mitchells & Butlers plc Annual Report and Accounts 2023 77 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Corporate governance statement continued Chairman Chairman Provision 9 of the 2018 Code provides that the Chairman should, on appointment, meet the independence Provision 9 of the 2018 Code provides that the Chairman should, on criteria set out in Provision 10 of the 2018 Code. Bob Ivell met these independence criteria appointment, meet the independence criteria set out in Provision 10 of on appointment. the 2018 Code. Bob Ivell met these independence criteria on appointment. 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. 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. 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. Chief Executive Chief Executive Phil Urban was appointed Chief Executive on 27 September 2015. He has responsibility Phil Urban was appointed Chief Executive on 27 September 2015. for implementing the strategy agreed by the Board and for the executive He has responsibility for implementing the strategy agreed by the Board and for the executive management of the Group. management of the Group. Senior Independent Director Senior Independent Director Jane Moriarty was appointed Senior Independent Director on 25 January Jane Moriarty was appointed Senior Independent Director on 25 January 2022. 2022. Board information and training Board information and training All Directors are briefed by the use of comprehensive papers circulated All Directors are briefed by the use of comprehensive papers circulated in advance in advance of Board meetings and by presentations at those meetings, in of Board meetings and by presentations at those meetings, in addition to addition to receiving minutes of previous meetings. Their understanding receiving minutes of previous meetings. Their understanding of the Groups business of the Group’s business is enhanced by business specific presentations is enhanced by business specific presentations and operational visits to and operational visits to the Group’s businesses. Separate strategy the Groups businesses. Separate strategy meetings and meetings with senior meetings and meetings with senior executives and representatives of executives and representatives of specific functions, brands or business units specific functions, brands or business units are also held throughout are also held throughout the year. the year. 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. 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. 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 Non-Executive Directors The Company has experienced Non-Executive Directors on its Board. 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. Independent advice Independent advice Members of the Board may take independent professional advice in the Members of the Board may take independent professional advice in the furtherance furtherance of their duties and the Board has agreed a formal process for of their duties and the Board has agreed a formal process for such such advice to be made available. 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 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. www.mbplc.com Audit Committee Audit Committee Details of the Audit Committee and its activities during the year are included Details of the Audit Committee and its activities during the year are in the Audit Committee report on pages 84 to 87 which is incorporated included in the Audit Committee report on pages 84 to 87 which is by reference into this statement. incorporated by reference into this statement. Remuneration Committee Remuneration Committee Details of the Remuneration Committee and its activities during the year are included Details of the Remuneration Committee and its activities during the year in the Report on Directors remuneration on pages 88 to 118. Amanda are included in the Report on Directors’ remuneration on pages 88 to 118. Brown was appointed Chair of the Remuneration Committee on her appointment Amanda Brown was appointed Chair of the Remuneration Committee to the Board on 4 July 2022. on her appointment to the Board on 4 July 2022. 78 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceNomination Committee Nomination Committee The Nomination Committee is responsible for nominating, for the approval of the The Nomination Committee is responsible for nominating, for the Board, candidates for appointment to the Board. It is also responsible for succession approval of the Board, candidates for appointment to the Board. It is also responsible for succession planning for the Board and the Executive planning for the Board and the Executive Committee and reviewing the Committee and reviewing the output of the Board effectiveness review. output of the Board effectiveness review. In compliance with the disclosure requirements In compliance with the disclosure requirements of Provision 23 of the of Provision 23 of the 2018 Code, there is an ongoing process of review 2018 Code, there is an ongoing process of review of the make-up of the of the make-up of the Board and for Board succession, which is carried out Board and for Board succession, which is carried out by the Nomination by the Nomination Committee and led by the Chairman. The Nomination Committee Committee and led by the Chairman. The Nomination Committee engages external search agencies when required and ensures that all engages external search agencies when required and ensures that all candidates are identified and assessed against pre-determined criteria. Gender candidates are identified and assessed against pre-determined criteria. balance is dealt with by the Nomination Committee on a regular basis and Gender balance is dealt with by the Nomination Committee on a includes assessment of gender balance at senior management level. regular basis and includes assessment of gender balance at senior management level. 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. The following were members of the Nomination Committee during the year: Person Bob Ivell (Chair) Amanda Brown Dave Coplin Eddie Irwin Jane Moriarty Appointment date 11/07/13 04/07/22 29/02/16 11/07/13 27/02/19 Member at 30/09/23 Yes Yes Yes Yes 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. Progress against the policy: Progress against the policy: The Board continues to monitor progress against this policy. In terms of Board diversity, at the start The Board continues to monitor progress against this policy. In terms of and end of FY 2023 there were nine Board directors, of which two were female (22%). Any future Board diversity, at the start and end of FY 2023 there were nine Board appointments will always be made on merit and will continue to take into account diversity, not directors, of which two were female (22%). Any future appointments will only in terms of gender, but also in terms of the appropriate mix of skills and experience. The assessment always be made on merit and will continue to take into account diversity, of the composition of the Board and its Committees and the Chairmans tenure should not only in terms of gender, but also in terms of the appropriate mix of be considered in the context of the explanation already set out under the heading of Board composition and diversity on page 74. 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. 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. A detailed description of the duties of the Nomination Committee is set out within its terms of A detailed description of the duties of the Nomination Committee reference which can be viewed at is set out within its terms of reference which can be viewed at www.mbplc.com/investors/business-conduct/board-committees/ 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 Diversity and Inclusion Steering Group and Board Diversity Policy The Company has a Diversity and Inclusion Steering Group which examines the The Company has a Diversity and Inclusion Steering Group which implementation of diversity within the Group. As referred to on page 74, Dave examines the implementation of diversity within the Group. As referred Coplin has been identified by the Board as the Director with responsibility to on page 74, Dave Coplin has been identified by the Board as the for oversight of the Companys Diversity and Inclusion arrangements. Director with responsibility for oversight of the Company’s Diversity and Inclusion arrangements. Market Disclosure Committee Market Disclosure Committee The EU Market Abuse Regulation (MAR) which took effect in July 2016, brought The EU Market Abuse Regulation (‘MAR’) which took effect in July 2016, about substantial changes relating to announcements of material information brought about substantial changes relating to announcements of about the Company and its affairs, and relating to dealings in shares or material information about the Company and its affairs, and relating to other securities by Directors and other senior managers, including tighter controls dealings in shares or other securities by Directors and other senior on permitted dealings during closed periods and the handling of information managers, including tighter controls on permitted ‘dealings’ during closed periods and the handling of information relating to the Company. relating to the Company. MAR requires companies to keep a list of people MAR requires companies to keep a list of people affected and the affected and the previous compliance regime and timeframe were enhanced. 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. 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: Statement: The Board recognises the benefits of diversity. Diversity of skills, background, The Board recognises the benefits of diversity. Diversity of skills, knowledge, international and industry experience, and gender, amongst background, knowledge, international and industry experience, and many other factors, will be taken into consideration when seeking to gender, amongst many other factors, will be taken into consideration when seeking to appoint a new Director to the Board. Notwithstanding appoint a new Director to the Board. Notwithstanding the foregoing, all Board the foregoing, all Board appointments will always be made on merit. appointments will always be made on merit. Corporate Responsibility Committee 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. 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 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Corporate governance statement continued Property Committee Property Committee The Property Committee reviews property transactions which have The Property Committee reviews property transactions which have been reviewed been reviewed and recommended by the Portfolio Development and recommended by the Portfolio Development Committee, without Committee, without the need for submission of transactions to the full the need for submission of transactions to the full Board. The Property Committee Board. The Property Committee agrees to the overall strategic direction agrees to the overall strategic direction for the management of the Groups for the management of the Group’s property portfolio on a regular basis property portfolio on a regular basis and may decide that a particular and may decide that a particular transaction should be referred to the transaction should be referred to the Board for consideration or approval. Board for consideration or approval. The Property Committee comprises The Property Committee comprises Bob Ivell (Committee Chair), Phil Bob Ivell (Committee Chair), Phil Urban, Tim Jones, Josh Levy, Keith Urban, Tim Jones, Josh Levy, Keith Browne, Jane Moriarty, Amanda Brown Browne, Jane Moriarty, Amanda Brown and Gary John. and Gary John. Portfolio Development Committee Portfolio Development Committee The executive review of property transactions and capital allocation to significant The executive review of property transactions and capital allocation to property matters such as site remodel and conversion plans and the significant property matters such as site remodel and conversion plans Companys real estate strategy is carried out by the Portfolio Development and the Company’s real estate strategy is carried out by the Portfolio Committee. This is not a formal Board Committee but comprises Development Committee. This is not a formal Board Committee but the Chief Executive, the Chief Financial Officer, the Group Property comprises the Chief Executive, the Chief Financial Officer, the Group Director, and the Group General Counsel and Company Secretary. It has Property Director, and the Group General Counsel and Company Secretary. It has delegated authority to approve certain transactions delegated authority to approve certain transactions up to agreed financial limits up to agreed financial limits and, above those authority levels, it makes and, above those authority levels, it makes recommendations to the Board recommendations to the Board or the Property Committee. or the Property Committee. Pensions Committee Pensions Committee The Board has established a Pensions Committee to supervise and manage The Board has established a Pensions Committee to supervise and the Companys relationship with its various pension schemes and manage the Company’s relationship with its various pension schemes their trustees. and their trustees. The Pensions Committee members are Bob Ivell (Committee Chair), Tim Jones, Phil Urban, Keith Browne and Josh Levy. Throughout FY 2023 the work of the Pensions Committee focused primarily on the monitoring of the performance of the Group’s pensions arrangements including the Mitchells & Butlers Pension Plan moving to a full buy-in transaction during the year. Pension deficit contributions in respect of this plan ceased at the end of FY 2023. 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. Treasury Committee Treasury Committee The treasury operations of the Mitchells & Butlers Group are operated on a centralised The treasury operations of the Mitchells & Butlers Group are operated basis under the control of the Group Treasury department. Although on a centralised basis under the control of the Group Treasury department. not a formal Board Committee, the Treasury Committee, which reports Although not a formal Board Committee, the Treasury Committee, to the Chief Financial Officer but is subject to oversight from the Audit Committee which reports to the Chief Financial Officer but is subject to oversight from the Audit Committee and, ultimately, the Board, has day-to-day and, ultimately, the Board, has day-to-day responsibility for: responsibility for: liquidity management; investment of surplus cash; • • • funding, cash and banking arrangements; • • guarantees, bonds, indemnities and any financial encumbrances interest rate and currency risk management; including charges on assets; and • relationships with banks and other market counterparties such as credit rating agencies. Executive Committee Executive Committee The Executive Committee, which is chaired by the Chief Executive, consists of the The Executive Committee, which is chaired by the Chief Executive, Executive Directors and certain other senior executives, namely Gary John (Group consists of the Executive Directors and certain other senior executives, Property Director), Susan Martindale (Group HR Director), Andrew Freeman namely Gary John (Group Property Director), Susan Martindale (Group (Group General Counsel and Company Secretary), Chris Hopkins (Commercial HR Director), Andrew Freeman (Group General Counsel and Company Secretary), Chris Hopkins (Commercial and Marketing Director) and and Marketing Director) and Susan Chappell, David Gallacher, Dennis Susan Chappell, David Gallacher, Dennis Deare and Anna-Marie Mason Deare and Anna-Marie Mason (the Divisional Directors). Dennis Deare, Divisional (the Divisional Directors). Dennis Deare, Divisional Director for Director for Premium, has made the decision to retire at the end of December Premium, has made the decision to retire at the end of December 2023 2023 and Anna-Marie Mason will take on the Divisional Director role for and Anna-Marie Mason will take on the Divisional Director role for Premium Division as of 1 January 2024. A process to appoint Anna- Maries Premium Division as of 1 January 2024. A process to appoint Anna- successor to her current role in Pubs Division is underway. Marie’s successor to her current role in Pubs Division is underway. The Treasury Committee also works closely with the Finance Department to review the impact of changes in relevant accounting practices and to ensure that treasury activities are disclosed appropriately in the Company’s accounts. The Board delegates the monitoring of treasury activity and compliance to the Treasury Committee. It is responsible for monitoring the effectiveness of treasury policies and making proposals for any changes to policies or in respect of the utilisation of new instruments. The approval of the Board, or a designated committee thereof, is required for any such proposals. The Executive Committee ordinarily meets at least every four weeks and has day-to-day responsibility for the running of the Group’s business. It develops the Group’s strategy and annual revenue and capital budgets for Board approval. It reviews and recommends to the Board any significant investment proposals. This Committee monitors the financial and operational performance of the Group and allocates resources within the budgets agreed by the Board. It considers employment issues, ensures the Group has an appropriate pool of talent and develops senior management workforce planning and succession plans. A note of the actions agreed by, and the principal decisions of, the Executive Committee, is supplied to the Board for information in order that Board members can keep abreast of operational developments. General Purposes Committee General Purposes Committee The General Purposes Committee comprises any two Executive The General Purposes Committee comprises any two Executive Directors or any Directors or any one Executive Director together with a senior officer one Executive Director together with a senior officer from an agreed and restricted from an agreed and restricted list of senior executives. It is always list of senior executives. It is always chaired by an Executive Director. chaired by an Executive Director. It attends to business of a routine It attends to business of a routine nature and to administrative matters, nature and to administrative matters, the principles of which have been the principles of which have been agreed previously by the Board or an agreed previously by the Board or an appropriate Committee. appropriate Committee. Code of ethics Code of ethics The Company has implemented business conduct guidelines describing the standards The Company has implemented business conduct guidelines describing of behaviour expected from those working for the Company in the form the standards of behaviour expected from those working for the of a code of ethics (the Ethics Code). The Ethics Code was re-communicated Company in the form of a code of ethics (the ‘Ethics Code’). The Ethics to all employees in FY 2023 to ensure it was kept clearly in Code was re-communicated to all employees in FY 2023 to ensure it was focus. Its aim is to promote honest and ethical conduct throughout our business. kept clearly in focus. Its aim is to promote honest and ethical conduct The Ethics Code requires: throughout our business. The Ethics Code requires: • compliance with all applicable rules and regulations that apply to the Company and its officers including compliance with the requirements of the Bribery Act 2010; • the ethical handling of actual or apparent conflicts of interest between internal and external, personal and professional relationships; and • that any hospitality from suppliers must be approved in advance by appropriate senior management, with a presumption against its acceptance. 80 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceThe Company takes a zero tolerance approach to bribery and has developed an extensive Bribery Policy which is included in the Ethics Code. The Ethics Code requires employees to comply with the Bribery Policy. The Company also offers an independently-administered, confidential whistleblowing hotline for any employee wishing to report any concern that they feel would be inappropriate to raise with their line manager. All whistleblowing allegations are reported to, and considered by, the Executive Committee and a summary report (with details of any major concerns) is supplied to, and considered by, the Audit Committee at each of its meetings. Principle E and Provision 6 of the 2018 Code require the Board to be clear how its approach to whistleblowing has changed from an Audit Committee-led approach to a Board-led approach. Although the Audit Committee continues to receive regular reports on whistleblowing activity, each set of full Board papers also includes, as part of the report from the Group Risk Director, the number and assessment of any whistleblowing reports received and, where relevant, the actions taken in respect of reports which are, on investigation, found to be credible. The Board takes regular account of social, environmental and ethical matters concerning the Company through regular reports to the Board and presentations to the Board at its strategy meetings. Directors’ training includes environmental, social and governance (‘ESG’) matters and the Company Secretary is responsible for ensuring that Directors are made aware of and receive regular training in respect of these important areas. The Chief Executive, Phil Urban, is ultimately responsible for ESG matters, which includes climate change reporting, which is dealt with in the next section. Climate change reporting Climate change reporting 1. Reporting 1. Reporting Current mandatory reporting and disclosure requirements: The Task Force on Climate-related Financial Current mandatory reporting and disclosure requirements Disclosures (TCFD) was established by the Financial Stability Board in 2015 and published The Task Force on Climate-related Financial Disclosures (‘TCFD’) was its final report in June 2017. The report sets out 11 recommended disclosures under four established by the Financial Stability Board in 2015 and published its final pillars to promote better disclosure and these are set out below: report in June 2017. The report sets out 11 recommended disclosures under four pillars to promote better disclosure and these are set out below: TCFD: four recommendations and eleven recommended disclosures TypeGovernance Recommendations Recommendations Governance Disclose the organisation’s governance around climate- related risks and opportunities (‘CRO’). Strategy Disclose the actual and potential impacts of CRO on the organisation’s businesses, strategy, and financial planning where such information is material. Risk Management Disclose how the organisation identifies, assesses and manages climate-related risks. Metrics and Targets Disclose the metrics and targets used to assess and manage relevant CRO where such information is material. Recommended (a) Describe the Boards oversight of CRO. Disclosures Recommended Disclosures (a) Describe the Board’s oversight of CRO. (a) Describe the CRO the organisation has identified over the short, medium and long term. a) Describe the organisation’s processes for identifying and assessing climate-related risks. (b) Describe management’s role in assessing and managing CRO. (b) Describe the impact of CRO on the organisation’s businesses, strategy and financial planning. (b) Describe the organisation’s processes for managing climate-related risks. blank (c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. (c) Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s overall risk management. (a) Disclose the metrics used by the organisation to assess CRO in line with its strategy and risk management process. (b) Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas (‘GHG’) emissions and the related risks. (c) Describe the targets used by the organisation to manage CRO and performance against targets. 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 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Corporate governance statement continued Listing Rule: Climate-related disclosure Listing Rule 9.8.6R(8) is a continuing Listing Rule obligation for premium listed companies in annual reports for periods Climate-related disclosure Listing Rule 9.8.6R(8) is a continuing obligation for premium listed companies in annual reports for periods commencing on or after 1 January 2021 and thereafter, and requires commencing on or after 1 January 2021 and thereafter, and requires companies to disclose: companies to disclose: • whether they have made disclosures consistent with the four recommendations and 11 recommended disclosures set out in section C of the TCFD Final Report in their annual financial report; • where these disclosures can be found in the annual report; and • a ‘comply or explain’ obligation to explain: – if they have not included disclosures consistent with all of the TCFD’s recommendations and/or recommended disclosures, which disclosures they have not included and the reasons for not including them; and/or – why they have included some or all of the disclosures in a document other than their annual report. Where not all required TCFD disclosures have been provided, in addition to explaining why, the annual report also needs to explain: • the timeframe for compliance; and • the steps the company is taking or plans to take to achieve compliance. Institutional investor requirements: Institutional investors expect all listed companies Institutional investor requirements to be reporting against all four TCFD pillars and want those disclosures Institutional investors expect all listed companies to be reporting against all four TCFD pillars and want those disclosures to be meaningful and will to be meaningful and will be instructing their clients accordingly in be instructing their clients accordingly in relation to voting. They also relation to voting. They also expect companies to include a statement in their expect companies to include a statement in their annual report that the annual report that the directors have considered material climate-related directors have considered material climate-related matters when matters when preparing and signing-off the companys accounts. preparing and signing-off the company’s accounts. 2. Actions being taken by the Company 2. Actions being taken by the Company Executive ownership: The Board tasked Phil Urban with spearheading the Companys Executive ownership approach to tackling climate change reporting across the organisation The Board tasked Phil Urban with spearheading the Company’s approach to tackling climate change reporting across the organisation since he also chairs the Executive Committee so can ensure focus since he also chairs the Executive Committee so can ensure focus at at Executive Committee level. Executive Committee level. Strategy: The Board is mindful of the business impacts relevant to the sector, Strategy and due consideration of such is included when considering changes The Board is mindful of the business impacts relevant to the sector, and due consideration of such is included when considering changes made across the business in relation to climate change obligations. made across the business in relation to climate change obligations. Going forward, this important issue will continue to form part Going forward, this important issue will continue to form part of the of the considerations taken into account by the Board when it is evaluating considerations taken into account by the Board when it is evaluating strategic decision and investment priorities. Capital expenditure strategic decision and investment priorities. Capital expenditure proposals submitted to the Board include appropriate details proposals submitted to the Board include appropriate details on on such aspects. such aspects. Risk and scenario analysis: During FY 2022, the Company developed a rigorous climate change Risk and scenario analysis scenario impact analysis. In FY 2023 we reassessed all of the climate related risks identified During FY 2022, the Company developed a rigorous climate change in the FY 2022 process, as well as an analysis of any emerging risks. The established scenario impact analysis. In FY 2023 we reassessed all of the climate risk assessment framework was used to assess the materiality of climate risks. There related risks identified in the FY 2022 process, as well as an analysis of were no changes to the identified principal climate risks as a result of this process. The Audit any emerging risks. The established risk assessment framework was Committee is tasked with ensuring it is satisfied that the scenarios are sufficiently challenging, diverse and relevant, and also ensuring through this process and the Risk Committee used to assess the materiality of climate risks. There were no changes to that its risk monitoring activity appropriately addresses climate change risks for the Company. the identified principal climate risks as a result of this process. The Audit Further details are set out on pages 36 to 40 of the Strategic Report. Committee is tasked with ensuring it is satisfied that the scenarios are sufficiently challenging, diverse and relevant, and also ensuring through this process and the Risk Committee that its risk monitoring activity appropriately addresses climate change risks for the Company. Further details are set out on pages 36 to 40 of the Strategic Report. Information, reporting and assurance: The Board considers it good practice to Information, reporting and assurance assess whether climate-related management information is robust and fit for The Board considers it good practice to assess whether climate-related management information is robust and fit for purpose. Pages 36 to 40 of purpose. Pages 36 to 40 of the Strategic Report set out the extent to which the Strategic Report set out the extent to which the Group relies on the Group relies on external data, and the emissions table on page 69 external data, and the emissions table on page 69 of the Directors’ report of the Directors report relies on external expertise, which is reviewed internally, relies on external expertise, which is reviewed internally, and that is and that is considered by the Board to be reliable and credible. considered by the Board to be reliable and credible. The Risk Committee considers the findings of reporting reviews such as the FRC’s climate change thematic review and FY 2023 has involved changes to annual report processes and reporting. An internal audit was carried out in 2022 in respect of those Company metrics which are subject to internal review and oversight. There is currently no external assurance to which the Company’s metrics are subjected, but this aspect is being actively considered by the Risk Committee. The Board is responsible for the Company’s internal risk management system, in respect of which more details can be found in the ‘Risks and uncertainties’ section of this report, and in the following section of this statement. Internal control and risk management: The Board has carried out a robust assessment Internal control and risk management of the Companys emerging and principal risks. The Board has The Board has carried out a robust assessment of the Company’s completed its assessment, and has presented a description of its principal emerging and principal risks. The Board has completed its assessment, and has presented a description of its principal risks, what procedures risks, what procedures are in place to identify emerging risks, and are in place to identify emerging risks, and an explanation of how these an explanation of how these are being managed or mitigated, on pages are being managed or mitigated, on pages 41 to 47. 41 to 47. The Board has overall responsibility for the Group’s system of internal control and risk management and for reviewing its effectiveness. In order to discharge that responsibility, the Board has established the procedures necessary to apply the 2018 Code for the period under review and to the date of approval of the Annual Report. Such procedures are in line with the Financial Reporting Council’s ‘Guidance on Risk Management, Internal Control and Related Financial and Business Reporting’ and are regularly reviewed by the Audit Committee. Governance: Climate change issues are discussed at Board level and the Board Governance has specifically requested the Corporate Responsibility Committee to focus Climate change issues are discussed at Board level and the Board has specifically requested the Corporate Responsibility Committee to focus on ESG/sustainability matters. The Companys required climate response/transformation on ESG/sustainability matters. The Company’s required climate is a feature of agendas, with priority being given to ensuring response/transformation is a feature of agendas, with priority being enough time is dedicated to the discussion. The Corporate Responsibility given to ensuring enough time is dedicated to the discussion. The Committee approved, and recommended to the Board, the Groups Corporate Responsibility Committee approved, and recommended to sustainability roadmap through which it identified and agreed how to the Board, the Group’s sustainability roadmap through which it identified manage climate-related issues. These initiatives were first addressed in FY and agreed how to manage climate-related issues. These initiatives were 2022 when TCFD compliance became compulsory for the Company and is first addressed in FY 2022 when TCFD compliance became compulsory ongoing. for the Company and is ongoing. i. The key features of the Group’s internal control and risk management systems include: Processes, including monitoring by the Board, in respect of: • Processes, including monitoring by the Board, in respect of: financial performance within a comprehensive financial planning, accounting and reporting framework; ii. strategic plan achievement; iii. capital investment and asset management performance, with detailed appraisal, authorisation and post-investment reviews; and iv. consumer insight data and actions to assess the evolution of brands and formats to ensure that they continue to be appealing and relevant to the Group’s guests. 82 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceIn accordance with the 2018 Code, during the year the Audit Committee completed (and reported to the Board its conclusions in respect of) its annual review of the effectiveness of the Group’s risk management and internal control systems, including financial, operational and compliance controls. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and, as such, it can only provide reasonable and not absolute assurance against material misstatement or loss. In that context, in the opinion of the Audit Committee, the review did not indicate that the system was ineffective or unsatisfactory. To the extent that weaknesses in internal controls were identified, the Audit Committee reviewed the audit findings, together with the remedial action plans that were put in place, and sought confirmation that all actions were closed out in a timely manner. Through this process, material audit findings were presented to the Audit Committee, the necessary follow-up reviews were completed and the results were reported to the Audit Committee, to ensure appropriate mitigation plans had been actioned. Please refer to the Audit Committee report, on pages 84 to 87. The Audit Committee is not aware of any change to this status up to the date of approval of this Annual Report. With regard to insurance against risk, it is not practicable to insure against every risk to the fullest extent. The Group regularly reviews both the type and amount of external insurance that it buys with guidance from an external independent broker, bearing in mind the availability of such cover, its cost and the likelihood and magnitude of the risks involved and the mitigation which insurance might provide. An overall governance framework including: • An overall governance framework including: clearly defined delegations of authority and reporting lines; i. ii. a comprehensive set of policies and procedures that employees are required to follow; and iii. the Group’s Ethics Code, in respect of which an annual confirmation of compliance is sought from all corporate employees. The Risk Committee, a sub-committee of the Executive Committee, which assists the Board, the • The Risk Committee, a sub-committee of the Executive Committee, Audit Committee and the Executive Committee in managing the processes for identifying, evaluating, which assists the Board, the Audit Committee and the Executive monitoring and mitigating risks. The Risk Committee, which continues to meet regularly, Committee in managing the processes for identifying, evaluating, is chaired by the Group General Counsel and Company Secretary and comprises Executive monitoring and mitigating risks. The Risk Committee, which Committee members and other members of senior management from a cross-section continues to meet regularly, is chaired by the Group General Counsel of functions. and Company Secretary and comprises Executive Committee members and other members of senior management from a cross-section of functions. The primary responsibilities of the Risk Committee are to: The primary responsibilities of the Risk Committee are to: i. advise the Executive Committee on the Company’s overall risk appetite and risk strategy, taking account of the current and prospective operating, legal, macroeconomic and financial environments; ii. advise the Executive Committee on the current and emerging risk exposures of the Company in the context of the Board’s overall risk appetite and risk strategy; iii. promote the management of risk throughout the organisation; iv. review and monitor the Company’s capability and processes to identify and manage risks; v. consider the identified key risks faced by the Company and new and emerging risks and consider the adequacy of mitigation plans in respect of such risks; and vi. where mitigation plans are regarded to be inadequate, recommend improvement actions. The Group’s risks identified by the processes that are managed by the Risk Committee, are described in the ‘Risks and uncertainties’ section on pages 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. • 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 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Audit Committee report On behalf of the Board, I present the report of the “On behalf of the Board, I present the report of the Audit Committee for the financial period ended Audit Committee for the financial period ended 30 September 2023.” 30 September 2023. Jane Moriarty Chair Jane Moriarty of the Audit Committee Chair of the Audit Committee Introduction Introduction During recent years, as the purpose and effectiveness During recent years, as the purpose and of external and internal audit procedures effectiveness of external and internal audit procedures came under increasing public came under increasing public scrutiny, the scrutiny, the Committee has ensured it has Committee has ensured it has maintained an appropriate maintained an appropriate level of engagement level of engagement with the Chief Financial with the Chief Financial Officer and the Group Officer and the Group Risk Director, other key Risk Director, other key individuals and their individuals and their teams who collectively provide teams who collectively provide an appreciation an appreciation and rigorous insight into how and rigorous insight into how the Group the Group functions and reports. The Committee functions and reports. The Committee is very is very grateful for the insight these interactions grateful for the insight these interactions provide and this, in turn, significantly assists provide and this, in turn, significantly assists the Committee in executing its oversight role the Committee in executing its oversight role and ensuring confidence in reporting to the wider and ensuring confidence in reporting to the Board. wider Board. Engagement with external auditors, internal auditors Engagement with external auditors, and other third- party advisers internal auditors and other third- party advisers The Committee continued to engage formally, regularly and at an The Committee continued to engage formally, appropriate level of detail with our external auditors, internal regularly and at an appropriate level of detail auditors (also externally resourced) and other third- party with our external auditors, internal auditors advisers as necessary. This has enabled the Committee to (also externally resourced) and other third- maintain an appropriate understanding of how our auditors and party advisers as necessary. This has enabled advisers interact and test our comprehensive risk functions. The Committees engagement during the auditing and the Committee to maintain an appropriate advisory process enables it to convey confidence in their collective understanding of how our auditors and fieldwork conclusions. advisers interact and test our comprehensive risk functions. The Committee’s engagement during the auditing and advisory process enables it to convey confidence in their collective fieldwork conclusions. Effectiveness of internal controls and Group assurance Effectiveness of internal controls and and risk function Group assurance and risk function The above efforts provided the Committee with a clear and detailed The above efforts provided the Committee understanding of the principal financial and operational risks with a clear and detailed understanding of the throughout the period (please also refer to the Groups risks principal financial and operational risks and uncertainties, detailed on pages 41 to 47). The Committee throughout the period (please also refer to the continued to focus on challenging the effectiveness of Group’s risks and uncertainties, detailed on internal controls, the robustness of assurance and risk management processes and in assessing the importance of, and pages 41 to 47). The Committee continued to acting as required upon, all reported information received from focus on challenging the effectiveness of internal our external and internal auditors and third-party advisers. controls, the robustness of assurance and risk management processes and in assessing the importance of, and acting as required upon, all reported information received from our external and internal auditors and third-party advisers. The Committee remains committed to maintaining an open and constructive dialogue on relevant audit matters with all shareholders. Therefore, should you have any comments or questions on any aspects of this report, or indeed the wider financial statements, may I respectfully ask you to please email myself, care of Adrian Brannan, Group Risk Director, at company.secretariat@mbplc.com company.secretariat@mbplc.com The Committee also ensured that the Group provided adequate resources to ensure that any additional non-audit services required during the year were obtained, where necessary, and the Financial Reporting Council’s (‘FRC’) evolving reporting requirements were adhered to. 84 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceRemit and membership of the Audit Committee Remit and membership of the Audit Committee The main purpose of the Audit Committee is to review and maintain oversight of The main purpose of the Audit Committee is to review and maintain the Groups corporate governance, particularly with respect to financial reporting, oversight of the Group’s corporate governance, particularly with respect internal control and risk management. The Audit Committees responsibilities to financial reporting, internal control and risk management. The Audit also include: Committee’s responsibilities also include: The Audit Committee is authorised by the Board to review any activity within the business. It is authorised to seek any information it requires from, and require the attendance at any of its meetings of, any Director, any member of management and any employees, who are expected to co-operate with any request made by the Audit Committee. The Audit Committee is authorised by the Board to obtain, at the Group’s expense, external legal or other independent professional advice and secure the attendance of outsiders with relevant experience and expertise, if it considers this necessary. The Chair of the Audit Committee reports to the Board meeting following each Committee meeting on the Committee’s work and the Board receives a copy of the minutes of each meeting. The role and responsibilities of the Audit Committee are to: • review the Group’s public statements on internal control, risk management and corporate governance compliance; • review the Group’s processes for detecting fraud, misconduct and control weaknesses and to consider the Group’s response to any such occurrence; • review management’s evaluation of any change in internal controls over financial reporting; • review with management, and the external auditor, Group financial statements required under UK legislation before submission to the Board; • establish, review and maintain the role and effectiveness of the internal audit function, Group Assurance and the risk function, whose objective is to provide independent assurance over the Group’s significant processes and controls, including those in respect of the Group’s principal risks; • assume direct responsibility for the appointment, compensation, resignation, dismissal and the overseeing of the external auditor, including review of the external audit, its cost and effectiveness; • pre-approve non-audit work to be carried out by the external auditor and the fees to be paid for that work, together with the monitoring of the external auditor’s independence; • oversee the process for dealing with complaints received by the Group regarding accounting, internal accounting controls or auditing matters and any confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and • adopt and oversee a specific Code of Ethics for all employees which is consistent with the Group’s overall statement of business ethics. • reviewing the processes for detecting fraud, misconduct and internal control weaknesses; • reviewing the effectiveness of the Group Assurance function; and • overseeing the relationship with the external and internal auditors and other third-party advisers. At the date of the 2023 Annual Report, the Audit Committee comprised three independent Non-Executive Directors: Jane Moriarty (Chair), Amanda Brown and Dave Coplin. In accordance with 2018 Code Provision 24 the Board considers that Jane Moriarty has significant, recent and relevant financial experience. Biographies of all of the members of the Audit Committee, including a summary of their respective experience, appear on pages 60 and 61. The Audit Committee met at least quarterly during FY 2023. In each case, appropriate papers were distributed to the Committee members and other invited attendees, including, where and to the extent appropriate, representatives of the external audit firm, the internal Group Assurance function and other third-party advisers. When appropriate, the Audit Committee augments the skills and experience of its members with advice from internal and external audit professionals, for example, on matters such as developments in financial reporting. Audit Committee meetings are also attended, by invitation, by other members of the Board including the Chairman, the Chief Executive and the Chief Financial Officer, the Group General Counsel and Company Secretary, the Group Risk Director and representatives of the external auditor, KPMG LLP. The Audit Committee also has the opportunity to meet privately with the external auditor not less than twice a year, without any member of management present, in relation to audit matters. The remuneration of the members of the Audit Committee is set out in the Report on Directors’ remuneration on page 115. Summary terms of reference Summary terms of reference A copy of the Audit Committees terms of reference is publicly available within the Investor section A copy of the Audit Committee’s terms of reference is publicly available of the Groups website: within the Investor section of the Group’s website: www.mbplc.com/ www.mbplc.com/pdf/audit_committee_terms.pdf 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 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Audit Committee report continued Key activities of the Audit Committee Key activities of the Audit Committee Audit matters are reviewed at quarterly Audit Committee meetings throughout the year at which detailed Audit matters are reviewed at quarterly Audit Committee meetings reports are presented for review. The Audit Committee commissions reports from external advisers, throughout the year at which detailed reports are presented for review. the Group Risk Director or Group management, either after consideration of the Groups The Audit Committee commissions reports from external advisers, the key risks or in response to developing issues. 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 Disclosure of significant and other judgements The Audit Committee has reviewed the key judgements applied in the The Audit Committee has reviewed the key judgements applied in the preparation preparation of the consolidated financial statements, which are described of the consolidated financial statements, which are described in the in the relevant accounting policies and detailed notes to the consolidated relevant accounting policies and detailed notes to the consolidated financial financial statements on pages 133 to 185. statements on pages 133 to 185. • 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 Effectiveness of internal audit The Audit Committee is responsible for monitoring and reviewing the effectiveness The Audit Committee is responsible for monitoring and reviewing the of the Groups internal audit function. The Audit Committee meets effectiveness of the Group’s internal audit function. The Audit Committee regularly with management and with the Group Risk Director and the internal meets regularly with management and with the Group Risk Director and auditor to review the effectiveness of internal controls and risk management the internal auditor to review the effectiveness of internal controls and and receives reports from the Group Risk Director on a quarterly risk management and receives reports from the Group Risk Director on basis. 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: 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. • 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 GovernanceAs 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: Risk management framework 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: External auditors independence External auditor’s independence The external auditor should not provide non-audit services where it might impair The external auditor should not provide non-audit services where it their independence or objectivity to do so. The Audit Committee has established might impair their independence or objectivity to do so. The Audit a policy to safeguard the independence and objectivity of the Groups Committee has established a policy to safeguard the independence and external auditor. That policy was reviewed in FY 2023 and a copy of it objectivity of the Group’s external auditor. That policy was reviewed in is appended to the Audit Committees terms of reference and is available on FY 2023 and a copy of it is appended to the Audit Committee’s terms of the Groups website. reference and is available on the Group’s website. • 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 Confidential reporting The Groups whistleblowing policy enables staff, in confidence, to raise concerns about possible The Group’s whistleblowing policy enables staff, in confidence, to raise improprieties in financial and other matters and to do so without fear of reprisal. Details of concerns about possible improprieties in financial and other matters and the policy are set out in the Groups Code of Ethics. The Audit Committee receives quarterly reports to do so without fear of reprisal. Details of the policy are set out in the on whistleblowing incidents and remains satisfied that the procedures in place are satisfactory Group’s Code of Ethics. The Audit Committee receives quarterly reports to enable independent investigation and follow up action of all matters reported. The Board on whistleblowing incidents and remains satisfied that the procedures also receives a report on whistleblowing in the Group General Counsel and Company Secretarys regular report to Board meetings. 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 External auditor appointment Following shareholder and Board approval, KPMG LLP was appointed as the auditor Following shareholder and Board approval, KPMG LLP was appointed as in 2022, following a formal tender process in 2020 to ensure the continued the auditor in 2022, following a formal tender process in 2020 to ensure objectivity, independence and value for money of the statutory audit. the continued objectivity, independence and value for money of the KPMG LLP is therefore responsible for undertaking the FY 2023 audit. 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. 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 External audit annual assessment The Audit Committee assesses annually the qualification, expertise, resources The Audit Committee assesses annually the qualification, expertise, and independence of the Groups external auditor and the overall resources and independence of the Group’s external auditor and the effectiveness of the audit process. The Chief Financial Officer, Group overall effectiveness of the audit process. The Chief Financial Officer, General Counsel and Company Secretary, Audit Committee Chair and Group General Counsel and Company Secretary, Audit Committee Group Risk Director meet with the external auditor to discuss the audit, significant Chair and Group Risk Director meet with the external auditor to discuss risks and any key issues included on the Audit Committees agenda the audit, significant risks and any key issues included on the Audit during the year. 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 Fair, balanced and understandable statement One of the key governance requirements of the Annual Report and Accounts is for the report and accounts, One of the key governance requirements of the Annual Report and taken as a whole, to be fair, balanced and understandable, and that they provide the information Accounts is for the report and accounts, taken as a whole, to be fair, necessary for shareholders to assess the Groups position, performance, business model balanced and understandable, and that they provide the information and strategy. Therefore, upon review of the financial statements, the Audit Committee and the necessary for shareholders to assess the Group’s position, performance, Board have confirmed that they are satisfied with the overall fairness, balance and clarity of the business model and strategy. Therefore, upon review of the financial Annual Report and Accounts, which is underpinned by the following: 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 Jane Moriarty Committee, 29 November 2023 Chair of the Audit Committee 29 November 2023 Mitchells & Butlers plc Annual Report and Accounts 2023 87 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Report on Directors’ remuneration I am pleased to present the Directors Remuneration Report in respect of the financial “I am pleased to present the Directors’ Remuneration Report in respect of the period which ended on 30 September 2023. This includes our revised remuneration financial period which ended on 30 September 2023. This includes our revised remuneration policy which is aligned with our purpose and strategy, showing policy which is aligned with our purpose and strategy, showing the importance the importance we place on delivering exceptional financial performance whilst we place on delivering exceptional financial performance whilst also making also making progress for the benefit of all our stakeholders.” progress for the benefit of all our stakeholders. Amanda Brown, Chair of the Amanda Brown Remuneration Committee Chair of the Remuneration Committee Dear Shareholder, Dear Shareholder, I am pleased to present this years Directors Remuneration I am pleased to present this year’s Directors’ Report on behalf of the Remuneration Remuneration Report on behalf of the Committee (the Committee). This Remuneration Committee (‘the Committee’). year the report introduces our new remuneration This year the report introduces our new policy and how it will be implemented. The remuneration policy and how it will be implemented. The report also provides context report also provides context and insight into our pay and insight into our pay arrangements for arrangements for Executive Directors and Non-Executive Executive Directors and Non-Executive Directors, including the assessment of Directors, including the assessment of FY 2023 FY 2023 performance and pay. performance and pay. As the year progressed, the Board was very encouraged by trading over the first half of the year. Our broad portfolio of brands and locations meant that we were well placed to capitalise on the return to office working, city centres becoming stronger, tourist numbers recovering and guests across the country continuing to enjoy the hospitality sector. The new remuneration policy will be put forward for shareholder consideration and a binding vote at the 2024 AGM whilst the remuneration report, describing how the current policy was put into practice during FY 2023 and how the new policy will be implemented in FY 2024, will be put to an advisory vote at the 2024 AGM. Background and business context Background and business context At the beginning of the financial year, external market At the beginning of the financial year, external conditions across the UK hospitality industry were market conditions across the UK hospitality very uncertain with real fears of a downturn in consumer industry were very uncertain with real fears of confidence as a result of the cost of living a downturn in consumer confidence as a result crisis and unprecedented cost headwinds, notably of the cost of living crisis and unprecedented from food, utilities and wages, which in total were cost headwinds, notably from food, utilities and expected to be c. ﾣ175m as we headed into FY wages, which in total were expected to be 2023. c. £175m as we headed into FY 2023. Like-for-like sales continued to grow further as the year progressed, Like-for-like sales continued to grow further as the with performance strong across our portfolio of brands, year progressed, with performance strong across and ended up over the year at a record high of 9.1%. This our portfolio of brands, and ended up over the performance has been driven by volume and spend per head year at a record high of 9.1%. This performance growth in both food and drink, and importantly extended our has been driven by volume and spend per head outperformance against the market across the full year to 2.7% (As measured vs the Coffer CGA Business Tracker), our best growth in both food and drink, and importantly ever market performance over a financial year. extended our outperformance against the market across the full year to 2.7%a, our best ever market performance over a financial year. Performance has therefore been well ahead of expectations, with Performance has therefore been well ahead our Adjusted Operating Profit(The Directors use a number of expectations, with our Adjusted Operating of alternative performance measures (APMs) that Profitb over the year surpassing our targets are considered critical to aid the understanding of the Groups and requiring upgrades during the year to performance. Key measures are explained on pages consensus. This has also been reflected in our 192 to 195 of this report) over the year surpassing our targets and requiring upgrades during the year to consensus. This share price which increased by more than 50% has also been reflected in our share price which increased over the course of the financial year. This is an by more than 50% over the course of the financial year. outstanding achievement and could only be This is an outstanding achievement and could only be achieved achieved because of the hard work and because of the hard work and commitment from all our commitment from all our employees. employees. Importantly, the excellent financial performance has been alongside very good results across our scorecard of non-financial measures, with record Employee Engagement and Guest Health scores, and strong safety performance. We have consistently proven the link between employee engagement, Guest Health and like-for-like sales growth and this correlation can clearly be seen in this year’s performance. I am also pleased that we continue to make good progress against our sustainability targets (Net Zero by 2040, zero operational waste to landfill by 2030 and to reduce food waste by 50% by 2030). Notable highlights this year include 97% of our operational waste being diverted from landfill and a 25% reduction in food waste from the FY 2019 baseline. Overall, our emissions have reduced by 11% from the 2019 baseline. Going forward we remain focused on executing the drivers of this strong performance, including our Ignite programme of growth and efficiency initiatives and our capital investment programme which, combined with our diverse portfolio of established brands and enviable estate locations, leaves us well positioned to continue to outperform the sector. 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 GovernanceRemuneration in FY 2023 Remuneration in FY 2023 Annual Bonus Annual Bonus Financial measures Adjusted Operating Profit (outcome 70% out of 70%): Financial measures – Adjusted Operating Profit (outcome 70% Financial targets were set against a backdrop of a highly uncertain environment out of 70%) with a wide range of macroeconomic factors, including rising inflation Financial targets were set against a backdrop of a highly uncertain and increases in food and energy costs coupled with a cost of living environment with a wide range of macroeconomic factors, including crisis that would impact on the spending power of consumers across the rising inflation and increases in food and energy costs coupled with economy. 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. Final Bonus Outcome Final Bonus Outcome In determining the final bonus outcome, the Committee considered the wider performance In determining the final bonus outcome, the Committee considered the of the Group across the entire financial year as part of its overall quality wider performance of the Group across the entire financial year as part of earnings assessment. The outcome is reflective of strong over-performance, of its overall quality of earnings assessment. The outcome is reflective in particular with sales improving as the year progressed. 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. 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. FY 2021 RSP Vesting FY 2021 RSP Vesting During FY 2021, share awards were made to Phil Urban and Tim Jones During FY 2021, share awards were made to Phil Urban and Tim Jones under under the Restricted Share Plan (‘RSP’) to the value of 100% of their the Restricted Share Plan (RSP) to the value of 100% of their respective respective salaries. salaries. 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%) Non-financial measures – (outcome 25% out of 30%) The non-financial measures encompass Guest Health, Employee Engagement The non-financial measures encompass Guest Health, Employee Engagement and Food Safety, and form an important part of the annual and Food Safety, and form an important part of the annual incentive incentive plan. Bonus can only be earned if 97.5% of the Adjusted plan. Bonus can only be earned if 97.5% of the Adjusted Operating Operating Profit target is achieved. Profit target is achieved. 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. 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. 2023 Remuneration Policy Review 2023 Remuneration Policy Review The end of the current three year policy is approaching and shareholders will be The end of the current three year policy is approaching and shareholders asked to vote on a new policy at the 2024 AGM. 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 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Shareholder consultation Shareholder consultation As mentioned earlier, we were pleased to engage directly with a significant majority of our shareholders As mentioned earlier, we were pleased to engage directly with a during the consultation process, as well as with the proxy agencies. The Committee significant majority of our shareholders during the consultation process, is grateful to our shareholders who have taken the time to consider the proposals, speak as well as with the proxy agencies. The Committee is grateful to our with us and provide valuable feedback. We have taken the feedback on board throughout shareholders who have taken the time to consider the proposals, speak the consultation process and note that the final proposals reflect changes as a result of with us and provide valuable feedback. We have taken the feedback on this consultation. 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 Remuneration for FY 2024 Fixed Pay (Base Pay, Pensions and Benefits) Fixed Pay (Base Pay, Pensions and Benefits) In reviewing Executive Director salaries, the Committee took account In reviewing Executive Director salaries, the Committee took account of market of market positioning and the level of increases applied to Executive positioning and the level of increases applied to Executive Directors in other Directors in other organisations, but most importantly felt that the organisations, but most importantly felt that the increases applied to Executives increases applied to Executives should be below that of other colleagues should be below that of other colleagues and especially those in frontline and especially those in frontline positions. 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 Annual Bonus The Committee believes that the annual bonus scheme for FY 2023 was successful The Committee believes that the annual bonus scheme for FY 2023 was in driving the right behaviours across the business, and as such has determined successful in driving the right behaviours across the business, and as that the annual bonus scheme for FY 2024 will be unchanged other than such has determined that the annual bonus scheme for FY 2024 will be an amendment to the safety element which will now encompass all four areas unchanged other than an amendment to the safety element which will of safety performance that are measured across the business, rather than now encompass all four areas of safety performance that are measured across the business, rather than just focusing on food safety. The maximum just focusing on food safety. The maximum opportunity will remain at 100% opportunity will remain at 100% of salary for our Executive Directors. of salary for our Executive Directors. 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. 90 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceShareholder consultation summary The table below summarises the key remuneration policy discussions and changes following the consultation: Initial Proposal Change from RSP to PSP. At least 50% of the PSP award will be based on the achievement of financial measures, the remainder based on non-financial, strategic or ESG measures. The PSP would have an exceptional maximum award of 250% Shareholder Feedback Overall support for a return to a PSP, but given the change is happening after one policy cycle some shareholders wanted reassurance that the change was intended to be for the long term. Some shareholders were concerned that there could be an overweighting on non-financial elements, and asked if it was ever likely that measures would have such a weighting towards non-financial, strategic or ESG measures in practice. Shareholders asked if the use of the exceptional maximum would be subject to consultation. Executive Directors’ Pension Contributions to align to that of the wider workforce. Alignment of Clawback and Malus Provisions to latest FRC guidance. Increased Executive Director Shareholding requirements introduced alongside the RSP to be retained. Noted and welcomed by shareholders. Noted and welcomed by shareholders. Noted and welcomed by shareholders. Response I hope that our disclosure makes clear that the move to an RSP was in response to a specific event. We do not anticipate any future switch back to an RSP. The intention of the Policy was to provide the flexibility, if required, to rebalance the weighting of financial and non-financial performance measures, including strategic or ESG measures, ahead of each grant to best reflect the strategic priorities of the business. Having considered the feedback provided the Committee changed the policy so that at least 70% of awards will be assessed against financial measures. It was confirmed to shareholders that the policy wording included a commitment to consult if this maximum was to be used, other than in 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. Alignment to the workforce average of 4% will be achieved in January 2024. The trigger events have been updated to include payments based on erroneous or misleading data. The shareholding requirement for the CEO remains at 250% of salary and 200% for other Executive Directors. Performance Share Plan (PSP) award FY 2024 to FY 2026 Performance Share Plan (‘PSP’) award FY 2024 to FY 2026 A PSP award is due to be made in respect of the FY 2024-FY 2026 performance A PSP award is due to be made in respect of the FY 2024-FY 2026 period. This will be the first PSP under the new plan. performance period. This will be the first PSP under the new plan. In conclusion, I hope that the contents of this letter demonstrate that during the year we have engaged constructively with our major shareholders, 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 performance targets with the associated upside and downside potential of awards compared with RSP. When considering the overall level of remuneration for the Executive Directors and factors such as their role and experience, as well as opportunity levels at companies of comparable size and complexity, the Committee concluded that a normal maximum of 200% of salary results in an appropriate positioning. This also results in an incentive mix which is significantly weighted towards long-term performance, which the Committee believes is critical during this stage of our business recovery and aligns to our overall strategy. The Committee undertook a thorough review of the performance measures that will apply to the first awards to be granted under the new 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 on reduction in Scope 1, 2 & 3 emissions. Full details of the proposed performance measures and targets for the first awards are set out on page 112. Alongside the review of policy, we are confident as a committee that the existing remuneration policy has been implemented responsibly and in a manner which supports and recognises the very strong performance which the business has delivered during FY 2023, whilst being cognisant of the wider economic context including appropriate governance considerations. My aim as Committee Chair is to engage constructively with shareholders seeking to balance the interests of all key stakeholders including our employees, customers and suppliers. I very much hope that this letter and the remainder of the remuneration report demonstrate this commitment to a high-quality dialogue. I look forward to your continued engagement and hope you will join the Board in supporting our FY 2023 outcomes and the proposed remuneration policy at the 2024 AGM. Amanda Brown, Chair of the Remuneration Amanda Brown Committee, 29 November 2023 Chair of the Remuneration Committee 29 November 2023 Mitchells & Butlers plc Annual Report and Accounts 2023 91 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance 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 Chief Executive (£’000) £1,925 Tim Jones Chief Financial Officer (£’000) £1,570 £382 £613 £89 £15 £624 £91 £15 £760 £146 £89 £16 £879 £423 £91 £16 £807 £182 £64 £15 £552 £40 £15 £624 £76 £14 £553 £70 £15 £509 2016 £518 2017 £509 2018 £516 2019 £468 2020 £534 2021 £546 2022 £581 2023 £515 £75 £15 £425 2016 £526 £76 £16 £434 2017 £638 £122 £75 £16 £425 2018 £1,392 £514 £354 £76 £16 £432 2019 £1,318 £320 £462 £34 £16 £486 2023 £465 £59 £15 £391 2020 £524 £63 £14 £447 2021 £677 £152 £53 £15 £457 2022 Mitchells & Butlers’ remuneration principles When determining Executive Director remuneration policy, the Remuneration Committee addresses each of the factors under Provision 40 of the 2018 UK Corporate Governance Code and these are also reflected in our principles: Straightforward Straightforward The remuneration structure is simple to understand for participants and shareholders and is aligned The remuneration structure is simple to understand for participants and to the strategic priorities of the business. shareholders and is aligned to the strategic priorities of the business. Shareholder alignment Shareholder alignment A high proportion of reward is delivered in the form of equity, ensuring Executives A high proportion of reward is delivered in the form of equity, ensuring have strong alignment with shareholders. Executives have strong alignment with shareholders. Competitive Competitive Providing reward that promotes the long-term success of the business whilst Providing reward that promotes the long-term success of the business enabling the attraction, retention and motivation of high-calibre senior Executives. whilst enabling the attraction, retention and motivation of high-calibre senior Executives. Performance-linked Performance-linked 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. A significant proportion of an Executive Directors reward is linked to performance, with a clear line of sight between the outcomes of the business and the delivery of shareholder value. These same principles apply throughout the organisation and are adapted as appropriate for specific employee groups with a different emphasis on certain principles in comparison to Executive Directors. This is illustrated in the table on page 96 which sets out remuneration below Executive Director level. For senior management, a much greater proportion of the overall reward package is performance-linked and therefore is variable and at risk, whereas for our hourly paid colleagues a greater weighting applies to the competitive and straightforward principles as these factors are more important to the attraction and retention of these employees. 92 Annual Report and Accounts 2023 Mitchells & Butlers plc Governance9.1% Like-for-Like Sales Growth 9.1% Like-for-Like Sales Growth 2.7% Market outperformance over the year Market outperformance over the year 2.7% 4.38 4.38 Record guest review scores Record guest review scores 82.5 Best ever employee engagement score 82.5 Best ever employee engagement score FY 2023 Annual Bonus FY 2023 Annual Bonus The information below summarises the FY 2023 annual bonus performance for our Executive Directors. Type Adjusted operating profit Maximum % 70% Threshold £193.2m Guest health (combined guest review and complaints score, see page 109 for more details) 15% 0 Employee engagement 10% 79.5 Food safety 5% 99.5% Target £203.4m 1 80.5 99.5% Total 100% blank blank blank Maximum Outcome Achieved % 70% (+ ﾣ16.5m ) 70% ﾣ209.5m (Actual: ﾣ226m ) £209.5m + £16.5m Actual: £226m 2 (Actual: 2 ) 2 15% 15% Actual: 2 81.5 (Actual: 82.5 )10% (+ 1 ) 81.5 10% Actual: 82.5 + 1 99.5% (Actual: 98.94% ) 99.5% Actual: 98.94% 0% 95% Appropriateness of remuneration decisions 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 Customers Colleagues Suppliers Shareholders Community Investments in pay and benefits, including the introduction of a team feeding and drinking policy Factors considered by the Committee • Year-on-year improvements in Guest Health Scores • Very strong safety scores • The number of eligible employees receiving a bonus payout in the year • Number of apprentices in learning • • Health and wellbeing initiatives such as upweighted financial wellbeing, focus on menopause awareness • Skills development programmes • Close working relationships maintained during supply chain challenges • Accreditations e.g. Tier 3 Business Benchmark on Farm Animal Welfare rating • 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 • Work with Social Bite • Strategic charity partnership with Shelter Mitchells & Butlers plc Annual Report and Accounts 2023 93 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance 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. Key Element Base pay Policy Increases in line with wider workforce, except for exceptional circumstances. Changes from prior policy No changes Year 2024 2024 2025 2026 2027 2028 Implementation for 2024 Phil Urban: £607,500 Tim Jones: £508,000 In line with FY 2023. Phil Urban: 4% of salary. Tim Jones: 4% of salary. The following maximum opportunities will apply in FY 2024. Phil Urban: 100% of salary. Tim Jones: 100% of salary. The following maximum opportunities will apply in FY 2024. Phil Urban: 200% of salary. Tim Jones: 200% of salary. Phil Urban: 148% Tim Jones: 133% 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. Executive Directors’ contributions aligned with the wider workforce pension rate (currently 4% of salary). No changes 2024 Alignment with wider workforce 2024 Normal maximum of 100% of salary. No changes 2024, 2025 and 2026 Benefits Pension Short-term incentives Long-term incentives At least 50% of performance conditions to be based on financial measures, the remainder based on non-financial or personal business objectives. 50% of the award to be deferred as shares and released in two equal tranches, after 12 and 24 months. Normal maximum of 200% of salary, exceptional maximum of 250% of salary. Performance will be measured over no less than three financial years. 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. Shareholding requirement Shareholding requirement Vesting after three years, with a two-year holding period post-vesting 250% of salary for the CEO; 200% of salary for all other Executive Directors. All Executive Directors are required to maintain shareholding requirements in full for two years post-cessation. 94 Annual Report and Accounts 2023 Mitchells & Butlers plc Change from RSP 2025, 2026, 2027 and 2028 No changes 2024, 2025, 2026, 2027 and 2028 Governance Alignment of Executive pay to strategy The table below sets out how the three strategic priorities of the business align to Executive remuneration: Building a more balanced Building a more balanced business business Strategic priority Strategic priority Strong operating performance supports the Strong operating performance supports the delivery and sustainability of the capital delivery and sustainability of the capital plan and estate optimisation. plan and estate optimisation. Annual Bonus PSP Annual Bonus PSP Yes Yes Link to Executive remuneration Yes Yes Link to Executive remuneration Adjusted Operating Profit delivery is the main component Adjusted Operating Profit delivery is the main component of the annual bonus plan. of the annual bonus plan. Operating Cashflow supports cumulative cash generation to enable Operating Cashflow supports cumulative cash debt repayment whilst EPS incentivises profit generation to enable debt repayment whilst EPS incentivises profit recovery. recovery. The Guest Health element of the annual bonus plan The Guest Health element of the annual bonus plan provides a strong indicator of the success of each provides a strong indicator of the success of each business. There is a clear correlation between strong business. There is a clear correlation between Guest Health performance and sales performance. strong Guest Health performance and sales The engagement element of the annual bonus plan The engagement element of the annual bonus plan performance. measures how our teams feel about working for measures how our teams feel about working for Mitchells & Butlers, and, in turn, the service they Mitchells & Butlers, and, in turn, the service they provide to guests. provide to guests. Adjusted Operating Profit delivery is the main Adjusted Operating Profit delivery is the main component component of the annual bonus plan. of the annual bonus plan. Cash flow is the main component of the PSP. Cash flow is the main component of the PSP. The Guest Health metric quickly demonstrates where The Guest Health metric quickly demonstrates where decisions are right or wrong and Executives are decisions are right or wrong and Executives are incentivised to react. incentivised to react. The employee engagement element of the annual bonus The employee engagement element of the annual bonus plan supports and underpins the development plan supports and underpins the development of culture. of culture. Adjusted Operating Profit delivery is the main Adjusted Operating Profit delivery is the main component component of the annual bonus plan. of the annual bonus plan. Operating Cashflow and EPS make up the majority of the PSP Operating Cashflow and EPS make up the majority of performance assessment. the PSP performance assessment. Yes The Guest Health element of the annual plan provides The Guest Health element of the annual plan provides valuable actionable feedback and incentivises action. valuable actionable feedback and incentivises action. The employee engagement element of the annual The employee engagement element of the annual bonus bonus plan incentivises action to maintain and improve plan incentivises action to maintain and improve employee engagement. employee engagement. Yes Yes Yes Yes Yes A more balanced business delivers brands A more balanced business delivers brands and food and drink offers in an and food and drink offers in an environment environment that guests want to enjoy. that guests want to enjoy. High-quality engaged teams are High-quality engaged teams are fundamental fundamental to the success of to the success of any business. any business. A commercial culture improves controls, A commercial culture improves controls, efficiency, efficiency, purchasing and pricing, driving purchasing and pricing, driving both improved cash flow and operating both improved cash flow and operating performance. performance. Commercial decisions must be guest- focused Commercial decisions must be guest- focused and benefit from the input of and benefit from the input of customer customer feedback. feedback. Developing and evolving a commercial culture Developing and evolving a commercial culture requires high levels of employee requires high levels of employee engagement engagement and business awareness. and business awareness. Innovation at small and large scale is an Innovation at small and large scale is an engine engine for improved sales and, therefore, for improved sales and, therefore, cash and profit generation. cash and profit generation. Guests expectations continue to increase, Guests’ expectations continue to increase, demanding higher standards of service and demanding higher standards of digital capability. service and digital capability. Innovation involves change, and delivery Innovation involves change, and delivery of of change requires strong employee change requires strong employee engagement. engagement. blank blank Yes blank blank Yes blank blank Instilling a more Instilling a more commercial commercial culture culture Driving an Driving an innovation innovation agenda agenda Mitchells & Butlers plc Annual Report and Accounts 2023 95 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance 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: Annual bonus Bonus schemes for all schemes align to the business scorecard. Long-term incentives Measures and targets for long-term incentive plans consistent for all participants. The majority of bonus opportunity is linked to financial performance. BLANK All-employee share plans All employees can participate in any of the all-employee share schemes, subject to qualifying service, building a stake in the business. Our pay approach is aimed at providing regular and predictable earnings through competitive base pay for our retail team members. This is valued more highly than variable pay elements by retail team members and is in line with our ‘competitive’ and ‘straightforward’ remuneration principles. Job Group (Number of employees) Executive Directors (2) Executive Committee (8) Senior management (c. 40) Retail Support Centre (c. 1,080) Retail managers (c. 5,200) Retail team members (c. 39,000) Base pay Pay broadly around mid-market levels. Overall, increases (in percentage terms) consistent across all salaried employee groups. Pay set in line with market requirements and closely monitored. Base pay for many employees is ahead of the statutory minimums. Many employees benefit from tips and service charges, and it is Mitchells & Butlers’ policy to pass 100% of these earnings on to employees. Workforce engagement Workforce engagement We welcome and encourage feedback from employees on a broad range of topics including business improvement, engagement and 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. 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 Outcomes reviewed by the Remuneration Committee and taken into account when setting remuneration policy. The CEO and CFO hold regular roadshows that allow both support centre colleagues and General Managers an opportunity to discuss business issues and provide feedback. Elected representatives have direct access to the Executive Committee as part of the forum and where necessary Executive remuneration matters are brought to the attention of the Remuneration Committee Chair. Overview of pay and policy decisions Committee members are updated on employee terms and conditions and made aware of significant changes to policies and other pay-related matters. Nominated Non-Executive Director A Non-Executive Director (Dave Coplin) has been appointed to engage with employees and report back to the Board. Dave Coplin is a member of the Remuneration Committee. 96 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceAn employee forum is normally held twice every year, which gives an opportunity for employees to ask questions of senior management via elected representatives, and which from FY 2020 has been attended by Dave Coplin. In 2023, two forums were held in March 2023 and September 2023. The Executive team finds these forums very valuable, as the format allows for a more in-depth discussion and understanding that is not possible through other channels such as surveys. In addition, in his role as the nominated Non-Executive Director, Dave Coplin undertakes a number of activities ranging from visits to our businesses to meet and discuss issues with employees, to focus groups with specific employee groups such as Kitchen Managers. Dave meets regularly with members of the Human Resources team and is also supporting the business in how it may utilise technology to better communicate with all employees. The views of employees in relation to Executive remuneration have been sought in the past and this issue was not proved to be an area of interest or concern for employees at this time. Our engagement survey has a section that allows employees to anonymously raise any concerns they may have on any matter, and in 2023 there were over 20,000 comments recorded, none of which related to senior management pay. The Committee will continue to explore how best to engage with employees on this issue. The Committee is regularly updated on pay and conditions applying to Group employees alongside other workforce-related matters. Where significant changes are proposed to employment conditions and policies elsewhere in the Group, or there are important employee- related projects underway, these are highlighted for the attention of the Committee at an early stage. Over the course of FY 2023, these updates have again focused on employee engagement, the significant progress made in addressing the talent shortages following the pandemic, the evolution of our benefits offering to support employees during the cost of living crisis, for example through the introduction of a heavily discounted team feeding offer and the continued focus on evolving our internal training and development routes, which also encompass our apprenticeship programmes. The Committee takes into account the base pay review budget applicable to other employees when considering the pay of Executive Directors. The Committee considers a broad range of reference points when determining policy and pay levels. These include external market benchmarks as well as internal reference points. Any such reference points are set in an appropriate context and are not considered in isolation. Obtaining and understanding the views of our employees, including in relation to Executive Remuneration, is an important consideration for the Committee when developing and operating our overall approach to remuneration across Mitchells & Butlers. In addition to our approach to communicating with our employees, we also welcome feedback and all employees are invited to take part in our employee engagement surveys. These provide all employees with an opportunity to give anonymous feedback on a wide range of topics of interest or concern to them. The Committee reviews these results and any significant concerns over remuneration would be considered separately by the Committee and, if appropriate, taken into account when determining the remuneration approach and its implementation. Mitchells & Butlers plc Annual Report and Accounts 2023 97 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Report on Directors’ remuneration continued Directors’ remuneration policy Introduction 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 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 review of Executive remuneration and has received input from all Board members, with the aim of ensuring it supports the Companys strategic priorities and the interests of our shareholders. months, the Committee has carried out a thorough review of Executive remuneration and has received input from all Board members, with the aim of 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. 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 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 Initial letter sent to major shareholders Shareholder engagement, including follow-up meetings and responding to questions via email Close-out letter sent to broader shareholder population * Including Odyzean Limited Dates July 2023 July – September 2023 October 2023 Investor participation Investor participation* (Including 18 investors Odyzean 12 investors Limited) Share capital represented (Including Share capital represented* Odyzean Limited) 89% 71% 18 investors 89% The principal proxy advisory firms were also consulted throughout the remuneration policy process. Our proposed 2024 remuneration policy Our proposed 2024 remuneration policy As discussed in the Chairs letter, the Committee has concluded that returning to a performance-based long-term incentive plan would deliver stronger alignment As discussed in the Chair’s letter, the Committee has concluded that returning to a performance-based long-term incentive plan would deliver with our strategic objectives. Whilst the trading environment for the hospitality sector remains challenging, the Committee is strongly of the view that stronger alignment with our strategic objectives. Whilst the trading environment for the hospitality sector remains challenging, the Committee is 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 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 its benefits for shareholders. strategy and the realisation of its benefits for shareholders. Therefore, the principal changes proposed are summarised in the table below: Element Long-term incentives Key change Returning to a PSP as our long-term incentive plan. Annual bonus Pension Malus and clawback provisions Commitment to consulting shareholders prior to using the annual bonus exceptional maximum other than in exceptional circumstances, such as recruitment. Alignment of current Executive Directors’ contributions with the wider workforce rate (currently 4% of salary). Circumstances in which recovery provisions may apply updated to include payments based on erroneous or misleading data. Rationale for proposed change Returning to a PSP delivers stronger alignment with the business 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. Provides greater consistency within our policy and greater transparency for shareholders. In line with previous commitments and to align with investor expectations and market best practice. Aligns the trigger events with all of the circumstances listed in the FRC’s Guidance on Board Effectiveness. 98 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernancePolicy table Policy table The table below summarises each element of the remuneration policy applicable to Executive Directors. The information below summarises each element of the remuneration policy applicable to Executive Directors. Base salary 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. Operation To reflect the market value of the role, personal contribution, experience and competence. 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. Opportunity Pensionable. 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. Executive Directors’ performance is a factor considered when determining salaries. Performance metrics Recovery or withholding Performance is reviewed in line with the established performance review process in place across the Group. No recovery or withholding provisions apply. Mitchells & Butlers plc Annual Report and Accounts 2023 99 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance 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. Operation Deferred bonus, awarded in shares, provides a retention element and additional alignment of interests to shareholders. 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. Opportunity Non-pensionable. Currently the normal maximum payment is 100% of salary. Performance metrics Recovery or withholding 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 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 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 GovernanceLong Term Incentive Plan (Performance Share Plan, PSP) Long Term Incentive Plan (Performance Share Plan, ‘PSP’) Purpose and link to strategy Purpose and link to strategy To align the interests of senior Executives with sustained long-term value creation. To align the interests of senior Executives with sustained long-term value creation. Operation 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. To provide an element of retention through and beyond the performance period. Discretionary awards may be made each year, normally taking the form of nil or nominal cost 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. 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. Opportunity Shares, which vest, after the settlement of income tax and National Insurance, must be retained until the relevant shareholding policy is met. The normal maximum annual award is up to 200% of base salary for the CEO and CFO. The normal maximum annual award is up to 200% of base salary for the CEO and CFO. Performance metrics Recovery or withholding 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 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 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 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance 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 Restricted Share Plan Elements of previous Long Term Incentive Plan policy which will continue to apply at all times until the final 2025 award is due to vest in 2025 Purpose and link to strategy Purpose and link to strategy Incentivises participants over the long term to implement the Companys strategy and deliver Incentivises participants over the long term to implement the Company’s strategy and deliver long-term long-term sustained performance. sustained performance. To align the interests of senior Executives with those of shareholders by providing Executives with a material shareholding. Operation To provide an element of retention through and beyond the vesting period. 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. 100% of base salary for the CEO and CFO. 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 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. Opportunity Performance metrics Recovery or withholding Pension (or cash allowance) Purpose and link to strategy Operation Opportunity To provide a market-aligned retirement benefit. Contribution towards a Company or personal pension scheme and/or a cash allowance in lieu of Company pension contributions, or a combination of both. 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. Performance metrics Recovery or withholding Existing Executive Directors are, and new incumbents will be, aligned with the wider workforce. No performance metrics apply. No recovery or withholding provisions apply. 102 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceOther benefits Purpose and link to strategy Operation Opportunity Performance metrics Recovery or withholding Shareholding policy Purpose and link to strategy Operation Opportunity Performance metrics Recovery or withholding To provide competitive and market-aligned benefits to assist in retaining and attracting Executives. 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. 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. No performance metrics apply. 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. To align the interests of the Executive Directors with shareholders and promote a long-term approach to risk management. 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. n/a n/a n/a Mitchells & Butlers plc Annual Report and Accounts 2023 103 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Report on Directors’ remuneration continued Chairman and Non-Executive Director fees Fees Purpose and link to strategy Operation To attract and retain Non-Executive Directors of appropriate calibre and experience. 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. 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. Opportunity Performance metrics Recovery or withholding 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. No performance metrics apply. 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 The Committee selects annual bonus performance measures each year to incentivise Executive Directors to achieve key financial targets and strategic performance measures intended to ensure that Executive Directors are incentivised to deliver across a range of objectives for which they are accountable. 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 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 GovernanceIllustrations of remuneration policy The charts below show an estimate of the remuneration that could The charts below show an estimate of the remuneration that could be received be received by Executive Directors under the proposed new policy. by Executive Directors under the proposed new policy. The charts also The charts also show the impact of a 50% increase in share price on the show the impact of a 50% increase in share price on the LTIP outcome. LTIP outcome. Chief Executive £2,962,800 £2,469,300 19.5% On-target On-target In addition to the minimum, this reflects the amount payable for on-target In addition to the minimum, this reflects the amount payable for on-target performance performance under the short- and long-term incentive plans: under the short- and long-term incentive plans: • 50% of maximum (50% of base salary for the Chief Executive and Chief Financial Officer) is payable under the short-term incentive plan; and • 50% of maximum (100% of base salary for the Chief Executive and Chief Financial Officer) is payable under the PSP. Maximum Maximum In addition to the minimum, maximum payment is achieved under both the short In addition to the minimum, maximum payment is achieved under both and long-term incentive plans such that: the short and long-term incentive plans such that: £1,558,050 49.2% 39.1% £1,570,000 • 100% of base salary is payable under the short-term incentive plan for the Chief Executive and Chief Financial Officer; and 24.3% • 200% of base salary for the Chief Executive and Chief Financial 39.0% 19.5% 41.5% £646,800 100% Minimum On-target Maximum 26.2% 21.9% Maximum +50% Share price gain Long-term incentives Fixed pay Share price gain Short-term incentives 24.6% 19.5% £807,000 22.6% 35.2% 77.4% FY 2022 Actual 40.5% FY 2023 Actual Chief Financial Officer £2,576,320 £2,068,320 19.7% £1,306,320 £544,320 38.9% 19.4% 49.1% 39.5% 24.6% 19.7% 100% Minimum 41.7% 26.3% On-target Maximum 21.1% Maximum +50% Share price gain Share price gain Short-term incentives Long-term incentives Fixed pay £1,318,000 24.3% 35.0% 40.7% FY 2023 Actual £677,000 22.5% 77.5% FY 2022 Actual The performance scenarios demonstrate the proportion of maximum remuneration which would be payable in respect of each remuneration element at each of the performance levels. In developing these scenarios, the following assumptions have been made: Minimum Minimum Only the fixed elements of remuneration are payable. The fixed element consists of base salary, benefits Only the fixed elements of remuneration are payable. The fixed element and pension. Base salary is the salary effective from 1 January 2024. Benefits are based on consists of base salary, benefits and pension. Base salary is the salary actual FY 2023 figures and include company car, healthcare and taxable expenses. Pension is aligned effective from 1 January 2024. Benefits are based on actual FY 2023 with the rate available to the wider workforce (4%). figures and include company car, healthcare and taxable expenses. Pension is aligned with the rate available to the wider workforce (4%). Officer is payable under the PSP. Share price gain Share price gain This shows the impact a 50% increase in the share price would have This shows the impact a 50% increase in the share price would have on the maximum PSP outcome. on the maximum PSP outcome. Differences in remuneration policy between Executive Directors and other employees The overall approach to reward for employees across the workforce is a key reference point when setting the remuneration of the Executive 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 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 employees as part of the process of reviewing Executive Director pay and formulating the remuneration policy, the Company does receive an 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 to raise questions through elected representatives who sit on our employee forum which is normally held twice a year, and is attended by the Chief Executive and other members of the Executive team, along with the Non-Executive Director responsible for employee voice. The key difference between the remuneration of Executive Directors and that of our other employees is that, overall, at senior levels, remuneration is increasingly long term. In particular, long-term incentives (via the PSP) are provided only to the most senior Executives to align the interests of senior Executives with those of shareholders, by providing a material shareholding. The Company operates HMRC-approved all-employee share plans (Sharesave and SIP) enabling all our employees to become shareholders in the Company. Consideration of shareholder views Consideration of shareholder views The Committee takes the views of the shareholders seriously and these The Committee takes the views of the shareholders seriously and these views views are a key factor in determining remuneration policy and its are a key factor in determining remuneration policy and its implementation. implementation. The Committee consulted its major shareholders and The Committee consulted its major shareholders and the main the main shareholder representative bodies (IA, ISS and Glass Lewis) on shareholder representative bodies (IA, ISS and Glass Lewis) on the proposed the proposed new policy and held a number of meetings during the new policy and held a number of meetings during the consultation process. consultation process. The Committee is grateful for the time taken by The Committee is grateful for the time taken by these bodies to consider these bodies to consider the Committee proposals and provide feedback, the Committee proposals and provide feedback, and was pleased that and was pleased that the majority of shareholders were supportive of the majority of shareholders were supportive of the new policy. the new policy. Mitchells & Butlers plc Annual Report and Accounts 2023 105 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance 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, For the avoidance of doubt, the Committee may approve payments to satisfy commitments agreed prior to the approval of this remuneration policy, those outstanding and unvested incentive awards which have been disclosed to shareholders in previous remuneration reports. The Committee may also 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 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 not in contemplation of) promotion to the Board of Directors. 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 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, with the Listing Rules, applicable legislation and HMRC guidance where relevant. The Committee, consistent with market practice, retains discretion retains discretion over a number of areas relating to the operation and administration of these plans. These include (but are not limited to) over a number of areas relating to the operation and administration of these plans. These include (but are not limited to) the following: 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 information below summarises key elements of the service contracts applicable to Executive Directors: 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. • Any payment made in lieu of notice would comprise base salary onlya 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. Note regarding the Notice Period: 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 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 on a legacy contract, will comprise base salary and contractual benefits only. contract, will comprise base salary and contractual benefits only. Termination policy In the event that the Company terminates an Executive Directors service contract other than in accordance with the terms of his contract, the Committee will In the event that the Company terminates an Executive Director’s service contract other than in accordance with the terms of his contract, the 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 Committee will act in the best interests of the Company and ensure there is no reward for failure. When determining what compensation, if any, Executive Director, the Committee will give full consideration to the circumstances of the termination, the Executive Directors performance, the terms is to be paid to the departing Executive Director, the Committee will give full consideration to the circumstances of the termination, the Executive 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 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. 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 GovernanceComponent Annual Performance Bonus Deferred Bonus Shares LTIP All-Employee Plans Approach • • • If an Executive Director’s employment with the Group ends during the financial year, normally any 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 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 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. • 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 Companys prior approval, as long as this is not likely to lead to conflicts 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 of interest. 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. 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 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Report on Directors’ remuneration continued Recruitment of Executive Directors 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. 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 Base salary Benefits Pension Variable pay ‘Buy-out’ awards Approach Where it is necessary to appoint a replacement or additional Executive Director, the Committee will set a base 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, 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 allowance in lieu of Company pension contributions, or a combination of both in line with the policy as set out above. 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. 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 Chairmans fee is set by the Remuneration Committee. Non-Executive Directors’ fees are set by the Chairman and Executive Directors’, and the Chairman’s fee is set by the Remuneration Committee. The Committee will recommend to the Board a fee appropriate to the calibre, experience and responsibilities of the new appointee. 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. 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. 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 GovernanceAnnual 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 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 The tables and related disclosures set out on pages 109 to 118 on Directors’ remuneration, deferred annual bonus share awards (‘STDIP’), PRSP and share options, Share Incentive Plan, Save as You Earn Plan (SAYE) and pension benefits have been audited by KPMG LLP where explicitly indicated. 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 Executive Directors’ remuneration The table below sets out the single figure remuneration received by the Executive Directors during the reporting year and prior year. 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) Otherd £000 Person Total variable Total remuneration, Total remuneration, Other Long-term Pension-related Long-term Pension-related Short-term Short-term Taxable Basic Salaries, Taxable Basic Salaries, Other Long-term Pension-related Short-term Total Taxable incentivesc benefitsb benefitsa incentives remuneration Basic salaries pay, Thousand Thousand (Note incentives incentives benefits benefits incentives, incentives, Benefits Benefits Thousand Thousand (Note £000 £000 £000 £000 £000 £000 Thousand Pounds, Pounds, D), D), (Note (Note (Note (Note Thousand Thousand (Note (Note Pounds, Pounds, FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY 2022 2022 2022 2022 2023 2022 2022 2023 2022 2023 2022 2023 2023 2023 2023 Financial Thousand C), B), Pounds, A), Financial Pounds, Financial Thousand C), B), Pounds, A), Financial 182 810 3 1,573 – 64 382 552 182 546 581 15 15 40 3 Phil Urban Phil Urban 581 182 1,573 810 3 382 blank 3 64 552 182 40 15 15 546 Year Pounds, Thousand Financial Thousand Year Financial Year Pounds, Thousand Thousand Thousand Financial Thousand Year Tim Jones 486 152 1,320 679 2 320 blank 2 53 462 152 34 15 16 457 152 679 2 1,320 – 53 320 462 152 15 457 486 16 34 2 Tim Jones 2023 Financial Pounds, Year Pounds, 2023 Pounds, Year 2022 Financial Pounds, Pounds, Year Pounds, 2022 2,893 1,489 1,177 1,155 1,716 334 5 117 702 blank 5 1,014 334 74 30 1,067 1,003 31 Subtotal Executive Sub-total 2022 Year Year Financial Financial Financial Financial 2022 2023 Financial Financial Executive Directors 334 – 74 117 702 30 1,014 334 31 5 Directors 2022 2023 Year Year Year Year Year Year 2022 2023 2022 2023 2022 2023 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. Total variable Total fixed-pay, Total variable pay pay, Thousand £000 Thousand Pounds, FY FY 2023 2022 Pounds, Financial 934 628 934 628 Financial Year 782 527 527 782 Year 2022 2023 Total fixed-pay, Total fixed pay Thousand £000 Pounds, FY 2023 Financial 639 639 Year 538 538 2023 5 2,893 1,489 1,177 1,155 1,716 1,067 1,003 Annual bonus Details of the measures and targets applying to the 2023 annual bonus plan are set out below (The measures, targets and outcomes Details of the measures and targets applying to the 2023 annual bonus plan are set out belowa: are not audited.) Item Adjusted Operating Profit (70%) (53 weeks) Type Guest Health (15%) blank blank Threshold Target Social Media Score Complaints Ratio 4.27 0.85 4.37 0.75 Type Employee Engagement (10%) (The measures, targets Employee Engagement (10%)a and outcomes are not audited) Food Safety (5%) blank a. The measures, targets and outcomes are not audited. b. Payout is on a straight-line basis between points. Threshold – 95% of Target (% of salary payable) £193.2m (7.5%) Target (% of salary payable) £203.4m (35%) Maximum – 103% of Target (% of salary payable) £209.5m (70%) Calculation of outcome (% of salary payable) Each element is scored 1 if better than target, 0 if between threshold and target, and -1 if below threshold. • If the sum of these scores is +2 then maximum If the sum of these scores is +2 then maximum bonus is paid (15%). bonus is paid (15%). If the sum of these If the sum of these scores is +1 then an scores is +1 then an on-target payment on-target payment would be made (7.5%). would be made (7.5%). If the sum of If the sum of these scores is 0 then threshold these scores is 0 then threshold bonus is paid bonus is paid (3.75%). (3.75%). • • Performance (Score) blank 4.38 (+1) 0.72 (0) Outcome (% of salary payable) £226.0mb ﾣ226.0m (70%) (70%) (Payout is on Outcome a straight-line (% of salary payable) basis blank between points. ) 2 (15%) blank Threshold (% of salary payable) 79.5 (2.5%) Target (% of salary payable) 80.5 (5%) 99.5% (5%) Maximum (% of salary payable) 81.5 (10%) blank Outcome (% of salary payable) 82.5 (10%) 98.9% (0%) Mitchells & Butlers plc Annual Report and Accounts 2023 109 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Report on Directors’ remuneration continued Financial measures Financial measures Adjusted Operating Profit (Outcome 70% out of 70%) 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 Financial targets were set against a backdrop of a highly uncertain environment with a wide range of macroeconomic factors, including rising inflation a cost of living crisis that would impact on the spending power of consumers across the economy. 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 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 The non-financial measures encompass Guest Health, Employee Engagement and Food Safety, and form an important part of the annual incentive only be earned if 97.5% of the Adjusted Operating Profit target is achieved. 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 (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 Employee engagement is measured at two points during the year. In June employees are invited to complete a comprehensive survey, ‘YourSay’, and 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 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 was 82.5, a record high for employee engagement resulting in a maximum payment for this element. 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 (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. 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 Overall outcome The total bonus awarded to Executive Directors is 95% of salary, resulting in bonus payments of ﾣ552,078 and ﾣ461,975 to Phil 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. 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 Long-term incentives vesting during the year FY 2021/23 RSP vesting 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. 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 • If any adjustments have been made to annual if any adjustments have been made to annual bonus outcomes for each of the bonus outcomes for each of the three three years covered by the vesting period years covered by the vesting period for for awards under the RSP; awards under the RSP; Commentary Commentary No adjustments were made to any bonus outcomes during the vesting period. The approval No adjustments were made to any bonus outcomes during the vesting period. of any annual bonus payout is subject to a robust quality of earnings assessment 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 that considers all aspects of scorecard performance and a range of other performance factors to factors to determine if the annual bonus outcome was consistent with overall determine if the annual bonus outcome was consistent with overall business performance. This business performance. This annual assessment is then used as a basis to assess annual assessment is then used as a basis to assess performance against these factors over the course of the RSP vesting period. performance against these factors over the course of the RSP vesting period. There were no issues that caused material damage to the reputation of the Company. There were no issues that caused material damage to the reputation of the Company. Whether there has been material damage to • whether there has been material damage to the reputation of the Company (in such the reputation of the Company (in such circumstances, circumstances, responsibility and hence any responsibility and hence any adjustments to the level of vesting may be adjustments to the level of vesting may allocated collectively or individually to be allocated collectively or individually participants); and to participants); and 110 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceUnderpin condition That the business has a stable and appropriate • that the business has a stable and appropriate capital structure in place capital structure in place following following the cessation of restrictions the cessation of restrictions on trade on trade due to the Covid-19 pandemic due to the Covid-19 pandemic that enables that enables the recovery of the business the recovery of the business and execution and execution of the Company’s strategic priorities. of the Companys strategic priorities. Commentary The Board believes that the business continues to have a stable capital structure and also notes that during the period our unsecured debt facilities were successfully renegotiated. 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 for a further three years to July 2026. 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 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 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. 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): Executive Directors Phil Urban Tim Jones Total Nil Cost Options awarded during the year to 30/09/23 412,490 345,175 757,665 Basis of award (% of basic annual salary) 100 100 Award date Dec 2022 Dec 2022 blank blank Market price per Market price per share used share used to determine the award to determine (p)a the 133.7 award (p) 133.7 (Note A) blank Actual/ planned vesting date Dec 2025 Dec 2025 Latest lapse date (Note Latest B) lapse dateb Feb 2026 Feb 2026 Face value ﾣ (Note C) Face valuec £ 555,212 464,606 1,019,818 blank blank 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 Executive Director Executive Director Phil Urban Phil Urban Tim Jones Tim Jones Total Total Shares awarded during the year to 30/9/23 Shares awarded during the year to 30/9/23 1,343 1,113 2,456 Normal vesting date Award date Market price per Award date 14/9/23 14/9/23 14/9/23 14/9/23 blank Market price share at award per share (p) at award (p) 223 223 223 223 blank Normal vesting date 14/9/26 14/9/26 14/9/26 14/9/26 blank Lapsed during period Market price per Market price per share share at normal at normal vesting vesting date (p) date (p) n/a n/a n/a n/a blank blank blank blank Lapsed during period – – – 1,343 1,113 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 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 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 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 who are typically the lowest paid employees in the Group, seeing the largest increases. 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 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Report on Directors’ remuneration continued Annual Bonus 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 The Committee believes that the annual bonus scheme for FY 2023 was successful in driving the right behaviours across the business and as such that the annual bonus scheme for FY 2024 will be broadly the same and will be structured as follows: 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: 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 • The non-financial elements will only be payable if a threshold level of financial performance is achieved. For FY 2024 this will be unchanged be unchanged at 97.5% of Adjusted Operating Profit. 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 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 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. 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 Operating Cashflow (£m) EPS Growth (% CAGR) Sustainability – reduction in Scope 1, 2 & 3 emissions tCO2e Additional remuneration disclosures Additional remuneration disclosures Payment for loss of office Payment for loss of office No payments for loss of office were made in the year ended 30 September 2023. No payments for loss of office were made in the year ended 30 September 2023. Payments to past Directors Payments to past Directors No payments were made to any past Directors in the year ended 30 September 2023. No payments were made to any past Directors in the year ended 30 September 2023. Weighting (% of maximum) 70% 20% 10% Threshold 1,296 21.4 -53,619 Maximum 1,368 25.9 -53,619 Total shareholder return from September 2013 to September 2023 (rebased to 100) Total shareholder return from September 2013 to September 2023 (rebased to 100) This graph shows the value, by 30 September 2023, of ﾣ100 invested in Mitchells & Butlers plc on 30 September 2013, compared This graph shows the value, by 30 September 2023, of £100 invested in Mitchells & Butlers plc on 30 September 2013, compared with the value with the value of ﾣ100 invested in the FTSE 250 and the FTSE All Share Travel and Leisure indices. of £100 invested in the FTSE 250 and the FTSE All Share Travel and Leisure indices. 250 200 150 100 50 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Mitchells & Butlers plc FTSE 250 FTSE All Share Travel and Leisure Source: Datastream (Thomson Reuters) 112 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceCEO earnings history CEO earnings history CEOYear ended Year ended Phil Urban blank Single figure remuneration (ﾣ000) Phil Single figure remuneration (£000) Annual bonus outcome (% of max) blank Urban Annual bonus outcome (% of max) blank LTIP vesting outcome (% of max) LTIP vesting outcome (% of max) Alistair Darby 642 Alistair Alistair Darby Single figure remuneration Single figure remuneration (£000) (ﾣ000) Darby Annual bonus outcome (% of max) blank Annual bonus outcome (% of max) LTIP vesting outcome (% of max) LTIP vesting outcome (% of max) n/a 27/09/14 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 26/09/15 30/9/23 28/09/19 26/09/20 29/09/18 30/09/17 24/09/16 25/9/21 24/9/22 – – – – – – blank blank blank 878 613 – – 613 blank blank blank 770 28 – 770 28 blank blank 819 39 – 819 39 blank blank 1,684 82 47.5 1,684 82 47.5 blank 553 – – 553 blank blank blank 642 – n/a 878 – 19.0 blank 19.0 – – – blank blank – – – blank blank – – – blank blank – – – blank blank – – – blank blank 627 – – 627 blank blank blank – – – blank blank 1,573 95 100 1,573 95 810 810 33 33 blank 100 – blank blank – blank blank – blank blank – 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 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 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 Mitchells & Butlers has disclosed the pay ratio between the Chief Executive and the median pay of other employees for the last six years, despite with this requirement until the 2020 Annual Report. not needing to comply with this requirement until the 2020 Annual Report. Financial year 2023 2022 2021 2020 2019 2018 Chief Executive Pay Ratio Method Method Option C Option C Option C Option C Option C Option C Chief Executive pay ratio Chief Executive Pay Ratio P25 (lower P25 (lower quartile) 86:1 quartile) 53:1 41:1 37:1 120:1 61:1 Chief Executive Pay Ratio P50 (median) P50 (median) 82:1 47:1 38:1 35:1 112:1 58:1 Chief Executive Pay Ratio P75 (upper quartile) 78:1 P75 (upper 45:1 quartile) 36:1 35:1 106:1 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: Type Salary Total pay Chief Executive (£) 581,134 1,568,037 P25 (lower quartile) (£) 18,218 18,218 P50 (median) (£) 18,964 18,964 P75 (upper quartile) (£) 20,002 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 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%). 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 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Report on Directors’ remuneration continued Year-on-year change in remuneration of Directors compared to an average employee RoleName Average employee Average Employee Average Directors Urban Executive Executive Directors Employee Directors Phil Urban Tim Jones Jones Non-Executive Directors Directors Ivell Non-Executive Bob Ivell Directors Eddie Irwin Irwin Dave Coplin Coplin Josh Levy Levy Keith Browne Browne Jane Moriarty Moriarty Amanda Brown Brown Salary/Fees 2023Bonus 2023Benefits 2023Salary/Fees 2023 Bonus 2021Benefits 2021 2021 2022 Bonus 2022Benefits 2022Salary/Fees Benefits -14.0% -14.0% Bonus 32.2% 32.2% 100.0% 3.1% Salary/Fees 2021 1.2% 1.2% 0.00% Salary/Fees Bonus 8.7% 422.3% 422.3% -6.3% 202.9% 4.3% Benefits -6.3% 6.5% 202.9% 6.5% 203.0% 203.0% 2.2% blank Salary/Fees 5.6% 2022 5.6% 2.2% 2.2% 2.2% 2.2% 0.0% 8.7% 6.5% 6.5% 4.8% 4.3% 2.2% 180.0% 180.0% – blank 967.9% 967.9% – blank – blank 197.3% 197.3% – blank 100.0% 100.0% 100.0% 5.9% 0.0% 0.00% 0.00% 0.00% 0.0% 3.1% 5.9% -60.4% -60.4% 0.0% 0.0% 0.0% 0.0% 0.0% -93.2% 0.0% -93.2% 0.0% 0.0% -100.0% -100.0% 0.0% 0.0% 0.0% 0.0% 0.0% -54.3% 0.0% 24.5% -54.3% 0.0% 0.0% n/a 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 24.5% n/a 0.0% 0.0% 0.0% 0.0% 0.0% 34.8% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 34.8% 0.0% 100.0% 0.0% 4.8% 4.8% 4.8% 4.8% 4.8% 8.7% 354.0% 4.8% 4.8% 4.8% 4.8% 8.7% 354.0% blank blank blank blank blank blank – – – – – – – Benefits 6.3% Bonus 81.6% 81.6% 6.3% -1.4% 0.00% 0.00% 0.00% 0.00% 0.0% -1.4% -3.3% -3.3% -25.4% -25.4% 0% 0% -74.0% -74.0% 225.1% 225.1% -59.2% -59.2% 443.9% 443.9% n/a n/a 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% n/a 0.0% 0.0% 0.0% 0.0% 0.0% 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 ﾣm Relative importance of spend on pay £m Figures shown for wages and salaries consist of all earnings, including bonus. In FY 2023, ﾣ2.9m (0.36%) was paid to Executive and 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%)). Non-Executive Directors (2022 ﾣ1.5m (0.1%)). 900 750 600 450 300 150 0 +16.2% 795 684 Wages and salaries* FY 2022 FY 2023 -2.7% 147 143 Principal taxes** -81.8% 8 44 Pension deﬁcit contributions -1.0% 203 201 Debt service * From note 2.3 to the consolidated ﬁnancial statements. ** Business Rates, Corporation Tax, Employer’s NI. There were no shareholder dividends or share buybacks in FY 2022. Fees for external directorships Fees for external directorships No external non-executive directorships were held by either Executive Director during the year to 30 September 2023. 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 & Butlers plc GovernanceNon-Executive Directors (audited by KPMG) Chairman and Non-Executive Directors 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. – – – 66 55 69 Name Total remuneration, Total remuneration, Other, Other, Long-term Pension-related Pension-related Short-term Short-term Taxable Fees, Thousand Fees, Taxable Long-term Total Long-term Pension-related Short-term Taxable benefitsa remuneration benefits incentives incentives Other Fees Thousand Thousand Thousand Thousand incentives, incentives, benefits, benefits, Incentives, Incentives, Benefits Benefits Thousand Pounds, £000 £000 £000 £000 £000 £000 £000 Pounds, Pounds, Pounds, Pounds, Thousand Thousand Thousand Thousand Thousand Thousand (Note Pounds, (Note Financial FY FY FY FY FY FY FY FY FY FY FY FY FY FY 2022 2022 2023 2022 2023 2022 2023 2023 2023 2023 2022 2022 2023 2022 Financial Pounds, A), Year Financial Financial Financial Pounds, Pounds, Pounds, Pounds, Pounds, A), Financial 285 blank blankblank blankblankblank blankblank300 1 284 2 298 Bob Ivell Bob Ivell 300 – – – – – – 1 2 284 298 – 285 Year Thousand Year 2023 Year Year Year Financial Financial Financial Financial Financial Thousand Financial 55 53 blank blank blank blankblank blankblankblank blankblank55 53 Eddie Irwin Eddie Irwin – – – – – – – – 53 55 – 55 2022 2022 2023 2022 2023 Year Year Year Year Year Year Pounds, Pounds, 0.5 blank blank blankblank blankblankblank blankblank55.5 53 53 55 Josh Levy Josh Levy – – – – – – 0.5 53 – – Financial 2022 2023 2022 2023 2022 2023 Financial 0.5 blank blank blankblank blankblankblank blankblank69.5 66 66 Dave Coplin 69 Dave Coplin – – 0.5 – – – – Year Year Keith Browne 55 53 blank blank blank blankblank blankblankblank blankblank55 53 Keith Browne 55 – – – – 2023 2022 blank blank blank blankblank blankblankblank blankblankblank 22 blank 22 Susan Murray (Note Susan Murrayb – – – – 0.5 blank blankblank blankblankblank blankblank84 1 76 Jane Moriarty 83 B) Jane Moriarty 83 – blank blank blankblank blankblankblank blankblank70 69 Amanda Brown (Note 1 15 Amanda Brownc 15 69 – 1.5 blank blankblank blankblankblank blankblank689 622 5 684 Sub-total Non-Executive C) Sub-total Non-Executive Directors Directors Total Executive Directors Total Executive Directors and and Non-Executive Non-Executive Directors Directors 22 76.5 84 76.5 70 15 15 623.5 689 – 31.5 1,014 334 74 Total variable Total variable Total fixed-pay, Total fixed-pay, Total Total fixed pay variable pay pay, pay, Thousand Thousand £000 £000 Thousand Thousand Pounds, Pounds, FY FY FY FY 2022 2023 2022 2023 Financial Financial Pounds, Pounds, blank blank 285 300 – 300 285 – Year Year Financial Financial blank blank 53 55 – – 2022 2023 Year Year blank blank 53 55.5 – – 2022 2023 66 69.5 blank blank – – 53 55 blank blank – – blank blank 22 blank – – 76.5 blank blank – – 15 blank blank – – 623.5 blank blank – 689 3,582 2,112.5 1,866 1,778.5 1,716 334 – 117 702 blank 5 1,751 1,625 36 1,866 1,778.5 3,582 2,112.5 1,751 1,625 1,716 334 36 31.5 1,014 623.5 623.5 69.5 55.5 69.5 55.5 76.5 702 689 684 622 334 117 1.5 0.5 74 84 70 55 84 70 55 55 5 53 76 22 15 66 66 53 53 22 53 53 53 53 5 5 1 1 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 5 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 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. The Chairmans fee and those of the Non Executive Directors were increased in January 2022. No increase will apply in 2024. PRSP, PSP, STDIP, SAYE Directors shareholdings and share interests 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’) The table below sets out details of the Executive Directors outstanding awards under the PRSP, RSP, STDIP and Sharesave (SAYE) (audited by KPMG). (audited by KPMG). Executive Director Scheme Executive Director Phil Urban Phil Urban Tim Jones Tim Jones PRSP RSP STDIP SAYE Total PRSP RSP STDIP SAYE Total Scheme PRSP RSP STDIP SAYE Total PRSP RSP STDIP SAYE Total Number of Number of shares shares at at 24 24 September 2022 September 342,596 342,596 2022 400,617 400,617 blank – 7,031 7,031 750,244 750,244 200,598 200,598 335,157 335,157 blank – blank – 535,755 535,755 Granted during Granted the period during the period – 412,490 68,152 – 480,642 – 345,175 57,027 – 402,202 blank 412,490 68,152 blank 480,642 blank 345,175 57,027 blank 402,202 Lapsed during Lapsed the period during the period 253,113 – – – 253,113 148,216 – – – 148,216 253,113 blank blank blank 253,113 148,216 blank blank blank 148,216 Number of Number of shares Exercised during shares at Exercised at 30 the period 30 September during the 2023 period September 89,483 89,483 – 2023 813,107 – 813,107 68,152 – 68,152 7,031 – 7,031 977,773 977,773 – 52,382 52,382 – 680,332 – 680,332 57,027 – 57,027 blank – 789,741 789,741 blank blank blank blank blank blank blank blank blank blank – 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 Directors’ interests Executive Directors are expected to hold Mitchells & Butlers shares in line with the shareholding guideline set out in the approved remuneration policy. 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 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Executive Phil Urban Executive Directors Directors Phil Urban Tim Jones Tim Jones Non- Bob Ivell Non-Executive Executive Directors Directors Bob Ivell Eddie Irwin Eddie Irwin Dave Coplin Dave Coplin 6,000 Josh Levy blank Josh Levy Keith Browne Keith Browne blank Jane Moriarty Jane Moriarty blank Amanda Brown Amanda Brown blank Total Total Total Report on Directors’ remuneration continued Executive Directors’ shareholdings Phil Urban (Shareholding requirement 250%) Owned Shares: 148% 148% Tim Jones (Shareholding requirement 200%) Shareholding requirements: 250% 250% Outstanding unvested awards: 371% 371% Owned Shares: 133% 133% Shareholding requirements: 200% 200% Outstanding unvested 358% awards: 358% Owned shares Outstanding unvested awards Current shareholding Shareholding requirements 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): 2022 2023 Employee Name2023 - Wholly-owned 2022 - Wholly-owned Employee Unvested Wholly-owned shares shares with Unvested Unvested shares shares Role without performance performance conditionsa conditions shares shares without without 2022 2023 2023 2022 performance with with performance 388,139 385,742 blankblank68,152 performance performance conditions conditions conditions conditions (Note (Note – – 388,139 385,742 A) A) 294,259 292,092 blankblank57,027 17,222 17,222 blankblankblank 2023 Unvested shares without 2023 performance conditions (Note B) 2022 - 2023 2023 - Unvested 2023 - Unvested 2022 - 2022 Unvested 2022 - Unvested Vested but Unvested options Unvested options Vested - options Unvested options shares options unexercised with performance without performance Unvested shares without conditions/underpinsd performance conditionsb conditionsc options but Vested with with options without without 2023 2022 2022 2023 2022 2022 performance unexercised but performance performance without performance blank 7,031 7,031 902,590 743,213 blankblank 1,365,912 1,135,986 options conditions/underpins unexercised performance conditions/underpins conditions conditions options (Note (Note conditions (Note (Note – 7,031 7,031 – 1,365,912 1,135,986 (Note B) D) D) C) blank 732,714 535,755 blankblank 1,084,000 827,847 blank blank – 827,847 C) blank blank blank blank 2023 - Total shares/options Total shares/options – blankblank 17,222 294,259 292,092 1,084,000 17,222 902,590 732,714 535,755 743,213 57,027 68,152 blank 2023 2023 2022 – – – – – – 2022 - Total shares/options 17,222 17,222 – – – – – 2,836 6,000 43,883 43,883 43,883 43,883 blankblankblank – 2,836 blankblankblank – – blankblankblank blank blankblankblank blank blankblankblank blank blankblankblank blank – – – – – – – – – – – – – – – – – – – – – – – – blank blank blank blank blank blank blank blank blank blank blank blank – – – – – – – – – – – blank blank – blank blank – – blank blank blank blank – blank blank – blank blank – – – – – – – – blank blank blank blank blank blank – – – – – – – 17,222 43,883 6,000 – – – – blankblank 43,883 – blankblank 6,000 – – blankblank blank blankblank blank blankblank blank blankblank blank – – – – – – – – – – – 17,222 43,883 2,836 43,883 2,836 blank blank blank blank – – – – 749,503 741,775 blankblank125,179 blank 7,031 7,031 1,635,304 1,278,968 blankblank 2,517,017 2,027,774 7,031 – 2,517,017 2,027,774 1,635,304 1,278,968 749,503 741,775 125,179 7,031 – – – – 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 & Butlers plc GovernanceService contracts and Letters of Appointment Service contracts and Letters of Appointment Executive Directors Executive Directors Details of the service contracts of Executive Directors are set out below. Details of the service contracts of Executive Directors are set out below. Notice period from Company 12 months 12 months Minimum notice period from Director 6 months 6 months Compensation on change of control No No Director Phil Urbana Tim Jones Contract start date 27/09/15 18/10/10 Unexpired term Indefinite Indefinite Company as Chief Operating Officer. Phil Urban (Phil Urban became Chief Executive and joined the Board on 27 September 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 2015. His continuous service date started Non-Executive Directors Non-Executive Directors on 5 January 2015, the Non-Executive Directors, including the Company Chairman, do not have service contracts but serve Non-Executive Directors, including the Company Chairman, do not have date on which he joined the under letters of appointment which provide that they are initially appointed until the next AGM service contracts but serve under letters of appointment which provide when they are required to stand for election. In line with the Companys Articles of Association, Company as Chief Operating that they are initially appointed until the next AGM when they are all Directors, including Non-Executive Directors, will stand for re-election at the 2024 AGM. required to stand for election. In line with the Company’s Articles of Officer. ) This is also in line with the provisions of the 2018 UK Corporate Governance Code. Non-Executive Association, all Directors, including Non-Executive Directors, will stand Directors appointments are terminable without notice and with no entitlement to compensation. for re-election at the 2024 AGM. This is also in line with the provisions of Payment of fees will cease immediately on termination. 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. Committee activity during the year Committee activity during the year During the year the Committee met six times. During the year the Committee met six times. Key remuneration items considered over the year were as follows: Month/Year October 2022 November 2022 Item 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. March 2023 April 2023 Mitchells Butlers Remuneration Committee Mitchells & Butlers Remuneration Committee Committee terms of reference Committee terms of reference The Committee’s terms of reference were reviewed and updated in 2019 The Committees terms of reference were reviewed and updated in 2019 to take to take account of the 2018 UK Corporate Governance Code. account of the 2018 UK Corporate Governance Code. July 2023 September 2023 Annual Bonus Targets Salary Reviews Annual Bonus and 2020/2022 PRSP update 2022 Bonus – Confirmation of outcome 2020 PRSP Vesting outcome Final approval of RSP plan operation Confirmation of targets for Annual Bonus AGM Voting outcomes Remuneration policy approach and timeline Remuneration policy design and PSP structure PSP measures Remuneration policy review Approval of PSP 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 The Committee received advice from PwC LLP (‘PwC’) during the year. following a competitive tender process during 2018. PwC are signatories to the Remuneration PwC were appointed following a competitive tender process during Consultants Group Code of Conduct and any advice received is governed by that Code. 2018. PwC are signatories to the Remuneration Consultants Group Code Total fees payable in respect of remuneration advice to the Committee in the reporting year of Conduct and any advice received is governed by that Code. Total fees totalled ﾣ66,250 and were charged on a time and materials basis. ( Fees are shown net of VAT. payable in respect of remuneration advice to the Committee in the 20% VAT was paid on the advisers fees shown above. ) reporting year totalled £66,250b 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 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 membership and operation Committee members and their respective appointment dates are detailed in Committee members and their respective appointment dates are the table below. detailed in the table below. Name Amanda Browna Amanda Brown (Independent Non-Executive Bob Ivell Directors.) Dave Coplina Dave Coplin (Independent Non-Executive Josh Levy Directors.) Jane Moriartya Jane Moriarty (Independent Non-Executive Directors.) a. Independent Non-Executive Directors. Date of appointment to the Committee 4 July 2022 11 July 2013 29 February 2016 20 July 2017 27 February 2019 Strategic ReportFinancial StatementsOther InformationIntroductionGovernance Report on Directors’ remuneration continued Previous AGM voting outcomes 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. 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: Item Approval of annual report on remuneration Approval of remuneration policy at 2021 AGM 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. Votes cast Votes for (The For Votes fora vote includes 519,324,549 407,632,174 those giving 516,340,056 425,892,672 the Company Chairman discretion.) % Votes against 78.49 111,692,375 90,447,384 82.48 % 21.51 17.52 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. Votes withheldb 52,492 61,932 Votes withheld (A vote withheld is not a vote in law and is not counted in the calculation of the votes For or Against the resolution.) The Directors’ Remuneration Report has been approved by the Board of Mitchells & Butlers plc. Amanda Brown, Chair of the Remuneration. Amanda Brown Committee 29 November Chair of the Remuneration Committee 2023 29 November 2023 118 Annual Report and Accounts 2023 Mitchells & Butlers plc GovernanceIntroduction 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 In this section Independent auditors report to the members of Mitchells 120 Independent auditor’s report to the Butlers plc members of Mitchells & Butlers plc Group income statement 128 Group income statement Group statement of comprehensive income 129 Group statement of comprehensive income 130 Group balance sheet Group balance sheet Group statement of changes in equity 131 Group statement of changes in equity Group cash flow statement 132 Group cash flow statement Notes to the consolidated financial statements Section 1 Basis of preparation 133 Section 1 – Basis of preparation Section 2 Results for the period 136 Section 2 – Results for the period 2.1 Segmental analysis 136 2.1 Segmental analysis 2.2 Separately disclosed items 136 2.2 Separately disclosed items 2.3 Revenue and operating costs 137 2.3 Revenue and operating costs 2.4 Taxation 140 2.4 Taxation 2.5 Earnings per share 143 2.5 Earnings per share Section 3 Operating assets and liabilities 144 Section 3 – Operating assets and liabilities 3.1 Property, plant and equipment 144 3.1 Property, plant and equipment 3.2 Leases 149 3.2 Leases 153 3.3 Impairment 3.3 Impairment 3.4 Working capital 154 3.4 Working capital 3.5 Provisions 156 3.5 Provisions 3.6 Goodwill and other intangible assets 3.6 Goodwill and other intangible 157 assets 3.7 Associates 3.7 Associates 159 Section 4 Capital structure and financing costs 160 Section 4 – Capital structure and financing costs 4.1 Borrowings 160 4.1 Borrowings 4.2 Finance costs and income 162 4.2 Finance costs and income 162 4.3 Financial instruments 4.3 Financial instruments 4.4 Net debt 171 4.4 Net debt 4.5 Pensions 173 4.5 Pensions 4.6 Share-based payments 178 4.6 Share-based payments 4.7 Equity 180 4.7 Equity Section 5 Other notes 182 Section 5 – Other notes 182 5.1 Acquisitions 5.1 Acquisitions 5.2 Related party transactions 183 5.2 Related party transactions 184 5.3 Subsidiaries and associates 5.3 Subsidiaries and associates Mitchells and Butlers plc Company financial 186 Mitchells & Butlers plc Company statements Notes to the Mitchells and Butlers plc Company financial 188 Notes to the Mitchells & Butlers plc statements Company financial statements financial statements Mitchells & Butlers plc Annual Report and Accounts 2023 119 Independent auditor’s report to the members of Mitchells & Butlers plc 1. Our opinion is unmodified 1. Our opinion is unmodified We have audited the financial statements of Mitchells & Butlers plc (the Company) We have audited the financial statements of Mitchells & Butlers plc (“the Company”) for the 53 week period ended 30 September 2023 for the 53 week period ended 30 September 2023 which comprise which comprise the Group Income Statement, the Group Statement of the Group Income Statement, the Group Statement of Comprehensive Comprehensive Income, the Group and Company Balance Sheets, the Income, the Group and Company Balance Sheets, the Group and Group and Company Statements of Changes in Equity, the Group cash Company Statements of Changes in Equity, the Group cash flow statement flow statement and the related notes, including the accounting policies and the related notes, including the accounting policies within notes within notes 1 to 5.3 of the Group financial statements and notes 1 to 10 1 to 5.3 of the Group financial statements and notes 1 to 10 of the Company of the Company financial statements. financial statements. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) We conducted our audit in accordance with International Standards on and applicable law. Our responsibilities are described below. We believe that the audit evidence Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities are we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion described below. We believe that the audit evidence we have obtained is consistent with our report to the audit committee. 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: Group financial statements as a whole £23m (2022: £22m) 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 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. 120 Annual Report and Accounts 2023 Mitchells & Butlers plc Financial Statements2. Key audit matters: our assessment of risks of material misstatement 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 Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include (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 most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest 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 effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below 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 the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to 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. 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. Valuation of the freehold and long leasehold restaurant and pub estate (£4,086 million; 2022: £4,036 million) Refer to page 86 (Audit Committee Report) and pages 144 to 148 (accounting policy and financial disclosures). The risk Our response Subjective estimate: The Group holds its Subjective estimate freehold and long leasehold property estate The Group holds its freehold at fair value, with a revaluation taking and long leasehold property place as at each balance sheet date. estate at fair value, with a We determined that the valuation of revaluation taking place as at the Groups property estate is a major source of estimation uncertainty. each balance sheet date. We determined that the valuation of the Group’s property estate is a major source of estimation uncertainty. The valuation involves the determination of estimates, most notably the fair maintainable trade (‘FMT’) and applicable trading multiples by brand and location. These estimations are inherently subjective and small changes in the assumptions used to value the Group’s estate could have a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole. Business risks related to audit risks include: • Economic environment (cost inflation) and consumer changes (post COVID-19 demographic changes) have led to increased uncertainty of future performance based on historic trends. • Capital market sentiment of the sector remains in recovery and the sector has been trading below its historical levels, leading to a deficit between market capitalisation and asset carrying value of the Group as a whole. We performed the tests below rather than seeking to rely on any of the Group’s controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described. Our procedures included: Assessing valuation approach: We met with the Group’s external valuers and the relevant Group management to critically assess the valuation assumptions and methodology used in valuing the properties and the market evidence used by the valuers to support their assumptions. We also obtained an understanding of the relevant Group management’s involvement in the valuation process to assess whether appropriate oversight had occurred. Assessing valuer’s credentials: We critically assessed the independence, professional qualification, competence and experience of the internal and external valuers engaged by the Group. Sensitivity analysis: We considered sensitivities to the overall valuation from changes to fair maintainable trade and to valuation multiples. Benchmarking assumptions: We challenged the key assumptions, with the assistance of our own valuation specialists, for a sample of properties by making a comparison to market comparable data. Comparing valuations: We compared the sum of discounted cash flows to the Group’s market capitalisation to assess the reasonableness of those cash flows which were consistent with those used to help inform our assessment of FMT. Assessing inputs: We agreed observable inputs used for a sample of assets in the valuation to source documentation. Assessing outputs: We evaluated and challenged the output of the valuations through the identification of higher risk assets with the assistance of our own valuation specialists by comparing to similar asset performance. We also considered recent brand performance in relation to key inputs such as forecast revenue and the impact of inflation on historical margin assumptions. Assessing transparency: We critically assessed the adequacy of the Group’s disclosures in relation to the valuation of the estate and the sensitivity of changes in key assumptions. Our results: We found the valuation of the freehold and long leasehold restaurant and pub Our results estate to be acceptable (2022: acceptable). 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 Strategic ReportGovernanceOther InformationIntroductionFinancial 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 Refer to page 86 (Audit Committee Report) and page 133 and 134 (financial disclosures). Disclosure quality: The financial statements Disclosure quality explain how the Board has formed The financial statements a judgement that it is appropriate to explain how the Board has adopt the going concern basis of preparation formed a judgement that it is for the Group and the parent Company. appropriate to adopt the going That judgement is based on an evaluation of the inherent risks to the Groups concern basis of preparation business model and how those for the Group and the parent risks might affect the Groups financial Company. That judgement is resources or ability to continue operations based on an evaluation of the over a period of at least 12 months inherent risks to the Group’s from the date of approval of the financial statements. business model and how those risks might affect the Group’s financial resources or ability to continue operations over a period of at least 12 months from the date of approval of the financial statements. We considered whether these risks could plausibly affect the liquidity and covenant compliance in the going concern period by assessing the directors’ sensitivities over the level of available financial resources and covenant thresholds indicated by the Group’s financial forecasts taking account of severe, but plausible, adverse effects that could arise from these risks individually and collectively. Our procedures included: Funding assessment: We assessed the forecast cash position, available committed facilities and the directors’ assessment of the Group’s ability to comply with its covenants for a period of at least 12 months from the date of approval of the financial statements (‘forecast period)’, to understand the financial resources available to the Group during the forecast period. Historical comparisons: We assessed the ability of the Group to accurately forecast by comparing the most recent financial year’s performance against budget and challenged the assumptions over the going concern period based on historical performance. We also compared the actual performance in recent years versus base case and downside case to challenge the quantum of risks applied in the forecasts. The risks most likely to adversely affect the Group’s available financial resources and metrics relevant to debt covenants over this period were: • Maintenance of sales growth in the face of pressure on consumer spending power • Future outlook for cost inflation specifically in food costs, drink costs, energy prices and wages and salaries. There are also less predictable but realistic second order impacts, such as impact of global political developments, supply chain disruptions and government policy. The risk for our audit was whether or not those risks were such that they amounted to a material uncertainty that may have cast significant doubt about the ability to continue as a going concern. Had they been such, then that fact would have been required to have been disclosed. 122 Annual Report and Accounts 2023 Mitchells & Butlers plc We considered the consistency of the directors’ forecasts with other areas of our audit, including our work on right-of-use asset impairment and revaluation of freehold and long leasehold properties. Key dependency assessment: We evaluated how the cash flow model captures events and conditions that may cast significant doubt on the ability to continue as a going concern and evaluated whether key assumptions were within a reasonable range, and assessed the plausible but severe downside scenarios, particularly whether those downside scenarios reflected plausible impacts of higher cost inflation and changes in consumer behaviour on the business. Sensitivity analysis: We assessed the downside sensitivities to check whether these represented severe but plausible scenarios based on our knowledge of the business and sector and we considered the most recent trading results to form a holistic view of the Group. Our sector experience: We assessed the forecasts and key assumptions by reference to our knowledge of the business and the general market conditions including the potential risk of management bias. We critically assessed the impact of those market conditions on sales and cost inflation assumptions included within the cash flow forecasts; Evaluating directors’ intent: We evaluated the achievability of the actions the directors consider they would take to improve the position should the risks materialise, taking into account the extent to which the directors can control the timing and outcome of these. Assessing transparency: We considered whether the going concern disclosure in note 1 to the financial statements gives a full and accurate description of the directors’ assessment of going concern, including the identified risks and, dependencies, and related sensitivities. Our results: We found the going concern disclosure in note 1 without any material uncertainty Our results to be acceptable (2022: with a material uncertainty to be acceptable). We found the going concern disclosure in note 1 without any material uncertainty to be acceptable (2022: with a material uncertainty to be acceptable). Financial StatementsThe risk Our response Recoverability of parent Company’s investment in subsidiaries (£1,866 million; 2022: £1,866 million) Refer to note 5 on page 189 (accounting policy financial disclosures). Low risk high value: The carrying amount Low risk high value of the parent Companys investments The carrying amount of the in subsidiaries represents 74% parent Company’s (2022 74%) of the Companys total investments in subsidiaries assets. Their recoverability is not a high represents 74% (2022 74%) risk of misstatement or subject to significant judgement. However, due to their of the Company’s total assets. materiality in the context of the parent Their recoverability is not a Company financial statements, this high risk of misstatement or is considered to be the area that had subject to significant the greatest effect on our overall parent judgement. However, due to Company audit. their materiality in the context of the parent Company financial statements, this is considered to be the area that had the greatest effect on our overall parent Company audit. We performed the tests below rather than seeking to rely on any of the parent Company’s controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described. Our procedures included: Test of detail: We compared the carrying amount of all investments with the relevant subsidiaries’ draft balance sheet to identify whether their net assets, being an approximation of their minimum recoverable amount, are in excess of their carrying amount and assess whether those subsidiaries have historically been profit-making. Comparing valuations: For the investments where the carrying amount exceeds the net asset value, we compared the carrying amount of the investment to the directors’ assessment of fair 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 Companys conclusion that there is no impairment Our results of its investments in subsidiaries to be acceptable (2022: acceptable). 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Independent auditor’s report to the members of Mitchells & Butlers plc continued 3. Our application of materiality and an overview of the scope of our audit 3. Our application of materiality and an overview of the scope of our audit Materiality for the Group financial statements as a whole was set at ﾣ23 million Materiality for the Group financial statements as a whole was set at (2022: ﾣ22 million), determined with reference to a benchmark of total assets, £23 million (2022: £22 million), determined with reference to a benchmark of total assets, of which it represents 0.48% (2022: 0.44%) of which it represents 0.48% (2022: 0.44%) which we consider to be appropriate which we consider to be appropriate given the sector in which the entity given the sector in which the entity operates; the majority of total asset operates; the majority of total asset value is in the pub estate and these value is in the pub estate and these assets act as security for the Groups assets act as security for the Group’s securitised borrowings and will securitised borrowings and will therefore be a focus of users of the accounts. therefore be a focus of users of the accounts. Of the Group’s 6 (2022: 6) reporting components, we subjected 5 (2022: 6) to full scope audits for group purposes and 1 (2022: Nil) to specified risk-focused audit procedures. The latter were not individually financially significant enough to require a full scope audit for group purposes, but did present specific individual risks that needed to be addressed. We conducted reviews of financial information (including enquiry) at a further 41 (2022: 40) non-significant components as these components are not quantitively or qualitatively significant. Materiality for the parent Company financial statements as a whole was 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% (2022: 0.44%). In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole. Performance materiality was set at 75% (2022: 75%) of materiality for the financial statements as a whole, which equates to £17.2 million (2022: £16.5 million) for the Group and £13.8 million (2022: £8.25 million) for the parent Company. We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk. In addition, we applied materiality of £16.4 million, to Group revenue and cash and cash equivalents (2022: £10.0 million to Group revenue), for which we believe misstatement of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the Company’s members’ assessment of the financial performance of the Group. We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £1.15 million (2022: £1.1 million), in addition to other identified misstatements that warranted reporting on qualitative grounds. The components within the scope of our work accounted for the percentages illustrated below. We subjected 1 (2022: Nil) components to specified risk-focused audit procedures over borrowings, derivative financial instruments, cash and cash equivalents, deferred tax asset, finance costs, finance income and cash flow hedges. For the residual components, we performed analysis at an aggregated group level to re-examine our assessment that there were no significant risks of material misstatement within these. The scope of the audit work performed was predominately substantive as we placed limited reliance upon the Group’s internal control over financial reporting. Important Statistics Group total assets: ﾣ4,802 million (2022: ﾣ4.951 million) Group total assets £4,802 million (2022: £4.951 million) Group materiality: ﾣ23 million (2022: ﾣ22 million) Group materiality £23 million (2022: £22 million) Whole financial statements £23m materiality: ﾣ23m Whole ﬁnancial statements materiality (2022: £22m) (2022: ﾣ22m) Whole financial statements performance £17.2m materiality: ﾣ17.2m Whole ﬁnancial statements performance materiality (2022: ﾣ16.5m) (2022: £16.5m) Range of materiality at 5 components: £20.7m ﾣ20.7m (ﾣ11.5mﾣ20.7m) Range of materiality at 5 (2022: ﾣ7.5mﾣ19.8m) components (£11.5m–£20.7m) (2022: £7.5m–£19.8m) Misstatements reported to the audit £1.15m committee: ﾣ1.15m (2022: Misstatements reported to the ﾣ1.1m) audit committee (2022: £1.1m) Group total assets 26% 6% 5% 94% (2022: 95%) 95% 68% Group total assets Group materiality Total proﬁts and losses that made up Group proﬁt before tax Group revenue 18% 6% 82% (2022: 94%) 55% 27% 94% 12% 11% 88% (2022: 89%) 89% 88% Full scope for group audit purposes 2023 Speciﬁed risk-focused audit procedures 2023 Full scope for group audit purposes 2022 Residual components Full scope for group audit purposes 2023 Speciﬁed risk-focused audit procedures 2023 Full scope for group audit purposes 2022 Residual components 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 Financial Statements4. The impact of climate change in our audit 4. The impact of climate change in our audit In planning our audit, we considered the potential impacts of climate change on the Groups In planning our audit, we considered the potential impacts of climate business and its financial statements. change on the Group’s business and its financial statements. The Group has set out its target to achieve zero greenhouse gas emissions by 2040, for Scope 1, 2 and 3 emissions, zero operation waste to landfill by 2030 and to reduce food waste by 50% by 2030 (from FY 2019 baselines). However, whilst the Group has set targets to be carbon neutral by 2050, the consequences, in terms of investment, of the gross cost of this transition, how the demand might be impacted by the price increases needed to recover these costs and the longer term changes in customer behaviour are still being assessed, as the Group considers how it will work towards meeting these targets. As part of our audit we have performed a risk assessment, including making enquiries of management, reading board meeting minutes and applying our knowledge of the Group and sector in which it operates to understand the extent of the potential impact of climate change risk on the Group’s financial statements. Taking into account the nature of the business, we have not assessed climate related risk to be significant to our audit this financial year. There was no impact on our key audit matters. We also read the Group’s disclosure of climate related information in the front half of the annual report and considered consistency with the financial statements and our knowledge gained from our financial statement audit work. 5. Going concern The directors have prepared the financial statements on the going concern basis The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the parent as they do not intend to liquidate the Group or the parent Company or to cease Company or to cease their operations, and as they have concluded that their operations, and as they have concluded that the Groups and the parent the Group’s and the parent Company’s financial position means that this Companys financial position means that this is realistic. They have also is realistic. They have also concluded that there are no material concluded that there are no material uncertainties that could have cast significant uncertainties that could have cast significant doubt over their ability to doubt over their ability to continue as a going concern for at least 12 months continue as a going concern for at least 12 months from the date of from the date of approval of the financial statements (the going concern approval of the financial statements (“the going concern period”). period). An explanation of how we evaluated management’s assessment of going concern is set out in the related key audit matter in section 2 of this report. Our conclusions based on this work: • we consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate; • we have not identified, and concur with the directors’ assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Group’s or parent Company’s ability to continue as a going concern for the going concern period; • we have nothing material to add or draw attention to in relation to the directors’ statement in note 1 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and parent Company’s use of that basis for the going concern period, and we found the going concern disclosure in note 1 to be acceptable; and • the related statement under the Listing Rules set out on page 54 is materially consistent with the financial statements and our audit knowledge. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the parent Company will continue in operation. 6. Fraud and breaches of laws and regulations ability to detect 6. Fraud and breaches of laws and regulations – ability to detect Identifying and responding to risks of material misstatement due to fraud To identify risks of material Identifying and responding to risks of material misstatement misstatement due to fraud (fraud risks) due to fraud To identify risks of material misstatement due to fraud (fraud risks) we assessed To identify risks of material misstatement due to fraud (‘fraud risks’) we assessed events or conditions that could indicate an incentive or events or conditions that could indicate an incentive or pressure to commit pressure to commit fraud or provide an opportunity to commit fraud. fraud or provide an opportunity to commit fraud. Our risk assessment procedures Our risk assessment procedures included: included: • Enquiring of directors, the audit committee, internal audit and inspection of policy documentation as to the Group’s and parent Company’s high-level policies and procedures to prevent and detect fraud, including the internal audit function, and the Group’s and parent Company’s channels for ‘whistleblowing’, as well as whether they have knowledge of any actual, suspected or alleged fraud. • Reading Board, audit committee, risk and remuneration committee meeting minutes. • Considering remuneration incentive schemes and performance targets for directors and other management. • Using analytical procedures to identify any unusual or unexpected relationships. • Considering the existence of any significant unusual transactions. We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. As required by auditing standards, and taking into account possible pressures to meet profit targets, our overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in particular the risk that Group and component management may be in a position to make inappropriate accounting entries and the risk of bias in accounting estimates and judgements such as the valuation of the estate and impairment assumptions. On this audit we do not believe there is a fraud risk related to revenue recognition because Group revenue is generated predominantly through the operation of pubs. This revenue contains no significant judgements and is comprised of a large number of small, simple transactions that are received in cash or credit card receivables at the point of sale. Therefore there is limited opportunity for management to manipulate or to fraudulently post the volume of transactions that would be required to have a material impact on revenue. We also identified a fraud risk related to the valuation of the freehold and long leasehold pub and restaurant estate. Further detail in respect of this area is set out in the key audit matter disclosures in section 2 of this report. We performed procedures including: • Identifying journal entries and other adjustments to test for all full scope components based on risk criteria and comparing the identified entries to supporting documentation. These included those posted by senior finance management/those posted to unusual accounts related to revenue, cash and borrowings, operating costs/other expenses, seldom used accounts and those that move costs out of EBITDA. • Evaluated the business purpose of significant unusual transactions. • Assessed whether the judgements made in making accounting estimates are indicative of a potential bias. Mitchells & Butlers plc Annual Report and Accounts 2023 125 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Independent auditor’s report to the members of Mitchells & Butlers plc continued 6. Fraud and breaches of laws and regulations – ability to detect continued Identifying and responding to risks of material misstatement due to non-compliance Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations with laws and regulations We identified areas of laws and regulations that could reasonably be expected to have a material We identified areas of laws and regulations that could reasonably be effect on the financial statements from our general commercial and sector experience, and expected to have a material effect on the financial statements from our through discussion with the directors and other management (as required by auditing standards), general commercial and sector experience, and through discussion with and from inspection of the Groups regulatory and legal correspondence and discussed the directors and other management (as required by auditing standards), with the directors and other management the policies and procedures regarding compliance and from inspection of the Group’s regulatory and legal correspondence with laws and regulations. and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations. 7. We have nothing to report on the other information in the Annual Report 7. We have nothing to report on the other information in the Annual Report The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial Annual Report together with the financial statements. Our opinion on statements does not cover the other information and, accordingly, we do the financial statements does not cover the other information and, not express an audit opinion or, except as explicitly stated below, any form of accordingly, we do not express an audit opinion or, except as explicitly assurance conclusion thereon. stated below, any form of assurance conclusion thereon. As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory requirements. We communicated identified laws and regulations throughout our team and remained alert to any indications of non- compliance throughout the audit. The potential effect of these laws and regulations on the financial statements varies considerably. Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, pension legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items. Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the loss of the Group’s license to operate. We identified the following areas as those most likely to have such an effect: licensing regulations, responsible drinking regulations, planning and building legislation, health and safety, data protection laws, anti-bribery, employment law, recognising the nature of the Group’s activities. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach. Context of the ability of the audit to detect fraud or breaches of law or regulation Owing to the inherent limitations of an audit, there is an unavoidable risk that we Owing to the inherent limitations of an audit, there is an unavoidable may not have detected some material misstatements in the financial statements, risk that we may not have detected some material misstatements in the even though we have properly planned and performed our audit in financial statements, even though we have properly planned and accordance with auditing standards. For example, the further removed non- compliance performed our audit in accordance with auditing standards. For example, the further removed non- compliance with laws and regulations is from with laws and regulations is from the events and transactions reflected the events and transactions reflected in the financial statements, the less in the financial statements, the less likely the inherently limited procedures likely the inherently limited procedures required by auditing standards required by auditing standards would identify it. would identify it. In addition, as with any audit, there remained a higher risk of non- detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non- compliance with all laws and regulations. 126 Annual Report and Accounts 2023 Mitchells & Butlers plc Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information. Strategic report and directors’ report Based solely on our work on the other information: Based solely on our work on the other information: • we have not identified material misstatements in the strategic report • • and the directors’ report; in our opinion the information given in those reports for the financial year is consistent with the financial statements; and in our opinion those reports have been prepared in accordance with the Companies Act 2006. Directors’ remuneration report In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Disclosures of emerging and principal risks and longer-term viability We are required to perform procedures to identify whether there is a material inconsistency between the directors’ disclosures in respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge. Based on those procedures, we have nothing material to add or draw attention to in relation to: • the directors’ confirmation on page 82 that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity; • the Risks and uncertainties disclosures describing these risks and how emerging risks are identified, and explaining how they are being managed and mitigated; and • the directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We are also required to review the viability statement, set out on pages 48 and 49 under the Listing Rules. Based on the above procedures, we have concluded that the above disclosures are materially consistent with the financial statements and our audit knowledge. Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s and parent Company’s longer-term viability. Financial StatementsCorporate governance disclosures Corporate governance disclosures We are required to perform procedures to identify whether there is a material inconsistency between the directors’ corporate governance disclosures and the financial statements and our audit knowledge. Based on those procedures, we have concluded that each of the following is materially consistent with the financial statements and our audit knowledge: • the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; • the section of the annual report describing the work of the Audit Committee, including the significant issues that the audit committee considered in relation to the financial statements, and how these issues were addressed; and • the section of the annual report that describes the review of the effectiveness of the Group’s risk management and internal control systems. We are required to review the part of the Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in this respect. 8. We have nothing to report on the other matters on which we are required to report by exception Under the Companies Act 2006, we are required to report to you if, in our opinion: Under the Companies Act 2006, we are required to report to you if, in our opinion: Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole Our objectives are to obtain reasonable assurance about whether the are free from material misstatement, whether due to fraud or error, and to issue our opinion in financial statements as a whole are free from material misstatement, an auditors report. Reasonable assurance is a high level of assurance, but does not guarantee that whether due to fraud or error, and to issue our opinion in an auditor’s an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when report. Reasonable assurance is a high level of assurance, but does not it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of guarantee that an audit conducted in accordance with ISAs (UK) will users taken on the basis of the financial statements. always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. www.frc.org.uk/auditorsresponsibilities The Company is required to include these financial statements in an annual financial report prepared under Disclosure Guidance and Transparency Rule (“DTR”) 4.1.17R and 4.1.18R. This auditor’s report provides no assurance over whether the annual financial report has been prepared in accordance with those requirements. 10. The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Companys members, as a body, in accordance This report is made solely to the Company’s members, as a body, in with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our has been undertaken so that we might state to the Companys members audit work has been undertaken so that we might state to the Company’s those matters we are required to state to them in an auditors report 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, and for no other purpose. To the fullest extent permitted by law, we do not we do not accept or assume responsibility to anyone other than the accept or assume responsibility to anyone other than the Company and the Companys Company and the Company’s members, as a body, for our audit work, members, as a body, for our audit work, for this report, or for the opinions for this report, or for the opinions we have formed. we have formed. • adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or Simon Haydn-Jones (Senior Statutory Auditor) (Senior Statutory Auditor) for and on behalf for and on behalf of KPMG LLP, Statutory Auditor of KPMG LLP, Statutory Auditor, Chartered Accountants Chartered Accountants, One Snowhill, One Snowhill Snowhill Queensway Snowhill Queensway, Birmingham, Birmingham B4 6GH 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. Directors responsibilities 9. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 70, the directors are responsible for: the As explained more fully in their statement set out on page 70, the preparation of the financial statements including being satisfied that they give a true and fair view; directors are responsible for: the preparation of the financial statements such internal control as they determine is necessary to enable the preparation of financial statements including being satisfied that they give a true and fair view; such internal that are free from material misstatement, whether due to fraud or error; assessing the Group control as they determine is necessary to enable the preparation of and parent Companys 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 financial statements that are free from material misstatement, whether intend to liquidate the Group or the parent Company or to cease operations, or have no realistic due to fraud or error; assessing the Group and parent Company’s ability alternative but to do so. 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Group income statement For the 53 weeks ended 30 September 2023 Notes Notes 2.1, 2.3 2.2, 2.3 3.7 2.2, 2.3 3.7 2.2, 2.3 blank 2.1, 2.3 Revenue Revenue 2.2, 2.3 Operating costs before depreciation, amortisation Operating costs before depreciation, amortisation and movements in the and movements in the valuation valuation of the property portfolio of the property portfolio Share in associates results Share in associates’ results Net profit arising on property disposals Net profit arising on property disposals EBITDA (Note B) before movements in the EBITDAb before movements in the valuation of the property portfolio valuation of the property portfolio Depreciation, amortisation and movements Depreciation, amortisation and movements in the valuation of the property portfolio in the valuation of the property Operating profit/(loss) Operating profit/(loss) portfolio Finance costs Finance costs Finance income Finance income Net pensions finance charge Net pensions finance charge Profit/(loss) before tax Profit/(loss) before tax Tax (charge)/credit Tax (charge)/credit blank 4.2 4.2 4.2, 4.5 blank 2.2, 2.4 2.2, 2.3 4.2 4.2 4.2, 4.5 2.2, 2.3 2.2, 2.4 Profit/(loss) for the period Profit/(loss) for the period Earnings/(loss) per ordinary share: Basic 2.5 Earnings/(loss) per ordinary share – Basic – Diluted Earnings/(loss) per ordinary share: Diluted2.5 blank 2.5 2.5 Total in Million Pounds during 2023 53 Total £m weeks 2,503 2,503 (2,145) Separately disclosed Before separately 2023 53 weeks items disclosed Before (Note items Separately separately disclosed disclosed A) in Million in Million itemsa items £m £m Pounds Pounds blank 2,503 2,503 – during during blank (2,145) 2023 2023 53 53 weeks weeks – blank 1 – 3 blank 3 3 359 (2,145) 1 3 (2,145) 1 – Total in Million Pounds during 2022 Total £m 53 weeks 2,208 2,208 (1,836) Separately disclosed Before separately 2022 52 weeks items disclosed Before (Note items Separately separately disclosed disclosed A) in Million in Million itemsa items £m £m Pounds Pounds blank 2,208 – 2,208 during during blank (1,836) 2022 2022 53 53 weeks weeks blank 1 1 blank 1 373 (1,836) 1 1 (1,836) 1 – 1 3 362 1 1 374 – – 1 359 (133) (133) 226 (116) 8 (3) 115 (19) 226 (116) 8 (3) 115 (19) 96 96 16.1p 16.1p 16.1p 16.1p 3 362 (131) (131) (128) – – – (128) 28 (128) blank blank blank (128) 28 (100) (100) blank blank (264) (264) 98 (116) 8 (3) (13) 9 98 (116) 8 (3) (13) 9 373 (133) (133) 240 (115) 1 (2) 124 (17) 240 (115) 1 (2) 124 (17) (4) (4) (0.7p) (0.7p) (0.7p) (0.7p) 107 107 18.0p 18.0p 18.0p 18.0p 1 (117) (117) (116) – – – (116) 22 (116) blank blank blank (116) 22 (94) (94) blank blank 374 (250) (250) 124 (115) 1 (2) 8 5 124 (115) 1 (2) 8 5 13 13 2.2p 2.2p 2.2p 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 Financial Statements Group statement of comprehensive income For the 53 weeks ended 30 September 2023 Item Group Notes blank (Loss)/profit for the period Items that will not be reclassified subsequently to profit or loss: Unrealised loss on revaluation of the property portfolio Remeasurement of pension liability Tax relating to items not reclassified Loss/Profit Unrealised loss on revaluation of the property portfolio Remeasurement of pension liability Items that will not Subtotal be Exchange differences on translation of foreign operations Cash flow hedges: Items reclassified that subsequently Cash flow hedges: (Losses)/gains arising during the period may to be profit Cash flow hedges: Reclassification adjustments for items included in profit or loss Tax relating to items reclassified or that may be reclassified subsequently loss: Subtotal to Other profit Total or loss: Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign operations Cash flow hedges: – (Losses)/gains arising during the period – Reclassification adjustments for items included in profit or loss Tax relating to items that may be reclassified Other comprehensive (expense)/income after tax Total comprehensive (expense)/income for the period blank blank blank blank blank The notes on pages 133 to 185 form an integral part of these consolidated financial statements. 4.3 4.3 2.4 3.1 4.5 2.4 2023, 53 Weeks, 2023 Million 53 weeks £m Pounds (4) 2022, 53 Weeks, 2022 Million 52 weeks £m Pounds 13 (76) 42 5 (29) (1) (9) 30 (5) 15 (14) (18) (187) 41 32 (114) 2 180 1 (45) 138 24 37 Mitchells & Butlers plc Annual Report and Accounts 2023 129 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Group balance sheet 30 September 2023 Item Group Goodwill and other intangible assets Assets Assets Goodwill and other intangible assets Property, plant and equipment Right-of-use assets Interests in associates Finance lease receivables Other receivables Deferred tax asset Derivative financial instruments Total non-current assets Inventories Trade and other receivables Current tax asset Finance lease receivables Derivative financial instruments Cash and cash equivalents Total current assets Total assets Pension liabilities Liabilities Liabilities Pension liabilities Trade and other payables Current tax liabilities Borrowings Lease liabilities Total current liabilities Pension liabilities Borrowings Lease liabilities Derivative financial instruments Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Called up share capital Equity Equity Called up share capital Share premium account Capital redemption reserve Revaluation reserve Own shares held Hedging reserve Translation reserve Retained earnings Total equity blank blank blank blank blank blank blank blank blank blank blank Notes 3.6 3.1 3.2 3.7 3.2 3.4 2.4 4.3 3.4 3.4 3.2 4.3 4.4 4.5 3.4 4.1 3.2 4.5 4.1 3.2 4.3 2.4 3.5 4.7 4.7 4.7 4.7 4.7 4.7 4.7 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: Tim Jones Chief Financial Officer 130 Annual Report and Accounts 2023 Mitchells & Butlers plc 2023, Million Pounds2022, Million 2023 £m 2022 £m Pounds blank blank 17 4,086 327 – 11 47 4 33 4,525 25 123 – 1 2 126 277 4,802 (1) (491) (2) (144) (33) (671) (21) (1,186) (430) (7) (348) (9) (2,001) (2,672) 2,130 51 357 3 951 (5) (4) 14 763 2,130 blank 14 4,194 339 6 12 – 4 56 4,625 23 90 1 1 4 207 326 4,951 blank (42) (408) – (130) (53) (633) (22) (1,334) (428) (28) (354) (9) (2,175) (2,808) 2,143 51 357 3 1,009 (5) (20) 15 733 2,143 Financial StatementsGroup statement of changes in equity For the 53 weeks ended 30 September 2023 Revaluation Capital redemption Share premium Called up share Share Capital Called reserve, reserve, account, capital, Revaluation redemption up share premium account reserve capital reserve Million Million Million Million £m £m £m £m 1,150 3 356 51 At 25 September 2021 1,150 3 51 356 At 25 September 2021 Pounds Pounds Pounds Pounds blank blank blank blank Profit for the period Profit for the period – – – – (141) blank blank Other comprehensive (expense)/income blank Other comprehensive (expense)/income – – – (141) (141) blank blank Total comprehensive income/(expense) blank Total comprehensive income/(expense) – – – (141) blank blank 1 blank Share capital issued – – 1 – Share capital issued blank blank blank blank Purchase of own shares – – – – Purchase of own shares blank blank blank Credit in respect of share-based payments blank Credit in respect of share-based payments – – – – blank blank blank blank Tax charge on share-based payments Tax charge on share-based payments – – – – 1,009 3 357 51 At 24 September 2022 3 51 357 1,009 At 24 September 2022 blank blank blank blank Loss for the period – – – – Loss for the period (58) blank blank Other comprehensive (expense)/income blank Other comprehensive (expense)/income – – – (58) (58) blank blank Total comprehensive (expense)/income blank Total comprehensive (expense)/income – – – (58) blank blank blank Credit in respect of share-based payments blank Credit in respect of share-based payments – – – – 951 3 357 At 30 September 2023 3 51 357 951 At 30 September 2023 Own shares Own held, shares held Million £m (3) (3) Pounds blank – blank – blank – blank – (2) (2) blank – blank – (5) (5) blank – blank – blank – blank – (5) (5) Hedging reserve, Hedging reserve Million £m (156) (156) Pounds blank – 136 136 136 136 blank – blank – blank – blank – (20) (20) blank – 16 16 16 16 blank – (4) (4) Translation reserve, Translation reserve Million £m 13 13 Pounds blank – 2 2 2 2 blank – blank – blank – blank – 15 15 blank – (1) (1) (1) (1) blank – 14 14 Retained earnings, Million Retained earnings Pounds £m 690 690 13 13 27 27 40 40 blank – blank – 4 4 (1) (1) 733 (4) 29 25 5 763 Total equity, Million Total equity Pounds £m 2,104 2,104 13 13 24 24 37 37 1 1 (2) (2) 4 4 (1) (1) 2,143 2,143 (4) (4) (14) (14) (18) (18) 5 5 2,130 2,130 (4) 29 25 5 763 733 51 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Group cash flow statement For the 53 weeks ended 30 September 2023 Item Group Operating profit Cash Cash flow from operations Operating profit flow Add back/(deduct): from Movement in the valuation of the property portfolio operations Net profit arising on property disposals Loss on disposal of fixtures, fittings and equipment Depreciation of property, plant and equipment Amortisation of intangibles Depreciation of right-of-use assets Cost charged in respect of share-based payments Administrative pension costs Share of associates results Settlement of pre existing lease contracts Fair value gain on associate Operating cash flow before movements in working capital and additional pension contributions Increase in inventories Increase in trade and other receivables Increase in trade and other payables Decrease in provisions Additional pension contributions Cash flow from operations Interest payments (Note a) Interest paymentsa Interest payments on interest rate swaps (Note a) Interest payments on interest rate swapsa Interest receipts on cross currency swap (Note a) Interest receipts on cross currency swapa Interest payments on cross currency swap (Note a) Interest payments on cross currency swapa Other interest paid – lease liabilities Borrowing facility fees paid Interest received Tax paid Net cash from operating activities Acquisition of 3Sixty Restaurants Limited Investing Investing activities Acquisition of 3Sixty Restaurants Limited activities Cash acquired on acquisition of 3Sixty Restaurants Limited Purchases of property, plant and equipment Purchases of intangible assets Proceeds from sale of property, plant and equipment Finance lease principal repayments received Net cash used in investing activities Issue of ordinary share capital Financing Financing activities Issue of ordinary share capital activities Purchase of own shares Repayment of principal in respect of securitised debt (Note b) Repayment of principal in respect of securitised debtb Principal receipts on currency swap (Note b) Principal receipts on currency swapb Principal payments on currency swap (Note b) Principal payments on currency swapb Cash payments for the principal portion of lease liabilities Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the period Foreign exchange movements Cash and cash equivalents at the end of the period 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 blank blank blank blank blank blank blank blank blank blank blank blank blank blank blank blank blank blank blank blank blank blank blank blank blank 2023, 53 Weeks, 2023 Million 53 weeks Pounds £m 2022, 52 Weeks, 2022 Million 52 weeks Pounds £m Notes 98 124 blank blank 2.2 2.2 2.3 2.3 2.3 4.6 4.5 3.7 2.2 2.2 4.5 4.4 5.1 5.1 5 131 (3) 2 93 4 36 5 5 (1) 3 (5) 368 (2) (42) 44 (1) (8) 359 (95) (7) 7 (4) (16) (2) 9 (3) 248 (17) 5 (154) (3) 3 1 (165) blank blank – – (121) 21 (16) (53) (169) (86) 190 (1) 103 4.7 4.7 4.4 4.4 4.4 4.4 4.4 4.4 blank 117 (1) – 93 4 36 4 4 (1) – – blank blank 380 (3) (19) 42 (1) (44) 355 (67) (33) 1 (1) (16) – 1 (2) 238 blank blank blank – – (117) (5) 1 3 (118) 1 (2) (115) 20 (15) (48) (159) (39) 227 2 190 Financial StatementsNotes to the consolidated financial statements Section 1 – Basis of preparation General information 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. Mitchells & Butlers plc (the Company) is a public limited company limited by shares and is registered in England and Wales. The Companys shares are listed on the London Stock Exchange. The address of the Companys registered office is shown on page 196. 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. 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. 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Foreign currencies Transactions in foreign currencies are recorded at the exchange rates Transactions in foreign currencies are recorded at the exchange rates ruling ruling on the dates of the transactions. Monetary assets and liabilities on the dates of the transactions. Monetary assets and liabilities denominated denominated in foreign currencies are translated into the functional in foreign currencies are translated into the functional currency currency at the relevant rates of exchange ruling at the balance at the relevant rates of exchange ruling at the balance sheet date. sheet date. Foreign exchange differences arising on translation are Foreign exchange differences arising on translation are recognised in recognised in the Group income statement. Non-monetary assets and the Group income statement. Non-monetary assets and liabilities are measured liabilities are measured at cost using the exchange rate on the date of at cost using the exchange rate on the date of the initial transaction. 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. 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. 134 Annual Report and Accounts 2023 Mitchells & Butlers plc Financial StatementsNew and amended IFRS Standards that are effective for the current period 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 The International Accounting Standards Board (‘IASB’) and International Financial Reporting Interpretations Committee (‘IFRIC’) have issued the standards and interpretations which have been adopted by the Group in these consolidated financial statements for the first time with the following impact. 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. Critical accounting judgements and key sources of estimation uncertainty Critical accounting judgements and key sources of estimation uncertainty The preparation of the consolidated financial statements requires The preparation of the consolidated financial statements requires management management to make judgements, estimates and assumptions in the to make judgements, estimates and assumptions in the application application of accounting policies that affect reported amounts of assets, of accounting policies that affect reported amounts of assets, liabilities, liabilities, income and expense. 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 The following standards and interpretations have been adopted by the Group in these consolidated financial statements for the first time, with no impact. Effective date 1 January 2022 1 January 2022 1 January 2022 Accounting standard Amendments to IFRS 3 (Reference to the Conceptual Framework) Amendments to IAS 16 (PPE – proceeds before intended use) 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) 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 IASB and IFRIC have issued the following standards and the Group, with an effective date for financial periods beginning on or after the dates disclosed interpretations which could impact the Group, with an effective date for below: financial periods beginning on or after the dates disclosed below: Accounting standard Amendments to IAS 1 and IFRS Practice Statement 2 (Disclosure of Accounting Policies) Amendments to IAS 8 (Definition of Accounting Estimates) Amendments to IAS 12 (Deferred Tax related to Assets and Liabilities arising from a Single Transaction) Effective date 1 January 2023 1 January 2023 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. Mitchells & Butlers plc Annual Report and Accounts 2023 135 Strategic ReportGovernanceOther InformationIntroductionFinancial 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 Groups Accounting policies Operating segments internal reporting to its Chief Operating Decision Maker (CODM). The CODM is regarded as the Chief Executive IFRS 8 Operating Segments requires operating segments to be based on the Group’s internal reporting to its Chief Operating Decision Maker together with other Board members. The Group trades in one business segment (that of operating pubs and restaurants) (‘CODM’). The CODM is regarded as the Chief Executive together with other Board members. The Group trades in one business segment and the Groups brands meet the aggregation criteria set out in Paragraph 12 of IFRS 8. Economic indicators assessed (that of operating pubs and restaurants) and the Group’s brands meet the aggregation criteria set out in Paragraph 12 of IFRS 8. Economic in determining that the aggregated operating segments share similar economic characteristics include: expected future 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 financial performance; operating and competitive risks; and return on invested capital. As such, the Group reports the business business segment. 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 Groups business is conducted in the United Kingdom. In presenting information by geographical Geographical segments segment, segment revenue and non-current assets are based on the geographical location of customers and assets. 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 Type Revenue – sales to third parties Segment non-current assetsa Segment non-current assets (Note a) 2023, 53 Weeks, Million UK Pounds, UK Germany 2022, 52 Weeks, Million 2022 52 weeks Pounds, £m 2,117 UK 4,524 2023, 53 Weeks, Million 2023 53 weeks Pounds, £m 116 Germany 46 2022, 52 Weeks, 2023, 53 Weeks, Million Million 2023 2022 53 weeks 52 weeks Pounds, Pounds, £m £m 2,503 91 Total Germany 4,488 41 2022, 52 Weeks, Million 2022 52 weeks Pounds, £m 2,208 Total 4,565 Total 2023 53 weeks £m 2,387 4,442 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 Accounting policy excludes separately disclosed items and the impact of any associated tax. Adjusted profit measures are presented excluding separately disclosed items In addition to presenting information on an IFRS basis, the Group also presents adjusted profit and earnings per share information that excludes as we believe this provides both management, investors and other stakeholders with useful additional information about the Groups performance separately disclosed items and the impact of any associated tax. Adjusted profit measures are presented excluding separately disclosed items as and supports a more effective comparison of the Groups trading performance from one period to the next. Adjusted profit and earnings per 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 share information is used by management to monitor business performance against both shorter-term budgets and forecasts but also against the Groups information is used by management to monitor business performance against both shorter-term budgets and forecasts but also against the longer-term strategic plans. 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 Accounting judgements Judgement is used to determine those items which should be separately disclosed to allow an understanding of the adjusted trading of the adjusted trading performance of the Group. This judgement includes assessment of whether an item is 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 of sufficient size or of a nature that is not consistent with normal trading activities. 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 & Butlers plc Financial StatementsThe items identified in the current period are as follows: Separately disclosed items Gaming machine settlement Fair value adjustment to investment in 3Sixty Restaurants Limited Settlement of pre-existing lease contracts on acquisition of 3Sixty Restaurants Limited Costs associated with the acquisition of 3Sixty Restaurants Limited Total separately disclosed items recognised within operating costs Net profit arising on property disposals blank blank Movement in the valuation of the property portfolio: Impairment charge arising from the revaluation of freehold and long leasehold properties Movement in the valuation of the property portfolio: – Impairment charge arising from the revaluation of freehold and long leasehold properties Movement in the valuation of the property portfolio: Net impairment of short leasehold – Net impairment of short leasehold and unlicensed properties Movement in the valuation of the property portfolio: Net impairment of right-of-use – Net impairment of right-of-use assets and unlicensed properties assetsMovement in the valuation of the property portfolio: Net impairment of goodwill – Net impairment of goodwill Notes a b c d e f g h Net movement in the valuation of the property portfolio Total separately disclosed items before tax Tax credit relating to above items Total separately disclosed items after tax blank blank blank blank 2023, 53 Weeks, 2023 53 weeks Million £m Pounds 2022, 52 2022 52 weeks Weeks, £m Million blank – Pounds – blank – blank blank – – blank 1 (86) (9) (22) – blank (117) (116) 22 (94) (1) 5 (3) (1) – 3 blank (110) (6) (14) (1) (131) (128) 28 (100) 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 Accounting policies Revenue recognition entitled in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes amounts when it transfers control of a product or service to a customer. 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 Groups outlets. Revenue is recognised when control of the Revenue – food and drink 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 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 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 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. 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 Revenue – services Revenue for services mainly represents income from gaming machines, hotel accommodation and rent receivable from unlicensed and leased from unlicensed and leased operations. Revenue for gaming machines and hotel accommodation is recognised at the operations. Revenue for gaming machines and hotel accommodation is recognised at the point the service is provided and excludes sales-based point the service is provided and excludes sales-based taxes and discounts. 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 Strategic ReportGovernanceOther InformationIntroductionFinancial 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: Operating profit is stated after charging separately disclosed items but before investment income and finance costs. 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. 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 The accrued value at the reporting date is included in other receivables. other receivables. Government grants: Government grants are not recognised until there is reasonable assurance that the Group Government grants Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and will comply with the conditions attaching to them and that the grants will be received. 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 ﾣ1,000 for each apprentice employed, where they are aged 16 to 18, or under 25 and meet certain Apprenticeship incentives 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 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 to receive up to an additional ﾣ3,000 per apprentice, where the apprentice commenced employment between 1 August 2020 and 31 January 2022. additional £3,000 per apprentice, where the apprentice commenced employment between 1 August 2020 and 31 January 2022. The payment is The payment is phased with amounts due in equal instalments at 90 days and 365 days after employment commenced and is recognised on receipt phased with amounts due in equal instalments at 90 days and 365 days after employment commenced and is recognised on receipt of cash. of cash. Local Authority grants: During the prior period, following the EU Court ruling on State Aid aggregation, the Group recognised an additional ﾣ2m of Covid-19 Local Authority grants 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 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 in the UK in November 2021, the Government introduced some further grants to help support businesses in the leisure and hospitality sectors. As UK in November 2021, the Government introduced some further grants to help support businesses in the leisure and hospitality sectors. As a a result, a further ﾣ1m of grants were recognised. 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 German Government grants of significantly lower sales under an extension of the Bridging Aid scheme. 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. Government grants: The impact of grants received on the income Government grants The impact of grants received on the income statement is as follows: statement is as follows: Government grant scheme Local Authority Grants (UK and Germany) Grants for loss of profits in Germany Apprenticeship incentives Total Government grants received Income statement line impact Revenue – other Revenue – other Revenue – other blank blank blank 2023, 53 weeks, Million Pounds2022, 52 weeks, 2023 53 weeks £m – – 1 1 2022 52 weeks £m 3 1 1 5 Million Pounds VAT 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 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 12.5% applied for the six month period from 1 October 2021 until 31 March 2022. The estimated impact of this on food and 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 drink revenue in the current period is ﾣnil (2022 ﾣ43m). (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 ﾣnil (2022 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). ﾣ5m). Revenue: Revenue is analysed Revenue Revenue is analysed as follows: as follows: Type Food Drink Services Other – Local Authority grants (UK and Germany) Other – German Government grants for loss of profits Other – Apprenticeship incentives Total 2023, 53 weeks, Million Pounds blank blank 2023 53 weeks £m 1,323 1,092 87 – – 1 2,503 2022, 52 weeks, 2022 52 weeks Million £m 1,166 Pounds 957 80 3 1 1 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 Financial StatementsOperating costs: Operating costs are analysed as follows: Operating costs Operating costs are analysed as follows: Type 2023, 53 weeks, Million Pounds Raw materials and food and drink consumables recognised as an expense (Note a) Property operating lease costs (Note b) Raw materials and food and drink consumables recognised as an expensea Changes in inventory of finished goods and work in progress Employee costs Hire of plant and machinery Property operating lease costsb Utility costs Business rates Other pub costs Other central costs Operating costs before depreciation and amortisation Net profit arising on property disposals Depreciation of property, plant and equipment (note 3.1) Depreciation of right-of-use assets (note 3.2) Amortisation of intangible assets (note 3.6) Net movement in the valuation of the property portfolio (note 2.2) Depreciation, amortisation and movements in the valuation of the property portfolio Total operating costs 2023 53 weeks £m 673 (2) 878 23 8 161 86 257 61 2022, 52 weeks, 2022 52 weeks Million £m Pounds 556 (3) 758 21 9 152 91 207 45 2,145 1,836 (3) (1) 93 36 4 131 264 93 36 4 117 250 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 Type Wages and salaries Share-based payments (note 4.6) Social security costs Pensions (note 4.5) Total employee costs 2023, 53 weeks, Million Pounds 2023 53 weeks £m 795 5 61 17 2022, 52 weeks, 2022 52 weeks Million £m Pounds 684 4 54 16 878 758 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the consolidated financial statements continued Section 2 – Results for the period continued 2.3 Revenue and operating costs continued Auditor remuneration Item 2023, 53 weeks, Million Pounds 2023 53 weeks £m Fees payable to the Groups auditor for the audit of the consolidated financial statements Fees payable to the Group’s auditor for the: – audit of the consolidated financial statements – audit of the Company’s subsidiaries’ financial statements Fees payable to the Groups auditor for the audit of the Companys subsidiaries financial statements Total audit fees (Note a) Total audit feesa Other fees to auditor: audit-related assurance services Other fees to auditor: – audit-related assurance services Total non-audit fees Total fees blank blank 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 2022, 52 weeks, 2022 52 weeks Million £m Pounds 0.2 0.5 0.7 blank – – blank 0.3 0.6 0.9 – – 0.9 0.7 Accounting policies: The income tax (charge)/credit represents both the income tax payable, based on profits/(losses) for the period, and deferred tax and Accounting policies 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 The income tax (charge)/credit represents both the income tax payable, based on profits/(losses) for the period, and deferred tax and is calculated statement because it excludes items of income or expense which are not taxable. Income tax is recognised in the income statement except when it 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 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 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 in other comprehensive income or directly in equity. 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 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. statements and the corresponding tax bases used in the computation of taxable profits and is accounted for using the balance sheet liability Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent probable that taxable profits will be available against which deductible temporary differences can be utilised. 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 & Butlers plc Financial StatementsTaxation – Group income statement Item Current tax: Corporation tax Current tax: – Corporation tax – Amounts over-provided in prior periods Current tax: Amounts over-provided in prior periods Total current tax charge Deferred tax: Origination and reversal of temporary differences Deferred tax: – Origination and reversal of temporary differences – Effect of changes in UK tax rate Deferred tax: Effect of changes in UK tax rate Total deferred tax credit Total tax credit in the Group income statement Further analysed as tax relating to: Profit before separately disclosed items Further analysed as tax relating to: Profit before separately disclosed items Separately disclosed items Further analysed as tax relating to: Separately disclosed items Total 2023, 53 weeks, Million Pounds 2023 53 weeks £m 2022 52 weeks £m 2022, 52 weeks, Million Pounds Blank (5) – (5) 11 3 14 9 (19) 28 9 (3) 1 (2) 3 4 7 5 (17) 22 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: Item (Loss)/profit before tax 2023, 53 weeks, Million Pounds 2023 53 weeks £m (13) Taxation credit/(charge) at the UK standard rate of corporation tax of 22.0% (2022 19.0%) Expenses not deductible Permanent benefits Tax credit in respect of change in UK tax rate Adjustment in respect of prior periods Effect of different tax rates of subsidiaries in other jurisdictions Total tax credit in the Group income statement Taxation for other jurisdictions is calculated at the rates prevailing in those jurisdictions. Blank 3 (1) 5 3 – (1) 9 2023, 53 weeks, Million Pounds Deferred tax in the Group income statement: Accelerated capital allowances Retirement benefit obligations Unrealised losses on revaluations Tax losses – UK Tax losses – Interest restriction Total deferred tax credit in the Group income statement Blank Blank Blank 2023 53 weeks £m (14) – 28 – – 14 2022, 52 weeks, 2022 52 weeks Million £m Pounds (12) (8) 23 (9) 13 7 Mitchells & Butlers plc Annual Report and Accounts 2023 141 2022, 52 2022 52 weeks weeks, £m 8 Million Pounds (1) (2) 4 4 1 (1) 5 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the consolidated financial statements continued Section 2 – Results for the period continued 2.4 Taxation continued Taxation – other comprehensive income Deferred tax: 2023, 53 weeks, Million Pounds Items that will not be reclassified subsequently to profit or loss: Unrealised losses due to revaluations revaluation reserve Items that will not be reclassified subsequently to profit or loss: – Unrealised losses due to revaluations – revaluation reserve – Unrealised gains due to revaluations – retained earnings – Remeasurement of pension liability Items that will not be reclassified subsequently to profit or loss: Unrealised Items that will not be reclassified subsequently to profit or loss: Remeasurement gains due to revaluations retained earnings of pension liability Total Items that may be reclassified subsequently to profit or loss: Cash flow hedges Items that may be reclassified subsequently to profit or loss: – Cash flow hedges Total tax charge recognised in other comprehensive income blank Tax relating to items recognised directly in equity Deferred tax: – Tax charge related to share-based payments The deferred tax assets and liabilities recognised in the Group balance sheet are shown Taxation – Group balance sheet The deferred tax assets and liabilities recognised in the Group balance sheet are shown below: below: Type Group Retirement benefit obligation (note 4.5) Deferred tax assets: Deferred tax assets: Retirement benefit obligation (note 4.5) Derivative financial instruments Tax losses – UK Share-based payments Right-of-use assets Tax losses – Interest restriction Total deferred tax assets Accelerated capital allowances Deferred Tax Liabilities: Deferred tax liabilities: Accelerated capital allowances Rolled over and held over gains Unrealised gains on revaluations Depreciated non-qualifying assets Total deferred tax liabilities Total Total 2023 53 weeks £m 2022, 52 2022 52 weeks weeks, £m Million Pounds 18 (4) (9) 5 (5) – 46 (5) (9) 32 (45) (13) 2023, 53 weeks, 2023 53 weeks Million Pounds £m 2022, 52 weeks, 2022 52 weeks Million £m Pounds – (1) 2023, Million Pounds 2023 £m 2022, Million 2022 £m Pounds 5 3 43 2 6 13 72 (72) (164) (176) (4) (416) (344) 14 8 43 2 6 13 86 (57) (164) (211) (4) (436) (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: Item 2023, Million Pounds Deferred tax assets (after offsetting) Deferred tax assets (after offsetting) Deferred tax liabilities (after offsetting) Deferred tax liabilities (after offsetting) Net deferred tax liability Net deferred tax liability 4 (348) (344) 2023 £m 4 (348) (344) 2022, Million 2022 £m Pounds 4 4 (354) (354) (350) (350) 142 Annual Report and Accounts 2023 Mitchells & Butlers plc Financial StatementsUnrecognised tax allowances: At the balance sheet date the Group had unrecognised tax allowances of ﾣ90m in respect of unclaimed 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 capital allowances (2022 ﾣ95m) available for offset against future profits. 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. Factors which may affect future tax charges The effect of this change has been reflected in the closing deferred tax balances at 24 September 2022 and 30 September 2023. 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 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. 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: Item Financial Year 2023, Million Pounds (Loss)/profit for the period Separately disclosed items, net of tax Adjusted profit for the perioda Adjusted profit for the period (Note a) 2023 53 weeks £m (4) 100 96 Financial 2022 52 weeks Year £m 2022, 13 Million 94 Pounds 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: Item 2023, 53 weeks, Million Pounds Effect of dilutive potential ordinary shares: Contingently issuable shares Basic weighted average number of ordinary shares Effect of dilutive potential ordinary shares: – Contingently issuable shares Diluted weighted average number of shares blank Item Group 2023, 53 weeks, pence Basic (loss)/earnings per share Basic Basic earnings/(loss) per share earnings/(loss) Basic (loss)/earnings per share Separately disclosed items net of tax per share Separately disclosed items net of tax per share per Adjusted basic earnings per sharea Adjusted basic earnings per share (Note a) share Diluted earnings/(loss) per share Diluted earnings per share Adjusted diluted earnings per sharea Diluted earnings per share Diluted earnings/(loss) per Adjusted diluted earnings per share (Note a) share 2023 53 weeks £m 595 2022, 52 weeks, 2022 52 weeks Million £m Pounds 595 – 595 1 596 2023 53 weeks pence 2022, 52 weeks, 2022 52 weeks pence pence (0.7p) 16.8p 16.1p (0.7)p 16.1p 2.2p 15.8p 18.0p 2.2p 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the consolidated financial statements continued Section 3 – Operating assets and liabilities 3.1 Property, plant and equipment Accounting policies - Property, plant and equipment: The majority of the Groups freehold and long leasehold licensed land and buildings, and the associated Accounting policies landlords fixtures, fittings and equipment (i.e. fixed fittings) are revalued annually and are therefore held at fair value less depreciation. Tenants 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 fixtures and fittings (i.e. loose fixtures) within freehold and long leasehold properties, are held at cost less depreciation and impairment. (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 Depreciation 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 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 and adjusted if appropriate. No adjustments have been made in the period. 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 Information technology equipment fittings: 3 to 20 years Fixtures and fittings 3 to 7 years 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 Disposals Profits and losses on disposal of property, plant and equipment are calculated as the difference between the net sales proceeds and the carrying proceeds and the carrying amount of the asset at the date of disposal. 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 Revaluation are individually valued approximately every five years. The valuation utilises estimates of fair maintainable trade and valuation multiples, with fair maintainable 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 trade comprising estimates of both fair maintainable turnover (FMT) and fair maintainable operating profit (FMOP), and estimated fair maintainable trade comprising estimates of both fair maintainable turnover (‘FMT’) and fair maintainable operating profit (‘FMOP’), and estimated value of tenants fixtures and fittings. The revaluation determined by the annual inspection was carried out in accordance with the RICS Valuation fair value of tenant’s fixtures and fittings. The revaluation determined by the annual inspection was carried out in accordance with the RICS Global Standards 2022 which incorporate the International Valuation Standards and the RICS Valuation Professional Standards UK (the Red Book) Valuation – Global Standards 2022 which incorporate the International Valuation Standards and the RICS Valuation – Professional Standards UK assuming each asset is sold as a fully operational trading entity. (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). 144 Annual Report and Accounts 2023 Mitchells & Butlers plc Financial Statements Impairment Impairment: Short leaseholds, unlicensed properties and fixtures and fittings are reviewed on an outlet basis for impairment if events Short leaseholds, unlicensed properties and fixtures and fittings are reviewed on an outlet basis for impairment if events or changes in or changes in circumstances indicate that the carrying amount may not be recoverable. Further details of the impairment circumstances indicate that the carrying amount may not be recoverable. Further details of the impairment policy are provided in the impairment policy are provided in the impairment note 3.3. note 3.3. Accounting judgements - Revaluation of freehold and long leasehold properties: The revaluation methodology is determined, with advice from CBRE, independent Accounting judgements chartered surveyors and incorporates management judgement where appropriate. The application of a valuation multiple to the fair maintainable Revaluation of freehold and long leasehold properties trade of each site is considered the most appropriate method for the Group to determine the fair value of freehold and long leasehold licensed 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 land and buildings. 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 Significant accounting estimates Revaluation of freehold and long leasehold properties requires two significant estimates; the estimation of valuation multiples, which are determined via third-party inspections; The application of the valuation methodology requires two significant estimates; the estimation of valuation multiples, which are determined via and an estimate of fair maintainable trade, consisting of estimates of both fair maintainable turnover (FMT) and third-party inspections; and an estimate of fair maintainable trade, consisting of estimates of both fair maintainable turnover (‘FMT’) and fair fair maintainable operating profit (FMOP). 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). Mitchells & Butlers plc Annual Report and Accounts 2023 145 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Total, Million Total Pounds £m Fixtures, fittings Fixtures, fittings and equipment and equipment, £m Million Pounds Notes to the consolidated financial statements continued Section 3 – Operating assets and liabilities continued Property, plant and equipment can be analysed 3.1 Property, plant and equipment continued Property, plant and equipment as follows: Property, plant and equipment can be analysed as follows: Item Group Land and buildings, Million Pounds Cost or valuation At 25 September 2021 Disposals (Note a) Cost or valuation At 25 September 2021 Additions Disposalsa Net decrease from property revaluation Impairment of short leasehold properties Exchange differences At 24 September 2022 Acquired through business combinations (note 5.1) Additions Disposalsa Net decrease from property revaluation Impairment of short leasehold properties Exchange differences At 30 September 2023 Disposals (Note a) Accumulated depreciation Disposals (Note a) At 25 September 2021 Accumulated depreciation At 25 September 2021 Provided during the period Disposalsa Exchange differences At 24 September 2022 Provided during the period Disposalsa Exchange differences At 30 September 2023 Disposals (Note a) Net book value At 30 September 2023 Net book value At 30 September 2023 At 24 September 2022 At 25 September 2021 blank blank blank Land and buildings £m 4,076 41 (9) (273) (5) 1 3,831 26 36 (7) (186) (1) – 3,699 80 5 (5) – 80 5 (5) – 80 3,619 3,751 3,996 blank blank 943 89 (106) – (4) 1 923 3 115 (93) – (5) (1) 942 497 88 (106) 1 480 88 (92) (1) 475 467 443 446 5,019 130 (115) (273) (9) 2 4,754 29 151 (100) (186) (6) (1) 4,641 577 93 (111) 1 560 93 (97) (1) 555 4,086 4,194 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 Financial StatementsRevaluation of freehold and long leasehold properties: The fair value has been determined by estimations of fair maintainable trade and brand valuation multiples. Revaluation of freehold and long leasehold properties Consideration has been given to current cost inflationary pressures notably on food, labour, energy and other pub operating costs, as well as location, The fair value has been determined by estimations of fair maintainable trade and brand valuation multiples. Consideration has been given to current 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 cost inflationary pressures notably on food, labour, energy and other pub operating costs, as well as location, quality of the pub restaurant and recent of the current demand in the freehold licensed property market and fair maintainable trade includes adjusted fair maintainable operating profit (FMOP) 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. margins. Sensitivity analysis: Changes in the fair maintainable trade, or the multiple could materially impact the valuation of the freehold and long leasehold properties, Sensitivity analysis and as such they are both considered to be significant estimates in the current period. 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 Fair maintainable trade excluding the sites with investment in the current period which are only assessed for impairment. Judgement has been applied to determine the adjusted 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 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 adjusted FMOP by assessing the extent that current levels of inflation are considered to be impacting on freehold licensed property values. As a 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 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 through the reporting period the fair maintainable trade used as the basis in property valuations may decline by a further 6%. Assuming multiples remain 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%. stable, and without applying any further judgement on the resulting property valuation, this would generate an approximate ﾣ188m reduction in the valuation. 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 Multiples 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 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 a 0.2 change in the multiple would generate an approximate ﾣ78m movement in valuation. 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 Impairment review value, are reviewed for impairment as described in the impairment note 3.3. A net impairment of ﾣ6m (2022 ﾣ9m) has been recognised against short Short leasehold and unlicensed properties (comprising land, buildings, fixtures, fittings and equipment) which are not revalued to fair market value, leasehold and unlicensed properties in the period. 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 Revaluation and impairment recognised adjustments have been taken to the revaluation reserve or Group income statement as appropriate. 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: Item Group Revaluation deficit charged as an impairment Group Group income statement income Revaluation deficit charged as an impairment statement Reversal of past revaluation deficits Total impairment charge arising from the revaluation Impairment of short leasehold and unlicensed properties (note 3.3) Reversal of past impairments of short leasehold and unlicensed properties (note 3.3) Net impairment of short leaseholds and unlicensed properties Total impairment charge recognised in the income statement Unrealised revaluation surplus Group Group statement of other comprehensive income statement Unrealised revaluation surplus of Reversal of past revaluation surplus other comprehensive Total movement recognised in other comprehensive income income Total Net decrease in property, plant and equipment 2023, 53 weeks, Million Pounds 2023 53 weeks £m 2022, 52 weeks, 2022 52 weeks Million £m Pounds (162) 52 (110) (11) 5 (6) (115) 29 (86) (9) – (9) blank (116) (95) 162 (238) (76) (192) 60 (247) (187) (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 Strategic ReportGovernanceOther InformationIntroductionFinancial 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. 30 September 2023 Freehold properties Long leasehold properties Total revalued properties Short leasehold properties Unlicensed properties Other non-pub assets Assets under construction Total property, plant and equipment 24 September 2022 Freehold properties Long leasehold properties Total revalued properties Short leasehold properties Unlicensed properties Other non-pub assets Assets under construction Total property, plant and equipment blank blank blank blank blank blank blank blank blank blank Number of pubs Land and buildings, Million Pounds Land and buildings £m Fixtures, fittings Fixtures, fittings and and equipment, equipment £m Million Pounds 368 31 Net book value Net book (Note valuea £m a), Million Pounds 3,666 267 1,330 94 3,298 236 1,424 3,534 58 16 1 10 3,619 1,328 94 3,419 243 1,422 3,662 61 14 2 12 3,751 399 55 2 5 6 467 3,933 113 18 6 16 4,086 374 56 3 5 5 443 4,036 117 17 7 17 4,194 Number of pubs Land and buildings, Land and Million buildings £m Pounds Fixtures, Fixtures, fittings fittings and and equipment, equipment £m Million Pounds 344 30 Net book value Net book valuea (Note £m a), Million Pounds 3,763 273 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 30 September 2023 to FMOP: Number of pubs in each FMOP income banding: < ﾣ200k Number of pubs in each FMOP income banding: Over 10 p.a. < £200k p.a. times Number of pubs in each FMOP income banding: ﾣ200k £200k to £360k p.a. Number of pubs in each FMOP income banding: > ﾣ360k to ﾣ360k p.a. > £360k p.a. p.a.Total 83 10 53 146 Over 10 times 24 September 2022 Number of pubs in each FMOP income banding: < £200k p.a. £200k to £360k p.a. > £360k p.a. Total 67 21 65 153 8 to 9 times 9 to 10 times Valuation multiple applied to FMOP: 9 to 10 times Valuation multiple Valuation multiple applied to FMOP applied to FMOP: 8 to 9 times Valuation multiple Valuation multiple applied applied to FMOP: to FMOP: Under 7 7 to times 8 times Under 7 times 7 to 8 times Total Valuation multiple applied to FMOP: Total Over 10 times Valuation multiple applied to FMOP: Over 10 times 8 to 9 times 9 to 10 times Valuation multiple applied to FMOP: 9 to 10 times Valuation multiple Valuation multiple applied to FMOP applied to FMOP: 8 to 9 times Valuation multiple applied to FMOP: 7 to 8 times Valuation multiple applied to FMOP: Under 7 times Under 7 times 7 to 8 times Valuation multiple applied Total to FMOP: Total 42 116 112 270 59 148 148 355 174 205 264 643 129 188 242 559 179 80 51 310 174 102 38 314 17 14 24 55 17 13 11 41 495 425 504 1,424 446 472 504 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 & Butlers plc Financial StatementsCapital commitments Item Contracts placed for expenditure on property, plant and equipment not provided for in the consolidated financial statements 3.2 Leases Leases 3.2 Leases Leases – Group as lessee Leases Group as lessee 2023, Million Pounds2022, Million 2023 £m 2022 £m Pounds 12 28 Accounting policies: The Group assesses whether a contract is or contains a lease, Accounting policies The Group assesses whether a contract is or contains a lease, at inception of the contract. 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 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 36 Impairment of Assets, as described in the policy in the impairment note 3.3. note 3.3. Mitchells & Butlers plc Annual Report and Accounts 2023 149 Strategic ReportGovernanceOther InformationIntroductionFinancial 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: Item Group CostAt 25 September 2021 Cost At 25 September 2021 Additionsa Disposals Foreign currency movements At 24 September 2022 Acquired through business combinations (note 5.1) Additionsa Disposals Foreign currency movements At 30 September 2023 At 25 September 2021 Accumulated Accumulated depreciation and impairment depreciation At 25 September 2021 and Provided during the period impairment Disposals Impairment Foreign currency movements At 24 September 2022 Provided during the period Disposals Impairment At 30 September 2023 At 30 September 2023 Net Net book value At 30 September 2023 book value At 24 September 2022 At 25 September 2021 Land and buildings, Land and buildings Million Pounds £m Cars, Million Cars Pounds £m Total, Million Total Pounds £m 555 24 (13) 2 568 6 32 (12) (2) 5 2 (1) – 6 – 4 – – blank blank blank blank 560 26 (14) 2 574 6 36 (12) (2) 592 10 602 178 35 (4) 22 1 232 35 (10) 14 271 321 336 377 blank blank blank blank 3 1 (1) – – 3 1 – – 4 6 3 2 181 36 (5) 22 1 235 36 (10) 14 275 327 339 379 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 review of right-of-use assets Impairment is considered at a cash-generating unit level. A net impairment of ﾣ14m (2022 ﾣ22m) has been recognised against 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 in the period. Details of the impairment review at a cash-generating unit level are disclosed in note 3.3. 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 Financial StatementsLease liabilities: A maturity analysis of the undiscounted future lease payments used to calculate the lease liabilities is shown Lease liabilities below. A maturity analysis of the undiscounted future lease payments used to calculate the lease liabilities is shown below. 2023, Million Pounds Amounts payable under lease liabilities Due within one year Due between one and two years Due between two and three years Due between three and four years Due between four and five years Due between five and ten years Due between ten and fifteen Due between fifteen and twenty Due between twenty and twenty five years Due between twenty five and thirty years Due after thirty years Total undiscounted lease liabilities Less: impact of discounting Present value of lease liabilities Analysed as: Current lease liabilities principal amounts due within twelve months Analysed as: Current lease liabilities – principal amounts due within twelve months Non-current lease liabilities – principal amounts due after twelve months Analysed as: Non-current lease liabilities principal amounts due after twelve months 2023 £m 49 52 51 42 47 160 115 66 18 11 79 690 (227) 463 33 430 463 2022, Million 2022 £m Pounds 68 42 47 43 38 162 113 73 24 12 80 702 (221) 481 53 428 481 Leases Group as lessor Leases – Group as lessor Accounting policy: The Group enters into lease agreements as a lessor with respect to some of its properties. The properties 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 are operated as either licensed or unlicensed businesses by the tenants. 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements 1 1 1 1 2 9 15 (3) 12 1 11 12 1 1 1 1 1 20 25 (12) 13 1 12 13 Notes to the consolidated financial statements continued Section 3 – Operating assets and liabilities continued 3.2 Leases continued A maturity analysis of the undiscounted future lease payments receivable used to calculate the finance lease receivable is shown below. 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, Million Pounds 2023 £m 2022, Million 2022 £m Pounds Amounts receivable under finance leases Due within one year Due between one and two years Due between two and three years Due between three and four years Due between four and five years Due after five years Total undiscounted lease payments receivable Less: unearned finance income Present value of lease payments receivable Net investment in the leases is analysed as: Current finance lease receivables Net investment in the leases is analysed as: amounts due within twelve months Current finance lease receivables – amounts due within twelve months Non-current finance lease receivables – amounts due after twelve months Net investment in the leases is analysed as: Non-current finance lease receivables amounts due after twelve months 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 Group as lessor – Operating leases have terms of 50 years or less and are classified as operating leases. Where sublet arrangements are in place, future minimum lease payments 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 and receipts are presented gross. 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: Timeframe Due within one year Due between one and two years Due between two and three years Due between three and four years Due between four and five years Due after five years Total 2023, Million Pounds 2023 £m 10 9 8 7 6 35 75 2022 2022, Million £m Pounds 9 8 8 6 6 34 71 The total value of future minimum sub-lease rental receipts included above is £4m (2022 £4m). 152 Annual Report and Accounts 2023 Mitchells & Butlers plc Financial Statements3.3 Impairment Accounting policies - Impairment Property, plant and equipment, right-of-use assets and goodwill: As described in the property, plant and equipment Accounting policies 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 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), unit level, with this being an individual outlet. 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 Accounting judgements outlet level impairment review, judgement has been applied to determine the most appropriate site level profit and cash flow forecasts based 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 on the Group forecast for FY 2024 to FY 2026 that was in place at the balance sheet date. 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: Other sources of estimation uncertainty The impairment review requires two key sources of estimation uncertainty in calculating the value in use: the estimation of forecast cash flows for Impairment review of cash-generating units – property, plant and equipment, right-of-use assets and goodwill each site and the selection of an appropriate discount rate. The discount rate is applied consistently to each cash-generating unit. 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 Impairment review of cash-generating units, comprising property, plant and equipment, right-of-use assets and goodwill as the higher of the value in use, or fair value less costs to sell for each outlet. 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 Strategic ReportGovernanceOther InformationIntroductionFinancial 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. Item Short leasehold properties Right-of-use assets Goodwill Total Item Short leasehold properties Right-of-use assets Goodwill Total Note 3.1 3.2 3.6 Note 3.1 3.2 3.6 blank blank Carrying value, Carrying value 2023, Million 2023 £m Pounds 113 327 2 442 Impairment charges, 2023, Million Pounds Impairment charges 2023 £m (11) (27) (1) (39) Net impairment, Impairment reversals, Net impairment 2023, 2023, 2023 £m Million Million (6) Pounds Pounds (14) (1) (21) Impairment reversals 2023 £m 5 13 – 18 blank Carrying value, Carrying value 2022, Million 2022 £m Pounds 117 339 2 458 Impairment charges, 2022, Million Pounds Impairment charges 2022 £m (9) (22) – (31) Net impairment, Impairment reversals, Net impairment 2022, 2022, 2022 £m Million Million blank (9) Pounds Pounds blank (22) blank – blank (31) Impairment reversals 2022 £m – – – – blank blank Impairment review of corporate level assets: In addition to the cash-generating unit level impairment review performed, the overall Groups cash-generating Impairment review of corporate level assets units have been grouped together to ensure that the corporate level assets are also considered for impairment. The assumptions are consistent In addition to the cash-generating unit level impairment review performed, the overall Group’s cash-generating units have been grouped together to with those described above for the value in use calculations performed at an individual outlet level, whilst also including unallocated central overheads. 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 As a result of this review, no impairment of corporate assets has been recognised in the current period (2022 ﾣnil) and the Directors consider that of corporate assets has been recognised in the current period (2022 £nil) and the Directors consider that it is not a reasonable expectation that it is not a reasonable expectation that a material impairment could occur in FY 2024 (2022 same expectation for FY 2023). a material impairment could occur in FY 2024 (2022 same expectation for FY 2023). Sensitivity analysis Sensitivity analysis: Changes in forecast cash flows or the discount rate could impact the impairment charge recognised Changes in forecast cash flows or the discount rate could impact the impairment charge recognised against the cash-generating units, and corporate against the cash-generating units, and corporate level assets. 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 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 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 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 of ﾣ8m to the net impairment charge recognised. impairment charge recognised. Discount rate: The pre-tax discount rate applied to the forecast cash flows is derived from the Groups post-tax weighted average cost of capital (WACC). 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 Groups WACC are benchmarked to externally available data. A single discount rate is applied 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 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 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 ﾣ5m to the net impairment charge recognised. rate would result in an increase of £5m to the net impairment charge recognised. 3.4 Working capital Inventories 3.4 Working capital Inventories Accounting policy: Inventories are stated at the lower of cost and net realisable value. Cost is calculated using Accounting policy Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method. the weighted average method. Inventories can be analysed as follows: Item Goods held for resale Trade and other receivables 2023, Million Pounds 2023 £m 25 2022, Million Pounds 2022 £m 23 Accounting policy: Trade receivables are initially recognised at transaction price and other receivables are initially recognised at fair value. Subsequently, Accounting policy these assets are measured at amortised cost. This results in their recognition at nominal value less an allowance for any doubtful debts. The Trade receivables are initially recognised at transaction price and other receivables are initially recognised at fair value. Subsequently, these assets allowance for doubtful debts is recognised based on managements expectation of losses without regard to whether an impairment trigger happened 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 or not (an expected credit loss model). The Group always measures the loss allowance for trade receivables using the simplified model at ‘expected credit loss’ model). The Group always measures the loss allowance for trade receivables using the simplified model at an amount equal 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 to lifetime ECL. Loss allowance for other receivables is measured either at twelve months or lifetime ECL depending on whether the credit risk has risk has increased significantly since initial recognition (see financial assets impairment policy in note 4.3). increased significantly since initial recognition (see financial assets impairment policy in note 4.3). 154 Annual Report and Accounts 2023 Mitchells & Butlers plc Financial StatementsTrade and other receivables can be analysed as follows: Current Item Trade receivables Other receivables Gaming machine settlement receivablea Gaming machine settlement receivable (Note a) Prepayments Other financial assetsb Other financial assets (Note b) Defined benefit pension blocked accountc Defined benefit pension blocked account (Note c) Total trade and other receivables Non-current Type Defined benefit pension blocked accounts (Note c) Defined benefit pension blocked accountsc 2023, Million Pounds blank blank 2023 £m 17 16 – 32 58 – 123 2022, Million 2022 £m Pounds 13 16 20 11 21 9 90 2023, Million Pounds2022, Million 2023 £m 47 2022 £m – Pounds blank 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 MABPP 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 Accounting policy Trade and other payables are initially recognised at fair value and recognised subsequently at amortised cost. subsequently at amortised cost. Trade and other payables can be analysed as follows: Type 2023, Million Pounds Trade payables Other taxation and social security Accrued charges Deferred income Other payables Other financial liabilities (Other financial liabilities relate to cash collateral Other financial liabilitiesa provided by a swap counterparty (see note 4.3). ) Total trade and other payables a. Other financial liabilities relate to cash collateral provided by a swap counterparty (see note 4.3). 2023 £m 100 100 182 29 22 58 491 2022, Million 2022 £m Pounds 106 87 151 23 20 21 408 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the consolidated financial statements continued Section 3 – Operating assets and liabilities continued 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 Accounting policy not that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are measured using 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 the Directors best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where 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. 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 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. 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: Item At 25 September 2021 Provided in the period Utilised in the period Released in the period At 24 September 2022 Provided in the period Utilised in the period Released in the period At 30 September 2023 Onerous property provisions, Million Pounds Onerous property provisions £m 3 2 (1) (1) Dilapidation Dilapidation provisions provisions, £m 6 Million 1 Pounds blank – (1) Total property Total property provisions provisions, £m 9 Million 3 Pounds (1) (2) blank blank 3 1 (2) – 2 6 2 – (1) 7 9 3 (2) (1) 9 156 Annual Report and Accounts 2023 Mitchells & Butlers plc Financial Statements3.6 Goodwill and other intangible assets Accounting policies - Business combinations and goodwill: Acquisitions of subsidiaries and businesses are accounted for using Accounting policies Business combinations and goodwill the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values of assets Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured given and liabilities incurred or assumed by the Group in exchange for control of the acquiree. Acquisition-related costs 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. are recognised in the income statement as incurred. 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, 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 are capitalised as an intangible asset and amortised on a straight-line basis over their useful life. The period of amortisation asset and amortised on a straight-line basis over their useful life. The period of amortisation ranges between three and seven years with the ranges between three and seven years with the majority being five years. 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 Brands costs. Brand intangibles are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. 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. Mitchells & Butlers plc Annual Report and Accounts 2023 157 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the consolidated financial statements continued Section 3 – Operating assets and liabilities continued Intangible assets: Intangible assets can be 3.6 Goodwill and other intangible assets continued Intangible assets analysed as follows: Intangible assets can be analysed as follows: Item Group CostAt 25 September 2021 Cost At 25 September 2021 Additions Additions Disposals Disposals At 25 September 2022 At 25 September 2022 Acquired through business combinations (note 5.1) Acquired through business combinations (note 5.1) Additions Additions Disposals Disposals At 30 September 2023 At 30 September 2023 At 25 September 2021 Accumulated Accumulated amortisation and impairment amortisation At 25 September 2021 and Provided during the period Provided during the period impairment Disposals Disposals At 24 September 2022 At 24 September 2022 Provided during the period Provided during the period Impairment Impairment Disposals Disposals At 30 September 2023 At 30 September 2023 Net book value At 30 September 2023 At 30 September 2023 Net book value At 24 September 2022 At 24 September 2022 At 25 September 2021 At 25 September 2021 7 blank blank 7 1 blank blank 8 5 blank blank 5 blank 1 blank 6 2 2 2 Goodwill, Million Pounds Goodwill £m Brands, Million Brands Pounds £m blank Computer software £m Computer software, Million 18 Pounds Total, Million Total Pounds £m 25 7 – – 7 1 – – 8 5 – – 5 – 1 – 6 2 2 2 blank blank blank 5 blank blank 5 blank blank blank blank blank blank blank blank 5 blank blank – – – – 5 – – 5 – – – – – – – – 5 – – 5 (3) 20 blank 4 (6) 18 7 4 (3) 8 4 blank (4) 8 10 12 11 18 5 (3) 20 – 4 (6) 18 7 4 (3) 8 4 – (4) 8 10 12 11 5 (3) 27 6 4 (6) 31 12 4 (3) 13 4 1 (4) 14 17 14 13 25 5 (3) 27 6 4 (6) 31 12 4 (3) 13 4 1 (4) 14 17 14 13 Goodwill and brands: With the exception of goodwill, there are no intangible assets with indefinite useful lives. Goodwill and brands With the exception of goodwill, there are no intangible assets with indefinite useful lives. All amortisation charges have been expensed through All amortisation charges have been expensed through operating costs. 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 Impairment review All goodwill was recognised as part of business combinations. Goodwill has been allocated to cash-generating units, being individual outlets, to test units, being individual outlets, to test for impairment. An impairment charge of ﾣ1m (2022 ﾣnil) has been recognised for impairment. An impairment charge of £1m (2022 £nil) has been recognised in the current period. Further details of the impairment review are in the current period. Further details of the impairment review are provided in note 3.3. 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 Financial Statements3.7 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. Accounting policy 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 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. 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: Cost At 25 September 2021 Share in associates results At 24 September 2022 Share in associates results Fair value adjustment as a result of business combination (note 2.2) Disposal of associate as a result of business combination At 30 September 2023 Million Pounds £m 5 1 6 1 5 (12) – blank 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the consolidated financial statements continued Section 4 – Capital structure and financing costs 4.1 Borrowings Accounting policy: Borrowings, which include the Groups secured loan notes, are stated initially at fair value (normally the amount of the proceeds) net of Accounting policy issue costs. Thereafter they are stated at amortised cost using an effective interest basis. Finance costs, which are the difference between the net proceeds 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. 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 Borrowing costs are not attributed to the acquisition or construction of assets and therefore no costs are capitalised within property, plant and equipment. 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: Item Group Unsecured revolving credit facilities (Note c) Overdrafts (Note d) Securitised debt (Note a, b) Current Current Securitised debta,b Unsecured revolving credit facilitiesc Overdraftsd Total current Securitised debt (Note a, b) Non-current Non-current Securitised debta,b Total borrowings Total 2022, Million 2023, Million Pounds 2022 £m Pounds 2023 £m 123 (2) 23 144 blank 113 – 17 130 1,186 1,330 1,334 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). Analysis by year of repayment Due within one year or on demand Due between one and two years Due between two and five years Due after five years Total borrowings 2023, Million Pounds 2023 £m 2022, Million 2022 £m Pounds 144 164 435 587 1,330 130 182 412 740 1,464 Securitised debt: On 13 November 2003, the Group refinanced its debt by raising ﾣ1,900m through a securitisation of the majority of its UK pubs and restaurants Securitised debt owned by Mitchells Butlers Retail Limited. On 15 September 2006 the Group completed a further debt (tap) issue to borrow an additional ﾣ655m 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 ﾣ450m of existing debt at lower cost. and refinance £450m of existing debt at lower cost. The loan notes consist of ten tranches as follows: Tranche A1N A2 A3N A4 AB B1 B2 C1 C2 D1 Total Initial principal borrowed, Million Pounds Initial principal borrowed £m 200 550 250 170 325 350 350 200 50 110 2,555 Interest Floating Fixed – 5.57% Floating Floating Floating Fixed – 5.97% Fixed – 6.01% Fixed – 6.47% Floating Floating blank blank Principal repayment period (all by instalments) 2011 to 2028 2003 to 2028 2011 to 2028 2016 to 2028 2020 to 2032 2003 to 2023 2015 to 2028 2029 to 2030 2033 to 2034 2034 to 2036 Expected WAL (Note a) Principal outstanding Principal Outstanding, Principal Outstanding, Effective 30 September 24 September interest 24 30 2023 2022 rate £m £m % September September 6.61 (Note b) 6.61b 87 75 2022, 2023, 136 158 5.72 Million Million Pounds 6.69 (Note b)93 (Note c) 109 (Note c) 93c 109c 6.69b Pounds 6.37 (Note b) 6.37b 89 103 6.28 (Note b) 6.28b 276 291 5 26 6.12 240 255 6.12 200 200 6.56 6.47b 50 50 6.68b 110 110 1,274 1,389 Expected WALa 3 years 3 years 3 years 3 years 6 years 0 years 3 years 6 years 10 years 12 years 6.47 (Note b) 6.68 (Note b) blank blank 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 Financial StatementsItem 2023, Million Pounds Principal outstanding A3N US$ notes exchange difference Principal outstanding at spot rate Deferred issue costs Accrued interest Carrying value at end of period 2023 £m 1,274 34 1,308 (2) 3 1,309 2022, Million 2022 £m Pounds 1,389 59 1,448 (3) 2 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 A1N A3N A4 AB C2 D1 Interest 3 month SONIA 3 month SOFR 3 month SONIA 3 month SONIA 3 month SONIA 3 month SONIA Margin 0.57% 0.71% 0.69% 0.72% 1.99% 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: Item 2023, Million Pounds Principal outstanding at beginning of period Principal repaid during the period Net principal receipts on cross currency swap Exchange on translation of dollar loan notes Principal outstanding at end of period Deferred issue costs Accrued interest Carrying value at end of period 2023 £m 1,448 (121) 5 (24) 1,308 (2) 3 1,309 2022, Million 2022 £m Pounds 1,527 (115) 5 31 1,448 (3) 2 1,447 Liquidity facility: Under the terms of the securitisation, the Group holds a liquidity facility of ﾣ295m provided Liquidity facility Under the terms of the securitisation, the Group holds a liquidity facility of £295m provided by two counterparties. 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 ﾣ150m. During the period, Unsecured revolving credit facilities the unsecured committed revolving credit facility of ﾣ150m was cancelled and replaced by a new unsecured committed revolving credit facility of In the prior period, the Group held a single unsecured committed revolving credit facility of £150m. During the period, the unsecured committed ﾣ200m, which expires on 20 July 2026. The amount drawn at 30 September 2023 is ﾣnil (2022 ﾣnil). 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the consolidated financial statements continued Section 4 – Capital structure and financing costs continued 4.2 Finance costs and income Item Group Interest on securitised debt Finance Finance costs costs Interest on securitised debt Interest on other borrowings Interest on lease liabilities Total finance costs Interest receivable cash Finance Finance income income Interest receivable – cash Net Net pensions finance charge (note 4.5) pensions 4.3 Financial instruments 2023, 53 weeks, Million Pounds 2023 53 weeks £m (89) (11) (16) (116) 2022, 52 weeks, 2022 52 weeks Million £m Pounds (94) (5) (16) (115) 8 (3) 1 (2) Accounting policies: Financial assets and financial liabilities are recognised in the Groups balance sheet when 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 the Group becomes a party to the contractual provisions of the instrument. 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 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 terms require delivery of the financial asset within the timeframe established by the market concerned. Financial assets are initially measured at fair require delivery of the financial asset within the timeframe established by the market concerned. Financial assets are initially measured at fair value, 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. 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 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 amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial asset. 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 Definition of default The Group considers financial assets to be in default when information developed internally or obtained from external sources indicates that that a debtor is unlikely to pay its creditors, including the Group, in full (without taking into account any collateral held by the Group). 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 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 when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. 162 Annual Report and Accounts 2023 Mitchells & Butlers plc Financial StatementsWrite-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 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 Groups recovery procedures, taking into 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. 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 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 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 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 default is based on historical data adjusted by forward-looking information. As for the exposure at default, for financial assets, this is represented forward-looking information. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the by the assets gross carrying amount at the reporting date. 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 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 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 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 all the risks and rewards of ownership but continues to control a transferred asset, the Group recognises its retained interest in the asset and and rewards of ownership but continues to control a transferred asset, the Group recognises its retained interest in the asset and an associated 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 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, asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. 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 Financial liabilities The Group has financial liabilities relating to borrowings, for which the accounting policy is provided in note 4.1. Other financial liabilities liabilities are initially measured at fair value, net of transaction costs. 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 Groups obligations are discharged, cancelled Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or expired. The difference or expired. The difference between the carrying amount of the financial liability discharged and the consideration paid and payable is recognised between the carrying amount of the financial liability discharged and the consideration paid and payable is recognised in profit or loss. 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 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 over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash flows (including all fees and points paid period. The effective interest rate is the rate that exactly discounts estimated future cash flows (including all fees and points paid or received that 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 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 instrument, or where appropriate, a shorter period, to the amortised cost of a financial liability. Finance charges are recognised on an effective basis for all debt instruments. 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 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, exchange rate risks, including interest rate and currency swaps. 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. Mitchells & Butlers plc Annual Report and Accounts 2023 163 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the consolidated financial statements continued Section 4 – Capital structure and financing costs continued 4.3 Financial instruments continued Hedge accounting: The Group designates its derivative financial instruments, i.e. interest Accounting policies continued Hedge accounting rate and currency swaps, as cash flow hedges. 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 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 hedges is recognised in other comprehensive income and accumulated under the heading of hedging reserve, limited to the comprehensive income and accumulated under the heading of hedging reserve, limited to the cumulative change in fair value of the hedged item cumulative change in fair value of the hedged item from inception of the hedge. 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 Groups Treasury function. The Groups Treasury function is governed by a Board Approved Financial risk management Treasury Policy Statement which details the key objectives and policies for the Groups treasury management. The Treasury Committee ensures Financial risk is managed by the Group’s Treasury function. The Group’s Treasury function is governed by a Board Approved Treasury Policy that the Treasury Policy is adhered to, monitors its operation and agrees appropriate strategies for recommendation to the Board. The Treasury Policy Statement which details the key objectives and policies for the Group’s treasury management. The Treasury Committee ensures that the Treasury Statement is reviewed annually, with recommendations for change made to the Board, as appropriate. The Group Treasury function is operated as 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 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 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 of guarantees or the financial implications of contract terms. 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 Groups long-term funding strategy is aligned with its strategic objectives, the Treasury Committee regularly Funding and liquidity risk assesses the maturity profile of the Groups debt, alongside the prevailing financial projections. This enables it to ensure that funding levels are appropriate In order to ensure that the Group’s long-term funding strategy is aligned with its strategic objectives, the Treasury Committee regularly assesses the to support the Groups plans. 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. 164 Annual Report and Accounts 2023 Mitchells & Butlers plc Financial StatementsThe 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. Type Group Within one year, Within one year Million Pounds £m (206) One to two years, One to two years Million £m Pounds (204) Three to four Three to four years years, Million £m Pounds (203) Four to five years, Four to five years Million £m Pounds (202) More than five More than five years years, Million £m Pounds (696) Total, Million Total Pounds £m (1,714) Securitised debt loan notes 30 30 September 2023 Securitised debt – loan notes September Derivative financial liabilities (settled net) blank Derivative financial liabilities (settled net) 2023 Derivative financial asset receipts Derivative financial asset receipts Derivative financial asset payments Derivative financial asset payments Fixed rate: Securitised debt Fixed rate: Securitised debt Lease liabilities Lease liabilities Trade payables Trade payables Other payables Other payables Accrued charges Accrued charges Other financial liabilities Other financial liabilities 27 (21) (200) (49) (100) (22) (182) (58) (206) – 27 (21) (200) (49) (100) (22) (182) (58) (209) Securitised debt loan notes 24 24 September 2022 Securitised debt – loan notes September Derivative financial liabilities (settled net) blank Derivative financial liabilities (settled net) 2022 Derivative financial asset receipts Derivative financial asset receipts Derivative financial asset payments Derivative financial asset payments Fixed rate: Securitised debt Fixed rate: Securitised debt Lease liabilities Lease liabilities Trade payables Trade payables Other payables Other payables Accrued charges Accrued charges Other financial liabilities Other financial liabilities 30 (21) (200) (68) (106) (20) (151) (21) (209) – 30 (21) (200) (68) (106) (20) (151) (21) (204) (2) 27 (20) (199) (52) – – – – (2) 27 (20) (199) (52) blank blank blank blank (203) (203) (5) 28 (20) (200) (42) – – – – (5) 28 (20) (200) (42) blank blank blank blank Two to three Two to three years years, £m Million (203) Pounds (2) 27 (20) (198) (51) blank blank blank blank (203) (2) 27 (20) (198) (51) – – – – (203) (2) 27 (20) (198) (42) – – – – (2) 27 (20) (198) (42) blank blank blank blank (203) (203) (5) 29 (20) (199) (47) – – – – (5) 29 (20) (199) (47) blank blank blank blank (204) (204) (4) 29 (20) (199) (43) – – – – (4) 29 (20) (199) (43) blank blank blank blank (202) (1) 27 (20) (196) (47) – – – – (1) 27 (20) (196) (47) blank blank blank blank (204) (204) (4) 30 (20) (198) (38) – – – – (4) 30 (20) (198) (38) blank blank blank blank (696) (3) 7 (5) (697) (449) – – – – (3) 7 (5) (697) (449) blank blank blank blank (895) (895) (12) 39 (24) (892) (464) – – – – (12) 39 (24) (892) (464) blank blank blank blank (1,714) (10) 142 (106) (1,688) (690) (100) (22) (182) (58) (10) 142 (106) (1,688) (690) (100) (22) (182) (58) (1,918) (1,918) (30) 185 (125) (1,888) (702) (106) (20) (151) (21) (30) 185 (125) (1,888) (702) (106) (20) (151) (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 Credit risk for risk management purposes. These activities expose the Group to credit risk against the counterparties. To mitigate this exposure, Group Treasury The Group Treasury function enters into contracts with third parties in respect of the investment of surplus funds and derivative financial instruments operates policies that restrict the general investment of surplus funds and the entering into of derivative transactions to counterparties that have a minimum 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 credit rating of A (long-term) and A1/P1/F1 (short-term). Where ratings subsequently drop below the policy minimum additional approval a minimum credit rating of ‘A’ (long-term) and ‘A1’/‘P1’/‘F1’ (short-term). Where ratings subsequently drop below the policy minimum additional 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 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 counterparty during the year was A. The amount that can be invested or transacted at various ratings levels is restricted under the policy. Counterparties 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. to derivative financial instruments may also be required to post collateral with the Group where their credit rating falls below a predetermined Counterparties to derivative financial instruments may also be required to post collateral with the Group where their credit rating falls below a level. At the period end a collateral amount of ﾣ58m (2022 ﾣ21m) is held by the Group and is recognised as an other financial asset and other 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 financial liability in the balance sheet. 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 Strategic ReportGovernanceOther InformationIntroductionFinancial 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: Type Group 30 September 2023: Cash and cash equivalents (Note a) 30 Cash and cash equivalentsa September Trade receivablesb Trade receivables (Note b) 2023: Other receivablesb Other receivables (Note b) Other financial assets Other financial assets Defined benefit pension blocked account Defined benefit pension blocked account Finance lease receivablesc Finance lease receivables (Note c) Derivatives Derivatives 24 September 2022: Cash and cash equivalents (Note a) 24 Cash and cash equivalentsa September Trade receivables (Note b) Trade receivablesb 2022: Other receivablesb Other receivables (Note b) Other financial assets Other financial assets Defined benefit pension blocked account Defined benefit pension blocked account Finance lease receivablesc Finance lease receivables (Note c) Derivatives Derivatives FVTPL, Million Pounds FVTPL £m 12-month ECL, 12-month ECL Million Pounds £m 103 blank blank blank blank blank blank 35 blank blank blank blank blank blank 60 – – – – – – 35 – – – – – – 60 103 – 16 58 47 – – blank 16 58 47 blank blank 190 190 – 16 21 9 – – blank 16 21 9 blank blank Total, Million Total Pounds £m 103 Lifetime ECL, Lifetime ECL Million £m Pounds blank – 17 – – – 12 – 17 blank blank blank 12 blank 17 16 58 47 12 35 103 17 16 58 47 12 35 blank 190 – 13 – – – 13 – 13 blank blank blank 13 blank 190 13 16 21 9 13 60 13 16 21 9 13 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 Groups capital base is comprised of its net debt (analysed in note 4.4) plus total equity (disclosed on the face of the Group balance Capital management 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, 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). 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 objective is to maintain a capital base which is sufficiently strong to support the ongoing development of the business as a going concern, the Group ensures that it maintains a strong credit position, whilst maximising value for shareholders and adhering to its covenants and other restrictions 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 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 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 back or issue new shares, initiate and vary its dividend payments and seek to vary or accelerate debt repayments. The Groups policy is to ensure that 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 the maturity of its debt profile supports its strategic objectives. The Board considers the latest covenant compliance, headroom projections and projected is to ensure that the maturity of its debt profile supports its strategic objectives. The Board considers the latest covenant compliance, headroom balance sheet positions periodically throughout the period, based on the advice of the Treasury Committee which meets on a four-weekly basis. projections and projected balance sheet positions periodically throughout the period, based on the advice of the Treasury Committee which meets The Treasury Committee is chaired by the Group Treasurer and monitors Treasury performance and compliance with Board-approved policies. The on a four-weekly basis. The Treasury Committee is chaired by the Group Treasurer and monitors Treasury performance and compliance with Group Chief Financial Officer is also a member of the Committee. 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: Item Net debt excluding leases (note 4.4) Total equity Total capital 2023, Million Pounds 2023 £m 1,170 2,130 3,300 2022, Million 2022 £m Pounds 1,198 2,143 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 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. of changes in market prices. Market risk comprises foreign currency and interest rate risk. 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 Foreign currency risk entered into a cross currency interest rate swap to manage the foreign currency exposure resulting from both the US$ principal and initial interest elements 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 of the notes. The A3N notes have a carrying value of ﾣ127m (2022 ﾣ168m) and form part of the securitised debt (see note 4.1). 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 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$ as a result of the increase in US$ finance costs. A movement of 10% in the US$ exchange rate would have ﾣnil (2022 ﾣnil) 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 profit and ﾣ12m (2022 ﾣ12m) impact on the reported Group equity. 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 Financial StatementsInterest 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 Interest rate risk in interest rates by using derivative financial instruments. Where the necessary criteria are met, the Group minimises the volatility in its consolidated The Group has a mixture of fixed and floating interest rate debt instruments and manages the variability in cash flows resulting from changes in financial statements through the adoption of the hedge accounting provisions permitted under IFRS 9. The interest rate exposure resulting from interest rates by using derivative financial instruments. Where the necessary criteria are met, the Group minimises the volatility in its consolidated the Groups ﾣ1.3bn securitisation is largely fixed, either as a result of the notes themselves being issued at fixed interest rates, or through a combination 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. 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 Groups exposure to interest rates for both derivative and non-derivative Sensitivity analysis instruments as at the balance sheet date. A 1% movement is used when reporting interest rate risk internally to key management personnel and 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 represents managements assessment of this reasonably possible change in interest rates. 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: Item 2023, Million Pounds Interest income (Note a) Interest incomea Interest expense (Note b) Interest expenseb Profit impact Derivative financial instruments (fair values) (Note c) Derivative financial instruments (fair values)c Total equity blank 2023 £m 2 – 2 31 33 blank 2022, Million 2022 £m Pounds 2 – 2 40 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 Derivative financial instruments Cash flow hedges in equity to the extent that the hedges are effective. The cash flow hedges detailed below have been assessed as being highly 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 effective during the period and are expected to remain highly effective over the remaining contract lives. The following amounts hedges detailed below have been assessed as being highly effective during the period and are expected to remain highly effective over the remaining have been recognised during the period: contract lives. The following amounts have been recognised during the period: Item (Losses)/gains arising during the period Reclassification adjustments for losses included in profit or loss within finance costs Total 2023, 53 weeks, 2023 53 weeks Million Pounds £m (9) 30 21 2022, 52 weeks, Million Pounds 2022 52 weeks £m 180 1 181 Mitchells & Butlers plc Annual Report and Accounts 2023 167 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the consolidated financial statements continued Section 4 – Capital structure and financing costs continued Cash flow hedges securitised borrowings: The nominal and carrying values of cash flow hedges at the balance 4.3 Financial instruments continued Cash flow hedges – securitised borrowings sheet date, together with the changes in fair value of cash flow hedges during the period, are shown below. 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. Item Group Interest rate risk - 10 interest rate swaps 2023 2023 Interest rate risk – 10 interest rate swaps Foreign exchange risk – Cross currency swap Foreign exchange risk - Cross currency swap Interest rate risk - 10 interest rate swaps 2022 2022 Interest rate risk – 10 interest rate swaps Foreign exchange risk – Cross currency swap Foreign exchange risk - Cross currency swap Nominal amount of hedging instrument, Million Pounds Nominal amount of hedging instrument £m Carrying amount Carrying amount of hedging instrument of hedging Assets instrument: £m Assets, blank Million Pounds – Carrying amount of hedging Liabilities instrument: £m Liabilities, Million Pounds blank Changes in fair Changes in fair value used for value used calculating hedge ineffectiveness for calculating £m hedge ineffectiveness, Million Pounds (7) 21 35 – (24) blank – 59 blank (28) – 181 31 693 93 750 109 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. Item Counterparty A – interest rate swaps Counterparty B – interest rate swaps Net interest rate swaps Counterparty B – cross currency swap liability Counterparty B – cross currency swap asset Net cross currency swap Total Gross position, Million Pounds Gross position £m (3) (4) (7) Positions netted in balance Positions netted in balance sheet sheet, £m Million blank – Pounds blank – blank – Balance sheet position, Million Pounds Balance sheet position £m (3) (4) (7) Positions that Positions that could be net in could be balance sheet but are not net in balance £m sheet blank – but are 35 not, Million 35 Pounds blank Overall net exposure, Million Pounds Overall net exposure £m (3) 31 28 blank (94) 129 35 blank blank 28 94 (94) – – – 35 35 28 blank blank blank – (35) (35) – – – blank – 28 168 Annual Report and Accounts 2023 Mitchells & Butlers plc Financial StatementsThe position at 24 September 2022 is as follows. Item Gross position, Million Pounds Counterparty A interest rate swaps Counterparty A – interest rate swaps Counterparty B interest rate swaps Counterparty B – interest rate swaps Net interest rate swaps Net interest rate swaps Counterparty B cross currency swap liability Counterparty B – cross currency swap liability Counterparty B cross currency swap asset Counterparty B – cross currency swap asset Net cross currency swap Net cross currency swap Total Total (12) (16) (28) (110) 169 59 31 Gross position £m (12) (16) (28) Positions netted in balance Positions netted in balance sheet sheet, £m Million blank – blank Pounds – blank – Balance sheet position, Million Pounds (12) (16) (28) Balance sheet position £m (12) (16) (28) Positions that Positions that could be net in could be balance sheet but are not net in balance £m sheet blank – 16 but are 16 16 not, Million 16 Pounds blank Overall net exposure, Overall net exposure Million £m Pounds (12) (12) blank – (12) (12) blank 110 (110) blank blank (110) 169 59 31 110 (110) – blank 59 59 31 – 59 59 31 (16) (16) blank – (16) (16) – 43 43 31 – 43 43 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, Share options 3Sixty Restaurants Limited, at any point in time after 1 April 2023. The initial 40% investment was purchased on 1 August 2018 for ﾣ4m, and during 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 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 ﾣ1m and has been subsequently derecognised as part of the business combination (see note 5.1). 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 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 to material movements in the period subsequent to the balance sheet date. The fair values of the derivative financial instruments are reflected on the subsequent to the balance sheet date. The fair values of the derivative financial instruments are reflected on the balance sheet as follows: balance sheet as follows: Derivatives at fair value designated in cash flow hedges: – Interest rate swaps – Cross currency swap 30 September 2023 24 September 2022 Derivative financial Non-current instruments assets - £m fair value: Non-current blank – assets, 33 Million 33 Pounds 56 Derivative financial Derivative financial Derivative financial instruments – fair value Current Current instruments instruments liabilities assets - - £m £m fair value: Current fair value: Current blank blank liabilities, assets, blank Million Million blank Pounds Pounds blank Derivative financial Non-current instruments liabilities - £m fair value: Non-current (7) liabilities, blank – Million (7) Pounds (28) Derivative financial instruments Total - £m fair value: Total, Million Pounds (7) 35 28 32 – 2 2 4 – – – – Reconciliation of movements in derivative values: The tables below detail changes in the Groups derivatives, including both cash and non-cash changes Reconciliation of movements in derivative values where appropriate. Changes in the Groups borrowings are disclosed in the net debt reconciliation in note 4.4. 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: Item Cash flow hedges Share options Total derivatives At 24 September 2022, Million Pounds At 24 September 2022 £m 31 1 32 Movements in derivative values for the 52 weeks ended 24 September 2022 are represented by: Item Cash flow hedges Share options Total derivatives At 25 September 2021, Million Pounds At 25 September 2021 £m (181) 1 (180) Cash movements, Cash Million movements £m Pounds (1) – (1) At 30 September Fair value movements, At 30 September 2023, Million 2023 £m Million Pounds 28 Pounds blank – 28 Fair value movements £m (2) (1) (3) blank Cash movements, Cash Million movements £m Pounds 33 – 33 At 24 September Fair value movements, At 24 September 2022, Million 2022 £m Million Pounds 31 Pounds 1 32 Fair value movements £m 179 – 179 blank blank Mitchells & Butlers plc Annual Report and Accounts 2023 169 Strategic ReportGovernanceOther InformationIntroductionFinancial 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 Fair value of financial assets and liabilities liabilities by category is as follows: The fair value and carrying value of financial assets and liabilities by category is as follows: Type Group Cash and cash equivalents (note 4.4) Financial Financial assets at amortised cost: – Cash and cash equivalents (note 4.4) assets – Trade receivables (note 3.4) at – Other receivables (note 3.4) amortised – Other financial assets (note 3.4) cost: – Defined benefit pension blocked account (note 3.4) – Finance lease receivables (note 3.2) Financial assets – derivatives at FVTPL: – Derivative instruments in designated hedge accounting relationships (note 4.3) – Share options (note 4.3) Total Derivative instruments in designated hedge accounting relationships (note Financial 4.3) assets Total derivatives Borrowings (note 4.1) Financial Financial liabilities at amortised cost: at – Borrowings (note 4.1) liabilities FVTPL: – Lease liabilities (note 3.2) at – Trade payables (note 3.4) amortised – Accrued charges (note 3.4) cost: – Other payables (note 3.4) – Other financial liabilities (note 3.4) blank 2023 Carrying value, Carrying value Million Pounds £m 2023 2023 Fair value, Million Pounds 2022 Carrying value, 2022 Fair value, 2022 Carrying value Million Million Pounds £m Pounds Fair value £m Fair value £m 126 17 16 58 47 12 276 35 – 35 (1,330) (463) (100) (182) (22) (58) (2,155) 126 17 16 58 47 12 276 blank 35 – 35 (1,162) (463) (100) (182) (22) (58) (1,987) 207 13 16 21 9 13 279 59 1 60 (1,464) (481) (106) (151) (20) (21) (2,243) 207 13 16 21 9 13 279 59 1 60 (1,180) (481) (106) (151) (20) (21) (1,959) (7) (7) (28) (28) Financial liabilities – derivatives at FVTPL: – Derivative instruments in designated hedge accounting relationships (note 4.3) Total Financial Derivative instruments in designated hedge accounting relationships (note 4.3) liabilities derivatives at FVTPL: 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 Groups derivative financial instruments is calculated by discounting the expected future cash Fair value of derivative financial instruments 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 The fair value of the Group’s derivative financial instruments is calculated by discounting the expected future cash flows of each instrument at an with the counterparties to the instrument. 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: Level 1, Million Level 1 £m Pounds blank Level 2, Million Level 2 £m Pounds Level 3, Million Level 3 £m Pounds blank Total, Million Total £m Pounds – – – blank blank 35 (7) 28 – – – blank blank 35 (7) 28 Fair value at 30 September 2023 Financial assets: Currency swaps Financial liabilities: Interest rate swaps Total 170 Annual Report and Accounts 2023 Mitchells & Butlers plc Financial StatementsFair value at 24 September 2022 Fair value at 24 September 2022 Financial assets: Currency swaps Financial assets: Currency swaps Financial assets: Share options (see note 3.7) Share options (see note 3.7) Financial liabilities: Interest rate swaps Financial liabilities: Interest rate swaps Total 4.4 Net debt Level 1 Level 1, Million £m Pounds blank Level 2 Level 2, Million £m Pounds 59 Level 3 Level 3, Million £m Pounds blank Total Total, Million £m Pounds 59 blank blank blank – – – – 59 – blank (28) (28) 31 31 – 1 – 1 1 blank 1 59 1 (28) 32 1 (28) 32 Accounting policies - Cash and cash equivalents: Cash and cash equivalents comprise cash at bank and in hand and other short-term Accounting policies Cash and cash equivalents highly liquid deposits with an original maturity at acquisition of three months or less. Cash held on deposit with an original Cash and cash equivalents comprise cash at bank and in hand and other short-term highly liquid deposits with an original maturity at acquisition maturity at acquisition of more than three months is disclosed as other cash deposits. In the cash flow statement, cash and 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. cash equivalents are shown net of bank overdrafts that are repayable on demand and form an integral part of the Groups 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 cash management. 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 Net debt 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 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). flows on the interest rate and cross currency swaps are shown within interest paid in the Group cash flow statement. Cash flows on the interest rate and cross currency swaps are shown within interest paid in the Group cash flow statement. Net debt Item Cash and cash equivalents as presented in the cash flow statement (Note a) Cash and cash equivalents Overdraft Cash and cash equivalents as presented in the cash flow statementa Securitised debt Unsecured revolving credit facility Derivatives hedging securitised debtb Net debt excluding leases Lease liabilities Net debt including leases Derivatives hedging securitised debt (Note b) blank blank blank blank Note 4.1 4.1 4.1 4.1 3.2 2022, Million 2023, Million Pounds 2022 £m Pounds 207 (17) 190 (1,447) – 59 (1,198) (481) (1,679) 2023 £m 126 (23) 103 (1,309) 2 34 (1,170) (463) (1,633) blank 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 Item 2023, 53 weeks, Million Pounds blank Net decrease in cash and cash equivalents Add back cash flows in respect of other components of net debt: Principal repayments on securitised debt Principal receipts on cross currency swap Principal payments on cross currency swap Decrease in net debt arising from cash flows Movement in capitalised debt issue costs net of accrued interest Decrease in net debt excluding leases Opening net debt excluding leases Foreign exchange movements on cash Closing net debt excluding leases 2023 53 weeks £m (86) 121 (21) 16 30 (1) 29 (1,198) (1) (1,170) 2022 52 weeks £m (39) 2022, 52 weeks, Million Pounds blank 115 (20) 15 71 (1) 70 (1,270) 2 (1,198) Mitchells & Butlers plc Annual Report and Accounts 2023 171 Strategic ReportGovernanceOther InformationIntroductionFinancial 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: Item Additions (Note a) Opening lease liabilities Acquired through business combinations (note 5.1) Additionsa Interest charged during the period (note 4.2) Repayment of principal Payment of interest Disposals Foreign currency movements Closing lease liabilities 2023, 53 weeks, Million Pounds 2023 53 weeks £m (481) (5) (35) (16) 53 16 4 1 (463) 2022, 52 weeks, 2022 52 weeks Million £m Pounds (513) blank – (25) (16) 48 16 11 (2) (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: Securitised debt Securitised debt Derivatives hedging securitised debt Derivatives hedging securitised debt Subtotal Revolving credit facilities Revolving credit facilities Lease liabilities (Note a) Lease liabilitiesa Total liabilities arising from financing activities Total liabilities arising from financing activities Cash and cash equivalents Cash and cash equivalents Net debt including leases Net debt including leases (1,447) 59 (1,388) blank (481) (1,869) 190 (1,679) At 24 September 2022, Million Pounds At 24 September 2022 £m (1,447) 59 (1,388) – (481) (1,869) 190 (1,679) At 30 September Foreign currency Cash flow movements Non-cash movements Foreign Cash flow Non-cash At 30 September movements movements currency 2023, movements, in in in the period in the period movements 2023 £m £m £m £m Million Million the period, the period, (1,309) 20 (3) 121 121 (3) 20 (1,309) Pounds Pounds Million Million 34 (20) blank (5) (5) – (20) 34 Pounds Pounds (1,275) blank (3) 116 116 (3) – (1,275) 2 blank blank 2 2 – – 2 (463) 1 (52) 69 69 (52) 1 (463) (1,736) 1 (55) 187 187 (55) 1 (1,736) 103 (1) blank (86) (86) – (1) 103 (1,633) blank (55) 101 101 (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: Securitised debt Securitised debt Derivatives hedging securitised debt Derivatives hedging securitised debt Subtotal Revolving credit facilities Revolving credit facilities Lease liabilities (Note a) Lease liabilitiesa Total liabilities arising from financing activities Total liabilities arising from financing activities Cash and cash equivalents Cash and cash equivalents Net debt including leases Net debt including leases (1,526) 28 (1,498) 1 (513) (2,010) 227 (1,783) At 25 September 2021, Million Pounds At 25 September 2021 £m (1,526) 28 (1,498) 1 (513) (2,010) 227 (1,783) Foreign currency At 24 September Non-cash movements Cash flow movements At Foreign Non-cash Cash flow 24 September currency movements movements 2022, movements, in in 2022 movements in the period in the period £m £m £m £m Million Million the period, the period, (1,447) (36) blank 115 (1,447) (36) – 115 Pounds Pounds Million Million 59 36 blank (5) 59 36 – (5) Pounds Pounds (1,388) blank blank 110 (1,388) – – 110 blank blank (1) blank – – (1) – (481) (2) (30) 64 (481) (2) (30) 64 (1,869) (2) (31) 174 (1,869) (2) (31) 174 190 2 blank (39) 190 2 – (39) (1,679) blank (31) 135 (1,679) – (31) 135 Item Item 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 Financial Statements4.5 Pensions Accounting policy: Retirement and death benefits are provided for eligible employees in the United Kingdom principally by the Mitchells Butlers Pension Accounting policy Plan (MABPP) and the Mitchells Butlers Executive Pension Plan (MABEPP). These plans are funded, HMRC approved, occupational 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 pension schemes with defined contribution and defined benefit sections. The defined benefit section of the plans is now closed to future service schemes with defined contribution and defined benefit sections. The defined benefit section of the plans is now closed to future service accrual. accrual. The defined benefit liabilities relates to these funded plans, together with an unfunded unapproved pension arrangement (the Executive The defined benefit liabilities relates to these funded plans, together with an unfunded unapproved pension arrangement (the Executive Top-Up Top-Up Scheme, or MABETUS) in respect of certain MABEPP members. The assets of the plans are held in self-administered trust funds separate Scheme, or MABETUS) in respect of certain MABEPP members. The assets of the plans are held in self-administered trust funds separate from from the Companys assets. 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 Measurement of scheme assets and liabilities MABPP – buy-in policy transaction MABPP entered a Bulk Purchase Agreement (BPA) with Standard Life. The resulting policies have been set up to provide During the current period, the Trustees of the MABPP entered a Bulk Purchase Agreement (‘BPA’) with Standard Life. The resulting policies have the plan with sufficient funding to cover the majority of known member benefits of the scheme, leaving c. ﾣ27m of uninsured 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. 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. Mitchells & Butlers plc Annual Report and Accounts 2023 173 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the consolidated financial statements continued Section 4 – Capital structure and financing costs continued MABEPP buy-in policy transaction: During the prior period, the Trustees of the MABEPP entered a Bulk Purchase Agreement (BPA) 4.5 Pensions continued MABEPP – buy-in policy transaction with Legal and General Assurance Society Limited. The resulting policy was set up to provide the plan with sufficient funding During the prior period, the Trustees of the MABEPP entered a Bulk Purchase Agreement (‘BPA’) with Legal and General Assurance Society Limited. to cover all known member benefits of the scheme. 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 Actuarial valuation at 31 March 2022, which completed in December 2022, and updated by the schemes independent qualified actuaries to 30 September 2023. Schemes 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 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 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 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 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. corporate bonds. The principal financial assumptions have been updated to reflect changes in market conditions in the period and are as follows: Item Discount rate Pensions increases – RPI max 5% Inflation rate – RPI 2023 2022 Main plan 5.7% 3.1% 3.3% Executive plan 5.7% 3.1% 3.3% Main plan 5.3% 3.2% 3.5% Executive plan 5.3% 3.2% 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: Item Male member aged 65 (current life expectancy) Male member aged 45 (life expectancy at 65) Female member aged 65 (current life expectancy) Female member aged 45 (life expectancy at 65) 2023 2022 Main plan years 20.9 22.3 23.8 25.2 Executive plan years 22.9 24.3 24.7 26.1 Main plan years 20.9 22.7 23.2 25.3 Executive plan years 23.4 24.5 24.3 26.3 174 Annual Report and Accounts 2023 Mitchells & Butlers plc Financial StatementsMinimum funding requirements: The results of the 2022 actuarial valuation, which was completed in December 2022, show a marginal surplus. As a result Minimum funding requirements of the 2022 actuarial valuation, the Company subsequently agreed a revised schedule of contributions for both the MABPP and MABEPP schemes. 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 Sensitivity to changes in actuarial assumptions the scheme liabilities are set out below. These are considered to be reasonable sensitivities based on the average movement over the last three financial 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 periods. There was no change in the methods and assumptions used in preparing the sensitivity analysis from the prior period. It should be noted change in the methods and assumptions used in preparing the sensitivity analysis from the prior period. It should be noted that the sensitivities have that the sensitivities have reduced significantly at 30 September 2023 from the prior period end, as a result of the MABPP buy-in transaction. reduced significantly at 30 September 2023 from the prior period end, as a result of the MABPP buy-in transaction. 2023 1.9% increase in discount rate 0.3% increase in inflation rate Additional one year decrease to life expectancy blank Increase/ (decrease) in actuarial surplus 2023, Million Pounds Increase/ (decrease) in actuarial surplus 2023 £m 4 (2) – Decrease/ (increase) Decrease/ (increase) in total in total pension liabilities pension liabilities 2023 £m 2023, 4 Million Pounds (2) – blank 2022 1.9% increase in discount rate 0.3% increase in inflation rate Additional one year decrease to life expectancy Increase/ (decrease) in actuarial surplus 2022, Decrease/ (increase) Decrease/ (increase) in Million Pounds in total pension liabilities total pension 2022 £m liabilities 5 2022, (1) Million 1 Pounds Increase/ (decrease) in actuarial surplus 2022 £m 250 (53) 44 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the consolidated financial statements continued Section 4 – Capital structure and financing costs continued Principal risks and assumptions: The defined benefit schemes are not exposed to any unusual, entity 4.5 Pensions continued Principal risks and assumptions specific or scheme specific risks but there are general risks: 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 MABEPP buy-in in the prior period. Amounts recognised in respect of defined benefit schemes: The following amounts relating to the Groups defined benefit and defined contribution arrangements have been recognised in the Group income statement and Group statement of comprehensive income. 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. 2023, 53 weeks, Million Pounds2022, 52 weeks, 2023 53 weeks £m 2022 52 weeks £m Million Pounds Item Group Type Employer contributions (defined contribution plans) (note 2.3) Group Operating profit: Income Statement Group income statement Operating profit: Employer contributions (defined contribution plans) (note 2.3) Administrative costs (defined benefit plans) Charge to operating profit Finance costs: Net pensions finance income on actuarial surplus Additional pensions finance charge due to asset ceiling/minimum funding Net finance charge in respect of pensions Total charge Net pensions finance income on actuarial surplus Finance costs: Total Return on scheme assets and effects of changes in assumptions Group Comprehensive income statement of comprehensive income Group statement of comprehensive income Return on scheme assets and effects of changes in assumptions Movement in pension liabilities recognised due to asset ceiling/minimum funding Remeasurement of pension liabilities (153) 2023, Million Pounds Group balance sheet Fair value of schemes’ assets Present value of schemes’ liabilities Actuarial surplus in the schemes Additional liabilities recognised due to asset ceiling/minimum funding Total pension liabilitiesa Associated deferred tax asset (note 2.4) 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 (17) (5) (22) 14 (17) (3) (25) 2023 53 weeks £m (153) 195 42 2023 £m 1,434 (1,313) 121 (143) (22) 5 (16) (4) (20) 8 (10) (2) (22) (161) 2022 52 weeks £m (161) 202 41 2022, Million 2022 £m Pounds 1,699 (1,442) 257 (321) (64) 14 Financial StatementsThe movement in the fair value of the schemes assets in the period is as follows: The movement in the fair value of the schemes’ assets in the period is as follows: Item Fair value of schemes’ assets at beginning of period Interest income Remeasurement loss: – Loss on schemes’ assets (excluding amounts included in net finance charge) Additional employer contributions Benefits paid Administration costs At end of period Changes in the present value of defined benefit obligation are as follows: Changes in the present value of defined benefit obligation are as follows: Item Remeasurement losses: Effect of changes in demographic assumptions Present value of defined benefit obligation at beginning of period Interest cost Benefits paid Remeasurement losses: – Effect of changes in demographic assumptions – Effect of changes in financial assumptions – Effect of experience adjustments At end of perioda Remeasurement losses: Effect of changes in financial assumptions Remeasurement losses: Effect of experience adjustments At end of period (Note a) Schemes Assets 2023, Million Schemes’ assets Pounds 2023 £m 1,699 88 Schemes 2022 Assets £m 2022, 2,808 Million 53 Pounds (277) 8 (79) (5) 1,434 (1,119) 44 (83) (4) 1,699 Defined benefit obligation Defined benefit obligation 2023, Million Pounds 2023 £m (1,442) (74) 79 Defined benefit 2022 obligation £m 2022, (2,438) Million (45) Pounds 83 blank 47 82 (5) (1,313) – 1,024 (66) (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: Item Cash and equivalents Cash and equivalents Pooled investment funds: Pooled investment funds: - Real estate debt – Real estate debt – Infrastructure debt Pooled investment funds: Infrastructure debt Debt instruments: Debt instruments: - Bonds – Bonds – Secured income debt Debt instruments: Secured income debt – Gilt repurchase transactions Debt instruments: Gilt repurchase transactions Forward foreign exchange contracts Forward foreign exchange contracts MABPP insurance policies MABPP insurance policies MABEPP insurance policy MABEPP insurance policy Fair value of assets Fair value of assets 2023, Million Pounds 2023 £m 67 2022, Million 2022 £m Pounds 175 175 30 67 23 23 – blank blank – 79 – 1 983 281 1,434 79 blank 1 983 281 1,434 30 92 92 1,321 1,321 360 (574) (1) – 296 1,699 360 (574) (1) blank 296 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 177 Strategic ReportGovernanceOther InformationIntroductionFinancial 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, Accounting policy 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 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 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 effect of non market-based vesting conditions and forfeitures, on the number of shares that will eventually vest due to employees leaving the of the Group. Fair values are calculated using either the Black-Scholes, Binomial or Monte Carlo simulation models depending on the conditions employment of the Group. Fair values are calculated using either the Black-Scholes, Binomial or Monte Carlo simulation models depending on attached to the particular share scheme. 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 Schemes in operation The net charge recognised for share-based payments in the period was £5m (2022 £4m). the period was ﾣ5m (2022 ﾣ4m). 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 Item Share Incentive Plan Short Term Deferred Incentive Plan Restricted Share Plan 2023 228.0p 134.6p 134.6p 2022 206.4p – 244.4p blank The following table sets out weighted average information about how the fair value of the Sharesave Plan option grants were calculated. Valuation model Weighted average share price Exercise price Expected dividend yield Risk-free interest rate Volatilitya Volatility (Note a) Expected life (years)b Expected life (years) (Note B) Weighted average fair value of grants during the period 2023 Sharesave Plan 2022 Sharesave Plan blank Black-Scholes 228.0p 211.0p – 4.30% 42.2% 4.1 94.1p blank Black-Scholes 206.4p 199.0p – 2.32% 41.9% 4.1 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 Financial StatementsScheme movements in the period: The tables below summarise the movements in outstanding Scheme movements in the period The tables below summarise the movements in outstanding options during the period for each scheme. options during the period for each scheme. Sharesave Plan Outstanding at the beginning of the period Granted Exercised Forfeited Expired Outstanding at the end of the period Exercisable at the end of the period Weighted average exercise price 2022, pence Number of shares Number of shares 2023, million 2023 m 5.7 2.0 – (1.1) (1.0) 5.6 – Number of shares 2022, 2022 million m 5.4 2.2 (0.3) (1.2) (0.4) 5.7 – Weighted average Weighted average exercise price exercise 2023 price 2023, p 223.5 pence 211.0 – 228.7 216.0 219.5 – blank blank blank blank blank blank 2022 p 238.3 199.0 224.4 243.9 225.9 223.5 – 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). Share Incentive Plan Outstanding at the beginning of the period Granted Exercised Outstanding at the end of the period Exercisable at the end of the period Number of shares Number of shares 2023 2023, million m 2.1 0.3 (0.2) 2.2 1.4 Number of 2022 shares 2022, m million 1.9 0.4 (0.2) 2.1 1.3 Options under the Share Incentive Plan are capable of remaining within the SIP trust indefinitely while participants continue to be employed. Restricted Share Plan Outstanding at the beginning of the period Granted Outstanding at the end of the period 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). Performance Restricted Share Plan Performance Restricted Share Plan Outstanding at the beginning of the period Outstanding at the beginning of the period Exercised Exercised Forfeited Forfeited Expired Expired Outstanding at the end of the period Outstanding at the end of the period Exercisable at the end of the period 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). Number of 2023, Number of shares million Number of shares 2022, million 2023 m 2.4 2.4 4.8 – 2022 m 1.0 1.4 2.4 – Number of shares Number of shares 2023 2023, million m 1.8 – – (1.3) 0.5 – Number of shares 2022 2022, m million 3.6 3.6 blank – blank – (1.8) (1.8) 1.8 1.8 blank – 1.8 blank blank (1.3) 0.5 blank Mitchells & Butlers plc Annual Report and Accounts 2023 179 Strategic ReportGovernanceOther InformationIntroductionFinancial 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 Accounting policies Own shares shareholders equity until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold The cost of own shares held in employee share trusts and in treasury are deducted from shareholders’ equity until the shares are cancelled, or reissued, the fair value of any consideration received is also included in shareholders equity. 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 Dividends by shareholders at the Annual General Meeting. Interim Dividends are recognised when paid. 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 Allotted, called up and fully paid Ordinary shares of 8 13/24 pence each Ordinary shares of 813⁄24p each At start of period Share capital issued (Note a) Share capital issueda At end of period 2023 Number of shares Number of shares 2023, Million Pounds 2023 £m Number of shares 2022 Number of shares 2022 2022, Million Pounds £m blank blank 597,383,363 343,496 597,726,859 blank blank blank blank blank 596,618,849 764,514 597,383,363 51 – 51 blank blank blank 51 – 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 Dividends There were no dividends declared or paid during the current period. 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 Share premium account premium of ﾣnil (2022 ﾣ1m) has been recognised on shares issued in the period. 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 Capital redemption reserve The capital redemption reserve movement arose on the repurchase and cancellation by the Company of ordinary shares during prior periods. 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 Revaluation reserve 2007. It comprises the excess of the fair value of the estate over deemed cost, net of related deferred taxation. 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 & Butlers plc Financial StatementsOwn shares held: Own shares held by the Group represent the shares in the Company held Own shares held Own shares held by the Group represent the shares in the Company held by the employee share trusts. 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 Companys Share Share Incentive Plan (‘SIP’) Trust 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 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, 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. the shares may be transferred or sold by the employee but would be subject to income tax and National Insurance contributions. After five years 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 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 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 the market or subscribes for newly issued shares with funds provided by the Company. During the holding period, dividends are paid directly to the 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 participating employees. At 30 September 2023, the trustees, Equiniti Share Plan Trustees Limited, held 2,235,495 (2022 2,091,712) shares in the 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 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 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 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. 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 Employee Benefit Trust (‘EBT’) under the Restricted Share Plan, Performance Restricted Share Plan, Short Term Deferred Incentive Plan and the Sharesave Plan. The EBT purchases 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 shares in the market or subscribes for newly issued shares, using funds provided by the Company, based on expectations of future requirements. subscribes for newly issued shares, using funds provided by the Company, based on expectations of future requirements. Dividends are waived by 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) 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. shares in the Company. Hedging reserve: The hedging reserve comprises the effective portion of the cumulative net change in the fair 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 value of cash flow hedging instruments related to hedged future cash flows. future cash flows. Translation reserve: The translation reserve is used to record exchange differences arising from the translation of the consolidated Translation reserve The translation reserve is used to record exchange differences arising from the translation of the consolidated financial statements of foreign subsidiaries. financial statements of foreign subsidiaries. Retained earnings: The Groups main operating subsidiary, Mitchells Butlers Retail Limited, had retained earnings under FRS 101 of ﾣ2,227m at 30 September Retained earnings 2023 (2022 ﾣ2,207m). Its ability to distribute these reserves by way of dividends is restricted by the securitisation covenants (see note 4.1). 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the consolidated financial statements continued Section 5 Other notes Section 5 – Other notes 5.1 Acquisitions 5.1 Acquisitions In August 2018, the Group acquired 40% of the share capital of 3Sixty Restaurants Limited for ﾣ4m, together with a put and call option that would enable the 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 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 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 the remaining 60% of share capital of 3Sixty Restaurants Limited, for ﾣ17m, with the purchase completing on 18 June 2023. The date of the option exercise, 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 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. 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. Type Land and buildings Fixtures, fittings and equipment Right-of-use assets Brand intangible Cash and cash equivalents Trade and other receivables Trade and other payables Lease liabilities Deferred tax liability Net identifiable assets of 3Sixty Restaurants Limited Goodwill Fair value of assets and liabilities Consideration: Cash consideration for purchase of the remaining 60% interest Less: cash and cash equivalents acquired Net cash outflow on acquisition Plus: Fair value of the existing 40% interest at acquisition Less: settlement of pre-existing contracts Net consideration Fair value on acquisition, Million Pounds Fair value on acquisition £m 26 3 6 5 5 1 (8) (5) (8) 25 1 26 17 (5) 12 12 (3) 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. 182 Annual Report and Accounts 2023 Mitchells & Butlers plc Financial Statements5.2 Related party transactions 5.2 Related party transactions Key management personnel 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 Employees of the Mitchells & Butlers plc Group who are members of the Board of Directors or the Executive Committee of Mitchells & Butlers plc are personnel. It is the Board who have responsibility for planning, directing and controlling the activities of the Group. 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: Type Short-term employee benefits 2023, 53 weeks, Million 2023 53 weeks Pounds £m 6 2022, 52 weeks, 2022 52 weeks Million £m Pounds 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 Associate companies 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 During the period, the Group has held a number of property lease agreements with its associate companies, 3Sixty Restaurants Limited and Fatboy 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. 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: Type Rent charged Sales of goods and services Total 3Sixty Restaurants 3Sixty Restaurants 3Sixty Restaurants Limited Limited Limited 2022 2023 52 weeks 53 weeks 2022, 2023, £000 £000 1,180 640 52 weeks, 53 weeks, 782 419 Thousand Thousand 1,962 1,059 Pounds Pounds Fatboy Pub Company Fatboy Pub Company Limited Limited 2023 53 weeks 2023, £000 100 53 weeks, 4 Thousand 104 Pounds Fatboy Pub Company Limited 2022 52 weeks 2022, £000 60 52 weeks, 4 Thousand 64 Pounds 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the consolidated financial statements continued Section 5 – Other notes continued 5.3 Subsidiaries and associates 5.3 Subsidiaries and associates Subsidiaries: Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. 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, 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: of the following companies: Name of subsidiary Group Name of subsidiary Mitchells & Butlers Retail Limited Principal Principal operating subsidiaries operating Mitchells & Butlers Retail Limited Mitchells & Butlers Retail (No. 2) Limited subsidiaries Ha Ha Bar & Grill Limited Orchid Pubs & Dining Limited 3Sixty Restaurants Limited ALEX Gaststätten Gesellschaft mbH & Co KG Midco 1 Limited Mitchells & Butlers Leisure Retail Limited Mitchells & Butlers Germany GmbHa Mitchells & Butlers Finance plc Mitchells & Butlers Germany GmbH (Note a) Mitchells & Butlers (Property) Limited (Note b) Other subsidiaries Other subsidiaries Mitchells & Butlers (Property) Limitedb Standard Commercial Property Developments Limitedb Standard Commercial Property Developments Limited (Note Mitchells & Butlers Holdings (No.2) Limiteda,b b)Mitchells & Butlers Holdings (No.2) Limited (Note a and b) Mitchells & Butlers Holdings Limitedb Mitchells & Butlers Holdings Limited (Note b) Mitchells & Butlers Leisure Holdings Limitedb Mitchells & Butlers Leisure Holdings Limited (Note b) Mitchells & Butlers Retail Holdings Limited Ego Restaurants Holdings Limited Old Kentucky Restaurants Limited Mitchells & Butlers (IP) Limitedb Mitchells & Butlers (IP) Limited (Note b) Mitchells & Butlers Retail Property Limiteda,b Mitchells & Butlers Retail Property Limited (Note a and b) Mitchells and Butlers Healthcare Trustee Limited (Note b) Mitchells and Butlers Healthcare Trustee Limitedb ALEX Gaststätten Immobiliengesellschaft mbHc ALEX Gastst￤tten Immobiliengesellschaft mbH (Note c) ALL BAR ONE Gaststätten Betriebsgesellschaft mbHc ALL BAR ONE Gastst￤tten Betriebsgesellschaft mbH (Note ALEX Alsterpavillon Immobilien GmbH & Co KGc ALEX Alsterpavillon Immobilien GmbH & Co KG (Note c) c) ALEX Alsterpavillon Management GmbHc ALEX Alsterpavillon Management GmbH (Note c) ALEX Gaststätten Management GmbHc ALEX Gastst￤tten Management GmbH (Note c) Miller & Carter Gaststätten Betriebsgesellschaft mbHc Miller & Carter Gastst￤tten Betriebsgesellschaft mbH (Note Browns Restaurant (Brighton) Limitedd Browns Restaurant (Brighton) Limited (Note d) c) Browns Restaurant (Bristol) Limitedd Browns Restaurant (Bristol) Limited (Note d) Browns Restaurant (Cambridge) Limitedd Browns Restaurant (Cambridge) Limited (Note d) Browns Restaurant (London) Limitedd Browns Restaurant (London) Limited (Note d) Browns Restaurant (Oxford) Limitedd Browns Restaurant (Oxford) Limited (Note d) Browns Restaurants Limitedd Browns Restaurants Limited (Note d) Lander & Cook Limitedd Lander & Cook Limited (Note d) Country of incorporation Registration Number Nature of business England and Wales England and Wales England and Wales England and Wales England and Wales Germany England and Wales England and Wales Germany England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales Germany Germany Germany Germany Germany Germany England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales blank blank blank blank blank blank blank blank 00024542 03959664 06295359 06754332 07540663 Leisure retailing Leisure retailing Leisure retailing Leisure retailing Leisure retailing Leisure retailing 05835640 Property leasing company Service company 01001181 Service company Finance company 04778667 01299745 00056525 06475790 03420338 02608173 04887979 06425958 00465905 04885717 06301758 04659443 01564302 02351724 01237917 00291996 01730727 01001320 11160005 Property management Property development Holding company Holding company Holding company Holding company Holding company Trademark ownership Dormant Non–trading Healthcare trustee Property management Leisure retailing Property management Management company Management company Leisure retailing Dormant Dormant Dormant Dormant Dormant Dormant 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 Financial StatementsAssociates: Details of the Companys associates, held indirectly, are as follows. Shares in these associates were Associates Details of the Company’s associates, held indirectly, are as follows. Shares in these associates were acquired in the prior period. acquired in the prior period. Name of associate Fatboy Pub Company Limited Registered office Ampney House, Falcon Close, Quedgeley, Gloucester, GL2 4LS Country of incorporation and operation England and Country of operation Nature of business Proportion of ownership interest % Proportion of voting power interest % Wales United Kingdom Leisure retailing 25 25 Mitchells & Butlers plc Annual Report and Accounts 2023 185 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Mitchells & Butlers plc Company financial statements Company balance sheet Company Balance Sheet 30 September 2023 30 September 2023 Type Group Investments in subsidiaries Non-current Non-current assets assets Investments in subsidiaries Amounts owed by subsidiary undertakings Amounts owed by subsidiary undertakings Deferred tax asset Deferred tax asset Subtotal Trade and other receivables Current Current assets assets Trade and other receivables Cash and cash equivalents Cash and cash equivalents Subtotal Pension liabilities Current Current liabilities liabilities Pension liabilities Borrowings Borrowings Trade and other payables Trade and other payables Subtotal Pension liabilities Non-current Non-current liabilities liabilities Pension liabilities Net assets Net Net assets assets EquityCalled up share capital Equity Called up share capital Share premium account Share premium account Capital redemption reserve Capital redemption reserve Own shares held Own shares held Retained earnings Retained earnings Total equity Total equity Notes Notes 5 5 6 6 9 9 blank 6 6 blank blank 4 4 8 8 7 7 blank 4 4 blank 2023, Million 2023 Pounds £m 1,866 2022, Million 2022 Pounds £m 1,866 1,866 430 10 2,306 430 10 2,306 205 205 21 226 21 226 (1) (1) (23) (315) (339) (23) (315) (339) (21) (21) 2,172 2,172 1,866 381 19 2,266 381 19 2,266 176 176 76 252 76 252 (42) (42) (17) (287) (346) (17) (287) (346) (22) (22) 2,150 2,150 10 51 51 10 10 10 blank 10 10 blank blank 51 357 3 (5) 1,766 2,172 357 3 (5) 1,766 2,172 51 357 3 (5) 1,744 2,150 357 3 (5) 1,744 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 Tim Jones Chief Financial Officer 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 Financial StatementsCompany statement of changes in equity Company statement of changes in equity For the 53 weeks ended 30 September 2023 For the 53 weeks ended 30 September 2023 Item At 25 September 2021 At 25 September 2021 Profit after taxation Profit after taxation Remeasurement of pension liability Remeasurement of pension liability Deferred tax on remeasurement of pension liability and rate Deferred tax on remeasurement of pension liability and rate change of pension liability change of pension liability Total comprehensive income Total comprehensive income Share capital issued Share capital issued Purchase of own shares Purchase of own shares Credit in respect of employee share schemes Credit in respect of employee share schemes At 24 September 2022 At 24 September 2022 Loss after taxation Loss after taxation Remeasurement of pension liability Remeasurement of pension liability Deferred tax on remeasurement of pension liability Deferred tax on remeasurement of pension liability Total comprehensive income Total comprehensive income Credit in respect of employee share schemes Credit in respect of employee share schemes At 30 September 2023 At 30 September 2023 blank blank blank blank 51 blank blank blank blank blank 51 – – – – – 51 – – – – – 51 Share capital, Million Share capital Pounds £m 51 51 blank – blank – blank Share premium, Million Share premium Pounds £m 356 356 blank – blank – blank Own shares Capital redemption Own Capital held, reserve, shares redemption held reserve Million Million £m £m Pounds Pounds (3) 3 (3) 3 blank blank – – blank blank – – blank blank Total equity, Retained earnings, Million Million Pounds Pounds 1,865 1,458 250 250 41 41 (9) (9) Retained earnings £m 1,458 250 41 Total equity £m 1,865 250 41 – – 1 – – 357 – – – – – 357 blank 1 blank blank 357 blank blank blank blank blank 357 blank blank blank blank 3 blank blank blank blank blank 3 – – – – – 3 – – – – – 3 – – – (2) – (5) – – – – – (5) blank blank (2) blank (5) blank blank blank blank blank (5) (9) 282 – – 4 1,744 282 blank blank 4 1,744 (16) 42 (9) 17 5 1,766 (16) 42 (9) 17 5 1,766 (9) 282 1 (2) 4 2,150 282 1 (2) 4 2,150 (16) 42 (9) 17 5 2,172 (16) 42 (9) 17 5 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 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements Notes to the Mitchells & Butlers plc Company financial statements 1. Basis of preparation 1. Basis of preparation Basis of accounting Basis of accounting: These Company financial statements were prepared in accordance with Financial Reporting These Company financial statements were prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ as issued Standard 101 Reduced Disclosure Framework as issued by the FRC. 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, Going concern The Directors have adopted the going concern basis in preparing these financial statements, as described in section 1 of the consolidated as described in section 1 of the consolidated financial statements. financial statements. Accounting judgements and sources of estimation uncertainty: The accounting judgements and estimates of the Company are considered alongside those Accounting judgements and sources of estimation uncertainty 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 The accounting judgements and estimates of the Company are considered alongside those of the Group. The key judgements and sources of used in the calculation of the defined benefit pension liability described in note 4.5 of the consolidated financial statements; the determination 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 of appropriate cash flow forecasts for the investment impairment review described in note 5; and the assessment of expected credit loss on investment impairment review described in note 5; and the assessment of expected credit loss on amounts owed by subsidiary undertakings as amounts owed by subsidiary undertakings as described in note 6. 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 Foreign currencies and liabilities denominated in foreign currencies are translated into sterling at the relevant rates of exchange ruling at the balance sheet date. 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 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 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. Act 2006. The Company recorded a loss after tax of £16m (2022 profit of £250m), less dividends of £nil (2022 £nil). Audit remuneration: Auditors remuneration for audit services to the Company was ﾣ30,000 (2022 ﾣ30,000). This is borne by another Group company, as Audit remuneration are any other costs relating to non-audit services (see note 2.3 to the consolidated financial statements). 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 Average number of employees, including part-time employees 2023, 53 weeks 2023 53 weeks 2 2022, 52 weeks 2022 52 weeks 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 Financial Statements4. Pensions Accounting policy: The accounting policy for pensions is disclosed in the consolidated financial Accounting policy The accounting policy for pensions is disclosed in the consolidated financial statements in note 4.5. statements in note 4.5. Pension liability: At 30 September 2023 the Companys pension liability was ﾣ22m (2022 ﾣ64m). Of this amount, ﾣ1m (2022 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 ﾣ42m) is a current liability and ﾣ21m (2022 ﾣ22m) is a non-current liability. (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 Companys investments in Group undertakings are held at cost less provision for impairment. The value of these investments are Accounting policy reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable, or that there is evidence that The Company’s investments in Group undertakings are held at cost less provision for impairment. The value of these investments are reviewed past impairments may be reversed. Impairment reviews are performed by comparing the recoverable amount with carrying value. Recoverable amount for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable, or that there is evidence that past 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 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 assets. has no trading assets. Item Group Additions (Note a) CostAt 25 September 2021 Cost At 25 September 2021 Additionsa At 24 September 2022 Additions At 30 September 2023 Provision Provision At 25 September 2021 Impairment At 24 September 2022 Impairment At 30 September 2023 Net book value At 30 September 2023 Net book value At 24 September 2022 At 25 September 2021 Investments in Investments in subsidiary subsidiary undertakings, undertakings £m Million Pounds 3,495 250 3,745 – 3,745 blank blank blank 1,879 – 1,879 – 1,879 1,866 1,866 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 Strategic ReportGovernanceOther InformationIntroductionFinancial 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, Impairment review – critical accounting judgements 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%). 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 Type Group Non-current Non-current Non-current Amounts owed by subsidiary undertakings Defined benefit pension blocked accounts (Note a) Defined benefit pension blocked accountsa Total Current Current Current Amounts owed by subsidiary undertakings Prepayments Defined benefit pension blocked accounts (Note a) Defined benefit pension blocked accountsa Total 2023, Million Pounds 2023 £m 2022, Million Pounds 2022 £m blank 165 383 47 430 2023 £m 204 1 – 205 381 – 381 2022 £m 165 2 9 176 204 blank 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 MABPP 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. Critical accounting judgements An assessment of the future trading cash flows and asset values of the subsidiaries has been made which also considers intercompany transactions Management has applied judgement when assessing the expected credit loss (‘ECL’) on amounts owed by subsidiary undertakings. An assessment between group companies. As a result of this assessment, no ECL has been recognised in the current period as it is immaterial. 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 Type Amounts owed to subsidiary undertakings (Note a) Amounts owed to subsidiary undertakingsa Other payables Total 2023, Million Pounds 2023 £m 313 2 315 2022, Million 2022 £m Pounds 286 1 287 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 Financial Statements8. Borrowings Accounting policy: The accounting policy for borrowings is disclosed in the consolidated financial Accounting policy The accounting policy for borrowings is disclosed in the consolidated financial statements in note 4.1. statements in note 4.1. Borrowings can be analysed as follows: Current Bank overdraft Total borrowings 2023, Million Pounds 2023 £m 23 23 2022, Million 2022 £m Pounds 17 17 Unsecured revolving credit facility: The Company holds an uncommitted gross overdraft facility of ﾣ50m (2022 ﾣ50m) as part of the Groups notional pooling Unsecured revolving credit facility arrangements with a net facility limit of ﾣ5m (2022 ﾣ5m) across the participating Group companies. The amount drawn at 30 September 2023 is ﾣ23m The Company holds an uncommitted gross overdraft facility of £50m (2022 £50m) as part of the Group’s notional pooling arrangements with a net (2022 ﾣ17m). 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 Accounting policy The accounting policy for taxation is disclosed in the consolidated financial statements in note 2.4. statements in note 2.4. Deferred tax asset: Movements in the deferred tax asset can Deferred tax asset Movements in the deferred tax asset can be analysed as follows: be analysed as follows: Item Million Pounds At 25 September 2021 Charged to income statement – pensions Charged to other comprehensive income – pensions At 24 September 2022 Charged to other comprehensive income – pensions At 30 September 2023 Analysed as tax timing differences related to: Item Tax losses (Note a) Pensions Tax lossesa Share-based payments Total £m 36 (8) (9) 19 (9) 10 2023, Million Pounds 2023 £m 5 4 1 10 2022, Million 2022 £m Pounds 14 4 1 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 Pulled up share capital and share premium: Details of the amount and nominal value of called up and fully paid share capital and 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 share premium are contained in note 4.7 to the consolidated financial statements. financial statements. Dividends: Details of the dividends declared and paid by the Company are contained in note 4.7 to the consolidated Dividends Details of the dividends declared and paid by the Company are contained in note 4.7 to the consolidated financial statements. financial statements. Own shares held: Details of the amount of own shares held are contained in note 4.7 to the consolidated Own shares held Details of the amount of own shares held are contained in note 4.7 to the consolidated financial statements. financial statements. Mitchells & Butlers plc Annual Report and Accounts 2023 191 Strategic ReportGovernanceOther InformationIntroductionFinancial Statements 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 EBITDA Adjusted EBITDA 52-week Adjusted EBITDA Source Definition Earnings before interest, tax, depreciation and amortisation. Group income statement EBITDA before separately disclosed items is used to calculate net debt to EBITDA. Group income statement EBITDA on a 52-week basis, adjusted to remove the 53rd week of the period, before separately disclosed items is used to calculate net debt to EBITDA. Earnings before interest and tax. Operating profit before separately disclosed items. APM D Group income statement Group income statement APM B Operating profit Adjusted operating profit 52-week adjusted operating profit Operating profit before separately disclosed items adjusted to remove the 53rd 52-week revenue Like-for-like sales growth 52-week like-for-like sales growth Like-for-like sales excluding VAT benefit week of the period. Revenue adjusted to remove the 53rd week of the year. Like-for-like sales growth reflects the sales performance against the comparable 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. Like-for-like sales growth reflects the sales performance against the comparable 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 benefit reflects like-for-like sales growth excluding the benefit of the temporary reduction in the rate of VAT on food and non-alcoholic drink sales to 12.5% in the first half of FY 2022. Adjusted earnings per share (‘EPS’) Earnings per share using profit before separately disclosed items. 52- week adjusted earnings per share (‘EPS’) Net debt Net debt : Adjusted EBITDA Net debt : Adjusted 52-week EBITDA FY 2023 52-week reconciliation Return on capital Earnings per share using profit before separately disclosed items adjusted for 53rd week of period. Net debt comprises cash and cash equivalents, cash deposits net of borrowings and discounted lease liabilities. Presented on a constant currency basis due to the inclusion of the fixed exchange rate component of the cross currency swap. The multiple of net debt including lease liabilities, as per the balance sheet compared against 52-week EBITDA before separately disclosed items, which is a widely used leverage measure in the industry. The multiple of net debt including lease liabilities, as per the balance sheet compared against 52-week EBITDA before separately disclosed items, which is a widely used leverage measure in the industry. Adjusted for 53rd week of the period. 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. Return generating capital includes investments made in new sites and investment in existing assets that materially changes the guest offer. Return on investment is measured by incremental site EBITDA following investment expressed as a percentage of return generating capital. Return on investment is measured for four years following investment. Measurement commences three periods following the opening of the site. APM B APM A APM A APM A Note 2.5 APM C Note 4.4 APM D APM D APM E APM F 192 Annual Report and Accounts 2023 Mitchells & Butlers plc Other InformationA. 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. Type Reported revenue Adjust for 53rd week Less 52-week non like-for-like sales and income 52-week like-for-like sales Less like-for-like sales VAT benefit 52-week like-for-like sales basis excl. VAT benefit Source Income statement APM E blank blank blank blank Drink sales Type Reported drink revenue Adjust for 53rd week Less 52-week non like-for-like drink sales 52-week drink like-for-like sales blank blank blank Food sales Type Reported food revenue Adjust for 53rd week Less 52-week non like-for-like food sales 52-week food like-for-like sales blank blank blank Other sales Type Reported other revenue Adjust for 53rd week Less non like-for-like other sales 52 week other like-for-like sales blank blank blank Source Note 2.3 Source Note 2.3 Source Note 2.3 2023, Million Pounds 2023 £m 2,503 (44) (311) 2,148 – 2,148 blank 2023, Million Pounds 2023 £m 1,092 (20) (117) 955 2023, Million Pounds 2023 £m 1,323 (23) (171) 1,129 2023, Million Pounds 2023 £m 87.8 (1.5) (41.6) 44.7 blank blank 2022, Million 2022 £m Pounds 2,208 – (239) 1,969 (39) 1930 Year-on-year % 13.4% – 30.1% 9.1% – 11.3% blank 2022, Million 2022 £m Pounds 957 – (88) 869 Year-on-year % 14.1% – 33.0% 9.9% blank blank 2022, Million 2022 £m Pounds 1,166 – (126) 1,040 blank Year-on-year % 13.5% – 35.7% 8.6% blank 2022, Million 2022 £m Pounds 85.2 – (41.8) 43.4 blank Year-on-year % 3.3% – 0.5% 3.0% blank B. Adjusted operating profit 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 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 Groups trading performance from one period to the next. 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. Type Operating profit Separately disclosed items Adjusted operating profit Adjusted operating profit 53rd week 52-week adjusted operating profit Reported revenue Revenue 53rd week 52-week revenue 52-week adjusted operating margin Source Income statement Income statement Income statement APM E Income statement APM E blank blank blank 2023, Million Pounds 2023 £m 98 128 226 (5) 221 2,503 (44) 2,459 9.0% blank 2022, Million 2022 £m Pounds 124 116 240 – 240 2,208 – 2,208 10.9% Year-on-year % (21.0)% 10.3% (5.8)% – (7.9)% 13.4% – 11.4% (1.9)ppts blank blank blank Mitchells & Butlers plc Annual Report and Accounts 2023 193 Strategic ReportGovernanceFinancial StatementsIntroductionOther 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 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 Earnings per share using profit before separately disclosed items. Separately disclosed items are those which are separately identified by virtue of their a more effective comparison of the Groups trading performance from one period to the next. size or nature. Excluding these items allows a more effective comparison of the Group’s trading performance from one period to the next. Type Profit/(loss) for the period Add back separately disclosed items Adjusted profit Adjusted profit 53rd week 52-week adjusted profit Basic weighted average number of shares Adjusted earnings per share 52-week adjusted earnings per share Source Income statement Income statement blank blank blank blank blank Note 2.5 2023, Million Pounds 2023 £m (4) 100 96 (3) 93 595 16.1p 15.6p 2022, Million 2022 £m Pounds 13 94 107 – 107 595 – 18.0p blank blank Year-on-year % (130.8)% 6.4 (10.3)% blank blank blank (13.1%) – – (13.3)% D. Net Debt: 52-week adjusted EBITDA 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 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 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 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 distortions in performance resulting from separately disclosed items. measure to prevent distortions in performance resulting from separately disclosed items. Type Net Debt including leases EBITDA Add back separately disclosed items EBITDA 53rd week Adjusted 52-week EBITDA Net debt : Adjusted 52-week EBITDA Source Note 4.4 Income statement Income statement APM E blank blank 2022, Million Pounds 2023 2023, Million Pounds £m 1,633 362 (3) (7) 352 4.6 2022 £m 1,679 374 (1) – 373 4.5 blank Year-on-year % (2.7)% (3.2)% (200)% – (5.6)% 2.2% blank E. FY 2023 52-week reconciliation 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 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. provides useful comparability to previous financial years. Type Revenue Adjusted EBITDA Adjusted operating profit Adjusted PBT Adjusted profit for the period Adjusted EPS Source Income statement Income statement Income statement Income statement Income statement Income statement 2023 52 weeks £2,459m £352m £221m £112m £93m 15.6p 2023 Week 53 £44m £7m £5m £3m £3m 0.5p 2023 53 weeks £2,503m £359m £226m £115m £96m 16.1p 194 Annual Report and Accounts 2023 Mitchells & Butlers plc Other InformationF. Return on capital 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 Return generating capital includes investments made in new sites and investment in existing assets that materially changes the guest offer. Return 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 on investment is measured by incremental site EBITDA following investment expressed as a percentage of return generating capital. Return on three periods following the opening of the site. investment is measured for four years following investment. Measurement of return commences three periods following the opening of the site. Return on expansionary capital Type Source Source Maintenance and infrastructure Maintenance and infrastructure Remodel refurbishment Remodel – refurbishment Non-expansionary capital Non-expansionary capital Remodel expansionary Remodel expansionary Conversions and acquisitions (Note a) Conversions and acquisitionsa Expansionary capital for return calculation Expansionary capital for return calculation Expansionary capital open < 3 periods pre year Expansionary capital open < 3 periods pre year end Total capital 52-week Total capital 52-week end Adjusted 52-week EBITDA Adjusted 52-week EBITDA Non-incremental EBITDA Non-incremental EBITDA Incremental EBITDA Incremental EBITDA Return on expansionary capital Return on expansionary capital blank blank blank blank blank blank blank Cash flow Cash flow Income statement Income statement blank blank blank 2022, Financial 2022 FY 2019-22 Year £m 151 2019-22, 151 188 Million 188 339 339 Pounds 9 9 30 30 39 39 37 37 415 415 1,230 1,230 1,223 1,223 7 7 18% 18% 2023, Financial 2023 FY 2020-22 Year £m 91 2020-22, 91 123 Million 123 214 214 Pounds 5 5 14 14 19 19 30 30 263 263 794 794 790 790 4.3 4.3 22% 22% 2023, Financial 2023 FY 2023 Year 2023, £m 67 Million Pounds 67 65 65 132 132 4 4 11 11 15 15 10 10 157 157 352 352 350 350 1.9 1.9 13% 13% 2023, Total, 2023 Total Million £m 158 Pounds 158 188 188 346 346 9 9 25 25 34 34 40 40 420 420 1,146 1,146 1,140 1,140 6.2 6.2 18.5% 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 Strategic ReportGovernanceFinancial StatementsIntroductionOther Information Shareholder information Contacts: Contacts Registered office, 27 Fleet Street, Birmingham, Registered office B3 1JP, Telephone 0121 498 27 Fleet Street 4000, Registered in England No. 4551498 Birmingham B3 1JP Telephone 0121 498 4000 Registered in England No. 4551498 Registrar: Registrar Equiniti, Aspect House, Spencer Equiniti Aspect House Road, Lancing, Spencer Road West Sussex, BN99 Lancing 6DA West Sussex BN99 6DA Telephone +44 (0) 371 384 2065 (Lines are open Telephone +44 (0) 371 384 2065* 8.30am to 5.30pm (UK time), Monday to Friday, excluding public holidays in England For deaf and speech impaired customers, we welcome calls via Relay UK. Wales. ) Please see www.relayuk.bt.com for more information. www.relayuk.bt.com 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 Key dates These dates are indicative only and may be subject to change. These dates are indicative only and may be subject to change. Key Event Annual General Meeting Announcement of interim results Pre-close trading update 2024 final results announcement Date January 2024 May 2024 September 2024 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. www.mbplc.com/investors/annualreport. 196 Annual Report and Accounts 2023 Mitchells & Butlers plc Other InformationMitchells & 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. Mitchells and Butlers plc Mitchells & Butlers plc 27 Fleet Street Birmingham B3 1JP Tel: +44 (0)121 498 4000 Company Number: 4551498

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