Our vision Company overview 01 – 05 is that guests

love to eat and Strategic and business review 07 – 34 drink with us.

So how do we Governance 35 – 64 achieve this? Financial statements 65 – 106 Shareholder information 107 – 108

Mitchells & Butlers plc Annual Report and Accounts 2013 07 First, we looked at our markets, our guests and our brands...

08 Mitchells & Butlers plc Annual Report and Accounts 2013 Our markets and customers Company overview 01 – 05

We operate in the UK eating and drinking-out Eating-out market Drinking-out market market. This is a large, fragmented market, worth £75bn. We are one of the largest players £49bn £26bn with only 3% of market revenues and there is a significant opportunity to grow our share.

Total market value

£75bn Strategic and business review 07 – 34 Source: Allegra Project Restaurant 2013, ONS Household Final Consumption Expenditure 2011.

The eating and drinking-out market Fig. 1 – % of UK consumer spending* Fig. 2 – UK beer market volumes (million barrels)** Food remains the primary long term route to sustainable growth in this sector. Three quarters of our sales are food-related. 1.7% 40 1.8% 4.1% 2.9% 30

20 4.1% 4.5% Governance 35 – 64 10

1997 2002 2007 2011 1980 1990 2000 2010

* Source: ONS Household Final Consumption Eating-out Drinking-out On trade Off trade Expenditure 2011. Drinking in ** Source: The British Beer and Pub Association.

Branded growing faster Fig. 3 – UK market size* Fig. 4 – £ Average household weekly expenditure** than unbranded £532 £515 The branded restaurant and pub sector has £43bn £44bn £489 £41bn £42bn £87 £482 grown, and is forecast to grow, at a faster rate £39bn £40bn £14bn £83 £38bn £12bn £77 £12bn £86 than the unbranded sector. See Fig. 3 £202 £10bn £177 £183 £158 Eating-out has been protected £15bn £12bn £14bn £14bn In the downturn, families have protected low Financial statements 65 – 106 ticket leisure spending. See Fig. 4 £154 £121 £135 £139 £16bn £15bn £15bn £15bn

£108 £108 £101 £99

2009 2010 2011 2012 2013 2014 2015 1997 2002 2007 2011

* Source: Allegra Project Restaurant 2012. Branded pubs & Unbranded restaurants Leisure & Alcohol Housing ** Source: ONS family spending survey 2012. restaurants Unbranded pubs Clothes, Cars & Other Food & Essentials Discretionary

Revenue by region Scotland – 5% London, the East and the South East have achieved substantially more growth in the North East – 3% downturn than the rest of the country and this trend is forecast to continue. 45% of our Yorkshire/Humberside – 8% Shareholder information 107 – 108 revenues are generated in these regions. North West – 9%

East Midlands – 5%

West Midlands – 14%

East – 7%

Wales – 4%

London – 23%

South East – 15%

South West – 7% Our sales by region

Mitchells & Butlers plc Annual Report and Accounts 2013 09 ...and identified where there are opportunities for us to grow our business.

10 Mitchells & Butlers plc Annual Report and Accounts 2013 Our opportunities Company overview 01 – 05

Special Brands: Miller & Carter

Country Pubs Strategic and business review 07 – 34 Browns

Market value £22bn

Upmarket Family social Brands: Brands: Harvester Invest All Bar One Toby Carvery

& expand Governance 35 – 64 Castle Nicholson’s Market value Alex £5bn

Market value Mitchells & £8bn Butlers plc z

Protect & Optimise & compete invest

Heartland Everyday

Brands: social Financial statements 65 – 106 Oak Tree Pubs Brands: Sizzling Pubs Ember Inns Crown Carveries O’Neill’s

Market value Market value £4bn £2bn Shareholder information 107 – 108

We believe that there are areas of substantial covering around half the total market size. opportunity to grow in our highly fragmented We have three broad operating and expansion market, worth £75bn in the UK. We have strategies to maximise our returns in each of identified five market spaces in which to focus, these spaces.

Mitchells & Butlers plc Annual Report and Accounts 2013 11 Invest & expand: Toby Carvery

Number of outlets 154 Founded in 1973 Number of employees 5,000

12 Mitchells & Butlers plc Annual Report and Accounts 2013 Invest & expand: Company overview 01 – 05 Miller & Carter

Number of outlets 29 Founded in 2006 Strategic and business review 07 – 34 Number of employees 1,000 Governance 35 – 64 Financial statements 65 – 106 Shareholder information 107 – 108

Mitchells & Butlers plc Annual Report and Accounts 2013 13 Optimise & invest: Ember Inns

Number of outlets 130 Founded in 1999 Number of employees 2,000

14 Mitchells & Butlers plc Annual Report and Accounts 2013 Protect & compete: Company overview 01 – 05 Sizzling Pubs

Number of outlets 220 Founded in 2001 Strategic and business review 07 – 34 Number of employees 3,500 Governance 35 – 64 Financial statements 65 – 106 Shareholder information 107 – 108

Mitchells & Butlers plc Annual Report and Accounts 2013 15 To help us maximise these opportunities, we apply a simple business model and clear strategy to deliver sustainable growth for shareholders.

16 Mitchells & Butlers plc Annual Report and Accounts 2013 Our business model and strategy Company overview 01 – 05

What we do How we do it How we create value Mitchells & Butlers is the leading operator of Our 40,000 employees and leading portfolio We run businesses that people love to restaurants and pubs in the UK with multiple of brands are focused on delighting our eat and drink in, and as a result grow brands spanning around 1,600 locations. guests and delivering growth in the eating shareholder value. and drinking-out market.

Our strategy Strategic and business review 07 – 34 1. Focus the business 2. Develop superior 3. Recruit, retain and 4. Generate high returns 5. Maintain a sound on the most attractive brand propositions develop engaged on investment through financial base market spaces within with high levels of people who deliver scale advantage eating and drinking-out consumer relevance excellent service for our guests

2013 progress (See Chief Executive’s market and business review on pages 22 to 27)

• We completed a • We aligned our • Our ‘Good to Great’ • We have continued to • We have long-term significant piece of operating strategies to programme continued refine our methods of debt financing research to update the market dynamics to reduce the level of site selection, making secured on our large, our understanding within each space. administration within the use of our improved predominantly freehold of current and future • We delivered further business, freeing consumer insight. asset base. consumer trends, growth in food sales and up our operational • We opened 16 new • At the year end, our opportunities and margin in a challenging teams to deliver restaurants and pubs freehold property brand growth potential. environment. improved service. in the year. was revalued and Governance 35 – 64 • This research included • We redesigned our we conducted an interviews with 8,000 guest service and food impairment review on consumers, meetings capability training other assets. Taken with industry programmes. together, this resulted commentators and a • We actively support in an increase in value thorough review of apprenticeship schemes of £31m. macro-economic and, at our year end, indicators and forecasts. we were employing c. 1,600 apprentices. 2013 performance • We focused the • Total sales increased • Staff turnover in our • We made a 17% • Net debt reduced to business on five 2.2% (compared to restaurants and EBITDA return on 4.2 times EBITDA attractive market spaces 52 week revenue in pubs was down 4 the expansionary from 4.5 times at the

within the £75bn eating FY 2012). percentage points investments made in last year end. Financial statements 65 – 106 and drinking-out market: • Our net promoter to 78%. our brand portfolio over special, family, upmarket score increased by the last three years. social, everyday social 4 percentage points and heartland. to 59%.

2014 priorities • We will open new • We will focus on the • We have launched a • We will continue our • We will continue to restaurants and pubs, execution of our People Strategy which focus on improving prioritise long-term especially in the family, brand strategies, aims to improve further the efficiency of our financial stability for upmarket social and based on strong our recruitment, investments. the Group. special market spaces. consumer insight. induction, guest service • We will further increase • We will roll out new and food capability the clarity of our capital tills, table and kitchen programmes across our allocation, investing management systems restaurants and pubs. where the returns are across our estate, which most attractive. Shareholder information 107 – 108 are designed to improve guest service significantly.

Key risks (See Risks and uncertainties on pages 18 to 20) • Failure to anticipate • Failure to anticipate • Failure to attract, retain, • Cost of goods price • The pension fund pricing and market pricing and market develop and motivate increases (including deficit may increase, changes. changes. the best people with energy). leading to increases in • Failure to anticipate • Failure to anticipate the right capabilities. • Failure to attract high funding requirements. changes in consumer changes in consumer quality teams to • Failure to manage taste. taste. operate newly opened performance against restaurants and pubs. our borrowing covenants.

Mitchells & Butlers plc Annual Report and Accounts 2013 17 Risks and uncertainties

This section highlights the principal risks The Risk Committee met on four occasions in that affect the Company, together with the FY 2013 and continues to meet on a quarterly key mitigating activities in place to manage basis to review the key risks facing the those risks. This does not represent a business. Key risks identified are reviewed comprehensive list of all of the risks that the and assessed by the Risk Committee in terms Company faces, but focuses on those that are of their likelihood and impact, within the currently considered to be of most concern. Group’s ‘Key Risk Heat Map,’ in conjunction with associated risk mitigation plans. The processes that are used to identify and manage risks are described in the Internal Control and Risk Management statement on pages 45 and 46.

Actively managing potential risks Risk management process

Overall Board responsibility, supported by Risk and Assurance Functions

Regular detailed risk reviews by Risk Committee

Risks identified, assessed and prioritised

Risks mapped to controls Residual risks prioritised Confirmed with Executive, currently in place for mitigation Audit Committee and Board

Existing controls enforced and tested Suggested action plans agreed to bridge gaps Remedial action plans implemented Options for controls identified and costed Executive held accountable Plans approved by Executive, Risk Committee, Audit Committee and Board

18 Mitchells & Butlers plc Annual Report and Accounts 2013 Company overview 01 – 05

Market risks Risk description Mitigating activities Consumer taste and Social and demographic changes are driving In FY 2013, the Company conducted a major piece of brand management the long-term growth in eating-out while at consumer research, interviewing 8,000 consumers about the same time leading to a steady decline 14,000 leisure occasions. This research examined macro in the sales of on-trade drinks without economic trends, consumer dynamics, competitor and food. These changes, together with other internal brand positioning and the Company’s strengths developments in consumer taste may reduce and weaknesses. The business is in the process of rolling

the appeal of Mitchells & Butlers’ brands to out the outputs from this project to refine further its brand Strategic and business review 07 – 34 its customers, especially if the Company fails positioning and ensure the portfolio’s continued relevance to anticipate and identify these changes and for guests. This is discussed in detail in the Business respond to them adequately and promptly. Review on pages 22 to 27. The Company uses an online guest satisfaction survey to collect customer feedback. This feedback together with the results of research studies is monitored and evaluated by a dedicated customer insight team to ensure that the relevance to customers of the Company’s brands is maintained. Net promoter score is the key measure of success in this area, and this has improved from 55% in FY 2012 to 59% in FY 2013.

Pricing and market changes External influences, such as changes in the Mitchells & Butlers’ business is focused on the long-term general economic climate or competitor potential of the eating-out market. The Company owns Governance 35 – 64 activity, could have a detrimental effect on sites across the UK with a wide spectrum of customer customers’ spending patterns and therefore offers targeted at different consumer groups and leisure the Company’s revenue, profitability and occasions. This range allows the Company to respond to consequently the value of its assets. changes in consumer expenditure either by flexing our offerings or by substituting a different brand at a particular location. This activity is supported by dedicated Sales and Margin Managers and Asset Planning teams which analyse and evaluate a range of information including that in respect of competitors.

Operational risks Risk description Mitigating activities Cost of goods price Increases in the price of goods for resale Mitchells & Butlers leverages its scale to drive competitive increases (including and utilities costs as a result of increases in cost advantage and collaborates with suppliers to increase energy price increases) global demand and uncertainty of supply efficiencies in the supply chain. The fragmented nature Financial statements 65 – 106 in producing nations can have a significant of the food supply industry on the world commodity impact on the cost base consequently markets gives the Company the opportunity to source impacting margins. products from a number of alternative suppliers in order to drive down cost. The Company continually evolves the composition of menus and retail prices in order to optimise value to the customer as well as profits for the Company. The energy procurement strategy seeks to reduce the risk of cost increases and uncertainty over energy prices by a rolling programme of short and medium- term purchases against forecast requirements. A dedicated energy management team is responsible for optimising energy usage across the organisation by promoting energy efficient working practices via training and educational programmes and by the installation of energy efficient equipment. Shareholder information 107 – 108

Mitchells & Butlers plc Annual Report and Accounts 2013 19 Risks and uncertainties continued

Operational risks Risk description Mitigating activities People planning and Mitchells & Butlers’ business has a strong The Company makes significant investment in training development customer focus, and as such it is important to ensure that its people have the right skills to perform that it is able to attract, retain, develop and their jobs successfully. Furthermore, an employee survey motivate the best people with the right is conducted annually to establish employee satisfaction capabilities throughout the organisation. and engagement and compare it 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. Staff turnover is the key measure of success in this area, and this has improved from 82% in FY 2012 to 78% in FY 2013.

Business continuity and Mitchells & Butlers relies on its food and The Company has in place crisis and continuity plans that crisis management drink supply chain and the key IT systems are tested and refreshed regularly. underlying the business to serve its customers efficiently and effectively. Supply chain interruption, IT system failure or crises such as terrorist activity or the threat of disease pandemic might restrict sales or reduce operational effectiveness.

Finance risks Risk description Mitigating activities Borrowing covenants There are risks that borrowing covenants are The Company maintains headroom against these risks. breached because of circumstances such as: The finance team conducts daily cash forecasting with i) a change in the economic climate leading periodic reviews at the Treasury Committee, the roles of to reduced cash inflows; or which include ensuring that the Board Treasury Policy is adhered to, monitoring its operation and agreeing ii) a material change in the valuation of the appropriate strategies for recommendation to the Board. property portfolio. In addition, regular forecasting and testing of covenant compliance is performed and frequent communication is maintained with the Securitisation Trustee.

Pension fund deficit There is a risk that the pension fund Mitchells & Butlers maintains a close dialogue with the deficit increases because of poor Trustees of the pension schemes and three of the 12 investment performance, lower long-term Trustees are appointed by the Company. The Company bond yields or increased life expectancy, has made significant additional contributions to reduce leading to unexpected increases in the funding deficit. funding requirements on the Company. The triennial actuarial valuation carried out at 31 March 2010 resulted in a deficit of £400m. The 2013 valuation is currently ongoing.

Regulatory risks Risk description Mitigating activities Failure to operate A major health and safety failure could Mitchells & Butlers maintains a robust programme of safely and legally lead to illness, injury or loss of life or health and safety checks both within its restaurants and significant damage to the Company’s pubs and throughout the supply chain. The dedicated or a brand’s reputation. 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. Food suppliers are required to meet the British Retail Consortium Global Standard for Food Safety and are subject to regular safety and quality audits. Comprehensive health and safety training programmes are in place.

20 Mitchells & Butlers plc Annual Report and Accounts 2013 Key performance indicators Company overview 01 – 05

We measure our performance and progress against our strategy through five key performance indicators. This year, we have included two additional non-financial KPIs, relating to our ability to retain our employees and to the extent that our guests would recommend our businesses to their friends and family. These KPIs are reviewed at every Executive Committee meeting and are central to our understanding of our performance.

Our performance in the year was as follows: KPI KPI definitions Progress in FY 2013

1. Staff turnover The number of leavers in our retail businesses, The eating and drinking-out industry has Strategic and business review 07 – 34 expressed as a percentage of average retail traditionally had a high level of staff turnover. employees. This measure excludes site We believe that reducing staff turnover will management as well as employees who leave improve guest service and drive profitability. and rejoin the business within the same year. Following significant management focus, staff turnover has reduced from 82% in FY 2012 to 78% in FY 2013.

2. Net promoter score The net promoter score for a pub is defined Net promoter score has increased from 55% as the percentage of responses where we in FY 2012 to 59% in FY 2013, indicating a score 9 or 10 out of 10 (‘brand promoters’) higher level of guest recommendation of less the percentage of responses where we our businesses. score 0 to 6 out of 10 (‘brand detractors’). Responses scoring 7 or 8 (‘passives’) are ignored in the calculation.

3. Same outlet like-for-like The sales this year compared to the sales in the Our like-for-like sales increased 0.4% in Governance 35 – 64 sales growth previous year of all UK managed sites that were FY 2013, lower than the increase of 2.1% trading in the two periods being compared, in FY 2012. expressed as a percentage.

4. Incremental return on Expansionary capital includes investments The performance in this area remains above expansionary capital made in new sites and investment in existing our cost of capital. Blended freehold and assets that increases the trading area or leasehold pre-tax EBITDA returns of 17% materially changes the customer offer. are being achieved on investments made Incremental return is the growth in annual since FY 2011, in line with last year. site EBITDA, expressed as a percentage of expansionary capital.

5. EPS growth Adjusted earnings per share for the year 52 week adjusted operating profit and compared to last year, as reported in the adjusted EPS were up 5.1% and 17.1% financial statements, expressed as respectively as a result of sales growth,

a percentage. higher operating margins and lower interest Financial statements 65 – 106 charges (FY 2012: adjusted operating profit up 1.0% and adjusted EPS up 6.4%).

As a key measure of overall profitability and shareholder value creation, EPS growth forms a key part of the Group’s remuneration policies for Directors and other employees. Full details of the various schemes in operation are shown on pages 50 to 64 in the Report on Directors’ remuneration. Shareholder information 107 – 108

Mitchells & Butlers plc Annual Report and Accounts 2013 21 Chief Executive’s market and business review

We are the UK’s largest operator of managed restaurants and pubs, with a high quality freehold estate, some of the best known brands in the industry, substantial scale and committed retail teams.

This year, we have delivered a strong set of • Leisure spending has been protected. financial results, with sales and margin growth, Through the downturn, families have adjusted EPS up 17% and debt continuing to tended to protect low ticket leisure fall. At the same time we have made good spending. Average weekly family spending progress with our business transformation on leisure increased 4% from 2007 to 2011, programme which is on track and aimed at whereas overall weekly family expenditure focusing the business on four key priority areas: was down 6% over the same time our people, our practices, our guests and our (source: ONS family spending survey 2012). profits. We are confident this will help to drive • Food remains the primary long-term our future growth and our ability to create route to sustainable growth in this sector. additional shareholder value. We benefit from being principally focused on eating-out, with around three quarters of Market review our turnover generated from guests eating 2013 has not been an easy year for UK in our restaurants and pubs. We expect the consumers. With wage rises not keeping pace eating-out market to grow at least in line with the general level of inflation in the with overall consumer spending in future. economy, discretionary income has remained Even in the structurally declining drinking- tight. This economic backdrop continues to out market, brands and formats with strong drive a challenging consumer environment locations, a clear brand proposition and and ever greater expectations when people customer focus should outperform. do choose to spend their money. It is in this • There are significant economic disparities context that we are especially pleased with by region and by economic grouping. our financial progress this year. A number of Between 2006 and 2012, London, the East factors are impacting our market’s evolution and the South East achieved substantially and we believe will continue to do so: higher economic growth than the rest of the country and this trend is forecast • The market is large but fragmented. to continue. 45% of our revenues are The eating and drinking-out market is worth generated in these areas and we are £75bn a year and we are one of the largest well placed to benefit from this improving players in that market with sales of around trend. Different economic groups have £2bn, approximately 3% of the total. Our also been impacted to varying degrees by largest brand by sales, Harvester, has just the economic slowdown and subsequent 210 outlets in the UK compared to around austerity measures. Baby boomers and 125,000 eating and drinking-out venues in more affluent economic groups have been total. The opportunity for scale operators to relatively well protected whereas 18 to 34 grow by taking market share with leading year olds and the lower income deciles brands is significant in a market of this size. have been the hardest hit. Our brand • The importance of brands is increasing. portfolio is targeted at guests from across Although the majority of the industry is a wide spectrum, so it is increasingly unbranded, the branded restaurant and important that we focus the business to pub sector has consistently grown at a faster benefit from these dynamics. We have rate than the unbranded sector and this invested heavily in this area in FY 2013 has accelerated in the downturn as guests and our brand teams are now highly seek the guarantee of quality that a brand focused on the specific market trends can offer. We expect that this trend which impact their guests. will continue.

22 Mitchells & Butlers plc Annual Report and Accounts 2013 Our priorities Company overview 01 – 05 in action

59% Our measure of guest recommendation, net promoter score, was up 4 percentage

points to 59% Strategic and business review 07 – 34 Governance 35 – 64 Financial statements 65 – 106 Shareholder information 107 – 108

Mitchells & Butlers plc Annual Report and Accounts 2013 23 Chief Executive’s market and business review continued

Brand positioning, operating strategies Protect & compete: The heartland space, and expansion opportunities worth £4bn, is a market characterised by the We operate a wide range of scale brands and need to offer value to consumers who have formats which offer food and drink across a been most exposed to the economic downturn. bn broad spectrum of price points and occasions, The effects of the recession and austerity have £75 from a casual meeting with friends to special hit this consumer group more than other The eating and drinking-out market occasion dining. We have identified five segments and the market dynamics are the is worth £75bn a year ‘market spaces’ through our extensive most difficult of the market spaces in which consumer research on which to focus: we operate. Our strategy is based around upmarket social, special, family, everyday social local flexibility and working hard to deliver and heartland*. These spaces cover about half exceptional value for our guests while of the £75bn eating and drinking-out market generating cash. New menus in Sizzling Pubs and are impacted by a wide range of market and Oak Tree Pubs resulted in an improved dynamics. We are increasing the efficiency volume performance in the second half of the % of our capital allocation and maximising our year. We have extended our sports coverage 4 returns on investment through three broad with both Sky Sports and BT Sport and we are Average weekly family spending on operating and expansion strategies. focusing on improved staff recruitment and leisure increased 4% from 2007 to 2011 induction. As a further example of this strategy, Invest & expand: The upmarket social, we recently launched new autumn menus in special and family spaces, together worth Crown Carveries which featured great value £35bn, currently benefit from the most main courses at £3.69, compared to the main attractive market trends and our businesses carvery price of £4.19. These products satisfy in these areas were the strongest performers a guest need for great value, traditional meals in FY 2013. We have strong brands in these at a price point less than £4, whilst protecting % segments and we expect them to deliver good our cash margins per dish. We have also 45 organic sales and profit growth in the future. restructured our operations in this area, with 45% of our revenues are generated in In addition, we will be expanding our footprint a more efficient structure now in place to London, the East and the South East in these areas and are currently focusing on reduce travel time for regional management. Harvester, Toby Carvery, Miller & Carter and All Bar One, where we can deliver attractive Business transformation programme returns on investment. We opened 13 new In the half year results, we discussed how sites in these brands over the financial year. We we are transforming the business to deliver will also expand our other businesses in these long-term growth in shareholder value by market spaces on an opportunistic basis and addressing some core questions: how we we opened one Browns and two Alex sites in attract, develop and retain outstanding and the year. We expect the rate of new openings engaged people; how we operate scale to accelerate in this segment over the medium brands and formats effectively; and how we term towards 50 each year. consistently delight our guests and therefore achieve market leadership. Optimise & invest: The everyday social space, currently worth £2bn, is a market focused on 2013 is the first full year of the transformation drinking and eating-out in relaxed, comfortable, programme. In FY 2012, we successfully community pubs. We expect to grow in this restructured our central functions and area through optimising the sites we already modernised our core IT infrastructure, have rather than expanding site numbers. delivering annual savings of £10m. This year, To this end, we have reallocated a proportion we have been building on these foundations of our maintenance capital to improve amenity and undertaking a more wide ranging change levels in certain brands and ensure the programme, aimed at focusing the business on brand positioning is suitable for their target four priority areas: our people, our practices, customers. As an example, we are planning our guests and our profits. We are pleased that to invest in Ember Inns over the next two we have been able to grow sales, margins and years, with a clear focus on driving both drink EPS whilst making progress in each of our and food volumes in warm and welcoming priority areas. suburban pubs, firmly embedded in their local communities. * The list of brands within each market space is as follows. Upmarket social includes All Bar One, Castle, Nicholson’s and Alex. Special includes Miller & Carter, Country Pubs and Browns. Family includes Harvester and Toby Carvery. Everyday social includes Ember Inns and O’Neill’s. Heartland includes Crown Carveries, Oak Tree Pubs and Sizzling Pubs. See the Half Year Results 2013 for further discussion of these spaces.

24 Mitchells & Butlers plc Annual Report and Accounts 2013 Our priorities Company overview 01 – 05 in action

25.4% Employment costs broadly maintained at 25.4% of sales while improving service,

especially at peak times Strategic and business review 07 – 34 Governance 35 – 64 Financial statements 65 – 106 Shareholder information 107 – 108

Mitchells & Butlers plc Annual Report and Accounts 2013 25 Our priorities in action

78% Staff turnover has decreased from 82% to 78%

26 Mitchells & Butlers plc Annual Report and Accounts 2013 Company overview 01 – 05

Our people: We consider the key measure Our profits: This year, adjusted earnings of success in relation to our people to be staff per share were up 17% based on higher turnover, which has decreased from 82% in sales, improved operating margins and FY 2012 to 78% in FY 2013. We believe that lower interest charges, as described in when we successfully engage our people, the Financial Review. The 50 basis point % they stay with us for longer, become more operating margin improvement is a good +17 efficient, provide better service to our guests result and in line with our previously stated Increase in Adjusted EPS and in turn drive like-for-like sales. Further aim to protect our operating margins and

reductions in staff turnover are therefore seek incremental opportunities to expand Strategic and business review 07 – 34 a key focus going forward. We are also them in the medium term. committed to providing career opportunities to young people through our apprenticeship Outlook schemes, with approximately 1,600 The transformation programme is designed to employees completing a programme at our deliver the key building blocks of sustainable year end. We are particularly proud of our growth. Informed by guest insight, we will 1 ,600 Browns apprenticeship programme, which is make further progress next year through Employees completing apprenticeships now in its second year, and our Management investment into service, training and Development Apprenticeship, which began development, systems improvements and in Country Pubs and is now expanding across improved capital allocation. many of our other brands. In particular, a variety of projects will start to Our practices: Practices refer to the benefit the business. In our Retail Support professional and efficient way that we run Centre, these include investment into new our operations. We continue to focus on central systems in payroll and finance. In our improving our already high scores in the FSA’s restaurants and pubs, we are in the early Governance 35 – 64 Food Hygiene Ratings. This year, we have stages of a project to replace our till, payment, broadly maintained outlet level employment table management and kitchen management costs as a percentage of sales at 25.4% whilst systems. The new systems will enable the improving service, especially at peak times. delivery of significantly improved guest Our purchasing teams have continued to service, measured both in quality and speed, restrict cost increases, especially in food, and allow improvements in menus and where overall inflation has been kept to below promotional activity to manage our gross 1% over the year compared to market inflation margins better. The new systems are being of approximately 5% (sources: ONS, Prestige rolled out at pace across the business, with Purchasing). As a result of these actions, 125 sites live at the year end and 320 sites by together with lower pre-opening and closure the end of November. costs and the residual savings from the restructuring in FY 2012, operating expenses We are cautious about the strength of the have marginally decreased and operating economic recovery over the next year and margins increased by 0.5 percentage points. expect ongoing variation by geography and Financial statements 65 – 106 consumer group. Like-for-like sales were up Our guests: We have chosen not to drive 0.1% in the first eight weeks of the new short term like-for-like sales through financial year. We are pleased with the increased and unfocused promotional progress we are making on our transformation activity. We aim to improve our relative programme and, as a result, we are well like-for-like performance through delivering placed to deliver sustainable profit growth consistently excellent guest experiences, and shareholder value in the future. leading to increased revisits and recommendation. The key driver of this will Alistair Darby be the willingness of guests to recommend Chief Executive our businesses to their friends and family which we measure through our net promoter score*. This year, the net promoter score across the business has increased by 4 percentage points to 59%. All of our * We ask our guests how likely they are to recommend our restaurants and pubs to their friends, families restaurants and pubs now have access to and colleagues, scored out of 10. Each year we obtain Shareholder information 107 – 108 a live dashboard which lets them see how around 700,000 responses. The net promoter score for they are scoring against the most critical a pub is defined as the percentage of responses where measures that drive guests to revisit and we score 9 or 10 out of 10 (‘brand promoters’) less the percentage of responses where we score 0 to 6 out of recommend our business to their friends, as 10 (‘brand detractors’). Responses scoring 7 or 8 well as seeing comments from TripAdvisor (‘passives’) are ignored in the calculation. The periodic and Facebook reviews. pub scores are averaged to calculate the overall score.

Mitchells & Butlers plc Annual Report and Accounts 2013 27 Corporate social responsibility 2013 Highlights 500 4,450 The number of new jobs we Food waste recycling has generated have created enough electricity to power 4,450 UK households

£300k 59 Around £300,000 donated and raised Tonnes of salt removed from our menus through corporate, brand, employee and guest fundraising activities 33k The number of employees who had their say in our annual engagement survey

Introduction What’s in our food? Mitchells & Butlers believes that social Nutrition responsibility is all about how our practices We have made excellent progress in analysing impact on: the nutritional content of our menus. This information is currently available online for • our people; core menu items in Harvester, Toby Carvery • our guests; and Crown Carveries. • the communities in which we operate; and • the environment. In All Bar One, Ember Inns and a number of our Heartland pubs, meals that contain fewer In this section, we focus on the highlights than 700 calories are highlighted on the from 2013. More information and case studies main menus. In Harvester, we print calorific can be found in our Social Responsibility values on all our menus, including the Young Review 2013 which can be found at Guests menu. mbplc.com/responsibility Chefs in any of our businesses will happily Good food respond to a guest’s requests to swap, for As the largest on-trade caterer in the country example, potatoes for a side salad and, the quality of the food we serve is of paramount wherever possible, serve dressings and importance to us. Our guests trust us to serve sauces separately. good food that represents good value for money, which is safely prepared and cooked. Allergens They also trust us to source food that is both We are making good progress in meeting the sustainable and ethical, with due regard December 2014 deadline when new EU for high standards of both workers and legislation comes into effect concerning the animal welfare. availability of information about 14 common food allergens.

28 Mitchells & Butlers plc Annual Report and Accounts 2013 Company overview 01 – 05

Salt Food safety We are committed to the Public Health We have made significant progress in Responsibility Deal Salt Pledge for Caterers and increasing the number of our retail businesses have made good progress towards meeting our that achieved a 4 or 5 star food hygiene rating. ambition to reduce the overall salt content of We take a zero tolerance approach to any the dishes we serve. of our businesses that achieve a score of 3 or below. We continue to strive for a score of 5 First, we have been working closely with our in each business and conduct independently

suppliers to reduce salt levels in 27 products – commissioned audits in all of our businesses at Strategic and business review 07 – 34 for example bacon – that contribute the highest least twice per year. We have rigorous checks amount of salt to the dishes we serve. As a and policies in place to ensure we do things result of this work 59 tonnes of salt per annum right and we consult regularly with government has now been removed from our menus. and local authorities to ensure we maintain the Harvester prints the calorific value of all dishes highest standards in food safety. on its menus and Young Guests’ menus. Secondly, a trial has been running in 240 of our businesses using a salt blend where a The responsible retailing of alcohol percentage of the refined salt is replaced with Serving around 410 million drinks each year natural minerals. In the trial businesses this in a responsible way is a fundamental part of product is being used in our kitchens during the how we operate our businesses. We recently cooking process and it also replaces standard updated our Alcohol and Social Responsibility table salt – should our guests have a personal Policy which highlights best practice in the preference to add more salt to their meal. following areas:

Harvester, Toby Carvery and Crown Carveries • promoting responsible drinking; all display the salt content of core menu items • responsible pricing and promotions; Governance 35 – 64 online, including Young Guests’ meals. • preventing underage drinking; • working in partnership with local Food sourcing authorities, government and Pubwatch; We take into account a number of factors • investing in training our teams; and We have made significant progress in when buying food: the health and safety of our • creating a safe and secure environment increasing the number of our retail businesses guests, the quality, the provenance and price. for our guests and employees. that achieved a 4 or 5 star food hygiene rating. All of our food suppliers are required to comply The Policy has been communicated to with the British Retail Consortium’s technical all our frontline teams and is a key tool in standard which requires their staff to be understanding and promoting the high properly trained and supervised and for the standards of responsible retailing we want supplier to meet high standards of food safety. to achieve and maintain.

We have made progress in our ambition to Mitchells & Butlers donated a substantial shorten the supply chain route and our buyers sum of money to the charity Drinkaware last Financial statements 65 – 106 now deal with many suppliers directly. For financial year. Our donation assisted the charity example, we now deal direct with growers in their aims to promote responsible drinking, in the UK for potatoes, carrots, onions and find innovative ways to challenge the national mushrooms; removing the wholesaler’s margin drinking culture, help reduce alcohol misuse and delivering fresher products to our kitchens. and minimise alcohol-related harm.

We recently updated our Alcohol and This year saw the launch of our Quality Cattle People love to work with us Social Responsibility Policy which highlights Scheme, a new and exciting initiative offering Last year saw the creation of our three-year best practice. direct contracts with British beef farmers. The People Strategy; People love to work with us. scheme creates a secure, quality beef supply In a growth industry that historically has high for Mitchells & Butlers’ restaurants and pubs, levels of employee turnover, the strategy lays through a model which guarantees a margin out our long-term plan to attract the best and market for the farmer. people and to provide effective training and development and a fair reward and recognition We also joined forces with a group of farmers framework. We believe that this strategy

located in the National Parks to rear lamb for will result in increased levels of employee Shareholder information 107 – 108 selected Mitchells & Butlers brands. The engagement and in reduced employee farmers receive an agreed margin per animal turnover. Last financial year our hourly paid and have a guaranteed market for their lambs. retail staff turnover was 4% lower, meaning This means we will be able to offer British lamb fewer people left Mitchells & Butlers than in that is fully traceable. the previous year.

Mitchells & Butlers was crowned Foodservice Creating jobs Operator of the Year 2013 at the British Turkey Last year we created 500 new jobs by opening Awards. The award was presented for our new retail sites across the UK. long-term support and year round commitment Mitchells & Butlers was crowned Foodservice to UK turkey production. Toby Carvery alone Operator of the Year 2013 at the British uses around 68 tonnes of fresh British turkey Turkey Awards. each week.

Mitchells & Butlers plc Annual Report and Accounts 2013 29 Corporate social responsibility continued

Vocational Learning Diversity We have around 1,600 apprentices on Mitchells & Butlers is committed to providing vocational learning programmes across the UK. equal opportunities for all of our employees.

After working together for a decade, Mitchells Our Diversity Policy ensures that every 1,600 & Butlers and its training provider partner, employee, without exception, is treated equally Apprentices on vocational learning Babcock International Group, were recognised and fairly and that all employees are aware of programmes across the UK at the Hospitality Guild Apprenticeship Awards their responsibilities. in the Partnership of the Year category. The partnership is now considered to be a best The Policy confirms that there will be no direct practice model within the hospitality industry. or indirect discrimination in respect of age, disability, religious belief, gender, sexual Careers and learning orientation, race, colour, marital status, All of our employees have access to information political belief and nationality, or any other about how they can progress their career with category defined by law in all aspects of us. We have a number of learning and employment including recruitment, promotion, development programmes in place across opportunities for training, pay and benefits. Mitchells & Butlers, from a chef’s induction to executive coaching. The table below provides a breakdown of the gender of Directors and employees at the end Listening to our people of the financial year: We continue to encourage feedback from our Men Women employees about their working relationship Company Directors1 8 1 with the Company, their managers and their Other senior managers2 10 3 colleagues. In July 2013 83% (33,000) of our All employees 19,431 20,194 employees responded to our in-depth annual employee survey, Your Say. Our retail team Notes: member and general manager engagement 1. Company Directors consists of the Company’s Board, Listening to our people: 83% of our employees levels remained relatively high and stable and as detailed on pages 36 and 37. had their say in our annual engagement survey. our central retail support team engagement 2. ‘Other senior managers’ is as defined in The Companies scores reached an all-time high. Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, and includes: i) persons responsible for planning, directing or controlling the activities of Fair reward and recognition the company, or a strategically significant part of the We believe in fair rewards and recognising company, other than Company Directors; and ii) our people for their contribution. All of our any other Directors of undertakings included in the employees have access to a wide range consolidated accounts. of Company benefits, such as Sharesave, Free Shares, employee discount, pension for eligible/entitled workers, dental plans and childcare vouchers.

On 1 January 2013, we became fully Giving something back compliant with the Workplace Pensions We place a high importance on building strong Reform Regulations to enrol automatically all relationships with our guests, our neighbours Vocational learning: a partnership that eligible workers into a Qualifying Workplace and our communities by encouraging our is now considered a model within the Pension Plan. employees to support and fundraise for hospitality industry. charitable and good causes. In February 2013 we launched a new employee benefits platform called pickaperk which offers The Good Cause Fund our employees exclusive savings and discounts This fund exists to help our pubs boost their on millions of products and services from local fundraising. Last financial year we thousands of retailers. Last financial year our donated over £19,000 to a number of pickaperk – our new employee employees took advantage of discounted deserving local charities and groups. benefits platform. goods to the value of over £350,000. Employee donations programme There was widespread media coverage earlier This fund exists to help individual Mitchells & this year about companies that employ people Butlers employees (and retired employees) on a ‘zero hours’ contract. Company policy is to support a personal charity event or challenge state clearly on a contract the minimum hours of their choice. Last financial year we made an employee is required to work. donations of around £25,000 to a large number of local and national causes including Cancer Research UK, Birmingham Children’s Hospital and Air Ambulance.

30 Mitchells & Butlers plc Annual Report and Accounts 2013 Company overview 01 – 05

Supporting the Prince’s Trust benefits to our business. During the last year We continue to support the Prince’s Trust and our electricity consumption has reduced by last financial year made a corporate donation over 4% through a combination of behavioural of £15,000. Additionally, a team of employees change programmes and investment in making k took part in the Prince’s Trust Million Makers our buildings and equipment more energy £44 fundraising initiative, where teams compete to efficient. The harsh winter made managing our Last financial year we donated over raise as much money as possible by setting up gas consumption particularly challenging whilst £44,000 to a number of deserving mini-enterprises. The Mitchells & Butlers team, keeping our restaurants and pubs warm and

local charities and groups through Team Pride, raised over £75,000 in a variety of cosy for our guests. This resulted in a small Strategic and business review 07 – 34 our Good Cause Fund and Employee innovative ways. The Prince’s Trust named increase in our overall emissions by 3.5% donations programme (see page 30) Mitchells & Butlers ‘top fundraiser’ at their CO2 (tonnes). West Midlands annual recognition event, in recognition of Team Pride’s outstanding LED lighting installation achievement. We have successfully completed the installation of LED lighting in guest-facing areas Big-hearted brands, pubs and people in all of our businesses. In total, we changed Last year, Harvester continued their support 237,000 lamps which helped us to make for Make-A-Wish® and raised around £65,000 considerable savings on energy consumption by donating 10p from every special charity as well as enhancing the ambience in our pubs. sundae sold and holding individual restaurant fundraising events. This has brought Insulation and draught proofing Harvester’s total donation to Make-A-Wish® We have improved insulation and draught so far to a staggering £105,000. proofing, wherever possible, across the estate. This means more of the energy we use to heat Our restaurants and pubs once again our pubs was retained within the building Governance 35 – 64 supported the Royal British Legion Poppy which subsequently reduced our energy Appeal in November 2012 selling thousands consumption. of poppies to raise funds for thousands of serving and ex-Service people. Energy Managers Association In recognition of the energy savings achieved In March, O’Neill’s danced its way into by Mitchells & Butlers, our Head of Energy, fundraising by holding its nationwide Join the Environment and Sustainability has been Jig event to fundraise for worthwhile national elected Chairman of the Energy Managers and local causes. Their Join the Jig World Association. The EMA is an organisation which Record Attempt was part of the St Patrick’s Day works alongside Government and industry to celebrations and raised over £59,000 for a promote reductions in energy consumption in variety of good causes. the UK.

In May, 12 brave souls from across Mitchells Water consumption & Butlers completed Tough Mudder 2013; We are working with manufacturers and our Financial statements 65 – 106 a challenging 12 mile-long obstacle course suppliers to reduce the amount of water we designed by the Special Forces to test use. We have begun the installation of AMR all-around strength, stamina, mental grit and (automatic meter reading) equipment into our camaraderie. The team raised over £6,000 businesses to allow us to control our water The Longhorn celebrates winning ‘Best for Birmingham Children’s Hospital, Help consumption to even greater levels. Charitable Pub’ at the Publican’s Morning For Heroes and LATCH. Advertiser Pub of the Year Awards. Less is more – waste management In June, Crown Carveries offered armed forces We have established a solid waste disposal personnel and veterans a free carvery meal or strategy to reduce, re-use and effectively breakfast, for the fifth year running, to mark recycle the waste generated by our restaurants Armed Forces Day. The brand donated a total and pubs. Based on current activity we are of 6,967 meals. recycling the equivalent of 13,000 tonnes of cardboard, 19,500 tonnes of glass and 3,000 In September, The Longhorn in Walsall tonnes of aluminium per annum. Recycling this (Ember Inns) was crowned ‘Best Charitable waste would save approximately 200,000 trees

Pub’ at the Publican’s Morning Advertiser and thousands of tonnes of raw materials used Shareholder information 107 – 108 Pub of the Year Awards. in the manufacture of these items. Our current food waste recycling initiative would divert Environmental awareness around 58,000 tonnes of food waste to energy We continue to manage successfully our from waste facilities, generating enough energy, waste and water in a manner which electricity to power 4,450 UK households and We effectively reduce, re-use and recycle the is not only cost effective for the business but save around 700,000kg of CO2 every month. waste generated by our restaurants and pubs. reduces our impact on the environment. These combined initiatives would divert over 90,000 tonnes of material from being sent Carbon emissions to landfill. Our proactive management of energy consumption, procurement and carbon More information can be found emissions continues to deliver significant online at mbplc.com/responsibility

Mitchells & Butlers plc Annual Report and Accounts 2013 31 Financial review

FY 2013 contained 52 weeks, whereas FY 2012 was a 53 week period. Total revenues were £1,895m (FY 2012 £1,889m). After exceptional items and other adjustments, including movements in the value of the property portfolio, statutory profit before tax was £150m (FY 2012 £83m). Basic earnings per share were 32.9p (FY 2012 17.1p).

The Group discloses adjusted profit and earnings per share information that excludes exceptional items and other adjustments to allow a better understanding of the underlying trading of the Group. To provide a meaningful comparative for year-on-year performance, all year-on-year growth rates relating to the Income Statement are measured against the restated 52 week FY 2012 Income Statement, unless otherwise stated.

For comparative purposes, the adjusted 52 week and 53 week results for FY 2012 are shown in the table below: FY 2013 FY 2012 Variance FY 2012 £m £m % £m (52 weeks) (52 weeks) (52 weeks) (53 weeks) Revenue 1,895 1,855 2.2% 1,889 Adjusted EBITDA 422 407 3.7% 415 Adjusted operating profit 312 297 5.1% 304 Adjusted operating margin 16.5% 16.0% 0.5 ppts 16.1% Adjusted profit before tax 184 162 13.6% 166 Adjusted EPS 34.9p 29.8p 17.1% 30.5p

At the end of the year, the business comprised Operating margins 1,589 managed sites and 60 leased or Adjusted operating margins across the year franchised sites, in the UK and Germany. improved by 0.5 ppts. Margins have been positively impacted by movements in the Revenue volume/spend mix (particularly in food, The Group’s total revenues of £1,895m where gross margins have benefited from were 2.2 higher than FY 2012, driven by food a combination of higher spend per head, sales growth of 3.3%, with drink sales growth significant purchasing improvements and of 1.0%. Food sales now account for more menu management), the full year impact of than half of total sales, reflecting the business’s restructuring savings delivered in FY 2012 strategy to generate long-term growth from and lower pre-opening and closure costs from this market. new restaurants and pubs and conversions. These improvements were partially offset by Like-for-like sales growth of 0.4% included increased duty on machine income, higher like-for-like food sales growth of 0.8% and business rates charges and a continuing a like-for-like drink sales decline of 0.2%. investment into service and amenity. As a Like-for-like sales were driven by increases in result, adjusted operating profit was £312m, price and spend, with volumes lower in both 5.1% higher than last year. categories. Food sales growth was weighted towards the first half of the year, with a number Internal rent of the year’s key calendar events, on which A regime of internal rents is in place to enable trading continues to be strong, falling into greater internal transparency around the the first half. The second half of the year performance of freehold and leasehold saw stronger drink sales growth, reflecting the properties and external transparency impact of good weather seen throughout the concerning the performance of the operating summer and fewer specific special occasions. and property functions. The operating performance is monitored on a regular basis through a system of profit reviews through

32 Mitchells & Butlers plc Annual Report and Accounts 2013 Company overview 01 – 05

all levels of the Group. Estate management Cash flow and net debt is primarily monitored through the Portfolio FY 2013 FY 2012 Development Committee. £m £m (52 weeks) (53 weeks) EBITDA before m Operating Property Total £312 FY 2013 £m £m £m exceptional items 422 415 Working capital Adjusted operating profit was £312m, Revenue 1,895 – 1,895 5.1% higher than last year EBITDAR 471 – 471 movement/ non-cash items -11 -28

External Rent (49) – (49) Strategic and business review 07 – 34 Internal Rent (192) 192 – Pension deficit EBITDA pre contributions -40 -40 exceptionals 230 192 422 Cash flow from EBITDA % 12.1% – 22.3% operations before exceptional items 371 347 Interest Maintenance and m Adjusted net finance costs of £128m were infrastructure capex -100 -92 £128 £7m lower than the prior year measured on a Interest -126 -129 Total capital expenditure was £128m 52 week basis, principally due to a £6m prior Tax and other -32 -25 year accrual in relation to backdated interest on Free cash flow before outstanding tax items. From September 2013, exceptional items 113 101 a step-up margin ranging from 0.35% to 1.28% Expansionary capex -28 -55 was applied to four floating rate securitised Disposals 1 3 notes with a combined principal value of Operating exceptional -2 -17 £655m. This increases annual interest costs Net cash flow 84 32 p by £4m. There are no further step-ups in the Mandatory bond Governance 35 – 64 34.9 securitisation arrangements. amortisation -55 -52 Adjusted earnings per share were 34.9p, 17.1% higher than last year Net cash flow after After net finance costs, adjusted profit before bond amortisation 29 -20 tax was £184m, 13.6% higher than last year. EBITDA of £422m was generated by the Taxation business in the year. The net working capital The tax charge of £15m in the year outflow of £11m includes a £15m payment (FY 2012, 53 weeks £13m) represents an on account to HMRC relating to unsettled effective rate of 10.0% (FY 2012 15.7%). tax on a previous transaction. Pension deficit This includes an £18m credit to deferred tax contributions of £40m were made, in line arising on the reduction in the main rate of with the deficit recovery plan agreed with the corporation tax to 20% from April 2015. Trustees following the 2010 triennial review Excluding this item the effective rate of tax of the schemes. After maintenance capital, was 22%. interest and tax, £113m of free cash was

generated by the business. Financial statements 65 – 106 Exceptional items and other adjustments Exceptional items and other adjustments There was a net cash inflow after bond consist of three items: a £5m net pensions amortisation of £29m in FY 2013 compared finance charge; a £29m charge relating to the to an outflow of £20m in FY 2012. net movement in the property portfolio; and an £18m credit to deferred tax reflecting the Net debt was £1,759m, representing 4.2 times reduction in the main rate of corporation tax EBITDA (FY 2012 4.5 times 52 week EBITDA). to 20% from April 2015. Net debt within the securitisation was £2,023m and net cash held outside the securitisation Earnings per share was £264m. Adjusted earnings per share were 34.9p, 17.1% higher than last year. After the exceptional items described above, basic earnings per share were 32.9p (FY 2012, 53 weeks 17.1p). Shareholder information 107 – 108

Mitchells & Butlers plc Annual Report and Accounts 2013 33 Financial review continued

Capital expenditure Pensions Total capital expenditure was £128m, Recent guidance has been published from the comprising £88m (FY 2012 £83m) spent Financial Reporting Review Panel concerning on maintaining and enhancing the high level the recognition and measurement of pension m of amenity in the Group’s restaurants and liabilities. It specifically considered the £31 pubs, £12m on infrastructure projects treatment of a schedule of contributions in The overall portfolio value has increased (FY 2012 £9m), and £28m on new site relation to minimum funding requirements by £31m openings (FY 2012 £55m). under IFRIC 14. As a result, the Group now includes the schedule of contributions within Infrastructure projects include a significant IT the calculation of the overall pension liability project which will see all restaurant and pub recorded on the balance sheet, and has till systems upgraded and the introduction restated comparative amounts from the last of kitchen management systems in our food two financial years. There is no change to led businesses by the spring of 2015. The profit before tax and no cash impact. As project is now in full roll out across the estate calculated on this basis, the pre-tax pensions 4.2times at an expected cost of £33m, of which deficit as at 28 September 2013 was £248m. approximately two thirds will be capital. Net debt to EBITDA From FY 2014, the Group will adopt IAS 19 Other infrastructure projects relate to (revised): Employee Benefits. As a result, improving energy efficiency, upgrading our annual administration costs of the schemes of finance system and replacing our central approximately £2m will now be charged within HR system. Group operating profit, rather than netted against the pensions finance charge. Blended EBITDA returns on expansionary capital invested across our brand portfolio Discussions continue between the Group remain at 17%. Given the varying nature of and the Pension Trustees regarding the freehold acquisitions, leasehold acquisitions measurement and funding of the triennial and conversions, the business reviews returns valuation, as at 31 March 2013. Pending the by category: conclusion of this process, the Group continues FY 2011 – to make contributions totalling £40m per 2013 annum into the schemes. FY 2013 FY 2014 EBITDA Investments* No. of sites ROI Dividend Freehold The Board is mindful of the attraction of the acquisitions £11m 4 13% resumption of dividend payments and will Leasehold continue to monitor anticipated net cash flow acquisitions £11m 12 18% generation, before taking a decision on timing Conversions £2m 6 16% Expansionary and quantum. investment £24m 22 17% Tim Jones * FY 2013 Investments comprise expansionary capital Finance Director specifically invested in respect of FY 2013 openings and conversions.

Property A Red Book valuation of the freehold and long leasehold estate has been completed in conjunction with the independent property valuers, CBRE. In addition, the Group has conducted an impairment review on short leasehold and unlicensed properties. The overall portfolio value has increased by £31m, reflecting a £29m charge in the income statement and a £60m increase in the revaluation reserve.

34 Mitchells & Butlers plc Annual Report and Accounts 2013