Annual Review and Summary Financial Statement 2003 Mitchells & Butlers owns 2,000 high-quality managed pubs in prime locations.

A The Horse Shoe Bar Drury Street, Glasgow Turnover up 2% to £1,513m EBITDA flat at £374m Operating profit* down 5% to £275m Profit before tax** down 1% at £199m Net operating cash flow** £241m up £106m Earnings per share** down 0.1p to 18.4p

Final dividend per share 5.65p B The Three Stags, Ember Inn Bebington, The Wirral * Before major operating exceptional items. ** On a pro forma basis.

Our locations as at 30 September 2003 This table depicts how our UK pubs and pub restaurants are targeted by location or by primary occasion (drinks or food), together with the number of sites for each.

Drinks-led Food-led Residential Residential C Tyburn House, Sizzling Pub Co Ember Inns 159 Vintage Inns 203 Castle Vale, Birmingham Sizzling Pub Co 125 Harvester 142 Scream 91 Toby Carvery 74 Arena 57 Innkeeper’s Fayre 24 Unbranded 386 Unbranded 86 City Centre City Centre O’Neill’s 86 All Bar One 49 Goose 41 Browns 15 Edward’s 35 Unbranded 0 D Travellers Rest, Vintage Inn, Flares 32 Caerphilly, Wales Unbranded 352

Contents 1 Our pubs, bars and restaurants 22 Profit and loss 2 Chairman’s statement 22 Cash flow 4 Chief Executive’s review 22 Balance sheet 6 Pubs & Bars 23 Summary Directors’ report 10 Restaurants 23 Corporate governance 14 Our guests 24 Board of Directors 16 Our people 25 Other members of the 18 Community Executive Committee 20 Finance Director’s report 25 Summary remuneration report E Browns 21 Summary financial statement 27 Investor information Orange Grove, Bath 21 Auditors’ statement 28 Financial calendar Our UK pubs, bars and restaurants*

F Toby Carvery Washington, Tyne and Wear

Scotland 5%

A G The Philharmonic Hope Street, Liverpool

Northern 4% F

North West 8%

Yorkshire and Humberside 10% H All Bar One Brindleyplace, Birmingham G B

West Midlands 16% East Midlands East Anglia C H 5% 1% Wales 4%

D I O’Neill’s I Muswell Hill, London J E Greater London 21% South East South West 21% 5%

The above numbers indicate % of Group sales for the year to 30 September 2003 J Golden Retriever, Vintage Inn *We also operate the famous Crown Liquor Saloon in Belfast and bars in Germany. Bracknell, Berkshire

Annual Review 2003 1 It is now some eight months since we became established as an independent business. At the time of separation we gave a clear commitment to the creation It is a great pleasure to report Mitchells of shareholder value. & Butlers’ first year-end accounts as an independent company following its separation I believe that these results from Six Continents on 15 April 2003. At the and the return of £500m time of the launch of the Company I outlined the opportunity that I believed would come later this month represent from independence. Firstly, a strategic clarity early evidence of our born from objectives that were simple, well defined and clearly understood by all. Secondly, delivery against this promise. the management focus, greater visibility and improved shareholder accountability that came from that clarity. Lastly, the opportunity, for the first time, for innovative financing evolving our food menus, combined with from our strong cash flow to ensure that the competitive pricing and additional training balance sheet was efficiently constructed and in service and selling skills. These actions, shareholders correctly rewarded. Management along with the good weather we experienced have been liberated and energised by the in July and August, resulted in a significant separation and the business has a new sense improvement in the like-for-like sales trend of identity. Thanks to the dedication and in the second half. commitment of our employees much has been accomplished both structurally and Considerable external cost pressures continue operationally during the year. to affect the business. We have once again responded positively to these challenges both We have undertaken a securitisation of our by aggressively managing our cost base and chairman’s statement chairman’s UK pub and pub restaurant business and by driving operating efficiencies to leverage thereby increased the efficiency of our balance the benefits of scale. sheet enabling the return of £500m of surplus funds to our shareholders. Our aim with the The Board securitisation was to implement the optimal Our independence clearly required changes financial structure to support our strategy at senior management level. Mike Bramley, of owning and developing high take, high Tony Hughes and Karim Naffah joined quality managed pubs in prime locations. Tim Clarke on the Board as Executive Directors; The structure we have put in place will allow Tony and Mike as Managing Directors for us to deliver a progressive dividend policy Restaurants and Pubs & Bars respectively, and to continue to develop and reposition having fulfilled similar operational roles in our estate over time in the interests of our the previous divisional structure; and Karim, shareholders and bondholders. as Finance Director, having been Strategy Director for Six Continents and a member of In the first half of the year we took important the Executive Committee of the Company since steps towards rebalancing the business culture 2000. George Fairweather – Group Finance from one of margin maintenance to one of Director of Alliance UniChem Plc, Sara Weller – profitable like-for-like sales growth through Deputy Managing Director of J Sainsbury plc sales and marketing activity. During the latter and Sir Tim Lankester – formerly a senior part of the year we started to see the results official at the Treasury with significant expertise of this focus on improving consumer choice in the public and private sectors, all joined us by extending our drinks product range and as Non-Executive Directors. I believe that we

2 Mitchells & Butlers now have a complementary blend of retailing, affected the pub industry over the last five years A brief history of financial and public sector skills on the Board are now starting to reverse. In particular, new Mitchells & Butlers which makes us well placed to continue to capacity on the High Street has virtually ceased shape and execute Mitchells & Butlers’ strategy. and investment in existing pubs in residential areas is low. 1898 Employees Mitchells & Butlers, founded Our near 40,000 employees have had to Overall, we expect the impact of the new in 1898, is one of the great contend with a period of incredible change this Licensing Bill on Mitchells & Butlers to be names in licensed retailing year. Their focus, flexibility and professionalism positive although there remains some uncertainty and was at the forefront of the have been critical to the Company emerging about its practical application. We await details creation of the British pub we stronger, leaner and more successful. I am of the Local Authority guidelines due later know today. grateful to all of them for their support. this year to allow us to evaluate more fully the impact on the business. 1961 Current trading and outlook Mitchells & Butlers merged The improvement in sales seen in the second Whilst we remain cautious on the outlook for in 1961 with Bass, Ratcliff half of 2003 has continued into the first eight UK consumer spending, demographic trends and Gretton Ltd to form weeks of 2004 aided by some good weather are favourable with forecast growth among the Bass, Mitchells & Butlers. and major sporting events which we estimated 18 to 25 and 45 plus age groups, two of our Subsequently shortened to account for up to 1.5 percentage points key customer groups. In addition, social trends to Bass PLC. of the improvement. Same outlet (i.e. invested are continuing to strongly favour value for and uninvested) like-for-like sales were up 4.5% money, informal eating out in neighbourhood in the eight weeks to 22 November. Uninvested pubs. We believe our estate and our brands 1990 like-for-like sales were up 2.6%. This and formats are well placed to profitably meet Bass PLC sold under- continuing positive trend has been driven those trends. performing pubs and bought by Mitchells & Butlers’ focus on delivering pubs with higher sales, at high quality amenity and service standards Whilst in the short term therefore the pub the same time developing and increased choice at competitive prices, sector continues to bear some significant cost the estate and increasing improving overall customer value. increases, the positive actions we are taking sales per pub threefold. to drive sales, raise productivity and reduce In addition it built a large Trading in the 70% of the estate in residential costs makes us well placed to mitigate their international hotels business areas has strengthened further with same impact. We are confident that our medium-term and sold its brewing arm. outlet like-for-like sales up 5.7%, 3.8% on business plan and the improving competitive In 2001, Bass PLC was an uninvested basis. Sales have continued prospects for Mitchells & Butlers will underpin renamed Six Continents PLC. to be stronger in the Midlands and the North the positive sales and earnings potential of the than the South. business over the next few years. 2003 The separation of the Trading in our High Street pubs and bars, We believe the results and the return of £500m hotel and retail businesses, where our sales generation activity has been to shareholders before the end of the calendar announced in 2002, has strongest, has seen a sharp improvement with year honour the commitments of the past and led to the rebirth of the same outlet like-for-like sales up 2.3%, 0.6% signpost the potential for future value creation. Mitchells & Butlers name as on an uninvested basis. There continued to be In contrast to many in the industry who adopt a new independent force in a contrast between positive growth on the High a cost plus model, Mitchells & Butlers is focused pubs, bars and restaurants. Streets outside London and marginal decline in on driving organic growth through a consumer a still slowly recovering Central London market, value model; delivering amenity, service and which is still down albeit that the decline has increased choice at attractive prices – together now slowed. an overall proposition of good value.

On the basis of extrapolating our current sales As we enter the first full year of our life as an generating activities, we expect our average independent company, our energies are now prices net of promotions in 2004 to be channelled into driving sales, managing costs, approximately 2% lower than 2003 for the year innovating to prosper in a potentially less as a whole, although the effect will be greater buoyant economy and delivering the strong in the first half when the comparison with 2003 cash flows and growth that are the essential will be most evident. We are taking positive fuel to reward both our shareholders and action on product mix, purchasing costs and our bondholders. carefully targeting promotions to minimise the dilution effect on percentage gross margins. Trials of new activity are continuing and will be extended across the estate based on their success in driving cash gross profits.

At the net operating margin level, we continue to focus on raising productivity and reducing costs in order to defend margins against Roger Carr the £17m additional employment, pensions, Chairman property and insurance costs we anticipate this year.

The outlook for the business is improving as many of the negative trends which have

Annual Review 2003 3 At separation our priorities were to deliver value to shareholders through our operating performance, an appropriate financing of the balance sheet and a return of surplus funds. The creation of Mitchells & Butlers as a We have completed a stand-alone plc in April has provided a new enthusiasm and sense of purpose to a business £1.9bn securitisation that was already a leader in its field. The year providing the business with has been a period of major change at the corporate level which makes the focus and long-term fixed rate finance achievements of our operations and support at attractive rates to support teams all the more notable. our growth strategy and Trading performance releasing £0.5bn of cash We believe that delivering increasing consumer value is the best route to driving profitable sales for shareholders. volume growth, enhancing asset productivity and increasing returns. Increasing throughputs, improving product mix and generating better cash gross profits in turn facilitates improvements eight weeks of 2004, our gross margin in productivity and purchasing terms which percentage was only marginally down and help to underpin operating margins against we are driving positive growth in cash gross external cost pressures. profits. Following these successful results, we are continuing to trial ways of further Our programme of marketing activity, extending this activity to ensure that we introduced since the half year, has been achieve the most profitable balance of extensive. We are progressively widening the volume, mix and margins. drinks range as our contractual ties unwind, broadening and improving the quality of our We are also seeking to drive further impact menus, introducing competitive prices and from our marketing activity through the using carefully targeted promotional activity to enhancement of our IT systems. Alongside communicate our value proposition. In parallel, the current powerful controls we have on cash, we have been increasing staff training in service stock and margins we are looking for greater

chief executive’s review executive’s chief and selling and continuing to maintain and capabilities in the fast implementation and develop the amenity levels of our pubs so as to flexing of promotional and staff selling activity, compete not only with other pubs, but also with as well as facilitating more direct staff reward the alternatives of eating and drinking at home. and incentivisation.

The results of this strategy so far have been Purchasing and productivity improvements encouraging, with a 3.6 percentage point We have maintained our focus on improving turnaround in uninvested like-for-like sales staff productivity. Our roll-out of new from those reported at the Interims. Momentum scheduling systems has not only enabled has continued to build in the first eight weeks us to cut non-productive hours from our of 2004 with like-for-like sales growth of 2.6% pub rosters, but also to redeploy some of on an uninvested basis. As well as driving sales those hours to peak trading periods thereby volumes, a wider choice on range and carefully increasing both customer satisfaction and sales targeted promotions on higher gross margin in a cost effective manner. This, combined with products is also allowing us to influence mix our continued investment in training and staff trends. As a result, despite our average drink development, has led to staff productivity selling price being down over 3% in the first improvements of 4.5% for the year.

4 Mitchells & Butlers Our sales generating actions openings. We believe that our development pipeline of over 350 sites provides us with the have delivered a 3.6 percentage opportunity to generate further high incremental point turnaround in uninvested returns over the next two to three years through the application of our brands and formats to sales from those reported prime licensed sites. in May. This trend has Balance sheet efficiency continued into the first eight We announced at the half year the conclusion weeks of the new financial of our refinancing review and our intention to complete a whole business securitisation year, with 4.5% growth in of our UK pubs and pub restaurants business like-for-like sales boosted in the autumn. The securitisation is now complete and the return of £0.5bn of cash to by the sporting calendar shareholders is imminent. The resultant share and good autumn weather. consolidation was approved by shareholders and implemented on 2 December. We now The 70% of the estate in have the optimal capital structure to support residential areas is leading the the business for the long term. This method of finance provides appropriate flexibility for the way, same outlet like-for-like business and has the advantage of long-term sales were up 0.9% in 2003 fixed rate interest at attractive rates. and are 5.7% ahead in the Conclusion new financial year. This has been an eventful year for Mitchells & Butlers, achieving independence, refinancing the balance sheet, evaluating a major Our growing headroom under our tied supply acquisition opportunity which ultimately did not contracts is providing us with increasing meet our strict criteria and turning round our commercial freedom to introduce new products like-for-like sales performance. We now have a to the estate at attractive prices. Our central focused pub business with a solid platform from purchasing team negotiate all supply contracts which we can continue to drive profitable sales across the company. They have delivered growth and create shareholder value. reductions of over 4% on the 40% of the total cost of goods sold renegotiated in the year. Therefore we are able to source the products and services our customers require, at attractive prices and to the required quality, in turn providing us with a competitive advantage. Tim Clarke At the start of the year, we conducted a further Chief Executive review of our corporate cost base in order to drive efficiency and cost effectiveness. As a result of this review £5m of savings were made in the second half of this year and £10m will be made on an annualised basis. At less than Business overview Spectrum of managed UK pub types 4% of sales, our central support costs are one of the lowest amongst managed pub operators. Residential Ember Inns Unbranded Investment performance The profitable evolution of our brands and 159 86 formats to meet changing customer demand Harvester is also critical to raising asset productivity. Unbranded 142 In residential areas the key consumer trend is Scream 386 the increase in demand for informal, integrated 91 Sizzling Toby food and drink offers. As a result, in our local 125 74 Vintage Inns pub offers, such as Ember and Sizzling Pub Co, Arena 203 we have been building the attractiveness of our 57 Innkeeper’s Fayre food, wine and soft drinks offers so as to attract 24 Drinks-led Food-led new customers. In our pub restaurant offers, Goose All Bar One Harvester, Vintage and Toby, we are improving 41 the amenity of the bar areas and the drinks O’Neill’s 49 offer to capture incremental trade before or 86 Flares Browns after the primary meal occasion. 32 15

We invested £73m of expansionary capital Edward’s Unbranded 352 during the year, over 70% of which was spent 35 Individual Pub on pubs and pub restaurants in residential locations. We continue to see good results with Numbers refer to number of outlets City Centre Strong Branding incremental EBIT returns of 13% on this year’s

Annual Review 2003 5 Business review We’re now driving the sales line profitably, helping our people understand that this is priority number one and equipping them with the skills to meet the challenges.

Mike Bramley Managing Director, Pubs & Bars

‘It’s obvious to all of us that we’re at the we’ve improved productivity by a further 4.5% helm of the business now,’ says Mike Bramley, by looking at how we can better roster staff Managing Director of MandB Pubs & Bars, in pubs, getting the right people in the right referring to the separation of Mitchells & Butlers place at the right time.’ from Six Continents in April, ‘and the future is what we make it.’ Thirdly, the division has focused on turning around individual underperforming assets.

pubs & barspubs The separation brought a sharper focus In some cases this has been achieved by to the business and a stronger sense of the careful use of capital, for example with ownership for the team, which is driving Sizzling Pub Co – a brand that is extremely a change in the way the business is cost effective to implement, very popular with run. ‘We’re now driving the sales line our customers and brings an offer which profitably, helping our people understand delivers consistent sales and profit uplifts that this is priority number one and to the converted pubs. In other cases the equipping them with the skills to meet focus has been on operational, sales and the challenges. As the level of capital marketing levers. expenditure has reduced as the ex-Allied conversions have been completed, we’ve ‘When Mitchells & Butlers decides to do had a real opportunity to focus on organic something then there is no-one better at growth led by profitable sales generation delivering. For example, our performance and operating cost efficiencies.’ in the locals market has been outstanding, with Ember and Sizzling Pub Co in particular.’ In the past year, we’ve focused on three key priorities for Pubs & Bars. First, in Progress on the overall programme of site common with MandB as a whole, driving conversions has been rapid and effective. profitable like-for-like sales has been at the By the end of the financial year, some 22 forefront of all activity, with considerable Ember Inns had been added, moving the achievements made. ‘There’s been a huge concept to nearly 160 outlets and the Sizzling amount of effective activity in place – Pub Co had passed the 125 outlet mark. In all of which has been tried and tested London, there were around 40 individual and before wider implementation. We’ve unique outlets operating under the Metropolitan successfully integrated marketing, Professional umbrella. sales and operations plans into a coherent whole and worked When it comes to discussing the trading year, them hard, using product range, Mike chooses to focus on brands and formats promotions and menu development, in more difficult areas to illustrate the division’s very effectively,’ Mike comments. successes. In a High Street market that ‘We’re very pleased with the way continues to be difficult, our brands have held things are going, but we’re far from up extremely well – brands such as O’Neill’s, being satisfied.’ Flares and Reflex – especially in comparison with some distressed competitors. Our strategy, The second priority has been to drive of clearly differentiating our High Street offers further improvements in retail productivity. whilst providing unique value for our guests, Employment is the division’s second continues to keep us ahead. highest cost and improvement in productivity is necessary to A final word is reserved for Mitchells & Butlers’ mitigate the effects of regulatory Business Franchise model, which was developed pressures on that cost. ‘This year over the last year and now has around 50 pubs

6 Mitchells & Butlers *Total Group retail staff productivity The Treacle Mine Ember Inn, Grays, Essex operating under it. Broadly divided into The Treacle Mine is a typical example of a successful true franchises – for example O’Neill’s bars Ember Inn, situated in a residential area, attracting both being operated by City Centre Restaurants locals and guests who’ve travelled to enjoy its food, wide at Heathrow and Stansted airports – and range of beers and wines and its ‘home away from home’ unbranded Business Franchises, run by atmosphere and décor. individual entrepreneurs buying into MandB’s knowledge and expertise, the model has Ember Inns pride themselves on their range and on allowed the business to profit from both offering the guest a real choice – a wine festival has the strength of its brands and the strength been held, attracting great guest interest, a cask ale of its scale and infrastructure. festival was held in October and a further festival – featuring lagers – is planned for the year ahead.

Annual Review 2003 7 The Philharmonic, Hope Street, Liverpool One of Mitchells & Butlers’ classics, a pub full of late-Victorian splendour and famous for its ornate, tiled gents’ toilet.

O’Neill’s, St Mary’s Street, Cardiff Located in the centre of the city, just a short stroll from the Millennium Stadium. On ‘international’ days, O’Neill’s is the only place to enjoy your pre-match pint of Guinness.

The Garden Gate, Hampstead, London Under the Metropolitan Professional umbrella, a six figure investment – giving it a refreshed, contemporary feel – has doubled average weekly takings.

Deacon Brodie’s Tavern, Lawnmarket, Edinburgh Another MandB classic, Deacon Brodie’s is a traditional pub, situated on the Royal Mile, and an Edinburgh landmark.

Treacle Mine, Ember Inn, Grays, Essex Part of the Ember Inns estate, The Treacle Mine opened in December 1999 and is a great example of how well the Ember Inns brand format works in residential areas.

8 Mitchells & Butlers The Horse Shoe Bar, Drury Street, Glasgow Simply one of Glasgow’s best-known pubs. It is listed in the Guinness Book of Records for having the longest bar in the world.

The Plough Inn, Sizzling Pub Co, Killingworth Village, Newcastle upon Tyne A brand new conversion to the Sizzling Pub Co format and a good example of how it suits a range of different outlet types and sizes.

O’Neill’s, Muswell Hill, London This O’Neill’s is a converted Grade II listed church with a unique space and charm. It screens live sport and is a local centre on big sporting occasions.

The Argyll Arms, Nicholson’s, Oxford Circus, London The Argyll Arms is one of the oldest pubs in London. Recently refurbished to enhance its original features, it offers good food and a range of cask ales.

The Greville Arms, Sizzling Pub Co, Solihull, West Midlands Opened as a Sizzling Pub in February 2003. Food sales are up 400% since introducing the value for money Sizzling menu.

The Fieldhouse, Ember Inn, Solihull, West Midlands Opened in December 2001. This pub is a great example of the success of the Ember Inn brand and is showing excellent like-for-like growth.

The Prince of Wales, Notting Hill, The Black Friar, Nicholson’s, London This landmark pub in Blackfriars, London Decorated early an excellent location has been last century and refurbished in the transformed into a great business, last year, The Black Friar has been which enjoys the benefits described as the best example of an of its garden area during the Art Nouveau pub in the country. Built summer months. in 1860 on the site of a monastery, it boasts good food and cask ales.

Annual Review 2003 9 Like-for-like sales growth across the business is a constant battle and the toughest competitor should be yourself.

Tony Hughes Managing Director, Restaurants

One thing that’s not changed as a result of the offering and service style) point to the future creation of Mitchells & Butlers is the people of All Bar One for the next ten years.’ focus of the Restaurants division. The team is encouraged to develop and grow, to feel Another priority is like-for-like sales. Tony believes that they’re taken seriously and to ensure that that a focus on the like-for-like measure is key restaurants every customer is a special guest. ‘Ask anyone in creating a performance-driven culture: in the organisation,’ comments Tony Hughes, ‘Like-for-like sales growth across the business Managing Director of MandB Restaurants, ‘they’ll is a constant battle and the toughest competitor understand the philosophy and understand that should be yourself.’ He adds that there is this is the way we work.’ a fine balance to be achieved, between delivering value to the guest, whilst driving Tony identifies three main business imperatives shareholder returns. that have seen real results in his division over the last year, highlighting the ongoing success The third business imperative has been of Mitchells & Butlers’ strategy for growth. increasing productivity and cutting operating expenses, both of which have been achieved The first has been the continuous process of through the effort and commitment of the team. brand evolution, that prevents brands that have ‘It’s quite humbling when you set people difficult been around targets and they report back having achieved for some time and bettered the goals that you set them.’ becoming tired or irrelevant. Browns has been Good brands evolve – our in existence for job is to make sure they 30 years, Toby Carvery for 25 stay relevant to consumers. years, Harvester for 20 years and Trading has remained difficult on the High All Bar One since Street, but Browns is singled out for praise. 1996 and their It’s undoubtedly a brand operating in a difficult offers are being arena, but it offers good value and this is why developed all it retains a loyal customer base. Again, Tony is the time. quick to point out that the Browns success is attributable to strong leadership and a team ‘Good brands evolve that performs well. – our job is to make sure they stay relevant In the suburban residential market, strong to consumers – and trading was led by Toby Carvery. ‘I was in that evolution is a mix Eastbourne when a new Toby Carvery opened of sheer hard work, in September,’ says Tony, ‘and I’m delighted to skill and insight. We’re say that it was on target to take £30,000 in its pleased with our first week, without problems.’ progress, especially around All Bar One And it is obvious to him what is driving this where ‘evolution’ success – the appeal of the offer and the sites (with refreshed price point. ‘Three roast meats, fresh vegetables furniture, décor, and all the trimmings, all for £6? I mean – food and drink come on!’

10 Mitchells & Butlers The Bear’s Head Vintage Inn, Sandbach, Cheshire

The Vintage Inns estate has also distinguished Every one of the 200 plus Vintage Inns around the country itself with a good performance over the year has its own unique character and style, and trades under and a strong improvement has been seen its own pub name. The Bear’s Head became part of the at Harvester thanks to the ongoing success Vintage Inn estate some five years ago. It can serve 140 of Mitchells & Butlers’ sales and marketing diners and has a 25 room Innkeeper’s Lodge partly strategy, in particular the re-introduction housed in the converted stable. of the Earlybird menu. The Bear’s Head has been a pub since the 17th century Going forward, the key to continued success and its name has its origins in a reference to local landed will be to focus on how well run Mitchells & gentry of the time, the Brereton family. Freshly prepared Butlers’ restaurant business is. ‘We should be food is served every day, along with a wide range of drinks recognised by our guests and by the industry including quality wines and cask ales and the pub is as being ‘brilliant at the basics’ – that’s French popular with regulars and visitors alike, some of whom fries that are hot, crisp, seasoned and cooked are local, some of whom travel from farther afield. to order and beer served with care, at the right temperature, in the right glass.’

Annual Review 2003 11 All Bar One, Brindleyplace, Birmingham Opened in November 1998, the Brindleyplace All Bar One is the second in Birmingham. For over five years it has been a consistently good performer for Mitchells & Butlers in part due to exceptional service and standards.

The Alster Pavilion, Alex, Cheshire Cat, Vintage Inn, Hamburg, Germany The Alster Christleton, Cheshire The Cheshire Pavilion Alex is located in the Cat opened as a Vintage Inn in June Jungfenstieg which is one 2000 and was originally a stately of Hamburg’s most prominent home. The pubs and outbuildings locations. The site, built in 1799, were sympathetically restored is a protected historic building incorporating 14 bedrooms, some and became an Alex in June 2001. above the pub and some in the old barn. Located beside the canal, it is a stroll down the towpath into Chester City Centre.

Travellers Rest, Vintage Inn, Toby Carvery, Quinton, Caerphilly, Wales The Travellers Birmingham The Toby Carvery at Rest stands on the crest of the Quinton in Birmingham was opened southernmost ridge of the South in April 2001 and has been highly Wales coastal basin. The 17th successful. The site development century thatched longhouse has included the provision of Innkeeper’s been a resting place for travellers for Lodge bedrooms. over 300 years. Managed for 17 years by the same husband and wife team, the business was extended in March 2003 to create 30 extra covers, increasing sales by up to 50%.

All Bar One, Canary Wharf, London The All Bar One in Canary Wharf is one of the brand’s ‘evolution’ sites. It re-opened its doors in summer 2003, following a development programme which included new furnishings, layout, drink and food offering and service style. There are now nine ‘evolved’ All Bar One sites and the programme is being rolled 12 Mitchells & Butlers out at one every two weeks. Browns, Butlers Wharf, London Sited in an old tea warehouse immediately fronting the Thames, the restaurant opened for business in July 2003. Its al fresco dining facilities proved a hit during the summer.

Toby Carvery, Willingdon Drove, Eastbourne The latest new build Toby Carvery, completed in summer 2003. A separate Innkeeper’s Lodge is under construction to open in spring 2004.

White Hart, Vintage Inn, Westerham, Kent Famous as a haunt of pilots from nearby Biggin Hill airfield during the Battle of Britain, the White Hart is a popular Vintage Inn, now restored to its former glory and offering excellent quality food and drink.

Harvester, Barnet, London A high profile site situated on the A1 into London. It opened its doors to the public in September 2002.

The Bear’s Head, Vintage Inn, Sandbach, Cheshire The Bear’s Head has been a pub since the 17th century, its name originating from the family motto of local landed gentry, the Brereton family. Around five years ago it became a Vintage Inn with 140 covers and a 25 room Innkeeper’s Lodge partly housed in the converted stables. Annual Review 2003 13 We focus on what the customer wants – by asking them directly in many cases – and then we give it to them.

Adam Martin Marketing Director

Mitchells & Butlers understands that the home, whereas Toby Carvery provides three key to its success lies with the customer – roast meats and fresh vegetables all year round understanding the customer, attracting the at a value-for-money price. customer and meeting the customer’s needs. our guestsour Over the past year, the growth of the business What the customer wants is naturally central to has been driven forward by three customer- brand and concept evolution and development. facing initiatives. The revitalisation of All Bar One has seen a widening of choice, a softening of the edges There’s been an increase in promotional activity (furniture and décor) and a deliberate attempt (150 promotions against 70 in the previous to put the customer in charge (service style year), an improved and increased range of and quality), making it more laid back and drinks (we’ve extended the range of beers in easier to enjoy. 1,400 pubs) and continued leadership in food and menu innovation (Harvester Earlybird, The roll-out of Sizzling Pub Co provides for Sizzling Pub Co, Goose, Ember and Toby). families in areas where there were no such All of this is geared towards adding value for facilities before – safe, modern with a range the guest. of amenities, kids are allowed and portion sizes suit all palates and wallets. The success of the initiatives so far will lead The trial of Bar Code in six sites around the to an increase in new country is a reaction to the maturing high activity trials and a street market. It’s designed to cut through controlled roll-out of activity the similarity of current High Street offers by during the coming year. Our providing large venues, amenities and lower strategy is local rather than prices – and it’s the Mitchells & Butlers global, based around what’s purchasing scale that allows us to do it. appropriate for the locality and the market segment. There’s been a material improvement over the last 12 months in our offers and our In the 70% of our business approach to them. It’s been about range and that’s in residential areas – variety and meeting the needs of the guest. Ember Inns and Vintage Inns, Our strategy is one of finding the best solution for example – it’s about gaining to the individual need, which will be different market share and building local by brand, format or concept and, of course, popularity. On the High Street by location. and in London it’s about points of difference in brands like O’Neill’s, Goose and Edward’s and in our truly individual Metropolitan Professional pubs.

We focus on what the customer wants – by asking them directly in many cases – and then we give it to them. Our brands are often doing things that our guests can’t or don’t want to do at home. While it’s not impossible, fewer and fewer people are cooking full Sunday lunches at

14 Mitchells & Butlers Mitchells & Butlers’ spread of concepts, formats and brands is designed to meet the changing needs of our guests, offering a range of different, but equally enjoyable, experiences for a range of different people.

Lunchtimes or evenings, meeting friends or with family, eating or drinking, locally or in town, Mitchells & Butlers provides quality and value for everyone.

Guest focus is central to what we do – and central to our plans for growing the business, increasing sales and profits and delivering enhanced returns to our shareholders. Annual Review 2003 15 The Mitchells & Butlers way is based on strong values and a recognition that our people are amongst our most valuable assets.

Bronagh Kennedy HR Director and General Counsel

Mitchells & Butlers strives to be a genuine There is a clear skill requirement for each job employer of choice, where people looking for a job in the business and we provide the training and or a career in the pub and restaurant business, support for people to do their job well, whether under whatever circumstances, look to us first. it’s the Certificate in Retail Management our peopleour We want to be recognised as a true meritocracy (the driving licence for running a pub), Food where people are treated fairly and well, where Hygiene and Health & Safety qualifications, success leads to recognition and where potential or the Door Supervisors’ National Certificate. is identified, developed and rewarded. We have clearly defined career paths running through the Company and we ensure our Investors in People (the national standard, people understand that they can go as far developed in 1990, which sets out a level as they want, on the basis of merit. There of good practice for training and development are no limits and no insurmountable hurdles. of people to achieve business goals – www.iipuk.co.uk) cites our Company as an The nature of our business allows us to be flexible exemplar organisation – a public endorsement in catering to the needs of our people, allowing of our commitment to our employees. them to have a satisfactory work-life balance. Mitchells & Butlers has over 24,000 part-timers – The separation of Mitchells & Butlers has, including students combining work and education, if anything, strengthened our focus on our people who have children, people returning people and has resulted in a greater sense to work after caring for children and over-50s of ownership and motivation throughout who are not quite ready to retire completely yet. the organisation – a recent internal survey demonstrated We see the benefit in flexible working patterns high levels and allowing our managers to schedule their of employee time and that of their staff to deliver the results satisfaction. in terms of productivity and efficiency, but within Management a framework that suits both them and MandB. turnover has reduced significantly Our graduate recruitment scheme allows us and is now stable. to attract the industry leaders of tomorrow. Through working across all parts of our business, The Mitchells & Butlers way is our graduate intake lives and breathes the based on strong values – we don’t Company, often becoming the best and most cut corners – and a recognition effective of our business managers. Of the that our people are amongst 80 graduates who have completed the scheme our most valuable assets. since 1990, just under half are still employed We make the rewards from by MandB, half of those are senior managers a career in our business and half of them are Directors and General attractive, we regularly Managers of large pieces of our business. benchmark against our peers and ensure We do, however, acknowledge that careers that we are amongst within the hospitality industry are not always the best, but those viewed as ‘first choice’ and we work with (and rewards are not limited put investment behind) industry bodies – such to the components as Springboard UK – to counter misconceptions of a package. Our business and highlight the opportunities and benefits is a fast-moving and energetic one, in of working in our sector. which there is a high level of interaction with our guests and other employees. How many people For further information on careers in Mitchells could say that their work is as much fun? & Butlers, log on to our website www.mbplc.com

16 Mitchells & Butlers Each job in Mitchells & Butlers requires a distinct set of skills – we provide the training to enable our people to fulfil their potential within the career they choose.

Mitchells & Butlers is a people-focused business and we never lose sight of the fact that our guests are our people and our people are our guests.

Whether working in the corporate centre, or in one of Mitchells & Butlers’ 2,000 plus businesses, our people are part of one team, focused on guest service quality.

Annual Review 2003 17 Corporate and social responsibility underpins our business operations at every level under the direction of the Board.

Mitchells & Butlers is committed to building We ensure that the councillors who will be a responsible and sustainable business which granting licences under the new Act are aware always takes account of the social and of the issues our business faces through a environmental context in which it operates. programme of relationship building – offering Corporate and social responsibility underpins them assistance and advice in the task of community our business operations at every level, under preparing their licensing policies. the direction of the Board, and we operate to a Code of Business Conduct acting as a guide We encourage our individual businesses to be to all company employees requiring that they active in their local communities and behave act honestly and impartially in their dealings as good neighbours. We support a wide range with our stakeholders. of charities, partly through donations and by encouraging charitable activity in our pubs, Our Company has taken an industry-leading bars and restaurants. A wealth of activity takes role with the production and widespread place, ranging from themed nights, through communication of an Alcohol & Social sponsored head shaves to days at the races, Responsibility policy, laying down clear organised by our employees for their regulars. guidelines about sensible promotional and Our corporate partner is Victim Support, other marketing activity and reminding all which receives funding from MandB as well our employees of their legal responsibilities as benefiting from the efforts of our brands when selling alcoholic drinks. and concepts.

We are always mindful of our duty of care Compared with other industry sectors, our as a retailer of alcohol and implement, through environmental impact is small. We do, however, training and use of trade association-produced seek to address issues such as recycling glass materials, initiatives aimed at the issues bottles, and we are making progress in energy of under-age drinking, drink driving and and water saving – although much remains to responsible drinking. be done. We commit to ensuring our suppliers also operate to high environmental standards. Current examples include voluntary identification card schemes (The The environment in our pubs, bars and pub- Portman Group ‘Prove It’ kits) restaurants is, of course, another important issue being made available to all our facing our business. Our Company does not premises, for the convenience support a ban on smoking in public places, but of younger customers. Many understands the needs of our non-smoking and of our outlets are running smoking customers, as well as having concern free soft drinks promotions for the wellbeing of our employees. The majority on Christmas Eve and of our sites – where the size and fabric of the New Year’s Eve to make building allows – operate separate smoking life easier for designated and non-smoking areas, with clear signage drivers. Our ongoing training outside. Investment is being made in improving programmes and our ventilation and our estate is moving towards a widespread membership of ‘no smoking at the bar’ policy – which benefits Pubwatch schemes help staff our employees and our guests equally. identify potential problems and deal with them before they happen. Mitchells & Butlers is a member of the Employers’ Forum on Disability and we All of these issues will become increasingly are taking action to ensure our buildings are important and have a greater effect on our modified where necessary to comply with the business as the Licensing & Entertainment third stage of the Disability Discrimination Act, Act is implemented between now and 2005. due to come into force in October 2004.

18 Mitchells & Butlers Pub-goers in Barry limbered up for a sizzling skillet race over August Bank Holiday weekend, all in aid of charity.

Staff and customers at a Shipley pub dressed up as the Spice Girls for their 'Dublin Dash' charity trip.

To mark the 30th anniversary A popular Ember Inn is of its first opening in Brighton, transported back to the 1940s Browns held prize draws across by holding a World War II weekend its restaurants and bars to raise to raise money to send veterans money for the RNIB. to Normandy for the annual D-Day event. Pub-goers in Coventry swapped their pints for pedal power when they took part in a charity bike ride to Manchester.

Annual Review 2003 19 We now have the appropriate long-term financing structure for s report

’ the business. The balance sheet is efficient and we have the flexibility we need to support our strategy The overall financial strategy for Mitchells & of owning and developing Butlers reflects the strong asset backing and cash generative characteristics of our estate, high take, high quality together with our chosen strategy for profitable managed pubs, in the development and growth. best interests of our We have a licensed property portfolio of 2,077 shareholders and outlets with a net book value of £3.5bn. We are focused on maximising our cash returns above our bondholders. the cost of capital and have taken positive steps on both fronts this year. We look to make the Karim Naffah most of the valuable cash flows generated Finance Director by our pubs, to reinvest in the maintenance and development of our estate for high returns and to pay dividends to our shareholders. months. The Board has stated its intention to It was announced in May that the Board had recommend a final dividend of 5.65p per share determined to undertake a whole business for 2003 and a total dividend of 9.5p per share securitisation to increase the efficiency of the for 2004. Thereafter, we intend to pursue balance sheet and to release at least £400m a progressive dividend policy in real terms, of surplus funds to return to shareholders. consistent with the medium-term earnings This followed detailed analysis and consultation growth potential of Mitchells & Butlers. with banks and ratings agencies on the likely terms of any financing in order to decide on the optimal solution for the needs of our business as an independent company.

On 13 November we completed the securitisation of Mitchells & Butlers Retail Limited, comprising 1,942 UK pubs and pub restaurants, raising £1.9bn from the bond finance director finance markets at a cash interest cost to the Company of 6%. We used the proceeds from the securitisation to refinance the bank debt put in place to support the separation and to return £500m to shareholders. Above all, the level of debt we are assuming and the agreed terms of the securitisation provide the flexibility that we need to support our longer term strategy for growth and our progressive dividend policy.

We recognise the important role that dividends play in the total return received by our shareholders and we have already set out our pay-out objectives for the next eighteen

20 Mitchells & Butlers Summary financial statement

The Mitchells & Butlers group was created on its separation from Vintage Inns. The division continues to develop budget hotels where Six Continents on 15 April 2003. The Summary Financial Statement is these can be placed alongside food-led outlets so as to add synergistic shown on page 22. In addition to the statutory results for the year, which benefits to both businesses. In total some 3,700 budget hotel rooms are derived from the underlying accounts of the legal entities comprising are now owned and operated by the Group. Operating profit of £96m the Group, pro forma financial statements are presented in order to show was 2.0% down on last year as a result of external cost increases and the results for the Group as if it had been an independent company since the difficult London market. 1 October 2001, operating under the financing and taxation structure put in place at the time of the separation. On a pro forma basis, profit before interest was £275m, 4.2% down on the previous year. On a statutory basis, the reduction was 20.6% after Total sales were £1,513m, up 2.2% on last year. This reflects an improved charging a major non-operating exceptional item of £42m relating to the second half trend from the successful implementation of plans to drive costs of separating from Six Continents. sales volumes and gross profits through range extensions to improve consumer choice combined with carefully targeted competitive pricing Net interest on a pro forma basis fell by £10m to £76m reflecting and promotional activity, as well as good summer weather. The residential lower interest rates. The statutory interest charge includes a major sector has continued to perform well with some recovery seen in the exceptional cost of £8m relating to the acceleration of facility fee weaker High Street and Central London markets. Same outlet like-for-like amortisation in respect of existing borrowing facilities which were (i.e. invested and uninvested) sales for the year were down 0.4%, down repaid on securitisation. 2.4% on an uninvested basis. In the last 20 weeks of the year, there was a significant improvement over the first half with same outlet like-for-like The pro forma effective tax rate was 32.3% compared with 32.2% sales up 1.8% and uninvested like-for-like sales flat at 0.1% down. in the previous year. The statutory effective tax rate for the year, excluding major exceptional items, was also 32.3%. The actual tax Gross margins remained broadly unchanged despite selective price reductions charge for the year benefited from an exceptional credit of £22m and increased promotional activity. This was achieved through a combination arising in respect of group relief received from Six Continents of purchasing gains and the mix benefits of the increased product range. before separation. In addition, the Group has continued to deliver cost efficiencies to help offset increasing regulatory and other externally driven cost increases. Pro forma earnings per share of 18.4p compares with 18.5p for 2002. Staff productivity improved by some 4.5% over the year through the Basic earnings per share were 17.0p compared with 22.3p in the prior application of standardised sales forecasting and staff rostering processes. year. The Board has confirmed its recommendation for a final dividend Overhead reorganisation and reduction, implemented around the half year, per share of 5.65p. has delivered as planned, the first £5m of a £10m annualised cost saving. The operations of the Group continued to generate significant cash with Operating profit for the year, before major exceptional items, was £275m, EBITDA of £374m, compared to £375m last year. Pro forma net operating 4.8% down on last year. Major exceptional costs of £5m were incurred cash inflow after capital expenditure and disposals was £241m compared on abortive acquisition fees and costs of implementing the securitisation to £135m last year. The reduction in capital expenditure and benefit of (see below). The Group continued to generate strong cash returns with proceeds from selective site disposals have driven this improvement. a post tax cash return on cash capital employed above 10%. Net capital expenditure reduced from £226m to £103m this year and additional pension contributions of £27m were financed from current year Sales in the Pubs & Bars division grew 1.3% to £877m following an operating cash flows. improved performance in the second half. The strongest performance was in the residential estate led by Ember Inns and the Sizzling Pub Co. Following separation and a £702m return of capital to Six Continents’ The number of managed pubs and bars reduced by 27 to 1,387 over shareholders in April 2003, the Group had net debt of £1,265m. At the the year as a result of disposals where higher alternative use values were year end, this had reduced to £1,228m. identified and transfers to Business Franchises where the net return opportunity was higher. Operating profit of £177m was 6.8% down on last On 13 November 2003, the Group announced that it had completed year due to the effects of regulation and difficult trading in Central London the securitisation of its UK pubs and restaurants business, raising £1.9bn. and the High Street markets. The net funds raised were used to repay existing borrowings of £1,243m, make additional contributions to the pension schemes and return In the Restaurants division, sales grew by 1.6% to £619m. The suburban surplus funds of £501m to shareholders by way of a special dividend residential market remained the strongest, led by Toby Carvery and of 68p per share payable on 8 December 2003.

Statement of the independent auditors

We have examined the Group’s Summary Financial Statement for the We also read the other information contained in the Annual Review year ended 30 September 2003 which comprises the Summary profit and consider the implications for our report if we become aware of any and loss account, Summary cash flow statement and Summary apparent misstatements or material inconsistencies with the Summary balance sheet. This report is made solely to the Company’s members, Financial Statement. We conducted our examination in accordance as a body, in accordance with Section 251 of the Companies Act 1985. with Bulletin 1999/6 ‘The auditors’ statement on the Summary Financial To the fullest extent required by the law, we do not accept or assume Statement’ issued by the Auditing Practices Board for use in the responsibility to anyone other than the Company and the Company’s United Kingdom. In our opinion, the Summary Financial Statement members as a body, for our audit work, for this report, or for the is consistent with the full financial statements and Directors’ Report opinions we have formed. The Directors are responsible for preparing and Directors’ Remuneration Report of Mitchells & Butlers plc for the Annual Review and Summary Financial Statement in accordance the year ended 30 September 2003 and complies with the applicable with applicable law. Our responsibility is to report to you our opinion requirements of Section 251 of the Companies Act 1985, and on the consistency of the Summary Financial Statement within the regulations made thereunder. Annual Review and Summary Financial Statement with the full financial statements and Directors’ Report and Directors’ Remuneration Report, Ernst & Young LLP and its compliance with the relevant requirements of Section 251 Registered Auditor, London of the Companies Act 1985 and the regulations made thereunder. 3 December 2003

Annual Review 2003 21 Profit and loss Pro forma** Pro forma** 2003 2002 2003 2002 £m £m £m £m Turnover 1,513 1,481 1,513 1,481 Operating profit Pubs & Bars 177 190 177 190 Restaurants 96 98 96 98 Retail 273 288 273 288 SCPD 2 1 2 1 Operating exceptional items: major – – (5) – Total operating profit 275 289 270 289 Non-operating exceptional items: major – – (42) – minor – (2) – (2) Profit before interest 275 287 228 287 Finance charge/net interest payable (76) (86) (63)* (43) Profit before taxation 199 201 165 244 Taxation (64) (65) (40) (80) Profit for the financial year 135 136 125 164 Dividends – – (29) – Retained profit 135 136 96 164 Earnings per share Basic – – 17.0p 22.3p Pro forma 18.4p 18.5p – – Final dividend per share – – 5.65p –

*Includes major exceptional interest charge of £8m.

Cash flow Pro forma** Pro forma** 2003 2002 2003 2002 £m £m £m £m Operating profit 275 289 275 289 Depreciation and amortisation 99 87 99 87 Other non-cash items – (1) – (1) EBITDA 374 375 374 375 Working capital movement (3) (4) (3) (4) Additional pension contributions (27) (10) (27) – Net cash inflow from operating activities 344 361 344 371 Net capital expenditure (103) (226) (103) (226) This Summary Operating cash flow after capital expenditure 241 135 241 145 Financial Statement was Net interest paid (49) (43) approved by the Board Tax paid (44) (82) on 3 December 2003 and Normal cash flow 148 20 signed on its behalf by Separation costs paid (36) – Tim Clarke and Karim Naffah. Facility fees paid (15) – It does not contain sufficient Other net cash flows 1 – information to provide as full an understanding of the Net cash flow 98 20 results and state of affairs of the Group as that contained in the Annual Report and Financial Net debt at 30 September 2003 was £1,228m. Statements 2003. That report may be obtained, free of charge, by completing the relevant 2003 2002 Balance sheet section of the enclosed proxy £m £m card and returning it to Lloyds Fixed assets 3,533 3,537 TSB Registrars.

Current assets 247 210 The auditors have issued Creditors due within one year (508) (1,060) an unqualified report on the Net current liabilities (261) (850) financial statements containing no statement under Section Total assets less current liabilities 3,272 2,687 237(2) or 237(3) of the Creditors due after one year (1,001) (1) Companies Act 1985. Provisions for liabilities and charges (207) (211) Net assets/shareholders’ funds 2,064 2,475 Information concerning Directors’ emoluments is shown on page 26.

**Unaudited.

22 Mitchells & Butlers Summary directors’ report

Principal activities Final dividend Mitchells & Butlers is a leading UK operator of managed pubs, bars The Directors recommend a final dividend for the year ended and restaurants. A review of the Group’s performance is contained in 30 September 2003 of 5.65p per share to be paid on 16 February 2004 the Chairman’s Statement, the Chief Executive’s Review, the Business to shareholders on the Register at the close of business on Review and the Finance Director’s Report and in the Summary 19 December 2003. Financial Statement. Directors Formation of the Company and separation from Six Continents Details of the current members of the Board, being those who served The Company was incorporated on 2 October 2002 and was used as the in the period since the Company was listed, are shown on page 24. All vehicle to separate the leisure retailing interests from Six Continents PLC, members of the Board will retire and offer themselves for reappointment becoming an independent listed company on 15 April 2003. Details of at the Annual General Meeting on 12 February 2004. Only the four the terms for shareholders of that separation, including the related return Executive Directors, Messrs Bramley, Clarke, Hughes and Naffah have of capital, are set out on page 27. service contracts with the Company.

Securitisation and return of shareholder funds Annual General Meeting Following separation, the Company has refinanced its operations Notice of the Annual General Meeting to be held at 12 noon on Thursday, through a securitisation of its UK pubs and pub restaurants business. 12 February 2004 is contained in a circular, which is sent to shareholders Since the year end, £1.9bn has been successfully raised and £1.2bn with this Review. of existing borrowings repaid. On 2 December 2003, the number of shares in issue was consolidated on the basis of 12 new ordinary Donations shares for every 17 existing ordinary shares and £0.5bn is scheduled The Company supports community initiatives and charitable causes and to be returned to shareholders by way of a special dividend payable in 2003 donated £71,000. In addition, non cash contributions, such as on 8 December 2003 of 68p per share existing on 1 December 2003. employee time and free meals in the Company’s outlets, are estimated to have raised the total value of donations to approximately £620,000. The Company made no payments for political purposes.

Corporate governance

Combined Code compliance Board and committee structure The Board is committed to compliance with the principles of Corporate To support the principles of good corporate governance, the Board, Governance as set out in the Combined Code on Corporate Governance the members of which are shown on page 24, is responsible to the (‘the Code’).In the opinion of the Board, the Company has complied as shareholders for the good standing of the Company, the management soon as practicable since its listing with the requirements of the Code of its assets for optimum performance and the strategy for its future as they apply to a company with a 30 September 2003 year end. development. There are nine regular Board meetings a year and further Sara Weller has been appointed Senior Independent Non-Executive Director meetings as needed. after the year end. The following main committees of the Board have been established: The Company is aware of the Code’s requirements for companies with financial years beginning on or after 1 November 2003 and is taking steps • Executive to comply in those areas where it does not already do so. • Remuneration • Audit Internal control • Nomination The Board is responsible for the Group’s system of internal control and risk management and for reviewing its effectiveness. In order to The Audit and Remuneration Committees consist wholly of Non-Executive discharge that responsibility, the Board confirms that it has established Directors. Since the year end, reflecting latest corporate governance best the procedures necessary to apply the Code, including clear operating practice, Roger Carr, the Chairman of the Board, has ceased to be a procedures, lines of responsibility and delegated authority. member of the Audit and Remuneration Committees and will attend at the invitation of the Committee Chairmen. During the year, the Board has conducted a review of the effectiveness of the system of internal control. The system is designed to manage, Going concern rather than eliminate, the risk of failure to achieve business objectives The Company’s financial statements for the year to 30 September 2003 and it must be recognised that it can only provide reasonable and not have been prepared on a going concern basis as, after making absolute assurance against material misstatement or loss. In that appropriate enquiries, the Directors have a reasonable expectation that context, the review, in the opinion of the Board, did not indicate that the Group has adequate resources to continue in operational existence the system was ineffective or unsatisfactory. for the foreseeable future.

The Group regularly reviews both the type and amount of external insurance that it buys bearing in mind the availability of such cover, its cost, and the likelihood and magnitude of the risks involved.

Annual Review 2003 23 Board of directors

1 2 3 4

5 6 7 8

1 Roger Carr, aged 56 Non-Executive Chairman* 5 Tony Hughes, aged 54 Managing Director, Restaurants† Became Chairman of the Company on the separation of Six Continents Having been a director of Six Continents Retail, he became a Director PLC, where he was the senior non-executive director. He is Deputy of the Company on its separation from Six Continents in April 2003. He Chairman of Cadbury Schweppes plc and a non-executive director of has been Managing Director, Restaurants since 2000. In 1995, he joined Centrica plc. He is senior adviser to Kohlberg Kravis Roberts Co. Ltd. Six Continents (then Bass) following senior management roles at B&Q, He is also a member of the CBI Council and the Industrial Development J.A. Devenish and Whitbread. In 2002 he was voted Retailers’ Retailer Advisory Board of the Department of Trade and Industry. He has Individual of the Year by the pub and restaurant industry and in 2001 previously held a number of senior appointments including Chief he received the Hotel and Caterer ‘Catey’ for the Pub Industry Award. Executive of Williams plc, Chairman of Chubb plc and Chairman He is a trustee of the British Institute of Innkeeping. of Thames Water plc. 6 George Fairweather, aged 46 Non-Executive Director*• 2 Tim Clarke, aged 46 Chief Executive† Appointed a Non-Executive Director in April 2003, he chairs the Audit Chief Executive since the separation, having previously held the same role Committee. He is Group Finance Director of Alliance UniChem plc having in Six Continents PLC since October 2000. Between 1995 and 2000 he previously held the same role with Elementis plc. Earlier appointments was Chief Executive of Bass Retail, which now constitutes the business were with Dawson International, Dixons Group and Procter & Gamble. of Mitchells & Butlers plc. He chairs the Executive Committee. He joined Bass in 1990, initially responsible for planning in the Retail division. 7 Sara Weller, aged 42 Non-Executive Director*• He was subsequently Director of Strategy for Bass PLC and Managing Appointed a Non-Executive Director in April 2003, she chairs the Director of Bass’ European Hotels between 1992 and 1995. He is a Remuneration Committee and is the Senior Independent Non-Executive director of the British Beer & Pub Association, having been Chairman Director. She is Deputy Managing Director of J Sainsbury plc with for 2002. He was the senior independent non-executive director of responsibilities including UK strategy, brand and format marketing, Debenhams plc. customer management and human resources. She also manages Sainsbury’s to you and Sainsbury’s Bank. Previous appointments were 3 Karim Naffah, aged 40 Finance Director† with Abbey National and Mars Confectionery. Having been Strategy Director of Six Continents PLC, he became Finance Director of the Company when it became independent in April 2003. 8 Sir Tim Lankester, aged 61 Non-Executive Director*• In 1991, he joined Six Continents (then Bass) becoming its Director of Appointed a Non-Executive Director in May 2003, he is President of Strategic Planning in 1992. In 2000, he became Strategy Director for Corpus Christi College, Oxford. From 1973 to 1995 he was a member that group and a member of the Strategic Business Committee and the of the Civil Service rising to be Deputy Secretary of H.M. Treasury, executive committees of the Hotels and Retail divisions. He also held Permanent Secretary, Overseas Development Administration, Foreign responsibility for the property development and IT functions. and Commonwealth Office and Permanent Secretary, Department for Education. He served as Private Secretary at 10 Downing Street 4 Mike Bramley, aged 52 Managing Director, Pubs & Bars† to Rt Hon James Callaghan and Rt Hon Margaret Thatcher and Having been a director of Six Continents Retail, he became a Director represented the UK on the Boards of the World Bank and the IMF. of the Company on its separation from Six Continents in April 2003. Since leaving the Civil Service he has been Director, School of Oriental He has been Managing Director, Pubs & Bars since September 2002. and African Studies, London University, Deputy Chairman of the In over 20 years with Bass/Six Continents, he worked in a variety of roles British Council and has held non-executive directorships of CU/CGU in the pubs and brewing businesses. In 1995, he became Commercial and Smith & Nephew. Director of Bass Taverns and in 1998, was appointed HR and Commercial Director of Bass Leisure Retail (later Six Continents Retail). He is a * A Non-Executive Director director of the British Beer & Pub Association. • A member of the Audit and Remuneration Committees † A member of the Executive Committee

24 Mitchells & Butlers Other members of the executive committee

9 10 11 12 Executive Directors: 9 John Butterfield Strategy Director 10 Bronagh Kennedy HR Director and General Counsel 11 Adam Martin Marketing Director 12 Richard Pratt Commercial Director 13 Bill Scobie Deputy Finance Director 14 Alison Wheaton Portfolio Director 13 14 Summary remuneration report

The Summary Remuneration Report is an extract of information from the The main components of remuneration are: full Remuneration Report contained in the Annual Report and Financial Statements 2003, a copy of which is available on request and can be Base salary viewed on the Company’s website at www.mbplc.com/investors. The Remuneration Report will be put to the vote at the forthcoming Annual Annual performance bonus General Meeting. Challenging performance goals are set which must be achieved before a bonus becomes payable. For Executive Directors, these targets are Remuneration policy for Executive Directors and senior executives linked to the Group’s performance in achieving strategic business The following policy has applied since listing and will apply for the objectives and delivering corporate financial targets. financial year 2004, thereafter the Remuneration Committee will recommend changes if appropriate. Annual bonuses are payable in cash, but a short-term deferred incentive plan has been set up for the four Executive Directors under which their The Remuneration Committee determines on behalf of the Board, bonuses may be paid in Mitchells & Butlers shares and deferred for with the benefit of advice from external consultants and the Human 12 months. Matching shares may be awarded up to 0.5 times the Resources function, the remuneration packages of the Executive deferred shares. Awards are released in three equal annual amounts. Directors, the other members of the Executive Committee and certain other senior executives. The Remuneration Committee aims to ensure Mitchells & Butlers’ total shareholder return v FTSE 100 that the packages are designed to attract, retain and motivate The graph below shows the Company’s Total Shareholder Return (‘TSR’) directors and executives of the highest calibre. The Committee has performance against the FTSE 100 index since the Company was listed. The regard to levels of remuneration in the Group and in the specific Company was a member of that index throughout the period under review. industries and businesses with which Group companies compete and is also sensitive to levels in the wider community. The Company TSR: Mitchells & Butlers v FTSE 100 15/4/03 – 30/9/03 operates performance-related policies designed to provide the appropriate balance between fixed remuneration and variable 120 ‘risk’ reward. Using ‘on-target’ or ‘projected value’ calculations, – Mitchells & Butlers 115 performance-related incentives for Executive Directors will equate – FTSE 100 to approximately 60% of total remuneration. 110 105 Share and cash based incentives are designed so as to align the interests of executives with those of shareholders. Executive Directors 100 will be required to build and maintain significant shareholdings, 95 equivalent in value to at least twice their basic salary and three times Source: DATASTREAM 90 salary for the Chief Executive. Apr May Jun Jul Aug Sep

Annual Review 2003 25 Summary remuneration report continued

Executive share options Share plans Grants of options are normally made each year to senior executives The net values earned in the year in respect of shares receivable through and are scaled according to seniority. The maximum value of shares the matching facility under the Short Term Deferred Incentive Plan were over which options may be granted in any year is twice salary for as follows: Executive Directors. Options are exercisable three to ten years from grant subject to achievement of a performance condition, set by the Ordinary Remuneration Committee. shares Value Director 000 £000 Performance restricted share plan Mike Bramley 17 40 This plan aims to encourage continuing improvement in the Group’s Tim Clarke 27 61 performance over the longer term. Its participants are Directors and those Tony Hughes 17 40 senior executives who are best placed to influence such performance. Karim Naffah 19 43 Generally a three-year performance cycle will commence each year and at the end of the cycle two aspects of the Company’s performance will These awards are valued at 230p per share, the share price on be measured: 30 September 2003. Release is in three annual tranches commencing December 2004. • total shareholder return against a comparator group of eleven competitor companies; and Under the Performance Restricted Share Plan, a cycle ended on 30 September 2003 and the performance measure which related to budgeted • the Company’s cash return on capital employed against its weighted cost savings was met. Cash awards will therefore be made as follows: average cost of capital. Pre-tax Awards will be graded according to the level of performance on each award during of these measures. period to Entitlement at 30 September 2003 15 April 2003 Pensions arrangements Director £000 £000 Executive Directors participate on the same basis as other members Mike Bramley 98 – in the relevant Group pension schemes. Tim Clarke 150 – Tony Hughes 98 – Directors’ emoluments 2003 Karim Naffah 105 – As the Directors have been in office only since the Company’s separation from Six Continents in April 2003, the emoluments below are in respect of the period from separation to 30 September 2003. Executive share options Roger Carr and Tim Clarke, however, were previously directors of Under the terms of the separation from Six Continents, Directors and Six Continents PLC and their emoluments from that company for other employees were permitted to roll over their executive share options 1 October 2002 to 14 April 2003 and for the comparative year 2001/02 granted under the Six Continents Executive Share Option Scheme into are shown. options over Mitchells & Butlers shares. The initial grant of options under the Mitchells & Butlers Executive Share Option Plan was made in May 2003. Total emoluments excluding pension Following rollover and the initial grant, Directors’ executive share options at 30 September 2003 are summarised as follows: 15 April 1 October 1 October 2003 2002 2001 to to to Weighted 30 September 14 April 30 September Rolled average Initial 2003 2003 2002 over option option Option £000 £000 £000 Director options price grant price Executive Directors Mike Bramley 443,981 260.07p 296,800 219p Mike Bramley 245 ––Tim Clarke 977,319 263.59p 456,620 219p Tim Clarke 371 363 694 Tony Hughes 553,316 262.97p 296,800 219p Tony Hughes 241 ––Karim Naffah 719,279 228.81p 319,630 219p Karim Naffah 257 –– Non-Executive Directors Roger Carr 97 56 46 No options were exercised by the Directors over Mitchells & Butlers shares George Fairweather 23 ––during the period. Sir Tim Lankester† 16 –– Sara Weller 23 ––All-employee share schemes Executive Directors are entitled to participate in the Company’s Total 1,273 419 740 all-employee share schemes on the same basis as other employees. The following Directors were granted options over the shares shown The emoluments above include salary, fees, bonus (including bonus below in May 2003 under the Sharesave Plan at 169p per share: paid in shares) and tax assessable benefits and allowances. Tim Clarke 9,423 Tony Hughes 5,473 †From appointment on 16 May 2003. Under the Share Incentive Plan award in May 2003, Executive Directors Pensions became entitled to the following shares: All four Executive Directors are accruing benefits under the Company’s Executive Pension Plan and three of them under the unfunded Executive Mike Bramley 981 Tony Hughes 1,072 top up scheme. Tim Clarke 1,290 Karim Naffah 1,182

26 Mitchells & Butlers Investor information

Registrar C The value of MandB shares received (being the number of MandB Enquiries concerning holdings of the Company’s ordinary shares and shares received multiplied by £2.21875) and notification of a holder’s change of address should be referred to Lloyds TSB Registrars at the address shown overleaf. D The value of IHG shares received (being the number of IHG shares received multiplied by £3.71375). Electronic communication The Company has given e-mail notification, to those shareholders who The allocation to the MandB shares and the IHG shares in C and D have requested it, of the availability of this Annual Review and Summary above is based on the share prices on the first day of dealing, being Financial Statement, the Annual Report and Financial Statements and the 15 April 2003. Notice of Annual General Meeting, on the Company’s website, www.mbplc.com/investors The existing base cost may therefore be allocated in the following percentages: The website contains a link to enable shareholders to register for future electronic communication, view details of their own shareholding or Cash of 81p per Six Continents share A x 100% appoint electronically a proxy to vote on their behalf on any poll that A + B + C + D may be held at the forthcoming Annual General Meeting. Cash from fractions B x 100% Low cost share dealing service A + B + C + D A postal facility, which provides a simple, low cost method of buying and selling Mitchells & Butlers plc ordinary shares is available through the MandB shares C x 100% Company’s Registrar, Lloyds TSB Registrars. A + B + C + D

Individual savings accounts (‘ISAs’) IHG shares D x 100% The Company’s Registrar, Lloyds TSB Registrars, offers ISAs in A + B + C + D Mitchells & Butlers plc ordinary shares. Further information may be obtained from the Registrar. If you are in any doubt over this apportionment or any other tax aspect of the separation, you should consult your independent professional adviser. Share price information The latest Mitchells & Butlers plc share price is available in the financial For the purpose of calculating the base cost in Six Continents ordinary press or on Ceefax and Teletext and also on the Financial Times Cityline shares, the following may be of assistance: Service, telephone 0906 003 1366 (calls charged at 60p per minute). The ordinary share price at 31 March 1982 was 230.5p per share. This ShareGift price must be adjusted for subsequent events, in particular, the 1 for 5 The Orr Mackintosh Foundation operates this charity share donation Rights Issue in 1991, the 1 for 1 Capitalisation Issue in 1992 and the scheme for shareholders with small holdings of shares, whose value Capital Reorganisation of 25 new ordinary shares for 28 existing ordinary makes them uneconomic to sell. Details can be obtained from the shares and the issue of one B share for each existing ordinary share, in Company’s Registrar or the ShareGift website www.ShareGift.org or February 1998. With regard to the February 1998 Capital Reorganisation, by calling ShareGift on 020 7337 0501. the prices of the new ordinary shares and the B shares on the first day of dealing, 9 February 1998, were 930.75p and 92.5p respectively. Six Continents separation The following sets out the entitlements received by former shareholders Special dividend and share consolidation of Six Continents PLC on the separation of the Retail and Hotels The Board has recommended the payment on 8 December 2003 of a businesses, together with a summary of the UK Capital Gains Tax special dividend of 68p per share to shareholders on the Register at the treatment of those entitlements: close of business on 1 December 2003. This will be paid as an interim dividend for 2003/04. For every 59 Six Continents shares held, shareholders on the Register at close of business on 11 April 2003 received: As approved by shareholders on 1 December 2003, the special dividend is accompanied by a consolidation of the Company’s share capital, 50 Mitchells & Butlers plc (MandB) shares effective from 2 December 2003, whereby shareholders received plus 12 new ordinary shares for every 17 existing ordinary shares held 50 InterContinental Hotels Group PLC (IHG) shares on 1 December 2003. plus £47.79 in cash (81p per share). American depositary receipts (‘ADRs’) The Company’s ordinary shares are listed on the New York Stock These entitlements, together with the value of any fractional entitlements, Exchange in the form of American Depositary Shares, evidenced by were released on 23 April 2003. ADRs. All enquiries regarding ADR holder accounts and the payment of dividends should be directed to The Bank of New York, the authorised Further to receiving advice from leading Tax Counsel and depositary, at the address shown overleaf. correspondence with the Inland Revenue, the Company considers that the existing base cost for UK Capital Gains Tax purposes in Six Form 20-F Continents PLC shares held on 11 April 2003, may be apportioned The Company is registered with the Securities and Exchange on a pro-rata basis to the following amounts received as a result of Commission (‘SEC’) in the US and as such files with the SEC an Annual the scheme of arrangement and separation: Report on Form 20-F. Copies of the Form 20-F may be obtained in the US by contacting The Bank of New York at the address shown overleaf. A The total amount of cash received in respect of the 81p per Six Continents share payment.

B The cash payment received in respect of the sale of any fractional entitlement arising from the scheme of arrangement and separation.

Annual Review 2003 27 Financial calendar

2003 Preliminary announcement of annual results to 30 September 2003 4 December Special dividend – ordinary shares 8 December Final dividend – ordinary shares Ex-dividend date 17 December Record date 19 December

2004 Annual General Meeting 12 February Final dividend – ordinary shares Payment date 16 February Final dividend – ADRs Payment date 24 February Announcement of interim results May Interim dividend – ordinary shares Payment date July Interim dividend – ADRs Payment date August Preliminary announcement of annual results to 30 September 2004 December Final dividend – ordinary shares Payment date February 2005

Registered office ADR depositary 27 Fleet Street The Bank of New York Birmingham B3 1JP Shareholder Relations Telephone +44 (0) 870 609 3000 PO Box 11258 Fax +44 (0) 121 233 2246 Church Street Station New York NY10286, USA Registrar Telephone +1 (888) 269 2377 (US callers) Lloyds TSB Registrars +1 610 312 5315 (non-US callers) The Causeway, Worthing West Sussex BN99 6DA Stockbrokers Telephone +44 (0) 870 600 3957* (UK callers) Cazenove & Co +44 121 433 8000 (non-UK callers) Merrill Lynch International Fax +44 (0) 1903 854031 Low cost share dealing service and Auditors Individual Savings Accounts (‘ISAs’) Ernst & Young LLP 0870 242 4244 www.shareview.co.uk Investment bankers Citigroup *For those with hearing difficulties a text phone is available on 0870 600 3950 for callers with Solicitors compatible equipment. Allen & Overy

For further information visit www.mbplc.com

This Annual Review and Summary Financial Statement contains certain forward-looking statements as defined under US legislation (Section 21E of the Securities Exchange Act of 1934). By their nature, such statements involve uncertainty; as a consequence, actual results and developments may differ materially from those expressed in or implied by such statements. A more detailed explanation of the risks and uncertainties related to forward-looking statements is set out on the inside back cover of the Annual Report and Financial Statements 2003, copies of which are available from the Registered Office of the Company.

28 Mitchells & Butlers 1

6

5 2 9

3 8 7 4

1 Fox on the River, Thames Ditton, Surrey 2 The Coal Hole, Nicholson’s, Strand, London 3 Harvester, Barnet, London 4 Court Oak, Ember Inn, Harborne, Birmingham 5 The Golden Lion, Nicholson’s, King Street, London 6 The Trout Inn, Vintage Inn, Wolvercote, Oxford 7 All Bar One, Canary Wharf, London 8 The Bells of Ouzeley, Harvester, Windsor, Berkshire 9 Deer Park, Ember Inn, Street Lane, Leeds

Design and production Sheppard Day Print Royle Corporate Print www.mbplc.com

Mitchells & Butlers plc 27 Fleet Street, Birmingham B3 1JP Tel: +44 (0) 870 609 3000 Fax: +44 (0) 121 233 2246