ANNUAL REPORT AND ACCOUNTS 2 0 1 7 Contents Financial highlights Strategic report Revenue £m 1 Welcome to Mitchells & Butlers 10 Chairman’s statement £2,180m 12 Mitchells & Butlers at a glance 2017** 2,180 14 Chief Executive’s business review 18 Our markets 2016 2,086 20 Our business model 2015 2,101 22 Our strategy 2014 1,970 24 Our strategy in action 28 Key performance indicators 2013 1,895 30 Corporate social responsibility 36 Risks and uncertainties 41 Financial review Adjusted* operating profit £m Governance 45 Chairman’s introduction to Governance £314m 46 Board of Directors 2017** 314 48 Directors’ report 54 Directors’ responsibilities statement 2016 318 55 Corporate governance statement 2015 328 62 Audit Committee report 2014 313 66 Report on Directors’ remuneration Financial statements 2013 310 89 Independent auditor’s report to the members of Mitchells & Butlers plc 96 Group income statement Adjusted* earnings per share pence 97 Group statement of comprehensive income 98 Group balance sheet 3 4 . 9 p 99 Group statement of changes in equity 100 Group cash flow statement 2017** 34.9 101 Notes to the financial statements 2016 34.9 134 Five year review 2015 35.7 135 Company financial statements 137 Notes to the Company financial statements 2014 32.6 Other information 2013 32.2 140 Alternative performance measures 143 Shareholder information * The Directors use a number of alternative performance measures (APMs) that are considered critical to aid understanding of the Group’s performance. Key measures are explained on pages 140 to 142 of this report. ** FY 2017 was a 53 week year. Financial review See pages 41 to 43 Welcome to Mitchells & Butlers We are a leading operator of managed STRATEGIC REPORT pubs and restaurants. Our strong portfolio of brands and formats includes Harvester, 1 T Toby Carvery, All Bar One, Miller & Carter, O 43 Premium Country Pubs, Sizzling Pubs, Crown Carveries, Stonehouse, Vintage Inns, Browns, Castle, Nicholson’s, O’Neill’s and Ember Inns. GOVERNANCE 44 In addition, we operate Innkeeper’s Lodge T O hotels in the UK and Alex restaurants and 8 bars in Germany. 7 Over the last year we have invested £169m on both premiumising our offers and improving FINANCIAL S the amenity for our guests. This, along with TATEMENTS 88 our continued focus on offering excellent guest experiences, has resulted in strong T O 1 market outperformance. 39 OTHER I NFORMATION 140 T O 1 DON’T JUST TAKE 44 OUR WORD FOR IT. THIS IS WHAT OUR CUSTOMERS THINK… Annual report and accounts 2017 | Mitchells & Butlers plc | 1 All Bar One, Leicester Square, reopened late in 2016. The bar is full of style, with vibrant décor and comfortable surroundings split over two floors. The first floor features the main bar, well stocked with our ever-changing wine cellar and collection of perfectly crafted cocktails as well as our Espresso Coffee Bar with lounge style seating. The upstairs mezzanine is perfect to look out on the bustling Leicester Square, with relaxed seating, open plan kitchen and a second cocktail bar. 2 | Mitchells & Butlers plc | Annual report and accounts 2017 STRATEGIC REPORT 1 TO 43 GOVERNANCE 44 TO 87 | Mitchells & Butlers plc | 3 FINANCIAL STATEMENTS 88 Annual report and accounts 2017 TO 139 OTHER INFORMATION 140 TO 144 More customer feedback customer More EXCELLENT.” ALL ONE BAR LEICESTER SQUARE SERVICE WAS SERVICE TRAIN. THE LONDON MISSED OUR LUNCH HAVING HAVING LUNCH FOR A QUICKFOR “WE NIPPED IN“WE NIPPED 4 | Mitchells & Butlers plc | Annual report and accounts 2017 “IT’S OUR REGULAR STRATEGIC REPORT POST-WORK HAUNT. WE LOVE TRYING THE 1 TO 43 SELECTION OF ALES GOVERNANCE 44 WHILE PUTTING THE TO WORLD TO RIGHTS!” 87 THE BLACKFRIAR LONDON FINANCIAL STATEMENTS 88 TO 139 OTHER INFORMATION 140 TO The Blackfriar, part of our Nicholson’s collection 144 of historic city centre pubs, is an historic art nouveau grade II masterpiece of a pub built in 1875 on the site of a Dominican friary. The building was designed by architect H. Fuller-Clark and artist Henry Poole, both committed to the free-thinking of the arts and crafts movement. Jolly friars appear everywhere in the pub in sculptures, mosaics and reliefs. It is fortunate that the pub is still here as it was saved from demolition in the More customer feedback 1960s by a campaign led by Sir John Betjeman, the former poet laureate. Annual report and accounts 2017 | Mitchells & Butlers plc | 5 The Ferry Pub and Restaurant, Cookham, is nestled in an idyllic location on the banks of the River Thames. Whether you pop in for a refreshing pint on a summer’s day, a scrumptious Sunday roast, or a delicious three- course meal in truly special surroundings, you’re sure to leave with a smile on your face. With a diverse selection of carefully developed menus, you’ll find everything from tasty light bites and devilish desserts, through to hearty pub food and tempting sharing platters. 6 | Mitchells & Butlers plc | Annual report and accounts 2017 STRATEGIC REPORT 1 TO 43 GOVERNANCE 44 TO 87 | Mitchells & Butlers plc | 7 FINANCIAL STATEMENTS 88 Annual report and accounts 2017 TO 139 OTHER INFORMATION 140 TO 144 More customer feedback customer More COOKHAM FOOD IS GREAT.” IS FOOD THE PUB FERRY AND RESTAURANT THE CHOICE OF CHOICE THE IS STUNNING AND STUNNING IS A MONTH. THE VIEW THE A MONTH. A CATCH-UP ONCE A CATCH-UP “WE MEET HERE FOR“WE HERE MEET The Crown & Greyhound in South London reopened in June 2017 following an extensive refurbishment and extension. It offers a relaxed lunch, an indulgent dinner or lazy brunch, with an enticing and flavoursome menu, focusing on provenance, local suppliers and the freshest of British seasonal ingredients. Its diverse and explorative drinks range includes well-kept cask ales, craft beers, premium lagers and ciders, a seriously seductive wine list and an exceptional selection of artisan spirits – all served in a laid-back yet vibrant pub atmosphere, complete with authentic interior, outdoor barbecue area and delightful urban beer garden. More customer feedback 8 | Mitchells & Butlers plc | Annual report and accounts 2017 STRATEGIC REPORT 1 TO 43 GOVERNANCE 44 TO 87 | Mitchells & Butlers plc | 9 FINANCIAL STATEMENTS 88 Annual report and accounts 2017 TO 139 OTHER INFORMATION 140 TO 144 DULWICH DULWICH WORLD GO BY.” GO WORLD THE & GREYHOUND CROWN JUST TO WATCH THE WATCH TO JUST WALK. IT’S LOVELY LOVELY IT’S WALK. STOP ON OUR DAILY DAILY OUR ON STOP “IT’S OUR REGULAR OUR “IT’S Chairman’s statement BUILDING MOMENTUM THROUGH STRATEGIC F O C U S I am delighted that we have returned the Group to like-for-like sales growth and are performing ahead of the market. Bob Ivell Chairman 10 | Mitchells & Butlers plc | Annual report and accounts 2017 This year we have achieved strong progress Operational highlights STRATEGIC REPORT against the strategic priorities that we identified despite a challenging and uncertain environment. Number of managed sites (at year end) Through this strategic focus we have increased our market share, evidenced through our 1 , 6 9 5 a like-for-like sales outperformance of the market 2017 1,695 this year and have taken steps to position the 1 T Group well for the year ahead. 2016 1,768 O 43 I am delighted by the increasing momentum in our sales performance 2015 1,779 during a period which has seen mixed results across the sector. The cost headwinds facing the industry have impacted profits as we expected 2014 1,775 and our adjusted earnings per sharea were down 1.4% as a result. 2013 1,589 However, I am encouraged by the results across the business which GOVERNANCE 44 show success in the steps being taken to better position the Group in the evolving market. This year the Directors are recommending the payment of a final dividend Average weekly sales per pub (£k) of 5.0p per share making a total of 7.5p for the year. Given the uncertain macro environment it is our intention going forward to determine a full T O year dividend paid only in the form of a final dividend dependent on £23.7k 8 7 several factors including both current performance and future prospects. 2017 23.7 On behalf of the Board I would like to thank our 46,000 people across 2016 22.7 the business, without whom the progress made over the course of the year would not be possible. Now, more than ever, our people are 2015 22.6 demonstrating the ability to adapt to the ever-changing environment we operate in, all the while continuing to delight guests and offer 2014 23.2 great experiences. FINANCIAL 2013 22.9 We take our responsibilities to pensioners seriously. In July we reached an agreement on the 2016 triennial pensions valuation with the scheme S trustees. This resulted in an unchanged level of cash contributions TATEMENTS 88 through to 2023 to eliminate the scheme deficit with a potential additional Food sales as a % of total sales payment of £13m to be made into escrow in 2024 should further funds be required then. I am delighted that we reached a positive agreement for both the Group and the trustees. 5 1 % 2017 51 T There have been no changes to the Board during the year. I remain O 1 pleased with its composition and I believe we have the right balance 2016 51 39 OTHER of skills to drive the business forward. Our market continues to be challenged by increasing external cost 2015 51 headwinds and macro uncertainty. In this context, we shall remain 2014 51 focused on the identified strategic priorities which best position the 2013 51 Group to grow long-term shareholder value.