Company overview overview Company 01 – 05 Strategic and business review 07 – 34 07 Governance 35 – 64 Financial statements Financial 65 – 106 Shareholder information 107 – 108 drink with us. love to eat and and eat to love is that guests guests that is achieve this? So how do we do how So Our vision Mitchells & Butlers plc Annual Report and Accounts 2013 First, we looked at our markets, our guests and our brands... 08 Mitchells & Butlers plc Annual Report and Accounts 2013 Our markets and customers overview Company 01 – 05 We operate in the UK eating and drinking-out Eating-out market Drinking-out market market. This is a large, fragmented market, worth £75bn. We are one of the largest players £49bn £26bn with only 3% of market revenues and there is a significant opportunity to grow our share. Total market value £75bn Strategic and business review Source: Allegra Project Restaurant 2013, ONS Household Final Consumption Expenditure 2011. The eating and drinking-out market Fig. 1 – % of UK consumer spending* Fig. 2 – UK beer market volumes (million barrels)** Food remains the primary long term route to sustainable growth in this sector. Three quarters of our sales are food-related. 1.7% 40 1.8% 4.1% 07 – 34 2.9% 30 20 4.1% 4.5% Governance 10 1997 2002 2007 2011 1980 1990 2000 2010 35 – 64 * Source: ONS Household Final Consumption Eating-out Drinking-out On trade Off trade Expenditure 2011. Drinking in ** Source: The British Beer and Pub Association. Branded growing faster Fig. 3 – UK market size* Fig. 4 – £ Average household weekly expenditure** than unbranded £532 £515 The branded restaurant and pub sector has £43bn £44bn £489 £41bn £42bn £87 £482 grown, and is forecast to grow, at a faster rate £39bn £40bn £14bn £83 £38bn £12bn £77 £12bn £86 than the unbranded sector. See Fig. 3 £202 £10bn £177 £183 £158 Eating-out has been protected £15bn £12bn £14bn £14bn In the downturn, families have protected low statements Financial ticket leisure spending. See Fig. 4 £154 £121 £135 £139 £16bn £15bn £15bn £15bn £108 £108 £101 £99 65 – 106 2009 2010 2011 2012 2013 2014 2015 1997 2002 2007 2011 * Source: Allegra Project Restaurant 2012. Branded pubs & Unbranded restaurants Leisure & Alcohol Housing ** Source: ONS family spending survey 2012. restaurants Unbranded pubs Clothes, Cars & Other Food & Essentials Discretionary Revenue by region Scotland – 5% London, the East and the South East have achieved substantially more growth in the North East – 3% downturn than the rest of the country and this trend is forecast to continue. 45% of our Yorkshire/Humberside – 8% Shareholder information revenues are generated in these regions. North West – 9% East Midlands – 5% West Midlands – 14% East – 7% 107 – 108 Wales – 4% London – 23% South East – 15% South West – 7% Our sales by region Mitchells & Butlers plc Annual Report and Accounts 2013 09 ...and identified where there are opportunities for us to grow our business. 10 Mitchells & Butlers plc Annual Report and Accounts 2013 Our opportunities overview Company 01 – 05 Special Brands: Miller & Carter Country Pubs Strategic and business review Browns Market value £22bn 07 – 34 Upmarket Family social Brands: Brands: Harvester Invest All Bar One Toby Carvery & expand Governance Castle Nicholson’s Market value Alex £5bn Market value Mitchells & 35 – 64 £8bn Butlers plc z Protect & Optimise & compete invest Heartland Everyday Brands: social statements Financial Oak Tree Pubs Brands: Sizzling Pubs Ember Inns Crown Carveries O’Neill’s Market value Market value £4bn £2bn 65 – 106 Shareholder information We believe that there are areas of substantial covering around half the total market size. opportunity to grow in our highly fragmented We have three broad operating and expansion market, worth £75bn in the UK. We have strategies to maximise our returns in each of identified five market spaces in which to focus, these spaces. 107 – 108 Mitchells & Butlers plc Annual Report and Accounts 2013 11 Invest & expand: Toby Carvery Number of outlets 154 Founded in 1973 Number of employees 5,000 12 Mitchells & Butlers plc Annual Report and Accounts 2013 Company overview overview Company 01 – 05 Strategic and business review 07 – 34 13 Governance 35 – 64 Financial statements Financial 65 – 106 Shareholder information 107 – 108 1,000 2006 Number of employees Founded in Founded Number of outlets 29 Miller & Carter Invest & expand: & expand: Invest Mitchells & Butlers plc Annual Report and Accounts 2013 Optimise & invest: Ember Inns Number of outlets 130 Founded in 1999 Number of employees 2,000 14 Mitchells & Butlers plc Annual Report and Accounts 2013 Company overview overview Company 01 – 05 Strategic and business review 07 – 34 15 Governance 35 – 64 Financial statements Financial 65 – 106 Shareholder information 107 – 108 Sizzling Pubs Protect & compete: & compete: Protect 3,500 2001 Number of employees Founded in Founded Number of outlets 220 Mitchells & Butlers plc Annual Report and Accounts 2013 To help us maximise these opportunities, we apply a simple business model and clear strategy to deliver sustainable growth for shareholders. 16 Mitchells & Butlers plc Annual Report and Accounts 2013 Our business model and strategy overview Company 01 – 05 What we do How we do it How we create value Mitchells & Butlers is the leading operator of Our 40,000 employees and leading portfolio We run businesses that people love to restaurants and pubs in the UK with multiple of brands are focused on delighting our eat and drink in, and as a result grow brands spanning around 1,600 locations. guests and delivering growth in the eating shareholder value. and drinking-out market. Our strategy Strategic and business review 1. Focus the business 2. Develop superior 3. Recruit, retain and 4. Generate high returns 5. Maintain a sound on the most attractive brand propositions develop engaged on investment through financial base market spaces within with high levels of people who deliver scale advantage eating and drinking-out consumer relevance excellent service for our guests 2013 progress (See Chief Executive’s market and business review on pages 22 to 27) • We completed a • We aligned our • Our ‘Good to Great’ • We have continued to • We have long-term significant piece of operating strategies to programme continued refine our methods of debt financing 07 – 34 research to update the market dynamics to reduce the level of site selection, making secured on our large, our understanding within each space. administration within the use of our improved predominantly freehold of current and future • We delivered further business, freeing consumer insight. asset base. consumer trends, growth in food sales and up our operational • We opened 16 new • At the year end, our opportunities and margin in a challenging teams to deliver restaurants and pubs freehold property brand growth potential. environment. improved service. in the year. was revalued and Governance • This research included • We redesigned our we conducted an interviews with 8,000 guest service and food impairment review on consumers, meetings capability training other assets. Taken with industry programmes. together, this resulted 35 – 64 commentators and a • We actively support in an increase in value thorough review of apprenticeship schemes of £31m. macro-economic and, at our year end, indicators and forecasts. we were employing c. 1,600 apprentices. 2013 performance • We focused the • Total sales increased • Staff turnover in our • We made a 17% • Net debt reduced to business on five 2.2% (compared to restaurants and EBITDA return on 4.2 times EBITDA attractive market spaces 52 week revenue in pubs was down 4 the expansionary from 4.5 times at the within the £75bn eating FY 2012). percentage points investments made in last year end. statements Financial and drinking-out market: • Our net promoter to 78%. our brand portfolio over special, family, upmarket score increased by the last three years. social, everyday social 4 percentage points and heartland. to 59%. 2014 priorities 65 – 106 • We will open new • We will focus on the • We have launched a • We will continue our • We will continue to restaurants and pubs, execution of our People Strategy which focus on improving prioritise long-term especially in the family, brand strategies, aims to improve further the efficiency of our financial stability for upmarket social and based on strong our recruitment, investments. the Group. special market spaces. consumer insight. induction, guest service • We will further increase • We will roll out new and food capability the clarity of our capital tills, table and kitchen programmes across our allocation, investing management systems restaurants and pubs. where the returns are across our estate, which most attractive. Shareholder information are designed to improve guest service significantly. Key risks (See Risks and uncertainties on pages 18 to 20) • Failure to anticipate • Failure to anticipate • Failure to attract, retain, • Cost of goods price • The pension fund 107 – 108 pricing and market pricing and market develop and motivate increases (including deficit may increase, changes. changes. the best people with energy). leading to increases in • Failure to anticipate • Failure to anticipate the right capabilities. • Failure to attract high funding requirements. changes in consumer changes in consumer quality teams to • Failure to manage taste. taste. operate newly opened performance against restaurants and pubs. our borrowing covenants. Mitchells & Butlers plc Annual Report and Accounts 2013 17 Risks and uncertainties This section highlights the principal risks The Risk Committee met on four occasions in that affect the Company, together with the FY 2013 and continues to meet on a quarterly key mitigating activities in place to manage basis to review the key risks facing the those risks. This does not represent a business. Key risks identified are reviewed comprehensive list of all of the risks that the and assessed by the Risk Committee in terms Company faces, but focuses on those that are of their likelihood and impact, within the currently considered to be of most concern.