Mitchells & Butlers plc Annual Report and Accounts 2020 AT A GLANCE Who are we? We run many of the UK’s most beautiful and Miller & Carter iconic pubs. In fact, we are one of the leading 118 sites restaurant and pub companies in the UK with over 1,650 businesses. 15 Brands and formats operated Our scale is impressive. Since 1898, across 1,660 sites Mitchells & Butlers has been at the forefront of UK drinking and eating out. Last year, uninterrupted by closure, we served 120 Alex Nicholson’s million meals, as well as some 380 million 44 sites 79 sites drinks. We employ over 42,500* people in pubs, bars and restaurants that are located across the length and breadth of the UK, with over 82% of the UK population within five miles of one of our sites. Our strong portfolio of brands and formats All Bar One O’Neill’s includes Harvester, Toby Carvery, All Bar 54 sites 41 sites One, Miller & Carter, Premium Country Pubs, Sizzling Pubs, Stonehouse, Vintage Inns, Browns, Castle, Nicholson’s, O’Neill’s and Ember Inns. In addition, we operate Innkeeper’s Lodge hotels in the UK and Alex restaurants and bars in Germany. Browns Premium Country Pubs In FY 2020, our guests, employees and 24 sites 126 sites communities have needed our support during a period of huge insecurity driven by the global pandemic. Creating a safe environment for our guests and team members to enjoy has been the primary focus since reopening in July following the first period of enforced closure. Castle Stonehouse As we continue to navigate the challenging 108 sites 95 sites and changing environment we will remain focused on our three priority areas of building a more balanced business, instilling a more commercial culture, and driving an innovation agenda, whilst pursuing our purpose of being the host of life’s memorable moments, bringing people and communities together Ember Inns Suburban through great experiences. 148 sites 242 sites At the time of issue of this Annual Report, significant restrictions have again been imposed. Our approach in these latest circumstances will be the same as we took during FY 2020. Harvester Toby Carvery * as at 26 September 2020. 172 sites 154 sites High Street Vintage Inns 73 sites 182 sites UK REVENUE BY REGION (FY 2020) 1 3 2 4 6 5 8 7 11 10 9 % of sales 1 Scotland 5% 2 North West 10% 3 North East 3% 4 Yorkshire and Humberside 8% 5 West Midlands 15% 6 East Midlands 5% 7 Wales 3% 8 East of England 8% 9 South West 7% 10 South East (excluding London) 15% 11 London 21% 82% of the UK population live within five miles of an M&B site 42,500 Employees as at 26 September 2020 57,000 Meals provided from M&B surplus ingredients via FareShare scheme 82% Freehold properties INTRODUCTION 1 Welcome to Mitchells & Butlers 2 Purpose in action STRATEGIC REPORT 8 Chairman’s statement 10 Chief Executive’s business review 14 Our markets 16 Our strategic priorities and sustainability targets 20 Our business model 24 Value creation story 30 Key performance indicators 32 Risks and uncertainties 39 Compliance statements – Corporate viability – Non-financial information statement – Section 172 Companies Act statement 41 Financial review GOVERNANCE 46 Chairman’s introduction to governance 48 Board of Directors 52 Directors’ report 58 Directors’ responsibilities statement 59 Corporate governance statement 70 Audit Committee report 74 Report on the Directors’ remuneration FINANCIAL STATEMENTS 91 Independent auditor’s report to the members of Mitchells & Butlers plc 99 Group income statement 100 Group statement of comprehensive income 101 Group balance sheet 102 Group statement of changes in equity 103 Group cash flow statement 104 Notes to the consolidated financial statements 155 Company financial statements 157 Notes to the Company financial statements OTHER INFORMATION 161 Alternative performance measures 163 Shareholder information FINANCIAL HIGHLIGHTS £1,475m Revenue £(123)m Loss before tax* £99m Adjusted operating profit** (6.3)p Adjusted loss per share** * Includes separately disclosed items. ** 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 161 and 162 of this report. Financial review Go to pages 41 to 44 WELCOME TO MITCHELLS & BUTLERS INTRODUCTION INTRODUCTION “ At Mitchells & Butlers, our REPORT STRATEGIC purpose is to be the host of life’s memorable moments, bringing GOVERNANCE people and communities together through great experiences.” FINANCIAL STATEMENTS FINANCIAL Our purpose has clearly been tested this year – never before in our 122-year history has the business had to close its entire estate. Our guests, people and communities have needed our support during this unsettling time, both professionally and personally, and we have endeavoured to provide that as best as possible whilst navigating the fast-changing environment we have been operating in. We have welcomed the Government support which has been available and INFORMATION OTHER continue to participate actively with UK Hospitality so that we can continue to support as many jobs in the industry as possible. At the time of writing this report we continue to contend with further highly challenging trading conditions and expect this to continue for some time to come. Our hope is that the public’s love of socialising with friends in a pub or restaurant will remain strong and, as it’s done countless times before, the industry will bounce back. The next few pages show some of the things we have done over the last few months to protect and support our guests, people and communities. PHIL URBAN Chief Executive Annual Report and Accounts 2020 1 Mitchells & Butlers plc PURPOSE IN ACTION Keeping Mitchells & Butlers united EXTRACTS FROM PHIL URBAN’S REGULAR EMAILS TO STAFF: “ The first thing I would like to say is that “ Reopening felt like a big relief, and despite adversity often brings out the best in the media hype, Saturday wasn’t quite the people, and I have to say how impressed manic day that was feared. A big thank- I have been with how the whole M&B you to all of our teams who opened their team has reacted and stepped up at this doors, and who had to get to grips with awful time. The overwhelming affection the new ways of working, at the same for this great Company of ours, and the time as I’m sure feeling a little anxious desire to see it come through this period, themselves. Judging by the customer is almost palpable, and I can only give feedback that we received, once again my heartfelt thanks to everyone for the M&B rose to the challenge.” professionalism and support that has Phil Urban, CEO been demonstrated… it is very humbling.” 10 July 2020 Phil Urban, CEO 15 April 2020 Annual Report and Accounts 2020 2 Mitchells & Butlers plc It goes without saying that 2020 has been a highly INTRODUCTION challenging period for everyone including those associated with Mitchells & Butlers. The initial national lockdown starting in March was the first time in its 122-year history that the Company had been required to close its entire estate of pubs in order to safeguard employees and customers against the threat of Covid-19. STRATEGIC REPORT STRATEGIC Our aim in March was to maintain links with our employees to help to support their wellbeing, and to ensure that once our businesses reopened they were fully prepared to deliver great experiences for our guests. We achieved this through a focus on communication, welfare and training. When the UK Government instructed us to close the Group’s licensed premises in late March, our UK trading sites were closed immediately and, after a few days of operating with very few members of staff to ensure a clean close down and transition to remote working, the Company’s Retail Support Centre and other central support offices also closed down. With all but 150 GOVERNANCE of our employees furloughed from the time of closure, one of our main concerns was to ensure the financial welfare of our people. We therefore topped up the pay of all those paid above the furlough scheme cap to 80% of normal pay. Taking account of the same arrangements, the pay of the leadership was reduced by 30% and the Executive Committee’s and the Board’s pay was reduced by 40%. Throughout the first period of closure, all employees were kept up to date STATEMENTS FINANCIAL on key issues, both relating to themselves personally and the business. A structured communications plan was put in place involving multiple channels, including social media, direct communication, and regular bi-weekly frank and thoughtful updates from Phil Urban, our Chief Executive, extracts of which can be seen on the facing page. A particularly effective communication channel was the Facebook group, M&B Together, which was created very soon after closure. This group focused on the wellbeing of our employees by promoting a sense of community and bringing together employees from all brands and functions. During this initial period of lockdown we were keen to ensure that our team members could remain connected to the business and, where desired, INFORMATION OTHER could work on their personal development. Through our digital learning hub, team members were able to continue to develop the areas identified in their personal development plans by accessing a range of online resources curated to support key skills by job role and Company behaviours. Apprentices were also able to continue their pathways throughout lockdown via a remote learning model. As the lifting of the initial lockdown approached, our digital design and training teams were key enablers in allowing us to create a comprehensive in-house refreshable return-to-work training package to welcome our teams back to the business and ensure that they were able to keep themselves and our guests safe.