Annual Review and Summary Financial Statement 2003 · 2018. 12. 10. · North West 8% Northern 4%...

Annual Review andSummary Financial

Statement 2003

Mitchells & Butlersowns 2,000 high-qualitymanaged pubs in prime locations.

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

* Before major operating exceptional items.** On a pro forma basis.

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

22 Profit and loss22 Cash flow22 Balance sheet23 Summary Directors’ report23 Corporate governance24 Board of Directors25 Other members of the

Executive Committee25 Summary remuneration report27 Investor information28 Financial calendar

A The Horse Shoe BarDrury Street, Glasgow

B The Three Stags, Ember InnBebington, The Wirral

C Tyburn House, Sizzling Pub CoCastle Vale, Birmingham

D Travellers Rest, Vintage Inn,Caerphilly, Wales

E Browns Orange Grove, Bath

Contents1 Our pubs, bars and restaurants2 Chairman’s statement4 Chief Executive’s review6 Pubs & Bars

10 Restaurants14 Our guests16 Our people18 Community20 Finance Director’s report 21 Summary financial statement21 Auditors’ statement

Drinks-ledResidential

Ember Inns 159

Sizzling Pub Co 125

Scream 91

Arena 57

Unbranded 386

City Centre

O’Neill’s 86

Goose 41

Edward’s 35

Flares 32

Unbranded 352

Food-ledResidential

Vintage Inns 203

Harvester 142

Toby Carvery 74

Innkeeper’s Fayre 24

Unbranded 86

City Centre

All Bar One 49

Browns 15

Unbranded 0

Annual Review 2003 1

Scotland5%

North West8%

Northern4%

Yorkshire and Humberside

10%

East Anglia1%

South East21%South West

5%

Wales4%

East Midlands5%

West Midlands16%

F Toby CarveryWashington, Tyne and Wear

G The PhilharmonicHope Street, Liverpool

H All Bar OneBrindleyplace, Birmingham

I O’Neill’sMuswell Hill, London

Our UK pubs, bars and restaurants*

J Golden Retriever, Vintage InnBracknell, Berkshire

The above numbers indicate % of Group sales for the year to 30 September 2003

*We also operate the famous Crown Liquor Saloon in Belfast and bars in Germany.

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Greater London21%

2 Mitchells & Butlers

It is a great pleasure to report Mitchells & Butlers’ first year-end accounts as anindependent company following its separationfrom Six Continents on 15 April 2003. At thetime of the launch of the Company I outlinedthe opportunity that I believed would come from independence. Firstly, a strategic clarityborn from objectives that were simple, welldefined and clearly understood by all. Secondly,the management focus, greater visibility and improved shareholder accountability that came from that clarity. Lastly, the opportunity,for the first time, for innovative financing from our strong cash flow to ensure that thebalance sheet was efficiently constructed andshareholders correctly rewarded. Managementhave been liberated and energised by theseparation and the business has a new sense of identity. Thanks to the dedication andcommitment of our employees much has been accomplished both structurally andoperationally during the year.

We have undertaken a securitisation of our UK pub and pub restaurant business andthereby increased the efficiency of our balancesheet enabling the return of £500m of surplusfunds to our shareholders. Our aim with thesecuritisation was to implement the optimalfinancial structure to support our strategy of owning and developing high take, highquality managed pubs in prime locations.The structure we have put in place will allow us to deliver a progressive dividend policy and to continue to develop and reposition our estate over time in the interests of ourshareholders and bondholders.

In the first half of the year we took importantsteps towards rebalancing the business culturefrom one of margin maintenance to one ofprofitable like-for-like sales growth through sales and marketing activity. During the latterpart of the year we started to see the results of this focus on improving consumer choice by extending our drinks product range and

evolving our food menus, combined withcompetitive pricing and additional training in service and selling skills. These actions,along with the good weather we experienced in July and August, resulted in a significantimprovement in the like-for-like sales trend in the second half.

Considerable external cost pressures continueto affect the business. We have once againresponded positively to these challenges bothby aggressively managing our cost base and by driving operating efficiencies to leverage the benefits of scale.

The BoardOur independence clearly required changes at senior management level. Mike Bramley,Tony Hughes and Karim Naffah joined Tim Clarke on the Board as Executive Directors;Tony and Mike as Managing Directors forRestaurants and Pubs & Bars respectively,having fulfilled similar operational roles in the previous divisional structure; and Karim, as Finance Director, having been StrategyDirector for Six Continents and a member of the Executive Committee of the Company since2000. George Fairweather – Group FinanceDirector of Alliance UniChem Plc, Sara Weller –Deputy Managing Director of J Sainsbury plcand Sir Tim Lankester – formerly a seniorofficial at the Treasury with significant expertisein the public and private sectors, all joined usas Non-Executive Directors. I believe that we

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It is now some eightmonths since we becameestablished as anindependent business. At the time of separation we gave a clear commitment to the creationof shareholder value. I believe that these resultsand the return of £500mlater this month representearly evidence of ourdelivery against this promise.

Annual Review 2003 3Annual Review 2003 3

now have a complementary blend of retailing,financial and public sector skills on the Boardwhich makes us well placed to continue toshape and execute Mitchells & Butlers’ strategy.

EmployeesOur near 40,000 employees have had tocontend with a period of incredible change thisyear. Their focus, flexibility and professionalismhave been critical to the Company emergingstronger, leaner and more successful. I amgrateful to all of them for their support.

Current trading and outlookThe improvement in sales seen in the secondhalf of 2003 has continued into the first eightweeks of 2004 aided by some good weather and major sporting events which we estimatedto account for up to 1.5 percentage points of the improvement. Same outlet (i.e. investedand uninvested) like-for-like sales were up 4.5% in the eight weeks to 22 November. Uninvested like-for-like sales were up 2.6%. Thiscontinuing positive trend has been driven by Mitchells & Butlers’ focus on delivering high quality amenity and service standards and increased choice at competitive prices,improving overall customer value.

Trading in the 70% of the estate in residentialareas has strengthened further with same outlet like-for-like sales up 5.7%, 3.8% on an uninvested basis. Sales have continued to be stronger in the Midlands and the Norththan the South.

Trading in our High Street pubs and bars, where our sales generation activity has beenstrongest, has seen a sharp improvement withsame outlet like-for-like sales up 2.3%, 0.6% on an uninvested basis. There continued to bea contrast between positive growth on the HighStreets outside London and marginal decline ina still slowly recovering Central London market,which is still down albeit that the decline hasnow slowed.

On the basis of extrapolating our current salesgenerating activities, we expect our averageprices net of promotions in 2004 to beapproximately 2% lower than 2003 for the yearas a whole, although the effect will be greater in the first half when the comparison with 2003will be most evident. We are taking positiveaction on product mix, purchasing costs andcarefully targeting promotions to minimise thedilution effect on percentage gross margins.Trials of new activity are continuing and will beextended across the estate based on theirsuccess in driving cash gross profits.

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

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

affected the pub industry over the last five yearsare now starting to reverse. In particular, newcapacity on the High Street has virtually ceasedand investment in existing pubs in residentialareas is low.

Overall, we expect the impact of the newLicensing Bill on Mitchells & Butlers to bepositive although there remains some uncertaintyabout its practical application. We await detailsof the Local Authority guidelines due later this year to allow us to evaluate more fully theimpact on the business.

Whilst we remain cautious on the outlook forUK consumer spending, demographic trendsare favourable with forecast growth among the18 to 25 and 45 plus age groups, two of ourkey customer groups. In addition, social trendsare continuing to strongly favour value formoney, informal eating out in neighbourhoodpubs. We believe our estate and our brandsand formats are well placed to profitably meetthose trends.

Whilst in the short term therefore the pub sector continues to bear some significant costincreases, the positive actions we are taking to drive sales, raise productivity and reducecosts makes us well placed to mitigate theirimpact. We are confident that our medium-termbusiness plan and the improving competitiveprospects for Mitchells & Butlers will underpinthe positive sales and earnings potential of thebusiness over the next few years.

We believe the results and the return of £500mto shareholders before the end of the calendaryear honour the commitments of the past andsignpost the potential for future value creation.In contrast to many in the industry who adopt a cost plus model, Mitchells & Butlers is focusedon driving organic growth through a consumervalue model; delivering amenity, service andincreased choice at attractive prices – togetheran overall proposition of good value.

As we enter the first full year of our life as anindependent company, our energies are nowchannelled into driving sales, managing costs,innovating to prosper in a potentially lessbuoyant economy and delivering the strongcash flows and growth that are the essentialfuel to reward both our shareholders and our bondholders.

Roger CarrChairman

A brief history ofMitchells & Butlers

1898Mitchells & Butlers, foundedin 1898, is one of the greatnames in licensed retailing and was at the forefront of thecreation of the British pub weknow today.

1961Mitchells & Butlers merged in 1961 with Bass, Ratcliffand Gretton Ltd to form Bass, Mitchells & Butlers.Subsequently shortened to Bass PLC.

1990Bass PLC sold under-performing pubs and boughtpubs with higher sales, at the same time developing the estate and increasingsales per pub threefold. In addition it built a largeinternational hotels businessand sold its brewing arm. In 2001, Bass PLC wasrenamed Six Continents PLC.

2003The separation of the hotel and retail businesses,announced in 2002, has led to the rebirth of theMitchells & Butlers name as a new independent force inpubs, bars and restaurants.


The creation of Mitchells & Butlers as a stand-alone plc in April has provided a newenthusiasm and sense of purpose to a businessthat was already a leader in its field. The yearhas been a period of major change at thecorporate level which makes the focus andachievements of our operations and supportteams all the more notable.

Trading performanceWe believe that delivering increasing consumervalue is the best route to driving profitable salesvolume growth, enhancing asset productivityand increasing returns. Increasing throughputs,improving product mix and generating bettercash gross profits in turn facilitates improvementsin productivity and purchasing terms whichhelp to underpin operating margins againstexternal cost pressures.

Our programme of marketing activity,introduced since the half year, has beenextensive. We are progressively widening thedrinks range as our contractual ties unwind,broadening and improving the quality of ourmenus, introducing competitive prices andusing carefully targeted promotional activity tocommunicate our value proposition. In parallel,we have been increasing staff training in serviceand selling and continuing to maintain anddevelop the amenity levels of our pubs so as tocompete not only with other pubs, but also withthe alternatives of eating and drinking at home.

The results of this strategy so far have beenencouraging, with a 3.6 percentage pointturnaround in uninvested like-for-like salesfrom those reported at the Interims. Momentumhas continued to build in the first eight weeksof 2004 with like-for-like sales growth of 2.6%on an uninvested basis. As well as driving salesvolumes, a wider choice on range and carefullytargeted promotions on higher gross marginproducts is also allowing us to influence mixtrends. As a result, despite our average drinkselling price being down over 3% in the first

eight weeks of 2004, our gross marginpercentage was only marginally down and we are driving positive growth in cash grossprofits. Following these successful results, we are continuing to trial ways of furtherextending this activity to ensure that weachieve the most profitable balance ofvolume, mix and margins.

We are also seeking to drive further impact from our marketing activity through theenhancement of our IT systems. Alongside the current powerful controls we have on cash,stock and margins we are looking for greatercapabilities in the fast implementation andflexing of promotional and staff selling activity,as well as facilitating more direct staff rewardand incentivisation.

Purchasing and productivity improvementsWe have maintained our focus on improvingstaff productivity. Our roll-out of newscheduling systems has not only enabled us to cut non-productive hours from our pub rosters, but also to redeploy some of those hours to peak trading periods therebyincreasing both customer satisfaction and salesin a cost effective manner. This, combined withour continued investment in training and staffdevelopment, has led to staff productivityimprovements of 4.5% for the year.

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At separation our prioritieswere to deliver value toshareholders through ouroperating performance, an appropriate financing of the balance sheet and a return of surplus funds.We have completed a£1.9bn securitisationproviding the business withlong-term fixed rate financeat attractive rates to supportour growth strategy andreleasing £0.5bn of cashfor shareholders.


Our sales generating actionshave delivered a 3.6 percentagepoint turnaround in uninvestedsales from those reported in May. This trend hascontinued into the first eightweeks of the new financialyear, with 4.5% growth inlike-for-like sales boosted by the sporting calendar and good autumn weather.The 70% of the estate inresidential areas is leading theway, same outlet like-for-likesales were up 0.9% in 2003and are 5.7% ahead in thenew financial year.

Our growing headroom under our tied supplycontracts is providing us with increasingcommercial freedom to introduce new productsto the estate at attractive prices. Our centralpurchasing team negotiate all supply contractsacross the company. They have deliveredreductions of over 4% on the 40% of the totalcost of goods sold renegotiated in the year.Therefore we are able to source the productsand services our customers require, at attractiveprices and to the required quality, in turnproviding us with a competitive advantage.

At the start of the year, we conducted a furtherreview of our corporate cost base in order todrive efficiency and cost effectiveness. As aresult of this review £5m of savings were madein the second half of this year and £10m will be made on an annualised basis. At less than4% of sales, our central support costs are oneof the lowest amongst managed pub operators.

Investment performanceThe profitable evolution of our brands andformats to meet changing customer demand is also critical to raising asset productivity. In residential areas the key consumer trend isthe increase in demand for informal, integratedfood and drink offers. As a result, in our localpub offers, such as Ember and Sizzling Pub Co,we have been building the attractiveness of ourfood, wine and soft drinks offers so as to attractnew customers. In our pub restaurant offers,Harvester, Vintage and Toby, we are improvingthe amenity of the bar areas and the drinksoffer to capture incremental trade before orafter the primary meal occasion.

We invested £73m of expansionary capitalduring the year, over 70% of which was spenton pubs and pub restaurants in residentiallocations. We continue to see good results withincremental EBIT returns of 13% on this year’s

openings. We believe that our developmentpipeline of over 350 sites provides us with theopportunity to generate further high incrementalreturns over the next two to three years throughthe application of our brands and formats toprime licensed sites.

Balance sheet efficiencyWe announced at the half year the conclusionof our refinancing review and our intention to complete a whole business securitisation of our UK pubs and pub restaurants business in the autumn. The securitisation is nowcomplete and the return of £0.5bn of cash toshareholders is imminent. The resultant shareconsolidation was approved by shareholdersand implemented on 2 December. We nowhave the optimal capital structure to support the business for the long term. This method offinance provides appropriate flexibility for thebusiness and has the advantage of long-termfixed rate interest at attractive rates.

ConclusionThis has been an eventful year for Mitchells &Butlers, achieving independence, refinancingthe balance sheet, evaluating a majoracquisition opportunity which ultimately did notmeet our strict criteria and turning round ourlike-for-like sales performance. We now have afocused pub business with a solid platform fromwhich we can continue to drive profitable salesgrowth and create shareholder value.

Tim ClarkeChief Executive

Unbranded386

Ember Inns

159

Sizzling125

Scream91

Arena57

O’Neill’s86

Goose

41

Flares32

Edward’s

35

Unbranded352

Harvester142

Toby74

Unbranded

86

Vintage Inns203

Innkeeper’s Fayre 24

All Bar One

49

Browns15

Drinks-led Food-led

Residential

City CentreNumbers refer to number of outlets

Individual Pub

Strong Branding

Business overview Spectrum of managed UK pub types

Business reviewWe’re now driving the sales line profitably,helping our peopleunderstand that this is priority number one and equipping them with the skills to meet the challenges.

Mike BramleyManaging Director, Pubs & Bars

*Total Group retail staff productivity

‘It’s obvious to all of us that we’re at the helm of the business now,’ says Mike Bramley,Managing Director of MandB Pubs & Bars,referring to the separation of Mitchells & Butlers

from Six Continents in April, ‘and thefuture is what we make it.’

The separation brought a sharper focusto the business and a stronger sense ofownership for the team, which is drivinga change in the way the business is run. ‘We’re now driving the sales lineprofitably, helping our people understandthat this is priority number one andequipping them with the skills to meetthe challenges. As the level of capitalexpenditure has reduced as the ex-Alliedconversions have been completed, we’vehad a real opportunity to focus on organicgrowth led by profitable sales generationand operating cost efficiencies.’

In the past year, we’ve focused on three key priorities for Pubs & Bars. First, incommon with MandB as a whole, drivingprofitable like-for-like sales has been at theforefront of all activity, with considerableachievements made. ‘There’s been a hugeamount of effective activity in place –

all of which has been tried and testedbefore wider implementation. We’vesuccessfully integrated marketing,

sales and operations plans into a coherent whole and workedthem hard, using product range,promotions and menu development,

very effectively,’ Mike comments.‘We’re very pleased with the way

things are going, but we’re far frombeing satisfied.’

The second priority has been to drivefurther improvements in retail productivity.

Employment is the division’s secondhighest cost and improvement

in productivity is necessary tomitigate the effects of regulatorypressures on that cost. ‘This year

we’ve improved productivity by a further 4.5%by looking at how we can better roster staff in pubs, getting the right people in the rightplace at the right time.’

Thirdly, the division has focused on turningaround individual underperforming assets. In some cases this has been achieved by the careful use of capital, for example withSizzling Pub Co – a brand that is extremelycost effective to implement, very popular withour customers and brings an offer whichdelivers consistent sales and profit uplifts to the converted pubs. In other cases thefocus has been on operational, sales andmarketing levers.

‘When Mitchells & Butlers decides to dosomething then there is no-one better atdelivering. For example, our performance in the locals market has been outstanding,with Ember and Sizzling Pub Co in particular.’

Progress on the overall programme of siteconversions has been rapid and effective. By the end of the financial year, some 22Ember Inns had been added, moving theconcept to nearly 160 outlets and the SizzlingPub Co had passed the 125 outlet mark. InLondon, there were around 40 individual andunique outlets operating under the MetropolitanProfessional umbrella.

When it comes to discussing the trading year,Mike chooses to focus on brands and formatsin more difficult areas to illustrate the division’ssuccesses. In a High Street market thatcontinues to be difficult, our brands have heldup extremely well – brands such as O’Neill’s,Flares and Reflex – especially in comparisonwith some distressed competitors. Our strategy,of clearly differentiating our High Street offerswhilst providing unique value for our guests,continues to keep us ahead.

A final word is reserved for Mitchells & Butlers’Business Franchise model, which was developedover the last year and now has around 50 pubs


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operating under it. Broadly divided into true franchises – for example O’Neill’s barsbeing operated by City Centre Restaurants at Heathrow and Stansted airports – andunbranded Business Franchises, run byindividual entrepreneurs buying into MandB’sknowledge and expertise, the model hasallowed the business to profit from both the strength of its brands and the strength of its scale and infrastructure.

The Treacle Mine Ember Inn,Grays, EssexThe Treacle Mine is a typical example of a successfulEmber Inn, situated in a residential area, attracting bothlocals and guests who’ve travelled to enjoy its food, widerange of beers and wines and its ‘home away from home’atmosphere and décor.

Ember Inns pride themselves on their range and onoffering the guest a real choice – a wine festival hasbeen held, attracting great guest interest, a cask alefestival was held in October and a further festival –featuring lagers – is planned for the year ahead.

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

� The Garden Gate, Hampstead,London Under the MetropolitanProfessional umbrella, a six figureinvestment – giving it a refreshed,contemporary feel – has doubledaverage weekly takings.

� Deacon Brodie’s Tavern,Lawnmarket, Edinburgh AnotherMandB classic, Deacon Brodie’s is atraditional pub, situated on the RoyalMile, and an Edinburgh landmark.


� The Philharmonic, Hope Street,Liverpool One of Mitchells & Butlers’classics, a pub full of late-Victoriansplendour and famous for its ornate,tiled gents’ toilet.

� O’Neill’s, St Mary’s Street, CardiffLocated in the centre of the city, just a short stroll from the MillenniumStadium. On ‘international’ days,O’Neill’s is the only place to enjoyyour pre-match pint of Guinness.

� The Prince of Wales, Notting Hill,London This landmark pub in an excellent location has beentransformed into a great business, which enjoys the benefits of its garden area during thesummer months.

� The Black Friar, Nicholson’s,Blackfriars, London Decorated earlylast century and refurbished in thelast year, The Black Friar has beendescribed as the best example of anArt Nouveau pub in the country. Builtin 1860 on the site of a monastery, it boasts good food and cask ales.

� The Greville Arms, Sizzling Pub Co,Solihull, West Midlands Opened as aSizzling Pub in February 2003. Foodsales are up 400% since introducingthe value for money Sizzling menu.

� The Fieldhouse, Ember Inn,Solihull, West Midlands Opened inDecember 2001. This pub is a greatexample of the success of the EmberInn brand and is showing excellentlike-for-like growth.


� O’Neill’s, Muswell Hill, LondonThis O’Neill’s is a converted Grade IIlisted church with a unique space andcharm. It screens live sport and is alocal centre on big sporting occasions.

� The Argyll Arms, Nicholson’s,Oxford Circus, London The ArgyllArms is one of the oldest pubs inLondon. Recently refurbished toenhance its original features, it offersgood food and a range of cask ales.

� The Horse Shoe Bar, Drury Street,Glasgow Simply one of Glasgow’sbest-known pubs. It is listed in theGuinness Book of Records for havingthe longest bar in the world.

� The Plough Inn, Sizzling Pub Co,Killingworth Village, Newcastle uponTyne A brand new conversion to theSizzling Pub Co format and a goodexample of how it suits a range ofdifferent outlet types and sizes.

Like-for-like sales growthacross the business is a constant battle and thetoughest competitor shouldbe yourself.

Tony HughesManaging Director, Restaurants

One thing that’s not changed as a result of thecreation of Mitchells & Butlers is the peoplefocus of the Restaurants division. The team is encouraged to develop and grow, to feel that they’re taken seriously and to ensure thatevery customer is a special guest. ‘Ask anyonein the organisation,’ comments Tony Hughes,Managing Director of MandB Restaurants, ‘they’llunderstand the philosophy and understand thatthis is the way we work.’

Tony identifies three main business imperativesthat have seen real results in his division overthe last year, highlighting the ongoing successof Mitchells & Butlers’ strategy for growth.

The first has been the continuous process ofbrand evolution, that prevents brands that have

been around for some timebecoming tiredor irrelevant.Browns has beenin existence for30 years, TobyCarvery for 25years, Harvesterfor 20 years and All Bar One since1996 and theiroffers are beingdeveloped all the time.

‘Good brands evolve– our job is to makesure they stay relevantto consumers – andthat evolution is a mixof sheer hard work,skill and insight. We’repleased with ourprogress, especiallyaround All Bar One

where ‘evolution’ sites (with refreshed

furniture, décor,food and drink

offering and service style) point to the future of All Bar One for the next ten years.’

Another priority is like-for-like sales. Tony believesthat a focus on the like-for-like measure is keyin creating a performance-driven culture: ‘Like-for-like sales growth across the businessis a constant battle and the toughest competitorshould be yourself.’ He adds that there is a fine balance to be achieved, betweendelivering value to the guest, whilst drivingshareholder returns.

The third business imperative has beenincreasing productivity and cutting operatingexpenses, both of which have been achievedthrough the effort and commitment of the team.‘It’s quite humbling when you set people difficulttargets and they report back having achievedand bettered the goals that you set them.’

Good brands evolve – our job is to make sure they stay relevant to consumers.

Trading has remained difficult on the HighStreet, but Browns is singled out for praise. It’s undoubtedly a brand operating in a difficultarena, but it offers good value and this is why it retains a loyal customer base. Again, Tony isquick to point out that the Browns success isattributable to strong leadership and a teamthat performs well.

In the suburban residential market, strongtrading was led by Toby Carvery. ‘I was inEastbourne when a new Toby Carvery openedin September,’ says Tony, ‘and I’m delighted tosay that it was on target to take £30,000 in itsfirst week, without problems.’

And it is obvious to him what is driving thissuccess – the appeal of the offer and theprice point. ‘Three roast meats, fresh vegetablesand all the trimmings, all for £6? I mean –come on!’


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The Vintage Inns estate has also distinguisheditself with a good performance over the yearand a strong improvement has been seen at Harvester thanks to the ongoing success of Mitchells & Butlers’ sales and marketingstrategy, in particular the re-introduction of the Earlybird menu.

Going forward, the key to continued successwill be to focus on how well run Mitchells &Butlers’ restaurant business is. ‘We should berecognised by our guests and by the industryas being ‘brilliant at the basics’ – that’s Frenchfries that are hot, crisp, seasoned and cookedto order and beer served with care, at the righttemperature, in the right glass.’

The Bear’s Head Vintage Inn,Sandbach, CheshireEvery one of the 200 plus Vintage Inns around the countryhas its own unique character and style, and trades underits own pub name. The Bear’s Head became part of theVintage Inn estate some five years ago. It can serve 140diners and has a 25 room Innkeeper’s Lodge partlyhoused in the converted stable.

The Bear’s Head has been a pub since the 17th centuryand its name has its origins in a reference to local landedgentry of the time, the Brereton family. Freshly preparedfood is served every day, along with a wide range of drinksincluding quality wines and cask ales and the pub ispopular with regulars and visitors alike, some of whomare local, some of whom travel from farther afield.

� All Bar One, Canary Wharf,London The All Bar One in CanaryWharf is one of the brand’s ‘evolution’sites. It re-opened its doors in summer2003, following a developmentprogramme which included newfurnishings, layout, drink and foodoffering and service style. There arenow nine ‘evolved’ All Bar One sitesand the programme is being rolled out at one every two weeks.

�� Toby Carvery, Quinton,Birmingham The Toby Carvery atQuinton in Birmingham was openedin April 2001 and has been highlysuccessful. The site developmentincluded the provision of Innkeeper’sLodge bedrooms.


� The Alster Pavilion, Alex,Hamburg, Germany The AlsterPavilion Alex is located in theJungfenstieg which is one of Hamburg’s most prominentlocations. The site, built in 1799, is a protected historic building and became an Alex in June 2001.

� Travellers Rest, Vintage Inn,Caerphilly, Wales The TravellersRest stands on the crest of thesouthernmost ridge of the SouthWales coastal basin. The 17thcentury thatched longhouse hasbeen a resting place for travellers forover 300 years. Managed for 17 yearsby the same husband and wife team,the business was extended inMarch 2003 to create 30 extracovers, increasing sales by up to 50%.

� All Bar One, Brindleyplace,Birmingham Opened in November1998, the Brindleyplace All Bar One is the second in Birmingham. For over five years it has been a consistently good performer forMitchells & Butlers in part due toexceptional service and standards.

� Cheshire Cat, Vintage Inn,Christleton, Cheshire The CheshireCat opened as a Vintage Inn in June2000 and was originally a statelyhome. The pubs and outbuildingswere sympathetically restoredincorporating 14 bedrooms, someabove the pub and some in the old barn. Located beside the canal, it is a stroll down the towpath intoChester City Centre.

�� The Bear’s Head, Vintage Inn,Sandbach, Cheshire The Bear’sHead has been a pub since the 17th century, its name originatingfrom the family motto of local landedgentry, the Brereton family. Aroundfive years ago it became a VintageInn with 140 covers and a 25 roomInnkeeper’s Lodge partly housed in the converted stables.


� White Hart, Vintage Inn,Westerham, Kent Famous as a hauntof pilots from nearby Biggin Hill airfieldduring the Battle of Britain, the WhiteHart is a popular Vintage Inn, nowrestored to its former glory and offeringexcellent quality food and drink.

� Harvester, Barnet, London A highprofile site situated on the A1 intoLondon. It opened its doors to thepublic in September 2002.

� Browns, Butlers Wharf, LondonSited in an old tea warehouseimmediately fronting the Thames, the restaurant opened for business inJuly 2003. Its al fresco dining facilitiesproved a hit during the summer.

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

Mitchells & Butlers understands that the key to its success lies with the customer –understanding the customer, attracting thecustomer and meeting the customer’s needs.Over the past year, the growth of the businesshas been driven forward by three customer-facing initiatives.

There’s been an increase in promotional activity(150 promotions against 70 in the previousyear), an improved and increased range ofdrinks (we’ve extended the range of beers in1,400 pubs) and continued leadership in foodand menu innovation (Harvester Earlybird,Sizzling Pub Co, Goose, Ember and Toby). All of this is geared towards adding value for the guest.

The success of theinitiatives so far will lead to an increase in newactivity trials and acontrolled roll-out of activityduring the coming year. Ourstrategy is local rather thanglobal, based around what’sappropriate for the localityand the market segment.

In the 70% of our businessthat’s in residential areas –Ember Inns and Vintage Inns,for example – it’s about gainingmarket share and building localpopularity. On the High Streetand in London it’s about pointsof difference in brands likeO’Neill’s, Goose and Edward’sand in our truly individualMetropolitan Professional pubs.

We focus on what the customerwants – by asking them directly inmany cases – and then we give it to them. Our brands are often doingthings that our guests can’t or don’twant to do at home. While it’s notimpossible, fewer and fewer peopleare cooking full Sunday lunches at

home, whereas Toby Carvery provides threeroast meats and fresh vegetables all year round at a value-for-money price.

What the customer wants is naturally central tobrand and concept evolution and development.The revitalisation of All Bar One has seen awidening of choice, a softening of the edges(furniture and décor) and a deliberate attemptto put the customer in charge (service styleand quality), making it more laid back andeasier to enjoy.

The roll-out of Sizzling Pub Co provides forfamilies in areas where there were no suchfacilities before – safe, modern with a range of amenities, kids are allowed and portion sizessuit all palates and wallets.

The trial of Bar Code in six sites around thecountry is a reaction to the maturing high street market. It’s designed to cut through the similarity of current High Street offers byproviding large venues, amenities and lowerprices – and it’s the Mitchells & Butlerspurchasing scale that allows us to do it.

There’s been a material improvement over the last 12 months in our offers and ourapproach to them. It’s been about range andvariety and meeting the needs of the guest.Our strategy is one of finding the best solutionto the individual need, which will be differentby brand, format or concept and, of course, by location.

We focus on what thecustomer wants – byasking them directly inmany cases – and then we give it to them.

Adam MartinMarketing Director


our

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ts

Guest focus is central to what we do – andcentral to our plans forgrowing the business,increasing sales andprofits and deliveringenhanced returns to our shareholders.

Mitchells & Butlers’ spreadof concepts, formats andbrands is designed tomeet the changing needsof our guests, offering a range of different, but equally enjoyable,experiences for a rangeof different people.


Lunchtimes or evenings,meeting friends or withfamily, eating or drinking,locally or in town,Mitchells & Butlersprovides quality andvalue for everyone.

Mitchells & Butlers strives to be a genuineemployer of choice, where people looking for a jobor a career in the pub and restaurant business,under whatever circumstances, look to us first. We want to be recognised as a true meritocracywhere people are treated fairly and well, wheresuccess leads to recognition and where potentialis identified, developed and rewarded.

Investors in People (the national standard,developed in 1990, which sets out a level of good practice for training and developmentof people to achieve business goals –www.iipuk.co.uk) cites our Company as anexemplar organisation – a public endorsementof our commitment to our employees.

The separation of Mitchells & Butlers has, if anything, strengthened our focus on ourpeople and has resulted in a greater sense of ownership and motivation throughout the organisation – a recent internal survey

demonstrated high levels of employeesatisfaction.Managementturnover has reduced significantlyand is now stable.

The Mitchells & Butlers way isbased on strong values – we don’tcut corners – and a recognitionthat our people are amongst our most valuable assets. We make the rewards from a career in our businessattractive, we regularlybenchmark against our peers and ensure that we are amongst the best, but thoserewards are not limitedto the components

of a package. Our business is a fast-moving and energetic one, in

which there is a high level of interaction with ourguests and other employees. How many peoplecould say that their work is as much fun?

There is a clear skill requirement for each job in the business and we provide the training andsupport for people to do their job well, whetherit’s the Certificate in Retail Management (the driving licence for running a pub), FoodHygiene and Health & Safety qualifications, or the Door Supervisors’ National Certificate. We have clearly defined career paths runningthrough the Company and we ensure ourpeople understand that they can go as far as they want, on the basis of merit. There are no limits and no insurmountable hurdles.

The nature of our business allows us to be flexiblein catering to the needs of our people, allowingthem to have a satisfactory work-life balance.Mitchells & Butlers has over 24,000 part-timers –including students combining work and education,people who have children, people returning to work after caring for children and over-50swho are not quite ready to retire completely yet.

We see the benefit in flexible working patternsand allowing our managers to schedule theirtime and that of their staff to deliver the resultsin terms of productivity and efficiency, but withina framework that suits both them and MandB.

Our graduate recruitment scheme allows us to attract the industry leaders of tomorrow.Through working across all parts of our business,our graduate intake lives and breathes theCompany, often becoming the best and mosteffective of our business managers. Of the 80 graduates who have completed the schemesince 1990, just under half are still employed by MandB, half of those are senior managers and half of them are Directors and GeneralManagers of large pieces of our business.

We do, however, acknowledge that careerswithin the hospitality industry are not alwaysviewed as ‘first choice’ and we work with (andput investment behind) industry bodies – suchas Springboard UK – to counter misconceptionsand highlight the opportunities and benefits of working in our sector.

For further information on careers in Mitchells & Butlers, log on to our website www.mbplc.com

The Mitchells & Butlersway is based on strongvalues and a recognitionthat our people are amongstour most valuable assets.

Bronagh KennedyHR Director and General Counsel


our

peo

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

Whether working in thecorporate centre, or inone of Mitchells & Butlers’2,000 plus businesses,our people are part ofone team, focused onguest service quality.


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

Mitchells & Butlers is committed to building a responsible and sustainable business whichalways takes account of the social andenvironmental context in which it operates.Corporate and social responsibility underpinsour business operations at every level, underthe direction of the Board, and we operate to a Code of Business Conduct acting as a guideto all company employees requiring that theyact honestly and impartially in their dealingswith our stakeholders.

Our Company has taken an industry-leadingrole with the production and widespreadcommunication of an Alcohol & SocialResponsibility policy, laying down clearguidelines about sensible promotional andother marketing activity and reminding all our employees of their legal responsibilitieswhen selling alcoholic drinks.

We are always mindful of our duty of care as a retailer of alcohol and implement, throughtraining and use of trade association-producedmaterials, initiatives aimed at the issues of under-age drinking, drink driving andresponsible drinking.

Current examples include voluntaryidentification card schemes (The

Portman Group ‘Prove It’ kits)being made available to all our

premises, for the convenienceof younger customers. Manyof our outlets are runningfree soft drinks promotionson Christmas Eve and New Year’s Eve to make life easier for designateddrivers. Our ongoing trainingprogrammes and our

widespread membership ofPubwatch schemes help staff

identify potential problems anddeal with them before they happen.

All of these issues will become increasinglyimportant and have a greater effect on ourbusiness as the Licensing & Entertainment Act is implemented between now and 2005.

We ensure that the councillors who will begranting licences under the new Act are awareof the issues our business faces through aprogramme of relationship building – offeringthem assistance and advice in the task ofpreparing their licensing policies.

We encourage our individual businesses to beactive in their local communities and behave as good neighbours. We support a wide rangeof charities, partly through donations and by encouraging charitable activity in our pubs,bars and restaurants. A wealth of activity takesplace, ranging from themed nights, throughsponsored head shaves to days at the races,organised by our employees for their regulars.Our corporate partner is Victim Support, which receives funding from MandB as well as benefiting from the efforts of our brands and concepts.

Compared with other industry sectors, ourenvironmental impact is small. We do, however,seek to address issues such as recycling glassbottles, and we are making progress in energyand water saving – although much remains tobe done. We commit to ensuring our suppliers also operate to high environmental standards.

The environment in our pubs, bars and pub-restaurants is, of course, another important issuefacing our business. Our Company does notsupport a ban on smoking in public places, butunderstands the needs of our non-smoking andsmoking customers, as well as having concernfor the wellbeing of our employees. The majorityof our sites – where the size and fabric of thebuilding allows – operate separate smoking and non-smoking areas, with clear signageoutside. Investment is being made in improvingventilation and our estate is moving towards a ‘no smoking at the bar’ policy – which benefitsour employees and our guests equally.

Mitchells & Butlers is a member of theEmployers’ Forum on Disability and we are taking action to ensure our buildings aremodified where necessary to comply with thethird stage of the Disability Discrimination Act,due to come into force in October 2004.

com

mun

ity Corporate and social

responsibility underpinsour business operations at every level under thedirection of the Board.


� To mark the 30th anniversary of its first opening in Brighton,Browns held prize draws across its restaurants and bars to raisemoney for the RNIB.

� Pub-goers in Coventry swappedtheir pints for pedal power whenthey took part in a charity bike rideto Manchester.


� Pub-goers in Barry limbered up for a sizzling skillet race overAugust Bank Holiday weekend, all in aid of charity.

� Staff and customers at a Shipleypub dressed up as the Spice Girlsfor their 'Dublin Dash' charity trip.

� A popular Ember Inn istransported back to the 1940s by holding a World War II weekendto raise money to send veterans to Normandy for the annual D-Day event.

The overall financial strategy for Mitchells &Butlers reflects the strong asset backing andcash generative characteristics of our estate,together with our chosen strategy for profitabledevelopment and growth.

We have a licensed property portfolio of 2,077outlets with a net book value of £3.5bn. We arefocused on maximising our cash returns abovethe cost of capital and have taken positive stepson both fronts this year. We look to make themost of the valuable cash flows generated by our pubs, to reinvest in the maintenanceand development of our estate for high returnsand to pay dividends to our shareholders.

It was announced in May that the Board haddetermined to undertake a whole businesssecuritisation to increase the efficiency of thebalance sheet and to release at least £400m of surplus funds to return to shareholders.This followed detailed analysis and consultationwith banks and ratings agencies on the likelyterms of any financing in order to decide on the optimal solution for the needs of ourbusiness as an independent company.

On 13 November we completed thesecuritisation of Mitchells & Butlers RetailLimited, comprising 1,942 UK pubs and pubrestaurants, raising £1.9bn from the bondmarkets at a cash interest cost to the Companyof 6%. We used the proceeds from thesecuritisation 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 theagreed terms of the securitisation provide theflexibility that we need to support our longerterm strategy for growth and our progressivedividend policy.

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

months. The Board has stated its intention torecommend a final dividend of 5.65p per sharefor 2003 and a total dividend of 9.5p per sharefor 2004. Thereafter, we intend to pursue a progressive dividend policy in real terms,consistent with the medium-term earningsgrowth potential of Mitchells & Butlers.

We now have theappropriate long-termfinancing structure for the business. The balancesheet is efficient and wehave the flexibility we needto support our strategy of owning and developinghigh take, high qualitymanaged pubs, in the best interests of ourshareholders and our bondholders.

Karim NaffahFinance Director


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The Mitchells & Butlers group was created on its separation from Six Continents on 15 April 2003. The Summary Financial Statement isshown on page 22. In addition to the statutory results for the year, whichare derived from the underlying accounts of the legal entities comprisingthe Group, pro forma financial statements are presented in order to showthe results for the Group as if it had been an independent company since1 October 2001, operating under the financing and taxation structure put in place at the time of the separation.

Total sales were £1,513m, up 2.2% on last year. This reflects an improvedsecond half trend from the successful implementation of plans to drivesales volumes and gross profits through range extensions to improveconsumer choice combined with carefully targeted competitive pricing and promotional activity, as well as good summer weather. The residentialsector has continued to perform well with some recovery seen in theweaker High Street and Central London markets. Same outlet like-for-like(i.e. invested and uninvested) sales for the year were down 0.4%, down2.4% 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-likesales up 1.8% and uninvested like-for-like sales flat at 0.1% down.

Gross margins remained broadly unchanged despite selective price reductionsand increased promotional activity. This was achieved through a combinationof purchasing gains and the mix benefits of the increased product range. In addition, the Group has continued to deliver cost efficiencies to helpoffset increasing regulatory and other externally driven cost increases. Staff productivity improved by some 4.5% over the year through theapplication of standardised sales forecasting and staff rostering processes.Overhead reorganisation and reduction, implemented around the half year,has delivered as planned, the first £5m of a £10m annualised cost saving.

Operating profit for the year, before major exceptional items, was £275m,4.8% down on last year. Major exceptional costs of £5m were incurredon abortive acquisition fees and costs of implementing the securitisation(see below). The Group continued to generate strong cash returns with a post tax cash return on cash capital employed above 10%.

Sales in the Pubs & Bars division grew 1.3% to £877m following animproved performance in the second half. The strongest performance was in the residential estate led by Ember Inns and the Sizzling Pub Co. The number of managed pubs and bars reduced by 27 to 1,387 over the year as a result of disposals where higher alternative use values wereidentified and transfers to Business Franchises where the net returnopportunity was higher. Operating profit of £177m was 6.8% down on lastyear due to the effects of regulation and difficult trading in Central Londonand the High Street markets.

In the Restaurants division, sales grew by 1.6% to £619m. The suburbanresidential market remained the strongest, led by Toby Carvery and

Vintage Inns. The division continues to develop budget hotels wherethese can be placed alongside food-led outlets so as to add synergisticbenefits to both businesses. In total some 3,700 budget hotel roomsare now owned and operated by the Group. Operating profit of £96mwas 2.0% down on last year as a result of external cost increases and the difficult London market.

On a pro forma basis, profit before interest was £275m, 4.2% down onthe previous year. On a statutory basis, the reduction was 20.6% aftercharging a major non-operating exceptional item of £42m relating to thecosts of separating from Six Continents.

Net interest on a pro forma basis fell by £10m to £76m reflectinglower interest rates. The statutory interest charge includes a majorexceptional cost of £8m relating to the acceleration of facility feeamortisation in respect of existing borrowing facilities which wererepaid on securitisation.

The pro forma effective tax rate was 32.3% compared with 32.2% in the previous year. The statutory effective tax rate for the year,excluding major exceptional items, was also 32.3%. The actual taxcharge for the year benefited from an exceptional credit of £22marising in respect of group relief received from Six Continents before separation.

Pro forma earnings per share of 18.4p compares with 18.5p for 2002.Basic earnings per share were 17.0p compared with 22.3p in the prioryear. The Board has confirmed its recommendation for a final dividendper share of 5.65p.

The operations of the Group continued to generate significant cash withEBITDA of £374m, compared to £375m last year. Pro forma net operatingcash inflow after capital expenditure and disposals was £241m comparedto £135m last year. The reduction in capital expenditure and benefit ofproceeds from selective site disposals have driven this improvement. Net capital expenditure reduced from £226m to £103m this year andadditional pension contributions of £27m were financed from current yearoperating cash flows.

Following separation and a £702m return of capital to Six Continents’shareholders in April 2003, the Group had net debt of £1,265m. At theyear end, this had reduced to £1,228m.

On 13 November 2003, the Group announced that it had completed the securitisation of its UK pubs and restaurants business, raising £1.9bn.The net funds raised were used to repay existing borrowings of £1,243m,make additional contributions to the pension schemes and returnsurplus funds of £501m to shareholders by way of a special dividend of 68p per share payable on 8 December 2003.

We have examined the Group’s Summary Financial Statement for theyear ended 30 September 2003 which comprises the Summary profitand loss account, Summary cash flow statement and Summarybalance sheet. This report is made solely to the Company’s members,as a body, in accordance with Section 251 of the Companies Act 1985.To the fullest extent required by the law, we do not accept or assumeresponsibility to anyone other than the Company and the Company’smembers as a body, for our audit work, for this report, or for theopinions we have formed. The Directors are responsible for preparingthe Annual Review and Summary Financial Statement in accordancewith applicable law. Our responsibility is to report to you our opinion on the consistency of the Summary Financial Statement within theAnnual Review and Summary Financial Statement with the full financialstatements and Directors’ Report and Directors’ Remuneration Report,and its compliance with the relevant requirements of Section 251 of the Companies Act 1985 and the regulations made thereunder.

We also read the other information contained in the Annual Review and consider the implications for our report if we become aware of anyapparent misstatements or material inconsistencies with the SummaryFinancial Statement. We conducted our examination in accordancewith Bulletin 1999/6 ‘The auditors’ statement on the Summary FinancialStatement’ issued by the Auditing Practices Board for use in theUnited Kingdom. In our opinion, the Summary Financial Statement is consistent with the full financial statements and Directors’ Reportand Directors’ Remuneration Report of Mitchells & Butlers plc for the year ended 30 September 2003 and complies with the applicablerequirements of Section 251 of the Companies Act 1985, andregulations made thereunder.

Ernst & Young LLP Registered Auditor, London 3 December 2003

Summary financial statement

Statement of the independent auditors


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 profitPubs & Bars 177 190 177 190Restaurants 96 98 96 98

Retail 273 288 273 288SCPD 2 1 2 1Operating exceptional items: major – – (5) –

Total operating profit 275 289 270 289Non-operating exceptional items: major – – (42) –

minor – (2) – (2)

Profit before interest 275 287 228 287Finance charge/net interest payable (76) (86) (63)* (43)

Profit before taxation 199 201 165 244Taxation (64) (65) (40) (80)

Profit for the financial year 135 136 125 164Dividends – – (29) –

Retained profit 135 136 96 164

Earnings per shareBasic – – 17.0p 22.3pPro 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 289Depreciation and amortisation 99 87 99 87Other non-cash items – (1) – (1)

EBITDA 374 375 374 375Working capital movement (3) (4) (3) (4)Additional pension contributions (27) (10) (27) –

Net cash inflow from operating activities 344 361 344 371Net capital expenditure (103) (226) (103) (226)

Operating cash flow after capital expenditure 241 135 241 145Net interest paid (49) (43)Tax paid (44) (82)

Normal cash flow 148 20Separation costs paid (36) –Facility fees paid (15) –Other net cash flows 1 –

Net cash flow 98 20

Net debt at 30 September 2003 was £1,228m.

Balance sheet 2003 2002£m £m

Fixed assets 3,533 3,537

Current assets 247 210Creditors due within one year (508) (1,060)

Net current liabilities (261) (850)

Total assets less current liabilities 3,272 2,687Creditors due after one year (1,001) (1)Provisions for liabilities and charges (207) (211)

Net assets/shareholders’ funds 2,064 2,475

**Unaudited.

This Summary Financial Statement wasapproved by the Board on 3 December 2003 and signed on its behalf by Tim Clarke and Karim Naffah.It does not contain sufficientinformation to provide as full an understanding of theresults and state of affairs of theGroup as that contained in theAnnual Report and FinancialStatements 2003. That reportmay be obtained, free of charge,by completing the relevantsection of the enclosed proxycard and returning it to Lloyds TSB Registrars.

The auditors have issued an unqualified report on thefinancial statements containingno statement under Section237(2) or 237(3) of theCompanies Act 1985.

Information concerning Directors’emoluments is shown on page 26.


Principal activitiesMitchells & Butlers is a leading UK operator of managed pubs, bars and restaurants. A review of the Group’s performance is contained inthe Chairman’s Statement, the Chief Executive’s Review, the BusinessReview and the Finance Director’s Report and in the SummaryFinancial Statement.

Formation of the Company and separation from Six ContinentsThe Company was incorporated on 2 October 2002 and was used as thevehicle to separate the leisure retailing interests from Six Continents PLC,becoming an independent listed company on 15 April 2003. Details ofthe terms for shareholders of that separation, including the related returnof capital, are set out on page 27.

Securitisation and return of shareholder fundsFollowing separation, the Company has refinanced its operationsthrough a securitisation of its UK pubs and pub restaurants business.Since the year end, £1.9bn has been successfully raised and £1.2bn of existing borrowings repaid. On 2 December 2003, the number of shares in issue was consolidated on the basis of 12 new ordinaryshares for every 17 existing ordinary shares and £0.5bn is scheduled to be returned to shareholders by way of a special dividend payable on 8 December 2003 of 68p per share existing on 1 December 2003.

Final dividendThe Directors recommend a final dividend for the year ended 30 September 2003 of 5.65p per share to be paid on 16 February 2004to shareholders on the Register at the close of business on 19 December 2003.

DirectorsDetails of the current members of the Board, being those who served in the period since the Company was listed, are shown on page 24. Allmembers of the Board will retire and offer themselves for reappointmentat the Annual General Meeting on 12 February 2004. Only the fourExecutive Directors, Messrs Bramley, Clarke, Hughes and Naffah haveservice contracts with the Company.

Annual General MeetingNotice of the Annual General Meeting to be held at 12 noon on Thursday,12 February 2004 is contained in a circular, which is sent to shareholderswith this Review.

DonationsThe Company supports community initiatives and charitable causes andin 2003 donated £71,000. In addition, non cash contributions, such asemployee 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.

Combined Code complianceThe Board is committed to compliance with the principles of CorporateGovernance as set out in the Combined Code on Corporate Governance(‘the Code’).In the opinion of the Board, the Company has complied assoon as practicable since its listing with the requirements of the Code as they apply to a company with a 30 September 2003 year end. Sara Weller has been appointed Senior Independent Non-Executive Directorafter the year end.

The Company is aware of the Code’s requirements for companies withfinancial years beginning on or after 1 November 2003 and is taking stepsto comply in those areas where it does not already do so.

Internal controlThe Board is responsible for the Group’s system of internal control and risk management and for reviewing its effectiveness. In order todischarge that responsibility, the Board confirms that it has establishedthe procedures necessary to apply the Code, including clear operatingprocedures, lines of responsibility and delegated authority.

During the year, the Board has conducted a review of the effectivenessof the system of internal control. The system is designed to manage,rather than eliminate, the risk of failure to achieve business objectivesand it must be recognised that it can only provide reasonable and notabsolute assurance against material misstatement or loss. In thatcontext, the review, in the opinion of the Board, did not indicate that the system was ineffective or unsatisfactory.

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

Board and committee structureTo support the principles of good corporate governance, the Board, the members of which are shown on page 24, is responsible to theshareholders for the good standing of the Company, the management of its assets for optimum performance and the strategy for its futuredevelopment. There are nine regular Board meetings a year and furthermeetings as needed.

The following main committees of the Board have been established:

• Executive• Remuneration• Audit• Nomination

The Audit and Remuneration Committees consist wholly of Non-ExecutiveDirectors. Since the year end, reflecting latest corporate governance bestpractice, Roger Carr, the Chairman of the Board, has ceased to be amember of the Audit and Remuneration Committees and will attend at the invitation of the Committee Chairmen.

Going concernThe Company’s financial statements for the year to 30 September 2003have been prepared on a going concern basis as, after makingappropriate enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

Summary directors’ report

Corporate governance


1 Roger Carr, aged 56 Non-Executive Chairman*Became Chairman of the Company on the separation of Six ContinentsPLC, where he was the senior non-executive director. He is DeputyChairman of Cadbury Schweppes plc and a non-executive director ofCentrica plc. He is senior adviser to Kohlberg Kravis Roberts Co. Ltd. He is also a member of the CBI Council and the Industrial DevelopmentAdvisory Board of the Department of Trade and Industry. He haspreviously held a number of senior appointments including ChiefExecutive of Williams plc, Chairman of Chubb plc and Chairman of Thames Water plc.

2 Tim Clarke, aged 46 Chief Executive†Chief Executive since the separation, having previously held the same rolein Six Continents PLC since October 2000. Between 1995 and 2000 hewas Chief Executive of Bass Retail, which now constitutes the businessof Mitchells & Butlers plc. He chairs the Executive Committee. He joinedBass in 1990, initially responsible for planning in the Retail division. He was subsequently Director of Strategy for Bass PLC and ManagingDirector of Bass’ European Hotels between 1992 and 1995. He is adirector of the British Beer & Pub Association, having been Chairman for 2002. He was the senior independent non-executive director ofDebenhams plc.

3 Karim Naffah, aged 40 Finance Director†Having been Strategy Director of Six Continents PLC, he became FinanceDirector of the Company when it became independent in April 2003. In 1991, he joined Six Continents (then Bass) becoming its Director ofStrategic Planning in 1992. In 2000, he became Strategy Director forthat group and a member of the Strategic Business Committee and theexecutive committees of the Hotels and Retail divisions. He also heldresponsibility for the property development and IT functions.

4 Mike Bramley, aged 52 Managing Director, Pubs & Bars†Having been a director of Six Continents Retail, he became a Director of the Company on its separation from Six Continents in April 2003. He has been Managing Director, Pubs & Bars since September 2002. In over 20 years with Bass/Six Continents, he worked in a variety of roles in the pubs and brewing businesses. In 1995, he became CommercialDirector of Bass Taverns and in 1998, was appointed HR and CommercialDirector of Bass Leisure Retail (later Six Continents Retail). He is adirector of the British Beer & Pub Association.

5 Tony Hughes, aged 54 Managing Director, Restaurants†Having been a director of Six Continents Retail, he became a Director of the Company on its separation from Six Continents in April 2003. Hehas been Managing Director, Restaurants since 2000. In 1995, he joinedSix Continents (then Bass) following senior management roles at B&Q,J.A. Devenish and Whitbread. In 2002 he was voted Retailers’ RetailerIndividual of the Year by the pub and restaurant industry and in 2001 he received the Hotel and Caterer ‘Catey’ for the Pub Industry Award. He is a trustee of the British Institute of Innkeeping.

6 George Fairweather, aged 46 Non-Executive Director*•Appointed a Non-Executive Director in April 2003, he chairs the AuditCommittee. He is Group Finance Director of Alliance UniChem plc havingpreviously held the same role with Elementis plc. Earlier appointmentswere with Dawson International, Dixons Group and Procter & Gamble.

7 Sara Weller, aged 42 Non-Executive Director*•Appointed a Non-Executive Director in April 2003, she chairs theRemuneration Committee and is the Senior Independent Non-ExecutiveDirector. She is Deputy Managing Director of J Sainsbury plc withresponsibilities including UK strategy, brand and format marketing,customer management and human resources. She also managesSainsbury’s to you and Sainsbury’s Bank. Previous appointments were with Abbey National and Mars Confectionery.

8 Sir Tim Lankester, aged 61 Non-Executive Director*•Appointed a Non-Executive Director in May 2003, he is President ofCorpus Christi College, Oxford. From 1973 to 1995 he was a member of the Civil Service rising to be Deputy Secretary of H.M. Treasury,Permanent Secretary, Overseas Development Administration, Foreignand Commonwealth Office and Permanent Secretary, Department for Education. He served as Private Secretary at 10 Downing Street to Rt Hon James Callaghan and Rt Hon Margaret Thatcher andrepresented the UK on the Boards of the World Bank and the IMF. Since leaving the Civil Service he has been Director, School of Orientaland African Studies, London University, Deputy Chairman of the British Council and has held non-executive directorships of CU/CGU and Smith & Nephew.

* A Non-Executive Director • A member of the Audit and Remuneration Committees† A member of the Executive Committee

Board of directors

1

5

2

6

3

7

4

8


9

13

10

14

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

The Summary Remuneration Report is an extract of information from thefull Remuneration Report contained in the Annual Report and FinancialStatements 2003, a copy of which is available on request and can beviewed on the Company’s website at www.mbplc.com/investors. TheRemuneration Report will be put to the vote at the forthcoming AnnualGeneral Meeting.

Remuneration policy for Executive Directors and senior executivesThe following policy has applied since listing and will apply for thefinancial year 2004, thereafter the Remuneration Committee willrecommend changes if appropriate.

The Remuneration Committee determines on behalf of the Board, with the benefit of advice from external consultants and the HumanResources function, the remuneration packages of the ExecutiveDirectors, the other members of the Executive Committee and certainother senior executives. The Remuneration Committee aims to ensurethat the packages are designed to attract, retain and motivate directors and executives of the highest calibre. The Committee hasregard to levels of remuneration in the Group and in the specificindustries and businesses with which Group companies compete and is also sensitive to levels in the wider community. The Companyoperates performance-related policies designed to provide theappropriate balance between fixed remuneration and variable ‘risk’ reward. Using ‘on-target’ or ‘projected value’ calculations,performance-related incentives for Executive Directors will equate to approximately 60% of total remuneration.

Share and cash based incentives are designed so as to align theinterests of executives with those of shareholders. Executive Directors will be required to build and maintain significant shareholdings,equivalent in value to at least twice their basic salary and three timessalary for the Chief Executive.

The main components of remuneration are:

Base salary

Annual performance bonusChallenging performance goals are set which must be achieved before a bonus becomes payable. For Executive Directors, these targets arelinked to the Group’s performance in achieving strategic businessobjectives and delivering corporate financial targets.

Annual bonuses are payable in cash, but a short-term deferred incentiveplan has been set up for the four Executive Directors under which theirbonuses may be paid in Mitchells & Butlers shares and deferred for 12 months. Matching shares may be awarded up to 0.5 times thedeferred shares. Awards are released in three equal annual amounts.

Mitchells & Butlers’ total shareholder return v FTSE 100The graph below shows the Company’s Total Shareholder Return (‘TSR’)performance against the FTSE 100 index since the Company was listed. TheCompany was a member of that index throughout the period under review.

TSR: Mitchells & Butlers v FTSE 100 15/4/03 – 30/9/03

Other members of the executive committee

90

95

100

105

110

115

120

Apr May Jun Jul Aug Sep

Source: DATASTREAM

– Mitchells & Butlers

– FTSE 100

Summary remuneration report


Summary remuneration report continued

Executive share optionsGrants of options are normally made each year to senior executivesand are scaled according to seniority. The maximum value of sharesover which options may be granted in any year is twice salary forExecutive Directors. Options are exercisable three to ten years fromgrant subject to achievement of a performance condition, set by theRemuneration Committee.

Performance restricted share planThis plan aims to encourage continuing improvement in the Group’sperformance over the longer term. Its participants are Directors and thosesenior executives who are best placed to influence such performance.

Generally a three-year performance cycle will commence each year andat the end of the cycle two aspects of the Company’s performance will be measured:

• total shareholder return against a comparator group of elevencompetitor companies; and

• the Company’s cash return on capital employed against its weightedaverage cost of capital.

Awards will be graded according to the level of performance on each of these measures.

Pensions arrangementsExecutive Directors participate on the same basis as other members in the relevant Group pension schemes.

Directors’ emoluments 2003As the Directors have been in office only since the Company’sseparation from Six Continents in April 2003, the emoluments below are in respect of the period from separation to 30 September 2003.Roger Carr and Tim Clarke, however, were previously directors of Six Continents PLC and their emoluments from that company for1 October 2002 to 14 April 2003 and for the comparative year 2001/02 are shown.

Total emoluments excluding pension

15 April 1 October 1 October2003 2002 2001

to to to30 September 14 April 30 September

2003 2003 2002£000 £000 £000

Executive DirectorsMike Bramley 245 – –Tim Clarke 371 363 694Tony Hughes 241 – –Karim Naffah 257 – –Non-Executive DirectorsRoger Carr 97 56 46George Fairweather 23 – –Sir Tim Lankester† 16 – –Sara Weller 23 – –

Total 1,273 419 740

The emoluments above include salary, fees, bonus (including bonus paid in shares) and tax assessable benefits and allowances.

†From appointment on 16 May 2003.

PensionsAll four Executive Directors are accruing benefits under the Company’sExecutive Pension Plan and three of them under the unfunded Executive top up scheme.

Share plansThe net values earned in the year in respect of shares receivable through the matching facility under the Short Term Deferred Incentive Plan were as follows:

Ordinary shares Value

Director 000 £000

Mike Bramley 17 40Tim Clarke 27 61Tony Hughes 17 40Karim Naffah 19 43

These awards are valued at 230p per share, the share price on 30 September 2003. Release is in three annual tranches commencingDecember 2004.

Under the Performance Restricted Share Plan, a cycle ended on 30 September 2003 and the performance measure which related to budgetedcost savings was met. Cash awards will therefore be made as follows:

Pre-tax award during

period to Entitlement at30 September 2003 15 April 2003

Director £000 £000

Mike Bramley 98 –Tim Clarke 150 –Tony Hughes 98 –Karim Naffah 105 –

Executive share optionsUnder the terms of the separation from Six Continents, Directors and other employees were permitted to roll over their executive share optionsgranted under the Six Continents Executive Share Option Scheme intooptions over Mitchells & Butlers shares. The initial grant of options under the Mitchells & Butlers Executive Share Option Plan was made in May 2003.Following rollover and the initial grant, Directors’ executive share options at 30 September 2003 are summarised as follows:

WeightedRolled average Initial

over option option OptionDirector options price grant price

Mike Bramley 443,981 260.07p 296,800 219pTim Clarke 977,319 263.59p 456,620 219pTony Hughes 553,316 262.97p 296,800 219pKarim Naffah 719,279 228.81p 319,630 219p

No options were exercised by the Directors over Mitchells & Butlers sharesduring the period.

All-employee share schemesExecutive Directors are entitled to participate in the Company’s all-employee share schemes on the same basis as other employees.The following Directors were granted options over the shares shownbelow in May 2003 under the Sharesave Plan at 169p per share:

Tim Clarke 9,423 Tony Hughes 5,473

Under the Share Incentive Plan award in May 2003, Executive Directorsbecame entitled to the following shares:

Mike Bramley 981 Tony Hughes 1,072 Tim Clarke 1,290 Karim Naffah 1,182


RegistrarEnquiries concerning holdings of the Company’s ordinary shares andnotification of a holder’s change of address should be referred to LloydsTSB Registrars at the address shown overleaf.

Electronic communicationThe Company has given e-mail notification, to those shareholders whohave requested it, of the availability of this Annual Review and SummaryFinancial Statement, the Annual Report and Financial Statements and theNotice of Annual General Meeting, on the Company’s website,www.mbplc.com/investors

The website contains a link to enable shareholders to register for futureelectronic communication, view details of their own shareholding orappoint electronically a proxy to vote on their behalf on any poll thatmay be held at the forthcoming Annual General Meeting.

Low cost share dealing serviceA postal facility, which provides a simple, low cost method of buying andselling Mitchells & Butlers plc ordinary shares is available through theCompany’s Registrar, Lloyds TSB Registrars.

Individual savings accounts (‘ISAs’)The Company’s Registrar, Lloyds TSB Registrars, offers ISAs inMitchells & Butlers plc ordinary shares. Further information may be obtained from the Registrar.

Share price informationThe latest Mitchells & Butlers plc share price is available in the financialpress or on Ceefax and Teletext and also on the Financial Times CitylineService, telephone 0906 003 1366 (calls charged at 60p per minute).

ShareGiftThe Orr Mackintosh Foundation operates this charity share donationscheme for shareholders with small holdings of shares, whose valuemakes them uneconomic to sell. Details can be obtained from theCompany’s Registrar or the ShareGift website www.ShareGift.org or by calling ShareGift on 020 7337 0501.

Six Continents separationThe following sets out the entitlements received by former shareholders of Six Continents PLC on the separation of the Retail and Hotelsbusinesses, together with a summary of the UK Capital Gains Taxtreatment of those entitlements:

For every 59 Six Continents shares held, shareholders on the Register at close of business on 11 April 2003 received:

50 Mitchells & Butlers plc (MandB) sharesplus50 InterContinental Hotels Group PLC (IHG) sharesplus£47.79 in cash (81p per share).

These entitlements, together with the value of any fractional entitlements,were released on 23 April 2003.

Further to receiving advice from leading Tax Counsel andcorrespondence with the Inland Revenue, the Company considers that the existing base cost for UK Capital Gains Tax purposes in SixContinents PLC shares held on 11 April 2003, may be apportioned on a pro-rata basis to the following amounts received as a result of the scheme of arrangement and separation:

A The total amount of cash received in respect of the 81p per SixContinents share payment.

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

C The value of MandB shares received (being the number of MandBshares received multiplied by £2.21875) and

D The value of IHG shares received (being the number of IHG sharesreceived multiplied by £3.71375).

The allocation to the MandB shares and the IHG shares in C and D above is based on the share prices on the first day of dealing, being 15 April 2003.

The existing base cost may therefore be allocated in the following percentages:

Cash of 81p per Six Continents share A x 100%A + B + C + D

Cash from fractions B x 100%A + B + C + D

MandB shares C x 100%A + B + C + D

IHG shares D x 100%A + B + C + D

If you are in any doubt over this apportionment or any other tax aspect ofthe separation, you should consult your independent professional adviser.

For the purpose of calculating the base cost in Six Continents ordinaryshares, the following may be of assistance:

The ordinary share price at 31 March 1982 was 230.5p per share. Thisprice must be adjusted for subsequent events, in particular, the 1 for 5Rights Issue in 1991, the 1 for 1 Capitalisation Issue in 1992 and theCapital Reorganisation of 25 new ordinary shares for 28 existing ordinaryshares and the issue of one B share for each existing ordinary share, inFebruary 1998. With regard to the February 1998 Capital Reorganisation,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.

Special dividend and share consolidationThe Board has recommended the payment on 8 December 2003 of aspecial dividend of 68p per share to shareholders on the Register at theclose of business on 1 December 2003. This will be paid as an interimdividend for 2003/04.

As approved by shareholders on 1 December 2003, the special dividendis accompanied by a consolidation of the Company’s share capital,effective from 2 December 2003, whereby shareholders received 12 new ordinary shares for every 17 existing ordinary shares held on 1 December 2003.

American depositary receipts (‘ADRs’)The Company’s ordinary shares are listed on the New York StockExchange in the form of American Depositary Shares, evidenced byADRs. All enquiries regarding ADR holder accounts and the payment ofdividends should be directed to The Bank of New York, the authoriseddepositary, at the address shown overleaf.

Form 20-FThe Company is registered with the Securities and ExchangeCommission (‘SEC’) in the US and as such files with the SEC an AnnualReport on Form 20-F. Copies of the Form 20-F may be obtained in theUS by contacting The Bank of New York at the address shown overleaf.

Investor information


Registered office27 Fleet Street Birmingham B3 1JPTelephone +44 (0) 870 609 3000Fax +44 (0) 121 233 2246

RegistrarLloyds TSB Registrars The Causeway, WorthingWest Sussex BN99 6DATelephone +44 (0) 870 600 3957* (UK callers)

+44 121 433 8000 (non-UK callers)Fax +44 (0) 1903 854031Low cost share dealing service and Individual Savings Accounts (‘ISAs’)

0870 242 4244www.shareview.co.uk

*For those with hearing difficulties a text phone is available on 0870 600 3950 for callers with compatible equipment.

ADR depositaryThe Bank of New YorkShareholder RelationsPO Box 11258Church Street StationNew York NY10286, USATelephone +1 (888) 269 2377 (US callers)

+1 610 312 5315 (non-US callers)

StockbrokersCazenove & CoMerrill Lynch International

AuditorsErnst & Young LLP

Investment bankersCitigroup

SolicitorsAllen & 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 developmentsmay 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 availablefrom the Registered Office of the Company.

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

Design and production Sheppard DayPrint Royle Corporate Print

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1 Fox on the River, Thames Ditton, Surrey2 The Coal Hole, Nicholson’s, Strand, London3 Harvester, Barnet, London4 Court Oak, Ember Inn, Harborne, Birmingham5 The Golden Lion, Nicholson’s, King Street, London6 The Trout Inn, Vintage Inn, Wolvercote, Oxford 7 All Bar One, Canary Wharf, London8 The Bells of Ouzeley, Harvester, Windsor, Berkshire9 Deer Park, Ember Inn, Street Lane, Leeds

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www.mbplc.com

Mitchells & Butlers plc27 Fleet Street, Birmingham B3 1JP Tel: +44 (0) 870 609 3000 Fax: +44 (0) 121 233 2246

Annual Review and Summary Financial Statement 2003 · 2018. 12. 10. · North West 8% Northern 4%...

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