Financial statements · Practice, including Financial Reporting Standard 101 ‘Reduced Disclosure...
Transcript of Financial statements · Practice, including Financial Reporting Standard 101 ‘Reduced Disclosure...
IN THIS SECTION99 Independent auditor’s report to the
members of Mitchells & Butlers plc106 Group income statement107 Group statement of comprehensive income108 Group balance sheet109 Group statement of changes in equity110 Group cash flow statement
Notes to the consolidated financial statements111 Section 1 – Basis of preparation
115 Section 2 – Results for the year 115 2.1 Segmental analysis 115 2.2 Separately disclosed items 117 2.3 Revenue and operating costs 119 2.4 Taxation 121 2.5 Earnings per share
122 Section 3 – Operating assets and liabilities 122 3.1 Property, plant and equipment 126 3.2 Working capital 127 3.3 Provisions 128 3.4 Goodwill and other intangible
assets 130 3.5 Associates
131 Section 4 – Capital structure and financing costs
131 4.1 Net debt 132 4.2 Borrowings 133 4.3 Finance costs and revenue 134 4.4 Financial instruments 141 4.5 Pensions 145 4.6 Share-based payments 146 4.7 Equity
148 Section 5 – Other notes 148 5.1 Related party transactions 149 5.2 Subsidiaries and associates 150 5.3 Five year review
151 Mitchells & Butlers plc Company financial statements
153 Notes to the Mitchells & Butlers plc Company financial statements
Financial statements
98ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLCANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTSOpinionInouropinion:
• thefinancialstatementsofMitchells&Butlersplc(the‘Company’)anditssubsidiaries(the‘Group’)giveatrueandfairviewofthestateoftheGroup’sandoftheCompany’saffairsasat28September2019andoftheGroup’sprofitforthe52weeksthenended;
• theGroupfinancialstatementshavebeenproperlypreparedinaccordancewithInternationalFinancialReportingStandards(IFRSs)asadoptedbytheEuropeanUnion;
• theCompanyfinancialstatementshavebeenproperlypreparedinaccordancewithUnitedKingdomGenerallyAcceptedAccountingPractice,includingFinancialReportingStandard101‘ReducedDisclosureFramework’;and
• thefinancialstatementshavebeenpreparedinaccordancewiththerequirementsoftheCompaniesAct2006and,asregardstheGroupfinancialstatements,Article4oftheIASRegulation.
Wehaveauditedthefinancialstatementswhichcomprise:
• theGroupincomestatement;• theGroupstatementofcomprehensive
income;• theGroupandCompanybalancesheets;• theGroupandCompanystatementsof
changesinequity;• theGroupcashflowstatement;• therelatednotes1to5ofGroupfinancial
statements;and• therelatednotes1to10oftheCompany
financialstatements
ThefinancialreportingframeworkthathasbeenappliedinthepreparationoftheGroupfinancialstatementsisapplicablelawandIFRSsasadoptedbytheEuropeanUnion.ThefinancialreportingframeworkthathasbeenappliedinthepreparationoftheCompanyfinancialstatementsisapplicablelawandUnitedKingdomAccountingStandards,includingFRS101‘ReducedDisclosureFramework’(UnitedKingdomGenerallyAcceptedAccountingPractice).
Basis for opinionWeconductedourauditinaccordancewithInternationalStandardsonAuditing(UK)(ISAs(UK))andapplicablelaw.Ourresponsibilitiesunderthosestandardsarefurtherdescribedintheauditor’sresponsibilitiesfortheauditofthefinancialstatementssectionofourreport.
WeareindependentoftheGroupandtheCompanyinaccordancewiththeethicalrequirementsthatarerelevanttoourauditofthefinancialstatementsintheUK,includingtheFinancialReportingCouncil’s(the‘FRC’s’)EthicalStandardasappliedtolistedpublicinterestentities,andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeserequirements.Weconfirmthatthenon-auditservicesprohibitedbytheFRC’sEthicalStandardwerenotprovidedtotheGrouportheCompany.
Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.
SUMMARY OF OUR AUDIT APPROACH
Key audit matters Thekeyauditmattersthatweidentifiedinthecurrentyearwere:
• Onerousleaseprovisions• Valuationofthepubestate• Compliancewithdebtcovenants
Materiality ThematerialitythatweusedfortheGroupfinancialstatementswas£9.65mwhichwasdeterminedonthebasisofapproximately5%ofprofitbeforetaxbeforeseparatelydiscloseditems.
Scoping AfullscopeaudithasbeenperformedinrespectoftheUKbusiness,consistentwith2018.
Significant changes in our approach Therehavebeennochangesinthekeyauditmattersincludedinourauditreportsince2018.ThisisconsistentwiththefactthattheoperationsoftheGrouparelargelyunchangedfromthepreviousyear.
Conclusions relating to going concern, principal risks and viability statementGoing concernWehavereviewedtheDirectors’statementinSection1tothefinancialstatementsaboutwhethertheyconsidereditappropriatetoadoptthegoingconcernbasisofaccountinginpreparingthemandtheiridentificationofanymaterialuncertaintiestotheGroup’sandCompany’sabilitytocontinuetodosooveraperiodofatleasttwelvemonthsfromthedateofapprovalofthefinancialstatements.
WeconsideredaspartofourriskassessmentthenatureoftheGroup,itsbusinessmodelandrelatedrisksincludingwhererelevanttheimpactofBrexit,therequirementsoftheapplicablefinancialreportingframeworkandthesystemofinternalcontrol.WeevaluatedtheDirectors’assessmentoftheGroup’sabilitytocontinueasagoingconcern,includingchallengingtheunderlyingdataandkeyassumptionsusedtomaketheassessment,andevaluatedtheDirectors’plansforfutureactionsinrelationtotheirgoingconcernassessment.
WearerequiredtostatewhetherwehaveanythingmaterialtoaddordrawattentiontoinrelationtothatstatementrequiredbyListingRule9.8.6R(3)andreportifthestatementismateriallyinconsistentwithourknowledgeobtainedintheaudit.
Weconfirmthatwehavenothingmaterialtoreport,addordrawattentiontoinrespectofthesematters.
Principal risks and viability statementBasedsolelyonreadingtheDirectors’statementsandconsideringwhethertheywereconsistentwiththeknowledgeweobtainedinthecourseoftheaudit,includingtheknowledgeobtainedintheevaluationoftheDirectors’assessmentoftheGroup’sandtheCompany’sabilitytocontinueasagoingconcern,wearerequiredtostatewhetherwehaveanythingmaterialtoaddordrawattentiontoinrelationto:
• thedisclosuresonpages40–45thatdescribetheprincipalrisksandexplainhowtheyarebeingmanagedormitigated;• theDirectors’confirmationonpage40thattheyhavecarriedoutarobustassessmentoftheprincipalrisksfacingtheGroup,
includingthosethatwouldthreatenitsbusinessmodel,futureperformance,solvencyorliquidity;or• theDirectors’explanationonpage45astohowtheyhaveassessedtheprospectsoftheGroup,overwhatperiodtheyhavedone
soandwhytheyconsiderthatperiodtobeappropriate,andtheirstatementastowhethertheyhaveareasonableexpectationthattheGroupwillbeabletocontinueinoperationandmeetitsliabilitiesastheyfalldueovertheperiodoftheirassessment,includinganyrelateddisclosuresdrawingattentiontoanynecessaryqualificationsorassumptions.
WearealsorequiredtoreportwhethertheDirectors’statementrelatingtotheprospectsoftheGrouprequiredbyListingRule9.8.6R(3)ismateriallyinconsistentwithourknowledgeobtainedintheaudit.
Weconfirmthatwehavenothingmaterialtoreport,addordrawattentiontoinrespectofthesematters.
99ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MITCHELLS & BUTLERS PLC
KEY AUDIT MATTERSKeyauditmattersarethosemattersthat,inourprofessionaljudgement,wereofmostsignificanceinourauditofthefinancialstatementsofthecurrentperiodandincludethemostsignificantassessedrisksofmaterialmisstatement(whetherornotduetofraud)thatweidentified.Thesemattersincludedthosewhichhadthegreatesteffecton:theoverallauditstrategy,theallocationofresourcesintheaudit;anddirectingtheeffortsoftheengagementteam.
Thesematterswereaddressedinthecontextofourauditofthefinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.
Key audit matter description How the scope of our audit responded to the key audit matter Key observations
Onerous lease provisions Assetoutinsection3.3,propertyprovisionsare£36m(2018£43m)ofwhich£34.7m(2018£41.9m)relatestoonerousleaseprovisions.Theaccountingpolicyandthecriticalaccountingjudgementinrelationtopropertyprovisionsaresetoutinsection3.3.
TheAuditCommittee’sdiscussionofthiskeyauditmatterissetoutonpage74.
Loss-makingshortleaseholdpropertiesarereviewedbymanagementtodeterminewhetheranonerousleaseprovisionisrequired.Judgementsinrelationtoexpectedtradinglevels,theappropriateleasetermoverwhichtoprovide,theimpactofexpansionarycapital,thepotentialopportunitytoexittheleasesearlyandtheappropriatediscountratetouseareappliedwhenassessingthelevelofonerousleaseprovisionrequired.Therefore,wehaveidentifiedapotentialriskoffraudinthiskeyauditmatter.
Focus areasGiventhesizeoftheleaseholdestatethereisariskthatwhereasiteisunderperforming,thecashflowsgeneratedmaynotbeadequatetocoverfutureleaseobligations,resultingintherequirementforanonerousleaseprovisionfortheunavoidablecashoutflowsonlossmakingproperties.Wefocusedonthevaluationandcompletenessoftheonerousleaseprovisionbyassessingthejudgementsusedinarrivingattheleveloftheprovisionforeachsite.Furthermore,wealsofocusedonsiteswhereaturnaroundorexitplanisinplace.
Weperformedthefollowingprocedurestorespondtothekeyauditmatter:
• weassessedtheappropriatenessoftheclassificationofpropertyprovisionsprovidedintheperiodasabeforeseparatelydisclosediteminaccordancewithIAS1PresentationofFinancialStatements;
• wecheckedthatallleaseholdsiteswereconsideredinmanagement’sprocesstoidentifysiteswhichwerepotentiallysubjecttoonerousleaseprovisions;
• whereonerousleaseprovisionshavenotbeenrecognised,despitehistoricalresultsindicatingthataprovisionmayberequired,weobtainedevidencetosupportmanagement’sassertionthatpropertiescanbesuccessfullyturnedaround.Thisincludedassessingthesuccessofpreviousactionsundertakenbymanagementtoturnaroundsimilarsites;
• wetestedasampleoflossmakingshortleaseholdandunlicensedpropertiestochallengemanagement’sestimateoftheunavoidablecashoutflowsonlossmakingpropertiesthatareforecasttoarisefromthesepropertiesovertheremainingtermofthelease;
• weassessedtheappropriatenessofforecastEBITDAstakingintoconsiderationthecostsavingandsalesopportunitiesidentifiedbymanagementfollowingabenchmarkingexercise.Thisincludedperformingaretrospectivereviewofforecastingaccuracyforthosepropertiesincludedinthe2018benchmarkingexercise;
• wetestedtheintegrityoftheinformationusedwithintheonerousleaseprovisioncalculationbyagreeinginputsbacktosourcedataincludinghistoricalresults,andrentalcommitments;and
• weassessedtheappropriatenessoftheriskfreediscountrateusedthroughcomparisontoappropriateexternalbenchmarks.
Additionally,wetestedthecontrolsinrelationtothecalculationoftheonerousleaseprovisionforpropertieswherecurrentperiodEBITDAisusedasaproxyforfuturecashflowsarisingfromproperties.Thecontrolstestedcoveredmanagement’sreviewof:
• thecompletenessandaccuracyoftheinputsintotheonerousleaseprovisionmodel;and
• thekeyassumptionsusedindeterminingtheprovisiontoberecognised.
WeconsiderthattheonerousleaseprovisioniswithinareasonablerangeandthatthepresentationofthemovementsintheonerousleaseprovisionisinaccordancewithIAS1.
100ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MITCHELLS & BUTLERS PLC CONTINUED
Key audit matter description How the scope of our audit responded to the key audit matter Key observations
Valuation of the pub estateAssetoutinsection3.1thevalueoftheestateis£4,528m(2018£4,426m).
Freehold and long leaseholdTheaccountingpolicyadopted,criticalaccountingjudgementsappliedandkeysourcesofestimationuncertaintyaredescribedinsection3.1tothefinancialstatements.
TheAuditCommittee’sdiscussionofthiskeyauditmatterissetoutonpage74.
Thisisconsideredtobeakeyauditmatterduetothejudgementsinherentwithinthevaluationexerciseandtherangeofacceptablejudgements.Thetotalnetbookvalueofrevaluedpropertiesasat28September2019is£4,343m(2018£4,230m).Therevaluationexerciseperformedintheyearhasresultedinanetincreaseof£87mversuscarryingvalue(2018£33mdecrease),whichincludesanimpairmentchargeof£4m(2018£28m)recognisedintheincomestatement.TheGroup’saccountingpolicysetsoutthatthemarketvalueisdeterminedusingfactorssuchasestimatedfairmaintainabletradinglevelsandestimatedmultipleswhicharederivedforeachoftheGroup’stradingbrands.Approximately20%ofthefreeholdandlongleaseholdestatehasbeeninspectedbytheGroup’sexternalvaluers,withtheresultoftheinspectioninformingthebrandstandardmultipleswhicharethenextrapolatedacrosstheremainderoftheestate.
Inspecificcircumstanceswherethisapproachdoesnotfairlyrepresenttheunderlyingvalueoftheproperty,forexampleifasiteislossmaking,aspotvaluationisapplied.
Wheresiteshavebeenimpactedbyexpansionarycapitalinvestmentinthepreceding12months,fairmaintainabletradeistakenasthepostinvestmentforecast.Sitesthathavebeenopenformorethanthreeperiods(2018threeperiods)arereviewedforimpairment.
Weworkedwithourpropertyvaluationspecialistsandmanagement’sexternaladviserstochallengethemethodologyandunderlyingassumptionsusedinthefreeholdandlongleaseholdpubestatevaluation.Thisincluded:
• confirmingtheappropriatenessoftheestimatedfairmaintainabletradinglevelsbeingusedtovaluetheproperties;
• obtainingevidencetosupporttheappropriatenessofthevaluationsoftheinspectedestatewhenbenchmarkedtotransactionactivityinthelicensedretailpropertymarket.InparticularweconsideredtheagreedtermsofthesalesofGreeneKingplcandEiGroupplcduring2019andtheassociatedimpactonthevaluationoftheGroup’sproperties;
• testingtheapplicationofthemultiplederivedfromthevaluationofinspectedpropertiestotherestoftheestate;
• obtainingevidencetosupportthefutureprojectedincomeusedintheimpairmentreviewsforfreeholdandlongleaseholdsiteswhichhavebeenimpactedbyexpansionarycapitalinvestmentintheprecedingtwelvemonths.Thisincludedperformingaretrospectivereviewofforecastingaccuracyforthosepropertiesimpactedbyexpansionarycapitalinvestmentinthepastthreeyears;and
• reviewingtheappropriatenessandcompletenessofanyspotvaluationsmade.
Additionally,wetestedcontrolsinrelationtothevaluationofthefreeholdandlongleaseholdestate.Thecontrolstestedcoveredmanagement’sreviewof:
• thecompletenessandaccuracyofthekeyinputsintotherevaluationmodel;
• thekeyjudgementsmadeinrelationtofairmaintainabletradinglevelsandmultiples;and
• thecompletenessofspotvaluations.
Weareinagreementwiththemethodologychosenandtheassumptionsadoptedtorevaluethepubestate.Weconsiderthedeterminationoffairmaintainabletradinglevelstobeattheconservativeendoftherange.Weconcurthatthevaluationsaresuitableforinclusioninthefinancialstatements.
101ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
Key audit matter description How the scope of our audit responded to the key audit matter Key observations
Valuation of the pub estate continuedShort leaseholdTheaccountingpolicyadoptedandjudgementsusedaredescribedinsection3.1tothefinancialstatements.
Thetotalvalueofshortleaseholdpropertiesasat28September2019is£157m(2018£156m).Judgementsinrelationtoexpectedtradinglevels,whetherthesitehasthepotentialtobeturnedaroundanddiscountratesareappliedwhencalculatingshortleaseholdpropertyimpairments.TheGrouprecordedanimpairmentchargeof£7m(2018£15m)intheyear,offsetbyreversalofpastimpairmentsof£2m(2018£nil).
Focus areasGiventheamountscapitalisedandtheriskassociatedacrossthefreehold,longleaseholdandshortleaseholdsiteswehavefocusedourproceduresontheassessmentmadebymanagementof:
• theappropriatenessofthefairmaintainabletradinglevelsandbrandmultipleassumptionsappliedtothefreeholdandlongleaseholdestateonasitebysitebasis;
• thevaluationoffreeholdandlongleaseholdsitesimpactedbyexpansionarycapital,challengingtheneedforanyimpairmentofproperty,plantandequipmentrequiredatanindividualoutletlevel;and
• therequirementforanyimpairmentinrespectoftheproperty,plantandequipmentheldintheshortleaseholdestateatanindividualoutletlevel.
Inaddition,duetothelevelofsubjectivejudgementsinvolvedinrespectofmultipleandfairmaintainabletradeassumptionswhichareinherentlyuncertain,wehaveidentifiedapotentialriskoffraudinthiskeyauditmatter.
Wechallengedtheassumptionsusedbymanagementwithintheimpairmentreviewsperformedfortheshortleaseholdestate.Thisincluded:
• obtainingevidencetosupportmanagement’sassertionthatshortleaseholdpropertiescanbesuccessfullyturnedaroundwherepropertieshavenotbeenimpairedduetomanagement’sexpectationthattheperformanceofthepropertieswillimprove.Thisincludedobtainingevidencetosupportmanagement’sturnaroundplansandperformanceofaretrospectivereviewconsideringthesuccessofhistoricturnaroundplans;
• wetestedasampleoflossmakingshortleaseholdpropertiestochallengemanagement’sestimateofthecashflowsthatareforecasttoarisefromthesepropertiesovertheremainingtermofthelease;
• weassessedtheappropriatenessofforecastEBITDAstakingintoconsiderationthecostsavingandsalesopportunitiesidentifiedbymanagementfollowingabenchmarkingexercise.Thisincludedperformingaretrospectivereviewofforecastingaccuracyforthosepropertiesincludedinthe2018benchmarkingexercise;
• testingtheintegrityoftheinformationusedwithinthemodelbyagreeinginputsbacktosourcedataincludinghistoricalresultsandleaseterms;and
• assessingtheappropriatenessofthediscountratethroughrecalculationandperformingsensitivityanalysis.
Additionally,wetestedcontrolsinrelationtotheshortleaseholdimpairmentreview.Thecontrolstestedcoveredmanagement’sreviewsof:
• thecompletenessandaccuracyoftheinputsintotheshortleaseholdimpairmentmodel;and
• thekeyassumptionsusedindeterminingtheimpairmenttorecognise.
102ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MITCHELLS & BUTLERS PLC CONTINUED
Key audit matter description How the scope of our audit responded to the key audit matter Key observations
Compliance with debt covenants TheprimarysourceofborrowingfortheGroupissecuredloannotesof£1,752mat28September2019(2018£1,830m).ThisdebtissecuredonthemajorityofthepropertiesownedbytheGroup(propertiesheldwithinasubsidiarycompany,Mitchells&ButlersRetailLimited).TheGroupalsohas£150mofunsecuredcreditfacilities.Therearecovenantsattachedtoboththesecuredloannotesandtheunsecuredrevolvingcreditfacilities.
Theindustrycontinuestofaceinflationarycostpressures.Inaddition,thereisuncertaintyaroundthetermsandtimingoftheUnitedKingdom’sexitfromtheEuropeanUnion,andtheoutcomeofthegeneralelectionon12December2019.WethereforeidentifiedthattheforecastingofEBITDAduringthegoingconcernperiodissubjecttosignificantjudgementsandestimates.
ThekeyriskidentifiedistheGroup’sabilitytomeettheforecastedEBITDAoverthegoingconcernperiodforthefinancialcovenantsattachedtothesecuredloannotes.Thistestismeasuredateachquarterenddate,inrespectoftheprevioustwoquartersandthepreviousyear,forMitchells&ButlersRetailLimited.
DebtcovenantsarefurtherdisclosedwithinNote4.2oftheGroupfinancialstatements,aswellasbeingdisclosedonpage48.
TheAuditCommittee’sdiscussionofthiskeyauditmatterissetoutonpage74.
Weperformedthefollowingprocedurestorespondtothekeyauditmatter:
• obtainedanunderstandingofcontrolsinrelationtothemanagementreviewofthebudgetandforecastcovenantcompliance;
• reviewedmanagement’sgoingconcernassessment,bychallengingmanagementtounderstandthekeydriversformingthebasisoftheEBITDAforecastsandchallengingtheassumptionsusedinthebasecasescenariousingindustryforecasts,historicalperformanceandourunderstandingofthebusiness;
• challengedtheappropriatenessofthereasonablypossiblesensitivitiesusedinmanagement’sdownsidescenariooverthegoingconcernperiod;
• reviewedandchallengedmanagement’skeyassumptionsbyreferencetoindependentindustrysourcesandrelevantsupportingevidenceandsensitisingtheimpactthesehaveonmanagement’sassessmentofprofitability;
• consideredthefeasibilityofthemitigatingactionsthatmanagementhaveattheirdisposalshouldthefinancialcovenantsbeclosetobeingbreached;and
• reviewedthedisclosuresongoingconcerntoconfirmthattheyareconsistentwiththeknowledgewehaveacquiredduringthecourseofourauditandtoconfirmthatthedisclosuresareconsistentwiththeoverallrequirementfortheAnnualReporttobefair,balancedandunderstandable.
Weconcurwithmanagement’sassumptionsinrelationtothegoingconcernstatusoftheGroupandtheresultinggoingconcerndisclosures.
OUR APPLICATION OF MATERIALITYWedefinematerialityasthemagnitudeofmisstatementinthefinancialstatementsthatmakesitprobablethattheeconomicdecisionsofareasonablyknowledgeablepersonwouldbechangedorinfluenced.Weusematerialitybothinplanningthescopeofourauditworkandinevaluatingtheresultsofourwork.
Basedonourprofessionaljudgement,wedeterminedmaterialityforthefinancialstatementsasawholeasfollows:
Group financial statements Company financial statementsMateriality £9.65m(2018£8.8m) £9.3m(2018£8.5m)
Basis for determining materiality
Approximately5%(20185%)ofprofitbeforetaxadjustedfornetprofitarisingonpropertydisposals,movementsinthevaluationofthepropertyportfolioandpastservicecostinrelationtothedefinedbenefitpensionschemeobligation.Adjusteditemsrelatetoseparatelydiscloseditemsinnote2.2(2018profitbeforetaxadjustedfornetprofitarisingonpropertydisposals,movementsinthevaluationofthepropertyportfolioandseparatelydisclosedpensionlegalcosts).
Parentcompanymaterialityequatesto0.5%ofnetassets(20180.4%),whichiscappedat96%ofGroupmateriality(201897%).
Rationale for the benchmark applied
ProfitbeforetaxbeforeseparatelydiscloseditemsisakeymeasureusedbytheGroupinreportingitsresultstoallowabetterunderstandingoftheadjustedtradingoftheGroupandisalsoakeymeasureconsideredbyusersoftheaccounts.
Theparentcompanydoesnottradesomaterialityhasbeendeterminedusingnetassets.
2. Group materiality £9.65m
Statutory materiality range £9.30m to £0.10m
Audit Committee reporting threshold £0.465m
Adjusted PBT £197m 1 2
1. Profit before tax before separately disclosed items
103ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
Our consideration of the control environmentTheGroupusesJDEEnterpriseforfinancialreportinginallofitslegalentities.WeutilisedourITspecialiststoassesskeycontrolsovertheJDEEnterprisesystem,plusotherkeyITsystemsrelevanttoourauditincludingStockWastageSystem,STEP,Aztec,DataWarehouses,RobotScheduler,SterlingandBiztalkandthesupportinginfrastructurefortheseapplications.
Overthecourseoftheyear,managementhaveundertakenanexercisetofurtherstrengthentheITenvironment,whichresultedinanumberofnewcontrolsbeingimplementedduringtheyear.Weperformedadditionalprocedures,throughacombinationofreviewofmitigatingcontrolsinplaceandexposuretesting,tomitigateITauditriskswherenewcontrolshadnotbeeninplaceforthefullyear,orareduetobeimplementedpostyear-end,forexample,reviewingsystemlogstodeterminewhethertherehadbeenanyinappropriateaccessduringtheyear.WewereabletomitigateallidentifiedITauditrisksrelevanttoourauditthroughacombinationofoperatingeffectivenesstestingofcontrolsandadditionalprocedures.
Inrespondingtotheassessedrisksofmaterialmisstatement,theauditengagementteamplacedrelianceontheoperatingeffectivenessoftheGroup’scontrolsinrelationtorevenue,foodanddrinkexpenditure,property,plantandequipmentreturngeneratingcapitalexpenditure,depreciation,onerousleaseprovisionsandthevaluationofthepubestate.
OTHER INFORMATIONTheDirectorsareresponsiblefortheotherinformation.TheotherinformationcomprisestheinformationincludedintheAnnualReport,otherthanthefinancialstatementsandourauditor’sreportthereon.
Ouropiniononthefinancialstatementsdoesnotcovertheotherinformationand,excepttotheextentotherwiseexplicitlystatedinourreport,wedonotexpressanyformofassuranceconclusionthereon.
Inconnectionwithourauditofthefinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.
Ifweidentifysuchmaterialinconsistenciesorapparentmaterialmisstatements,wearerequiredtodeterminewhetherthereisamaterialmisstatementinthefinancialstatementsoramaterialmisstatementoftheotherinformation.If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthatfact.
Wesetperformancematerialityatalevellowerthanmaterialitytoreducetheprobabilitythat,inaggregate,uncorrectedandundetectedmisstatementsexceedthematerialityforthefinancialstatementsasawhole.Groupperformancematerialitywassetat70%ofGroupmaterialityforthe2019audit(201870%).Indeterminingperformancemateriality,weconsideredfactorsincluding:
• ourriskassessment,includingourassessmentoftheGroup’soverallcontrolenvironmentandthatweconsideritappropriatetorelyoncontrolsoverkeybusinessprocesses;and
• ourpastexperienceoftheaudit,whichhasindicatedalownumberofcorrectedanduncorrectedmisstatementsidentifiedinpriorperiods.
WeagreedwiththeAuditCommitteethatwewouldreporttotheCommitteeallauditdifferencesinexcessof£465,000(2018£440,000),aswellasdifferencesbelowthatthresholdthat,inourview,warrantedreportingonqualitativegrounds.WealsoreporttotheAuditCommitteeondisclosuremattersthatweidentifiedwhenassessingtheoverallpresentationofthefinancialstatements.
AN OVERVIEW OF THE SCOPE OF OUR AUDITOurGroupauditwasscopedbyobtaininganunderstandingoftheGroupanditsenvironment,includingGroup-widecontrols,andassessingtherisksofmaterialmisstatementattheGrouplevel.Basedonthatassessment,weperformedafullscopeauditinrespectoftheUKretailoperatingbusinesswhichaccountsfor99%(201899%)oftheGroup’stotalassets,96%(201896%)ofrevenueand96%(201896%)ofoperatingprofit.ThisauditworkwasperformeddirectlybytheGroupauditengagementteam,whoalsotestedtheconsolidationprocess.GiventherelativesizeoftheGermanbusiness(‘ALEX’)weconsidertheUKbusinessprovidessufficientauditassuranceovertheGroupbalances.Thisapproachisconsistentwith2018.Attheparententitylevelwealsotestedtheconsolidationprocess,aswellastheCompanybalancesheettoparentcompanymateriality.
OurauditworkontheUKbusinesswasexecutedatlevelsofmaterialityapplicabletoeachindividualentitywhichwerelowerthanGroupmaterialityandrangedfrom£0.1mto£9.3m(2018£1to£8.5m).
Full audit scope
Review at Group level
Revenue 96% 4%Profitbeforetax 96% 4%Netassets 99% 1%
Inthiscontext,mattersthatwearespecificallyrequiredtoreporttoyouasuncorrectedmaterialmisstatementsoftheotherinformationincludewhereweconcludethat:
• Fair, balanced and understandable–thestatementgivenbytheDirectorsthattheyconsidertheAnnualReportandfinancialstatementstakenasawholeisfair,balancedandunderstandableandprovidestheinformationnecessaryforshareholderstoassesstheGroup’spositionandperformance,businessmodelandstrategy,ismateriallyinconsistentwithourknowledgeobtainedintheaudit;or
• Audit Committee reporting–thesectiondescribingtheworkoftheAuditCommitteedoesnotappropriatelyaddressmatterscommunicatedbyustotheAuditCommittee;or
• Directors’ statement of compliance with the UK Corporate Governance Code–thepartsoftheDirectors’statementrequiredundertheListingRulesrelatingtotheCompany’scompliancewiththeUKCorporateGovernanceCodecontainingprovisionsspecifiedforreviewbytheauditorinaccordancewithListingRule9.8.10R(2)donotproperlydiscloseadeparturefromarelevantprovisionoftheUKCorporateGovernanceCode.
We have nothing to report in respect of these matters.
RESPONSIBILITIES OF DIRECTORSAsexplainedmorefullyintheDirectors’responsibilitiesstatement,theDirectorsareresponsibleforthepreparationofthefinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview,andforsuchinternalcontrolastheDirectorsdetermineisnecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.
Inpreparingthefinancialstatements,theDirectorsareresponsibleforassessingtheGroup’sandtheCompany’sabilitytocontinueasagoingconcern,disclosingasapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlesstheDirectorseitherintendtoliquidatetheGrouportheCompanyortoceaseoperations,orhavenorealisticalternativebuttodoso.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTSOurobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditor’sreportthatincludesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithISAs(UK)willalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements.
104ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MITCHELLS & BUTLERS PLC CONTINUED
Detailsoftheextenttowhichtheauditwasconsideredcapableofdetectingirregularities,includingfraud,aresetoutbelow.
AfurtherdescriptionofourresponsibilitiesfortheauditofthefinancialstatementsislocatedontheFRC’swebsiteat:www.frc.org.uk/auditorsresponsibilities.Thisdescriptionformspartofourauditor’sreport.
EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUDWeidentifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror,andthendesignandperformauditproceduresresponsivetothoserisks,includingobtainingauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.
Identifying and assessing potential risks related to irregularitiesInidentifyingandassessingrisksofmaterialmisstatementinrespectofirregularities,includingfraudandnon-compliancewithlawsandregulations,ourproceduresincludedthefollowing:
• enquiringofmanagement,GroupAssurance,in-houselegalcounselincludingtheCompanySecretaryandGeneralCounsel,andtheAuditCommittee,includingobtainingandreviewingsupportingdocumentation,concerningtheGroup’spoliciesandproceduresrelatingto:
− identifying,evaluatingandcomplyingwithlawsandregulationsandwhethertheywereawareofanyinstancesofnon-compliance;
− detectingandrespondingtotherisksoffraudandwhethertheyhaveknowledgeofanyactual,suspectedorallegedfraud;
− theinternalcontrolsestablishedtomitigaterisksrelatedtofraudornon-compliancewithlawsandregulations;
• discussingamongtheengagementteamandinvolvingrelevantinternalspecialists,includingproperty,tax,pensions,ITandfinancialinstrumentsspecialistsregardinghowandwherefraudmightoccurinthefinancialstatementsandanypotentialindicatorsoffraud.Aspartofthisdiscussion,weidentifiedpotentialforfraudinthefollowingareas:valuationofpubestate,onerousleaseprovisionsandcompliancewithdebtcovenants;and
• obtaininganunderstandingofthelegalandregulatoryframeworkthattheGroupoperatesin,focusingonthoselawsandregulationsthathadadirecteffectonthefinancialstatementsorthathadafundamentaleffectontheoperationsoftheGroup.ThekeylawsandregulationsweconsideredinthiscontextincludedtheUKCompaniesAct,ListingRules,pensionslegislation,taxlegislation,dataprotectionregulations,licensingregulations,occupationalhealthandsafetyregulations,responsibledrinkingregulations,planningandbuildinglegislationandemploymentlegislation.
Audit response to risks identifiedAsaresultofperformingtheabove,weidentifiedonerousleaseprovisions,valuationofthepubestateandcompliancewithdebtcovenantsaskeyauditmatters.Thekeyauditmatterssectionofourreportexplainsthemattersinmoredetailandalsodescribesthespecificproceduresweperformedinresponsetothosekeyauditmatters.
Inadditiontotheabove,ourprocedurestorespondtorisksidentifiedincludedthefollowing:
• reviewingthefinancialstatementdisclosuresandtestingtosupportingdocumentationtoassesscompliancewithrelevantlawsandregulationsdiscussedabove;
• enquiringofmanagement,theAuditCommitteeandin-houselegalcounselconcerningactualandpotentiallitigationandclaims;
• performinganalyticalprocedurestoidentifyanyunusualorunexpectedrelationshipsthatmayindicaterisksofmaterialmisstatementduetofraud;
• readingminutesofmeetingsofthosechargedwithgovernance,reviewingGroupAssurancereports;and
• inaddressingtheriskoffraudthroughmanagementoverrideofcontrols,testingtheappropriatenessofjournalentriesandotheradjustments;assessingwhetherthejudgementsmadeinmakingaccountingestimatesareindicativeofapotentialbias;andevaluatingthebusinessrationaleofanysignificanttransactionsthatareunusualoroutsidethenormalcourseofbusiness.
Wealsocommunicatedrelevantidentifiedlawsandregulationsandpotentialfraudriskstoallengagementteammembers,includinginternalspecialists,andremainedalerttoanyindicationsoffraudornon-compliancewithlawsandregulationsthroughouttheaudit.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTSOpinions on other matters prescribed by the Companies Act 2006InouropinionthepartoftheDirectors’remunerationreporttobeauditedhasbeenproperlypreparedinaccordancewiththeCompaniesAct2006.
Inouropinion,basedontheworkundertakeninthecourseoftheaudit:
• theinformationgivenintheStrategicreportandtheDirectors’reportforthefinancialyearforwhichthefinancialstatementsarepreparedisconsistentwiththefinancialstatements;and
• theStrategicreportandtheDirectors’reporthavebeenpreparedinaccordancewithapplicablelegalrequirements.
InthelightoftheknowledgeandunderstandingoftheGroupandoftheCompanyandtheirenvironmentobtainedinthecourseoftheaudit,wehavenotidentifiedanymaterialmisstatementsintheStrategicreportortheDirectors’report.
Matters on which we are required to report by exceptionAdequacy of explanations received and accounting recordsUndertheCompaniesAct2006wearerequiredtoreporttoyouif,inouropinion:
• wehavenotreceivedalltheinformationandexplanationswerequireforouraudit;or
• adequateaccountingrecordshavenotbeenkeptbytheCompany,orreturnsadequateforouraudithavenotbeenreceivedfrombranchesnotvisitedbyus;or
• theCompanyfinancialstatementsarenotinagreementwiththeaccountingrecordsandreturns.
We have nothing to report in respect of these matters.
Directors’ remunerationUndertheCompaniesAct2006wearealsorequiredtoreportifinouropinioncertaindisclosuresofDirectors’remunerationhavenotbeenmadeorthepartoftheDirectors’remunerationreporttobeauditedisnotinagreementwiththeaccountingrecordsandreturns.
We have nothing to report in respect of these matters.
Other mattersAuditor tenureFollowingtherecommendationoftheAuditCommittee,wewereappointedbytheBoardon10February2011toauditthefinancialstatementsforthe52weeksending24September2011andsubsequentfinancialperiods.Theperiodoftotaluninterruptedengagementincludingpreviousrenewalsandreappointmentsofthefirmisnineyears,coveringtheyearsending24September2011to28September2019.
Consistency of the audit report with the additional report to the Audit CommitteeOurauditopinionisconsistentwiththeadditionalreporttotheAuditCommitteewearerequiredtoprovideinaccordancewithISAs(UK).
USE OF OUR REPORTThisreportismadesolelytotheCompany’smembers,asabody,inaccordancewithChapter3ofPart16oftheCompaniesAct2006.OurauditworkhasbeenundertakensothatwemightstatetotheCompany’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthantheCompanyandtheCompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.
JOHN CHARLTON FCA (Seniorstatutoryauditor)
ForandonbehalfofDeloitteLLPStatutoryAuditorLondon,UnitedKingdom
19November2019
105ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
201952 weeks
201852 weeks
Notes
Before separately disclosed
items £m
Separately disclosed
itemsa
£mTotal
£m
Before separately disclosed
items£m
Separately disclosed
itemsa
£mTotal
£m
Revenue 2.1, 2.3 2,237 – 2,237 2,152 – 2,152Operating costs before depreciation, amortisation and movements in the valuation of the property portfolio 2.2, 2.3 (1,801) (19) (1,820) (1,730) (6) (1,736)Net profit arising on property disposals 2.2, 2.3 – 1 1 – 1 1 EBITDAb 436 (18) 418 422 (5) 417Depreciation, amortisation and movements in the valuation of the property portfolio 2.2, 2.3 (119) (2) (121) (119) (43) (162)Operating profit 317 (20) 297 303 (48) 255 Finance costs 4.3 (114) – (114) (119) – (119)Finance revenue 4.3 1 – 1 1 – 1 Net pensions finance charge 4.3, 4.5 (7) – (7) (7) – (7)Profit before tax 197 (20) 177 178 (48) 130
Tax (charge)/credit 2.2, 2.4 (38) 4 (34) (33) 7 (26)
Profit/(loss) for the period 159 (16) 143 145 (41) 104Earnings per ordinary share – Basic 2.5 37.2p 33.5p 34.1p 24.5p – Diluted 2.5 37.1p 33.3p 34.0p 24.4p
a. Separately disclosed items are explained and analysed in note 2.2.b. Earnings before interest, tax, depreciation, amortisation and movements in the valuation of the property portfolio.
The notes on pages 111 to 150 form an integral part of these consolidated financial statements.
All results relate to continuing operations.
106ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
GROUP INCOME STATEMENT FOR THE 52 WEEKS ENDED 28 SEPTEMBER 2019
Notes
201952 weeks
£m
201852 weeks
£m
Profit for the period 143 104Items that will not be reclassified subsequently to profit or loss:Unrealisedgain/(loss)onrevaluationofthepropertyportfolio 3.1 84 (5)Remeasurementofpensionliability 4.5 15 5Taxrelatingtoitemsnotreclassified 2.4 (18) –
81 –Items that may be reclassified subsequently to profit or loss:Cashflowhedges: –(Losses)/gainsarisingduringtheperiod 4.4 (81) 16 –Reclassificationadjustmentsforitemsincludedinprofitorloss 4.4 23 34Taxrelatingtoitemsthatmaybereclassified 2.4 10 (8)
(48) 42Other comprehensive income after tax 33 42Total comprehensive income for the period 176 146
Thenotesonpages111to150formanintegralpartoftheseconsolidatedfinancialstatements.
107ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
GROUP STATEMENT OF COMPREHENSIVE INCOME FORTHE52WEEKSENDED28SEPTEMBER2019
Notes2019
£m2018
£m
AssetsGoodwillandotherintangibleassets 3.4 14 11Property,plantandequipment 3.1 4,528 4,426Leasepremiums 1 1Interestsinassociates 3.5 5 5Deferredtaxasset 2.4 66 63Derivativefinancialinstruments 4.4 53 44Total non-current assets 4,667 4,550Inventories 3.2 26 26Tradeandotherreceivables 3.2 63 56Othercashdeposits 4.1 – 120Cashandcashequivalents 4.1 133 122Derivativefinancialinstruments 4.4 3 4Total current assets 225 328Total assets 4,892 4,878LiabilitiesPensionliabilities 4.5 (50) (49)Tradeandotherpayables 3.2 (327) (302)Currenttaxliabilities (12) (9)Borrowings 4.2 (95) (233)Derivativefinancialinstruments 4.4 (36) (37)Total current liabilities (520) (630)Pensionliabilities 4.5 (165) (200)Borrowings 4.2 (1,657) (1,744)Derivativefinancialinstruments 4.4 (266) (207)Deferredtaxliabilities 2.4 (301) (285)Provisions 3.3 (36) (43)Total non-current liabilities (2,425) (2,479)Total liabilities (2,945) (3,109)Net assets 1,947 1,769
EquityCalledupsharecapital 4.7 37 37Sharepremiumaccount 4.7 26 26Capitalredemptionreserve 4.7 3 3Revaluationreserve 4.7 1,267 1,197Ownsharesheld 4.7 (4) (1)Hedgingreserve 4.7 (250) (202)Translationreserve 4.7 14 14Retainedearnings 854 695Total equity 1,947 1,769
Thenotesonpages111to150formanintegralpartoftheseconsolidatedfinancialstatements.
TheconsolidatedfinancialstatementswereapprovedbytheBoardandauthorisedforissueon19November2019.
Theyweresignedonitsbehalfby:
TIM JONESChiefFinancialOfficer
108ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
GROUP BALANCE SHEET 28SEPTEMBER2019
Calledup share
capital£m
Sharepremiumaccount
£m
Capitalredemption
reserve£m
Revaluationreserve
£m
Ownshares
held£m
Hedgingreserve
£m
Translationreserve
£m
Retainedearnings
£m
Totalequity
£m
At 30 September 2017 36 26 3 1,202 (1) (244) 14 590 1,626Profitfortheperiod – – – – – – – 104 104Othercomprehensive(expense)/income – – – (4) – 42 – 4 42Total comprehensive (expense)/income – – – (4) – 42 – 108 146Sharecapitalissued – 1 – – – – – – 1Creditinrespectofshare-basedpayments – – – – – – – 3 3Dividendspaid – – – – – – – (7) (7)Revaluationreserverealisedondisposalofproperties – – – (1) – – – 1 –Scripdividendrelatedshareissue 1 (1) – – – – – – –At 29 September 2018 37 26 3 1,197 (1) (202) 14 695 1,769Profitfortheperiod – – – – – – – 143 143Othercomprehensiveincome/(expense) – – – 70 – (48) – 11 33Total comprehensive income/(expense) – – – 70 – (48) – 154 176Purchaseofownshares – – – – (3) – – – (3)Creditinrespectofshare-basedpayments – – – – – – – 3 3Taxonshare-basedpayments – – – – – – – 2 2At 28 September 2019 37 26 3 1,267 (4) (250) 14 854 1,947
109ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
GROUP STATEMENT OF CHANGES IN EQUITY FORTHE52WEEKSENDED28SEPTEMBER2019
Notes
201952 weeks
£m
201852 weeks
£m
Cash flow from operationsOperatingprofit 297 255Addback:adjusteditems 2.2 20 48Operatingprofitbeforeadjusteditems 317 303Addback:Depreciationofproperty,plantandequipment 2.3 116 116Amortisationofintangibles 2.3 3 3Costchargedinrespectofshare-basedpayments 4.6 3 3Administrativepensioncosts 4.5 3 2Operating cash flow before adjusted items, movements in working capital and additional pension contributions 442 427Increaseininventories – (1)Increaseintradeandotherreceivables (9) (1)Increaseintradeandotherpayables 25 4Decreaseinprovisions (7) –Additionalpensioncontributions 4.5 (49) (48)Cash flow from operations before adjusted items 402 381Cashflowfromadjusteditems – (2)Interestpaid (113) (120)Interestreceived 2 1Taxpaid (25) (20)Net cash from operating activities 266 240Investing activitiesPurchasesofproperty,plantandequipment (147) (167)Purchasesofintangibleassets (5) (4)Proceedsfromsaleofproperty,plantandequipment 14 5Acquisitionofinvestmentinassociates 3.5 – (5)Transfersfromothercashdeposits 120 –Net cash used in investing activities (18) (171)Financing activitiesIssueofordinarysharecapital – 1Purchaseofownshares (3) –Dividendspaid(netofscripdividend) 4.7 – (7)Repaymentofprincipalinrespectofsecuritiseddebt 4.1 (87) (82)Repaymentofliquidityfacility 4.1 (147) –Netmovementonunsecuredrevolvingcreditfacilities 4.1 – (6)Net cash used in financing activities (237) (94)Net increase/(decrease) in cash and cash equivalents 11 (25)Cashandcashequivalentsatthebeginningoftheperiod 122 147Cash and cash equivalents at the end of the period 4.1 133 122
Thenotesonpages111to150formanintegralpartoftheseconsolidatedfinancialstatements.
110ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
GROUP CASH FLOW STATEMENT FORTHE52WEEKSENDED28SEPTEMBER2019
GENERAL INFORMATIONMitchells&Butlersplc(theCompany)isapubliclimitedcompanylimitedbysharesandisregisteredinEnglandandWales.TheCompany’ssharesarelistedontheLondonStockExchange.TheaddressoftheCompany’sregisteredofficeisshownonpage149.
TheprincipalactivitiesoftheCompanyanditssubsidiaries(theGroup)andthenatureoftheGroup’soperationsaresetoutintheStrategicreportonpages10to49.
TheGroupisrequiredtoprepareitsconsolidatedfinancialstatementsinaccordancewithInternationalFinancialReportingStandards(IFRSs)asadoptedbytheEuropeanUnionandinaccordancewiththeCompaniesAct2006.
TheGroup’saccountingreferencedateis30September.TheGroupdrawsupitsconsolidatedfinancialstatementstotheSaturdaydirectlybeforeorfollowingtheaccountingreferencedate,aspermittedbysection390(3)oftheCompaniesAct2006.Theperiodended28September2019andthecomparativeperiodended29September2018bothinclude52tradingweeks.
Theconsolidatedfinancialstatementshavebeenpreparedonthehistoricalcostbasisasmodifiedbytherevaluationofproperties,pensionobligationsandfinancialinstruments.
TheGroup’saccountingpolicieshavebeenappliedconsistently.
BASIS OF CONSOLIDATIONTheconsolidatedfinancialstatementsincorporatethefinancialstatementsofMitchells&Butlersplc(‘theCompany’)andentitiescontrolledbytheCompany(itssubsidiaries).
ControlisachievedwhentheCompany:
• hasthepowerovertheinvestee;• isexposed,orhasrights,tovariablereturnfrom
itsinvolvementwiththeinvestee;and• hastheabilitytouseitspowertoaffect
itsreturns.
TheCompanyreassesseswhetherornotitcontrolsaninvesteeiffactsandcircumstancesindicatethattherearechangestooneormoreofthethreeelementsofcontrollistedabove.
WhentheCompanyhaslessthanamajorityofvotingrightsofaninvestee,itconsidersthatithaspowerovertheinvesteewhenthevotingrightsaresufficienttogiveitthepracticalabilitytodirecttherelevantactivitiesoftheinvesteeunilaterally.TheCompanyconsidersallrelevantfactsandcircumstancesinassessingwhetherornottheCompany’svotingrightsinaninvesteearesufficienttogiveitpower,including:
• thesizeoftheCompany’sholdingofvotingrightsrelativetothesizeanddispersionofholdingsoftheothervoteholders;
• potentialvotingrightsheldbytheCompany,othervoteholdersorparties;
• rightsarisingfromothercontractualarrangements;and
• anyadditionalfactsandcircumstancesthatindicatethattheCompanyhas,ordoesnothave,thecurrentabilitytodirecttherelevantactivitiesatthetimethatdecisionsneedtobemade,includingvotingpatternsatthepreviousshareholders’meetings.
ConsolidationofasubsidiarybeginswhentheCompanyobtainscontroloverthesubsidiaryandceaseswhentheCompanylosescontrolofthesubsidiary.Specifically,theresultsofthesubsidiariesacquiredordisposedofduringtheyearareincludedintheGroupincomestatementfromthedatetheCompanygainscontroluntilthedatewhentheCompanyceasestocontrolthesubsidiary.
ThefinancialstatementsofthesubsidiariesarepreparedforthesamefinancialreportingperiodastheCompany.Intercompanytransactions,balancesandunrealisedgainsandlossesontransactionsbetweenGroupcompaniesareeliminatedonconsolidation.
GOING CONCERNTheGroup’sbusinessactivities,togetherwiththefactorslikelytoaffectitsfuturedevelopment,performanceandpositionaresetoutintheStrategicreportonpages10to49.ThefinancialpositionoftheGroup,itscashflows,liquiditypositionandborrowingfacilitiesarealsodescribedwithintheFinancereview.
Note4.4totheconsolidatedfinancialstatementsincludestheGroup’sobjectives,policiesandprocessesformanagingitscapital;itsfinancialriskmanagementobjectives;detailsofitsfinancialinstrumentsandhedgingactivities;anditsexposurestocreditriskandliquidityrisk.Ashighlightedinnote4.2totheconsolidatedfinancialstatements,theGroup’sfinancingisbaseduponsecuritiseddebtandunsecuredborrowingfacilities.
TheDirectorshave,atthetimeofapprovingtheconsolidatedfinancialstatements,areasonableexpectationthattheCompanyandtheGrouphaveadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.Thustheycontinuetoadoptthegoingconcernbasisofaccountinginpreparingtheconsolidatedfinancialstatements.Inaddition,theDirectorshaveprovidedareviewoflong-termviabilityonpage45,whichassessestheGroup’sabilitytocontinueinoperationandmeetitsliabilitiesastheyfalldueoverathreeyearperiod.
FOREIGN CURRENCIESTransactionsinforeigncurrenciesarerecordedattheexchangeratesrulingonthedatesofthetransactions.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedintothefunctionalcurrencyattherelevantratesofexchangerulingatthebalancesheetdate.ForeignexchangedifferencesarisingontranslationarerecognisedintheGroupincomestatement.Non-monetaryassetsandliabilitiesaremeasuredatcostusingtheexchangerateonthedateoftheinitialtransaction.
Theconsolidatedfinancialstatementsarepresentedinpoundssterling(roundedtothenearestmillion),beingthefunctionalcurrencyoftheprimaryeconomicenvironmentinwhichtheparentandmostsubsidiariesoperate.Onconsolidation,theassetsandliabilitiesoftheGroup’soverseasoperationsaretranslatedintosterlingattherelevantratesofexchangerulingatthebalancesheetdate.Theresultsofoverseasoperationsaretranslatedintosterlingataverageratesofexchangefortheperiod.ExchangedifferencesarisingfromthetranslationoftheresultsandtheretranslationofopeningnetassetsdenominatedinforeigncurrenciesaretakendirectlytotheGroup’stranslationreserve.Whenanoverseasoperationissold,suchexchangedifferencesarerecognisedintheGroupincomestatementaspartofthegainorlossonsale.
Theresultsofoverseasoperationshavebeentranslatedintosterlingattheweightedaverageeurorateofexchangefortheperiodof£1=€1.13(2018£1=€1.13),wherethisisareasonableapproximationtotherateatthedatesofthetransactions.EuroandUSdollardenominatedassetsandliabilitieshavebeentranslatedattherelevantrateofexchangeatthebalancesheetdateof£1=€1.12(2018£1=€1.12)and£1=$1.23(2018£1=$1.30)respectively.
111ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION1–BASISOFPREPARATION
contractualcashflowsandthesecashflowsconsistsolelyofpaymentsofprincipalandinterestontheprincipalamountoutstanding.Additionally,thereisnochangetotheclassificationormeasurementofthederivativefinancialinstrumentassetsdesignatedineffectivehedgerelationships.
Thedisclosureinnote4.4hasbeenamendedtodescribethesefinancialassetsasfinancialassetsatamortisedcostfromloansandreceivables.
Impairment of financial assetsInrelationtotheimpairmentoffinancialassets,IFRS9requiresanexpectedcreditlossmodelasopposedtoanincurredcreditlossmodelunderIAS39.
TheexpectedcreditlossmodelrequirestheGrouptoaccountforexpectedcreditlossesandchangesinthoseexpectedcreditlossesateachreportingdatetoreflectchangesincreditrisksinceinitialrecognitionofthefinancialassetsi.e.itisnolongernecessaryforacrediteventtohaveoccurredbeforecreditlossesarerecognised.
Specifically,IFRS9requirestheGrouptorecognisealossallowanceforexpectedcreditlosseson:
(i) debtinvestmentsmeasuredsubsequentlyatamortisedcostoratFVTOCI;
(ii) leasereceivables;(iii) tradereceivablesandcontractassets;(iv) financialguaranteecontractstowhichthe
impairmentrequirementsofIFRS9apply;and
(v) cashandcashequivalents.
Inparticular,IFRS9requirestheGrouptomeasurethelossallowanceforafinancialinstrumentatanamountequaltothelifetimeexpectedcreditlosses(ECL)ifthecreditriskonthatfinancialinstrumenthasincreasedsignificantlysinceinitialrecognition,orifthefinancialinstrumentisapurchasedororiginatedcredit-impairedfinancialasset.However,ifthecreditriskonafinancialinstrumenthasnotincreasedsignificantlysinceinitialrecognition(exceptforapurchasedororiginatedcredit-impairedfinancialasset),theGroupisrequiredtomeasurethelossallowanceforthatfinancialinstrumentatanamountequalto12-months’ECL.IFRS9alsorequiresasimplifiedapproachformeasuringthelossallowanceatanamountequaltolifetimeECLfortradereceivables,contractassetsandleasereceivablesincertaincircumstances.
TheDirectorshaveassessedtheimpactoflifetimeexpectedcreditlossesfortherelevantfinancialassetsoftheGroup.Forcashandcashequivalents,allbankbalancesareassessedtohavelowcreditriskastheyareheldwithreputableinternationalbankinginstitutions.FortradeandotherreceivablestheGrouphasadoptedthesimplifiedapproachunderIFRS9.Thelifetimeexpectedcreditlosscalculatedhasnotresultedinanadditionalcreditlossallowancebeingrecognisedinthecurrentperiod.
TheconsequentialamendmentstoIFRS7havealsoresultedinmoreextensivedisclosuresabouttheGroup’sexposuretocreditrisk(seenote4.4).
General hedge accountingThenewgeneralhedgeaccountingrequirementsretainthethreetypesofhedgeaccounting.However,greaterflexibilityhasbeenintroducedtothetypesoftransactionseligibleforhedgeaccounting,specificallybroadeningthetypesofinstrumentsthatqualifyforhedginginstrumentsandthetypesofriskcomponentsofnon-financialitemsthatareeligibleforhedgeaccounting.Inaddition,theeffectivenesstesthasbeenreplacedwiththeprincipleofan‘economicrelationship’.Retrospectiveassessmentofhedgeeffectivenessisnolongerrequired.EnhanceddisclosurerequirementsabouttheGroup’sriskmanagementactivitieshavealsobeenintroduced.
InaccordancewithIFRS9’stransitionprovisionsforhedgeaccounting,theGrouphasappliedtheIFRS9hedgeaccountingrequirementsprospectivelyfromthedateofinitialapplicationon30September2018.TheGroup’squalifyinghedgingrelationshipsinplaceasatthisdatealsoqualifyforhedgeaccountinginaccordancewithIFRS9andwerethereforeregardedascontinuinghedgingrelationships.Norebalancingofanyofthehedgingrelationshipswasnecessaryoninitialapplication.Asthecriticaltermsofthehedginginstrumentsmatchthoseoftheircorrespondinghedgeditems,allhedgingrelationshipsmeetIFRS9’seffectivenessassessmentrequirements.TheGrouphasnotdesignatedanyhedgingrelationshipsunderIFRS9thatwouldnothavemetthequalifyinghedgeaccountingcriteriaunderIAS39.
IFRS9requireshedginggainsandlossestoberecognisedasanadjustmenttotheinitialcarryingamountofnon-financialhedgeditems(basisadjustment).IFRS9clarifiesthattransfersfromthehedgingreservetotheinitialcarryingamountofthehedgeditemarenotreclassificationadjustmentsunderIAS1PresentationofFinancialStatementsandhencetheydonotaffectothercomprehensiveincome.Hedginggainsandlossessubjecttobasisadjustmentsarecategorisedasamountsthatwillnotbesubsequentlyreclassifiedtoprofitorlossinothercomprehensiveincome.ThisisconsistentwiththeGroup’spracticepriortotheadoptionofIFRS9.
TheapplicationoftheIFRS9hedgeaccountingrequirementshashadnoimpactontheresultsandfinancialpositionoftheGroupforthecurrentand/orprioryears.Pleaserefertonote4.4fordetaileddisclosuresregardingtheGroup’sriskmanagementactivities.
Overall IFRS 9 impactTheapplicationofIFRS9hashadnoimpactontheGroupbalancesheet,theGroupincomestatement,theGroupstatementofcomprehensiveincomeortheGroupcashflowstatement.
NEW AND AMENDED IFRS STANDARDS THAT ARE EFFECTIVE FOR THE CURRENT PERIODTheInternationalAccountingStandardsBoard(IASB)andInternationalFinancialReportingInterpretationsCommittee(IFRIC)haveissuedthefollowingstandardsandinterpretationswhichhavebeenadoptedbytheGroupintheseconsolidatedfinancialstatementsforthefirsttime,withnomaterialimpact:
IFRS 9 Financial InstrumentsInthecurrentperiod,theGrouphasadoptedIFRS9andtherelatedconsequentialamendmentstootherIFRSStandardsthatareeffectiveforfinancialperiodsstartingonorafter1January2018.ThedateofinitialapplicationfortheGroupis30September2018.
IFRS9introducednewrequirementsfor:
(i) classificationandmeasurementoffinancialassetsandfinancialliabilities;
(ii) impairmentoffinancialassets;and(iii) generalhedgeaccounting.
Detailsofthesenewrequirementsaswellastheirimpactontheconsolidatedfinancialstatementsaredescribedbelow:
Classification and measurement of financial assetsAllrecognisedfinancialassetsthatarewithinthescopeofIFRS9arerequiredtobemeasuredsubsequentlyatamortisedcostorfairvalueonthebasisoftheentity’sbusinessmodelformanagingthefinancialassetsandthecontractualcashflowcharacteristicsofthosefinancialassets.
Specifically:
• debtinstrumentsthatareheldwithinabusinessmodelwhoseobjectiveistocollectthecontractualcashflows,andthathavecontractualcashflowsthataresolelypaymentsofprincipalandinterestontheprincipalamountoutstanding,aremeasuredsubsequentlyatamortisedcost;
• debtinstrumentsthatareheldwithinabusinessmodelwhoseobjectiveisbothtocollectthecontractualcashflowsandtosellthedebtinstruments,andthathavecontractualcashflowsthataresolelypaymentsofprincipalandinterestontheprincipalamountoutstanding,aremeasuredsubsequentlyatfairvaluethroughothercomprehensiveincome(FVTOCI);
• allotherdebtinvestmentsandequityinvestmentsaremeasuredsubsequentlyatfairvaluethroughprofitorloss(FVTPL).
TheDirectorsoftheCompanyreviewedandassessedtheGroup’sexistingfinancialassetsasat30September2018basedonthefactsandcircumstancesthatexistedatthatdateandconcludedthattheinitialapplicationofIFRS9hashadnosignificantimpactontheclassificationandmeasurementoffinancialassetsintheconsolidatedfinancialstatements.TheonlyfinancialassetsoftheGrouprelatedtothoseclassifiedasloansandreceivablesunderIAS39thatweremeasuredatamortisedcostcontinuetobemeasuredatamortisedcostunderIFRS9astheyareheldwithinabusinessmodeltocollect
112ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION1–BASISOFPREPARATIONCONTINUED
IFRS 15 Revenue from Contracts with CustomersInthecurrentperiod,theGrouphasadoptedIFRS15whichiseffectiveforfinancialperiodsbeginningonorafter1January2018.ThecoreprincipleofIFRS15isthatanentityshouldrecogniserevenuetodepictthetransferofgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.Specifically,thestandardintroducesafive-stepapproachtorevenuerecognition:
Step1:IdentifythecontractwithacustomerStep2:Identifytheperformanceobligations
inthecontractStep3:DeterminethetransactionpriceStep4:Allocatethetransactionpricetothe
performanceobligationsinthecontractStep5:Recogniserevenuewhentheentity
satisfiesaperformanceobligation
AsthemajorityoftheGroup’srevenueisinrelationtothesaleoffoodanddrinkwithinpubsandrestaurants,forwhichtheconsiderationisknownandtheperformanceobligationsaresatisfiedatthepointofsale,theapplicationofIFRS15hashadnoimpactonthefinancialpositionorperformanceoftheGroup.
IFRS 2 (amendments) Classification and Measurement of Share-based Payment TransactionsTheGrouphasadoptedtheamendmentstoIFRS2forthefirsttimeinthecurrentperiod.Theamendmentsclarifythefollowing:
(i) Inestimatingthefairvalueofacash-settledshare-basedpayment,theaccountingfortheeffectsofvestingandnon-vestingconditionsshouldfollowthesameapproachasforequitysettledshare-basedpayments.
(ii) Wheretaxlaworregulationrequiresanentitytowithholdaspecifiednumberofequityinstrumentsequaltothemonetaryvalueoftheemployee’staxobligationtomeettheemployee’staxliability,suchanarrangementshouldbeclassifiedasequity-settledinitsentirety,providedthattheshare-basedpaymentwouldhavebeenclassifiedasequity-settledhaditnotincludedthenetsettlementfeature.
(iii) Amodificationofashare-basedpaymentthatchangesthetransactionfromcash-settledtoequity-settledshouldbeaccountedforasfollows:theoriginalliabilityisderecognised;theequity-settledshare-basedpaymentisrecognisedatthemodificationdatefairvalueoftheequityinstrumentgrantedtotheextentthatserviceshavebeenrendereduptothemodificationdate;andanydifferencebetweenthecarryingamountoftheliabilityatthemodificationdateandtheamountrecognisedinequityshouldberecognisedinprofitorlossimmediately.
Theseamendmentshavehadnoimpactontheconsolidatedfinancialstatements.
Annual improvements to IFRSs: 2014 to 2016 CycleTheGrouphasadoptedtheamendmentstoIAS28includedintheAnnualImprovementstoIFRSStandards2014–2016Cycleforthefirsttimeinthecurrentyear.TheamendmentsclarifythattheoptionforaventurecapitalorganisationandothersimilarentitiestomeasureinvestmentsinassociatesandjointventuresatFVTPLisavailableseparatelyforeachassociateorjointventure,andthatelectionshouldbemadeatinitialrecognition.Theseamendmentshavehadnoimpactontheconsolidatedfinancialstatements.
IFRIC 22 Foreign Currency Transactions and Advance ConsiderationIFRIC22addresseshowtodeterminethe‘dateoftransaction’forthepurposeofdeterminingtheexchangeratetouseoninitialrecognitionofanasset,expenseorincome,whenconsiderationforthatitemhasbeenpaidorreceivedinadvanceinaforeigncurrencywhichresultedintherecognitionofanon-monetaryassetornon-monetaryliability(forexample,anon-refundabledepositordeferredrevenue).
TheInterpretationspecifiesthatthedateoftransactionisthedateonwhichtheentityinitiallyrecognisesthenon-monetaryassetornon-monetaryliabilityarisingfromthepaymentorreceiptofadvanceconsideration.Iftherearemultiplepaymentsorreceiptsinadvance,theInterpretationrequiresanentitytodeterminethedateoftransactionforeachpaymentorreceiptofadvanceconsideration.
Theseamendmentshavehadnoimpactontheconsolidatedfinancialstatements.
NEW AND REVISED IFRS STANDARDS IN ISSUE BUT NOT YET EFFECTIVETheIASBandIFRIChaveissuedthefollowingstandardsandinterpretationswhichcouldimpacttheGroup,withaneffectivedateforfinancialperiodsbeginningonorafterthedatesdisclosedbelow:
Accounting standard Effective dateIFRIC 23 Uncertainty over Income Tax Treatments 1January2019Amendments to IAS 28 Long- term Interest in Associates and Joint Ventures 1January2019Annual Improvements to IFRSs 2015–2017 Cycle 1January2019Amendments to IAS 19 Employee Benefits: Plan Amendment, Curtailment or Settlement 1January2019
TheDirectorsdonotexpectthattheadoptionofthestandardslistedabovewillhaveamaterialimpactontheconsolidatedfinancialstatementsinfutureperiods.
IMPACT OF ADOPTION OF IFRS 16 LEASESGeneral impact of application of IFRS 16IFRS16,whichwasendorsedbytheEUon9November2017,providesacomprehensivemodelfortheidentificationofleasearrangementsandtheirtreatmentintheconsolidatedfinancialstatementsforbothlessorsandlessees.IFRS16willsupersedethecurrentleaseguidanceincludingIAS17LeasesandtherelatedInterpretationswhenitbecomeseffectiveforaccountingperiodsbeginningonorafter1January2019.ThedateofinitialapplicationofIFRS16fortheGroupis29September2019.
Giventhenumberofleasesandhistoricaldatarequirementstoadoptthefullyretrospectiveapproach,theGroupintendstoapplythemodifiedretrospectiveapproach,withassetsequaltoliabilities,attransition.Thisapproachwillnotrequirerestatementofcomparativeinformation.
Incontrasttolesseeaccounting,IFRS16substantiallycarriesforwardthelessoraccountingrequirementsinIAS17.
Impact on the new definition of a lease TheGroupwillmakeuseofthepracticalexpedientavailableontransitiontoIFRS16nottoreassesswhetheracontractisorcontainsalease.Accordingly,thedefinitionofaleaseinaccordancewithIAS17andIFRIC4willcontinuetoapplytothoseleasesenteredintoormodifiedbefore29September2019.
Thechangeindefinitionofaleasemainlyrelatestotheconceptofcontrol.IFRS16distinguishesbetweenleasesandservicecontractsonthebasisofwhethertheuseofanidentifiedassetiscontrolledbythecustomer.Controlisconsideredtoexistifthecustomerhas:
• therighttoobtainsubstantiallyalloftheeconomicbenefitsfromtheuseofanidentifiedasset;and
• therighttodirecttheuseofthatasset.
TheGroupwillapplythedefinitionofaleaseandrelatedguidancesetoutinIFRS16toallleasecontractsenteredintoormodifiedonorafter29September2019(whetheritisalessororalesseeintheleasecontract).Inpreparationforthefirst-timeapplicationofIFRS16,theGrouphascarriedoutanimplementationproject.TheprojecthasshownthatthenewdefinitioninIFRS16willnotchangesignificantlythescopeofcontractsthatmeetthedefinitionofaleasefortheGroup.
113ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
Impact on lessee accounting IFRS16willchangehowtheGroupaccountsforleasespreviouslyclassifiedasoperatingleasesunderIAS17,whichwereoff-balancesheet.
OninitialapplicationofIFRS16,forallleases(exceptasnotedbelow),theGroupwill:
(i) recogniseright-of-useassetsandleaseliabilitiesintheGroupbalancesheet,initiallymeasuredatthepresentvalueofthefutureleasepayments;
(ii) recognisedepreciationofright-of-useassetsandinterestonleaseliabilitiesintheGroupincomestatement;and
(iii) separatethetotalamountofcashpaidintoaprincipalportion(presentedwithinfinancingactivities)andinterest(presentedwithinoperatingactivities)intheGroupcashflowstatement.
Forshort-termleases(leasetermof12monthsorless)andleasesoflow-valueassets(suchaspersonalcomputersandofficefurniture),theGroupwillopttorecognisealeaseexpenseonastraight-linebasisaspermittedbyIFRS16.
TheGroupwillrecognisetotalleaseliabilitiesof£546minrespectofallitsleases.Theweightedaverageincrementalborrowingrateusedtocalculatetheopeningleaseliabilitieswas3.5%.
Thefollowingisareconciliationoftotaloperatingleasecommitmentsat28September2019,asdisclosedinnote2.3,totheleaseliabilitiesrecognisedat29September2019:
£m
Totaloperatingleasecommitmentsat28September2019(note2.3) 678Reconcilingitems: –Shorttermleases (1) –Leasecommitmentsforperiodspost
breakclauses 120 –Assumedleaseextensions 5Operatingleaseliabilitiesbeforediscounting 802Impactofdiscountingusingincrementalborrowingrate (256)TotalleaseliabilitiesrecognisedunderIFRS16at29September2019 546
TheGroupwillrecogniseacorrespondingright-of-useassetof£500minrespectofallofitsleases.
Leaseincentives(e.g.rent-freeperiods)willberecognisedaspartofthemeasurementoftheright-of-useassetsandleaseliabilitieswhereasunderIAS17theyresultedintherecognitionofaleaseliabilityincentive,amortisedasareductionofrentalcostsonastraight-linebasis.
Thefollowingisareconciliationoftheopeningleaseliabilitiestotheopeningright-of-useassets:
£m
TotalleaseliabilitiesrecognisedunderIFRS16at29September2019 546Reconcilingitems: –Leasepremiums 1 –Leaseincentives (9) –Leaseprepayments 11 –Dilapidationscosts 1 –Impairmentrecognised (31) –Subleasesderecognisedand
recognisedasfinanceleasereceivables (19)
Totalright-of-useassetsrecognisedunderIFRS16at29September2019 500
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTYThepreparationoftheconsolidatedfinancialstatementsrequiresmanagementtomakejudgements,estimatesandassumptionsintheapplicationofaccountingpoliciesthataffectreportedamountsofassets,liabilities,incomeandexpense.
Estimatesandjudgementsareperiodicallyreviewedandarebasedonhistoricalexperienceandotherfactorsincludingexpectationsoffutureeventsthatarebelievedtobereasonableunderthecircumstances.Actualresultsmaydifferfromtheseestimates.DetailsoftheGroup’scriticalaccountingjudgementsandestimatesaredescribedwithintherelevantaccountingpolicysectionineachofthenotestotheconsolidatedfinancialstatements.
Criticaljudgementsaredescribedineachsectionlistedbelow:
• Note2.2Separatelydiscloseditems• Note3.1Property,plantandequipment• Note3.3Provisions• Note4.5Pensions
Keysourcesofestimationuncertaintyaredescribedin:
• Note3.1Property,plantandequipment
Leasepremiumswillberecognisedaspartofthemeasurementoftheright-of-useassetswhereasunderIAS17theyresultedintherecognitionofaprepaymentandweredepreciatedonastraight-linebasis.
UnderIFRS16,right-of-useassetswillbetestedforimpairmentinaccordancewithIAS36ImpairmentofAssets.Thiswillreplacethepreviousrequirementtorecogniseaprovisionforonerousleasecontracts.TheGroupwillapplythepracticalexpedienttorelyonitsassessmentofonerousleasecontractsunderIAS37asanalternativetoperforminganimpairmentreviewatthetransitiondate.Therightofuseassetwillbeadjustedforthevalueoftheonerousleaseprovisionimmediatelybeforethetransitiondate.Theonerousleaseprovisionat28September2019is£35m.Anamountof£31mwillberecognisedasimpairmentattransition,withanamountof£2mrecognisedinopeningretainedearnings,representingtheexcessonerousleaseprovisionasaresultofalowerdiscountratebeingusedfortheonerousleaseprovisioncomparedtoleaseliabilitiesunderIFRS16.Theremainingprovisionof£2mwillcontinuetobeheldasaprovisionasitrelatestoservicecharge,whichisavariableleasecommitment.
Impact on lessor accountingUnderIFRS16,alessorcontinuestoclassifyleasesaseitherfinanceleasesoroperatingleasesandaccountforthosetwotypesofleasesdifferently.However,IFRS16haschangedandexpandedthedisclosuresrequired,inparticularregardinghowalessormanagestherisksarisingfromitsresidualinterestinleasedassets.
UnderIFRS16,anintermediatelessoraccountsfortheheadleaseandthesubleaseastwoseparatecontracts.Theintermediatelessorisrequiredtoclassifythesubleaseasafinanceoroperatingleasebyreferencetotheright-of-useassetarisingfromtheheadlease(andnotbyreferencetotheunderlyingassetaswasthecaseunderIAS17).
BecauseofthischangetheGroupwillreclassifycertainofitssubleaseagreementsasfinanceleases.AsrequiredbyIFRS9,anallowanceforexpectedcreditlosseswillberecognisedonthefinanceleasereceivables.Theleasedassetswillbederecognisedandfinanceleaseassetreceivablesrecognised.Thischangeinaccountingwillchangethetimingofrecognitionoftherelatedrevenue(recognisedinfinanceincome).Anamountof£19mwillbederecognisedfromtheopeningright-of-useassetandrecognisedasafinanceleasereceivableattransition.Theexpectedcreditlossattransitionis£nil.
114ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION1–BASISOFPREPARATIONCONTINUED
2.1 SEGMENTAL ANALYSIS
Accounting policiesOperating segmentsIFRS8OperatingSegmentsrequiresoperatingsegmentstobebasedontheGroup’sinternalreportingtoitsChiefOperatingDecisionMaker(CODM).TheCODMisregardedastheChiefExecutivetogetherwithotherBoardmembers.TheGrouptradesinonebusinesssegment(thatofoperatingpubsandrestaurants)andtheGroup’sbrandsmeettheaggregationcriteriasetoutinParagraph12ofIFRS8.Economicindicatorsassessedindeterminingthattheaggregatedoperatingsegmentssharesimilareconomiccharacteristicsincludeexpectedfuturefinancialperformance;operatingandcompetitiverisks;andreturnoninvestedcapital.Assuch,theGroupreportsthebusinessasonereportablebusinesssegment.
TheCODMusesEBITDAandprofitbeforeinterestandadjusteditems(operatingprofitpre-adjustments)asthekeymeasuresoftheGroup’sresultsonanaggregatedbasis.
Geographical segmentsSubstantiallyalloftheGroup’sbusinessisconductedintheUnitedKingdom.Inpresentinginformationbygeographicalsegment,segmentrevenueandnon-currentassetsarebasedonthegeographicallocationofcustomersandassets.
Geographical segmentsUK Germany Total
201952 weeks
£m
201852 weeks
£m
201952 weeks
£m
201852 weeks
£m
201952 weeks
£m
201852 weeks
£m
Revenue–salestothirdparties 2,147 2,071 90 81 2,237 2,152Segmentnon-currentassetsa 4,531 4,428 12 10 4,543 4,438
a. Includesbalancesrelatingtointangibles,property,plantandequipmentandnon-currentleasepremiums.
2.2 SEPARATELY DISCLOSED ITEMS
Accounting policyInadditiontopresentinginformationonanIFRSbasis,theGroupalsopresentsadjustedprofitandearningspershareinformationthatexcludesseparatelydiscloseditemsandtheimpactofanyassociatedtax.AdjustedprofitabilitymeasuresarepresentedexcludingseparatelydiscloseditemsaswebelievethisprovidesbothmanagementandinvestorswithusefuladditionalinformationabouttheGroup’sperformanceandsupportsamoreeffectivecomparisonoftheGroup’stradingperformancefromoneperiodtothenext.AdjustedprofitandearningspershareinformationisusedbymanagementtomonitorbusinessperformanceagainstbothshortertermbudgetsandforecastsbutalsoagainsttheGroup’slongertermstrategicplans.
Separatelydiscloseditemsarethosewhichareseparatelyidentifiedbyvirtueoftheirsizeorincidenceandincludemovementsinthevaluationofthepropertyportfolioasaresultoftheannualrevaluationexercise,impairmentreviewofshortleaseholdandunlicensedproperties,revaluationofassetsheldforsale,legalcostsassociatedwiththedisputeinrelationtothedefinedbenefitpensionschemeandpastservicecostinrelationtothedefinedbenefitpensionobligation.
Critical accounting judgements JudgementisusedtodeterminethoseitemswhichshouldbeseparatelydisclosedtoallowabetterunderstandingoftheadjustedtradingperformanceoftheGroup.Thisjudgementincludesassessmentofwhetheranitemisofsufficientsizeorofanaturethatisnotconsistentwithnormaltradingactivities.
Separatelydiscloseditemsareidentifiedasfollows:
• One-offlegalcostsassociatedwiththeongoingcourtcasebetweentheCompanyandtheTrusteeoftheDefinedBenefitPensionschemeinrelationtotherateofinflationappliedtopensionincreasesforcertainsectionsofthemembership.ThesecostswouldpreventyearonyearcomparabilityoftheGroup’stradingifnotseparatelydisclosed.
• PastservicecostinrelationtothedefinedbenefitpensionobligationasaresultoftheHighCourtrulingonguaranteedminimumpensions(GMPs)equalisations.ThishasbeendisclosedseparatelyasitisnotconsideredpartoftheadjustedtradeperformanceoftheGroupandwouldpreventyearonyearcomparabilityoftheGroup’stradingifnotseparatelydisclosed.
• Profit/(loss)arisingonpropertydisposals–propertydisposalsaredisclosedseparatelyastheyarenotconsideredtobepartofadjustedtradeperformanceandthereisvolatilityinthesizeoftheprofit/(loss)ineachaccountingperiod.
• Movementinthevaluationofthepropertyportfolio–thisisdisclosedseparately,duetothesizeandvolatilityofthemovementinpropertyvaluationeachperiod,whichcanbepartlydrivenbymovementsinthepropertymarket.ThismovementisalsonotconsideredtobepartoftheadjustedtradeperformanceoftheGroupandwouldpreventyearonyearcomparabilityoftheGroup’stradingperformanceifnotseparatelydisclosed.
115ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION2–RESULTSFORTHEYEAR
2.2 SEPARATELY DISCLOSED ITEMS CONTINUEDTheitemsidentifiedinthecurrentperiodareasfollows:
Notes
201952 weeks
£m
201852 weeks
£m
Adjusted itemsLegalcostsassociatedwiththedefinedbenefitpensionscheme a – (6)Pastservicecostinrelationtothedefinedbenefitobligation b (19) –Totaladjusteditemsrecognisedwithinoperatingcosts (19) (6)Netprofitarisingonpropertydisposals 1 1Movementinthevaluationofthepropertyportfolio(seenote3.1): –Impairmentarisingfromtherevaluation c (4) (28) –Impairmentofshortleaseholdandunlicensedproperties d (5) (15) –Reversalofpastimpairmentontransfertoassetsheldforsale e 7 –Netmovementinthevaluationofthepropertyportfolio (2) (43)Total adjusted items before tax (20) (48)Taxcreditrelatingtoaboveitems 4 7Total adjusted items after tax (16) (41)
a. Aspreviouslydisclosedinthepriorperiod,thereareongoinglegalproceedingsbetweentheCompany(asprincipalemployer)andMitchells&ButlersPensionsLimited(asTrustee)forwhichcostshavebeenincurredbothbytheCompanyandbytheTrustee,butwhichtheCompanyhasagreedtopay.ThelegalproceedingsareinrelationtotheMitchells&ButlersPensionPlan(MABPP),wherebytheTrustDeedandRulesprovidethatitisamatterfortheCompanytodeterminetherateofinflationwhichshouldbeappliedtopensionincreasesforcertainsectionsofthemembershipinexcessofguaranteedminimumpensions.TheCompanyhasinstructedtheTrusteetoapplyCPI(subjecttocertaincaps)inrespectofsuchincreases.TheTrusteebelievesthatthispowerwasincorrectlyvestedintheCompanyintheTrustDeedandRulesoftheMABPPin1996and,despiteitbeingreflectedinfurtherversionsoftheTrustDeedandRules,hasmadeanapplicationtocourtforthosevariousTrustDeedandRulestoberectified.ItistheBoard’sbeliefthattheCompanyholdsthepowertofixsuchaninflationindexandtheCompanyisthereforecontestingthatapplication.Thehearingisexpectedtobeheardinmid-2020.
b. On26October2018theHighCourtprovidedarulingregardingguaranteedminimumpensions(GMPs)equalisation.Thecourtruledthatpensionsprovidedtomemberswhohadcontracted-outoftheirschememustberecalculatedtoensurepaymentsreflecttheequalisationofstatepensionagesinthe1990s.TherulingprovidedpensiontrusteeswitharangeofacceptablemethodsforcalculatingtheGMPequalisation.Thecourtalsoruledthattrusteesareobligedtomakearrearspaymentstomembersandsimpleinterestonthearrearsshouldbepaidat1%abovethebaserate.TheestimatedincreaseinpensionliabilitiesrequiredtoequaliseforGMPsis£19m.
c. TheimpairmentarisingfromtheGroup’srevaluationofitsfreeholdandlongleaseholdpubestatecomprisesanimpairmentcharge,wherethecarryingvaluesofthepropertiesexceedtheirrecoverableamount,netofarevaluationsurplusthatreversespastimpairments.Seenote3.1forfurtherdetails.
d. Theimpairmentofshortleaseholdandunlicensedpropertiescomprisesanimpairmentcharge,wheretheircarryingvaluesexceedtheirrecoverableamount,netofanimpairmentreversalwherecarryingvalueshavebeenincreasedtotherecoverableamounts.Seenote3.1forfurtherdetails.
e. Arevaluationuplift,whichreversesapreviousimpairment,hasbeenrecognisedonreclassificationofproperty,plantandequipmenttoassetsheldforsaleattheinterimdate.Theseassetshavebeendisposedofduringthesecondhalfofthefinancialperiod.
116ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION2–RESULTSFORTHEYEARCONTINUED
2.3 REVENUE AND OPERATING COSTS
Accounting policyRevenue recognitionRevenueismeasuredbasedontheconsiderationtowhichtheGroupexpectstobeentitledinacontractwithacustomerandexcludesamountscollectedonbehalfofthirdparties.TheGrouprecognisesrevenuewhenittransferscontrolofaproductorservicetoacustomer.
Revenue – food and drinkThemajorityofrevenuecomprisesfoodanddrinkssoldintheGroup’soutlets.Revenueisrecognisedwhencontrolofthegoodshastransferred,beingatthepointthecustomerpurchasesthegoodsattheoutlet.Paymentofthetransactionpriceisdueimmediatelyatthepointthecustomermakesapurchase.Revenueexcludessales-basedtaxes,couponsanddiscounts.
Revenue – servicesRevenueforservicesmainlyrepresentsincomefromgamingmachines,hotelaccommodationandrentreceivablefromunlicensedandleasedoperations.Revenueforgamingmachinesandhotelaccommodationisrecognisedatthepointtheserviceisprovidedandexcludessales-basedtaxesanddiscounts.
RentalincomeisreceivedfromoperatingleaseswheretheGroupactsaslessorforanumberofunlicensedandleasedoperations.Incomefromtheseleasesisrecognisedonastraight-linebasisoverthetermofthelease.
Operating profitOperatingprofitisstatedafterchargingadjusteditemsbutbeforeinvestmentincomeandfinancecosts.
Supplier incentivesSupplierincentivesandrebatesarerecognisedwithinoperatingcostsastheyareearned.Theaccruedvalueatthereportingdateisincludedinotherreceivables.
Operating leases – Group as lesseeLeasesinwhichsubstantiallyalltherisksandrewardsofownershipareretainedbythelessorareclassifiedasoperatingleases.Paymentsmadeunderoperatingleasesandsub-leasesarechargedtotheincomestatementonastraight-linebasisovertheperiodofthelease.Leaseincentivesarerecognisedasaliabilityandasubsequentreductionintherentalexpenseovertheleasetermonastraight-linebasis.
Premiumspaidonacquiringanewleasearespreadonastraight-linebasisovertheleaseterm.Suchpremiumsareclassifiedinthebalancesheetascurrentornon-currentleasepremiums,withthecurrentportionbeingtheelementwhichrelatestothefollowingperiod.
TheGroup’spolicyistoaccountforlandheldunderbothlongandshortleaseholdcontractsasoperatingleases,sinceithasnoexpectationthattitlewillpassonexpiryoftheleasecontracts.
Revenueisanalysedasfollows:
201952 weeks
£m
201852 weeks
£m
Food 1,137 1,092Drink 1,025 991Services 75 69
2,237 2,152
Revenuefromservicesincludesrentreceivablefromunlicensedpropertiesandleasedoperationsof£10m(2018£9m).
Operatingcostsareanalysedasfollows:
201952 weeks
£m
201852 weeks
£m
Rawmaterialsandconsumablesrecognisedasanexpensea 574 564Changesininventoryoffinishedgoodsandworkinprogress – (1)Employeecosts 721 676Hireofplantandmachinery 23 23Propertyoperatingleasecosts 59 63Othercosts 424 405Operatingcostsbeforedepreciation,amortisationandmovementsinthevaluationofthepropertyportfoliobeforeseparatelydiscloseditems 1,801 1,730Otheradjusteditems(note2.2) 19 6
1,820 1,736Netprofitarisingonpropertydisposals (1) (1)
Depreciationofproperty,plantandequipment(note3.1) 116 116Amortisationofintangibleassets(note3.4) 3 3Netmovementinthevaluationofthepropertyportfolio(note3.1) 2 43Depreciation,amortisationandmovementsinthevaluationofthepropertyportfolio 121 162Total operating costs 1,940 1,897
a. Supplierincentivesareincludedasareductiontotherawmaterialsandconsumablesexpense.Thesearenotdisclosedseparatelyasthevalueisimmaterial.
117ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
2.3 REVENUE AND OPERATING COSTS CONTINUEDEmployee costs
201952 weeks
£m
201852 weeks
£m
Wagesandsalaries 656 620Share-basedpayments(note4.6) 3 3Totalwagesandsalaries 659 623Socialsecuritycosts 50 45Pensions(note4.5) 12 8Totalemployeecosts 721 676
Theaveragenumberofemployeesincludingpart-timeemployeeswas44,521retailemployees(201843,777)and1,039supportemployees(20181,025).
Informationregardingkeymanagementpersonnelisincludedinnote5.1.DetailedinformationregardingDirectors’emoluments,pensions,long-termincentiveschemeentitlementsandtheirinterestsinshareoptionsisgivenintheReportonDirectors’remunerationonpages76to97.
Operating leasesOperating lease commitments – Group as lesseeThevastmajorityoftheGroup’sleasesareindustrystandardUKpuborcommercialpropertyleaseswhichprovideforperiodicrentreviewstoopenmarketvalueandenjoystatutoryrightstorenewalonexpiry.Generallytheydonotcontainconditionsrelatingtorentescalation,rightstopurchase,concessions,residualvaluesorothermaterialprovisionsofanunusualnature.
Totalfutureminimumleaserentalpaymentsundernon-cancellableoperatingleasesareasfollows:
2019£m
2018£m
Duewithinoneyear 47 55Betweenoneandfiveyears 198 196Afterfiveyears 433 419
678 670
Operating lease receivables – Group as lessorTheGroupleasesasmallproportionofitsunlicensedpropertiestotenants.Themajorityofleaseagreementshavetermsof50yearsorlessandareclassifiedasoperatingleases.Wheresubletarrangementsareinplace,futureminimumleasepaymentsandreceiptsarepresentedgross.
Totalfutureminimumleaserentalreceiptsundernon-cancellableoperatingleasesareasfollows:
2019£m
2018£m
Duewithinoneyear 9 8Betweenoneandfiveyears 27 26Afterfiveyears 52 45
88 79
Thetotalvalueoffutureminimumsubleaserentalreceiptsincludedaboveis£39m.£3mofsubleaseincomehasbeenderecognisedasrentalincomeintheGroupincomestatementintheperiod.
Auditor remuneration2019
52 weeks£m
201852 weeks
£m
FeespayabletotheGroup’sauditorforthe: –auditoftheconsolidatedfinancialstatements 0.2 0.1 –auditoftheCompany’ssubsidiaries’financialstatements 0.3 0.3Totalauditfees 0.5 0.4Otherfeestoauditor: –auditrelatedassuranceservices 0.1 0.1Totalnon-auditfees 0.1 0.1
Auditor’sremunerationof£0.4m(2018£0.3m)waspaidintheUKand£0.1m(2018£0.1m)waspaidinGermany.
118ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION2–RESULTSFORTHEYEARCONTINUED
2.4 TAXATION
Accounting policiesCurrent taxTheincometaxexpenserepresentsboththeincometaxpayable,basedonprofitsfortheperiod,anddeferredtaxandiscalculatedusingtaxratesenactedorsubstantivelyenactedatthebalancesheetdate.Taxableprofitdiffersfromnetprofitasreportedintheincomestatementbecauseitexcludesitemsofincomeorexpensewhicharenottaxable.Incometaxisrecognisedintheincomestatementexceptwhenitrelatestoitemsthatarechargedorcreditedinothercomprehensiveincomeordirectlyinequity,inwhichcasetheincometaxisalsochargedorcreditedinothercomprehensiveincomeordirectlyinequity.
Deferred taxDeferredtaxisthetaxexpectedtobepayableorrecoverableondifferencesbetweenthecarryingamountofassetsandliabilitiesinthefinancialstatementsandthecorrespondingtaxbasesusedinthecomputationoftaxableprofitsandisaccountedforusingthebalancesheetliabilitymethod.Deferredtaxliabilitiesaregenerallyrecognisedforalltaxabletemporarydifferencesanddeferredtaxassetsarerecognisedtotheextentthatitisprobablethattaxableprofitswillbeavailableagainstwhichdeductibletemporarydifferencescanbeutilised.
Deferredtaxliabilitiesarerecognisedfortaxabletemporarydifferencesarisingoninvestmentsinsubsidiariesandassociates,exceptwheretheGroupisabletocontrolthereversalofthetemporarydifferenceanditisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.Deferredtaxassetsarisingfromdeductibletemporarydifferencesassociatedwithsuchinvestmentsandinterestsareonlyrecognisedtotheextentthatitisprobablethattherewillbesufficienttaxableprofitsagainstwhichtoutilisethebenefitsofthetemporarydifferencesandtheyareexpectedtoreverseintheforeseeablefuture.
Thecarryingamountofdeferredtaxassetsisreviewedateachbalancesheetdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitswillbeavailabletoallowallorpartoftheassettoberecovered.
Deferredtaxiscalculatedatthetaxratesthatareexpectedtoapplyintheperiodwhentheliabilityissettledortheassetrealisedbasedontaxlawsandratesthathavebeensubstantivelyenactedatthebalancesheetdate.Theamountofdeferredtaxrecognisedisbasedontheexpectedmannerofrealisationorsettlementofthecarryingamountofassetsandliabilities.
Taxation – Group income statement2019
52 weeks£m
201852 weeks
£m
Currenttax: –UKcorporationtax (31) (28) –Amountsoverprovidedinpriorperiods 3 2Totalcurrenttaxcharge (28) (26)Deferredtax: –Originationandreversaloftemporarydifferences (5) – –Adjustmentsinrespectofpriorperiods (1) –Totaldeferredtaxcharge (6) –TotaltaxchargedintheGroupincomestatement (34) (26)Furtheranalysedastaxrelatingto:Profitbeforeadjusteditems (38) (33)Adjusteditems 4 7
(34) (26)
Thestandardrateofcorporationtaxappliedtothereportedprofitis19.0%(201819.0%).
ThetaxchargeintheGroupincomestatementfortheperiodisequalto(2018higherthan)thestandardrateofcorporationtaxintheUK.Thedifferencesarereconciledbelow:
201952 weeks
£m
201852 weeks
£m
Profitbeforetax 177 130TaxationchargeattheUKstandardrateofcorporationtaxof19.0%(201819.0%) (34) (25)Expensesnotdeductible (2) (4)Incomenottaxable 1 2Adjustmentsinrespectofpriorperiods 2 2Effectofdifferenttaxratesofsubsidiariesoperatinginotherjurisdictions (1) (1)TotaltaxchargeintheGroupincomestatement (34) (26)
Taxationforotherjurisdictionsiscalculatedattheratesprevailinginthosejurisdictions.
119ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
2.4 TAXATION CONTINUED2019
52 weeks£m
201852 weeks
£m
Deferred tax in the Group income statement:Acceleratedcapitalallowances 1 1Retirementbenefitobligations (4) (6)Depreciatednon-qualifyingassets – 1Unrealisedgainsonrevaluations (1) 5Taxlosses–UK (2) (2)Taxlosses–overseas (1) 1Share-basedpayments 1 –TotaldeferredtaxchargeintheGroupincomestatement (6) –
Taxation – other comprehensive income2019
52 weeks£m
201852 weeks
£m
Deferredtax:Itemsthatwillnotbereclassifiedsubsequentlytoprofitorloss: –Unrealised(gains)/lossesduetorevaluations–revaluationreserve (14) 1 –Unrealisedgainsduetorevaluations–retainedearnings (1) – –Remeasurementofpensionliability (3) (1)
(18) –Itemsthatmaybereclassifiedsubsequentlytoprofitorloss: –Cashflowhedges: –(Losses)/gainsarisingduringtheperiod 14 (3) –Reclassificationadjustmentsforitemsincludedinprofitorloss (4) (5)
10 (8)Totaltaxchargerecognisedinothercomprehensiveincome (8) (8)
Tax relating to items recognised directly in equity2019
52 weeks£m
201852 weeks
£m
Deferredtax: –Taxcreditrelatedtoshare-basedpayments 2 –
Taxation – Group balance sheet ThedeferredtaxassetsandliabilitiesrecognisedintheGroupbalancesheetareshownbelow:
2019£m
2018£m
Deferred tax asset:Retirementbenefitobligations(note4.5) 36 43Derivativefinancialinstruments 52 42Taxlosses–UK 4 6Taxlosses–overseas – 1Share-basedpayments 4 2Totaldeferredtaxasset 96 94Deferred tax liability:Acceleratedcapitalallowances (30) (31)Rolledoverandheldovergains (112) (112)Unrealisedgainsonrevaluations (186) (170)Depreciatednon-qualifyingassets (3) (3)Totaldeferredtaxliability (331) (316)Total (235) (222)
120ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION2–RESULTSFORTHEYEARCONTINUED
Deferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttooffsetincometaxassetsandincometaxliabilitiesandwhenitistheintentiontosettlethebalancesonanetbasis.DeferredtaxassetsandliabilitieshavebeenoffsetanddisclosedintheGroupbalancesheetasfollows:
2019£m
2018£m
Deferredtaxasset 66 63Deferredtaxliability (301) (285)Netdeferredtaxliability (235) (222)
Unrecognised tax allowancesAtthebalancesheetdatetheGrouphadunusedtaxallowancesof£87minrespectofunclaimedcapitalallowances(2018£87m)availableforoffsetagainstfutureprofits.
Adeferredtaxassethasnotbeenrecognisedontaxallowanceswithavalueof£15m(2018£15m)becauseitisnotcertainthatfuturetaxableprofitswillbeavailableinthecompanywherethesetaxallowancesaroseagainstwhichtheGroupcanutilisethesebenefits.Thesetaxcreditscanbecarriedforwardindefinitely.
Factors which may affect future tax chargesTheFinanceAct2016wassubstantivelyenactedon15September2016andreducedthemainrateofcorporationtaxfrom19%to17%from1April2020.Theeffectofthesechangeshasbeenreflectedintheclosingdeferredtaxbalancesat28September2019and29September2018.
2.5 EARNINGS PER SHAREBasicearningspershare(EPS)hasbeencalculatedbydividingtheprofitorlossfortheperiodbytheweightedaveragenumberofordinarysharesinissueduringtheperiod,excludingownsharesheldbyemployeesharetrusts.
Fordilutedearningspershare,theweightedaveragenumberofordinarysharesisadjustedtoassumeconversionofalldilutivepotentialordinaryshares.
Adjustedearningsperordinaryshareamountsarepresentedbeforeadjusteditems(seenote2.2)inordertoallowabetterunderstandingoftheadjustedtradingperformanceoftheGroup.
Profit£m
BasicEPS
pence perordinary
share
DilutedEPS
pence perordinary
share
52 weeks ended 28 September 2019:Profit/EPS 143 33.5p 33.3pAdjusteditems,netoftax 16 3.7p 3.8pAdjustedprofit/EPSa 159 37.2p 37.1p
52 weeks ended 29 September 2018:Profit/EPS 104 24.5p 24.4pAdjusteditems,netoftax 41 9.6p 9.6pAdjustedprofit/EPSa 145 34.1p 34.0p
a. AdjustedprofitandadjustedEPSarealternativeperformancemeasures(APMs)andareconsideredcriticaltoaidunderstandingoftheGroup’sperformance.Thesemeasuresareexplainedonpages156to158ofthisreport.
Theweightedaveragenumberofordinarysharesusedinthecalculationsaboveareasfollows:
201952 weeks
£m
201852 weeks
£m
ForbasicEPScalculations 427 425Effectofdilutivepotentialordinaryshares: –Contingentlyissuableshares 1 2 –Othershareoptions 1 –FordilutedEPScalculations 429 427
At28September2019,782,078(20182,746,844)othershareoptionswereoutstandingthatcouldpotentiallydilutebasicEPSinthefuturebutwerenotincludedinthecalculationofdilutedEPSastheyareanti-dilutivefortheperiodspresented.
121ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
3.1 PROPERTY, PLANT AND EQUIPMENT
Accounting policiesProperty, plant and equipmentThemajorityoftheGroup’sfreeholdandlongleaseholdlicensedlandandbuildingsarerevaluedannuallyandarethereforeheldatfairvaluelessdepreciation.
Shortleaseholdbuildings(leaseswithanunexpiredleasetermoflessthan50years),unlicensedlandandbuildingsandfixtures,fittingsandequipmentareheldatcostlessdepreciationandimpairment.
Alllandandbuildingsaredisclosedasasingleclassofassetwithintheproperty,plantandequipmenttable,aswedonotconsidertheshortleaseholdandunlicensedbuildingstobematerialforseparatedisclosure.
Non-currentassetsheldforsaleareheldattheircarryingvalueortheirfairvaluelesscoststosellwherethisislower.
DepreciationDepreciationischargedtotheincomestatementonastraight-linebasistowriteoffthecostlessresidualvalueovertheestimatedusefullifeofanassetandcommenceswhenanassetisreadyforitsintendeduse.Expectedusefullivesandresidualvaluesarereviewedeachyearandadjustedifappropriate.
Freeholdlandisnotdepreciated.
Freeholdandlongleaseholdbuildingsaredepreciatedsothatthedifferencebetweentheircarryingvalueandestimatedresidualvalueiswrittenoffover50yearsfromthedateofacquisition.Theresidualvalueoffreeholdandlongleaseholdbuildingsisreassessedeachyearandisestimatedtobeequaltothefairvaluedeterminedintheannualvaluationandthereforenodepreciationchargeisrecognised.
Shortleaseholdbuildings,andassociatedfixtures,fittingsandequipment,aredepreciatedovertheshorteroftheestimatedusefullifeandtheunexpiredtermofthelease.
Fixtures,fittingsandequipmenthavethefollowingestimatedusefullives:
Informationtechnologyequipment 3to7yearsFixturesandfittings 3to20years
Atthepointoftransfertonon-currentassetsheldforsale,depreciationceases.Shouldanassetbesubsequentlyreclassifiedtoproperty,plantandequipment,thedepreciationchargeiscalculatedtoreflectthecumulativechargehadtheassetnotbeenreclassified.
DisposalsProfitsandlossesondisposalofproperty,plantandequipmentarecalculatedasthedifferencebetweenthenetsalesproceedsandthecarryingamountoftheassetatthedateofdisposal.
RevaluationTherevaluationutilisesvaluationmultiples,whicharedeterminedviathird-partyinspectionof20%ofthesitessuchthatallsitesareindividuallyvaluedapproximatelyeveryfiveyears;estimatesoffairmaintainabletrade(FMT);andestimatedresalevalueoftenant’sfixturesandfittings.Propertiesarevaluedasfullyoperationalentities,toincludefixturesandfittingsbutexcludingstockandpersonalgoodwill.Thevalueoftenant’sfixturesandfittingsisthenremovedfromthisvaluationviareferencetoitsassociatedresalevalue.Wheresiteshavebeenimpactedbyexpansionarycapitalinvestmentinthepreceding12months,FMTistakenasthepostinvestmentforecast,asthecurrentyeartradingperformanceincludesaperiodofclosure.
Valuationmultiplesderivedviathird-partyinspectionsdeterminebrandstandardmultipleswhicharethenusedtovaluetheremainderofthenon-inspectedestateviaanextrapolationexercise,withtheoutputofthisexercisereviewedatahighlevelbytheDirectorsandthethird-partyvaluer.
Wherethevalueoflandandbuildingsderivedpurelyfromamultipleappliedtothefairmaintainabletrademisrepresentstheunderlyingassetvalue,forexample,duetolowlevelsofincomeorlocationcharacteristics,aspotvaluationisapplied.
Surpluseswhicharisefromtherevaluationexerciseareincludedwithinothercomprehensiveincome(intherevaluationreserve)unlesstheyarereversingarevaluationdeficitwhichhasbeenrecognisedintheincomestatementpreviously;inwhichcaseanamountequaltoamaximumofthatrecognisedintheincomestatementpreviouslyisrecognisedintheincomestatement.Wheretherevaluationexercisegivesrisetoadeficit,thisisreflecteddirectlywithintheincomestatement,unlessitisreversingapreviousrevaluationsurplusagainstthesameasset;inwhichcaseanamountequaltothemaximumoftherevaluationsurplusisrecognisedwithinothercomprehensiveincome(intherevaluationreserve).
ImpairmentShortleaseholdandunlicensedpropertiesarereviewedonanoutletbasisforimpairmentifeventsorchangesincircumstancesindicatethatthecarryingamountmaynotberecoverable.Animpairmentlossisrecognisedwheneverthecarryingamountofanoutletexceedsitsrecoverableamount.Therecoverableamountisthehigherofanoutlet’sfairvaluelesscoststosellandvalueinuse.Anychangesinoutletearnings,orcashflows,thediscountrateappliedtothosecashflows,ortheestimateofsalesproceedscouldgiverisetoanadditionalimpairmentloss.
Whereanimpairmentlosssubsequentlyreverses,thecarryingamountoftheassetisincreasedtotherevisedestimateofitsrecoverableamount,butonlysothattheincreasedcarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendeterminedhadnoimpairmentlossbeenrecognisedfortheassetinpriorperiods.Areversalofanimpairmentlossisrecognisedintheincomestatementimmediately.Animpairmentreversalisonlyrecognisedwherethereisachangeintheestimatesusedtodeterminerecoverableamounts,notwhereitresultsfromthepassageoftime.
122ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION3–OPERATINGASSETSANDLIABILITIES
Critical accounting judgementsTherevaluationmethodologyisdeterminedusingmanagementjudgement,withadvicefromthird-partyvaluers.TheapplicationofavaluationmultipletothefairmaintainabletradeofeachsiteisconsideredthemostappropriatemethodfortheGrouptodeterminethefairvalueoflicensedlandandbuildings.Wheresiteshavebeenimpactedbyexpansionarycapitalinvestmentinthepreceding12months,managementjudgementisusedtodeterminethemostappropriateFMT.TheFMTistakenasthepostinvestmentforecast,asthecurrentyeartradingperformanceincludesaperiodofclosure.
Key sources of estimation uncertaintyTheapplicationofthevaluationmethodologyrequirestwokeysourcesofestimationuncertainty;theestimationofvaluationmultiples,whicharedeterminedviathird-partyinspections;andanestimateoffairmaintainabletrade,includingreferencetohistoricandfutureprojectedincomelevels.AsensitivityanalysisofchangesinvaluationmultiplesandFMT,inrelationtothepropertiestowhichtheseestimatesapply,isprovidedonpage124.Thecarryingvalueofpropertiestowhichtheseestimatesapplyis£4,343m(2018£4,230m).
Property, plant and equipmentProperty,plantandequipmentcanbeanalysedasfollows:
Land and buildings
£m
Fixtures, fittings and equipment
£mTotal
£m
Cost or valuationAt30September2017 3,953 1,118 5,071Additions 39 125 164Disposalsa (12) (123) (135)Revaluation/(impairment) (41) (7) (48)At29September2018 3,939 1,113 5,052Additions 37 114 151Transfertoassetsheldforsale (12) (2) (14)Disposalsa (2) (158) (160)Revaluation/(impairment) 86 (4) 82At 28 September 2019 4,048 1,063 5,111
Accumulated depreciationAt30September2017 78 564 642Providedduringtheperiod 6 110 116Disposalsa (10) (122) (132)At29September2018 74 552 626Providedduringtheperiod 7 109 116Transfertoassetsheldforsale – (1) (1)Disposalsa (2) (156) (158)At 28 September 2019 79 504 583
Net book valueAt 28 September 2019 3,969 559 4,528 At29September2018 3,865 561 4,426At30September2017 3,875 554 4,429
a. Includesassetswhicharefullydepreciatedandhavebeenremovedfromthefixedassetregister.
Certainassetswithanetbookvalueof£41m(2018£43m)ownedbytheGrouparesubjecttoafixedchargeinrespectofliabilitiesheldbytheMitchells&ButlersExecutiveTop-UpScheme(MABETUS).
Includedwithinproperty,plantandequipmentareassetswithanetbookvalueof£3,881m(2018£3,788m),whicharepledgedassecurityforthesecuritisationdebtandoverwhichtherearecertainrestrictionsontitle.
Costat28September2019includes£7m(2018£18m)ofassetsinthecourseofconstruction.
Assets held for saleDuringthefirsthalfofthefinancialperiod,agroupofpropertieswereclassifiedasheldforsale.Attheinterimdate,13April2019,thenetbookvalueofthesepropertieswas£13m.Arevaluationupliftof£7mwasrecognisedtoincreasethecarryingvalueoftheseassetstothefairvaluelesscoststosell.TherevaluationuplifthasbeenrecognisedintheGroupincomestatementasitreversesapreviouslyrecognisedimpairment.Thepropertiesweresoldduringthesecondhalfofthefinancialperiodandthereforethevalueofassetsheldforsaleremainingat28September2019is£nil.
123ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
3.1 PROPERTY, PLANT AND EQUIPMENT CONTINUEDRevaluation of freehold and long leasehold propertiesThefreeholdandlongleaseholdpropertieshavebeenvaluedatfairvalue,asat28September2019,usinginformationprovidedbyCBRE,independentcharteredsurveyors.ThevaluationwascarriedoutinaccordancewiththeRICSValuation–GlobalStandards2017whichincorporatetheInternationalValuationStandardsandtheRICSValuation–ProfessionalStandardsUKJanuary2014(revisedApril2015)(the‘RedBook’)assumingeachassetissoldasafullyoperationaltradingentity.Thefairvaluehasbeendeterminedhavingregardtofactorssuchascurrentandfutureprojectedincomelevels,takingaccountoflocation,qualityofthepubrestaurantandrecentmarkettransactionsinthesector.
Sensitivity analysisChangesineithertheFMTorthemultiplecouldmateriallyimpactthevaluationofthefreeholdandlongleaseholdproperties.TheaveragemovementinFMTofrevaluedpropertiesinthepastthreeyearsis1.0%.Itisestimatedthat,giventhemultipliereffect,a1.0%changeintheFMTofthefreeholdorlongleaseholdpropertieswouldgenerateanapproximate£37mmovementintheirvaluation.
Multiplesaredeterminedatanindividualbrandlevel.Overthelastthreeyears,theweightedaverageofallbrandmultipleshasmovedbyanaverageof0.1.Itisestimatedthata0.1changeinthemultiple,wouldgenerateanapproximate£43mmovementinvaluation.
Impairment review of short leasehold and unlicensed propertiesShortleaseholdandunlicensedproperties(comprisinglandandbuildingsandfixtures,fittingsandequipment)whicharenotrevaluedtofairmarketvalue,arereviewedforimpairmentbycomparingsitevalueinusecalculationstotheircarryingvalues.Thevalueinusecalculationusesforecasttradingperformancecashflows,whicharediscountedbyapplyingapre-taxdiscountrateof7.7%(20187.5%).Anyresultingimpairmentrelatestositeswithpoortradingperformance,wheretheoutputofthevalueinusecalculationisinsufficienttojustifytheircurrentnetbookvalue.
CurrentyearvaluationshavebeenincorporatedintotheconsolidatedfinancialstatementsandtheresultingrevaluationadjustmentshavebeentakentotherevaluationreserveorGroupincomestatementasappropriate.Theimpactoftherevaluations/impairmentsdescribedaboveisasfollows:
201952 weeks
£m
201852 weeks
£m
Group income statementRevaluationdeficitchargedasanimpairment (76) (89)Reversalofpastrevaluationdeficits 72 61Totalimpairmentarisingfromtherevaluation (4) (28)Impairmentofshortleaseholdandunlicensedproperties (7) (15)Reversalofpastimpairmentsofshortleaseholdandunlicensedproperties 2 –Totalimpairmentofshortleaseholdandunlicensedproperties (5) (15)Reversalofpastimpairmentontransfertoassetsheldforsale 7 –
(2) (43)Revaluation reserveUnrealisedrevaluationsurplus 199 171Reversalofpastrevaluationsurplus (115) (176)
84 (5)Net increase/(decrease) in property, plant and equipment 82 (48)
ThevaluationtechniquesareconsistentwiththeprinciplesinIFRS13andusesignificantunobservableinputssuchthatthefairvaluemeasurementofeachpropertywithintheportfoliohasbeenclassifiedasLevel3inthefairvaluehierarchy.
Thenumberofpubsincludedintherevaluationandtheresultingvaluationofthesepropertiesisreconciledtothetotalvalueofproperty,plantandequipmentbelow.
28 September 2019Number of pubs
Land and buildings
£m
Fixtures, fittings and equipment
£m
Net book valuea
£m
Freeholdproperties 1,331 3,603 433 4,036 Longleaseholdproperties 96 270 37 307 Totalrevaluedproperties 1,427 3,873 470 4,343 Shortleaseholdproperties 77 80 157 Unlicensedproperties 15 2 17 Othernon-pubassets 1 3 4 Assetsunderconstruction 3 4 7 Totalproperty,plantandequipment 3,969 559 4,528
124ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION3–OPERATINGASSETSANDLIABILITIESCONTINUED
29September2018Number of pubs
Land and buildings
£m
Fixtures, fittings and equipment
£m
Net book valuea
£m
Freeholdproperties 1,336 3,507 428 3,935Longleaseholdproperties 95 259 36 295Totalrevaluedproperties 1,431 3,766 464 4,230Shortleaseholdproperties 77 79 156Unlicensedproperties 14 2 16Othernon-pubassets 3 3 6Assetsunderconstruction 5 13 18Totalproperty,plantandequipment 3,865 561 4,426
a. Thecarryingvalueoffreeholdandlongleaseholdpropertiesbasedontheirhistoricalcost(ordeemedcostattransitiontoIFRS)is£2,657mand£190mrespectively(2018£2,635mand£186m).
Thetablesbelowshow,byclassofasset,thenumberofpropertiesthathavebeenvaluedwithineachFMTandmultiplebanding:
Valuation multiple applied to FMT
28 September 2019Over 12
times10 to 12
times8 to 10
times6 to 8 times
Under 6 times Total
NumberofpubsineachFMTincomebanding:<£200kpa 56 9 163 158 6 392 £200kto£360kpa 1 14 302 133 18 468 >£360kpa 1 59 430 61 16 567
58 82 895 352 40 1,427
Valuation multiple applied to FMT
29September2018Over 12
times10 to 12
times8 to 10
times6 to 8 times
Under 6 times Total
NumberofpubsineachFMTincomebanding:<£200kpa 48 6 166 170 10 400£200kto£360kpa – 12 311 138 15 476>£360kpa 3 54 414 65 19 555
51 72 891 373 44 1,431
Year-on-yearmovementsinvaluationmultiplesaretheresultofchangesinpropertymarketconditions.Theaverageweightedmultipleis8.6(20188.6).
Inadditiontotheabove,premiumspaidonacquiringanewleaseareclassifiedseparatelyintheGroupbalancesheet.At28September2019anamountof£1m(2018£1m)wasincludedintheGroupbalancesheet.
Capital commitments2019
£m2018
£m
Contractsplacedforexpenditureonproperty,plantandequipmentnotprovidedforinthefinancialstatements 19 24
125ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
3.2 WORKING CAPITALInventories
Accounting policyInventoriesarestatedatthelowerofcostandnetrealisablevalue.Costiscalculatedusingtheweightedaveragemethod.
Inventoriescanbeanalysedasfollows:
2019£m
2018£m
Goodsheldforresale 26 26
Trade and other receivables
Accounting policyTradereceivablesandotherreceivablesareinitiallyrecognisedatfairvalue.Itemsaresubsequentlycarriedatamortisedcostlessanallowanceforanylifetimeexpectedcreditlosses(seefinancialassetsimpairmentpolicyinnote4.4).
Tradeandotherreceivablescanbeanalysedasfollows:
2019£m
2018£m
Tradereceivables 7 7Otherreceivables 15 14Prepayments 41 35Totaltradeandotherreceivables 63 56
Allamountsfallduewithinoneyear.
Tradereceivablesandotherreceivablesarenon-interestbearing.TheDirectorsconsiderthatthecarryingamountoftradereceivablesandotherreceivablesapproximatelyequatestotheirfairvalue.Alifetimeexpectedcreditlossof£2mhasbeenrecognisedagainsttradereceivablesandotherreceivables.
Creditriskisconsideredinnote4.4.
Trade and other payables
Accounting policyTradeandotherpayablesareinitiallyrecognisedatfairvalueandrecognisedsubsequentlyatamortisedcost.
Tradeandotherpayablescanbeanalysedasfollows:
2019£m
2018£m
Tradepayables 88 83Othertaxationandsocialsecurity 78 64Accruedcharges 104 103Otherpayables 57 52Totaltradeandotherpayables 327 302
Currenttradeandotherpayablesarenon-interestbearing.TheDirectorsconsiderthatthecarryingamountoftradeandotherpayablesapproximatelyequatestotheirfairvalue.
126ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION3–OPERATINGASSETSANDLIABILITIESCONTINUED
3.3 PROVISIONS
Accounting policyProvisionsarerecognisedwhentheGrouphasapresentlegalorconstructiveobligationasaresultofpastevents;itismorelikelythannotthatanoutflowofresourceswillberequiredtosettletheobligation;andtheamountcanbereliablyestimated.ProvisionsaremeasuredusingtheDirectors’bestestimateoftheexpenditurerequiredtosettletheobligationatthebalancesheetdateandarediscountedtopresentvaluewheretheeffectismaterial.
Onerouspropertyprovisionsrepresenttheexpectedunavoidablelossesononerousandvacantpropertyleasesandcomprisethelowerofthenetleasecommitments(includingrentalcostsandservicecharge)ortheoperatinglossafterrentalcostsandservicecharge.Theprovisioniscalculatedonasitebysitebasiswithaprovisionbeingmadefortheremainingcommittedleaseterm,wherealeaseisconsideredtobeonerous.Othercontractualdilapidationscostsarealsorecordedasprovisionsasappropriate.
Critical accounting judgementsDeterminationofwhetheralossisunavoidablerequiresareasofjudgementsuchasconsiderationofpotentialfutureinvestmentdecisionsorlocalconditionswhichmaybeimpactingoncurrentperformance.
ProvisionsTheprovisionforunavoidablelossesononerouspropertyleaseshasbeensetuptocoverrentalpaymentsandservicechargeofvacantorloss-makingproperties.Paymentsareexpectedtocontinueonthesepropertiesforperiodsof1to24years.
Provisionscanbeanalysedasfollows:
Onerous property
provisions£m
Dilapidation provisions
£m
Total property provisions
£m
At30September2017 42 – 42Releasedintheperioda (6) – (6)Providedintheperiod 10 1 11Unwindingofdiscount 1 – 1Utilisedintheperiod (5) – (5)At29September2018 42 1 43Releasedintheperioda (9) (1) (10)Providedintheperiod 8 1 9Unwindingofdiscount 1 – 1Utilisedintheperiod (7) – (7)At 28 September 2019 35 1 36
a. Releasesinthecurrentandpriorperiodprimarilyrelatetoimprovementinperformanceofmanagedproperties.
127ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
3.4 GOODWILL AND OTHER INTANGIBLE ASSETS
Accounting policiesBusiness combinations and goodwillAcquisitionsofsubsidiariesandbusinessesareaccountedforusingtheacquisitionmethod.TheconsiderationforeachacquisitionismeasuredattheaggregateofthefairvaluesofassetsgivenandliabilitiesincurredorassumedbytheGroupinexchangeforcontroloftheacquiree.Acquisition-relatedcostsarerecognisedintheincomestatementasincurred.
Attheacquisitiondate,theidentifiableassetsacquiredandtheliabilitiesassumedarerecognisedattheirfairvalueattheacquisitiondate,exceptthat:
• deferredtaxassetsorliabilitiesandliabilitiesorassetsrelatedtoemployeebenefitarrangementsarerecognisedandmeasuredinaccordancewithIAS12IncomeTaxesandIAS19EmployeeBenefits(revised)respectively;and
• assets(ordisposalgroups)thatareclassifiedasheldforsaleinaccordancewithIFRS5Non-CurrentAssetsHeldforSaleandDiscontinuedOperationsaremeasuredinaccordancewiththatstandard.
Intangibleassetsacquiredinabusinesscombinationandrecognisedseparatelyfromgoodwillareinitiallyrecognisedattheirfairvalueattheacquisitiondate.
Goodwillismeasuredastheexcessofthesumoftheconsiderationtransferred,theamountofanynon-controllinginterestsintheacquiree,andthefairvalueoftheacquirer’spreviouslyheldequityinterestintheacquireeoverthenetoftheidentifiableassetsacquiredandtheliabilitiesassumedattheacquisitiondate.If,afterreassessment,thenetoftheidentifiableassetsacquiredandliabilitiesassumedattheacquisitiondateexceedsthesumoftheconsiderationtransferred,theamountofanynon-controllinginterestsintheacquireeandthefairvalueoftheacquirer’spreviouslyheldinterestintheacquiree,theexcessisrecognisedimmediatelyintheincomestatementasabargainpurchase.
WhentheconsiderationtransferredbytheGroupinabusinesscombinationincludesassetsorliabilitiesresultingfromacontingentconsiderationarrangement,thecontingentconsiderationismeasuredatitsacquisitiondatefairvalueandincludedaspartofthecontingentconsiderationtransferredinabusinesscombination.Changesinfairvalueofthecontingentconsiderationthatqualifyasmeasurementperiodadjustmentsareadjustedretrospectively,withcorrespondingadjustmentsagainstgoodwill.Measurementperiodadjustmentsareadjustmentsthatarisefromadditionalinformationobtainedduringthe‘measurementperiod’(whichcannotexceedoneyearfromtheacquisitiondate)aboutfactsandcircumstancesthatexistedattheacquisitiondate.
Thesubsequentaccountingforchangesinthefairvalueofcontingentconsiderationthatdonotqualifyasmeasurementperiodadjustmentsdependsonhowthecontingentconsiderationisclassified.Contingentconsiderationthatisclassifiedasequityisnotre-measuredatsubsequentreportingdatesanditssubsequentsettlementisaccountedforwithinequity.Contingentconsiderationthatisclassifiedasanassetoraliabilityisre-measuredatsubsequentreportingdates,atfairvalue,withthecorrespondinggainorlossbeingrecognisedintheincomestatement.
Whenabusinesscombinationisachievedinstages,theGroup’spreviously-heldinterestsintheacquiredentityisre-measuredtoitsacquisitiondatefairvalueandtheresultinggainorloss,ifany,isrecognisedintheincomestatement.Amountsarisingfrominterestsintheacquireepriortotheacquisitiondatethathavepreviouslybeenrecognisedinothercomprehensiveincomearereclassifiedtoprofitorloss,wheresuchtreatmentwouldbeappropriateifthatinterestweredisposedof.
Iftheinitialaccountingforabusinesscombinationisincompletebytheendofthereportingperiodinwhichthecombinationoccurs,theGroupreportsprovisionalamountsfortheitemsforwhichtheaccountingisincomplete.Thoseprovisionalamountsareadjustedduringthemeasurementperiod,oradditionalassetsorliabilitiesarerecognised,toreflectnewinformationobtainedaboutfactsandcircumstancesthatexistedasoftheacquisitiondatethat,ifknown,wouldhaveaffectedtheamountsrecognisedasofthatdate.
Goodwillisnotamortised,butisreviewedforimpairmentannuallyormorefrequentlyifeventsorchangesincircumstancesindicatethatthecarryingvaluemaybeimpaired.Forthepurposeofimpairmenttesting,goodwillisallocatedtoeachoftheGroup’scash-generatingunitsexpectedtobenefitfromthesynergiesofthecombination.Theimpairmentreviewrequiresmanagementtoconsidertherecoverablevalueofthebusinesstowhichthegoodwillrelates,basedoneitherthefairvaluelesscoststosellorthevalueinuse.Valueinusecalculationsrequiremanagementtoconsiderthenetpresentvalueoffuturecashflowsgeneratedbythebusinesstowhichthegoodwillrelates.Fairvaluelesscoststosellisbasedonmanagement’sestimateofthenetproceedswhichcouldbegeneratedthroughdisposingofthatbusiness.Iftherecoverableamountofthecash-generatingunitislessthanthecarryingamountoftheunit,theimpairmentlossisallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtotheunitandthentotheotherassetsoftheunitpro-rataonthebasisofthecarryingamountofeachassetintheunit.Animpairmentlossisrecognisedimmediatelyintheincomestatementandisnotsubsequentlyreversed.
Ondisposalofasubsidiary,theattributableamountofgoodwillisincludedinthedeterminationoftheprofitorlossondisposal.
Computer softwareComputersoftwareandassociateddevelopmentcosts,whicharenotanintegralpartofarelateditemofhardware,arecapitalisedasanintangibleassetandamortisedonastraight-linebasisovertheirusefullife.Theperiodofamortisationrangesbetweenthreeandsevenyearswiththemajoritybeingfiveyears.
128ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION3–OPERATINGASSETSANDLIABILITIESCONTINUED
Intangible assetsIntangibleassetscanbeanalysedasfollows:
Goodwill£m
Computer software
£mTotal
£m
CostAt30September2017 7 14 21Additions – 4 4Disposals – (2) (2)At29September2018 7 16 23Additions – 6 6Disposals – (6) (6)At 28 September 2019 7 16 23
Accumulated amortisation and impairmentAt30September2017 5 6 11Providedduringtheperiod – 3 3Disposals – (2) (2)At29September2018 5 7 12Providedduringtheperiod – 3 3Disposals – (6) (6)At 28 September 2019 5 4 9
Net book valueAt 28 September 2019 2 12 14 At29September2018 2 9 11At30September2017 2 8 10
Therearenointangibleassetswithindefiniteusefullives.Allamortisationchargeshavebeenexpensedthroughoperatingcosts.
Goodwillhasbeentestedforimpairmentwithineachcash-generating-unit,onasite-by-sitebasisusingforecastcashflows,discountedbyapplyingapre-taxdiscountrateof7.7%(20187.5%).Forthepurposesofthecalculationoftherecoverableamount,thecashflowprojectionsbeyondthetwo-yearperiodinclude0.0%(20180.0%)growthperannum.
129ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
3.5 ASSOCIATES
Accounting policiesAnassociateisanentityoverwhichtheGrouphassignificantinfluenceandthatisneitherasubsidiarynoraninterestinajointventure.Significantinfluenceisthepowertoparticipateinthefinancialandoperatingpolicydecisionsoftheinvesteebutisnotcontrolorjointcontroloverthosepolicies.
Theresults,assetsandliabilitiesofassociatesareincorporatedinthesefinancialstatementsusingtheequitymethodofaccounting,exceptwhentheinvestmentisclassifiedasheldforsale,inwhichcaseitisaccountedforinaccordancewithIFRS5Non-currentAssetsHeldforSaleandDiscontinuedOperations.
Undertheequitymethod,aninvestmentinanassociateisaccountedforusingtheequitymethodfromthedateonwhichtheinvesteebecomesanassociate.Onacquisitionoftheinvestmentinanassociate,anyexcessofthecostoftheinvestmentovertheGroup’sshareofthenetfairvalueoftheidentifiableassetsandliabilitiesoftheinvesteeisrecognisedasgoodwill,whichisincludedwithinthecarryingamountoftheinvestment.IfafterreassessmenttheGroup’sshareofthenetfairvalueoftheidentifiableassetsandliabilitiesareinexcessofthecostoftheinvestment,thisisrecognisedimmediatelyinprofitorlossintheperiodinwhichtheinvestmentisacquired.
TherequirementsofIAS36ImpairmentofAssetsareappliedtodeterminewhetheritisnecessarytorecogniseanyimpairmentlosswithrespecttotheGroup’sinvestmentinanassociate.Whennecessary,theentirecarryingamountoftheinvestment(includinggoodwill)istestedforimpairmentinaccordancewithIAS36asasingleassetbycomparingitsrecoverableamount(higherofvalueinuseandfairvaluelesscostsofdisposal)withitscarryingamount.Anyimpairmentlossrecognisedformspartofthecarryingamountoftheinvestment.AnyreversalofthatimpairmentlossisrecognisedinaccordancewithIAS36totheextentthattherecoverableamountoftheinvestmentsubsequentlyincreases.
TheGroupdiscontinuestheuseoftheequitymethodfromthedatewhentheinvestmentceasestobeanassociate,orwhentheinvestmentisclassifiedasheldforsale.WhentheGroupretainsaninterestintheformerassociateandtheretainedinterestisafinancialasset,theGroupmeasurestheretainedinterestatfairvalueatthatdateandthefairvalueisregardedasitsfairvalueoninitialrecognitioninaccordancewithIFRS9.Thedifferencebetweenthecarryingamountoftheassociateatthedatetheequitymethodwasdiscontinued,andthefairvalueofanyretainedinterestandanyproceedsfromdisposingofapartinterestintheassociateisincludedinthedeterminationofthegainorlossondisposaloftheassociate.Inaddition,theGroupaccountsforallamountspreviouslyrecognisedinothercomprehensiveincomeinrelationtothatassociateonthesamebasisaswouldberequiredifthatassociatehaddirectlydisposedoftherelatedassetsorliabilities.Therefore,ifagainorlosspreviouslyrecognisedinothercomprehensiveincomebythatassociatewouldbereclassifiedtoprofitorlossonthedisposaloftherelatedassetsorliabilities,theGroupreclassifiesthegainorlossfromequitytoprofitorlosswhentheequitymethodisdiscontinued.
WhentheGroupreducesitsownershipinterestinanassociatebuttheGroupcontinuestousetheequitymethod,theGroupreclassifiestoprofitorlosstheproportionofthegainorlossthathadpreviouslybeenrecognisedinothercomprehensiveincomerelatingtothatreductioninownershipinterestifthatgainorlosswouldbereclassifiedtoprofitorlossonthedisposaloftherelatedassetsorliabilities.
WhenaGroupentitytransactswithanassociateoftheGroup,profitsandlossesresultingfromthetransactionswiththeassociatearerecognisedintheconsolidatedfinancialstatementsonlytotheextentofinterestsintheassociatethatarenotrelatedtotheGroup.
ThenatureoftheactivitiesofalloftheGroup’sassociatesistradinginpubsandrestaurants,whichareseenascomplementingtheGroup’soperationsandcontributingtotheGroup’soverallstrategy.
Associatescanbeanalysedasfollows:
£m
CostAt30September2017 –Additions 5At29September2018 5Additions –At 28 September 2019 5
Associatesrelatetoshareholdingsin3SixtyRestaurantsLimitedandFatboyPubCompanyLimitedthatwereacquiredinthepriorperiod.Detailsoftheseassociatesareprovidedinnote5.2.
Therehavebeennoeventsorchangesincircumstanceduringthecurrentperiodtoindicatethatthecarryingamountoftheinvestmentsinassociatesmaynotberecoverable.Assuch,noimpairmenthasbeenrecognised.
Duringthepriorperiod,aputandcalloptionagreementwasenteredinto,whichallowstheCompanytoacquiretheremaining60%sharecapitaloftheassociate,3SixtyRestaurantsLimited,atanypointintimeafterthreeyearsfromtheinitialpurchasedate.Theinitial40%investmentwaspurchasedon1August2018for£4m.Thecurrentshareholdersalsohavetheabilityundertheoptiontoselltheremaining60%totheCompany,subjecttoanumberofconditions.Thefairvalueofthisoptionat28September2019is£1m(2018£nil).ThishasbeenrecognisedasafinancialassetatFVTPL(seenote4.4)andthegaindeferredandrecognisedoverthethreeyearoptionlife.
130ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION3–OPERATINGASSETSANDLIABILITIESCONTINUED
4.1 NET DEBT
Accounting policyCash and cash equivalentsCashandcashequivalentscomprisecashatbankandinhandandothershort-termhighlyliquiddepositswithanoriginalmaturityatacquisitionofthreemonthsorless.Cashheldondepositwithanoriginalmaturityatacquisitionofmorethanthreemonthsisdisclosedasothercashdeposits.Inthecashflowstatement,cashandcashequivalentsareshownnetofbankoverdraftsthatarerepayableondemand.
Net debtNetdebtcomprisescashandcashequivalentsandcashdeposits,netofborrowings.Borrowings(asdefinedinnote4.2)areincludedinnetdebtonaconstantcurrencybasisincludingthefixedexchangeratecomponentofthecrosscurrencyswap(asdescribedinnote4.4).CashflowsontheinterestrateandcrosscurrencyswapsareshownwithininterestpaidintheGroupcashflowstatement.
Net debt2019
£m2018
£m
Cashandcashequivalents 133 122Othercashdeposits – 120Securitiseddebt(note4.2) (1,752) (1,830)Liquidityfacility(note4.2) – (147)Derivativeshedgingsecuritiseddebta(note4.2) 55 47
(1,564) (1,688)
a. RepresentstheelementofthefairvalueofcurrencyswapshedgingthebalancesheetvalueoftheGroup’sUS$denominatedA3Nloannotes.Thisamountisdisclosedseparatelytoremovetheimpactofexchangemovementswhichareincludedinthesecuritiseddebtamount.
Movement in net debt2019
52 weeks£m
201852 weeks
£m
Net increase/(decrease) in cash and cash equivalents 11 (25)Addbackcashflowsinrespectofothercomponentsofnetdebt:Transfersfromothercashdeposits (120) –Repaymentofprincipalinrespectofsecuritiseddebt 87 82Repaymentofliquidityfacility 147 –Netmovementonunsecuredrevolvingfacilities – 6Decrease in net debt arising from cash flows 125 63Movementincapitaliseddebtissuecostsnetofaccruedinterest (1) (1)Decrease in net debt 124 62Openingnetdebt (1,688) (1,750)Closing net debt (1,564) (1,688)
Thenetdebtmovementforthe52weeksended28September2019isrepresentedby:
At 29 September
2018 £m
Cash flow movements
in the period £m
Non-cash movements
in the period £m
Foreign currency
movements £m
At 28 September
2019 £m
Securitiseddebt (1,830) 87 (1) (8) (1,752)Liquidityfacility (147) 147 – – – Derivativeshedgingsecuritiseddebt 47 – – 8 55 Totalliabilitiesarisingfromfinancingactivities (1,930) 234 (1) – (1,697)Cashandcashequivalents 122 11 – – 133 Othercashdeposits 120 (120) – – – Net debt (1,688) 125 (1) – (1,564)
Thenetdebtmovementforthe52weeksended29September2018isrepresentedby:
At 30 September
2017£m
Cash flow movements
in the period £m
Non-cash movements
in the period £m
Foreign currency
movements £m
At 29 September
2018 £m
Securitiseddebt (1,909) 82 (1) (2) (1,830)Liquidityfacility (147) – – – (147)Revolvingcreditfacilities (6) 6 – – –Derivativeshedgingsecuritiseddebt 45 – – 2 47Totalliabilitiesarisingfromfinancingactivities (2,017) 88 (1) – (1,930)Cashandcashequivalents 147 (25) – – 122Othercashdeposits 120 – – – 120Net debt (1,750) 63 (1) – (1,688)
131ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION4–CAPITALSTRUCTUREANDFINANCINGCOSTS
4.2 BORROWINGS
Accounting policy Borrowings,whichincludetheGroup’ssecuredloannotes,arestatedinitiallyatfairvalue(normallytheamountoftheproceeds)netofissuecosts.Thereaftertheyarestatedatamortisedcostusinganeffectiveinterestbasis.Financecosts,whicharethedifferencebetweenthenetproceedsandthetotalamountofpaymentstobemadeinrespectoftheinstruments,areallocatedoverthetermofthedebtusingtheeffectiveinterestmethod.Borrowingcostsarenotattributedtotheacquisitionorconstructionofassetsandthereforenocostsarecapitalisedwithinproperty,plantandequipment.
Borrowingscanbeanalysedasfollows:
2019£m
2018£m
CurrentSecuritiseddebta,b 95 86Liquidityfacility – 147Totalcurrent 95 233Non-current Securitiseddebta,b 1,657 1,744Totalborrowings 1,752 1,977
a. Furtherdetailsoftheassetspledgedassecurityagainstthesecuritiseddebtaregivenonpage123.b. Statednetofdeferredissuecosts.
2019£m
2018£m
Analysis by year of repaymentDuewithinoneyearorondemand 95 233Duebetweenoneandtwoyears 158 142Duebetweentwoandfiveyears 347 328Dueafterfiveyears 1,152 1,274Totalborrowings 1,752 1,977
Securitised debtOn13November2003,theGrouprefinanceditsdebtbyraising£1,900mthroughasecuritisationofthemajorityofitsUKpubsandrestaurantsownedbyMitchells&ButlersRetailLimited(‘MABRetail’).On15September2006theGroupcompletedafurtherdebt(‘tap’)issuetoborrowanadditional£655mandrefinance£450mofexistingdebtatlowercost.
Theloannotesconsistof10tranchesasfollows:
Principal outstanding
Tranche
Initial principal
borrowed£m Interest
Principalrepayment
period(all by instalments)
Effectiveinterest
rate%
28 September2019
£m
29 September2018
£mExpected
WALa
A1N 200 Floating 2011to2028 6.21b 121 131 5yearsA2 550 Fixed–5.57% 2003to2028 6.01 220 240 5yearsA3N 250 Floating 2011to2028 6.29b 152c 165c 5yearsA4 170 Floating 2016to2028 5.97b 139 150 5yearsAB 325 Floating 2020to2032 6.28b 325 325 9yearsB1 350 Fixed–5.97% 2003to2023 6.12 84 102 2yearsB2 350 Fixed–6.01% 2015to2028 6.12 297 312 6yearsC1 200 Fixed–6.47% 2029to2030 6.56 200 200 10yearsC2 50 Floating 2033to2034 6.47b 50 50 14yearsD1 110 Floating 2034to2036 6.68b 110 110 16years
2,555 1,698 1,785
a. Expectedweightedaveragelife(WAL)assumesnoearlyredemptioninrespectofanyloannotes.b. Aftertheeffectofinterestrateswaps.c. A3NnotesareUS$noteswhichareshownastranslatedtosterlingatthehedgedswaprate.Valuesattheperiodendspotrateare£207m(2018£212m).Thereforetheexchange
differenceontheA3Nnotesis£55m(2018£47m).
132ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION4–CAPITALSTRUCTUREANDFINANCINGCOSTSCONTINUED
ThenotesaresecuredonthemajorityoftheGroup’spropertyandfutureincomestreamstherefrom.Allofthefloatingratenotesarehedgedusinginterestrateswapswhichfixtheinterestratepayable.
Interestandmarginispayableonthefloatingratenotesasfollows:
Tranche Interest Margin
A1N 3monthLIBOR 0.45%A3N 3monthUS$LIBOR 0.45%A4 3monthLIBOR 0.58%AB 3monthLIBOR 0.60%C2 3monthLIBOR 1.88%D1 3monthLIBOR 2.13%
Theoverallcashinterestratepayableontheloannotesis6.2%(20186.2%)aftertakingaccountofinterestratehedgingandthecostoftheprovisionofafinancialguaranteeprovidedbyAmbacinrespectoftheClassAandABnotes.
Thesecuritisationisgovernedbyvariouscovenants,warrantiesandeventsofdefault,manyofwhichapplytoMitchells&ButlersRetailLimited,theGroup’smainoperatingsubsidiary.Theseincludecovenantsregardingthemaintenanceanddisposalofsecuritisedpropertiesandrestrictionsonitsabilitytomovecash,bywayofdividendsforexample,tootherGroupcompanies.At28September2019,Mitchells&ButlersRetailLimitedhadcashandcashequivalentsof£61m(2018£54m).Ofthisamount£1m(2018£1m),representingdisposalproceeds,washeldondepositinanaccountoverwhichthereareanumberofrestrictions.Theuseofthiscashrequirestheapprovalofthesecuritisationtrusteeandmayonlybeusedforcertainspecifiedpurposessuchascapitalenhancementexpenditureandbusinessacquisitions.
ThecarryingvalueofthesecuritiseddebtintheGroupbalancesheetisanalysedasfollows:
2019£m
2018£m
Principaloutstandingatbeginningofperiod 1,832 1,911Principalrepaidduringtheperiod (87) (82)Exchangeontranslationofdollarloannotes 8 3Principaloutstandingatendofperiod 1,753 1,832Deferredissuecosts (4) (5)Accruedinterest 3 3Carryingvalueatendofperiod 1,752 1,830
Liquidity facilityUnderthetermsofthesecuritisation,theGroupholdsaliquidityfacilityof£295mprovidedbytwocounterparties.Asaresultofthedecreaseincreditratingofoneofthecounterparties,theGroupwasobligedtodrawthatcounterparty’sportionofthefacilityduringthe52weeksended27September2014.DuringtheperiodtheGroupnovatedpartofthefacilitytoahigherratedcounterpartyandrepaidtheamountdrawn.Theamountdrawnat28September2019is£nil(2018£147m).
Thefacility,whichisnotavailableforanyotherpurpose,issizedtocover18monthsdebtservice.
Unsecured revolving credit facilitiesTheGroupholdsthreeunsecuredcommittedrevolvingcreditfacilitiesof£50meach,anduncommittedrevolvingcreditfacilitiesof£15m,availableforgeneralcorporatepurposes.Theamountdrawnat28September2019is£nil(2018£nil).Allcommittedfacilitiesexpireon31December2020.
4.3 FINANCE COSTS AND REVENUE2019
52 weeks£m
201852 weeks
£m
Finance costsInterestonsecuritiseddebt (109) (114)Interestonotherborrowings (4) (4)Unwindingofdiscountonprovisions(note3.3) (1) (1)Totalfinancecosts (114) (119)Finance revenueInterestreceivable–cash 1 1Net pensions finance charge (note 4.5) (7) (7)
133ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
4.4 FINANCIAL INSTRUMENTS
Accounting policiesFinancialassetsandfinancialliabilitiesarerecognisedintheGroup’sbalancesheetwhentheGroupbecomesapartytothecontractualprovisionsoftheinstrument.
Financial assetsAllfinancialassetsarerecognisedorderecognisedonatradedatewherethepurchaseorsaleofafinancialassetisunderacontractwhosetermsrequiredeliveryofthefinancialassetwithinthetimeframeestablishedbythemarketconcerned.Financialassetsareinitiallymeasuredatfairvalue,plustransactioncosts,exceptforthosefinancialassetsclassifiedasatfairvaluethroughprofitorloss,whichareinitiallymeasuredatfairvalue.
Debtinstrumentsthatmeetthefollowingconditionsaremeasuredsubsequentlyatamortisedcost:
• thefinancialassetisheldwithinabusinessmodelwhoseobjectiveistoholdfinancialassetsinordertocollectcontractualcashflows;and• thecontractualtermsofthefinancialassetgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipalandinterestontheprincipal
amountoutstanding.
Debtinstrumentsthatmeetthefollowingconditionsaremeasuredsubsequentlyatfairvaluethroughothercomprehensiveincome(FVTOCI):
• thefinancialassetisheldwithinabusinessmodelwhoseobjectiveisachievedbybothcollectingcontractualcashflowsandsellingthefinancialassets;and
• thecontractualtermsofthefinancialassetgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipalandinterestontheprincipalamountoutstanding.
Bydefault,allotherfinancialassetsaremeasuredsubsequentlyatfairvaluethroughprofitorloss(FVTPL).
Theclassificationdependsonthenatureandpurposeofthefinancialassetsandisdeterminedatthetimeofinitialrecognition.
Impairment of financial assetsTheGrouprecognisesalossallowanceforexpectedcreditlossesonfinancialassets,whereapplicable.Theamountofexpectedcreditlossesisupdatedateachreportingdatetoreflectchangesincreditrisksinceinitialrecognitionoftherespectivefinancialasset.
TheGroupadoptsthesimplifiedapproachdetailedinIFRS9fortradereceivablesandotherreceivablesandthereforerecogniseslifetimeECLontheseassets.TheexpectedcreditlossesonthesefinancialassetsareestimatedusingaprovisionmatrixbasedontheGroup’shistoricalcreditlossexperience,adjustedforfactorsthatarespecifictothedebtors,generaleconomicconditionsandanassessmentofboththecurrentaswellastheforecastdirectionofconditionsatthereportingdate,includingtimevalueofmoneywhereappropriate.
Forallotherfinancialassets,theGrouprecogniseslifetimeECLwhentherehasbeenasignificantincreaseincreditrisksinceinitialrecognition.However,ifthecreditriskonthefinancialassethasnotincreasedsignificantlysinceinitialrecognition,theGroupmeasuresthelossallowanceforthatfinancialinstrumentatanamountequalto12-monthECL.
LifetimeECLrepresentstheexpectedcreditlossesthatwillresultfromallpossibledefaulteventsovertheexpectedlifeofafinancialinstrument.Incontrast,12-monthECLrepresentstheportionoflifetimeECLthatisexpectedtoresultfromdefaulteventsonafinancialinstrumentthatarepossiblewithin12monthsafterthereportingdate.
Definition of defaultTheGroupconsidersthefollowingasconstitutinganeventofdefaultforinternalcreditriskmanagementpurposesashistoricalexperienceindicatesthatfinancialassetsthatmeeteitherofthefollowingcriteriaaregenerallynotrecoverablewheninformationdevelopedinternallyorobtainedfromexternalsourcesindicatesthatthedebtorisunlikelytopayitscreditors,includingtheGroup,infull(withouttakingintoaccountanycollateralheldbytheGroup).
Credit-impaired financial assetsAfinancialassetiscredit-impairedwhenoneormoreeventsthathaveadetrimentalimpactontheestimatedfuturecashflowsofthatfinancialassethaveoccurred.Evidencethatafinancialassetiscredit-impairedincludesobservabledataaboutthefollowingevents:
(a) significantfinancialdifficultyoftheissuerortheborrower;(b) abreachofcontract,suchasadefaultorpastdueevent;(c) thelenderoftheborrower,foreconomicorcontractualreasonsrelatingtotheborrower’sfinancialdifficulty,havinggrantedtotheborrower
aconcessionthatthelender(s)wouldnototherwiseconsider;(d) itisbecomingprobablethattheborrowerwillenterbankruptcyorotherfinancialreorganisation;or(e) thedisappearanceofanactivemarketforthatfinancialassetbecauseoffinancialdifficulties.
134ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION4–CAPITALSTRUCTUREANDFINANCINGCOSTSCONTINUED
Write-off policyTheGroupwritesoffafinancialassetwhenthereisinformationindicatingthatthedebtorisinseverefinancialdifficultyandthereisnorealisticprospectofrecovery.FinancialassetswrittenoffmaystillbesubjecttoenforcementactivitiesundertheGroup’srecoveryprocedures,takingintoaccountlegaladvicewhereappropriate.Anyrecoveriesmadearerecognisedinprofitorloss.
Measurement and recognition of expected credit lossesThemeasurementofexpectedcreditlossesisafunctionoftheprobabilityofdefault,lossgivendefault(i.e.themagnitudeofthelossifthereisadefault)andtheexposureatdefault.Theassessmentoftheprobabilityofdefaultandlossgivendefaultisbasedonhistoricaldataadjustedbyforward-lookinginformation.Asfortheexposureatdefault,forfinancialassets,thisisrepresentedbytheassets’grosscarryingamountatthereportingdate.
Forfinancialassets,theexpectedcreditlossisestimatedasthedifferencebetweenallcontractualcashflowsthatareduetotheGroupinaccordancewiththecontractandallthecashflowsthattheGroupexpectstoreceive,discountedattheoriginaleffectiveinterestrate.
IftheGrouphasmeasuredthelossallowanceforafinancialassetatanamountequaltolifetimeECLinthepreviousreportingperiod,butdeterminesatthecurrentreportingdatethattheconditionsforlifetimeECLarenolongermet,theGroupmeasuresthelossallowanceatanamountequalto12-monthECLatthecurrentreportingdate,exceptforassetsforwhichthesimplifiedapproachwasused.
TheGrouprecognisesanimpairmentgainorlossinprofitorlossforallfinancialassetswithacorrespondingadjustmenttotheircarryingamountthroughalossallowanceaccount.
Derecognition of financial assetsTheGroupderecognisesafinancialassetonlywhenthecontractualrightstothecashflowsfromtheassetexpire,orwhenittransfersthefinancialassetandsubstantiallyalltherisksandrewardsofownershipoftheassettoanotherentity.IftheGroupdoesnotretainsubstantiallyalltherisksandrewardsofownershipbutcontinuestocontrolatransferredasset,theGrouprecognisesitsretainedinterestintheassetandanassociatedliabilityforamountsitmayhavetopay.IftheGroupretainssubstantiallyalltherisksandrewardsofownershipofatransferredfinancialasset,theGroupcontinuestorecognisethefinancialassetandalsorecognisesacollateralisedborrowingfortheproceedsreceived.
Onderecognitionofafinancialassetmeasuredatamortisedcost,thedifferencebetweentheasset’scarryingamountandthesumoftheconsiderationreceivedandreceivableisrecognisedinprofitorloss.
Financial liabilitiesTheGrouphasfinancialliabilitiesrelatingtoborrowings,forwhichtheaccountingpolicyisprovidedinnote4.2.Otherfinancialliabilitiesareinitiallymeasuredatfairvalue,netoftransactioncosts.
AllfinancialliabilitiesaremeasuredsubsequentlyatamortisedcostusingtheeffectiveinterestmethodoratFVTPL.
Derecognition of financial liabilitiesTheGroupderecognisesfinancialliabilitieswhen,andonlywhen,theGroup’sobligationsaredischarged,cancelledorexpired.Thedifferencebetweenthecarryingamountofthefinancialliabilitydischargedandtheconsiderationpaidandpayableisrecognisedinprofitorloss.
Effective interest methodTheeffectiveinterestmethodisamethodofcalculatingtheamortisedcostofadebtinstrumentandofallocatingfinancechargesovertherelevantperiod.Theeffectiveinterestrateistheratethatexactlydiscountsestimatedfuturecashflows(includingallfeesandpointspaidorreceivedthatformanintegralpartoftheeffectiveinterestrate,transactioncostsandotherpremiumsordiscounts)overtheexpectedlifeofthedebtinstrument,orwhereappropriate,ashorterperiod,totheamortisedcostofafinancialliability.Financechargesarerecognisedonaneffectiveinterestbasisforalldebtinstruments.
Derivative financial instrumentsTheGroupentersintoavarietyofderivativefinancialinstrumentstomanageitsexposuretointerestrateandforeignexchangeraterisks,includinginterestrateandcurrencyswaps.
Derivativefinancialinstrumentsareinitiallymeasuredatfairvalueonthecontractdateandareremeasuredtofairvalueateachreportingdate.Theresultinggainorlossisrecognisedinprofitorlossimmediatelyunlessthederivativeisdesignatedandeffectiveasahedginginstrument,inwhicheventthetimingoftherecognitioninprofitorlossdependsonthenatureofthehedgerelationship.
Aderivativewithapositivefairvalueisrecognisedasafinancialassetwhereasaderivativewithanegativefairvalueisrecognisedasafinancialliability.DerivativesarenotoffsetinthefinancialstatementsunlesstheGrouphasboththecurrentlegalrighttooffsetandintentiontosettleonanetbasisorrealisesimultaneously.Aderivativeispresentedasanon-currentassetoranon-currentliabilityiftheremainingmaturityoftheinstrumentismorethan12monthsanditisnotexpectedtoberealisedorsettledwithin12months.Otherderivativesarepresentedascurrentassetsorcurrentliabilities.
135ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
4.4 FINANCIAL INSTRUMENTS CONTINUED
Hedge accountingTheGroupdesignatesitsderivativefinancialinstruments,i.e.interestrateandcurrencyswaps,ascashflowhedges.
Attheinceptionofthehedgerelationship,theGroupdocumentstherelationshipbetweenthehedginginstrumentandthehedgeditem,alongwithitsriskmanagementobjectivesanditsstrategyforundertakingvarioushedgetransactions.Furthermore,attheinceptionofthehedgeandonanongoingbasis,theGroupdocumentswhetherthehedginginstrumentishighlyeffectiveinoffsettingchangesincashflowsofthehedgeditemattributabletothehedgedrisk,whichiswhenthehedgingrelationshipsmeetallofthefollowinghedgeeffectivenessrequirements:
• thereisaneconomicrelationshipbetweenthehedgeditemandthehedginginstrument;• theeffectofcreditriskdoesnotdominatethevaluechangesthatresultfromthateconomicrelationship;and• thehedgeratioofthehedgingrelationshipisthesameasthatresultingfromthequantityofthehedgeditemthattheGroupactuallyhedgesandthe
quantityofthehedginginstrumentthattheGroupactuallyusestohedgethatquantityofhedgeditem.
Ifahedgingrelationshipceasestomeetthehedgeeffectivenessrequirementrelatingtothehedgeratiobuttheriskmanagementobjectiveforthatdesignatedhedgingrelationshipremainsthesame,theGroupadjuststhehedgeratioofthehedgingrelationship(i.e.rebalancesthehedge)sothatitmeetsthequalifyingcriteriaagain.
Cash flow hedgesTheeffectiveportionofchangesinthefairvalueofderivativesthataredesignatedandqualifyascashflowhedgesisrecognisedinothercomprehensiveincomeandaccumulatedundertheheadingofhedgingreserve,limitedtothecumulativechangeinfairvalueofthehedgeditemfrominceptionofthehedge.
Amountspreviouslyrecognisedinothercomprehensiveincomeandaccumulatedinequityarereclassifiedtoprofitorlossintheperiodswhenthehedgeditemaffectsprofitorloss,inthesamelineastherecognisedhedgeditem.However,whenthehedgedforecasttransactionresultsintherecognitionofanon-financialassetoranon-financialliability,thegainsandlossespreviouslyrecognisedinothercomprehensiveincomeandaccumulatedinequityareremovedfromequityandincludedintheinitialmeasurementofthecostofthenon-financialassetornon-financialliability.Thistransferdoesnotaffectothercomprehensiveincome.Furthermore,iftheGroupexpectsthatsomeorallofthelossaccumulatedinthehedgingreservewillnotberecoveredinthefuture,thatamountisimmediatelyreclassifiedtoprofitorloss.
Hedgeaccountingisdiscontinuedonlywhenthehedgingrelationshipceasestomeetthequalifyingcriteria(afterrebalancing,ifapplicable).Thisincludesinstanceswhenthehedginginstrumentexpiresorissoldorterminated.Thediscontinuationisaccountedforprospectively.Anygainorlossrecognisedinothercomprehensiveincomeandaccumulatedinthehedgingreserveatthattimeremainsinequityandisreclassifiedtoprofitorlosswhentheforecasttransactionoccurs.Whenaforecasttransactionisnolongerexpectedtooccur,thegainorlossaccumulatedinthehedgingreserveisreclassifiedimmediatelytoprofitorloss.
Financial risk managementFinancialriskismanagedbytheGroup’sTreasuryfunction.TheGroup’sTreasuryfunctionisgovernedbyaBoardApprovedTreasuryPolicyStatementwhichdetailsthekeyobjectivesandpoliciesfortheGroup’streasurymanagement.TheTreasuryCommitteeensuresthattheTreasuryPolicyisadheredto,monitorsitsoperationandagreesappropriatestrategiesforrecommendationtotheBoard.TheTreasuryPolicyStatementisreviewedannually,withrecommendationsforchangemadetotheBoard,asappropriate.TheGroupTreasuryfunctionisoperatedasacostcentreandistheonlyareaofthebusinesspermittedtotransacttreasurydeals.Itmustalsobeconsultedonotherrelatedmatterssuchastheprovisionofguaranteesorthefinancialimplicationsofcontractterms.
AnexplanationoftheGroup’sfinancialinstrumentriskmanagementobjectivesandstrategiesissetoutbelow.
ThemainfinancialriskswhichimpacttheGroupresultfromfundingandliquidityrisk,creditrisk,capitalriskandmarketrisk,principallyasaresultofchangesininterestandcurrencyrates.Derivativefinancialinstruments,principallyinterestrateandforeigncurrencyswaps,areusedtomanagemarketrisk.Derivativefinancialinstrumentsarenotusedfortradingorspeculativepurposes.
Funding and liquidity riskInordertoensurethattheGroup’slong-termfundingstrategyisalignedwithitsstrategicobjectives,theTreasuryCommitteeregularlyassessesthematurityprofileoftheGroup’sdebt,alongsidetheprevailingfinancialprojections.ThisenablesittoensurethatfundinglevelsareappropriatetosupporttheGroup’splans.
ThecurrentfundingarrangementsoftheGroupconsistofthesecuritisednotesissuedbyMitchells&ButlersFinanceplc(andassociatedliquidityfacility)alongwiththreecommittedunsecuredrevolvingcreditfacilitiesof£50meach.Thetermsofthesecuritisationandtherevolvingcreditfacilitiescontainvariousfinancialcovenants.CompliancewiththesecovenantsismonitoredbyGroupTreasury.TheGroupalsohasuncommittedcreditfacilitiesof£15m.
TheGrouppreparesarollingdailycashforecastcoveringasixweekperiodandanannualcashforecastbyperiod.TheseforecastsarereviewedonadailybasisandareusedtomanagetheinvestmentandborrowingrequirementsoftheGroup.Acombinationofcashpoolingandzerobalancingagreementsareinplacetoensuretheoptimumliquiditypositionismaintained.TheGroupmaintainssufficientcashbalancesorcommittedfacilitiesoutsidethesecuritisationtoensurethatitcanmeetitsmedium-termanticipatedcashflowrequirements.
136ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION4–CAPITALSTRUCTUREANDFINANCINGCOSTSCONTINUED
Thematuritytablebelowdetailsthecontractualundiscountedcashflows(bothprincipalandinterest),basedontheprevailingperiodendinterestandexchangerates,fortheGroup’sfinancialliabilities,aftertakingintoaccounttheeffectofinterestrateandcurrencyswapsandassumesnoearlyredemptioninrespectofanyloannotes.
Withinone year
£m
One to two years
£m
Two to three years
£m
Three to four years
£m
Four to five years
£m
More than five years
£mTotal
£m
28 September 2019Securitiseddebt–loannotes (171) (175) (177) (179) (180) (1,381) (2,263)Cashflowhedges (27) (26) (24) (21) (20) (106) (224)Fixedrate:Securitiseddebt (198) (201) (201) (200) (200) (1,487) (2,487)Tradeandotherpayables (327) – – – – – (327)
29 September 2018Securitiseddebt–loannotes (165) (170) (174) (176) (177) (1,554) (2,416)Cashflowhedges (30) (28) (27) (25) (23) (133) (266)Fixedrate:Securitiseddebt (195) (198) (201) (201) (200) (1,687) (2,682)Floatingrate:Liquidityfacility (147) – – – – – (147)Tradeandotherpayables (302) – – – – – (302)
Credit riskTheGroupTreasuryfunctionentersintocontractswiththirdpartiesinrespectofderivativefinancialinstrumentsforriskmanagementpurposesandtheinvestmentofsurplusfunds.TheseactivitiesexposetheGrouptocreditriskagainstthecounterparties.Tomitigatethisexposure,GroupTreasuryoperatespoliciesthatrestricttheinvestmentofsurplusfundsandtheenteringintoofderivativetransactionstocounterpartiesthathaveaminimumcreditratingof‘A’(long-term)and‘A1’/‘P1’/‘F1’(short-term).CounterpartiesmayalsoberequiredtopostcollateralwiththeGroup,wheretheircreditratingfallsbelowapredeterminedlevel.Theamountthatcanbeinvestedortransactedatvariousratingslevelsisrestrictedunderthepolicy.Tominimisecreditriskexposureagainstindividualcounterparties,investmentsandderivativetransactionsareenteredintowitharangeofcounterparties.TheGroupTreasuryfunctionreviewscreditratings,aspublishedbyMoody’s,Standard&Poor’sandFitchRatings,currentexposurelevelsandthemaximumpermittedexposureatgivencreditratings,foreachcounterpartyonadailybasis.AnyexceptionsarerequiredtobeformallyreportedtotheTreasuryCommitteeonafour-weeklybasis.
Creditriskisontradereceivablesandotherreceivablesisconsideredtobealow-levelrisk.Tradereceivablesandotherreceivablesmainlyrepresentamountsduefromtenantsofunlicensedproperties,amountsduefromGroupsuppliersandcashcollateraldepositsheldbythirdparties.
Creditexposurerelatingtotenantsisconsideredtobelowrisk,withanexpectedlifetimecreditlosscalculatedattheperiodendtoreflecttheriskofirrecoverableamounts.Tominimisecreditrisknewtenantsareassessedusinganexternalcreditratingsystembeforetheyareapprovedfortenancy.CreditexposureisreducedfortheamountsduefromGroupsuppliersastheGroupholdsoffsettingamountsintradeandotherpayablesthatareduetosomeofthesesuppliers.Creditriskoncashcollateraldepositsheldbythirdpartiesareconsideredtobelowcreditriskastheyareheldwithreputablebankinginstitutionsbythirdparties.
TheGroup’screditexposureatthebalancesheetdatewas:
FVTPL 2019
£m
12 month ECL2019
£m
Lifetime ECL2019
£m
Total2019
£m
Total2018
£m
Cashandcashequivalents – 133 – 133 122Othercashdeposits – – – – 120Tradereceivables – – 7 7 7Otherreceivables – – 15 15 14Derivatives 56 – – 56 48
Capital managementTheGroup’scapitalbaseiscomprisedofitsnetdebt(analysedinnote4.1)plustotalequity(disclosedonthefaceoftheGroupbalancesheet).Theobjectiveistomaintainacapitalbasewhichissufficientlystrongtosupporttheongoingdevelopmentofthebusinessasagoingconcern,includingtheamenity,andcashflowgenerationofthepubestate.Bykeepingdebtandheadroomagainstitsdebtfacilitiesatanappropriatelevel,theGroupensuresthatitmaintainsastrongcreditposition,whilstmaximisingvalueforshareholdersandadheringtoitscovenantsandotherrestrictionsassociatedwithitsdebt(seenote4.2).Inmanagingitscapitalstructure,fromtimetotimetheGroupmayrealisevaluefromnon-coreassets,buybackorissuenewshares,initiateandvaryitsdividendpaymentsandseektovaryoracceleratedebtrepayments.TheGroup’spolicyistoensurethatthematurityofitsdebtprofilesupportsitsstrategicobjectives.TheBoardconsidersthelatestcovenantcompliance,headroomprojectionsandprojectedbalancesheetpositionsperiodicallythroughouttheyear,basedontheadviceoftheTreasuryCommitteewhichmeetsonafour-weeklybasis.TheTreasuryCommitteeischairedbytheGroupTreasurerandmonitorsTreasuryperformanceandcompliancewithBoard-approvedpolicies.TheGroupChiefFinancialOfficerisalsoamemberoftheCommittee.
Totalcapitalatthebalancesheetdateisasfollows:
2019£m
2018£m
Netdebt(note4.1) 1,564 1,688Totalequity 1,947 1,769Totalcapital 3,511 3,457
137ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
4.4 FINANCIAL INSTRUMENTS CONTINUEDMarket riskTheGroupisexposedtotheriskthatthefairvalueoffuturecashflowsofitsfinancialinstrumentswillfluctuatebecauseofchangesinmarketprices.Marketriskcomprisesforeigncurrencyandinterestraterisk.
Foreign currency riskThemostsignificantcurrencyrisktheGroupfacesisinrelationtotheclassA3Nfloatingratenotes.Atissuanceofthesenotes,theGroupenteredintoacrosscurrencyinterestrateswaptomanagetheforeigncurrencyexposureresultingfromboththeUS$principalandinitialinterestelementsofthenotes.TheA3Nnoteshaveacarryingvalueof£207m(2018£212m)andformpartofthesecuritiseddebt(seenote4.2).
Sensitivity analysis Furthertothestep-upontheA3Nnoteson15December2010,theGrouphasadditionalforeigncurrencyexposureasaresultoftheincreaseinUS$financecosts.Amovementof10%intheUS$exchangeratewouldhave£nil(2018£nil)impactonthereportedGroupprofitand£21m(2018£21m)impactonthereportedGroupequity.
TheGrouphasnosignificantprofitandlossexposureasaresultofretranslatingmonetaryassetsandliabilitiesatdifferentexchangerates.AstheGroupispredominantlyUKbasedandacquiresthemajorityofitssuppliesinsterling,ithasnosignificantdirectcurrencyexposurefromitsoperations.
Interest rate riskTheGrouphasamixtureoffixedandfloatinginterestratedebtinstrumentsandmanagesthevariabilityincashflowsresultingfromchangesininterestratesbyusingderivativefinancialinstruments.Wherethenecessarycriteriaaremet,theGroupminimisesthevolatilityinitsconsolidatedfinancialstatementsthroughtheadoptionofthehedgeaccountingprovisionspermittedunderIFRS9.TheinterestrateexposureresultingfromtheGroup’s£1.8bnsecuritisationislargelyfixed,eitherasaresultofthenotesthemselvesbeingissuedatfixedinterestrates,orthroughacombinationoffloatingratenotesagainstwhicheffectiveinterestrateswapsareheld,whichareeligibleforhedgeaccounting.
Sensitivity analysisThesensitivityanalysisbelowhasbeencalculatedbasedontheGroup’sexposuretointerestratesforbothderivativeandnon-derivativeinstrumentsasatthebalancesheetdate.A1%movementisusedwhenreportinginterestrateriskinternallytokeymanagementpersonnelandrepresentsmanagement’sassessmentofthisreasonablypossiblechangeininterestrates.
Forfloatingrateliabilities,whicharenothedgedbyderivativeinstruments,theanalysishasbeenpreparedassumingthattheliabilityoutstandingatthebalancesheetdatewasoutstandingforthewholeperiod.Forinterestincometheanalysisassumesthatcashandcashequivalentsandothercashdepositsthatwereheldininterestbearingaccountsatthebalancesheetdatewereheldforthewholeperiod.
TheGroup’ssensitivitytoa1%increaseininterestratesisdetailedbelow:
2019£m
2018£m
Interestincomea 1 2Interestexpenseb – (1)Profitimpact 1 1Derivativefinancialinstruments(fairvalues)c 72 76Totalequity 73 77
a. Representsinterestincomeearnedoncashandcashequivalentsandothercashdeposits(thesearedefinedinnote4.1).b. TheelementofinterestexpensewhichisnotmatchedbypaymentsandreceiptsundercashflowhedgeswhichwouldotherwiseoffsettheinterestrateexposureoftheGroup.c. Theimpactontotalequityfrommovementsinthefairvalueofcashflowhedges.
Derivative financial instrumentsCash flow hedgesChangesincashflowhedgefairvaluesarerecognisedinthehedgingreserveinequitytotheextentthatthehedgesareeffective.Thecashflowhedgesdetailedbelowhavebeenassessedasbeinghighlyeffectiveduringtheperiodandareexpectedtoremainhighlyeffectiveovertheremainingcontractlives.Thefollowingamountshavebeenrecognisedduringtheperiod:
2019£m
2018£m
(Losses)/gainsarisingduringtheperiod (81) 16Reclassificationadjustmentsforlossesincludedinprofitorloss 23 34
(58) 50
138ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION4–CAPITALSTRUCTUREANDFINANCINGCOSTSCONTINUED
Cash flow hedges – securitised borrowingsAt28September2019,theGroupheldten(2018ten)interestrateswapcontractswithanominalvalueof£897m(2018£931m),designatedasahedgeofthecashflowinterestrateriskof£897m(2018£931m)oftheGroup’sfloatingrateborrowings,comprisingtheA1N,A3N,A4,AB,C2andD1loannotes.
Thecashflowsonthesecontractsoccurquarterly,receivingafloatingrateofinterestbasedonLIBORandpayingafixedrateof4.8399%(20184.8483%).Thecontractmaturitydatesmatchthoseofthehedgeditem.TheteninterestrateswapsareheldontheGroupbalancesheetatfairmarketvalue,whichisaliabilityof£302m(2018£244m).
At28September2019theGroupheldone(2018one)crosscurrencyinterestrateswapcontract,withanominalvalueof£152m(2018£165m),designatedasahedgeofthecashflowinterestrateandcurrencyriskoftheGroup’sUS$denominatedA3Nfloatingrate$254m(2018$276m)notes.ThecrosscurrencyinterestrateswapisheldontheGroupbalancesheetatafairvalueassetof£55m(2018£48m).
Thecashflowsonthiscontractoccurquarterly,receivingafloatingrateofinterestbasedonUS$LIBORandpayingafloatingrateofinterestatLIBORinsterling.
Thecashflowsarisingfrominterestrateswappositionsonthesamecounterpartymaybesettledasanetposition.Thecrosscurrencyinterestrateswapisheldunderaseparateagreementandcashmovementsforthisinstrumentaresettledindividually.
Share optionsDuringthepriorperiod,aputandcalloptionagreementwasenteredinto,whichallowstheCompanytoacquiretheremaining60%sharecapitaloftheassociate,3SixtyRestaurantsLimited,atanypointintimeafterthreeyearsfromtheinitialpurchasedate.Theinitial40%investmentwaspurchasedon1August2018for£4m(seenote3.5).Thecurrentshareholdersalsohavetheabilityundertheoptiontoselltheremaining60%tothecompany,subjecttoanumberofconditions.Thefairvalueofthisoptionat28September2019is£1m(2018£nil).Thishasbeenrecognisedasafinancialassetandthegaindeferredandrecognisedoverthethreeyearoptionlife.
Fair values of derivative financial instrumentsThefairvaluesofthederivativefinancialinstrumentsweremeasuredat28September2019andmaybesubjecttomaterialmovementsintheperiodsubsequenttothebalancesheetdate.Thefairvaluesofthederivativefinancialinstrumentsarereflectedonthebalancesheetasfollows:
Derivative financial instruments – fair value
Non-currentassets
£m
Currentassets
£m
Currentliabilities
£m
Non-currentliabilities
£mTotal
£m
Cash flow hedges at FVTOCI: –Interestrateswaps – – (36) (266) (302) –Crosscurrencyswap 52 3 – – 55 ShareoptionsatFVTPL 1 – – – 128 September 2019 53 3 (36) (266) (246)29September2018 44 4 (37) (207) (196)
Reconciliation of movements in derivative valuesThetablesbelowdetailschangesintheGroup’sderivatives,includingbothcashandnon-cashchangeswhereappropriate.ChangesintheGroup’sborrowingsaredisclosedinthenetdebtreconciliationinnote4.1.
Movementsinderivativevaluesforthe52weeksended28September2019arerepresentedby:
At 29 September
2018£m
Cash movements£m
Fair value adjustments
£m
At 28 September
2019 £m
Cashflowhedges (196) 31 (82) (247)Shareoptions – – 1 1 Total derivatives (196) 31 (81) (246)
Movementsinderivativevaluesforthe52weeksended29September2018arerepresentedby:
At 30 September
2017£m
Cash movements£m
Fair value adjustments
£m
At 29 September
2018£m
Cashflowhedges (249) 37 16 (196)Total derivatives (249) 37 (16) (196)
139ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
4.4 FINANCIAL INSTRUMENTS CONTINUEDFair value of financial assets and liabilitiesThefairvalueandcarryingvalueoffinancialassetsandliabilitiesbycategoryisasfollows:
2019 2018
Bookvalue
£m
Fairvalue
£m
Bookvalue
£m
Fairvalue
£m
Financialassetsatamortisedcost: –Cashandcashequivalents 133 133 122 122 –Othercashdeposits – – 120 120 –Tradeandotherreceivables 7 7 7 7 –Otherreceivables 15 15 14 14Financialassets–derivatives: –Derivativeinstrumentsindesignatedhedgeaccountingrelationships 55 55 48 48 –Shareoptions 1 1 – –Financialliabilitiesatamortisedcost: –Borrowings(note4.2) (1,752) (1,695) (1,977) (1,939) –Tradeandotherpayables (88) (88) (83) (83) –Othertaxationandsocialsecurity (78) (78) (64) (64) –Otherpayables (57) (57) (52) (52) –Accruedcharges (104) (104) (103) (103)Financialliabilities–derivatives: –Derivativeinstrumentsindesignatedhedgeaccountingrelationships (302) (302) (244) (244)
(2,170) (2,113) (2,212) (2,174)
Borrowingshavebeenvaluedaslevel1financialinstruments,asthevarioustranchesofthesecuritiseddebthavebeenvaluedusingperiodendquotedofferprices.Asthesecuritiseddebtistradedonanactivemarket,themarketvaluerepresentsthefairvalueofthisdebt.ThefairvalueofinterestrateandcurrencyswapsistheestimatedamountwhichtheGroupcouldexpecttopayorreceiveonterminationoftheagreements.Theseamountsarebasedonquotationsfromcounterpartieswhichapproximatetotheirfairmarketvalueandtakeintoconsiderationinterestandexchangeratesprevailingatthebalancesheetdate.Otherfinancialassetsandliabilitiesareeithershort-terminnatureortheirbookvaluesapproximatetofairvalues.
Fair value of derivative financial instrumentsThefairvalueoftheGroup’sderivativefinancialinstrumentsiscalculatedbydiscountingtheexpectedfuturecashflowsofeachinstrumentatanappropriatediscountratetoa‘marktomarket’positionandthenadjustingthistoreflectanynon-performanceriskassociatedwiththecounterpartiestotheinstrument.
IFRS13FinancialInstrumentsrequirestheGroup’sderivativefinancialinstrumentstobedisclosedatfairvalueandcategorisedinthreelevelsaccordingtotheinputsusedinthecalculationoftheirfairvalue:
• Level1instrumentsusequotedpricesastheinputtofairvaluecalculations;• Level2instrumentsuseinputs,otherthanquotedprices,thatareobservableeitherdirectlyorindirectly;• Level3instrumentsuseinputsthatareunobservable.
ThetablebelowsetsoutthevaluationbasisofderivativefinancialinstrumentsheldatfairvaluebytheGroup:
Fair value at 28 September 2019Level 1
£mLevel 2
£mLevel 3
£mTotal
£m
Financial assets:Currencyswaps – 55 – 55 Shareoptions – – 1 1 Financial liabilities:Interestrateswaps – (302) – (302)
– (247) 1 (246)
Fair value at 29 September 2018Level 1
£mLevel 2
£mLevel 3
£mTotal
£m
Financial assets:Currencyswaps – 48 – 48Financial liabilities:Interestrateswaps – (244) – (244)
– (196) – (196)
140ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION4–CAPITALSTRUCTUREANDFINANCINGCOSTSCONTINUED
4.5 PENSIONS
Accounting policyRetirementanddeathbenefitsareprovidedforeligibleemployeesintheUnitedKingdomprincipallybytheMitchells&ButlersPensionPlan(MABPP)andtheMitchells&ButlersExecutivePensionPlan(MABEPP).Theseplansarefunded,HMRCapproved,occupationalpensionschemeswithdefinedcontributionanddefinedbenefitsections.Thedefinedbenefitsectionoftheplansisnowclosedtofutureserviceaccrual.Thedefinedbenefitliabilityrelatestothesefundedplans,togetherwithanunfundedunapprovedpensionarrangement(theExecutiveTop-UpScheme,orMABETUS)inrespectofcertainMABEPPmembers.Theassetsoftheplansareheldinself-administeredtrustfundsseparatefromtheCompany’sassets.
Inaddition,Mitchells&ButlersplcalsoprovidesaworkplacepensionplaninlinewiththeWorkplacePensionsReformRegulations.ThisautomaticallyenrolsalleligibleworkersintoaQualifyingWorkplacePensionPlan.
AstheCompanydoesnothaveanunconditionalrighttorecoveranysurplusfromthepensionplans,IFRIC14requirestheminimumfundingliabilitytoberecognised,whereitisinexcessoftheactuarialliability.Assuch,thetotalpensionliabilityrecognisedinthebalancesheetinrespectoftheGroup’sdefinedbenefitarrangementsisthegreateroftheminimumfundingrequirements,calculatedasthepresentvalueoftheagreedscheduleofcontributions,andtheactuarialcalculatedliability.Theactuarialliabilityisthepresentvalueofthedefinedbenefitobligation,lessthefairvalueoftheschemeassets.Thecostofprovidingbenefitsisdeterminedusingtheprojectedunitcreditmethodasdeterminedannuallybyqualifiedactuaries.Thisisbasedonanumberoffinancialassumptionsandestimates,thedeterminationofwhichmaybesignificanttothebalancesheetvaluationintheeventthatthisreflectsagreaterdeficitthanthatsuggestedbythescheduleofminimumcontributions.
Thereisnocurrentservicecostasalldefinedbenefitschemesareclosedtofutureaccrual.Thenetpensionfinancecharge,calculatedbyapplyingthediscountratetothepensiondeficitorsurplusatthebeginningoftheperiod,isshownwithinfinanceincomeorexpense.Theadministrationcostsoftheschemearerecognisedwithinoperatingcostsintheincomestatement.
Re-measurementcomprisingactuarialgainsandlosses,theeffectofminimumfundingrequirements,andthereturnonschemeassetsarerecognisedimmediatelyinthebalancesheetwithachargeorcredittothestatementofcomprehensiveincomeintheperiodinwhichtheyoccur.
CurtailmentsandsettlementsrelatingtotheGroup’sdefinedbenefitplanarerecognisedintheincomestatementintheperiodinwhichthecurtailmentorsettlementoccurs.
Forthedefinedcontributionarrangements,thechargeagainstprofitisequaltotheamountofcontributionspayableforthatperiod.
Critical accounting judgements Thecalculationofthedefinedbenefitliabilityrequiresmanagementjudgementtoselectanappropriatehigh-qualitycorporatebondtodeterminethediscountrate.Themostsignificantcriteriaconsideredfortheselectionofbondsincludetheratingofthebondsandthecurrencyandestimatedtermoftheretirementbenefitliabilities.
Inaddition,managementhaveusedjudgementtodeterminetheapplicablerateofinflationtoapplytopensionincreasesincalculatingthedefinedbenefitobligation.Detailsofthisaregivenbelow.
Measurement of scheme assets and liabilitiesActuarial valuationTheactuarialvaluationsusedforIAS19(revised)purposesarebasedontheresultsofthelatestfullactuarialvaluationcarriedoutat31March2019andupdatedbytheschemes’independentqualifiedactuariesto28September2019.Schemeassetsarestatedatmarketvalueat28September2019andtheliabilitiesoftheschemeshavebeenassessedasatthesamedateusingtheprojectedunitmethod.IAS19(revised)requiresthattheschemeliabilitiesarediscountedusingmarketyieldsattheendoftheperiodonhigh-qualitycorporatebonds.
InrelationtotheMABPP,theTrustDeedandRulesprovidethatitisamatterfortheCompanytodeterminetherateofinflationwhichshouldbeappliedtopensionincreasesforcertainsectionsofthemembershipinexcessofguaranteedminimumpensionsandtheCompanyhasinstructedtheTrusteetoapplyCPI(subjecttocertaincaps)inrespectofsuchincreases.TheTrusteebelievesthatthispowerwasincorrectlyvestedintheCompanyintheTrustDeedandRulesoftheMABPPin1996and,despiteitbeingreflectedinfurtherversions,hasmadeanapplicationtocourtforthosevariousTrustDeedsandRulestoberectified.ItistheBoard’sbeliefthattheCompanyholdsthepowertofixsuchaninflationindexandtheCompanyisthereforecontestingthatapplication.Thehearingisexpectedtobeheldinmid-2020.TheactuarialsurplusasdeterminedunderIAS19(revised)hascontinuedtobecalculatedusingRPI,pendingfinalresolutionofthematter.TheapplicablerateofCPIat28September2019is2.1%.Leavingallotherprincipalfinancialassumptionsconstant,theimpactofthischangeonthedefinedbenefitobligationasmeasuredunderIAS19(revised)isestimatedtobeareductionof£165m.However(underIFRIC14)anadditionalliabilityisrecognisedsuchthatthetotalbalancesheetpositionreflectsthescheduleofcontributionsagreedbytheCompany,extendingto2023.AssuchshouldtheCompanybesuccessfulincontestingtheapplicationtherewillbenonecessarymovementinthetotalbalancesheetposition.
Theprincipalfinancialassumptionshavebeenupdatedtoreflectchangesinmarketconditionsintheperiodandareasfollows:
2019 2018
Main planExecutive
plan Main planExecutive
plan
Discountratea 1.8% 1.8% 2.9% 2.9%Pensionsincreases–RPImax5% 3.0% 3.0% 3.0% 3.0%Inflationrate–RPI 3.1% 3.1% 3.2% 3.2%
a. ThediscountrateisbasedonayieldcurveforAAcorporateratedbondswhichareconsistentwiththecurrencyandestimatedtermofretirementbenefitliabilities.
141ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
4.5 PENSIONS CONTINUEDThemortalityassumptionswerereviewedfollowingthe2019actuarialvaluation.Asummaryoftheaveragelifeexpectanciesassumedisasfollows:
2019 2018
Main planyears
Executive plan
yearsMain plan
years
Executive plan
years
Malememberaged65(currentlifeexpectancy) 20.9 23.4 21.2 23.9Malememberaged45(lifeexpectancyat65) 22.7 24.5 23.0 25.6Femalememberaged65(currentlifeexpectancy) 23.2 24.3 23.6 26.0Femalememberaged45(lifeexpectancyat65) 25.3 26.3 25.5 27.9
Minimum funding requirementsTheresultsofthe2019actuarialvaluationshowedafundingdeficitof£293m,usingamoreprudentbasistodiscounttheschemeliabilitiesthanisrequiredbyIAS19(revised).Asaresultofthe2019actuarialvaluation,theCompanyhassubsequentlyagreedrecoveryplansforboththeExecutiveandMainschemesinordertoclosethefundingdeficitinrespectofitspensionliabilities.Therecoveryplansshowanunchangedlevelofcashcontributionswithnoextensiontotheagreedpaymentterm(£45mperannumindexedwithRPIfrom1April2016subjecttoaminimumincreaseof0%andmaximumof5%,until31March2023).UnderIFRIC14,anadditionalliabilityisrecognised,suchthattheoverallpensionliabilityattheperiodendreflectsthescheduleofcontributionsinrelationtoaminimumfundingrequirement,shouldthisbehigherthantheactuarialdeficit.
Theemployercontributionsexpectedtobepaidduringthefinancialperiodending27September2020amountto£50m.
In2024,anadditionalpaymentof£13mwillbemadeintoescrow,shouldsuchfurtherfundingberequiredatthattime.Thisisacontingentliabilityandisnotreflectedinthepensionsliabilityasitisnotcommitted.
Sensitivity to changes in actuarial assumptions Thesensitivitiesregardingprincipalactuarialassumptions,assessedinisolation,thathavebeenusedtomeasuretheschemeliabilitiesaresetoutbelow.
2019
Increase or (decrease)
in actuarial surplus
2019£m
Decrease or (increase)
in total pension liability
2019£m
0.5%increaseindiscountratea 207 5 0.1%increaseininflationrate (41) (1)Additionalone-yeardecreasetolifeexpectancy 90 2
2018
Increase or (decrease) in actuarial
surplus 2018
£m
Decrease or (increase)
in total pension liability
2018£m
0.5%increaseindiscountratea 37 10.1%increaseininflationrate (34) (1)Additionalone-yeardecreasetolifeexpectancy 72 1
a. Thediscountratesensitivitydisclosedfor2019isahighersensitivityof0.5%,comparedto0.1%in2018.Thishasincreasedtoreflectareasonablypossiblechangeindiscountrateasaresultofvolatilityinthediscountrateinrecentyears.
Thesensitivityanalysispresentedabovemaynotberepresentativeoftheactualchangeinthedefinedbenefitobligationasitisunlikelythatthechangesinassumptionswouldoccurinisolationofoneanotherassomeoftheassumptionsmaybecorrelated.Inpresentingtheabovesensitivityanalysis,thepresentvalueofthedefinedbenefitobligationhasbeencalculatedusingtheprojectedunitcreditmethodattheendofthereportingperiod,whichisthesameasthatappliedincalculatingthedefinedbenefitobligationliabilityrecognisedinthestatementoffinancialposition.
142ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION4–CAPITALSTRUCTUREANDFINANCINGCOSTSCONTINUED
Principal risks and assumptionsThedefinedbenefitschemesarenotexposedtoanyunusual,entityspecificorschemespecificrisksbuttherearegeneralrisks:
Inflation–themajorityoftheplans’obligationsarelinkedtoinflation.Higherinflationwillleadtoincreasedliabilitieswhichispartiallyoffsetbytheplansholdinginflationlinkedgiltsandotherinflationlinkedassets.
Interest rate–Theplans’liabilitiesaredeterminedusingdiscountratesderivedfromyieldsonAA-ratedcorporatebonds.Adecreaseincorporatebondyieldswillincreaseplanliabilitiesthoughthiswillbepartiallyoffsetbyanincreaseinthevalueofthebondsheldbytheplans.
Mortality–Themajorityoftheobligationsaretoprovidebenefitsforthelifeofthemembersandtheirpartners,soanyincreaseinlifeexpectancywillresultinanincreaseintheplans’liabilities.
Asset returns–Assetsheldbythepensionplansareinvestedinadiversifiedportfolioofequities,bondsandotherassets.Volatilityinassetvalueswillleadtomovementsinthenetdeficit/surplusreportedintheGroupbalancesheetfortheplanswhichinadditionwillalsoimpactthepensionfinancechargeintheGroupincomestatement.
Amounts recognised in respect of defined benefit schemesThefollowingamountsrelatingtotheGroup’sdefinedbenefitanddefinedcontributionarrangementshavebeenrecognisedintheGroupincomestatementandGroupstatementofcomprehensiveincome:
Group income statement2019
52 weeks£m
201852 weeks
£m
Operatingprofit:Employercontributions(definedcontributionplans) (12) (8)Administrativecosts(definedbenefitplans) (3) (2)Chargetooperatingprofitbeforeadjusteditems (15) (10)Pastservicecost(seenote2.2) (19) –Chargetooperatingprofit (34) (10)Financecosts:Netpensionsfinanceincomeonactuarialsurplus 10 5Additionalpensionsfinancechargeduetominimumfunding (17) (12)Netfinancechargeinrespectofpensions (7) (7)Totalcharge (41) (17)
Group statement of comprehensive income2019
52 weeks£m
201852 weeks
£m
Returnonschemeassetsandeffectsofchangesinassumptions (77) 114Movementinpensionliabilityrecognisedduetominimumfunding 92 (109)Remeasurementofpensionliability 15 5
Group balance sheet2019
£m2018
£m
Fairvalueofschemeassets 2,739 2,404Presentvalueofschemeliabilities (2,443) (2,068)Actuarialsurplusintheschemes 296 336Additionalliabilityrecognisedduetominimumfunding (511) (585)Totalpensionliabilitya (215) (249)Associateddeferredtaxasset 36 43
a. Thetotalpensionliabilityof£215m(2018£249m)ispresentedasa£50mcurrentliability(2018£49m)anda£165mnon-currentliability(2018£200m).
143ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
4.5 PENSIONS CONTINUEDThemovementinthefairvalueoftheschemes’assetsintheperiodisasfollows:
Scheme assets
2019£m
2018£m
Fairvalueofschemeassetsatbeginningofperiod 2,404 2,390Interestincome 69 63Remeasurementgain: –Returnonschemeassets(excludingamountsincludedinnetfinancecharge) 312 23Additionalemployercontributions 49 48Benefitspaid (92) (118)Administrationcosts (3) (2)Atendofperiod 2,739 2,404
Changesinthepresentvalueofdefinedbenefitobligationsareasfollows:
Defined benefit obligation
2019£m
2018£m
Presentvalueofdefinedbenefitobligationatbeginningofperiod (2,068) (2,219)Interestcost (59) (58)Pastservicecost (19) –Benefitspaid 92 118Remeasurementlosses: –Effectofchangesindemographicassumptions 26 – –Effectofchangesinfinancialassumptions (420) 100 –Effectofexperienceadjustments 5 (9)Atendofperioda (2,443) (2,068)
a. Thedefinedbenefitobligationcomprises£38m(2018£33m)relatingtotheMABETUSunfundedplanand£2,405m(2018£2,035m)relatingtothefundedplans.
Theweightedaveragedurationofthedefinedbenefitobligationis19years(201820years).
ThemajorcategoriesandfairvaluesofassetsoftheMABPPandMABEPPschemesattheendofthereportingperiodareasfollows:
2019£m
2018£m
Cashandequivalents 109 111Equityinstruments 502 626Debtinstruments: –Bonds 2,481 1,513 –Realestatedebt 75 76 –Infrastructuredebt 118 95 –Securedincomedebt 158 80 –Absolutereturnbondfunds 233 202 –Giltrepurchasetransactions (950) (303)Gold 8 8Forwardforeignexchangecontracts 5 (4)Fairvalueofassets 2,739 2,404
Theactualinvestmentreturnachievedontheschemeassetsovertheperiodwas16.0%(20184.3%),whichrepresentedagainof£381m(2018£86m).
Virtuallyallequityinstruments,bondsandgoldhavequotedpricesinactivemarketsandareclassifiedasLevel1instruments.Absolutereturnbondfunds,giltrepurchasetransactionsandforwardforeignexchangecontractsareclassifiedasLevel2instruments.RealestatedebtandinfrastructuredebtareclassifiedasLevel3instruments.
Inthe52weeksended28September2019theGrouppaid£11m(2018£7m)inrespectofthedefinedcontributionarrangements,withanadditional£3m(2018£2m)outstandingasattheperiodend.
At28September2019theMABPPowed£1m(2018£1m)totheGroupinrespectofexpensespaidonitsbehalf.Thisamountisincludedinotherreceivablesinnote3.2.
144ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION4–CAPITALSTRUCTUREANDFINANCINGCOSTSCONTINUED
4.6 SHARE-BASED PAYMENTS
Accounting policyTheGroupoperatesanumberofequity-settledshare-basedcompensationplans,whereby,subjecttomeetinganyrelevantconditions,employeesareawardedsharesorrightsovershares.Thecostofsuchawardsismeasuredatfairvalue,excludingtheeffectofnonmarket-basedvestingconditions,onthedateofgrant.Theexpenseisrecognisedonastraight-linebasisoverthevestingperiodandisadjustedfortheestimatedeffectofnonmarket-basedvestingconditionsandforfeitures,onthenumberofsharesthatwilleventuallyvestduetoemployeesleavingtheemploymentoftheGroup.FairvaluesarecalculatedusingeithertheBlack-Scholes,BinomialorMonteCarlosimulationmodelsdependingontheconditionsattachedtotheparticularsharescheme.
SAYEshareoptionsgrantedtoemployeesaretreatedascancelledwhenemployeesceasetocontributetothescheme.Thisresultsinanacceleratedrecognitionoftheexpensethatwouldhavearisenovertheremainderoftheoriginalvestingperiod.
Schemes in operation Thenetchargerecognisedforshare-basedpaymentsintheperiodwas£3m(2018£3m).
TheGrouphadfourequity-settledshareschemes(2018four)inoperationduringtheperiod;thePerformanceRestrictedSharePlan(PRSP);SharesavePlan;ShareIncentivePlan(SIP)andShortTermDeferredIncentivePlan(STDIP).
Thevestingofallawardsoroptionsisgenerallydependentuponparticipantsremainingintheemploymentofaparticipatingcompanyduringthevestingperiod.FurtherdetailsoneachschemeareprovidedintheReportonDirectors’remunerationonpages76to97.
Thefollowingtablessetoutweightedaverageinformationabouthowthefairvalueofeachoptiongrantwascalculated:
2019 2018
Performance RestrictedShare Plan
SharesavePlan
Performance RestrictedShare Plan
SharesavePlan
Valuationmodel Monte Carlo and Binomial
Black-Scholes MonteCarloandBinomial
Black-Scholes
Weightedaverageshareprice 272.4p 281.5p 259.2p 264.2pExercisepricea – 242.0p – 246.0pExpecteddividendyieldb – 0% – 1.97%Risk-freeinterestrate 0.79% 0.59% 0.68% 0.86%Volatilityc 31.4% 30.49% 32.5% 31.0%Expectedlife(years)d 3.0 4.0 2.4 4.0Weightedaveragefairvalueofgrantsduringtheperiod 240.3p 87.0p 224.2p 61.3p
a. TheexercisepriceforthePerformanceRestrictedSharePlanis£1perparticipatingemployee.b. TheexpecteddividendyieldfortheSharesavePlanhasusedhistoricaldividendinformation.FordetailsontheGroup’scurrentdividendpolicyrefertotheFinancialreviewonpage48.
TheexpecteddividendyieldforthePerformanceRestrictedSharePlanoptionsiszeroasparticipantsareentitledtoDividendAccruedSharestothevalueofordinarydividendspaidorpayableduringthevestingperiod.
c. TheexpectedvolatilityisdeterminedbycalculatingthehistoricalvolatilityoftheCompany’ssharepricecommensuratewiththeexpectedtermoftheoptionsandshareawards.d. Theexpectedlifeoftheoptionsrepresentstheaveragelengthoftimebetweengrantdateandexercisedate.
ThefairvalueofawardsundertheShortTermDeferredIncentivePlanandtheShareIncentivePlanareequaltothesharepriceonthedateofawardasthereisnopricetobepaidandemployeesareentitledtoDividendAccruedSharestothevalueofordinarydividendspaidorpayableduringthevestingperiod.Theassumptionssetoutabovearethereforenotrelevanttotheseschemes.ThefairvalueofoptionsgrantedundertheShareIncentivePlanduringtheperiodwas281.5p(2018264.2p).ThefairvalueofoptionsgrantedundertheShortTermDeferredIncentivePlanduringtheperiodwas272.4p(2018260.6p).
Thetablesbelowsummarisethemovementsinoutstandingoptionsduringtheperiod.
Number of sharesWeighted average
exercise price
2019m
2018m
2019p
2018p
Sharesave planOutstandingatthebeginningoftheperiod 4.1 4.1 256.0 264.1Granted 2.0 1.3 242.0 246.0Exercised – (0.1) 230.9 182.2Forfeited (0.7) (0.8) 246.2 257.3Expired (0.4) (0.4) 348.0 323.5Outstandingattheendoftheperiod 5.0 4.1 244.0 256.0Exercisableattheendoftheperiod – – – –
TheoutstandingoptionsfortheSAYEschemehadanexercisepriceofbetween221.0pand362.0p(2018between221.0pand362.0p)andtheweightedaverageremainingcontractlifewas2.8years(20182.8years).Thenumberofforfeitedsharesintheperiodincludes400,999(2018545,646)cancellations.
SAYEoptionswereexercisedonarangeofdates.Theaveragesharepricethroughtheperiodwas284.4p(2018258.4p).
145ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
4.6 SHARE-BASED PAYMENTS CONTINUED
Number of shares
2019m
2018m
Share Incentive PlanOutstandingatthebeginningoftheperiod 1.8 1.7Granted 0.4 0.4Exercised (0.2) (0.2)Forfeited (0.1) (0.1)Outstandingattheendoftheperiod 1.9 1.8Exercisableattheendoftheperiod 0.9 0.8
OptionsundertheShareIncentivePlanarecapableofremainingwithintheSIPtrustindefinitelywhileparticipantscontinuetobeemployed.
Number of shares
2019m
2018m
Performance Restricted Share PlanOutstandingatthebeginningoftheperiod 6.1 5.2Granted 2.1 2.2Forfeited (0.1) (0.2)Expired (1.9) (1.1)Outstandingattheendoftheperiod 6.2 6.1Exercisableattheendoftheperiod – –
TheexercisepriceforthePerformanceRestrictedSharePlanis£1perparticipatingemployee,thereforetheweightedaverageexercisepricefortheseoptionsis£nil(2018£nil).
Optionsoutstandingat28September2019hadanexercisepriceof£nilandaweightedaverageremainingcontractuallifeof3.2years(20183.2years).
4.7 EQUITY
Accounting policiesOwn sharesThecostofownsharesheldinemployeesharetrustsandintreasuryaredeductedfromshareholders’equityuntilthesharesarecancelled,reissuedordisposedof.Wheresuchsharesaresubsequentlysoldorreissued,thefairvalueofanyconsiderationreceivedisalsoincludedinshareholders’equity.
DividendsDividendsproposedbytheBoardbutunpaidattheperiodendarenotrecognisedinthefinancialstatementsuntiltheyhavebeenapprovedbyshareholdersattheAnnualGeneralMeeting.Interimdividendsarerecognisedwhenpaid.
Scripdividendsarefullypaidupfromthesharepremiumaccount.Theyareaccountedforasanincreaseinsharecapitalforthenominalvalueofthesharesissued,andaresultingreductioninsharepremium.
Called up share capital2019
Number of shares £m2018
Number of shares £m
Allotted, called up and fully paidOrdinarysharesof813⁄24peachAtstartofperiod 428,310,823 37 422,548,604 36Sharecapitalissueda 266,937 – 5,762,219 1At end of period 428,577,760 37 428,310,823 37
a. TheCompanyissued266,937(2018407,602)sharesduringtheperiodundershareoptionschemesforaconsiderationof£nil(2018£nil).Inaddition,underthetermsoftheCompany’sscripdividendscheme,shareholdersareabletoelecttoreceiveordinarysharesinplaceofbothinterimandfinaldividends.Inthepriorperiod,thisresultedintheissueof5,354,617newfullypaidordinarysharesinrelationtothefinaldividendforthe53weeksended30September2017.Therewerenodividendsdeclaredinthecurrentperiod.
Alloftheordinarysharesrankequallywithrespecttovotingrightsandrightstoreceiveordinaryandspecialdividends.Therearenorestrictionsontherightstotransfershares.
DetailsofoptionsgrantedundertheGroup’sshareschemes,arecontainedinnote4.6.
146ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION4–CAPITALSTRUCTUREANDFINANCINGCOSTSCONTINUED
DividendsDeclared and paid in the periodTherewerenodividendsdeclaredorpaidduringthecurrentperiod.Dividendsdeclaredandpaidinthepriorperiodareasfollows:
2018
Cash dividend
£m
Settled via scrip
£m
Total dividend
£m
Finaldividendof5.0ppershare–53weeksended30September2017 7 14 21
7 14 21
Thefinaldividendof5.0pperordinarysharedeclaredinrelationtothe53weeksended30September2017wasapprovedattheAnnualGeneralMeetingon23January2018andwaspaidtoshareholderson6February2018.ShareholderswereabletoelecttoreceiveordinarysharescreditedasfullypaidinsteadofthecashdividendunderthetermsoftheCompany’sscripdividendscheme.Ofthe£21mfinaldividend,£14mwasintheformoftheissueofordinarysharestoshareholdersoptingintothescripalternative.Themarketvaluepershareatthedateofpaymentwas264.4ppershare,resultingintheissueof5millionnewshares,fullypaidupfromthesharepremiumaccount.Thenominalvalueofthe5millionsharesissuedinrelationtothefinalscripdividendsis£1m.
Share premium accountThesharepremiumaccountrepresentsamountsreceivedinexcessofthenominalvalueofsharesonissueofnewshares.Sharepremiumof£nilhasbeenrecognisedonsharesissuedintheperiod(2018£1m).
Capital redemption reserveThecapitalredemptionreservemovementaroseontherepurchaseandcancellationbytheCompanyofordinarysharesduringpriorperiods.
Revaluation reserveTherevaluationreserverepresentstheunrealisedgaingeneratedonrevaluationofthepropertyestatewitheffectfrom29September2007.Itcomprisestheexcessofthefairvalueoftheestateoverdeemedcost,netofrelateddeferredtaxation.
Own shares heldOwnsharesheldbytheGrouprepresentthesharesintheCompanyheldbytheemployeesharetrusts.
Duringtheperiod,theemployeesharetrustsacquired900,000shares(2018nil)andsubscribedfor257,587(2018296,144)sharesatacostof£3m(2018£nil)andreleased226,936(2018159,956)sharestoemployeesontheexerciseofoptionsandothershareawardsforatotalconsiderationof£nil(2018£nil).The2,815,781sharesheldbythetrustsat28September2019hadamarketvalueof£11m(20181,885,130sharesheldhadamarketvalueof£5m).
TheCompanyhasestablishedtwoemployeesharetrusts:
Share Incentive Plan (SIP) TrustTheSIPTrustwasestablishedin2003topurchasesharesonbehalfofemployeesparticipatingintheCompany’sShareIncentivePlan.Underthisscheme,eligibleemployeesareawardedfreeshareswhicharenormallyheldintrustforaholdingperiodofatleastthreeyears.AfterfiveyearsthesharesmaybetransferredtoorsoldbytheemployeefreeofincometaxandNationalInsurancecontributions.TheSIPTrustbuysthesharesinthemarketorsubscribesfornewlyissuedshareswithfundsprovidedbytheCompany.Duringtheholdingperiod,dividendsarepaiddirectlytotheparticipatingemployees.At28September2019,thetrustees,EquinitiSharePlanTrusteesLimited,held1,904,568(20181,847,623)sharesintheCompany.Oftheseshares,577,636(2018583,410)sharesareunconditionallyavailabletoemployees,315,333(2018245,415)shareshavebeenconditionallyawardedtoemployees,987,565(2018982,143)shareshavebeenawardedtoemployeesbutarestillrequiredtobeheldwithintheSIPTrustandtheremaining24,034(201836,655)sharesareunallocated.
Employee Benefit Trust (EBT)TheEBTwasestablishedin2003inordertosatisfytheexerciseorvestingofexistingandfutureshareoptionsandawardsunderthePerformanceRestrictedSharePlan,ShortTermDeferredIncentivePlanandtheSharesavePlan.TheEBTpurchasessharesinthemarketorsubscribesfornewlyissuedshares,usingfundsprovidedbytheCompany,basedonexpectationsoffuturerequirements.DividendsarewaivedbytheEBT.At28September2019,thetrustees,SanneFiduciaryServicesLimited,wereholding911,213(201837,507)sharesintheCompany.
Hedging reserveThehedgingreservecomprisestheeffectiveportionofthecumulativenetchangeinthefairvalueofcashflowhedginginstrumentsrelatedtohedgedfuturecashflows.
Translation reserveThetranslationreserveisusedtorecordexchangedifferencesarisingfromthetranslationoftheconsolidatedfinancialstatementsofforeignsubsidiaries.
Retained earningsTheGroup’smainoperatingsubsidiary,Mitchells&ButlersRetailLimited,hadretainedearningsunderFRS101of£2,313mat28September2019(2018£2,199m).Itsabilitytodistributethesereservesbywayofdividendsisrestrictedbythesecuritisationcovenants(seenote4.2).
147ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
5.1 RELATED PARTY TRANSACTIONSKey management personnelEmployeesoftheMitchells&ButlersplcGroupwhoaremembersoftheBoardofDirectorsortheExecutiveCommitteeofMitchells&Butlersplcaredeemedtobekeymanagementpersonnel.ItistheBoardwhohaveresponsibilityforplanning,directingandcontrollingtheactivitiesoftheGroup.
CompensationofkeymanagementpersonneloftheGroup:
201952 weeks
£m
201852 weeks
£m
Short-termemployeebenefits 5 4
MovementsinshareoptionsheldbytheDirectorsofMitchells&ButlersplcaresummarisedintheReportonDirectors’remuneration.
Associate companiesDuringtheperiod,theGrouphasheldanumberofpropertyleaseagreementswithitsassociatecompanies,3SixtyRestaurantsLimitedandFatboyPubCompanyLimited.
SincebecomingassociatesoftheGroup,theGrouphasenteredintothefollowingtransactionswiththeassociates:
3Sixty Restaurants Limited Fatboy Pub Company Limited
201952 weeks
£000
201852 weeks
£000
201952 weeks
£000
201852 weeks
£000
Rentcharged 372 29 75 –Salesofgoodsandservices 646 48 4 48Loans – – 175 –
1,018 77 254 48
Thebalanceduefrom3SixtyRestaurantsLimitedat28September2019was£102,000(2018£35,000).
ThebalanceduefromFatboyPubCompanyat28September2019was£186,000(2018£nil).
148ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION5–OTHERNOTES
5.2 SUBSIDIARIES AND ASSOCIATESSubsidiariesTransactionsbetweentheCompanyanditssubsidiaries,whicharerelatedparties,havebeeneliminatedonconsolidation.
Mitchells&Butlersplcistheultimatecontrollingpartyandthebeneficialownerofalloftheequitysharecapital,eitheritselforthroughsubsidiaryundertakings,ofthefollowingcompanies:
Name of subsidiary Country of incorporation Registration number Nature of business
Principal operating subsidiariesMitchells&ButlersRetailLimited EnglandandWales 00024542 LeisureretailingMitchells&ButlersRetail(No.2)Limited EnglandandWales 03959664 LeisureretailingHaHaBar&GrillLimited EnglandandWales 06295359 LeisureretailingOrchidPubs&DiningLimited EnglandandWales 06754332 LeisureretailingALEXGaststättenGesellschaftmbH&CoKG Germany LeisureretailingMidco1Limited EnglandandWales 05835640 PropertyleasingcompanyMitchells&ButlersLeisureRetailLimited EnglandandWales 01001181 ServicecompanyMitchells&ButlersGermanyGmbHa Germany ServicecompanyMitchells&ButlersFinanceplc EnglandandWales 04778667 FinancecompanyOther subsidiariesMitchells&Butlers(Property)Limitedc EnglandandWales 01299745 PropertymanagementStandardCommercialPropertyDevelopmentsLimitedb EnglandandWales 00056525 PropertydevelopmentMitchells&ButlersHoldings(No.2)Limiteda,b EnglandandWales 06475790 HoldingcompanyMitchells&ButlersHoldingsLimitedb EnglandandWales 03420338 HoldingcompanyMitchells&ButlersLeisureHoldingsLimitedb EnglandandWales 02608173 HoldingcompanyMitchells&ButlersRetailHoldingsLimited EnglandandWales 04887979 HoldingcompanyOldKentuckyRestaurantsLimited EnglandandWales 00465905 TrademarkownershipBedeRetailInvestmentsLimited EnglandandWales 04125272 DormantLastbrewLimited EnglandandWales 00075597 DormantMitchells&Butlers(IP)Limitedb EnglandandWales 04885717 DormantMitchells&ButlersAcquisitionCompany EnglandandWales 05879733 DormantMitchells&ButlersRetailPropertyLimiteda,b EnglandandWales 06301758 Non-tradingMitchellsandButlersHealthcareTrusteeLimitedb EnglandandWales 04659443 HealthcaretrusteeStandardCommercialPropertyInvestmentsLimited EnglandandWales 01954096 DormantStandardCommercialPropertySecuritiesLimited EnglandandWales 01689558 DormantTempleCircusDevelopmentsLimited EnglandandWales 06595222 DormantALEXGaststättenImmobiliengesellschaftmbH Germany PropertymanagementALLBARONEGaststättenBetriebsgesellschaftmbH Germany LeisureretailingALEXAlsterpavillonImmobilienGmbH&CoKG Germany PropertymanagementALEXAlsterpavillonManagementGmbH Germany ManagementcompanyALEXGaststättenManagementGmbH Germany ManagementcompanyPLAN-BARGastronomieEinrichtungsGmbH Germany Non-tradingBrownsRestaurant(Brighton)Limited EnglandandWales 01564302 DormantBrownsRestaurant(Bristol)Limited EnglandandWales 02351724 DormantBrownsRestaurant(Cambridge)Limited EnglandandWales 01237917 DormantBrownsRestaurant(London)Limited EnglandandWales 00291996 DormantBrownsRestaurant(Oxford)Limited EnglandandWales 01730727 DormantBrownsRestaurantsLimited EnglandandWales 01001320 DormantIntertain(Dining)Limited EnglandandWales 07035107 DormantLander&CookLimited EnglandandWales 11160005 Dormant
a. ShareshelddirectlybyMitchells&Butlersplc.b. Thesecompaniesareexemptfromtherequirementtoprepareindividualauditedfinancialstatementsinrespectofthe52weekperiodended28September2019byvirtueofsections
479Aand479CoftheCompaniesAct2006.
AllcompaniesregisteredinEnglandandWalesoperatewithintheUnitedKingdom.Theregisteredofficeforthesecompaniesis27FleetStreet,Birmingham,B31JP.
AllcompaniesregisteredinGermanyoperatesolelywithinGermany.TheregisteredofficeforthesecompaniesisAdolfstrasse16,65185Wiesbaden.
149ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
AssociatesDetailsoftheCompany’sassociates,heldindirectly,areasfollows.Sharesintheseassociateswereacquiredinthepriorperiod.
Name of associate Registered office
Country of incorporation and
operationCountry of operation Nature of business
Proportion of ownership interest %
Proportion of voting power
interest %
3SixtyRestaurantsLimited
1stFloorStGeorgesHouse,StGeorgesRoad,Bolton,BL12DD EnglandandWales UnitedKingdom Leisureretailing 40 40
FatboyPubCompanyLimited
AmpneyHouse,FalconClose,Quedgeley,Gloucester,GL24LS EnglandandWales UnitedKingdom Leisureretailing 25 25
5.3 FIVE YEAR REVIEW2019
52 weeks£m
201852 weeks
£m
201753 weeks
£m
201652 weeks
£m
201552 weeks
£m
Revenue 2,237 2,152 2,180 2,086 2,101Operating profit before adjusted items 317 303 314 318 328Adjusteditems (20) (48) (106) (87) (58)Operating profit 297 255 208 231 270Financecosts (114) (119) (125) (126) (130)Financerevenue 1 1 1 1 1Netpensionsfinancecharge (7) (7) (7) (12) (15)Profit before taxation 177 130 77 94 126Taxexpense (34) (26) (14) (5) (23)Profit for the period 143 104 63 89 103Earnings per shareBasic 33.5p 24.5p 15.1p 21.6p 25.0pDiluted 33.3p 24.4p 15.0p 21.6p 24.9pAdjusted(Basic)a 37.2p 34.1p 34.9p 34.9p 35.7p
a. Adjustedearningspershareisstatedafterremovingtheimpactofadjusteditemsasexplainedinnote2.2.
150ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION5–OTHERNOTESCONTINUED
Notes2019
£m2018
£m
Non-current assetsInvestmentsinsubsidiaries 5 1,474 1,474Deferredtaxasset 9 41 48
1,515 1,522Current assetsTradeandotherreceivables 6 673 739Cashandcashequivalents 36 14
709 753Current liabilitiesPensionliabilities 4 (50) (49)Borrowings 8 (8) (28)Tradeandotherpayables 7 (284) (288)
(342) (365)Non-current liabilitiesPensionliabilities 4 (165) (200)Net assets 1,717 1,710
EquityCalledupsharecapital 10 37 37Sharepremiumaccount 26 26Capitalredemptionreserve 3 3Ownsharesheld (4) (1)Retainedearnings 1,655 1,645Total equity 1,717 1,710
TheCompanyreportedalossforthe52weeksended28September2019of£6m(52weeksended29September2018profitof£89m).
TheCompanyfinancialstatementswereapprovedbytheBoardandauthorisedforissueon19November2019.
Theyweresignedonitsbehalfby:
TIM JONES ChiefFinancialOfficer
Theaccountingpoliciesandthenotesonpages153to155formanintegralpartoftheseCompanyfinancialstatements.
RegisteredNumber:04551498
151ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
MITCHELLS&BUTLERSPLCCOMPANYFINANCIALSTATEMENTSCOMPANY BALANCE SHEET 28SEPTEMBER2019
Sharecapital
£m
Sharepremium
£m
Capitalredemption
reserve£m
Ownshares
held£m
Retainedearnings
£m
Totalequity
£m
At 30 September 2017 36 26 3 (1) 1,556 1,620Profitaftertaxation – – – – 89 89Remeasurementofpensionliability – – – – 5 5Deferredtaxonremeasurementofpensionliability – – – – (1) (1)Totalcomprehensiveincome – – – – 93 93Sharecapitalissued – 1 – – – 1Creditinrespectofemployeeshareschemes – – – – 3 3Dividendspaid – – – – (7) (7)Scripdividendrelatedshareissue 1 (1) – – – –At 29 September 2018 37 26 3 (1) 1,645 1,710Lossaftertaxation – – – – (6) (6)Remeasurementofpensionliability – – – – 15 15Deferredtaxonremeasurementofpensionliability – – – – (3) (3)Totalcomprehensiveincome – – – – 6 6Purchaseofownshares – – – (3) – (3)Creditinrespectofemployeeshareschemes – – – – 3 3Taxonshare-basedpayments – – – – 1 1At 28 September 2019 37 26 3 (4) 1,655 1,717
Theretainedearningsaccountiswhollydistributableafterthedeductionforownsharesheld.
152ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
COMPANY STATEMENT OF CHANGES IN EQUITY FORTHE52WEEKSENDED28SEPTEMBER2019
1. BASIS OF PREPARATIONBasis of accountingTheseCompanyfinancialstatementswerepreparedinaccordancewithFinancialReportingStandard101‘ReducedDisclosureFramework’asissuedbytheFRC.
AspermittedbyFRS101,theCompanyhastakenadvantageofthedisclosureexemptionsavailableunderthatstandardinrelationtoshare-basedpayments,financialinstruments,presentationofacashflowstatement,standardsnotyeteffective,impairmentofassetsandrelatedpartytransactions.Whererequired,equivalentdisclosuresaregivenintheconsolidatedfinancialstatements.
TheCompanyfinancialstatementshavebeenpreparedunderthehistoricalcostconvention.TheCompany’saccountingpolicieshavebeenappliedonaconsistentbasistothosesetoutintherelevantnotestotheconsolidatedfinancialstatements.Inthecurrentperiod,theCompanyhasappliedanumberofamendmentstoIFRSStandardsissuedbytheInternationalAccountingStandardsBoard(theBoard)thataremandatorilyeffectiveforanaccountingperiodthatbeginsonorafter1January2018,asdescribedinsection1oftheconsolidatedfinancialstatements.OtherthanIFRS9FinancialInstruments,theiradoptionhasnothadanymaterialimpactonthedisclosuresorontheamountsreportedintheseCompanyfinancialstatements.
Impact of initial application of IFRS 9 Financial Instruments(a) Classification and measurement of financial instrumentsTheDirectorsoftheCompanyreviewedandassessedtheCompany’sexistingfinancialinstrumentsasat30September2018,basedonthefactsandcircumstancesthatexistedatthatdateandconcludedthattheinitialapplicationofIFRS9hashadnoimpactontheCompany’sfinancialinstrumentsasregardstheirclassificationandmeasurement.Detailsontheexpectedcreditlossandimpactonlossallowancesareprovidedin(b)below.
(b) Impairment of financial assetsInrelationtotheimpairmentoffinancialassets,IFRS9requiresanexpectedcreditlossmodelasopposedtoanincurredcreditlossmodelunderIAS39.TheexpectedcreditlossmodelrequirestheCompanytoaccountforexpectedcreditlossesandchangesinthoseexpectedcreditlossesateachreportingdatetoreflectchangesincreditrisksinceinitialrecognitionofthefinancialassets.Inotherwords,itisnolongernecessaryforacrediteventtohaveoccurredbeforecreditlossesarerecognised.
Inparticular,IFRS9requirestheCompanytomeasurethelossallowanceforafinancialinstrumentatanamountequaltothelifetimeexpectedcreditlosses(ECL)ifthecreditriskonthatfinancialinstrumenthasincreasedsignificantlysinceinitialrecognition,orifthefinancialinstrumentisapurchasedororiginatedcredit-impairedfinancialasset.However,ifthecreditriskonafinancialinstrumenthasnotincreasedsignificantlysinceinitialrecognition(exceptforapurchasedororiginatedcredit-impairedfinancialasset),theCompanyisrequiredtomeasurethelossallowanceforthatfinancialinstrumentatanamountequalto12-months’ECL.IFRS9alsoprovidesasimplifiedapproachformeasuringthelossallowanceatanamountequaltolifetimeECLfortradereceivablesincertaincircumstances.
TheCompanyhasatradeandotherreceivablesbalancethatrelatestoamountsowedbysubsidiaryundertakings(seenote6).TheDirectorshavereviewedthesebalancesandcalculatedthatthereisnoexpectedcreditlossforanyoftheindividualbalancesat29September2018.AssuchtherehasbeennoimpactontheCompanyfinancialstatementsandthereforenoprioryearrestatementrequired.
Critical accounting judgements and key sources of estimation uncertaintyThecriticaljudgementsandestimatesoftheCompanyareconsideredalongsidethoseoftheGroup.ThekeycriticaljudgementoftheCompanyisrelatedtotheselectionofthediscountrateandinflationrateassumptionsusedinthecalculationofthedefinedbenefitpensionliabilitydescribedinnote4.5oftheconsolidatedfinancialstatements.Therearenokeysourcesofestimationuncertaintyinthecurrentperiod.
Foreign currenciesTransactionsinforeigncurrenciesarerecordedattheexchangeratesrulingonthedatesofthetransactions.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedintosterlingattherelevantratesofexchangerulingatthebalancesheetdate.
2. PROFIT AND LOSS ACCOUNTProfit and loss accountTheCompanyhasnotpresenteditsownprofitandlossaccount,aspermittedbySection408oftheCompaniesAct2006.
TheCompanyrecordedalossaftertaxof£6m(2018profitof£89m),lessdividendsof£nil(2018£7m).Dividendsaredisclosedinnote4.7oftheconsolidatedfinancialstatements.
Audit remunerationAuditor’sremunerationforauditservicestotheCompanywas£30,000(2018£22,000).ThisisbornebyanotherGroupcompany,asareanyothercostsrelatingtonon-auditservices(seenote2.3totheconsolidatedfinancialstatements).
3. EMPLOYEES AND DIRECTORS2019
52 weeks2018
52 weeks
Averagenumberofemployees,includingpart-timeemployees 2 2
EmployeesofMitchells&ButlersplcconsistofExecutiveDirectorswhoareconsideredtobethekeymanagementpersonneloftheCompany.
Detailsofemployeebenefitsandpost-employmentbenefits,includingshare-basedpaymentsareincludedwithintheReportonDirectors’remunerationonpages76to97.Thechargerecognisedforshare-basedpaymentsintheperiodis£1m(2018£nil).
153ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION
NOTES TO THE MITCHELLS & BUTLERS PLC COMPANY FINANCIAL STATEMENTS
4. PENSIONS
Accounting policyTheaccountingpolicyforpensionsisdisclosedintheconsolidatedfinancialstatementsinnote4.5.
Pension liabilityAt28September2019theCompany’spensionliabilitywas£215m(2018£249m).Ofthisamount,£50m(2018£49m)isacurrentliabilityand£165m(2018£200m)isanon-currentliability.
TheCompanyisthesponsoringemployeroftheGroup’spensionplans.InformationconcerningthepensionschemearrangementsoperatedbytheCompanyandassociatedcurrentandfuturecontributionsiscontainedwithinnote4.5totheconsolidatedfinancialstatementsonpages141to144.
Thepensionamountsanddisclosuresincludedinnote4.5totheconsolidatedfinancialstatementsareequivalenttothoseapplicablefortheCompany.
5. INVESTMENTS IN SUBSIDIARIES
Accounting policyTheCompany’sinvestmentsinGroupundertakingsareheldatcostlessprovisionforimpairment,exceptforthoseamountsdesignatedasbeinginafairvaluehedge.
Investments in subsidiary
undertakings£m
CostAt30September2017 3,353Additions –At 29 September 2018 3,353Additions –At 28 September 2019 3,353
ProvisionAt30September2017 1,879Impairment –At 29 September 2018 1,879Impairment –At 28 September 2019 1,879
Net book valueAt 28 September 2019 1,474
At29September2018 1,474
At30September2017 1,474
Mitchells&ButlersplcisthebeneficialownerofalloftheequitysharecapitalofcompanieswithintheGroup,eitheritselforthroughsubsidiaryundertakings.Inaddition,theCompanyhasindirectinvestmentsinassociatecompaniesthroughsubsidiaryundertakings.Seenote5.2oftheconsolidatedfinancialstatementsforafulllistofsubsidiariesandassociates.
Investmentshavebeentestedforimpairmentusingforecastcashflows,discountedbyapplyingapre-taxdiscountrateof7.3%(20187.7%).Forthepurposesofthecalculationoftherecoverableamount,thecashflowprojectionsinclude0.0%(20180.0%)ofgrowthperannum.
6. TRADE AND OTHER RECEIVABLES2019
£m2018
£m
Amountsowedbysubsidiaryundertakingsa 673 739
a. Amountsowedbysubsidiaryundertakingsarerepayableondemand.Interestisnotchargedonallbalances.Whereinterestischarged,itischargedatmarketrate,basedonwhatcanbeachievedoncorporatedeposits.
TheDirectorsconsiderthatthecarryingamountofamountsowedbysubsidiaryundertakingsapproximatelyequatestotheirfairvalue.AnassessmentofthelifetimeECLhasnowbeenperformedwith£nilrecognisedattheperiodend.
154ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
NOTES TO THE MITCHELLS & BUTLERS PLC COMPANY FINANCIAL STATEMENTS CONTINUED
7. TRADE AND OTHER PAYABLES2019
£m2018
£m
Amountsowedtosubsidiaryundertakingsa 282 283Accruedcharges 2 4Otherpayables – 1
284 288
a. Amountsowedtosubsidiaryundertakingsarerepayableondemand.Interestisnotchargedonallbalances.Whereinterestischarged,itischargedatmarketrate,basedonwhatcanbeachievedoncorporatedeposits.
8. BORROWINGS
Accounting policyTheaccountingpolicyforborrowingsisdisclosedintheconsolidatedfinancialstatementsinnote4.2.
Borrowingscanbeanalysedasfollows:
2019£m
2018£m
CurrentBankoverdraft 8 28Totalborrowings 8 28
Unsecured revolving credit facilityTheCompanyholdsuncommittedcreditfacilitiesof£15m.Theamountdrawnat28September2019is£nil(2018£nil).
9. TAXATION
Accounting policyTheaccountingpolicyfortaxationisdisclosedintheconsolidatedfinancialstatementsinnote2.4.
Deferred tax assetMovementsinthedeferredtaxassetcanbeanalysedasfollows:
£m
At30September2017 56Chargedtoincomestatement–pensions (6)Chargedtoincomestatement–taxlosses (1)Creditedtoothercomprehensiveincome–pensions (1)At29September2018 48Chargedtoincomestatement–pensions (4)Chargedtoincomestatement–taxlosses (1)Chargedtoothercomprehensiveincome–pensions (3)Creditedtoequity–sharebasedpayments 1At 28 September 2019 41
Analysedastaxtimingdifferencesrelatedto:
2019£m
2018£m
Pensions 36 43Taxlossesa 4 5Sharebasedpayments 1 –
41 48
a. Taxlossesarisingin2008whicharenowrecoverablebyoffsetagainstotherincome.
Furtherinformationonthechangestotaxlegislationareprovidedinnote2.4totheconsolidatedfinancialstatements.
10. EQUITYCalled up share capitalDetailsoftheamountandnominalvalueofallotted,calledupandfullypaidsharecapitalarecontainedinnote4.7totheconsolidatedfinancialstatements.
DividendsDetailsofthedividendsdeclaredandpaidbytheCompanyarecontainedinnote4.7totheconsolidatedfinancialstatements.
155ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC
STRA
TEGIC
REPO
RT
GO
VER
NA
NC
EFIN
AN
CIA
L STA
TE
ME
NT
SO
THER IN
FOR
MA
TION