TIDMMAB
RNS Number : 5442I
Mitchells & Butlers PLC
14 December 2020
14 December 2020
Mitchells & Butlers plc
LEI no. 213800JHYNDNB1NS2W10
Annual Report 2020
In compliance with Listing Rule 9.6.1, Mitchells & Butlers
plc has today submitted the Company's Annual Report and Accounts
2020 (the Annual Report) to the National Storage Mechanism.
The Annual Report will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism and can also
be accessed on the Company's website at:
www.mbplc.com/investors/annualreport
The Annual Report is expected to be despatched to shareholders
on 21 December 2020.
The Company's Annual General Meeting is due to be held on
Wednesday 24 March 2021. The Notice of the Annual General Meeting
is expected to be despatched to shareholders in February 2021.
A condensed set of Mitchells & Butlers plc's financial
statements and information on important events that have occurred
during the year and their impact on the financial statements was
included in the Company's Full Year Results announcement on 26
November 2020. That information, together with the information on
Risks and Uncertainties given below and the directors'
responsibilities statement below, constitutes the satisfaction of
the requirements of DTR 6.3.5 in respect of information which is to
be communicated via an RIS in unedited full text. This announcement
is not a substitute for reading the full Annual Report and
financial statements. To view the Full Year Results announcement,
visit the Company website: www.mbplc.com/investors/
Risks and Uncertainties
This section highlights the top 13 principal risks and
uncertainties that affect the Company, together with the key
mitigating activities in place to manage those risks. This does not
represent a comprehensive list of all of the risks that the Company
faces, but focuses on those that are currently considered to be
most relevant.
The processes that are used to identify and manage risks are
described in the internal control and risk management statement on
pages 68 and 69 of the Annual Report.
Risk category and description Controls/mitigating activities
1. Borrowing covenants -- The Company maintains headroom
There are risks that borrowing against these risks. The finance
covenants are breached because team conducts daily cash forecasting
of circumstances such as: with periodic reviews at the Treasury
i. The continuation of disruption Committee, the role of which includes
due to the ensuring that the Board Treasury
Covid-19 pandemic; Policy is adhered to, monitoring
ii. A change in the economic its operation and agreeing appropriate
climate leading to reduced strategies for recommendation to
cash net inflows; or the Board.
iii. A material change in -- In addition, regular forecasting
the valuation of the property and testing of covenant compliance
portfolio. is performed and frequent communication
is maintained with the Securitisation
Risk increasing Trustee.
Although the required waivers -- Annual property valuation.
are in place, this remains -- Detailed assessment of this
a critical risk with an increased is included in the long-term viability
focus required given the statement.
current economic climate. -- We have taken measures to protect
the financial health of the business
whilst operating at reduced capacity
and continue to closely manage the
cash position of the Group.
-- In June 2020, we agreed the
waivers required to ensure we would
remain compliant with all covenant
requirements through an Extended
Case (downside) scenario (in respect
of both the securitisation and the
unsecured facilities).
----------------------------------------------
2. Material uncertainty -- Please refer to the Going Concern
Given the very high degree disclosures on page 44 of the Annual
of uncertainty resulting Report.
from the Covid-19 pandemic
and resulting restrictions
placed on trading in the
hospitality sector, a material
uncertainty therefore exists,
which may cast significant
doubt over the Group's ability
to trade as a going concern.
Risk increasing
Please refer to the Going
Concern disclosures on page
44 of the Annual Report.
----------------------------------------------
3. Declining sales performance -- Right operational and commercial
This risk falls into the team and structure in place. Brand
below main categories: alignment ensures the right research
is done and is acted upon.
Sales : There is a risk -- Daily, weekly and periodic sales
that declining sales, concerns reporting, monitoring and scrutiny
around consumer confidence, activity is in place.
increased personal debt levels, -- During the period of disruption
squeezes on disposable income caused by the Covid-19 pandemic,
and rising inflation individually, a steering committee met at least
together or in combination, weekly and more frequently as needed
may adversely affect our to ensure appropriately diligent
market share and profitability, supervision, monitoring and management
reducing headroom against of controls and risks.
securitisation tests. Increased -- Our Eat Drink Share panel provides
social distancing measures/requirements robust, quick and cost-effective
put in place may lead to research. This is our own panel
further negative impact in of 27,000 Mitchells & Butlers guests
sales/revenues. whom we can use for research purposes
for quick and cost-effective insights.
Consumer and market insight -- Primary research in partnership
: If Mitchells & Butlers with brand/category teams.
fails to manage and develop -- Working with suppliers to tap
its existing (and new) brands into their research.
in line with consumer needs -- Each brand has its own pricing
and market trends due to strategy.
failure to obtain or use -- Price promotions are in line
sufficient insight in a timely with the agreed strategy.
manner, this may lead to -- Sales training for Management.
a decline in revenues and -- Consumer/insight-led innovation
profits. process and development for new
brands.
Pricing and market changes -- Reduce guest complaints by improving
: If price changes are not the local management of social media
intelligently applied due responses (e.g. TripAdvisor responses).
to a lack of appreciation -- Increased digital marketing
of market sensitivities and activity including new loyalty apps.
elasticities, this may result -- Increased activity from takeaway
in decreased revenue and and delivery offerings.
profit. -- Online guest satisfaction survey
to collect guest feedback. This
Consumer behaviour as a feedback, together with the results
result of Covid-19 : of research studies, is monitored
As pubs and restaurants reopen, and evaluated by a dedicated guest
consumers may have a different insight team to ensure that the
mindset to eating out, with relevance to guests of the Company's
health and safety at the brands is maintained.
forefront of priorities. -- Our priority is to protect our
Guests may want greater insight team members and guests, providing
into practices, and food an eating-out experience which can
supply chain information be enjoyed. We have very strong
to feel confident in their health and safety practices already
eating out experience. Equally in place in our businesses, which
some consumers may not heed we will enhance and evolve to tackle
the measures put in place the challenges we now face. We will
to restrict the spread of be transparent with guests as to
the virus, potentially putting these measures such that they can
our team members and other trust in us and will clearly communicate
guests at risk. our expectations of guests to comply
with the measures put in place.
-- Measures are in place to ensure
Risk increasing that the business responds to guest
Overall risk is increasing requirements after the pandemic.
due to the decline of sales, -- Government financial assistance,
as a direct impact of Government such as furlough payments in respect
restrictions in response of employee costs, business rates
to the Covid-19 pandemic. suspension and reduction of VAT,
assisted to address the decline
in revenue.
----------------------------------------------
4. People planning and development -- The Company makes significant
Mitchells & Butlers has a investment in training to ensure
strong guest focus and so that its people have the right skills
it is important that it is to perform their jobs successfully.
able to attract, retain, -- Furthermore, an employee survey
develop and motivate the is conducted annually to establish
best people with the right employee satisfaction and engagement
capabilities throughout the and this is compared with other
organisation. There is a companies, as well as previous surveys.
risk that, without the right Where appropriate, changes in working
people, our customer service practices are made in response to
levels would be affected. the findings of these surveys.
-- Remuneration packages are benchmarked
The effects of Covid-19 have to ensure that they remain competitive
been assessed in terms of and a talent review process is used
our overall people planning to provide structured succession
and development risks. Prior planning.
to Covid-19, the external -- The apprenticeship programme
pipeline for high potential will also assist in mitigating against
talent, particularly in senior the increasing risk in relation
roles was tightening due to EU workers.
to the rise in opportunity -- A new talent management system
in a growing and competitive has been sourced.
marketplace. However, post -- In compliance with the furlough
Covid-19, the external recruitment scheme, we were able to continue
activity over the prior year employee training so that staff
has also shown that replacement were fully trained on new ways of
talent is no more than average working for our reopening.
in terms of skills, behaviours
and cultural fit.
However, given the current
economic climate and the
anticipated high numbers
of redundancies across UK
employment in general, it
is expected that this position
may soften. We will therefore
keep these new and emerging
risks under review.
Risk increasing (specifically
in London/South East)
There are a large number
of EU workers within the
Group, particularly in London
and the South East. Therefore,
the overall risk is increasing
as the UK completes its transition
period following the UK's
departure from the EU. Restrictions
on the movement of labour
would have a material impact
on both the cost of labour
and access to talent.
----------------------------------------------
5. Business continuity and -- The Company has in place crisis
crisis management and continuity plans that are tested
Mitchells & Butlers relies and refreshed regularly.
on its food and drink supply -- The Company's third-party back-up
chain and the key IT systems facility, for Retail Support Centre
underlying the business to employees, has been successfully
serve its guests efficiently tested to ensure critical business
and effectively. Supply chain systems are able to function in
interruption, IT system failure the event of a disaster. Following
or crises such as terrorist Covid-19, new ways of working are
activity or the threat of in place for all Retail Support
a further disease pandemic Centre staff when the office is
might restrict sales or reduce temporarily closed to employees.
operational effectiveness. Positively, all staff have the appropriate
Staff have the resources resources available to them in order
and ability to work remotely to work remotely and in an efficient
rather than rely on access manner.
to the Retail Support Centre. -- We have assessed risks associated
with remote working and cybersecurity
and are confident that those areas
are suitably controlled.
----------------------------------------------
6. Information security and -- A detailed external review of
disaster recovery cyber security processes is performed
There is a risk that inadequate on a regular basis in order to highlight
disaster recovery plans and any gaps and address any challenges.
information security processes As a result, a number of further
are in place to mitigate improvements have been made (and
against a system outage, continue to be made) to address
or failure to ensure appropriate audit actions and strengthen overall
back-up facilities (covering cyber controls.
key business systems and -- In addition, controls include:
the recovery of critical - The work carried out by the Group's
data) and loss of sensitive cross-functional Information Security
data. Steering Group.
- Group Assurance IT controls reviews.
Given the increase in the - Implementation and revision of
level and frequency of global appropriate cyber security governance
cyber-attacks, the likelihood policies and procedures.
of occurrence is therefore - Ongoing security awareness initiatives
increasing, although current continue to be undertaken.
IT controls and monitoring - A regular cycle of penetration
tools are robust. testing.
- An effective implementation of
Risk of non-compliance with a business-wide data protection
data protection laws is an compliance programme, including
increasing risk for the business training of all relevant employees
to ensure full compliance and contractors.
remains up to date. - Increased focus on protecting
the business against potential cyber-attacks
Risk increasing has resulted in the implementation
The increased activity, information of additional controls to mitigate
security and reliance on against such risks.
IT systems continues to be - Systems, processes and controls
a key focus to ensure critical have been reviewed and updated to
IT systems are kept secure ensure compliance with data protection
and tested frequently and laws.
any vulnerabilities identified
are closed out efficiently.
----------------------------------------------
7. Wage cost inflation -- A detailed review of the risks
There is a risk that increased associated with the National Living
costs associated with further Wage has been completed. This review
increases to the National has been undertaken at a strategic
Living Wage may adversely level and seeks to ensure that appropriate
impact upon overall operational mitigating actions are in place,
costs. some of which are in relation to
how the Group carefully manages
The overall impact of Covid-19, productivity and efficiency across
in relation to our wage cost the estate.
inflation risk, has been -- We have successfully implemented
assessed by management. It a new Time and Attendance system
is unclear at this stage to improve the management controls
how Covid-19 may affect overall and reporting of staff hours.
wage costs as we head into
FY 2021. Therefore, this
review will continue as part
of our review of all emerging
risks facing the business.
Risk increasing
Due to further increases
set by Government, labour
costs could continue to increase.
----------------------------------------------
8. Pension fund deficit -- The Company has made significant
The material value of the additional contributions to reduce
pension fund deficit remains the funding deficit. In September
a risk. 2019, the Company reached agreement
on the triennial valuation of the
Group pension schemes as at 31 March
2019, with a funding shortfall of
GBP293m (March 2016 valuation: GBP451m
shortfall).
-- The Company will continue to
pay cash contributions (of GBP45m
p.a. RPI indexed from 1 April 2016)
to 2023, with an additional payment
of GBP13m into escrow in 2024 should
such further funding be required
at that time.
-- During the period, the Company
and the trustees of its defined
benefit schemes agreed to a suspension
of contributions for the period
from April to September 2020, with
such contributions being deferred
to the end of the respective recovery
periods.
----------------------------------------------
9. Failure to operate safely -- Mitchells & Butlers maintains
and legally a robust programme of health and
A major health and safety safety checks both within its restaurants,
failure could lead to illness, pubs and bars and throughout the
injury or loss of life or supply chain.
significant damage to the -- The dedicated Safety Assurance
Company's or a brand's reputation. team uses a number of technical
partners including food technologists,
Social distancing measures: microbiologists and allergen specialists
we support the need for social to ensure that our food procedures
distancing measures to reduce are safe.
the spread of Covid-19. While -- Regular independent audits of
social distancing measures trading sites are performed to ensure
are in place the capacity that procedures are followed and
of our businesses will be that appropriate standards are maintained.
reduced, impacting the offer -- If a business is identified
to our guests and the financial as underperforming in terms of health
model of our operations. and safety standards, it is immediately
Given the unknown nature targeted for improvement.
of the virus the duration -- The Company maintains two food
of distancing measures is safety Primary Authority relationships.
uncertain. These are held with Luton Borough
Council (May 2019) and Shared Regulatory
Risk increasing Services (November 2019) and provide
The overall risk is increasing assured advice on matters in England
mainly due to the additional and Wales respectively. Westminster
measures enforced as a result City Council continue to provide
of the Covid-19 pandemic. support on health and safety matters
However, robust controls and Hampshire Fire Service for the
are in place. provision of support and guidance
on fire safety risks.
-- Food suppliers are required
to meet the British Retail Consortium
Global Standard for Food Safety
and are subject to regular safety
and quality audits.
-- Comprehensive health and safety
training programmes are in place.
-- We have applied a risk assessment
to each of our businesses and operate
under the new Covid-19 guidelines.
We have adapted the format and practices
of our sites to ensure that the
distancing guidelines provided by
the Government can be adhered to,
protecting both team members and
guests.
-- We continuously review the latest
Covid-19 guidelines and continue
to adapt our businesses in response.
----------------------------------------------
10. Cost of goods - price Overall, cost increases are mitigated
increases as Mitchells & Butlers leverages
Food : The cost of food its scale to drive competitive cost
for resale increases due advantage and collaborates with
to changes in demand, food suppliers to increase efficiencies
legislation, exchange rates in the supply chain. The fragmented
and/or production costs and nature of the food supply industry
uncertainty of supply, leading in the world commodity markets gives
to decreased profits. the Company the opportunity to source
products from a number of alternative
Drinks : The cost of drinks suppliers in order to drive down
for resale increases due cost. Consideration has been given
to changes in demand, legislation, to potential areas such as supply
exchange rates and production chain risk (e.g. customs controls
costs, leading to decreased on imports), labour risk and economic
profits. disruption. Key mitigating activities
for food and drink are detailed
Goods not for resale : Increases below:
in the cost of goods not
for resale and utilities Food:
costs as a result of increases -- A Food Procurement Strategy
in global demand and uncertainty is in place.
of supply in producing nations -- Full reviews are carried out
can have a significant impact on key categories to ensure optimum
on the cost base, consequently value is achieved in each category.
impacting margins. -- A full range review was completed
in FY 2019 ensuring the correct
Brexit : Given that a large number of products/suppliers. This
amount of food spend is sourced is regularly reviewed.
from EU countries, the overall -- Regular reporting of current
risk and impact of additional and projected inflation.
costs is higher. In addition, -- Good relationships with key
there is an increasing risk suppliers.
of sourcing certain products
given the possibility of Drinks:
delays at ports following -- Each drinks category has a clearly
the end of the transition defined strategic sourcing plan
period following the UK leaving to ensure Company scale is leveraged,
the EU. At the end of that the supply base is rationalised,
transition period, the cost and consumer needs are met.
of goods may be impacted -- Good relationships with key
by changes in terms of trade suppliers.
and therefore tariffs, additional -- Supplier collaboration programmes
border controls and fluctuations are in place.
in the value of sterling. -- Plans are in place to mitigate
Sugar Tax.
Risk increasing
The overall risk of price Brexit:
increases is increasing, Brexit risks have remained a key
largely due to the continued focus and have been subject to continued
uncertainty around Brexit. regular review and development by
management during FY 2020. Brexit
risks and the mitigating action
plans are embedded within each of
the key risks, which are regularly
reviewed by both 'risk owners' and
the Risk Committee.
A number of key measures have been
taken to mitigate both the known
and emerging risks that Brexit may
present to the business. For example,
we have secured agreements with
our key suppliers which include:
-- buying ahead to mitigate the
increasing risk of a lack of availability
of products, upon the end of the
transition period for the UK's departure
from the EU.
-- Exploring the option to significantly
upweight the existing Cattle Scheme
in order to secure more UK beef.
-- Reviewing and update of key
contracts to secure the most commercially
effective supply of goods and pricing.
-- Identifying contingency markets
for the alternative supply of food
and drink, should it be required.
-- Strong commercial relationships
with key suppliers which have assisted
with securing an adequate supply
of goods in the event of a disruption.
Covid-19
During the Covid-19 pandemic, suppliers
have continued to remain very supportive
and no material further supply chain
associated risks have materialised.
----------------------------------------------
11. Food supply chain safety -- Mitchells & Butlers has a Safety
Malicious or accidental contamination Assurance team and uses a number
in the supply chain could of technical partners including
lead to food goods for resale food technologists, food safety
being unfit for human consumption experts, microbiologists, allergy
or being dangerous to consume. consultants, trading standards specialists
This could lead to restrictions and nutritionists.
in supply which in turn cause -- Mitchells & Butlers uses a robust
an increase in cost of goods system of detailed product specifications.
for resale and reduced sales -- All food products are risk rated
due to consumer fears and using standard industry definitions
physical harm to guests/employees. and assessment of the way the products
are used in Mitchells & Butlers'
Allergens are becoming an kitchens. Suppliers are then risk
increased risk within the rated according to their products.
industry. However, this is -- Each food supplier is audited
a well managed risk within at least once per annum in respect
the Group. of safety and additionally in response
to any serious food safety complaint
or incident.
-- A robust response has been taken
to manage allergens and the associated
data within the menu cycle coupled
with a continuous review in place
to ensure controls remain appropriate.
----------------------------------------------
12. Health and lifestyle -- We monitor changing behaviour
concerns in relation to health and lifestyle
Failure to respond to changing issues and adapt our brands to appeal
consumer expectations in to changing needs ensuring that
relation to health and lifestyle the brands remain relevant and competitive.
choices and our responsibility -- We have set targets for ongoing
to facilitate those. sugar and salt reduction.
-- A plan is in place to provide
Risk increasing nutritional information for all
There is an increasing level brands to allow customers to make
of focus from media and Government informed decisions.
on health and obesity issues,
predominantly impacting the
UK. This heightened consumer
awareness has increased consumer
awareness of the health implications
of their eating and drinking
choices and it is important
that we continue to evolve
our offers to facilitate
consumers to make informed
decisions. Failure to meet
these expectations could
have both a financial and
reputational impact on the
business. Therefore, this
risk is increasing.
----------------------------------------------
13. Environment and sustainability -- We have set challenging targets
Climate change, biodiversity in key areas such as greenhouse
depletion and environmental gas emissions, food waste, recycling
pollution present a risk and use of plastics (see page 18
to our ability to source of the Annual Report).
products, with food being -- We have completed an exercise
particularly at risk. to determine our baseline greenhouse
gas emissions from which we have
Risk increasing developed a plan to deliver our
The impact of extreme and ambitions of reducing emissions
longer-term shifts in weather by 25% by 2030, which has been approved
patterns, natural resource by the Board.
depletion and other effects -- We are working with the World
of climate change could impact Resources Institute on their Cool
the business both financially Food Pledge programme to reduce
and reputationally. the emissions of food supply chain
These factors could disrupt links, which is a significant contributor
our supply chain and the to emissions globally.
ability to source products -- All direct palm oil purchases
due to reduced availability. are now from Rainforest Alliance
Regulatory action to manage approved suppliers.
climate change could result -- We are working with industry
in the introduction of additional collaboration groups to develop
taxes or restrictions being a roadmap to sourcing sustainable
imposed. soy in our supply chain.
The business also has a responsibility -- We are developing initiatives
to continually aim to reduce to reduce our consumption of natural
its usage of natural resources resources, with an electricity workstream
and its negative impact on live in the business, and gas and
the climate. Therefore, this water in the planning phases.
risk continues to increase.
----------------------------------------------
Directors' responsibilities statement
The Annual Report contains the following statement regarding
responsibility for the financial statements in compliance with DTR
4.1.12. This statement relates solely to the Annual Report and
financial statements and is not connected to the extracted
information set out in the Full Year Results announcement:
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole;
-- the Strategic report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- the Annual Report and Accounts, taken as a whole, are fair,
balanced and understandable and provide the information necessary
for shareholders to assess the Company's position and performance,
business model and strategy.
The Directors of Mitchells & Butlers plc are listed in the
Annual Report and on the Mitchells & Butlers plc website,
www.mbplc.com/investors/
For further information, please contact:
Investor Relations:
Amy de Marsac
0121 498 6514
Media:
James Murgatroyd (Finsbury)
020 7251 3 801
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