Mitchells & Butlers Regulatory News (MAB)

MITCHELLS & BUTLERS PLC

LEI no: 213800JHYNDNB1NS2W10

30 November 2023

FULL YEAR RESULTS

(For the 53 weeks ended 30 September 2023)

Highlights

Reported results (53 week year)

Trading results

Balance sheet and cash flow

Phil Urban, Chief Executive, commented:

"We are delighted by the continued strength of our trading performance, and resilience in the face of unprecedented cost headwinds. We have achieved good growth in underlying profit, excluding government support, with like-for-like salesa growth across all of our brands, and record outperformance against the marketb. Whilst we remain mindful of the pressures that the UK consumer is facing, the strength of our sales growth alongside an abating cost environment gives us confidence for the financial year ahead.

We will remain focused on our strategic priorities delivered through our Ignite and capital programmes, which combined with our diverse portfolio of well-known brands, strong estate locations and talented people, leave us well positioned to rebuild margins back towards pre-pandemic levels."

Definitions

a - The Directors use a number of alternative performance measures (APMs) that are considered critical to aid the understanding of the Group's performance. APMs are explained later in this announcement.

b - Market performance as measured by CGA Business Tracker.

There will be a presentation held today at 8:30am accessible by phone on 0204 587 0498, access code: 029921 and at https://www.netroadshow.com/events/login?show=eb765856&confId=56017 The slides will also be available on the website at www.mbplc.com The replay will then be available at http://www.mbplc.com/fy2023/analystspresentation

All disclosed documents relating to these results are available on the Group's website at www.mbplc.com

For further information, please contact:

Note for editors:

Mitchells & Butlers is a leading operator of managed restaurants and pubs. Its portfolio of brands and formats includes Harvester, Toby Carvery, All Bar One, Miller & Carter, Premium Country Pubs, Sizzling Pubs, Stonehouse, Vintage Inns, Browns, Castle, Nicholson's, O'Neill's, Ember Inns and Ego Restaurants. In addition, it operates Innkeeper's Collection hotels in the UK and Alex restaurants and bars in Germany. Further details are available at www.mbplc.com and supporting photography can be downloaded at www.mbplc.com/imagelibrary.

CURRENT TRADING AND OUTLOOK

Since the period end, we have been further encouraged by like-for-like salesa growth of 7.2%. The strength of our sales performance continues to be broad-based across the brand portfolio and underpinned by stable volumes, giving us confidence that further opportunity remains, although we are very mindful of the potential implications of the cost of living challenge facing guests.

Cost headwinds presented a significant challenge in FY 2023 but we are seeing clear evidence that these are starting to abate. We now know that the National Living Wage will increase by 9.8%, and be extended to everyone over 21, from April next year, but a reduction in energy prices and slowing food inflation, in particular, mean that anticipated overall cost headwinds for the year ahead are expected to reduce to c.£65m. This should allow us to start to rebuild margins back towards pre-pandemic levels.

We are working hard to continue to drive sales growth above the market, whilst both leveraging our buying power and further enhancing the efficiency of our business. This allows us to face the future with a renewed level of confidence.

BUSINESS REVIEW

Total sales across the period were £2,503m with year-on-year growth driven by strong like-for-like salesa performance across all of our brands. Operating profit of £98m was £26m lower than the prior year, impacted both by property portfolio valuation movements classified in separately disclosed items and the inclusion last year of an additional £52m of non-recurring government support (in the form of reduced VAT and grants).

Overall, we are very pleased with our 52-week adjusted operating profita result of £221m, before separately disclosed items, which reflects a strong performance in the face of considerable cost headwinds and a record like-for-like salesa outperformance against the market, as measured by the CGA Business Tracker, of 2.7ppts.

We made a good start to the financial year with like-for-like salesa growth of 6.5% over the first ten weeks, primarily driven by drink sales. Growth then increased further in the final five weeks of the first quarter due principally to last year being impacted by the emergence of the Omicron variant which resulted in a downturn in activity across much of the festive season. Like-for-like salesa for the quarter were up 10.4% against FY 2022.

Sales remained resilient through the second quarter with strong performances on key trading dates and from our drink-led, city centre pubs, especially in London, that benefitted from a further return to office working and recovery in tourism. Across the quarter, we recorded like-for-like salesa growth of 6.4%, comprising drink sales growth of 9.9% and food sales growth of 5.2%.

Through the second half, sales performance remained strong and our outperformance of the market extended further. Despite a wetter and cooler summer than the prior year, like-for-likea sales grew by 9.7% through the second half, with all brands in like-for-like salesa growth and supported by sustained growth in both food and drink volumes.

The uncertainty and cost challenges the industry has faced have had an unavoidable impact on market supply with a 3.6% net decline in pubs and restaurants in the year to October 2023 and a 13.2% net decline since the start of the Covid-19 pandemic in March 2020 (CGA October Hospitality Market Monitor 2023). Independent and tenanted businesses have made up the substantial majority of the net closures. Given our strong estate and portfolio of brands, we believe that we are well placed to continue to benefit from these changes in the competitive landscape.

OUR STRATEGIC PRIORITIES

The strengths of our business provide a strong platform for the future. We have an 83% freehold and long leasehold estate, with recognised and diversified brands across a broad range of consumer occasions, demographics and locations, and an experienced and proven management team with the focus to build on the momentum we now have. We are focused on the strategic pillars which began to turn the business's performance around in 2018, remained at the heart of the business through the pandemic and continue to guide our growth;

- Build a more balanced business

- Instil a commercial culture

- Drive an innovation agenda

Our Ignite programme of work remains at the core of our long-term value creation plans. The programme consists of a rolling total of approximately 40 initiatives, with new workstreams being introduced in the period replacing those fully implemented in the business. Given the cost headwinds faced over the last year, we have been particularly focused on initiatives which increase efficiency and productivity through enhancements such as improved labour scheduling, cost mitigating procurement strategies and energy consumption reduction. Energy reduction projects in particular have helped to offset utility cost headwinds, as well as contribute towards our sustainability aims, including investment in solar panels, the roll out of voltage optimisers and the trial of internet-connected control devices to lower electricity and gas consumption. In addition, our energy and sustainability ambassadors across the country support General Managers in the behavioural change needed to continue reducing consumption in our sites, the combined result being a reduction in energy consumption of 3% versus last year and 14% versus 2019.

We have also continued to focus on sales-driving initiatives, ensuring that General Managers are equipped with the knowledge and tools to drive sales in their businesses. Each of our General Managers attended a workshop designed to develop and enhance these skills as well as focusing on improving guest metrics by delivering great experiences. We have also increased our capacity at peak times by opening additional bookable covers across bars and outside areas. The benefit of these workstreams is reflected in the broad-based like-for-like sales a performance across all of our brands, supported by volume growth, as well as guest scores of over 4.1 in every one of our brands.

Across a multi-location business, comprising over 1,650 sites, execution of business change will always be a key challenge when targeting efficiencies. Consistent delivery of our Ignite initiatives has become an increased focus in order to realise the full value of activities which have been proven in other parts of the business. Therefore, in FY 2024, alongside new initiatives we will be focusing on extracting the full value of initiatives which have already been rolled out to the business, but which currently have inconsistent results. We already have the knowledge and experience to make these activities work, therefore targeted training and sharing of expertise should enable the full value of these initiatives to be realised.

We remain committed to accelerating our digital strategy, which presents an opportunity for more personalised guest experiences. Our strategy focuses on building the correct digital and organisational capabilities to allow for quick activation of new channels and services as consumer behaviours change, allowing us to be at or near the forefront of digital advances in the sector. We have made significant progress in recent years, for example our digital order at table facility, our streamlined online booking experience, and the development of own channel delivery capability seeking to drive sales and protect margins.

Our capital programme continues to deliver value by improving the competitive position of our pubs and restaurants within their local markets. We are committed to re-establishing a seven-year investment cycle, which was interrupted by Covid-19. This financial year we have completed 151 investment projects, slightly fewer than last year but with a higher proportion of larger projects, including 11 conversions of sites to brands such as Miller & Carter and Nicholson's to enable them to optimise trading opportunities in their location. We have also purchased six new sites (of which four are freehold) either by buying in existing leases to give us assured tenancy of successful sites, or by establishing new locations to broaden our offer in areas such as Edinburgh airport, Cardiff, Sheffield and Middlesbrough. We are continuing to see strong performances from our investment projects.

In June 2023 we completed the acquisition of the remaining 60% stake in 3Sixty Restaurants Limited, owners of Ego Restaurants, having acquired the initial 40% stake in August 2018. Ego is a collection of Mediterranean-inspired pubs and restaurants where guests can enjoy freshly cooked food, cocktails, cask ales and wine from across the continent. It currently has 29 sites, including 16 that are leased from Mitchells & Butlers, and c.1,000 employees. We currently foresee scope for c.20-30 conversions using the Ego format over the next three to five years. This type of acquisition, of a brand which provides a conversion opportunity which complements our brand portfolio, allows us to generate value through cost synergies of c.£3m as well as incremental profit on conversion. 

PEOPLE

Our fantastic team of over 50,000 people is central to the performance of our business, delivering the all-important experiences guests have with us. We are delighted that our staff turnover reduced this financial year to 81%, a return to pre-pandemic stability. Lower turnover has a positive impact on guest experience and also holds commercial benefits due to the cost of training new team members. We are also delighted that our team engagement scores have continued to improve over the course of the year and are now at record highs, demonstrating the commitment of our teams to work together towards the shared goal of driving the future success of the business.

The recent employment environment has been challenging, and our centralised HR function has been focused on attracting the best talent, enhancing performance through our development programmes and retaining teams through progression opportunities. During the period, over 50% of our General Manager appointments were internal, which reflects the strength of the pipeline of talent we have in the organisation. Our apprentice scheme forms part of our training and progression opportunity, and we believe it will provide excellent future talent to our organisation, from front and back of house roles in our pubs and restaurants to corporate roles in our head office. This financial year over 680 apprentices have joined our business and 980 of our current employees have enrolled onto one of the apprenticeship opportunities open to them. Given the importance of developing and retaining chefs, we continue to grow our culinary capability via our Chefs' Academy and 187 of our chefs have embarked on the Commis Chef apprenticeship delivered by our award-winning tutors.

SUSTAINABILITY

We are committed to reducing the environmental impact of our business and have set ambitious targets against which to measure our progress:

- Net Zero emissions by 2040, including Scope 1, 2 and 3 emissions; in the period we reduced our emissions by 11% against our 2019 baseline, driven by reduced energy consumption, moving to 100% renewable electricity and reduced emissions in relation to employee travel as we transition our fleet towards hybrid and electric cars. On the intensity measure of emissions to turnover, our output of emissions has reduced by over 20% from our 2019 baseline and by 2% from FY 2022. We have submitted our roadmap to Net Zero for Science Based Target initiative for approval and continue to be active members of the Zero Carbon Forum where we work collaboratively with the ambition of decarbonising the hospitality industry as a whole.

- Zero operational waste to landfill by 2030; we continued to make good progress in this area and currently divert 97% of operational waste from landfill. We have also focused on increasing the proportion of waste that we recycle and have improved our recycling performance to 59%. 

- 50% reduction in food waste by 2030; aligned with the UN Sustainable Development Goals we will halve food waste in our supply chain and in sites by 2030. As at the year end, we have achieved a 25% reduction in food waste from our 2019 baseline, driven by operational improvements and aided by partnerships with Fareshare and Too Good to Go. This performance reflects a 1% reduction of the intensity measure of grams of waste per meal from FY 2022. 

We have a number of initiatives underway to support these ambitions. Our network of Energy and Sustainability Ambassadors have helped to facilitate a 3% reduction in energy consumption during the year driven by behavioural change as well as investment in voltage optimisers. To reach our near-term Net Zero targets we are focused on removing gas as an energy source. To this aim, during the year we collaborated with suppliers to develop electric kitchen equipment, which is more operationally effective than their gas equivalents, and we are in the process of testing the kit with teams. In addition, we have opened two all-electric sites, trialling alternatives to gas boilers for heating and hot water, as well as various insulation techniques. These trials will help to inform our future strategy for removal of gas.

Our sustainability strategy has a strong focus on the positive impact we have on people and communities and we are proud to partner with Social Bite, a homelessness charity. Under the Jobs First programme, helping people back to independence through long-term employment opportunities, we were delighted to employ 10 people from their academy and hope to expand this in future years. In addition, we raised £140k for Social Bite through fundraising activity and £160k for Shelter, another charity partner.

We remain focused on the delivery of our transition plan designed to reduce our climate impact, evolving our plan in response to emerging technologies, best practice and collaborative opportunities. Meanwhile, we also aim to enhance our social impact through our own operations, by facilitating social mobility, as well as through our work with charitable partners. 

FINANCIAL REVIEW

On a statutory basis, sales were £2,503m (FY 2022 £2,208m). The loss before tax for the period of £(13)m (FY 2022 profit of £8m) was impacted by movements to the property portfolio valuation as well as significant cost headwinds during the financial year.

The Group Income Statement discloses adjusted profit and earnings per share information that excludes separately disclosed items to allow an understanding of the trading performance of the Group. Separately disclosed items are identified by virtue of their size or incidence.

The financial period being reported on was a 53-week period, therefore in order to facilitate comparison to prior year, adjusted results have been restated on a 52-week basis, as set out below.

At the end of the period, the total estate comprised 1,718 sites in the UK and Germany of which 1,654 are directly managed.

Revenue

Total revenue of £2,503m (FY 2022 £2,208m) reflects a strong period of trading.

Like-for-like salesa for the period increased by 9.1%, comprising an increase in like-for-like food salesa of 8.6% and an increase in like-for-like drink sales of 9.9%. Like for like salesa growth was broad-based, with growth across all brands, supported by volume growth in both food and drink. Excluding the impact of reduced rates of VAT in the first half of FY 2022, like-for-like salesa growth across the period was 11.3%. 

Like-for-like salesa growth against FY 2022:

Against FY 2019, the last pre-covid year, like-for-like sales increased by 10.5% driven by spend-per-head with volumes down 8% for food and 12% for drinks.

For the eight weeks since the period end like-for-like salesa against FY 2023 have increased by 7.2%.

Separately disclosed items

Separately disclosed items are identified due to their nature or materiality to help the reader form a view of overall and adjusted trading.

A £131m reduction in value is recognised relating to valuation and impairment of properties, comprising a £110m impairment arising from the revaluation of freehold and long leasehold sites, a £6m impairment of short leasehold and unlicensed properties, a £14m impairment of right-of-use assets and a £1m impairment of goodwill. The £28m tax credit relates to these impairments.

Other separately disclosed items include a net profit arising on property disposals, a shortfall on an HMRC VAT claim on gaming machines and a number of items related to acquisition accounting for 3Sixty Restaurants Limited. These items net to an overall credit of £3m.

Operating profit and marginsa

Adjusted operating profita for the financial year was £221m (FY 2022 £240m).

FY 2023 benefited from £1m (FY 2022 £53m) of government support. The year-on-year adjusted operating profit increase, net of government support, of £33m reflects a strong underlying sales performance supported by efficiency gains to more than offset the cost headwinds of £175m faced in the period.

Adjusted operating margin of 9.0% was 1.9 ppts lower than prior period, driven by the significant cost headwinds and the margin benefit of government support received in FY 2022. Statutory operating margin of 3.9% was 1.7ppts lower than last year due also to the impact of separately disclosed property impairments.

Cost headwinds are now starting to abate and for FY 2024 are expected to be in the region of c.£65m, representing 3% of the overall cost base, including an expectation of energy cost reduction.

Interest

Net finance costs of £108m for the period were £6m lower than last year, with annual amortisation reducing the value of securitised debt and higher levels of interest income from cash balances.

The net pensions finance charge was £3m (FY 2022 £2m). The net pensions charge for next year is expected to be £1m.

Earnings per share

Basic losses per share, after the separately disclosed items described above, were (0.7)p (FY 2022 earnings 2.2p), with adjusted earnings per share of 16.1p, (FY 2022 18.0p).

The basic weighted average number of shares in the period was 595m and the total number of shares issued at the balance sheet date was 598m.

Cash flow

The business generated £362m of EBITDA before movements in the valuation of the property portfolio. 

Pension deficit contributions reduced to £8m as contributions for both the Executive and Main Plan schemes started to be paid into escrow accounts. No further contributions are now anticipated into these schemes.

Capital expenditure increased by £35m to £157m with £11m of the increase in relation to investment in technology to enable progress against our sustainability goals, as analysed below.

An investment of £17m was made to acquire the remaining 60% stake in 3Sixty Restaurants Ltd, owners of Ego Restaurants, partially offset by £5m cash acquired on acquisition.

Before mandatory bond amortisation, cash inflow was £30m (FY 2022 £71m). After mandatory bond amortisation, cash outflow was £86m (FY 2022 outflow of £39m).

Capital expenditure

Capital expenditure of £157m (FY 2022 £122m) comprises £154m from the purchase of property, plant and equipment and £3m in relation to the purchase of intangible assets. Of the £157m spend, £90m relates to the completion of acquisitions, conversions and remodels, with the balance being essential maintenance and infrastructure spend which includes investment to enable our Net Zero transition.

The four freehold acquisitions represent the purchase of two properties previously held as leasehold and two new sites.

To enable our transition to Net Zero emissions we have invested in technologies which reduce our environmental impact. During the period we invested £3m on installing 50 sites with solar panels, with a further c.150 sites identified for installation during FY 2024, and £8m on installing 1,200 voltage optimisers. These investments will underpin continued reduction in energy usage, which reduced by 3% in the period overall.

Property

In line with our property valuation policy, a red book valuation of the freehold and long leasehold estate has been completed in conjunction with the independent property valuer, CBRE. In addition, the Group has undertaken an impairment review on short leasehold and unlicensed properties. The overall property portfolio valuation of c.£4bn has decreased by £192m (FY 2022 decrease of £282m). This reflects £116m impairment included as a separately disclosed item in the income statement and a £76m decrease in the revaluation reserve. In addition, there was a £14m impairment of right-of-use assets and a £1m impairment of goodwill, relating to an historic acquisition, included within separately disclosed items in the income statement.

Net debta and facilities

Net debta at the period end was £1,633m, comprised of £1,170m non-lease liabilities and lease liabilities of £463m (FY 2022 £1,679m comprised of £1,198m non-lease liabilities and lease liabilities of £481m).

During the period we successfully refinanced our unsecured debt facilities which were due to expire in February 2024. The new Revolving Credit Facility ('RCF') has been increased in size to £200m based on a wider banking group, including the continued support of all existing banks, and extends to July 2026. The RCF remains unsecured, with a negative pledge in favour of participating banks, and is based on two main financial covenants - net debt to EBITDA to not exceed 3.0 times (as before) and EBITDAR to rent plus interest of not less than 1.25 times (reduced from 1.5 times).

Further details of existing debt arrangements and an analysis of net debta can be found in Note 10 to the financial statements and at https://www.mbplc.com/infocentre/debtinformation/.

Pensions

During the period we were delighted to announce that the trustees of the M&B Main Pension Plan, working closely with the Company, successfully completed a full scheme buy-in with Standard Life. This transaction follows on from the completion of the buy-in of the Executive Plan announced last year and eliminates substantially all remaining pensions risk in the group.

Following each buy-in, committed contributions were made into blocked escrow accounts, to a balance of £47m. As of September this year all contributions have ceased.

The residual liability on the balance sheet of £22m (before tax) represents an unfunded unapproved pension top-up arrangement in respect of certain members of the M&B Executive Plan.

Going Concern

After considering forecasts, sensitivities and mitigating actions available to management and having regard to risks and uncertainties, the Directors have a reasonable expectation that the Group has adequate resources to continue to operate within its borrowing facilities and covenants for a period of at least 12 months from the date of signing the financial statements. Accordingly, the financial statements have been prepared on the going concern basis. Full details are included in Section 1 of the financial statements.

Director's responsibility statement

The 2023 Annual Report and Accounts which will be issued in December 2023, contains a responsibility statement in compliance with DTR 4.1.12 of the Listing Rules which sets out that as at the date of approval of the Annual Report on 29 November 2023, the Directors confirm to the best of their knowledge:

- the Group and unconsolidated Company financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and Company, and the undertakings included in the consolidation taken as a whole; and

- the performance review contained in the Annual Report and Accounts includes a fair review of the development and performance of the business and the position of the Group and the undertakings including the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

This responsibility statement was approved by the Board of Directors on 29 November 2023 and is signed on its behalf by:

Tim Jones

Chief Financial Officer

29 November 2023

All results relate to continuing operations.

a. Interest paid is split to show gross payments on the interest rate and cross currency swaps.

b. Principal repayments on securitised debt are split to show repayments relating to the cross currency swap.

Notes to the consolidated financial statements

1. Preparation of preliminary consolidated financial statements

General information

Mitchells & Butlers plc, along with its subsidiaries, (together 'the Group') is required to prepare its consolidated financial statements in accordance with UK-adopted International Financial Reporting Standards (IFRSs) as and in accordance with the Companies Act 2006. While the financial information included in this release is based on the Group's consolidated financial statements and has been prepared in accordance with the recognition and measurement criteria of UK-adopted International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs.

The preliminary financial statements include the results of Mitchells & Butlers plc and all its subsidiaries for the 53 week period ended 30 September 2023. The comparative period is for the 52 week period ended 24 September 2022. The respective balance sheets have been drawn up as at 30 September 2023 and 24 September 2022.

The consolidated financial statements have been prepared on the historical cost basis as modified by the revaluation of freehold and long leasehold properties, pension obligations and financial instruments.

The Group's accounting policies have been applied consistently.

Going concern

The Directors have adopted the going concern basis in preparing the Group and the Company financial statements after assessing the impact of identified principal risks and their possible adverse impact on financial performance, specifically revenue and cash flows throughout the going concern period, being at least 12 months from the date of signing of these financial statements.

The challenges presented to the hospitality sector of Covid-19, Brexit and more recently high and persistent cost inflation (both for the business and its customers) have resulted in reduced levels of profits and operating cash flow since March 2020. These factors cast a degree of uncertainty as to the future financial performance and cash flows of the Group and have been considered by the Directors in assessing the ability of the Group and the Company to continue as a going concern. 

The Group's primary source of borrowings is through ten tranches of fully amortising loan notes with a gross debt value of £1.3bn as at the end of the year. These are secured against the majority of the Group's properties and its future income streams. The principal repayment period varies by class of note with maturity dates ranging from 2023 to 2036.

During the year the Group completed a refinancing of its unsecured credit facility. The new facility of £200m is committed and remains unsecured, with a negative pledge in favour of participating banks, and has a maturity date in July 2026. At the balance sheet date there were no drawings under this facility.

Within the secured debt financing structure there are two main covenants: the level of net worth (being the net asset value of the securitisation group) and, FCF to DSCR. As at 30 September 2023 there was substantial headroom on the net worth covenant. FCF to DSCR represents the multiple of Free Cash Flow (being EBITDA less tax and required capital maintenance expenditure) generated by sites within the structure to the cost of debt service (being the repayment of principal, net interest charges and associated fees). This is tested quarterly on both a trailing two quarter and a four quarter basis.

The unsecured facility also has two main financial covenants, based on the performance of the unsecured estate: the ratio of EBITDAR to rent plus interest (at a minimum of 1.25 times) and Net debt to EBITDA (to be no more than 3.0 times), both tested on a half-yearly basis (for the prior four quarters).

In the year ahead the main uncertainties facing the Group are considered to be the maintenance of growth in sales in the face of pressure on consumer spending power, and cost inflation. The outlook for these is uncertain and will depend on a number of factors including consumer confidence, global political developments and supply chain disruptions and government policy.

1. Preparation of preliminary consolidated financial statements (continued)

Going concern (continued)

The Directors have reviewed the financing arrangements against a base case forward trading forecast in which they have considered the Group's current financial position. This forecast assumes mid single digit growth in sales across the year, a rate slightly below the level generated in recent months. Cost inflation is assumed to abate from the historic high levels last year, with some deflation in energy costs, blending at an expected net increase of approximately three percent across the cost base of the business of approximately £2bn. Under this base case the Group is able to stay within securitisation and committed facility financial covenants and maintains sufficient liquidity.

The Directors have also considered a severe but plausible downside scenario covering adverse movements against the base forward forecast in both sales and cost inflation in which some mitigation activity is taken including lower capital expenditure on site remodel activity and a flex down of labour and site costs in line with reduced sales. In this scenario sales are assumed to remain in growth but at an initial level of one percent, falling to three percent, below the base case forecast. Unmitigated cost inflation is also higher in the areas of food, labour and energy. In this downside scenario the Group is again able to stay within securitisation and committed facility financial covenants, whilst maintaining sufficient liquidity.

Furthermore, the Directors have considered a reverse stress test analysis, to review the headroom below which trading could fall beyond the downside scenario before the earlier of financial covenants becoming breached, or available liquidity becoming insufficient. This analysis indicates that on consistent cost assumptions, sales would be able to fall a further 3.3% (being approximately one percent down on FY 2023) throughout the forecast period before financial covenants were breached when tested at Q4 FY 2024 being the last full testing period within the 12 month going concern assessment period. In this scenario the Group would still have sufficient available liquidity.

After due consideration of these factors, the Directors therefore believe that it remains appropriate to prepare the financial statements of the Group and the Company on a going concern basis.

Foreign currencies

The results of overseas operations have been translated into sterling at the weighted average euro rate of exchange for the period of £1 = ?1.16 (2022 £1 = ?1.18), where this is a reasonable approximation to the rate at the dates of the transactions. Euro and US dollar denominated assets and liabilities have been translated at the relevant rate of exchange at the balance sheet date of £1 = ?1.15 (2022 £1 = ?1.12) and £1 = $1.22 (2022 £1 = $1.09) respectively.

New and amended IFRS Standards that are effective for the current period

The International Accounting Standards Board (IASB) and International Financial Reporting Interpretations Committee (IFRIC) have issued the following standards and interpretations which have been adopted by the Group in these consolidated financial statements for the first time with the following impact.

1. Preparation of preliminary consolidated financial statements (continued)

New and amended IFRS Standards that are effective for the current period (continued)

The following standards and interpretations have been adopted by the Group in these consolidated financial statements for the first time, with no impact.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions in the application of accounting policies that affect reported amounts of assets, liabilities, income and expense.

Estimates and judgements are periodically evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Judgements and estimates for the period remain largely unchanged from the prior period, with the selection of assumptions for calculation of the defined benefit pension liability removed in the current period due to the reduced sensitivity to the assumptions following the main plan buy-in (see note 12).

Significant accounting estimates:

The significant accounting estimate with a significant risk of a material change to the carrying value of assets and liabilities within the next year in terms of IAS 1 Presentation of Financial Statements, is:

· Fair value of freehold and long leasehold properties - see note 7

Other areas of judgement are described in each section listed below:

· Determination of items that are separately disclosed - see note 3

· Impairment review of short leasehold properties and right-of-use assets - see note 9

Other sources of estimation uncertainty are described in:

· Impairment review of short leasehold properties and right-of-use assets - see note 9

2. Segmental analysis

Geographical segments

3. Separately disclosed items

The items identified in the current period are as follows: