Mitchells & Butlers Regulatory News (MAB)

1.

Company Annual Report and Accounts 2014

2.

Notice of the 2015 Annual General Meeting

Risk description

Mitigating activities

Market risks: Consumer taste and brand management

Social and demographic changes are driving the long-term growth in eating-out while at the same time leading to a steady decline in the sales of on-trade drinks without food.

These changes, together with other developments in consumer taste may reduce the appeal of Mitchells & Butlers' brands to its guests, especially if the Company fails to anticipate and identify these changes and respond to them adequately and promptly.

In FY 2013, the Company conducted a major piece of consumer research, interviewing 8,000 consumers about 14,000 leisure occasions. This research examined macroeconomic trends, consumer dynamics, competitor and internal brand positioning and the Company's strengths and weaknesses. The business continues to implement the outputs from this project to refine further its brand positioning and ensure the portfolio's continued relevance for guests. This is discussed in detail in the Business review on pages 24 and 25 of the Annual Report.

The Company uses an online guest satisfaction survey to collect guest feedback. This feedback together with the results of research studies is monitored and evaluated by a dedicated guest insight team to ensure that the relevance to guests of the Company's brands is maintained.

Net promoter score, as defined on page 22 of the Annual Report, is the key measure of success in this area, and this has improved from 59% in FY 2013 to 63% in FY 2014.

Pricing and market changes

External influences, such as changes in the general economic climate or competitor activity, could have a detrimental effect on consumers' spending patterns and therefore the Company's revenue, profitability and consequently the value of its assets.

Mitchells & Butlers is focused on the long-term potential of the eating-out market. The Company owns sites across the UK with a wide spectrum of offers targeted at different consumer groups and leisure occasions. This range allows the Company to respond to changes in consumer expenditure either by flexing our offerings or by substituting a different brand at a particular location. This activity is supported by dedicated Sales and Margin Managers and Asset Planning teams which analyse and evaluate a range of information including that in respect of competitors.

Operational risks: Cost of goods price increases (including energy price increases)

Increases in the price of goods for resale and utilities costs as a result of increases in global demand and uncertainty of supply in producing nations can have a significant impact on the cost base, consequently impacting margins.

Mitchells & Butlers leverages its scale to drive competitive cost advantage and collaborates with suppliers to increase efficiencies in the supply chain. The fragmented nature of the food supply industry on the world commodity markets gives the Company the opportunity to source products from a number of alternative suppliers in order to drive down cost. The Company continually evolves the composition of menus and retail prices in order to optimise value to the guest as well as profits for the Company.

The energy procurement strategy seeks to reduce the risk of cost increases and uncertainty over energy prices by a rolling programme of short and medium-term purchases against forecast requirements. A dedicated energy management team is responsible for optimising energy usage across the organisation by promoting energy efficient working practices via training and educational programmes and by the installation of energy efficient equipment.

People planning and development

Mitchells & Butlers has a strong guest focus, and as such it is important thatit is able to attract, retain, develop and motivate the best people with the right capabilities throughout the organisation.

The Company makes significant investment in training to ensure that its people have the right skills to perform their jobs successfully. Furthermore, an employee survey is conducted annually to establish employee satisfaction and engagement and this is compared with other companies, as well as previous surveys. Where appropriate, changes in working practices are made in response to the findings of these surveys.

Remuneration packages are benchmarked to ensure that they remain competitive and a talent review process is used to provide structured succession planning.

Staff turnover is the key measure of success in this area and in FY 2014 the Company has maintained the low rate of 78%, as seen in FY 2013.

Business continuity and crisis management

Mitchells & Butlers relies on its food and drink supply chain and the key IT systems underlying the business to serve its guests efficiently and effectively. Supply chain interruption, IT system failure or crises such as terrorist activity or the threat of disease pandemic might restrict sales or reduce operational effectiveness.

The Company has in place crisis and continuity plans that are tested and refreshed regularly.

In September 2014, the Company's third party back-up facility, for Retail Support Centre employees, was successfully tested to ensure critical business systems are able to function in the event of a disaster.

Finance risks: Borrowing covenants

There are risks that borrowing covenants are breached because of circumstances such as:

i. A change in the economic climate leading to reduced cash inflows; or

ii. A material change in the valuation of the property portfolio.

The Company maintains headroom against these risks. The finance team conducts daily cash forecasting with periodic reviews at the Treasury Committee, the roles of which include ensuring that the Board Treasury Policy is adhered to, monitoring its operation and agreeing appropriate strategies for recommendation to the Board. In addition, regular forecasting and testing of covenant compliance is performed and frequent communication is maintained with the Securitisation Trustee.

Pension fund deficit

The material value of the pension fund deficit remains a risk.

The Company has made significant additional contributions to reduce the funding deficit. In May 2014, the Company reached agreement on the triennial valuation of the Group pension schemes as at 31 March 2013, at an increased funding shortfall of £572m (March 2010 valuation £400m).

Regulatory risks: Failure to operate safely and legally

A major health and safety failure could lead to illness, injury or loss of life or significant damage to the Company's or a brand's reputation.

Mitchells & Butlers maintains a robust programme of health and safety checks both within its restaurants and pubs and throughout the supply chain. The dedicated Safety Assurance team uses a number of technical partners including food technologists, microbiologists and allergen specialists to ensure that our food procedures are safe. Regular independent audits of trading sites are performed to ensure that procedures are followed and that appropriate standards are maintained. 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.