Financial statements - Mitchells & Butlers · 128 4.4 Financial instruments 133 4.5 Pensions 137 4.6 Share-based payments 139 4.7 Equity 141 Section 5 – Other notes 141 5.1 Related

In this section

93 Independentauditor’sreporttothemembersofMitchells&Butlersplc

100 Groupincomestatement101 Groupstatementofcomprehensiveincome102 Groupbalancesheet103 Groupstatementofchangesinequity104 Groupcashflowstatement

Notestothefinancialstatements105 Section1–Basisofpreparation109 Section2–Resultsfortheyear

109 2.1Segmentalanalysis109 2.2Separatelydisclosedforms111 2.3Revenueandoperatingcosts113 2.4Taxation115 2.5Earningspershare

116 Section3–Operatingassetsandliabilities116 3.1Property,plantandequipment120 3.2Workingcapital121 3.3Provisions122 3.4Goodwillandotherintangibleassets124 3.5Associates

125 Section4–Capitalstructureandfinancingcosts125 4.1Netdebt126 4.2Borrowings127 4.3Financecostsandrevenue128 4.4Financialinstruments133 4.5Pensions137 4.6Share-basedpayments139 4.7Equity

141 Section5–Othernotes141 5.1Relatedpartytransactions141 5.2Subsidiariesandassociates142 5.3Eventsafterthebalancesheetdate142 5.4Fiveyearreview

143 Mitchells&ButlersplcCompanyfinancialstatements145 NotestotheMitchells&ButlersplcCompanyfinancialstatements

Financial statements

92 Mitchells & Butlers plc Annual report and accounts 2018

Report on the audit of the financial statements

OpinionInouropinion:

• thefinancialstatementsofMitchells&Butlersplc(the‘Company’)anditssubsidiaries(the‘Group’)giveatrueandfairviewofthestateoftheGroup’sandoftheCompany’saffairsasat29September2018andoftheGroup’sprofitforthe52weeksthenended;

• theGroupfinancialstatementshavebeenproperlypreparedinaccordancewithInternationalFinancialReportingStandards(IFRSs)asadoptedbytheEuropeanUnion;

• theCompanyfinancialstatementshavebeenproperlypreparedinaccordancewithUnitedKingdomGenerallyAcceptedAccountingPractice,includingFinancialReportingStandard101‘ReducedDisclosureFramework’;and

• thefinancialstatementshavebeenpreparedinaccordancewiththerequirementsoftheCompaniesAct2006and,asregardstheGroupfinancialstatements,Article4oftheIASRegulation.

Wehaveauditedthefinancialstatementswhichcomprise:

• theGroupincomestatement;

• theGroupstatementofcomprehensiveincome;

• theGroupandCompanybalancesheets;

• theGroupandCompanystatementsofchangesinequity;

• theGroupcashflowstatement;

• therelatednotes1to5ofGroupfinancialstatements;and

• therelatednotes1to10oftheCompanyfinancialstatements

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:

• Valuationofthepubestate• Onerousleaseprovisions• Compliancewithdebtcovenants

Materiality Thematerialitythatweusedforthegroupfinancialstatementswas£8.8mwhichisapproximately5%ofprofitbeforetaxbeforeseparatelydiscloseditems.

Scoping AfullscopeaudithasbeenperformedinrespectoftheUKbusiness,consistentwith2017.

Significant changes in our approach Therehasbeenanewkeyauditmatteridentifiedinrelationtocompliancewithdebtcovenants.Therehavebeennootherchangesinthekeyauditmattersincludedinourauditreportsince2017.ThisisconsistentwiththefactthattheoperationsoftheGrouparelargelyunchangedfromthepreviousyear.

Independent auditor’s report to the members of Mitchells & Butlers plc

Annual report and accounts 2018 Mitchells & Butlers plc 93

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Independent auditor’s report to the members of Mitchells & Butlers plc continued

Conclusions relating to going concern, principal risks and viability statementGoing concernWehavereviewedtheDirectors’statementinSection1tothefinancialstatementsaboutwhethertheyconsidereditappropriatetoadoptthegoingconcernbasisofaccountinginpreparingthemandtheiridentificationofanymaterialuncertaintiestotheGroup’sandCompany’sabilitytocontinuetodosooveraperiodofatleasttwelvemonthsfromthedateofapprovalofthefinancialstatements.

WearerequiredtostatewhetherwehaveanythingmaterialtoaddordrawattentiontoinrelationtothatstatementrequiredbyListingRule9.8.6R(3)andreportifthestatementismateriallyinconsistentwithourknowledgeobtainedintheaudit.

Weconfirmthatwehavenothingmaterialtoreport,addordrawattentiontoinrespectofthesematters.

Principal risks and viability statementBasedsolelyonreadingtheDirectors’statementsandconsideringwhethertheywereconsistentwiththeknowledgeweobtainedinthecourseoftheaudit,includingtheknowledgeobtainedintheevaluationoftheDirectors’assessmentoftheGroup’sandtheCompany’sabilitytocontinueasagoingconcern,wearerequiredtostatewhetherwehaveanythingmaterialtoaddordrawattentiontoinrelationto:

• thedisclosuresonpages38to42thatdescribetheprincipalrisksandexplainhowtheyarebeingmanagedormitigated;

• theDirectors’confirmationonpage39thattheyhavecarriedoutarobustassessmentoftheprincipalrisksfacingtheGroup,includingthosethatwouldthreatenitsbusinessmodel,futureperformance,solvencyorliquidity;or

• theDirectors’explanationonpage42astohowtheyhaveassessedtheprospectsoftheGroup,overwhatperiodtheyhavedonesoandwhytheyconsiderthatperiodtobeappropriate,andtheirstatementastowhethertheyhaveareasonableexpectationthattheGroupwillbeabletocontinueinoperationandmeetitsliabilitiesastheyfalldueovertheperiodoftheirassessment,includinganyrelateddisclosuresdrawingattentiontoanynecessaryqualificationsorassumptions.

WearealsorequiredtoreportwhethertheDirectors’statementrelatingtotheprospectsoftheGrouprequiredbyListingRule9.8.6R(3)ismateriallyinconsistentwithourknowledgeobtainedintheaudit.

Weconfirmthatwehavenothingmaterialtoreport,addordrawattentiontoinrespectofthesematters.

Key audit matters

Keyauditmattersarethosemattersthat,inourprofessionaljudgement,wereofmostsignificanceinourauditofthefinancialstatementsofthecurrentperiodandincludethemostsignificantassessedrisksofmaterialmisstatement(whetherornotduetofraud)thatweidentified.Thesemattersincludedthosewhichhadthegreatesteffecton:theoverallauditstrategy;theallocationofresourcesintheaudit;anddirectingtheeffortsoftheengagementteam.

Thesematterswereaddressedinthecontextofourauditofthefinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.

TherehasbeenanewkeyauditmatteridentifiedintheyearinrespectofcompliancewiththeEBITDAtodebtservicerestrictedpaymenttest.Giventhechallengesintheindustrywithhighlevelsofcompetitionandinflationarycostpressures,thereremainsariskthattheGroupdoesnotachievetherequiredlevelofprofittomeettheEBITDAtodebtservicerestrictedpaymenttest.

Mitchells & Butlers plc Annual report and accounts 201894

Key audit matter description How the scope of our audit responded to the key audit matter Key observations

Valuation of the pub estateAssetoutinsection3.1thevalueoftheestateis£4,230m(2017£4,230m).

Freehold and long leaseholdTheaccountingpolicyadoptedandjudgementsusedaredescribedinsection3.1tothefinancialstatements.

Thisisconsideredtobeakeyauditmatterduetothejudgementsinherentwithinthevaluationexerciseandtherangeofacceptablejudgements.Thetotalnetbookvalueofrevaluedpropertiesasat29September2018is£4,230m(2017£4,230m).Therevaluationexerciseperformedintheyearhasresultedinanetdecreaseof£33mversuscarryingvalue(2017£23m),whichincludesanimpairmentchargeof£28m(2017£51m)recognisedintheincomestatement.TheGroup’saccountingpolicysetsoutthatthemarketvalueisdeterminedusingfactorssuchasestimatedfairmaintainabletradinglevelsandestimatedmultipleswhicharederivedforeachoftheGroup’stradingbrands.Approximately20%ofthefreeholdandlongleaseholdestatehasbeeninspectedbytheGroup’sexternalvaluers,withtheresultoftheinspectioninformingthebrandstandardmultipleswhicharethenextrapolatedacrosstheremainderoftheestate.

Inspecificcircumstanceswherethisapproachdoesnotfairlyrepresenttheunderlyingvalueoftheproperty,forexampleifasiteislossmaking,aspotvaluationisapplied.

Wheresiteshavebeenimpactedbyexpansionarycapitalinvestmentinthepreceding12months,thevaluationofthosepropertiesisheldatthe30September2017valuationpluscapitalexpenditurelessdepreciationin2018.Sitesthathavebeenopenformorethanthreeperiods(2017threeperiods)arereviewedforimpairment.

Short leaseholdTheaccountingpolicyadoptedandjudgementsusedaredescribedinsection3.1tothefinancialstatements.

Thetotalvalueofshortleaseholdpropertiesasat29September2018is£156m(2017£170m).Judgementsinrelationtoexpectedtradinglevels,whetherthesitehasthepotentialtobeturnedaroundanddiscountratesareappliedwhencalculatingshortleaseholdpropertyimpairments.TheGrouprecordedanimpairmentchargeof£15m(2017£17m)intheyear.

Weworkedwithourpropertyvaluationspecialistsandmanagement’sexternaladviserstochallengethemethodologyandunderlyingassumptionsusedinthefreeholdandlongleaseholdpubestatevaluation.Thisincluded:

• confirmingtheappropriatenessoftheestimatedFMTbeingusedtovaluetheproperties;

• obtainingevidencetosupporttheappropriatenessofthevaluationsoftheinspectedestatewhenbenchmarkedtotransactionactivityinthelicensedretailpropertymarket;

• testingtheapplicationofthemultiplederivedfromthevaluationofinspectedpropertiestotherestoftheestate;

• completingaretrospectivereviewofthevaluationofsitessubjecttoexpansionarycapitalinvestmentintheprioryeartoidentifythesuccessofreturnsoninvestment;

• reviewingtheappropriatenessandcompletenessofanyspotvaluationsmade;and

• obtainingevidencetosupportthefutureprojectedincomeusedintheimpairmentreviewsforsiteswhichhavebeenimpactedbyexpansionarycapitalinvestmentinthepreceding12months.

Additionallywe:

• assessedthedesignandimplementationandtestedtheoperatingeffectivenessofcontrolsinrelationtothevaluationofthefreeholdandlongleaseholdestate.

Weareinagreementwiththemethodologychosenandtheassumptionsadoptedtorevaluethepubestateandconcludethereappearstobenobiasinthevaluation.Themultiplesadoptedacrosstheestatearewithinareasonablerange.Weconcurthatthevaluationsaresuitableforinclusioninthefinancialstatements.


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Valuation of the pub estate continuedFocus areasGiventheamountscapitalisedandtheriskassociatedacrossthefreehold,longleaseholdandshortleaseholdsiteswehavefocusedourproceduresontheassessmentmadebymanagementof:

• theappropriatenessofthefairmaintainabletradinglevelsandbrandmultipleassumptionsappliedtothefreeholdandlongleaseholdestateonasitebysitebasis;

• thevaluationoffreeholdandlongleaseholdsitesimpactedbyexpansionarycapital,challengingtheneedforanyimpairmentofproperty,plantandequipmentrequiredatanindividualoutletlevel;and

• therequirementforanyimpairmentinrespectoftheproperty,plantandequipmentheldintheshortleaseholdestateatanindividualoutletlevel.

Inaddition,duetothelevelofsubjectivejudgementsinvolvedinrespectofmultipleandfairmaintainabletradeassumptionswhichareinherentlyuncertain,wehaveidentifiedapotentialriskoffraudinthiskeyauditmatter.

Wechallengedtheassumptionsusedbymanagementwithintheimpairmentreviewsperformedfortheshortleaseholdestateandfreeholdandlongleaseholdsitesimpactedbyexpansionarycapital.Thisincluded:

• obtainingevidencetosupportmanagement’sassertionthatshortleaseholdpropertiescanbesuccessfullyturnedaroundwherepropertieshavenotbeenimpairedduetomanagement’sexpectationthattheperformanceofthepropertieswillimprove.Thisincludedobtainingevidencetosupportmanagement’sturnaroundplansandperformanceofaretrospectivereviewconsideringthesuccessofhistoricturnaroundplans;

• obtainingevidencetosupportmanagement’sexpectedperformanceofsitespostinvestmentofexpansionarycapitalandaretrospectivereviewofprioryearsiteswhereexpansionarycapitalwasincurred;

• testingtheintegrityoftheinformationusedwithinthemodelbyagreeinginputsbacktosourcedataincludinghistoricalresultsandleaseterms;and

• assessingtheappropriatenessofthediscountratethroughrecalculationandperformingsensitivityanalysis.

Additionally,weassessedthedesignandimplementationandtestedtheoperatingeffectivenessofcontrolsinrelationtotheshortleaseholdimpairmentreview.

Onerous Lease Provisions Assetoutinsection3.3,propertyprovisionsare£43m(2017£42m)ofwhich£41.9m(2017£41.9m)relatestoonerousleaseprovisions.Theaccountingpolicyforprovisionsissetoutinsection3.3.

Loss-makingshortleaseholdpropertiesarereviewedbymanagementtodeterminewhetheranonerousleaseprovisionisrequired.Judgementsinrelationtoexpectedtradinglevels,theappropriateleasetermoverwhichtoprovide,thepotentialopportunitytoexittheleasesearlyandtheappropriatediscountratetouseareappliedwhenassessingthelevelofonerousleaseprovisionrequired.Thereforewehaveidentifiedapotentialriskoffraudinthiskeyauditmatter.

Focus areasGiventhesizeoftheleaseholdestatethereisariskthatwhereasiteisunderperformingthecashflowsmaynotbeadequatetocoverfutureleaseobligations,resultingintherequirementforanonerousleaseprovisionfortheunavoidablecashflow.Wefocusedonthecompletenessoftheonerousleaseprovisionbyassessingthejudgementsusedinarrivingattheleveloftheprovisionforeachsite.Furthermore,wealsofocusedonsiteswhereaturnaroundorexitplanisinplace.

Weperformedthefollowingprocedurestorespondtothekeyauditmatter:

• weassessedtheappropriatenessoftheclassificationofpropertyprovisionsprovidedintheperiodasabeforeseparatelydisclosediteminaccordancewithIAS1PresentationofFinancialStatements;

• wecheckedthatallleaseholdsiteswereconsideredinmanagement’sprocesstoidentifysiteswhichwerepotentiallysubjecttoonerousleases;

• whereonerousleaseprovisionshavenotbeenrecognised,despitehistoricalresultsindicatingthataprovisionmayberequired,weobtainedevidencetosupportmanagement’sassertionthatpropertiescanbesuccessfullyturnedaround.Thisincludedassessingthesuccessofpreviousactionsundertakenbymanagementtoturnaroundsimilarsites;

• wetestedasampleoflossmakingshortleaseholdandunlicensedpropertiestocreateanexpectationoftheappropriatelevelofonerousleaseprovisionforeachpropertywithinoursampleandcomparedourexpectationwiththelevelofonerousleaseprovisionforeachproperty;

• weassessedtheappropriatenessofforecastEBITDAstakingintoconsiderationthecostsavingandsalesopportunitiesidentifiedbymanagementfollowingabenchmarkingexercise;

• wetestedtheintegrityoftheinformationusedwithintheonerousleaseprovisioncalculationbyagreeinginputsbacktosourcedataincludinghistoricalresults,andrentalcommitments;and

• weassessedtheappropriatenessoftheriskfreediscountrateusedthroughcomparisontoappropriateexternalbenchmarks.

Additionallyweassessedthedesignandimplementationandtestedtheoperatingeffectivenessofcontrolsinrelationtothecalculationoftheonerousleaseprovision.

WeagreethatthelevelofonerousleaseprovisioniswithinareasonablerangeandthatthepresentationofthemovementsinonerousleaseprovisionisinaccordancewithIAS1.




Compliance with debt covenants TheprimarysourceofborrowingsfortheGrouparesecuredloannotesof£1,784mat29September2018.ThisdebtissecuredonthemajorityofthepropertiesownedbytheGroup(propertiesheldwithinasubsidiaryCompanyMitchells&ButlersRetailLimited).TheGroupalsohas£150mofunsecuredcreditfacilities.Therearecovenantsattachedtoboththesecuredloannotesandtheunsecuredrevolvingcreditfacilities.

Givenchallengesintheindustrywithhighlevelsofcompetition,inflationarycostpressuresandincreasinguncertaintiesaroundBritainexitingfromtheEuropeanUnion,weidentifiedthattheforecastingofEBITDAduringthelong-termviabilityperiodissubjecttosignificantjudgementsandestimates.

ThekeyriskidentifiedistheGroup’sabilitytomeettheforecastedEBITDAoverthelonger-termviabilityperiodforthefinancialcovenantsattachedtothesecuredloannotes.ThistestismeasuredateachquarterenddateforMitchells&ButlersRetailLimited.

DebtcovenantsarefurtherdisclosedwithinNote4.2oftheGroupFinancialStatements,aswellasbeingdisclosedintheLong-TermViabilityStatement.

Weperformedthefollowingprocedurestorespondtothekeyauditmatter:

• assessedthedesignandimplementationofcontrolsinrelationtothemanagementreviewofBudgetandcovenantscalculations;

• reviewedmanagement’sgoingconcernandlonger-termviabilityassessment,bychallengingmanagementtounderstandthekeydriversformingthebasisoftheEBITDAforecastsandchallengingtheassumptionsusedinthebasecasescenariousingindustryforecasts,historicalperformanceandourunderstandingofthebusiness;

• challengedtheappropriatenessofthereasonablypossiblesensitivitiesusedinmanagement’sdownsidescenariooverthelonger-termviabilityperiod;

• reviewedandchallengedmanagement’skeyassumptionsbyreferencetoindependentindustrysourcesandrelevantsupportingevidenceandsensitisingtheimpactthesehaveonmanagement’sassessmentoftheprofitability;

• consideredthefeasibilityofthemitigatingactionsthatmanagementhaveattheirdisposalshouldthefinancialcovenanttestbeclosetobeingbreached;and

• reviewedthedisclosuresongoingconcernandlonger-termviabilitytoconfirmthattheyareconsistentwiththeknowledgewehaveacquiredduringthecourseofourauditandtoconfirmthatthedisclosuresareconsistentwiththeoverallrequirementfortheAnnualReporttobefair,balancedandunderstandable.

Wehaveconsideredreasonablypossibledownsidescenariosandwehaveidentifiedthatadequateheadroomexists.Furthermore,weareinagreementthatshouldacovenantbeclosetobeingbreached,managementhavefurtheractionsthatcouldbeundertakeninordertopreventsuchabreachoccurring.Therefore,weconcurwiththemanagementassumptionsmadeinrelationtogoingconcernandlong-termviabilityoftheGroupandtheresultingdisclosuresincludedinthelong-termviabilitystatement.

Our application of materiality

Wedefinematerialityasthemagnitudeofmisstatementinthefinancialstatementsthatmakesitprobablethattheeconomicdecisionsofareasonablyknowledgeablepersonwouldbechangedorinfluenced.Weusematerialitybothinplanningthescopeofourauditworkandinevaluatingtheresultsofourwork.

Basedonourprofessionaljudgement,wedeterminedmaterialityforthefinancialstatementsasawholeasfollows:

Group financial statements Company financial statementsMateriality £8.8m(2017£8.75m) £8.5m(2017£8.7m)

Basis for determining materiality

Approximately5%(20175%)ofprofitbeforetaxadjustedfornetprofitarisingonpropertydisposals,movementsinthevaluationofthepropertyportfolioandshortleaseholdimpairmentandseparatelydisclosedpensionlegalcosts.Adjusteditemsrelatetoseparatelydiscloseditemsinnote2.2(2017profitbeforetaxadjustedfornetprofitarisingonpropertydisposals,movementsinthevaluationofthepropertyportfolioandshortleaseholdimpairmentandtheseparatelydisclosedonerousleaseprovisioncharge).

Parentcompanymaterialityequatesto0.4%ofnetassets,whichiscappedat97%ofGroupmateriality.

Rationale for the benchmark applied

ProfitbeforetaxbeforeseparatelydiscloseditemsisakeymeasureusedbytheGroupinreportingitsresultstoallowabetterunderstandingoftheadjustedtradingoftheGroupandisalsoakeymeasureconsideredbyusersoftheaccounts.

Theparentcompanydoesnottradeorexistforprofitgeneratingpurposessomaterialityhasbeendeterminedusingnetassets.

Group materiality £9m

Component materiality range £8m

Audit Committee reporting threshold £0.44m

Adjusted PBT £178m


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WeagreedwiththeAuditCommitteethatwewouldreporttotheCommitteeallauditdifferencesinexcessof£440,000(2017£437,500),aswellasdifferencesbelowthatthresholdthat,inourview,warrantedreportingonqualitativegrounds.WealsoreporttotheAuditCommitteeondisclosuremattersthatweidentifiedwhenassessingtheoverallpresentationofthefinancialstatements.

An overview of the scope of our audit

OurGroupauditwasscopedbyobtaininganunderstandingoftheGroupanditsenvironment,includingGroup-widecontrols,andassessingtherisksofmaterialmisstatementattheGrouplevel.Basedonthatassessment,weperformedafullscopeauditinrespectoftheUKretailoperatingbusinesswhichaccountsfor99%(201799%)oftheGroup’stotalassets,96%(201797%)ofrevenueand96%(201798%)ofoperatingprofit.ThisauditworkwasperformeddirectlybytheGroupauditengagementteam,whoalsotestedtheconsolidationprocess.GiventherelativesizeoftheGermanbusiness(‘ALEX’)weconsidertheUKbusinessprovidessufficientauditassuranceovertheGroupbalances.Thisapproachisconsistentwith2017.Attheparententitylevelwealsotestedtheconsolidationprocess,aswellastheparentbalancesheettoparentcompanymateriality.

Inrespondingtotheassessedrisksofmaterialmisstatement,theauditengagementteamsoughttoplacerelianceontheoperatingeffectivenessoftheGroup’scontrolsinrelationtorevenue,foodanddrinkexpenditure,property,plantandequipment,onerousleaseprovisionsandvaluationofthepubestate.

OurauditworkontheUKbusinesswasexecutedatlevelsofmaterialityapplicabletoeachindividualentitywhichwerelowerthanGroupmaterialityandrangedfrom£1to£8.5m(2017£0.27mto£8.7m).

Full audit scope

Review at group level

Revenue 96% 4%Profitbeforetax 96% 4%Netassets 99% 1%

Other information

TheDirectorsareresponsiblefortheotherinformation.TheotherinformationcomprisestheinformationincludedintheAnnualReport,otherthanthefinancialstatementsandourauditor’sreportthereon.

Ouropiniononthefinancialstatementsdoesnotcovertheotherinformationand,excepttotheextentotherwiseexplicitlystatedinourreport,wedonotexpressanyformofassuranceconclusionthereon.

Inconnectionwithourauditofthefinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.

Ifweidentifysuchmaterialinconsistenciesorapparentmaterialmisstatements,wearerequiredtodeterminewhetherthereisamaterialmisstatementinthefinancialstatementsoramaterialmisstatementoftheotherinformation.If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthatfact.

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 Directors

AsexplainedmorefullyintheDirectors’responsibilitiesstatement,theDirectorsareresponsibleforthepreparationofthefinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview,andforsuchinternalcontrolastheDirectorsdetermineisnecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Inpreparingthefinancialstatements,theDirectorsareresponsibleforassessingtheGroup’sandtheCompany’sabilitytocontinueasagoingconcern,disclosingasapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlesstheDirectorseitherintendtoliquidatetheGrouportheCompanyortoceaseoperations,orhavenorealisticalternativebuttodoso.

Auditor’s responsibilities for the audit of the financial statements

Ourobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditor’sreportthatincludesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithISAs(UK)willalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements.

Detailsoftheextenttowhichtheauditwasconsideredcapableofdetectingirregularities,includingfraudaresetoutbelow.

AfurtherdescriptionofourresponsibilitiesfortheauditofthefinancialstatementsislocatedontheFRC’swebsiteat:www.frc.org.uk/auditorsresponsibilities.Thisdescriptionformspartofourauditor’sreport.

Extent to which the audit was considered capable of detecting irregularities, including fraud

Weidentifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror,andthendesignandperformauditproceduresresponsivetothoserisks,includingobtainingauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.

Identifying and assessing potential risks related to irregularitiesInidentifyingandassessingrisksofmaterialmisstatementinrespectofirregularities,includingfraudandnon-compliancewithlawsandregulations,ourproceduresincludedthefollowing:

• enquiringofmanagement,GroupAssurance,in-houselegalcounsel,includingtheCompanySecretaryandGeneralCounsel,andtheAuditCommittee,includingobtainingandreviewingsupportingdocumentation,concerningtheGroup’spoliciesandproceduresrelatingto:

− identifying,evaluatingandcomplyingwithlawsandregulationsandwhethertheywereawareofanyinstancesofnon-compliance;

− detectingandrespondingtotherisksoffraudandwhethertheyhaveknowledgeofanyactual,suspectedorallegedfraud;

− theinternalcontrolsestablishedtomitigaterisksrelatedtofraudornon-compliancewithlawsandregulations;


• discussingamongtheengagementteamandinvolvingrelevantinternalspecialists,includingtax,pensions,ITandpropertyspecialistsregardinghowandwherefraudmightoccurinthefinancialstatementsandanypotentialindicatorsoffraud.Aspartofthisdiscussion,weidentifiedpotentialforfraudinthefollowingareas:valuationofpubestate,onerousleaseprovisionsandcompliancewithdebtcovenants;and

• obtaininganunderstandingofthelegalandregulatoryframeworkthattheGroupoperatesin,focusingonthoselawsandregulationsthathadadirecteffectonthefinancialstatementsorthathadafundamentaleffectontheoperationsoftheGroup.ThekeylawsandregulationsweconsideredinthiscontextincludedtheUKCompaniesAct,ListingRules,pensionslegislation,andtaxlegislation.

Audit response to risks identifiedAsaresultofperformingtheabove,weidentifiedvaluationofthepubestate,onerousleaseprovisionsandcompliancewithdebtcovenantsaskeyauditmatters.Thekeyauditmatterssectionofourreportexplainsthemattersinmoredetailandalsodescribesthespecificproceduresweperformedinresponsetothosekeyauditmatters.

Inadditiontotheabove,ourprocedurestorespondtorisksidentifiedincludedthefollowing:

• reviewingthefinancialstatementdisclosuresandtestingtosupportingdocumentationtoassesscompliancewithrelevantlawsandregulationsdiscussedabove;

• enquiringofmanagement,theAuditCommitteeandin-houselegalcounselconcerningactualandpotentiallitigationandclaims;

• performinganalyticalprocedurestoidentifyanyunusualorunexpectedrelationshipsthatmayindicaterisksofmaterialmisstatementduetofraud;

• readingminutesofmeetingsofthosechargedwithgovernanceandreviewingGroupAssurancereports;and

• inaddressingtheriskoffraudthroughmanagementoverrideofcontrols,testingtheappropriatenessofjournalentriesandotheradjustments;assessingwhetherthejudgementsmadeinmakingaccountingestimatesareindicativeofapotentialbias;andevaluatingthebusinessrationaleofanysignificanttransactionsthatareunusualoroutsidethenormalcourseofbusiness.

Wealsocommunicatedrelevantidentifiedlawsandregulationsandpotentialfraudriskstoallengagementteammembers,includinginternalspecialists,andremainedalerttoanyindicationsoffraudornon-compliancewithlawsandregulationsthroughouttheaudit.

Report on other legal and regulatory requirements

Opinions 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.


Directors’ remunerationUndertheCompaniesAct2006wearealsorequiredtoreportifinouropinioncertaindisclosuresofDirectors’remunerationhavenotbeenmadeorthepartoftheDirectors’remunerationreporttobeauditedisnotinagreementwiththeaccountingrecordsandreturns.


Other mattersAuditor tenureFollowingtherecommendationoftheAuditCommittee,wewereappointedbytheBoardon10February2011toauditthefinancialstatementsforthe52weeksending24September2011andsubsequentfinancialperiods.Theperiodoftotaluninterruptedengagementincludingpreviousrenewalsandreappointmentsofthefirmiseightyears,coveringtheyearsending24September2011to29September2018.

Consistency of the audit report with the additional report to the Audit CommitteeOurauditopinionisconsistentwiththeadditionalreporttotheAuditCommitteewearerequiredtoprovideinaccordancewithISAs(UK).

Use of our report

ThisreportismadesolelytotheCompany’smembers,asabody,inaccordancewithChapter3ofPart16oftheCompaniesAct2006.OurauditworkhasbeenundertakensothatwemightstatetotheCompany’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthantheCompanyandtheCompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.

John Charlton FCA (Senior Statutory Auditor)

ForandonbehalfofDeloitteLLPStatutoryAuditorLondon,UnitedKingdom

21November2018


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Group income statement Forthe52weeksended29September2018

201852 weeks

201753 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 2,152 – 2,152 2,180 – 2,180Operatingcostsbeforedepreciation,amortisationandmovementsinthevaluationofthepropertyportfolio 2.2,2.3 (1,730) (6) (1,736) (1,751) (35) (1,786)Netprofitarisingonpropertydisposals 2.2,2.3 – 1 1 – 1 1EBITDAb 422 (5) 417 429 (34) 395Depreciation,amortisationandmovementsinthevaluationofthepropertyportfolio 2.2,2.3 (119) (43) (162) (115) (72) (187)Operating profit/(loss) 303 (48) 255 314 (106) 208Financecosts 4.3 (119) – (119) (125) – (125)Financerevenue 4.3 1 – 1 1 – 1Netpensionsfinancecharge 4.3,4.5 (7) – (7) (7) – (7)Profit/(loss) before tax 178 (48) 130 183 (106) 77

Tax(charge)/credit 2.2,2.4 (33) 7 (26) (37) 23 (14)

Profit/(loss) for the period 145 (41) 104 146 (83) 63Earnings per ordinary share –Basic 2.5 34.1p 24.5p 34.9p 15.1p –Diluted 2.5 34.0p 24.4p 34.8p 15.0p

a. Separatelydiscloseditemsareexplainedandanalysedinnote2.2.b. Earningsbeforeinterest,tax,depreciation,amortisationandmovementsinthevaluationofthepropertyportfolio.

Thenotesonpages105to142formanintegralpartofthesefinancialstatements.

Allresultsrelatetocontinuingoperations.


Group statement of comprehensive income Forthe52weeksended29September2018

Notes

201852 weeks

£m

201753 weeks

£m

Profit for the period 104 63Items that will not be reclassified subsequently to profit or loss:Unrealised(loss)/gainonrevaluationofthepropertyportfolio 3.1 (5) 74Remeasurementofpensionliability 4.5 5 8Taxrelatingtoitemsnotreclassified 2.4 – (13)

– 69Items that may be reclassified subsequently to profit or loss:Exchangedifferencesontranslationofforeignoperations – 1Cashflowhedges: –Gainsarisingduringtheperiod 4.4 16 60 –Reclassificationadjustmentsforitemsincludedinprofitorloss 4.4 34 53Taxrelatingtoitemsthatmaybereclassified 2.4 (8) (19)

42 95Other comprehensive income after tax 42 164Total comprehensive income for the period 146 227



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Group balance sheet 29September2018

Notes2018

£m2017

£m

AssetsGoodwillandotherintangibleassets 3.4 11 10Property,plantandequipment 3.1 4,426 4,429Leasepremiums 1 1Interestsinassociates 3.5 5 –Deferredtaxasset 2.4 63 110Derivativefinancialinstruments 4.4 44 41Total non-current assets 4,550 4,591Inventories 3.2 26 24Tradeandotherreceivables 3.2 56 53Othercashdeposits 4.1 120 120Cashandcashequivalents 4.1 122 147Derivativefinancialinstruments 4.4 4 2Assetsheldforsale 3.1 – 1Total current assets 328 347Total assets 4,878 4,938LiabilitiesPensionliabilities 4.5 (49) (47)Tradeandotherpayables 3.2 (302) (297)Currenttaxliabilities (9) (3)Borrowings 4.2 (233) (235)Derivativefinancialinstruments 4.4 (37) (43)Total current liabilities (630) (625)Pensionliabilities 4.5 (200) (245)Borrowings 4.2 (1,744) (1,827)Derivativefinancialinstruments 4.4 (207) (249)Deferredtaxliabilities 2.4 (285) (324)Provisions 3.3 (43) (42)Total non-current liabilities (2,479) (2,687)Total liabilities (3,109) (3,312)Net assets 1,769 1,626

EquityCalledupsharecapital 4.7 37 36Sharepremiumaccount 4.7 26 26Capitalredemptionreserve 4.7 3 3Revaluationreserve 4.7 1,197 1,202Ownsharesheld 4.7 (1) (1)Hedgingreserve 4.7 (202) (244)Translationreserve 4.7 14 14Retainedearnings 695 590Total equity 1,769 1,626


ThefinancialstatementswereapprovedbytheBoardandauthorisedforissueon21November2018.

Theyweresignedonitsbehalfby:

Tim Jones Finance Director


Calledup share

capital£m

Sharepremiumaccount

£m

Capitalredemption

reserve£m

Revaluationreserve

£m

Ownshares

held£m

Hedgingreserve

£m

Translationreserve

£m

Retainedearnings

£m

Totalequity

£m

At 24 September 2016 35 27 3 1,142 (1) (338) 13 527 1,408Profitfortheperiod – – – – – – – 63 63Othercomprehensiveincome – – – 61 – 94 1 8 164Total comprehensive income – – – 61 – 94 1 71 227Creditinrespectofshare-basedpayments – – – – – – – 2 2Dividendspaid – – – – – – – (12) (12)Revaluationreserverealisedondisposalofproperties – – – (1) – – – 1 –Scripdividendrelatedshareissue 1 (1) – – – – – – –Taxonshare-basedpaymentstakendirectlytoequity – – – – – – – 1 1At 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 1,769

Group statement of changes in equity Forthe52weeksended29September2018


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Group cash flow statement Forthe52weeksended29September2018

Notes

201852 weeks

£m

201753 weeks

£m

Cash flow from operationsOperatingprofit 255 208Addback:adjusteditems 2.2 48 106Operatingprofitbeforeadjusteditems 303 314Addback:Depreciationofproperty,plantandequipment 2.3 116 113Amortisationofintangibles 2.3 3 2Costchargedinrespectofshare-basedpayments 4.6 3 2Administrativepensioncosts 4.5 2 2Operating cash flow before adjusted items, movements in working capital and additional pension contributions 427 433(Increase)/decreaseininventories (1) 1Increaseintradeandotherreceivables (1) (20)Increaseintradeandotherpayables 4 7Decreaseinprovisions – (2)Additionalpensioncontributions 4.5 (48) (46)Cash flow from operations before adjusted items 381 373Cashflowfromadjusteditems (2) –Interestpaid (120) (122)Interestreceived 1 1Taxpaid (20) (26)Net cash from operating activities 240 226Investing activitiesPurchasesofproperty,plantandequipment (167) (166)Purchasesofintangibleassets (4) (3)Proceedsfromsaleofproperty,plantandequipment 5 46Acquisitionofinvestmentinassociates 3.5 (5) –Net cash used in investing activities (171) (123)Financing activitiesIssueofordinarysharecapital 1 –Dividendspaid(netofscripdividend) 4.7 (7) (12)Repaymentofprincipalinrespectofsecuritiseddebt 4.1 (82) (77)Netmovementonunsecuredrevolvingcreditfacilities 4.1 (6) (25)Net cash used in financing activities (94) (114)Net decrease in cash and cash equivalents (25) (11)Cashandcashequivalentsatthebeginningoftheperiod 147 158Cash and cash equivalents at the end of the period 4.1 122 147



General information

Mitchells&Butlersplc(theCompany)isapubliclimitedcompanylimitedbysharesandisregisteredinEnglandandWales.TheCompany’ssharesarelistedontheLondonStockExchange.TheaddressoftheCompany’sregisteredofficeisshownonpage142.

TheprincipalactivitiesoftheCompanyanditssubsidiaries(theGroup)andthenatureoftheGroup’soperationsaresetoutintheStrategicreportonpages1to45.

Mitchells&Butlersplc,alongwithitssubsidiaries(together‘theGroup’)isrequiredtoprepareitsconsolidatedfinancialstatementsinaccordancewithInternationalFinancialReportingStandards(IFRSs)asadoptedbytheEuropeanUnionandinaccordancewiththeCompaniesAct2006.

TheGroup’saccountingreferencedateis30September.TheGroupdrawsupitsfinancialstatementstotheSaturdaydirectlybeforeorfollowingtheaccountingreferencedate,aspermittedbysection390(3)oftheCompaniesAct2006.Theperiodended29September2018includes52tradingweeksandtheperiodended30September2017includes53tradingweeks.

Thefinancialstatementshavebeenpreparedonthehistoricalcostbasisasmodifiedbytherevaluationofproperties,pensionobligationsandfinancialinstruments.

TheGroup’saccountingpolicieshavebeenappliedconsistently.

Basis of consolidation

TheconsolidatedfinancialstatementsincorporatethefinancialstatementsofMitchells&Butlersplc(‘theCompany’)andentitiescontrolledbytheCompany(itssubsidiaries).

ControlisachievedwhentheCompany:

• hasthepowerovertheinvestee;

• isexposed,orhasrights,tovariablereturnfromitsinvolvementwiththeinvestee;and

• hastheabilitytouseitspowertoaffectsitsreturns.

TheCompanyreassesseswhetherornotitcontrolsaninvesteeiffactsandcircumstancesindicatethattherearechangestooneormoreofthethreeelementsofcontrollistedabove.

WhentheCompanyhaslessthanamajorityofvotingrightsofaninvestee,itconsidersthatithaspowerovertheinvesteewhenthevotingrightsaresufficienttogiveitthepracticalabilitytodirecttherelevantactivitiesoftheinvesteeunilaterally.TheCompanyconsidersallrelevantfactsandcircumstancesinassessingwhetherornottheCompany’svotingrightsinaninvesteearesufficienttogiveitpower,including:

• thesizeoftheCompany’sholdingofvotingrightsrelativetothesizeanddispersionofholdingsoftheothervoteholders;

• potentialvotingrightsheldbytheCompany,othervoteholdersorparties;

• rightsarisingfromothercontractualarrangements;and

• anyadditionalfactsandcircumstancesthatindicatethattheCompanyhas,ordoesnothave,thecurrentabilitytodirecttherelevantactivitiesatthetimethatdecisionsneedtobemade,includingvotingpatternsatthepreviousshareholders’meetings.

ConsolidationofasubsidiarybeginswhentheCompanyobtainscontroloverthesubsidiaryandceaseswhentheCompanylosescontrolofthesubsidiary.Specifically,theresultsofthesubsidiariesacquiredordisposedofduringtheyearareincludedintheconsolidatedincomestatementfromthedatetheCompanygainscontroluntilthedatewhentheCompanyceasestocontrolthesubsidiary.

ThefinancialstatementsofthesubsidiariesarepreparedforthesamefinancialreportingperiodastheCompany.Intercompanytransactions,balancesandunrealisedgainsandlossesontransactionsbetweenGroupcompaniesareeliminatedonconsolidation.

Going concern

TheGroup’sbusinessactivities,togetherwiththefactorslikelytoaffectitsfuturedevelopment,performanceandpositionaresetoutintheStrategicreportonpages1to45.ThefinancialpositionoftheGroup,itscashflows,liquiditypositionandborrowingfacilitiesarealsodescribedwithintheFinancereview.

Inaddition,note4.4tothefinancialstatementsincludestheGroup’sobjectives,policiesandprocessesformanagingitscapital;itsfinancialriskmanagementobjectives;detailsofitsfinancialinstrumentsandhedgingactivities;anditsexposurestocreditriskandliquidityrisk.Ashighlightedinnote4.2tothefinancialstatements,theGroup’sfinancingisbaseduponsecuritiseddebtandunsecuredborrowingfacilities.

TheDirectorshave,atthetimeofapprovingthefinancialstatements,areasonableexpectationthattheCompanyandtheGrouphaveadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.Thustheycontinuetoadoptthegoingconcernbasisofaccountinginpreparingthefinancialstatements.

Foreign currencies

Transactionsinforeigncurrenciesarerecordedattheexchangeratesrulingonthedatesofthetransactions.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedintothefunctionalcurrencyattherelevantratesofexchangerulingatthebalancesheetdate.Foreignexchangedifferencesarisingontranslationarerecognisedintheincomestatement.Non-monetaryassetsandliabilitiesaremeasuredatcostusingtheexchangerateonthedateoftheinitialtransaction.

Theconsolidatedfinancialstatementsarepresentedinpoundssterling(roundedtothenearestmillion),beingthefunctionalcurrencyoftheprimaryeconomicenvironmentinwhichtheparentandmostsubsidiariesoperate.Onconsolidation,theassetsandliabilitiesoftheGroup’soverseasoperationsaretranslatedintosterlingattherelevantratesofexchangerulingatthebalancesheetdate.Theresultsofoverseasoperationsaretranslatedintosterlingataverageratesofexchangefortheperiod.ExchangedifferencesarisingfromthetranslationoftheresultsandtheretranslationofopeningnetassetsdenominatedinforeigncurrenciesaretakendirectlytotheGroup’stranslationreserve.Whenanoverseasoperationissold,suchexchangedifferencesarerecognisedintheincomestatementaspartofthegainorlossonsale.

Theresultsofoverseasoperationshavebeentranslatedintosterlingattheweightedaverageeurorateofexchangefortheperiodof£1=€1.13(2017£1=€1.16),wherethisisareasonableapproximationtotherateatthedatesofthetransactions.EuroandUSdollardenominatedassetsandliabilitieshavebeentranslatedattherelevantrateofexchangeatthebalancesheetdateof£1=€1.12(2017£1=€1.13)and£1=$1.30(2017£1=$1.34)respectively.

Notes to the financial statements Section1–Basisofpreparation


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Notes to the financial statements Section1–Basisofpreparationcontinued

Recent accounting developments

TheInternationalAccountingStandardsBoard(IASB)andInternationalFinancialReportingInterpretationsCommittee(IFRIC)haveissuedthefollowingstandardsandinterpretationswhichhavebeenadoptedbytheGroupinthesefinancialstatementsforthefirsttime:

Accounting standard Requirement Impact on financial statements

Amendments to IAS 7: Disclosure Initiative

TheGrouphasadoptedtheamendmentstoIAS7forthefirsttimeinthecurrentyear.Theamendmentsrequireanentitytoprovidedisclosuresthatenableusersofthefinancialstatementstoevaluatechangesinliabilitiesarisingfromfinancingactivities,includingbothcashandnon-cashchanges.TheGroup’sliabilitiesarisingfromfinancingactivitiesconsistofborrowings(note4.2)andcertainderivatives(note4.4).Reconciliationsbetweentheopeningandclosingbalancesoftheseitemsareprovidedinnote4.1and4.4respectively.Consistentwiththetransitionprovisionsoftheamendments,theGrouphasnotdisclosedcomparativeinformationfortheprioryear.

Apartfromtheadditionaldisclosuresinnotes4.1and4.4,theapplicationoftheseamendmentshashadnoimpactontheGroup’sconsolidatedfinancialstatements.

Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses

TheGrouphasadoptedtheamendmentstoIAS12forthefirsttimeinthecurrentyear.Theamendmentsclarifyhowanentityshouldevaluatewhethertherewillbesufficientfuturetaxableprofitsagainstwhichitcanutiliseadeductibletemporarydifference.

TheapplicationoftheseamendmentshashadnoimpactontheGroup’sconsolidatedfinancialstatementsastheGroupalreadyassessesthesufficiencyoffuturetaxableprofitsinawaythatisconsistentwiththeseamendments.

Annual Improvements to IFRSs: 2014 to 2016 Cycle

TheGrouphasadoptedtheamendmentstoIFRS12includedintheAnnualImprovementstoIFRSs2014to2016Cycleforthefirsttimeinthecurrentyear.TheotheramendmentsincludedinthispackagearenotyetmandatorilyeffectiveandtheyhavenotbeenearlyadoptedbytheGroup.IFRS12statesthatanentityneednotprovidesummarisedfinancialinformationforinterestsinsubsidiaries,associatesorjointventuresthatareclassified(orincludedinadisposalgroupthatisclassified)asheldforsale.

TheamendmentshadnoimpactontheGroup’sconsolidatedfinancialstatements.

TheIASBandIFRIChaveissuedthefollowingstandardsandinterpretationswhichcouldimpacttheGroup,withaneffectivedateforfinancialperiodsbeginningonorafterthedatesdisclosedbelow:

Accounting standard Effective date

IFRS 15 Revenue from Contracts with Customers 1January2018

IFRS 9 Financial Instruments 1January2018

IFRS 2 (amendments) Classification and Measurement of Share-based Payment Transactions

1January2018

IAS 40 (amendments) Transfer of Investment Property 1January2018

Annual Improvements to IFRSs: 2014–2016 Cycle 1January2018

IFRIC 22 Foreign Currency Transactions and Advanced Consideration

1January2018

IFRIC 23 Uncertainty over Income Tax Treatments 1January2019(subjecttoEUapproval)

Amendments to IAS 28 Long-term Interest in Associates and Joint Ventures

1January2019(subjecttoEUapproval)

Annual Improvements to IFRSs 2015-2017 Cycle 1January2019(subjecttoEUapproval)

Amendments to IAS 19 Employee Benefits: Plan Amendment, Curtailment or Settlement

1January2019(subjecttoEUapproval)

TheDirectorsdonotexpectthattheadoptionofthestandardslistedabovewillhaveamaterialimpactonthefinancialstatementsoftheGroupinfutureperiods.AreviewoftheimpactofIFRS15andIFRS9hasbeenperformedasdescribedbelow.Beyondthis,itisnotpracticabletoprovideareasonableestimateoftheeffectofthesestandardsuntiladetailedreviewhasbeencompleted.


Impact of adoption of IFRS 15

IFRS15RevenuefromContractswithCustomersreplacesIAS18Revenueandiseffectiveforfinancialperiodsbeginningonorafter1January2018.ItappliestotheGroupforthe52weeksending28September2019.IFRS15hasbeenintroducedtoprovideasingle,comprehensiveframeworkforrevenuerecognition.ThecoreprincipleofIFRS15isthatanentityshouldrecogniserevenuetodepictthetransferofgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.Specifically,thestandardintroducesafive-stepapproachtorevenuerecognition:

Step1:Identifythecontractwithacustomer

Step2:Identifytheperformanceobligationsinthecontract

Step3:Determinethetransactionprice

Step4:Allocatethetransactionpricetotheperformanceobligationsinthecontract

Step5:Recogniserevenuewhentheentitysatisfiesaperformanceobligation

IFRS15isnotexpectedtohaveamaterialimpactontheGroupwhenitisadopted,asthemajorityoftheGroup’srevenueisinrelationtothesaleoffoodanddrinkwithinpubsandrestaurants,forwhichtheconsiderationisknownandtheperformanceobligationsaresatisfiedatthepointofsale.


IFRS9FinancialInstrumentsreplacesIAS39FinancialInstruments:RecognitionandMeasurementandiseffectiveforfinancialperiodsstartingonorafter1January2018.ItappliestotheGroupforthe52weeksending28September2019.IFRS9hasbeenintroducedtoaddresssomeofthecomplexitycontainedwithinIAS39butalsointroducestheconceptofearlierrecognitionofcreditlossesonloansandreceivables.

TheadoptionofIFRS9isnotexpectedtohaveamaterialimpactonanyreportedbalancesinthefinancialstatements,asfollowingassessmentbymanagement,therearenofinancialassetsthatwillrequireachangeintreatment.TheGroupwillberequiredtoupdateitshedgingdocumentationtoreflecttherequirementsofIFRS9.However,therewillbenochangetotheeffectivenessoftheGroup’scashflowhedges.Inaddition,theremaybeminoramendmentstodisclosureswithinthefinancialstatements.

ThefollowingstandardwillhaveamaterialimpactontheGroupwhenitbecomeseffective.

Accounting standard Effective date

IFRS 16 Leases ThestandardreplacesIAS17Leaseswhenitbecomeseffectiveforaccountingperiodsbeginningonorafter1January2019.TheGroupcurrentlyexpectstoadoptIFRS16forthe52weekperiodending26September2020.


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IFRS16requireslesseestorecognisearight-of-useassetandacorrespondingliabilityforallleasesexceptforlowvalueassetsorwheretheleasetermis12monthsorless.

Theright-of-useassetisinitiallymeasuredatcostandsubsequentlymeasuredatcostlessaccumulateddepreciationandimpairmentlosses.Theleaseliabilityisinitiallymeasuredatthepresentvalueoftheleasepaymentsthatarenotpaidatthatdate.Subsequently,theleaseliabilityisadjustedforinterestandleasepayments,aswellastheimpactofleasemodifications.Asaresultofthischange,theincomestatementwillincludedepreciationoftheright-of-useassetandinterestontheliability,ratherthantherentalexpenserecognisedunderIAS17.Followingtransition,anyunusedonerousleaseprovisionwilltransitiontobecomeaprovisionforimpairmentofright-of-useassets.

Furthermore,theclassificationofcashflowswillalsobeimpactedasoperatingleasepaymentsunderIAS17arepresentedasoperatingcashflows;whereasundertheIFRS16model,theleasepaymentswillbesplitintoaprincipalandaninterestportionwhichwillbepresentedasfinancingandoperatingcashflowsrespectively.

AccountingrequirementsforlessorsissubstantiallyunchangedfromIAS17.

IFRS16willbeeffectivefortheGroupfortheyearendingSeptember2020.TheGroupcurrentlyhasoperatingleasecommitmentsof£670masdisclosedinnote2.3.ApreliminaryassessmentindicatesthatthesearrangementswillmeetthedefinitionofaleaseunderIFRS16andhencetheGroupwillrecognisearightofuseassetandcorrespondingliabilities,unlesstheyqualifyforlowvalueorshort-termexemption.Therightofuseassetwillbedepreciatedonastraight-linebasisoverthelifeofthelease.Interestwillberecognisedontheleaseliability,resultinginahigherinterestexpenseintheearlieryearsoftheleaseterm.ThetotalexpenserecognisedintheIncomeStatementoverthelifeoftheleasewillbeunaffectedbythenewstandard.Therewillbenoimpactoncashflows,althoughthepresentationoftheGroupcashflowstatementwillchangesignificantly,withanincreaseincashflowsfromoperatingactivitiesbeingoffsetbyanincreaseincashflowsfromfinancingactivities.

TheGrouphasestablishedaworkinggrouptoensurewetakeallthenecessarystepstocomplywiththerequirementsofIFRS16.Theworkinggroupincludesouroutsourcepartnerswhomanageestateactivityaswellaskeymembersofourfinanceandpropertyteams.Workhasalreadycommencedtocollaterelevantdata,reviewavailablesystemsolutionsandagreerelevantaccountingpolicies.

Giventhenumberofleasesandhistoricaldatarequirementstoadoptthefullyretrospectiveapproach,theGroupintendstoapplythemodifiedretrospectiveapproach,withassetsequaltoliabilities,attransition.Thisapproachwillnotrequirerestatementofcomparativeinformation.

GiventhecomplexitiesofIFRS16andthesensitivitytokeyassumptionssuchasdiscountrates,itisnotyetpracticabletofullyquantifytheeffectofIFRS16onthefinancialstatementsoftheGroup.

Critical accounting judgements and estimates

Thepreparationoftheconsolidatedfinancialstatementsrequiresmanagementtomakejudgements,estimatesandassumptionsintheapplicationofaccountingpoliciesthataffectreportedamountsofassets,liabilities,incomeandexpense.

Estimatesandjudgementsareperiodicallyevaluatedandarebasedonhistoricalexperienceandotherfactorsincludingexpectationsoffutureeventsthatarebelievedtobereasonableunderthecircumstances.Actualresultsmaydifferfromtheseestimates.DetailsoftheGroup’scriticalaccountingjudgementsandestimatesaredescribedwithintherelevantaccountingpolicysectionineachofthenotestothefinancialstatements.

Criticaljudgementsaredescribedineachsectionlistedbelow:

• Note2.2Separatelydiscloseditems

• Note3.1Property,plantandequipment

• Note3.3Provisions

• Note4.5Pensions

Criticalestimatesaredescribedin:

• Note3.1Property,plantandequipment

• Note3.3Provisions

Notes to the financial statements Section1–Basisofpreparationcontinued


Notes to the financial statements Section2–Resultsfortheyear

2.1 Segmental analysis

Accounting policiesOperating segmentsIFRS8OperatingSegmentsrequiresoperatingsegmentstobebasedontheGroup’sinternalreportingtoitsChiefOperatingDecisionMaker(CODM).TheCODMisregardedastheChiefExecutivetogetherwithotherBoardmembers.TheGrouptradesinonebusinesssegment(thatofoperatingpubsandrestaurants)andtheGroup’sbrandsmeettheaggregationcriteriasetoutinParagraph12ofIFRS8.Economicindicatorsassessedindeterminingthattheaggregatedoperatingsegmentssharesimilareconomiccharacteristicsincludeexpectedfuturefinancialperformance;operatingandcompetitiverisks;andreturnoninvestedcapital.

ThedisclosuresetoutintheAnnualReportandAccountsfor2017includedsegmentalinformationfortheretailoperatingbusinessandpropertybusiness,withaninternalrentchargebeingleviedagainsttheGroup’sretailoperatingunitsbythepropertybusiness.Withastableestate,theinternalrentchargeisnolongerusedbytheCODMasanindicatorofperformanceasmovementsinthischargeareinsignificant.Thebusinessisfocusedondeliveryofsalesgrowthandcontrolofshort-termcostswithinitstradingpubs,inordertomaximisereturnfromitsexistingestate.

TheCODMusesEBITDAandprofitbeforeinterestandadjusteditems(operatingprofitpre-adjustments)asthekeymeasuresoftheGroup’sresultsonanaggregatedbasis.

Geographical segmentsSubstantiallyalloftheGroup’sbusinessisconductedintheUnitedKingdom.Inpresentinginformationbygeographicalsegment,segmentrevenueandnon-currentassetsarebasedonthegeographicallocationofcustomersandassets.

Geographical segmentsUK Germany Total

201852 weeks

£m

201753 weeks

£m

201852 weeks

£m

201753 weeks

£m

201852 weeks

£m

201753 weeks

£m

Revenue–salestothirdparties 2,071 2,100 81 80 2,152 2,180Segmentnon-currentassetsa 4,428 4,430 10 10 4,438 4,440

a. Includesbalancesrelatingtointangibles,property,plantandequipmentandnon-currentleasepremiums.

2.2 Separately disclosed items

Accounting policyInadditiontopresentinginformationonanIFRSbasis,theGroupalsopresentsadjustedprofitandearningspershareinformationthatexcludesseparatelydiscloseditemsandtheimpactofanyassociatedtax.AdjustedprofitabilitymeasuresarepresentedexcludingseparatelydiscloseditemsaswebelievethisprovidesbothmanagementandinvestorswithusefuladditionalinformationabouttheGroup’sperformanceandsupportsamoreeffectivecomparisonoftheGroup’stradingperformancefromoneperiodtothenext.Adjustedprofitandearningspershareinformationisusedbymanagementtomonitorbusinessperformanceagainstbothshorter-termbudgetsandforecastsbutalsoagainsttheGroup’slonger-termstrategicplans.

Separatelydiscloseditemsarethosewhichareseparatelyidentifiedbyvirtueoftheirsizeorincidenceandincludemovementsinthevaluationofthepropertyportfolioasaresultoftheannualrevaluationexercise,impairmentreviewofshortleaseholdandunlicensedproperties,legalcostsassociatedwiththedisputeinrelationtothedefinedbenefitpensionschemeandmaterialmovementsintheonerousleaseprovision.

Critical accounting judgements JudgementisusedtodeterminethoseitemswhichshouldbeseparatelydisclosedtoallowabetterunderstandingoftheadjustedtradingperformanceoftheGroup.Thisjudgementincludesassessmentofwhetheranitemisofsufficientsizeorofanaturethatisnotconsistentwithnormaltradingactivities.

Separatelydiscloseditemsareidentifiedasfollows:

• One-offlegalcostsassociatedwiththeongoingcourtcasebetweentheCompanyandtheTrusteeoftheDefinedBenefitPensionschemeinrelationtotherateofinflationappliedtopensionincreasesforcertainsectionsofthemembership.Thesecostswouldpreventyear-on-yearcomparabilityoftheGroup’stradingifnotseparatelydisclosed.

• Onerousleaseprovision–thisprovisioniscalculatedonasitebysitebasis,withthemajorityoftheadditionsforthepriorperiodbeingdisclosedseparately.Thispriorperiodincreasewastheresultofafullreviewofestatestrategyandanupdatetothediscountrateappliedincalculatingtheprovision.Duetothesizeoftheresultingincreaseintheprovision,thiswasdisclosedseparately.

• Profit/(loss)arisingonpropertydisposals–propertydisposalsaredisclosedseparatelyastheyarenotconsideredtobepartofadjustedtradeperformanceandthereisvolatilityinthesizeoftheprofit/(loss)ineachaccountingperiod.

• Movementinthevaluationofthepropertyportfolio–thisisdisclosedseparately,duetothesizeandvolatilityofthemovementinpropertyvaluationeachperiod,whichcanbepartlydrivenbymovementsinthepropertymarket.ThismovementisalsonotconsideredtobepartoftheadjustedtradeperformanceoftheGroupandwouldpreventyear-on-yearcomparabilityoftheGroup’stradingperformanceifnotseparatelydisclosed.


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Notes to the financial statements Section2–Resultsfortheyearcontinued

2.2 Separately disclosed items continued

Theitemsidentifiedinthecurrentperiodareasfollows:

Notes

201852 weeks

£m

201753 weeks

£m

Adjusted itemsLegalcostsassociatedwiththedefinedbenefitpensionscheme a (6) –Onerousleaseprovisionadditions b – (35)Totaladjusteditemsrecognisedwithinoperatingcosts (6) (35)Netprofitarisingonpropertydisposals 1 1Movementinthevaluationofthepropertyportfolio(seenote3.1): –Impairmentarisingfromtherevaluation c (28) (51) –Impairmentofshortleaseholdandunlicensedproperties d (15) (17) –Impairmentofassetsheldforsale e – (4)Netmovementinthevaluationofthepropertyportfolio (43) (72)Total adjusted items before tax (48) (106)Taxcreditrelatingtoaboveitems 7 23Total adjusted items after tax (41) (83)

a. ThereareongoinglegalproceedingsbetweentheCompany(asprincipalemployer)andMitchells&ButlersPensionsLimited(asTrustee)forwhichcostshavebeenincurredbothbytheCompanyandbytheTrusteebutwhichtheCompanyhasagreedtopay.ThelegalproceedingsareinrelationtotheMitchells&ButlersPensionPlan(MABPP),wherebytheTrustDeedandRulesprovidethatitisamatterfortheCompanytodeterminetherateofinflationwhichshouldbeappliedtopensionincreasesforcertainsectionsofthemembershipinexcessofguaranteedminimumpensions,theCompanyhasinstructedtheTrusteetoapplyCPI(subjecttocertaincaps)inrespectofsuchincreases.TheTrusteebelievesthatthispowerwasincorrectlyvestedintheCompanyintheTrustDeedandRulesoftheMABPPin1996and,despiteitbeingreflectedinfurtherversionsoftheTrustDeedandRules,hasmadeanapplicationtocourtforthosevariousTrustDeedsandRulestoberectified.ItistheBoard’sbeliefthattheCompanyholdsthepowertofixsuchaninflationindexandtheCompanyisthereforecontestingthatapplication.Thehearingisexpectedtobeheldinlate2019.

b. Duringthepriorperiod,areviewofestatestrategyinrelationtomanagedleaseholdsiteswascompleted,withspecificfocusonthechallengesaroundloss-makingsitesandthoselocatedonretailandleisureparks.Thelosseswereconsideredtobeunavoidablefortheremainingcommittedleaseterm.Inaddition,thediscountrateappliedinthecalculationwasalsoupdated.Asaresult,theonerousleaseprovisionincreasedsignificantlywiththemajorityofthisincreaserecognisedasaseparatelydisclosediteminthepriorperiod.Thenetmovementintheonerousleaseprovisioninthecurrentperiodhasbeenincludedwithinadjustedprofitasitisimmaterial.Seenote3.3forfurtherdetails.

c. ImpairmentarisingfromtheGroup’srevaluationofitspubestatewherethecarryingvaluesofthepropertiesexceedtheirrecoverableamount.Seenote3.1forfurtherdetails.d. Impairmentofshortleaseholdandunlicensedpropertieswheretheircarryingvaluesexceedtheirrecoverableamount.Seenote3.1forfurtherdetails.e. Impairmentrecognisedonreclassificationofproperty,plantandequipmenttoassetsheldforsale.


2.3 Revenue and operating costs

Accounting policiesRevenue recognitionRevenueisthefairvalueofgoodssoldandservicesrenderedtothirdpartiesaspartoftheGroup’stradingactivities,afterdeductingsales-basedtaxes,couponsanddiscounts.

Revenue – goods and services ThemajorityofrevenuecomprisesfoodandbeveragessoldintheGroup’sbusinesses.Thisrevenueisrecognisedatthepointofsaletothecustomer.

Operating leases – Group as lessorRentalincomeisreceivedfromunlicensedandleasedoperations.Incomefromtheseoperatingleasesisrecognisedonastraight-linebasisoverthetermofthelease.

Operating profitOperatingprofitisstatedafterchargingadjusteditemsbutbeforeinvestmentincomeandfinancecosts.

Supplier incentives Supplierincentivesandrebatesarerecognisedwithinoperatingcostsastheyareearned.Theaccruedvalueatthereportingdateisincludedinotherreceivables.

Operating leases – Group as lessee Leasesinwhichsubstantiallyalltherisksandrewardsofownershipareretainedbythelessorareclassifiedasoperatingleases.Paymentsmadeunderoperatingleasesandsub-leasesarechargedtotheincomestatementonastraight-linebasisovertheperiodofthelease.Leaseincentivesarerecognisedasaliabilityandasubsequentreductionintherentalexpenseovertheleasetermonastraight-linebasis.

Premiumspaidonacquiringanewleasearespreadonastraight-linebasisovertheleaseterm.Suchpremiumsareclassifiedinthebalancesheetascurrentornon-currentleasepremiums,withthecurrentportionbeingtheelementwhichrelatestothefollowingperiod.

TheGroup’spolicyistoaccountforlandheldunderbothlongandshortleaseholdcontractsasoperatingleases,sinceithasnoexpectationthattitlewillpassonexpiryoftheleasecontracts.

Revenueisanalysedasfollows:

201852 weeks

£m

201753 weeks

£m

Goods 2,142 2,169Services 10 11

2,152 2,180

Revenuefromservicesincludesrentreceivablefromunlicensedpropertiesandleasedoperationsof£9m(2017£10m).

Operatingcostsareanalysedasfollows:

201852 weeks

£m

201753 weeks

£m

Rawmaterialsandconsumablesrecognisedasanexpensea 564 573Changesininventoryoffinishedgoodsandworkinprogress (1) 1Employeecosts 676 682Hireofplantandmachinery 23 24Propertyoperatingleasecosts 63 62Othercosts 405 409Operatingcostsbeforedepreciation,amortisationandmovementsinthevaluationofthepropertyportfolio 1,730 1,751Otheradjusteditems(note2.2) 6 35

1,736 1,786Netprofitarisingonpropertydisposals (1) (1)Depreciationofproperty,plantandequipment(note3.1) 116 113Amortisationofintangibleassets(note3.4) 3 2Netmovementinthevaluationofthepropertyportfolio(note3.1) 43 72Depreciation,amortisationandmovementsinthevaluationofthepropertyportfolio 162 187Total operating costs 1,897 1,972

a. Supplierincentivesareincludedasareductiontotherawmaterialsandconsumablesexpense.Thesearenotdisclosedseparatelyasthevalueisimmaterial.


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2.3 Revenue and operating costs continued

Employee costs2018

52 weeks£m

201753 weeks

£m

Wagesandsalaries 620 625Share-basedpayments(note4.6) 3 2Totalwagesandsalaries 623 627Socialsecuritycosts 45 48Pensions(note4.5) 8 7Totalemployeecosts 676 682

Theaveragenumberofemployeesincludingpart-timeemployeeswas43,777retailemployees(201744,893)and1,025supportemployees(2017998).

Informationregardingkeymanagementpersonnelisincludedinnote5.1.DetailedinformationregardingDirectors’emoluments,pensions,long-termincentiveschemeentitlementsandtheirinterestsinshareoptionsisgivenintheReportonDirectors’remunerationonpages68to91.

Operating leasesOperating lease commitments – Group as lesseeThevastmajorityoftheGroup’sleasesareindustrystandardUKpuborcommercialpropertyleaseswhichprovideforperiodicrentreviewstoopenmarketvalueandenjoystatutoryrightstorenewalonexpiry.Generallytheydonotcontainconditionsrelatingtorentescalation,rightstopurchase,concessions,residualvaluesorothermaterialprovisionsofanunusualnature.

Totalfutureminimumleaserentalpaymentsundernon-cancellableoperatingleasesareasfollows:

2018£m

2017£m

Duewithinoneyear 55 54Betweenoneandfiveyears 196 199Afterfiveyears 419 440

670 693

Operating lease receivables – Group as lessorTheGroupleasesasmallproportionofitsunlicensedpropertiestotenants.Themajorityofleaseagreementshavetermsof50yearsorlessandareclassifiedasoperatingleases.Wheresubletarrangementsareinplace,futureminimumleasepaymentsandreceiptsarepresentedgross.

Totalfutureminimumleaserentalreceiptsundernon-cancellableoperatingleasesareasfollows:

2018£m

2017£m

Duewithinoneyear 8 8Betweenoneandfiveyears 26 27Afterfiveyears 45 45

79 80

Auditor remuneration2018

52 weeks£m

201753 weeks

£m

FeespayabletotheGroup’sauditorforthe: –auditoftheconsolidatedGroupfinancialstatements 0.1 0.1 –auditoftheCompany’ssubsidiariesfinancialstatements 0.3 0.3Totalauditfees 0.4 0.4Otherfeestoauditor: –auditrelatedassuranceservices 0.1 0.1Totalnon-auditfees 0.1 0.1

Auditor’sremunerationof£0.3m(2017£0.3m)waspaidintheUKand£0.1m(2017£0.1m)waspaidinGermany.


2.4 Taxation

Accounting policiesCurrent taxTheincometaxexpenserepresentsboththeincometaxpayable,basedonprofitsfortheperiod,anddeferredtaxandiscalculatedusingtaxratesenactedorsubstantivelyenactedatthebalancesheetdate.Taxableprofitdiffersfromnetprofitasreportedintheincomestatementbecauseitexcludesitemsofincomeorexpensewhicharenottaxable.Incometaxisrecognisedintheincomestatementexceptwhenitrelatestoitemsthatarechargedorcreditedinothercomprehensiveincomeordirectlyinequity,inwhichcasetheincometaxisalsochargedorcreditedinothercomprehensiveincomeordirectlyinequity.

Deferred taxDeferredtaxisthetaxexpectedtobepayableorrecoverableondifferencesbetweenthecarryingamountofassetsandliabilitiesinthefinancialstatementsandthecorrespondingtaxbasesusedinthecomputationoftaxableprofitsandisaccountedforusingthebalancesheetliabilitymethod.Deferredtaxliabilitiesaregenerallyrecognisedforalltaxabletemporarydifferencesanddeferredtaxassetsarerecognisedtotheextentthatitisprobablethattaxableprofitswillbeavailableagainstwhichdeductibletemporarydifferencescanbeutilised.

Deferredtaxliabilitiesarerecognisedfortaxabletemporarydifferencesarisingoninvestmentsinsubsidiariesandassociates,exceptwheretheGroupisabletocontrolthereversalofthetemporarydifferenceanditisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.Deferredtaxassetsarisingfromdeductibletemporarydifferencesassociatewithsuchinvestmentsandinterestsareonlyrecognisedtotheextentthatitisprobablethattherewillbesufficienttaxableprofitsagainstwhichtoutilisethebenefitsofthetemporarydifferencesandtheyareexpectedtoreverseintheforeseeablefuture.

Thecarryingamountofdeferredtaxassetsisreviewedateachbalancesheetdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitswillbeavailabletoallowallorpartoftheassettoberecovered.

Deferredtaxiscalculatedatthetaxratesthatareexpectedtoapplyintheperiodwhentheliabilityissettledortheassetrealisedbasedontaxlawsandratesthathavebeensubstantivelyenactedatthebalancesheetdate.Theamountofdeferredtaxrecognisedisbasedontheexpectedmannerofrealisationorsettlementofthecarryingamountofassetsandliabilities.

Taxation – income statement2018

52 weeks£m

201753 weeks

£m

Currenttax: –UKcorporationtax (28) (20) –Amountsoverprovidedinpriorperiods 2 3Totalcurrenttaxcharge (26) (17)Deferredtax: –Originationandreversaloftemporarydifferences – 7 –Adjustmentsinrespectofpriorperiods – (4)Totaldeferredtaxcredit – 3Totaltaxchargedintheincomestatement (26) (14)Furtheranalysedastaxrelatingto:Profitbeforeadjusteditems (33) (37)Adjusteditems 7 23

(26) (14)

Thestandardrateofcorporationtaxappliedtothereportedprofitis19.0%(201719.5%).TheapplicableratehaschangedfollowingthesubstantiveenactmentoftheFinance(No.2)Act2015on18November2015,whichreducedthemainrateofcorporationtaxfrom20%to19%from1April2017.

Thetaxchargeintheincomestatementfortheperiodishigher(2017lower)thanthestandardrateofcorporationtaxintheUK.Thedifferencesarereconciledbelow:

201852 weeks

£m

201753 weeks

£m

Profitbeforetax 130 77TaxationchargeattheUKstandardrateofcorporationtaxof19.0%(201719.5%) (25) (15)Expensesnotdeductible (4) (4)Incomenottaxable 2 9Adjustmentsinrespectofpriorperiods 2 (1)Effectofdifferenttaxratesofsubsidiariesoperatinginotherjurisdictions (1) (1)Effectofdifferentratesfordeferredtaxandcorporationtax – (2)Totaltaxchargeintheincomestatement (26) (14)

Taxationforotherjurisdictionsiscalculatedattheratesprevailinginthosejurisdictions.


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2.4 Taxation continued

201852 weeks

£m

201753 weeks

£m

Deferred tax in the income statement:Acceleratedcapitalallowances 1 5Retirementbenefitobligations (6) (6)Rolledoverandheldovergains – 4Depreciatednon-qualifyingassets 1 1Unrealisedgainsonrevaluations 5 7Taxlosses–UK (2) (6)Taxlosses–overseas 1 (2)Totaldeferredtaxcreditintheincomestatement – 3

Taxation – other comprehensive income2018

52 weeks£m

201753 weeks

£m

Deferredtax:Itemsthatwillnotbereclassifiedsubsequentlytoprofitorloss: –Unrealisedlosses/(gains)duetorevaluations–revaluationreserve 1 (13) –Unrealisedgainsduetorevaluations–retainedearnings – 1 –Remeasurementofpensionliability (1) (1)

– (13)Itemsthatmaybereclassifiedsubsequentlytoprofitorloss: –Cashflowhedges: –Gainsarisingduringtheperiod (3) (10) –Reclassificationadjustmentsforitemsincludedinprofitorloss (5) (9)

(8) (19)Totaltaxchargerecognisedinothercomprehensiveincome (8) (32)

Tax relating to items recognised directly in equity2018

52 weeks£m

201753 weeks

£m

Deferredtax: –Taxcreditrelatedtoshare-basedpayments – 1

Taxation – balance sheet Thedeferredtaxassetsandliabilitiesrecognisedinthebalancesheetareshownbelow:

2018£m

2017£m

Deferred tax asset:Retirementbenefitobligations(note4.5) 43 50Derivativefinancialinstruments 42 50Taxlosses–UK 6 8Taxlosses–overseas 1 –Share-basedpayments 2 2Totaldeferredtaxasset 94 110Deferred tax liability:Acceleratedcapitalallowances (31) (32)Rolledoverandheldovergains (112) (112)Unrealisedgainsonrevaluations (170) (176)Depreciatednon-qualifyingassets (3) (4)Totaldeferredtaxliability (316) (324)Total (222) (214)


Deferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttooffsetincometaxassetsandincometaxliabilitiesandwhenitistheintentiontosettlethebalancesonanetbasis.Deferredtaxassetsandliabilitieshavebeenoffsetanddisclosedinthebalancesheetasfollows:

2018£m

2017£m

Deferredtaxasset 63 110Deferredtaxliability (285) (324)Netdeferredtaxliability (222) (214)

Unrecognised tax allowancesAtthebalancesheetdatetheGrouphadunusedtaxallowancesof£87minrespectofunclaimedcapitalallowances(2017£80m)availableforoffsetagainstfutureprofits.

Adeferredtaxassethasnotbeenrecognisedontaxallowanceswithavalueof£15m(2017£14m)becauseitisnotcertainthatfuturetaxableprofitswillbeavailableinthecompanywherethesetaxallowancesaroseagainstwhichtheGroupcanutilisethesebenefits.Thesetaxcreditscanbecarriedforwardindefinitely.

Factors which may affect future tax chargesTheFinanceAct2016wassubstantivelyenactedon15September2016andreducedthemainrateofcorporationtaxfrom19%to17%from1April2020.Theeffectofthesechangeshasbeenreflectedintheclosingdeferredtaxbalancesat30September2017and29September2018.

2.5 Earnings per share

Basicearningspershare(EPS)hasbeencalculatedbydividingtheprofitorlossfortheperiodbytheweightedaveragenumberofordinarysharesinissueduringtheperiod,excludingownsharesheldbyemployeesharetrusts.

Fordilutedearningspershare,theweightedaveragenumberofordinarysharesisadjustedtoassumeconversionofalldilutivepotentialordinaryshares.

Adjustedearningsperordinaryshareamountsarepresentedbeforeadjusteditems(seenote2.2)inordertoallowabetterunderstandingoftheadjustedtradingperformanceoftheGroup.

Profit£m

BasicEPS

pence perordinary

share

DilutedEPS

pence perordinary

share

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

53 weeks ended 30 September 2017:Profit/EPS 63 15.1p 15.0pAdjusteditems,netoftax 83 19.8p 19.8pAdjustedprofit/EPSa 146 34.9p 34.8p

a. AdjustedprofitandadjustedEPSarealternativeperformancemeasures(APMs)andareconsideredcriticaltoaidunderstandingoftheGroup’sperformance.Thesemeasuresareexplainedonpages148to150ofthisreport.

Theweightedaveragenumberofordinarysharesusedinthecalculationsaboveareasfollows:

201852 weeks

m

201753 weeks

m

ForbasicEPScalculations 425 418Effectofdilutivepotentialordinaryshares: –Contingentlyissuableshares 2 1FordilutedEPScalculations 427 419

At29September2018,2,746,844(20173,124,559)othershareoptionswereoutstandingthatcouldpotentiallydilutebasicEPSinthefuturebutwerenotincludedinthecalculationofdilutedEPSastheyareanti-dilutivefortheperiodspresented.


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Notes to the financial statements Section3–Operatingassetsandliabilities

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 3to7years

Fixturesandfittings 3to20years

Atthepointoftransfertonon-currentassetsheldforsale,depreciationceases.Shouldanassetbesubsequentlyreclassifiedtoproperty,plantandequipment,thedepreciationchargeiscalculatedtoreflectthecumulativechargehadtheassetnotbeenreclassified.

DisposalsProfitsandlossesondisposalofproperty,plantandequipmentarecalculatedasthedifferencebetweenthenetsalesproceedsandthecarryingamountoftheassetatthedateofdisposal.

RevaluationTherevaluationutilisesvaluationmultiples,whicharedeterminedviathird-partyinspectionof20%ofthesitessuchthatallsitesareindividuallyvaluedapproximatelyeveryfiveyears;estimatesoffairmaintainabletrade(FMT);andestimatedresalevalueoftenant’sfixturesandfittings.Propertiesarevaluedasfullyoperationalentities,toincludefixturesandfittingsbutexcludingstockandpersonalgoodwill.Thevalueoftenant’sfixturesandfittingsisthenremovedfromthisvaluationviareferencetoitsassociatedresalevalue.Wheresiteshavebeenimpactedbyexpansionarycapitalinvestmentintheprecedingtwelvemonths,FMTistakenasthelowerofthepostinvestmentforecastortheprioryearFMT,asthecurrentyeartradingperformanceincludesaperiodofclosure.

Valuationmultiplesderivedviathird-partyinspectionsdeterminebrandstandardmultipleswhicharethenusedtovaluetheremainderofthenon-inspectedestateviaanextrapolationexercise,withtheoutputofthisexercisereviewedatahighlevelbytheDirectorsandthethird-partyvaluer.

Wherethevalueoflandandbuildingsderivedpurelyfromamultipleappliedtothefairmaintainabletrademisrepresentstheunderlyingassetvalue,forexample,duetolowlevelsofincomeorlocationcharacteristics,aspotvaluationisapplied.

Surpluseswhicharisefromtherevaluationexerciseareincludedwithinothercomprehensiveincome(intherevaluationreserve)unlesstheyarereversingarevaluationadjustmentwhichhasbeenrecognisedintheincomestatementpreviously;inwhichcaseanamountequaltoamaximumofthatrecognisedintheincomestatementpreviouslyisrecognisedinincome.Wheretherevaluationexercisegivesrisetoadeficit,thisisreflecteddirectlywithintheincomestatement,unlessitisreversingapreviousrevaluationsurplusagainstthesameasset;inwhichcaseanamountequaltothemaximumoftherevaluationsurplusisrecognisedwithinothercomprehensiveincome(intherevaluationreserve).

ImpairmentShortleaseholdandunlicensedpropertiesarereviewedonanoutletbasisforimpairmentifeventsorchangesincircumstancesindicatethatthecarryingamountmaynotberecoverable.Animpairmentlossisrecognisedwheneverthecarryingamountofanoutletexceedsitsrecoverableamount.Therecoverableamountisthehigherofanoutlet’sfairvaluelesscoststosellandvalueinuse.Anychangesinoutletearnings,orcashflows,thediscountrateappliedtothosecashflows,ortheestimateofsalesproceedscouldgiverisetoanadditionalimpairmentloss.

Whereanimpairmentlosssubsequentlyreverses,thecarryingamountoftheassetisincreasedtotherevisedestimateofitsrecoverableamount,butonlysothattheincreasedcarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendeterminedhadnoimpairmentlossbeenrecognisedfortheassetinpriorperiods.Areversalofanimpairmentlossisrecognisedasincomeimmediately.Animpairmentreversalisonlyrecognisedwherethereisachangeintheestimatesusedtodeterminerecoverableamounts,notwhereitresultsfromthepassageoftime.


Critical accounting judgementsTherevaluationmethodologyisdeterminedusingmanagementjudgement,withadvicefromthird-partyvaluers.TheapplicationofavaluationmultipletothefairmaintainabletradeofeachsiteisconsideredthemostappropriatemethodfortheGrouptodeterminethefairvalueoflicensedlandandbuildings.Wheresiteshavebeenimpactedbyexpansionarycapitalinvestmentintheprecedingtwelvemonths,managementjudgementisusedtodeterminethemostappropriateFMT.TheFMTistakenasthelowerofthepostinvestmentforecastortheprioryearFMT,asthecurrentyeartradingperformanceincludesaperiodofclosure.

Critical accounting estimatesTheapplicationofthevaluationmethodologyrequirestwocriticalaccountingestimates;theestimationofvaluationmultiples,whicharedeterminedviathird-partyinspections;andanestimateoffairmaintainabletrade,includingreferencetohistoricandfutureprojectedincomelevels.AsensitivityanalysisofchangesinvaluationmultiplesandFMT,inrelationtothepropertiestowhichtheseestimatesapply,isprovidedonpage118.Thecarryingvalueofpropertiestowhichtheseestimatesapplyis£4,230m(2017£4,230m).

Whenareviewforimpairmentisconductedforshortleaseholdproperties,therecoverableamountisdeterminedbasedonvalueinusecalculations.Thevalueinusecalculationrequirestwocriticalaccountingestimates;theestimationoffuturecashflows,includingreferencetohistoricalandfutureprojectedincomelevels;andtheselectionofanappropriaterisk-adjusteddiscountrate.Asensitivityanalysisofchangesinfuturecashflowsanddiscountrate,inrelationtothepropertiestowhichtheseestimatesapply,isprovidedonpage118.Thecarryingvalueofpropertiestowhichtheseestimatesapplyis£156m(2017£170m).

Property, plant and equipmentProperty,plantandequipmentcanbeanalysedasfollows:

Land and buildings

£m

Fixtures, fittings and equipment

£mTotal

£m

Cost or valuationAt24September2016 3,934 1,107 5,041Additions 43 120 163Disposalsa (7) (73) (80)Transferstoassetsheldforsale (30) (25) (55)Revaluation/(impairment) 13 (11) 2At30September2017 3,953 1,118 5,071Additions 39 125 164Disposalsa (12) (123) (135)Revaluation/(impairment) (41) (7) (48)At 29 September 2018 3,939 1,113 5,052

Accumulated depreciationAt24September2016 77 541 618Providedduringtheperiod 6 107 113Disposalsa (5) (72) (77)Transferstoassetsheldforsale – (12) (12)At30September2017 78 564 642Providedduringtheperiod 6 110 116Disposalsa (10) (122) (132)At 29 September 2018 74 552 626

Net book valueAt 29 September 2018 3,865 561 4,426 At30September2017 3,875 554 4,429At24September2016 3,857 566 4,423

a. Includesassetswhicharefullydepreciatedandhavebeenremovedfromthefixedassetregister.

Certainassetswithanetbookvalueof£43m(2017£44m)ownedbytheGrouparesubjecttoafixedchargeinrespectofliabilitiesheldbytheMitchells&ButlersExecutiveTop-UpScheme(MABETUS).

Includedwithinproperty,plantandequipmentareassetswithanetbookvalueof£3,788m(2017£3,808m),whicharepledgedassecurityforthesecuritisationdebtandoverwhichtherearecertainrestrictionsontitle.

Costat29September2018includes£18m(2017£10m)ofassetsinthecourseofconstruction.


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Notes to the financial statements Section3–Operatingassetsandliabilitiescontinued

3.1 Property, plant and equipment continued

Revaluation of freehold and long leasehold propertiesThefreeholdandlongleaseholdpropertieshavebeenvaluedatfairvalue,asat29September2018usinginformationprovidedbyCBRE,independentcharteredsurveyors.ThevaluationwascarriedoutinaccordancewiththeRICSValuation–GlobalStandards2017whichincorporatetheInternationalValuationStandardsandtheRICSValuation–ProfessionalStandardsUKJanuary2014(revisedApril2015)(the‘RedBook’)assumingeachassetissoldasafullyoperationaltradingentity.Thefairvaluehasbeendeterminedhavingregardtofactorssuchascurrentandfutureprojectedincomelevels,takingaccountoflocation,qualityofthepubrestaurantandrecentmarkettransactionsinthesector.

Sensitivity analysisChangesineithertheFMTorthemultiplecouldmateriallyimpactthevaluationofthefreeholdandlongleaseholdproperties.TheaveragemovementinFMTofrevaluedpropertiesinrecentyearsis1.0%.Itisestimatedthat,giventhemultipliereffect,a1.0%changeintheFMTofthefreeholdorlongleaseholdpropertieswouldgenerateanapproximate£37mmovementintheirvaluation.

Multiplesaredeterminedatanindividualbrandlevel.Theaveragemovementinweightedaverageofallbrandmultiplesinrecentyearsis0.1.Itisestimatedthata0.1changeinthemultiplewouldgenerateanapproximate£42mmovementinvaluation.

Impairment review of short leasehold and unlicensed propertiesShortleaseholdandunlicensedproperties(comprisinglandandbuildingsandfixtures,fittingsandequipment)whicharenotrevaluedtofairmarketvalue,arereviewedforimpairmentbycomparingsitevalueinusecalculationstotheircarryingvalues.Thevalueinusecalculationusesforecasttradingperformancecashflows,whicharediscountedbyapplyingapre-taxdiscountrateof7.5%(20177.0%).Anyresultingimpairmentrelatestositeswithpoortradingperformance,wheretheoutputofthevalueinusecalculationisinsufficienttojustifytheircurrentnetbookvalue.

Sensitivity analysisTheGrouphasperformedasensitivityanalysisontheimpairmenttestsforitsshortleaseholdpropertiesusingvariousreasonablypossiblescenarios.Itisestimatedthata5.0%declineintheEBITDAoftheshortleaseholdpropertieswouldgenerateanapproximate£1mincreaseintheimpairmentcharge.

Itisalsoestimatedthat0.5%increaseinthediscountratewouldnotresultinasignificantincreasetotheimpairmentcharge.Themovementof0.5%isconsideredreasonable,giventhatthediscountratehasincreasedby0.5%inthecurrentperiod.

Currentyearvaluationshavebeenincorporatedintothefinancialstatementsandtheresultingrevaluationadjustmentshavebeentakentotherevaluationreserveorincomestatementasappropriate.Theimpactoftherevaluations/impairmentsdescribedaboveisasfollows:

201852 weeks

£m

201753 weeks

£m

Income statementRevaluationlosschargedasanimpairment (89) (109)Reversalofpastimpairments 61 58Totalimpairmentarisingfromtherevaluation (28) (51)Impairmentofshortleaseholdandunlicensedproperties (15) (17)Impairmentofassetsheldforsale – (4)

(43) (72)Revaluation reserveUnrealisedrevaluationsurplus 171 210Reversalofpastrevaluationsurplus (176) (136)

(5) 74Net (decrease)/increase in property, plant and equipment (48) 2

ThevaluationtechniquesareconsistentwiththeprinciplesinIFRS13andusesignificantunobservableinputssuchthatthefairvaluemeasurementofeachpropertywithintheportfoliohasbeenclassifiedasLevel3inthefairvaluehierarchy.

Thekeyinputstovaluationonproperty,plantandequipmentareasfollows:

29 September 2018Number of pubs

Land and buildings

£m


£m

Net book valuea

£m

Freeholdproperties 1,336 3,507 428 3,935 Longleaseholdproperties 95 259 36 295 Totalrevaluedproperties 1,431 3,766 464 4,230 Shortleaseholdproperties 77 79 156 Unlicensedproperties 14 2 16 Othernon-pubassets 3 3 6 Assetsunderconstruction 5 13 18 Totalproperty,plantandequipment 3,865 561 4,426


30 September 2017Number of pubs

Land and buildings

£m


£m

Net book valuea

£m

Freeholdproperties 1,339 3,512 426 3,938Longleaseholdproperties 95 256 36 292Totalrevaluedproperties 1,434 3,768 462 4,230Shortleaseholdproperties 86 84 170Unlicensedproperties 14 2 16Othernon-pubassets 1 2 3Assetsunderconstruction 6 4 10Totalproperty,plantandequipment 3,875 554 4,429

a. Thecarryingvalueoffreeholdandlongleaseholdpropertiesbasedontheirhistoricalcost(ordeemedcostattransitiontoIFRS)is£2,635mand£186mrespectively(2017£2,625mand£188m).

Thetablesbelowshow,byclassofasset,thenumberofpropertiesthathavebeenvaluedwithineachFMTandmultiplebanding:

Valuation multiple applied to FMT

29 September 2018Over 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

Valuation multiple applied to FMT

30 September 2017Over 12

times10 to 12

times8 to 10

times6 to 8 times

Under 6 times Total

NumberofpubsineachFMTincomebanding:<£200kpa 46 11 153 190 12 412£200kto£360kpa – 11 315 141 13 480>£360kpa 2 52 406 59 23 542

48 74 874 390 48 1,434

Year-on-yearmovementsinvaluationmultiplesaretheresultofchangesinpropertymarketconditions.Theaverageweightedmultipleis8.6(20178.5).

Inadditiontotheabove,premiumspaidonacquiringanewleaseareclassifiedseparatelyinthebalancesheet.At29September2018anamountof£1m(2017£1m)wasincludedinthebalancesheet.

Assets held for sale2018

£m2017

£m

Properties – 1

InaccordancewithIFRS5,propertiescategorisedasheldforsaleareheldatthelowerofbookvalueandfairvaluelesscoststosell.

During2017,£43mofpropertieswereclassifiedasheldforsale.Animpairmentof£4mwasrecognisedpriortoreclassification.Subsequently,£42mofpropertiesweresold,leaving£1mremainingasheldforsaleatthebalancesheetdate.

During2018,theremaining£1mofpropertiesweresold.

Capital commitments2018

£m2017

£m

Contractsplacedforexpenditureonproperty,plantandequipmentnotprovidedforinthefinancialstatements 24 23


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3.2 Working capital

Inventories

Accounting policyInventoriesarestatedatthelowerofcostandnetrealisablevalue.Costiscalculatedusingtheweightedaveragemethod.

Inventoriescanbeanalysedasfollows:

2018£m

2017£m

Goodsheldforresale 26 24

Trade and other receivables

Accounting policyTradeandotherreceivablesarerecognisedandcarriedatoriginalcostlessanallowanceforanyuncollectableamounts.

Tradeandotherreceivablescanbeanalysedasfollows:

2018£m

2017£m

Tradereceivables 7 5Otherreceivables 14 15Prepayments 35 33Totaltradeandotherreceivables 56 53

Allamountsfallduewithinoneyear.

Tradeandotherreceivablesarenon-interestbearingandareclassifiedasloansandreceivablesandarethereforeheldatamortisedcost.Tradeandotherreceivablespastdueandnotimpairedareimmaterialandthereforenofurtheranalysisispresented.TheDirectorsconsiderthatthecarryingamountoftradeandotherreceivablesapproximatelyequatestotheirfairvalue.

Creditriskisconsideredinnote4.4.

Trade and other payables

Accounting policyTradeandotherpayablesarerecognisedatamortisedcost.

Tradeandotherpayablescanbeanalysedasfollows:

2018£m

2017£m

Tradepayables 83 80Othertaxationandsocialsecurity 64 70Accruedcharges 103 102Otherpayables 52 45Totaltradeandotherpayables 302 297

Currenttradeandotherpayablesarenon-interestbearing.TheDirectorsconsiderthatthecarryingamountoftradeandotherpayablesapproximatelyequatestotheirfairvalue.


3.3 Provisions

Accounting policyProvisionsarerecognisedwhentheGrouphasapresentlegalorconstructiveobligationasaresultofpastevents;itismorelikelythannotthatanoutflowofresourceswillberequiredtosettletheobligation;andtheamountcanbereliablyestimated.ProvisionsaremeasuredusingtheDirectors’bestestimateoftheexpenditurerequiredtosettletheobligationatthebalancesheetdateandarediscountedtopresentvaluewheretheeffectismaterial.

Onerouspropertyprovisionsrepresenttheexpectedunavoidablelossesononerousandvacantpropertyleasesandcomprisethelowerofthenetrentpayableortheoperatinglossafterrentalcosts.Theprovisioniscalculatedonasitebysitebasiswithaprovisionbeingmadefortheremainingcommittedleaseterm,wherealeaseisconsideredtobeonerous.Othercontractualdilapidationscostsarealsorecordedasprovisionsasappropriate.

Critical accounting judgementsDeterminationofwhetheralossisunavoidablerequiresareasofjudgementsuchasconsiderationofpotentialfutureinvestmentdecisions,localconditionswhichmaybeimpactingoncurrentperformance.

Critical accounting estimatesInrelationtoonerouspropertyprovisions,estimatesarerequiredindeterminingthefutureEBITDAperformanceofeachsiteandthepotentialtoexitleasesearlierthantheexpirydate.Asensitivityanalysisofchangesintheseestimatesisprovidedbelow.Thevalueofprovisionstowhichtheseestimatesapplyis£43m(2017£42m).

ProvisionsTheprovisionforunavoidablelossesononerouspropertyleaseshasbeensetuptocoverrentalpaymentsofvacantorloss-makingproperties.Paymentsareexpectedtocontinueonthesepropertiesforperiodsof1to25years.

Provisionscanbeanalysedasfollows:

Property leases

£m

At24September2016 9Releasedintheperioda (1)Providedintheperiodb 36Unwindingofdiscount 1Utilisedintheperiod (3)At30September2017 42Releasedintheperioda (6)Providedintheperiodb 11Unwindingofdiscount 1Utilisedintheperiod (5)At 29 September 2018 43

a. Releasesinthepriorperiodprimarilyrelatedtopropertydisposals.Releasesinthecurrentperiodprimarilyrelatetoimprovementinperformanceofmanagedproperties.b. Duringthepriorperiod,afullreviewofestatestrategyinrelationtomanagedleaseholdpropertieswascompleted,withspecificfocusonthechallengesaroundloss-makingsitesand

thoselocatedonretailandleisureparks.Withlowerfootfallonmanyoftheseparksandthecontinueduncertaineconomicoutlook,alongsideincreasedcostpressuressuchaslivingwage,businessratesreview,apprenticeshiplevy,sugartaxandfoodpriceinflation,anumberofshortleaseholdsiteswereconsideredtobechallengedwhenstrivingtoachieveabreak-evenprofitperformance.Asaresult,thelosseswereconsideredunavoidablefortheremainingcommittedleasetermformanagedproperties.Inaddition,thediscountrateappliedinthecalculationwasupdated.Asaresultofthesechanges,a£35mincreaseintheprovisionwasincludedasaseparatelydiscloseditem(seenote2.2).Theremainingincreaseof£1mwasrecognisedwithinadjustedprofit,asthisrepresentedunavoidablelossesonunlicensedproperties.

Sensitivity analysisTheGrouphasperformedasensitivityanalysisontheonerousleaseprovisioncalculationusingvariousreasonablypossiblescenarios.Itisestimatedthata5%declineinthefutureEBITDAperformanceofthesitesincludedintheprovisionwouldgenerateanadditionalprovisionof£1m.Itisalsoestimatedthat,shouldallleaseswithmorethan10yearsremainingonthecommittedleasetermbeexitedtwoyearsaheadofexpiry,theprovisionwouldreduceby£1m.


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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,theimpairmentlossisallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtotheunitandthentotheotherassetsoftheunitprorataonthebasisofthecarryingamountofeachassetintheunit.Animpairmentlossisrecognisedimmediatelyintheincomestatementandisnotsubsequentlyreversed.

Ondisposalofasubsidiary,theattributableamountofgoodwillisincludedinthedeterminationoftheprofitorlossondisposal.

Computer softwareComputersoftwareandassociateddevelopmentcosts,whicharenotanintegralpartofarelateditemofhardware,arecapitalisedasanintangibleassetandamortisedonastraight-linebasisovertheirusefullife.Theperiodofamortisationrangesbetweenthreeandsevenyearswiththemajoritybeingfiveyears.


Intangible assetsIntangibleassetscanbeanalysedasfollows:

Goodwill£m

Computer software

£mTotal

£m

CostAt24September2016 7 11 18Additions – 3 3At30September2017 7 14 21Additions – 4 4Disposals – (2) (2)At 29 September 2018 7 16 23

Accumulated amortisation and impairmentAt24September2016 5 4 9Providedduringtheperiod – 2 2At30September2017 5 6 11Providedduringtheperiod – 3 3Disposals – (2) (2)At 29 September 2018 5 7 12

Net book valueAt 29 September 2018 2 9 11 At30September2017 2 8 10At24September2016 2 7 9

Therearenointangibleassetswithindefiniteusefullives.Allamortisationchargeshavebeenexpensedthroughoperatingcosts.

Goodwillhasbeentestedforimpairmentonasite-by-sitebasisusingforecastcashflows,discountedbyapplyingapre-taxdiscountrateof7.5%(20177.0%).Forthepurposesofthecalculationoftherecoverableamount,thecashflowprojectionsbeyondthetwoyearperiodinclude0.0%(20172.0%)growthperannum.


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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,theGroupmeasurestheretainedinterestatfairvalueatthatdateandthefairvalueisregardedasitsfairvalueoninitialrecognitioninaccordancewithIAS39.Thedifferencebetweenthecarryingamountoftheassociateatthedatetheequitymethodwasdiscontinued,andthefairvalueofanyretainedinterestandanyproceedsfromdisposingofapartinterestintheassociateisincludedinthedeterminationofthegainorlossondisposaloftheassociate.Inaddition,theGroupaccountsforallamountspreviouslyrecognisedinothercomprehensiveincomeinrelationtothatassociateonthesamebasisaswouldberequiredifthatassociatehaddirectlydisposedoftherelatedassetsorliabilities.Therefore,ifagainorlosspreviouslyrecognisedinothercomprehensiveincomebythatassociatewouldbereclassifiedtoprofitorlossonthedisposaloftherelatedassetsorliabilities,theGroupreclassifiesthegainorlossfromequitytoprofitorlosswhentheequitymethodisdiscontinued.

WhentheGroupreducesitsownershipinterestinanassociatebuttheGroupcontinuestousetheequitymethod,theGroupreclassifiestoprofitorlosstheproportionofthegainorlossthathadpreviouslybeenrecognisedinothercomprehensiveincomerelatingtothatreductioninownershipinterestifthatgainorlosswouldbereclassifiedtoprofitorlossonthedisposaloftherelatedassetsorliabilities.

WhenaGroupentitytransactswithanassociateoftheGroup,profitsandlossesresultingfromthetransactionswiththeassociatearerecognisedintheGroup’sconsolidatedfinancialstatementsonlytotheextentofinterestsintheassociatethatarenotrelatedtotheGroup.

ThenatureoftheactivitiesofalloftheGroup’sassociatesistradinginpubsandrestaurants,whichareseenascomplementingtheGroup’soperationsandcontributingtotheGroup’soverallstrategy.

Associatescanbeanalysedasfollows:

£m

At24September2016and30September2017 –Acquisitions* 5At 29 September 2018 5

* Acquisitionsintheperiodrelatetothesharespurchasedin3SixtyRestaurantsLimitedandFatboyPubCompanyLimited.Detailsoftheseassociatesareprovidedinnote5.2.

Duringtheperiod,aputandcalloptionagreementwasenteredinto,whichallowstheCompanytoacquiretheremaining60%sharecapitaloftheassociate,3SixtyRestaurantsLimited,atanypointintimeafterthreeyearsfromtheinitialpurchasedate.Theinitial40%investmentwaspurchasedon1August2018for£4m.Thecurrentshareholdersalsohavetheoptiontoselltheremaining60%totheCompany,subjecttoanumberofconditions.



Notes to the financial statements Section4–Capitalstructureandfinancingcosts

4.1 Net debt

Accounting policyCash and cash equivalentsCashandcashequivalentscomprisecashatbankandinhandandothershort-termhighlyliquiddepositswithanoriginalmaturityatacquisitionofthreemonthsorless.Cashheldondepositwithanoriginalmaturityatacquisitionofmorethanthreemonthsisdisclosedasothercashdeposits.Inthecashflowstatement,cashandcashequivalentsareshownnetofbankoverdraftsthatarerepayableondemand.

Net debt2018

£m2017

£m

Cashandbankbalances 122 147Cashandcashequivalents 122 147Othercashdeposits 120 120Securitiseddebt(note4.2) (1,830) (1,909)Liquidityfacility(note4.2) (147) (147)Revolvingcreditfacilities(note4.2) – (6)Derivativeshedgingsecuritiseddebta(note4.2) 47 45

(1,688) (1,750)

a. RepresentstheelementofthefairvalueofcurrencyswapshedgingthebalancesheetvalueoftheGroup’sUS$denominatedA3Nloannotes.Thisamountisdisclosedseparatelytoremovetheimpactofexchangemovementswhichareincludedinthesecuritiseddebtamount.

Movement in net debt2018

52 weeks£m

201753 weeks

£m

Net decrease in cash and cash equivalents (25) (11)Addbackcashflowsinrespectofothercomponentsofnetdebt:Repaymentofprincipalinrespectofsecuritiseddebt 82 77Netmovementonunsecuredrevolvingfacilities 6 25Decrease in net debt arising from cash flows 63 91Movementincapitaliseddebtissuecostsnetofaccruedinterest (1) (1)Decrease in net debt 62 90Openingnetdebt (1,750) (1,840)Closing net debt (1,688) (1,750)

Thenetdebtmovementforthe52weeksended29September2018isrepresentedby:

At 30 September

2017 £m

Cash flow movements

in the period £m

Non-cash movements

in the period £m

Fair value movements

£m

At 29 September

2018 £m

Cashandcashequivalents 147 (25) – – 122 Othercashdeposits 120 – – – 120 Securitiseddebt* (1,909) 82 (3) – (1,830)Liquidityfacility* (147) – – – (147)Revolvingcreditfacilities* (6) 6 – – – Derivativeshedgingsecuritiseddebt* 45 – – 2 47 Net debt (1,750) 63 (3) 2 (1,688)

* Liabilitiesarisingfromfinancingactivities.

Thenetdebtmovementforthe53weeksended30September2017isrepresentedby:

At 24 September

2016 £m

Cash flow movements

in the period £m

Non-cash movements

in the period £m

Fair value movements

£m

At 30 September

2017 £m

Cashandcashequivalents 158 (11) – – 147Othercashdeposits 120 – – – 120Securitiseddebt* (1,995) 77 9 – (1,909)Liquidityfacility* (147) – – – (147)Revolvingcreditfacilities* (31) 25 – – (6)Derivativeshedgingsecuritiseddebt* 55 – – (10) 45Net debt (1,840) 91 9 (10) (1,750)

* Liabilitiesarisingfromfinancingactivities.


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Notes to the financial statements Section4–Capitalstructureandfinancingcostscontinued

4.2 Borrowings

Accounting policy Borrowings,whichincludetheGroup’ssecuredloannotes,arestatedinitiallyatfairvalue(normallytheamountoftheproceeds)netofissuecosts.Thereaftertheyarestatedatamortisedcostusinganeffectiveinterestbasis.Financecosts,whicharethedifferencebetweenthenetproceedsandthetotalamountofpaymentstobemadeinrespectoftheinstruments,areallocatedoverthetermofthedebtusingtheeffectiveinterestmethod.Borrowingcostsarenotattributedtotheacquisitionorconstructionofassetsandthereforenocostsarecapitalisedwithinproperty,plantandequipment.

Borrowingscanbeanalysedasfollows:

2018£m

2017£m

CurrentSecuritiseddebta,b 86 82Liquidityfacility 147 147Unsecuredrevolvingcreditfacilities – 6Totalcurrent 233 235Non-current Securitiseddebta,b 1,744 1,827Totalborrowings 1,977 2,062

a. Furtherdetailsoftheassetspledgedassecurityagainstthesecuritiseddebtaregivenonpage117.b. Statednetofdeferredissuecosts.

2018£m

2017£m

Analysis by year of repaymentDuewithinoneyearorondemand 233 235Duebetweenoneandtwoyears 142 130Duebetweentwoandfiveyears 328 307Dueafterfiveyears 1,274 1,390Totalborrowings 1,977 2,062

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%

29 September2018

£m

30 September2017

£mExpected

WALa

A1N 200 Floating 2011to2028 6.21b 131 142 6yearsA2 550 Fixed–5.57% 2003to2028 6.01 240 258 6yearsA3N 250 Floating 2011to2028 6.29b 165c 177c 6yearsA4 170 Floating 2016to2028 5.97b 150 159 6yearsAB 325 Floating 2020to2032 6.28b 325 325 10yearsB1 350 Fixed–5.97% 2003to2023 6.12 102 119 3yearsB2 350 Fixed–6.01% 2015to2028 6.12 312 327 7yearsC1 200 Fixed–6.47% 2029to2030 6.56 200 200 11yearsC2 50 Floating 2033to2034 6.47b 50 50 15yearsD1 110 Floating 2034to2036 6.68b 110 110 17years

2,555 1,785 1,867

a. Expectedweightedaveragelife(WAL)assumesnoearlyredemptioninrespectofanyloannotes.b. Aftertheeffectofinterestrateswaps.c. A3NnotesareUS$noteswhichareshownastranslatedtosterlingatthehedgedswaprate.Valuesattheperiodendspotrateare£212m(2017£222m).Thereforetheexchangedifference

ontheA3Nnotesis£47m(2017£45m).


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%(20176.1%)aftertakingaccountofinterestratehedgingandthecostoftheprovisionofafinancialguaranteeprovidedbyAmbacinrespectoftheClassAandABnotes.

Thesecuritisationisgovernedbyvariouscovenants,warrantiesandeventsofdefault,manyofwhichapplytoMitchells&ButlersRetailLimited,theGroup’smainoperatingsubsidiary.Theseincludecovenantsregardingthemaintenanceanddisposalofsecuritisedpropertiesandrestrictionsonitsabilitytomovecash,bywayofdividendsforexample,tootherGroupcompanies.At29September2018,Mitchells&ButlersRetailLimitedhadcashandcashequivalentsof£54m(2017£97m).Ofthisamount£1m(2017£1m),representingdisposalproceeds,washeldondepositinanaccountoverwhichthereareanumberofrestrictions.Theuseofthiscashrequirestheapprovalofthesecuritisationtrusteeandmayonlybeusedforcertainspecifiedpurposessuchascapitalenhancementexpenditureandbusinessacquisitions.

ThecarryingvalueofthesecuritiseddebtintheGroupbalancesheetisanalysedasfollows:

2018£m

2017£m

Principaloutstandingatbeginningofperiod 1,911 1,998Principalrepaidduringtheperiod (82) (77)Exchangeontranslationofdollarloannotes 3 (10)Principaloutstandingatendofperiod 1,832 1,911Deferredissuecosts (5) (6)Accruedinterest 3 4Carryingvalueatendofperiod 1,830 1,909

Liquidity facilityUnderthetermsofthesecuritisation,theGroupholdsaliquidityfacilityof£295mprovidedbytwocounterparties.Asaresultofthedecreaseincreditratingofoneofthecounterparties,theGroupwasobligedtodrawthatcounterparty’sportionofthefacilityduringthe52weeksended27September2014.Theamountdrawnat29September2018is£147m(2017£147m).ThesefundsarechargedunderthetermsofthesecuritisationandarenotavailableforuseinthewiderGroup.

Thefacility,whichisnotavailableforanyotherpurpose,issizedtocover18months’debtservice.

Unsecured revolving credit facilitiesTheGroupholdsthreeunsecuredcommittedrevolvingcreditfacilitiesof£50meach,anduncommittedrevolvingcreditfacilitiesof£15m,availableforgeneralcorporatepurposes.Theamountdrawnat29September2018is£nil(2017£6m).Allcommittedfacilitiesexpireon31December2020.

4.3 Finance costs and revenue

201852 weeks

£m

201753 weeks

£m

Finance costsInterestonsecuritiseddebt (114) (120)Interestonotherborrowings (4) (4)Unwindingofdiscountonprovisions(note3.3) (1) (1)Totalfinancecosts (119) (125)Finance revenueInterestreceivable–cash 1 1Net pensions finance charge (note 4.5) (7) (7)


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4.4 Financial instruments

Accounting policiesFinancialassetsandfinancialliabilitiesarerecognisedintheGroup’sbalancesheetwhentheGroupbecomesapartytothecontractualprovisionsoftheinstrument.

Financial assetsAllfinancialassetsarerecognisedorderecognisedonatradedatewherethepurchaseorsaleofafinancialassetisunderacontractwhosetermsrequiredeliveryofthefinancialassetwithinthetimeframeestablishedbythemarketconcerned.Financialassetsareinitiallymeasuredatfairvalue,plustransactioncosts,exceptforthosefinancialassetsclassifiedasatfairvaluethroughprofitorloss,whichareinitiallymeasuredatfairvalue.

Financialassetsareclassifiedintothefollowingspecifiedcategories:financialassets‘atfairvaluethroughprofitorloss’(FVTPL);derivativeinstrumentsindesignatedhedgeaccountingrelationships;‘held-to-maturity’investments;‘available-for-sale’(AFS)financialassets;and‘loansandreceivables’.Theclassificationdependsonthenatureandpurposeofthefinancialassetsandisdeterminedatthetimeofinitialrecognition.

Impairment of financial assetsFinancialassets,otherthanthoseatFVTPL,areassessedforindicatorsofimpairmentateachbalancesheetdate.Financialassetsareimpairedwherethereisobjectiveevidencethat,asaresultofoneormoreeventsthatoccurredaftertheinitialrecognitionofthefinancialasset,theestimatedfuturecashflowsoftheinstrumenthavebeenaffected.

Forcertaincategoriesoffinancialassets,suchastradereceivables,assetsthatareassessednottobeimpairedindividuallyare,inaddition,assessedforimpairmentonacollectivebasis.ObjectiveevidenceofimpairmentforaportfolioofreceivablescouldincludetheGroup’spastexperienceofcollectingpayments,anincreaseinthenumberofdelayedpaymentsintheportfoliopasttheagreedcreditperiod,aswellasobservablechangesinnationalorlocaleconomicconditionsthatcorrelatewithdefaultonreceivables.

Forfinancialassetscarriedatamortisedcost,theamountoftheimpairmentisthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows,discountedatthefinancialasset’soriginaleffectiveinterestrate.

Thecarryingamountofthefinancialassetisreducedbytheimpairmentlossdirectlyforallfinancialassetswiththeexceptionoftradereceivables,wherethecarryingamountisreducedthroughtheuseofanallowanceaccount.Whenatradereceivableisconsidereduncollectable,itiswrittenoffagainsttheallowanceaccount.Subsequentrecoveriesofamountspreviouslywrittenoffarecreditedagainsttheallowanceaccount.Changesinthecarryingamountoftheallowanceaccountarerecognisedinprofitorloss.

If,inasubsequentperiod,theamountoftheimpairmentlossdecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringaftertheimpairmentwasrecognised,thepreviouslyrecognisedimpairmentlossisreversedthroughprofitorlosstotheextentthatthecarryingamountoftheinvestmentatthedatetheimpairmentisreverseddoesnotexceedwhattheamortisedcostwouldhavebeenhadtheimpairmentnotbeenrecognised.

Financial liabilitiesFinancialliabilitiesareclassifiedaseither‘borrowingsatamortisedcost’or‘otherfinancialliabilities’.

Theborrowingsaccountingpolicyisprovidedinnote4.2.Otherfinancialliabilitiesareinitiallymeasuredatfairvalue,netoftransactioncosts.

Derecognition of financial assets and liabilitiesTheGroupderecognisesafinancialassetonlywhenthecontractualrightstothecashflowsfromtheassetexpire,orwhenittransfersthefinancialassetandsubstantiallyalltherisksandrewardsofownershipoftheassettoanotherentity.IftheGroupdoesnotretainsubstantiallyalltherisksandrewardsofownershipbutcontinuestocontrolatransferredasset,theGrouprecognisesitsretainedinterestintheassetandanassociatedliabilityforamountsitmayhavetopay.IftheGroupretainssubstantiallyalltherisksandrewardsofownershipofatransferredfinancialasset,theGroupcontinuestorecognisethefinancialassetandalsorecognisesacollateralisedborrowingfortheproceedsreceived.

TheGroupderecognisesfinancialliabilitieswhen,andonlywhen,theGroup’sobligationsaredischarged,cancelledorexpired.Thedifferencebetweenthecarryingamountofthefinancialliabilitydischargedandtheconsiderationpaidandpayableisrecognisedinprofitorloss.

Effective interest methodTheeffectiveinterestmethodisamethodofcalculatingtheamortisedcostofadebtinstrumentandofallocatingfinancechargesovertherelevantperiod.Theeffectiveinterestrateistheratethatexactlydiscountsestimatedfuturecashflows(includingallfeesandpointspaidorreceivedthatformanintegralpartoftheeffectiveinterestrate,transactioncostsandotherpremiumsordiscounts)overtheexpectedlifeofthedebtinstrument,orwhereappropriate,ashorterperiod,tothenetcarryingamountoninitialrecognition.Financechargesarerecognisedonaneffectiveinterestbasisforalldebtinstruments.

Derivative financial instruments and hedge accountingTheGroupusesinterestrateandcurrencyswapcontractstohedgeitsexposuretochangesininterestratesandexchangerates.ThesecontractsaredesignatedascashflowhedgesandhedgeaccountingisappliedwherethenecessarycriteriaunderIAS39FinancialInstruments:RecognitionandMeasurementaremet.Derivativefinancialinstrumentsarenotusedfortradingorspeculativepurposes.

Derivativefinancialinstrumentsareinitiallymeasuredatfairvalueonthecontractdate,andarere-measuredtofairvalueatsubsequentreportingdates.Fairvalueiscalculatedasthepresentvalueoftheestimatedfuturecashflowsataratethatreflectsthecreditriskofvariouscounterparties.

Changesinthefairvalueofderivativeinstrumentsthataredesignatedandeffectiveashedgesofhighlyprobablefuturecashflowsarerecognisedinequity.Thecumulativegainorlossistransferredfromequityandrecognisedintheincomestatementatthesametimeasthehedgedtransactionaffectsprofitorloss.Theineffectivepartofanygainorlossisrecognisedintheincomestatementimmediately.


Movementsinthefairvalueofderivativeinstrumentswhichdonotqualifyforhedgeaccountingarerecognisedintheincomestatementimmediately.

Hedgeaccountingisdiscontinuedwhenthehedginginstrumentexpiresorissold,terminated,ornolongerqualifiesforhedgeaccounting.Atthatpoint,thecumulativegainorlossinequityremainsinequityandisrecognisedinaccordancewiththeabovepolicywhenthetransactionaffectsprofitorloss.Ifthehedgedtransactionisnolongerexpectedtooccur,thecumulativegainorlossrecognisedinequityisrecognisedintheincomestatementimmediately.

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.TheGroupalsohasuncommittedrevolvingcreditfacilitiesof£15m.

TheGrouppreparesarollingdailycashforecastcoveringasixweekperiodandanannualcashforecastbyperiod.TheseforecastsarereviewedonadailybasisandareusedtomanagetheinvestmentandborrowingrequirementsoftheGroup.Acombinationofcashpoolingandzerobalancingagreementsareinplacetoensuretheoptimumliquiditypositionismaintained.TheGroupmaintainssufficientcashbalancesorcommittedfacilitiesoutsidethesecuritisationtoensurethatitcanmeetitsmedium-termanticipatedcashflowrequirements.

Thematuritytablebelowdetailsthecontractualundiscountedcashflows(bothprincipalandinterest)fortheGroup’sfinancialliabilities,aftertakingintoaccounttheeffectofinterestrateswaps.

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

29 September 2018a

Fixedrate:Securitiseddebtb (195) (198) (201) (201) (200) (1,687) (2,682)Floatingrate:Liquidityfacility (147) – – – – – (147)Tradeandotherpayables (302) – – – – – (302)

30 September 2017a

Fixedrate:Securitiseddebtb (194) (193) (197) (199) (199) (1,879) (2,861)Floatingrate:Liquidityfacility (147) – – – – – (147)Tradeandotherpayables (297) – – – – – (297)

a. Assumesnoearlyredemptioninrespectofanyloannotes.b. Includestheimpactofthecashflowhedges.


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4.4 Financial instruments continued

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.

IncludedinotherreceivablesareamountsduefromcertainGroupsuppliers.Includedintradeandotherpayablesattheperiodendareamountsduetosomeofthesesuppliers.ThisreducestheGroup’screditexposure.

TheGroup’screditexposureatthebalancesheetdatewas:

2018£m

2017£m

Cashandcashequivalents 122 147Othercashdeposits 120 120Tradereceivables 7 5Otherreceivables 14 15Derivatives 48 43

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.TheGroupFinanceDirectorisalsoamemberoftheCommittee.

Totalcapitalatthebalancesheetdateisasfollows:

2018£m

2017£m

Netdebt(note4.1) 1,688 1,750Totalequity 1,769 1,626Totalcapital 3,457 3,376

Market riskTheGroupisexposedtotheriskthatthefairvalueoffuturecashflowsofitsfinancialinstrumentswillfluctuatebecauseofchangesinmarketprices.Marketriskcomprisesforeigncurrencyandinterestraterisk.

Foreign currency riskTheGroupfacescurrencyriskintwomainareas:

AtissuanceoftheClassA3Nfloatingratenotes,theGroupenteredintoacrosscurrencyinterestrateswaptomanagetheforeigncurrencyexposureresultingfromboththeUS$principalandinitialinterestelementsofthenotes.TheA3Nnoteshaveacarryingvalueof£212m(2017£222m)andformpartofthesecuritiseddebt(seenote4.2).

Sensitivity analysis Furthertothestep-upontheA3Nnoteson15December2010,theGrouphasadditionalforeigncurrencyexposureasaresultoftheincreaseinUS$financecosts.Amovementof10%intheUS$exchangeratewouldhavea£nil(2017£nil)impactonthereportedGroupprofitanda£21m(2017£22m)impactonthereportedGroupnetassets.

TheGrouphasnosignificantprofitandlossexposureasaresultofretranslatingmonetaryassetsandliabilitiesatdifferentexchangerates.AstheGroupispredominantlyUKbasedandacquiresthemajorityofitssuppliesinsterling,ithasnosignificantdirectcurrencyexposurefromitsoperations.


Interest rate riskTheGrouphasamixtureoffixedandfloatinginterestratedebtinstrumentsandmanagesthevariabilityincashflowsresultingfromchangesininterestratesbyusingderivativefinancialinstruments.Wherethenecessarycriteriaaremet,theGroupminimisesthevolatilityinitsfinancialstatementsthroughtheadoptionofthehedgeaccountingprovisionspermittedunderIAS39.TheinterestrateexposureresultingfromtheGroup’s£1.9bnsecuritisationislargelyfixed,eitherasaresultofthenotesthemselvesbeingissuedatfixedinterestrates,orthroughacombinationoffloatingratenotesagainstwhicheffectiveinterestrateswapsareheld,whichareeligibleforhedgeaccounting.

Sensitivity analysis ThesensitivityanalysisbelowhasbeencalculatedbasedontheGroup’sexposuretointerestratesforbothderivativeandnon-derivativeinstrumentsasatthebalancesheetdate.A1%movementisusedwhenreportinginterestrateriskinternallytokeymanagementpersonnelandrepresentsmanagement’sassessmentofthereasonablypossiblechangeininterestrates.

Forfloatingrateliabilities,whicharenothedgedbyderivativeinstruments,theanalysishasbeenpreparedassumingthattheliabilityoutstandingatthebalancesheetdatewasoutstandingforthewholeperiod.Forinterestincometheanalysisassumesthatcashandcashequivalentsandothercashdepositsthatwereheldininterestbearingaccountsatthebalancesheetdatewereheldforthewholeperiod.

TheGroup’ssensitivitytoa1%movementininterestratesisdetailedbelow:

2018£m

2017£m

Interestincomea 2 2Interestexpenseb (1) (2)Profitimpact 1 –Derivativefinancialinstruments(fairvalues)c 76 86Totalequity 77 86

a. Representsinterestincomeearnedoncashandcashequivalentsandothercashdeposits(thesearedefinedinnote4.1).b. TheelementofinterestexpensewhichisnotmatchedbypaymentsandreceiptsundercashflowhedgeswhichwouldotherwiseoffsettheinterestrateexposureoftheGroup.c. Theimpactontotalequityfrommovementsinthefairvalueofcashflowhedges.

Derivative financial instrumentsCash flow hedgesChangesincashflowhedgefairvaluesarerecognisedinthehedgingreserveinequitytotheextentthatthehedgesareeffective.Thecashflowhedgesdetailedbelowhavebeenassessedasbeinghighlyeffectiveduringtheperiodandareexpectedtoremainhighlyeffectiveovertheremainingcontractlives.

Duringtheperiodagainof£16m(2017gainof£60m)oncashflowhedgeswasrecognisedinequity.Alossof£34m(2017lossof£53m)wasrecycledfromequityandincludedintheGroupincomestatementfortheperiod.

Cash flow hedges – securitised borrowingsAt29September2018,theGroupheldten(2017ten)interestrateswapcontractswithanominalvalueof£931m(2017£963m),designatedasahedgeofthecashflowinterestrateriskof£931m(2017£963m)oftheGroup’sfloatingrateborrowings,comprisingtheA1N,A3N,A4,AB,C2andD1loannotes.

Thecashflowsonthesecontractsoccurquarterly,receivingafloatingrateofinterestbasedonLIBORandpayingafixedrateof4.8483%(20174.8558%).Thecontractmaturitydatesmatchthoseofthehedgeditem.Theteninterestrateswapsareheldonthebalancesheetatfairmarketvalue,whichisaliabilityof£244m(2017£292m).

At29September2018theGroupheldone(2017one)crosscurrencyinterestrateswapcontract,withanominalvalueof£165m(2017£177m),designatedasahedgeofthecashflowinterestrateandcurrencyriskoftheGroup’sA3NfloatingrateUS$276m(2017US$297m)borrowings.Thecrosscurrencyinterestrateswapisheldonthebalancesheetatafairvalueassetof£48m(2017£43m).

Thecashflowsonthiscontractoccurquarterly,receivingafloatingrateofinterestbasedonUS$LIBORandpayingafloatingrateofinterestatLIBORinsterling.

Thecashflowsarisingfrominterestrateswappositionsonthesamecounterpartymaybesettledasanetposition.Thecrosscurrencyinterestrateswapisheldunderaseparateagreementandcashmovementsforthisinstrumentaresettledindividually.


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4.4 Financial instruments continued

Fair values of derivative financial instrumentsThefairvaluesofthederivativefinancialinstrumentsweremeasuredat29September2018andmaybesubjecttomaterialmovementsintheperiodsubsequenttothebalancesheetdate.Thefairvaluesofthederivativefinancialinstrumentsarereflectedonthebalancesheetasfollows:

Derivative financial instruments – fair value

Non-currentassets

£m

Currentassets

£m

Currentliabilities

£m

Non-currentliabilities

£mTotal

£m

Cash flow hedges: –Interestrateswaps – – (37) (207) (244) –Crosscurrencyswap 44 4 – – 4829 September 2018 44 4 (37) (207) (196)30September2017 41 2 (43) (249) (249)

Reconciliation of movements in derivative valuesThetablebelowdetailschangesintheGroup’sderivatives,includingbothcashandnon-cashchangeswhereappropriate.ChangesintheGroup’sborrowingsaredisclosedinthenetdebtreconciliationinnote4.1.

At 24 September

2016£m

Fair value adjustments

£m

At 30 September

2017£m

Fair value adjustments

£m

At 29 September

2018£m

Cashflowhedges (351) 102 (249) 53 (196)Total derivatives (351) 102 (249) 53 (196)

Thefairvalueandcarryingvalueoffinancialassetsandliabilitiesbycategoryisasfollows:

2018 2017

Bookvalue

£m

Fairvalue

£m

Bookvalue

£m

Fairvalue

£m

Financial assets: –Cashandcashequivalents 122 122 147 147 –Othercashdeposits 120 120 120 120 –Derivativeinstrumentsindesignatedhedgeaccountingrelationships 48 48 43 43 –Loansandreceivables 21 21 20 20Financial liabilities: –Borrowingsatamortisedcost (1,977) (1,939) (2,062) (2,076) –Derivativeinstrumentsindesignatedhedgeaccountingrelationships (244) (244) (292) (292) –Tradingandotherpayables (302) (302) (297) (297)

(2,212) (2,174) (2,321) (2,335)

Thevarioustranchesofthesecuritiseddebthavebeenvaluedusingperiodendquotedofferprices.Asthesecuritiseddebtistradedonanactivemarket,themarketvaluerepresentsthefairvalueofthisdebt.ThefairvalueofinterestrateandcurrencyswapsistheestimatedamountwhichtheGroupcouldexpecttopayorreceiveonterminationoftheagreements.Theseamountsarebasedonquotationsfromcounterpartieswhichapproximatetotheirfairmarketvalueandtakeintoconsiderationinterestandexchangeratesprevailingatthebalancesheetdate.Otherfinancialassetsandliabilitiesareeithershort-terminnatureortheirbookvaluesapproximatetofairvalues.


Fair value of financial instrumentsThefairvalueoftheGroup’sderivativefinancialinstrumentsiscalculatedbydiscountingtheexpectedfuturecashflowsofeachinstrumentatanappropriatediscountratetoa‘marktomarket’positionandthenadjustingthistoreflectanynon-performanceriskassociatedwiththecounterpartiestotheinstrument.

IFRS13FinancialInstrumentsrequirestheGroup’sderivativefinancialinstrumentstobedisclosedatfairvalueandcategorisedinthreelevelsaccordingtotheinputsusedinthecalculationoftheirfairvalue:

• Level1instrumentsusequotedpricesastheinputtofairvaluecalculations;

• Level2instrumentsuseinputs,otherthanquotedprices,thatareobservableeitherdirectlyorindirectly;

• Level3instrumentsuseinputsthatareunobservable.

ThetablebelowsetsoutthevaluationbasisoffinancialinstrumentsheldatfairvaluebytheGroup:

Fair value at 29 September 2018Level 1

£mLevel 2

£mLevel 3

£mTotal

£m

Financial assets:Currencyswaps – 48 – 48Financial liabilities:Interestrateswaps – (244) – (244)

– (196) – (196)

Fair value at 30 September 2017Level 1

£mLevel 2

£mLevel 3

£mTotal

£m

Financial assets:Currencyswaps – 43 – 43Financial liabilities:Interestrateswaps – (292) – (292)

– (249) – (249)

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.

AstheCompanydonothaveanunconditionalrighttorecoveranysurplusfromthepensionplans,IFRIC14requirestheminimumfundingliabilitytoberecognised,whereitisinexcessoftheactuarialliability.Assuch,thetotalpensionliabilityrecognisedinthebalancesheetinrespectoftheGroup’sdefinedbenefitarrangementsisthegreateroftheminimumfundingrequirements,calculatedasthepresentvalueoftheagreedscheduleofcontributions,andtheactuarialcalculatedliability.Theactuarialliabilityisthepresentvalueofthedefinedbenefitobligation,lessthefairvalueoftheschemeassets.Thecostofprovidingbenefitsisdeterminedusingtheprojectedunitcreditmethodasdeterminedannuallybyqualifiedactuaries.Thisisbasedonanumberoffinancialassumptionsandestimates,thedeterminationofwhichmaybesignificanttothebalancesheetvaluationintheeventthatthisreflectsagreaterdeficitthanthatsuggestedbythescheduleofminimumcontributions.

Thereisnocurrentservicecostasalldefinedbenefitschemesareclosedtofutureaccrual.Thenetpensionfinancecharge,calculatedbyapplyingthediscountratetothepensiondeficitorsurplusatthebeginningoftheperiod,isshownwithinfinanceincomeorexpense.Theadministrationcostsoftheschemearerecognisedwithinoperatingcostsintheincomestatement.

Remeasurementcomprisingactuarialgainsandlosses,theeffectofminimumfundingrequirements,andthereturnonschemeassetsarerecognisedimmediatelyinthebalancesheetwithachargeorcredittothestatementofcomprehensiveincomeintheperiodinwhichtheyoccur.

CurtailmentsandsettlementsrelatingtotheGroup’sdefinedbenefitplanarerecognisedintheincomestatementintheperiodinwhichthecurtailmentorsettlementoccurs.

Forthedefinedcontributionarrangements,thechargeagainstprofitisequaltotheamountofcontributionspayableforthatperiod.

Critical accounting judgements Thecalculationofthedefinedbenefitliabilityrequiresmanagementjudgementtoselectanappropriatehigh-qualitycorporatebondtodeterminethediscountrate.Themostsignificantcriteriaconsideredfortheselectionofbondsincludetheratingofthebondsandthecurrencyandestimatedtermoftheretirementbenefitliabilities.

Inaddition,managementhaveusedjudgementtodeterminetheapplicablerateofinflationtoapplytopensionincreasesincalculatingthedefinedbenefitobligation.Detailsofthisaregivenbelow.


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4.5 Pensions continued

Measurement of scheme assets and liabilitiesActuarial valuationTheactuarialvaluationsusedforIAS19(revised)purposesarebasedontheresultsofthelatestfullactuarialvaluationcarriedoutat31March2016andupdatedbytheschemes’independentqualifiedactuariesto29September2018.Schemeassetsarestatedatmarketvalueat29September2018andtheliabilitiesoftheschemeshavebeenassessedasatthesamedateusingtheprojectedunitmethod.IAS19(revised)requiresthattheschemeliabilitiesarediscountedusingmarketyieldsattheendoftheperiodonhigh-qualitycorporatebonds.

InrelationtotheMABPP,theTrustDeedandRulesprovidethatitisamatterfortheCompanytodeterminetherateofinflationwhichshouldbeappliedtopensionincreasesforcertainsectionsofthemembershipinexcessofguaranteedminimumpensionsandtheCompanyhasinstructedtheTrusteetoapplyCPI(subjecttocertaincaps)inrespectofsuchincreases.TheTrusteebelievesthatthispowerwasincorrectlyvestedintheCompanyintheTrustDeedandRulesoftheMABPPin1996and,despiteitbeingreflectedinfurtherversions,hasmadeanapplicationtocourtforthosevariousTrustDeedsandRulestoberectified.ItistheBoard’sbeliefthattheCompanyholdsthepowertofixsuchaninflationindexandtheCompanyisthereforecontestingthatapplication.Thehearingisexpectedtobeheldinlate2019.TheactuarialsurplusasdeterminedunderIAS19(revised)hascontinuedtobecalculatedusingRPI,pendingfinalresolutionofthematter.TheapplicablerateofCPIat29September2018is2.2%.Leavingallotherprincipalfinancialassumptionsconstant,theimpactofthischangeonthedefinedbenefitobligationasmeasuredunderIAS19(revised)isestimatedtobe£150m.However(underIFRIC14)anadditionalliabilityisrecognisedsuchthatthetotalbalancesheetpositionreflectsthescheduleofcontributionsagreedbytheCompany,extendingto2023.AssuchshouldtheCompanybesuccessfulincontestingtheapplicationtherewillbenonecessarymovementinthetotalbalancesheetposition.

Theprincipalfinancialassumptionshavebeenupdatedtoreflectchangesinmarketconditionsintheperiodandareasfollows:

2018 2017

Main planExecutive

plan Main planExecutive

plan

Discountrate* 2.9% 2.9% 2.7% 2.7%Pensionsincreases–RPImax5% 3.0% 3.0% 3.1% 3.1%Inflationrate–RPI 3.2% 3.2% 3.2% 3.2%

* ThediscountrateisbasedonayieldcurveforAAcorporateratedbondswhichareconsistentwiththecurrencyandestimatedtermofretirementbenefitliabilities.

Themortalityassumptionswerereviewedfollowingthe2016actuarialvaluation.Asummaryoftheaveragelifeexpectanciesassumedisasfollows:

2018 2017

Main planyears

Executive plan

yearsMain plan

years

Executive plan

years

Malememberaged65(currentlifeexpectancy) 21.2 23.9 21.2 23.8Malememberaged45(lifeexpectancyat65) 23.0 25.6 22.9 25.5Femalememberaged65(currentlifeexpectancy) 23.6 26.0 23.6 25.9Femalememberaged45(lifeexpectancyat65) 25.5 27.9 25.4 27.8

Minimum funding requirementsTheresultsofthe2016actuarialvaluationshowedafundingdeficitof£451m,usingamoreprudentbasistodiscounttheschemeliabilitiesthanisrequiredbyIAS19(revised).TheCompanyhassubsequentlyagreedrecoveryplansforboththeExecutiveandMainschemesinordertoclosethefundingdeficitinrespectofitspensionliabilities.Thenewrecoveryplansshowanunchangedlevelofcashcontributionswithnoextensiontotheagreedpaymentterm(£45mperannumindexedwithRPIfrom1April2016subjecttoaminimumincreaseof0%andmaximumof5%,until31March2023).UnderIFRIC14,anadditionalliabilityisrecognised,suchthattheoverallpensionliabilityattheperiodendreflectsthescheduleofcontributionsinrelationtoaminimumfundingrequirement,shouldthisbehigherthantheactuarialdeficit.

Theemployercontributionsexpectedtobepaidduringthefinancialperiodending28September2019amountto£49m.

In2024,anadditionalpaymentof£13mwillbemadeintoescrow,shouldsuchfurtherfundingberequiredatthattime.Thisisacontingentliabilityandisnotreflectedinthepensionsliabilityasitisnotcommitted.


Sensitivity to changes in actuarial assumptionsThesensitivitiesregardingprincipalactuarialassumptions,assessedinisolation,thathavebeenusedtomeasuretheschemeliabilitiesaresetoutbelow.

Increase or (decrease) in actuarial surplus

Decrease or (increase) in total pension liability

2018£m

2017£m

2018£m

2017£m

0.1%increaseindiscountrate 37 41 1 10.1%increaseininflationrate (34) (36) (1) (1)Additionalone-yeardecreasetolifeexpectancy 72 77 1 1

Thesensitivityanalysispresentedabovemaynotberepresentativeoftheactualchangeinthedefinedbenefitobligationasitisunlikelythatthechangesinassumptionswouldoccurinisolationofoneanotherassomeoftheassumptionsmaybecorrelated.Inpresentingtheabovesensitivityanalysis,thepresentvalueofthedefinedbenefitobligationhasbeencalculatedusingtheprojectedunitcreditmethodattheendofthereportingperiod,whichisthesameasthatappliedincalculatingthedefinedbenefitobligationliabilityrecognisedinthestatementoffinancialposition.

Therehavebeennochangesinthemethodsandassumptionsusedinpreparingthesensitivityanalysisfrompriorperiods.

Principal risks and assumptionsThedefinedbenefitschemesarenotexposedtoanyunusual,entityspecificorschemespecificrisksbuttherearegeneralrisks:

Inflation–themajorityoftheplans’obligationsarelinkedtoinflation.Higherinflationwillleadtoincreasedliabilitieswhichispartiallyoffsetbytheplansholdinginflationlinkedgiltsandotherinflationlinkedassets.

Interest rate–Theplans’liabilitiesaredeterminedusingdiscountratesderivedfromyieldsonAA-ratedcorporatebonds.Adecreaseincorporatebondyieldswillincreaseplanliabilitiesthoughthiswillbepartiallyoffsetbyanincreaseinthevalueofthebondsheldbytheplans.

Mortality–Themajorityoftheobligationsaretoprovidebenefitsforthelifeofthemembersandtheirpartners,soanyincreaseinlifeexpectancywillresultinanincreaseintheplans’liabilities.

Asset returns–Assetsheldbythepensionplansareinvestedinadiversifiedportfolioofequities,bondsandotherassets.Volatilityinassetvalueswillleadtomovementsinthenetdeficit/surplusreportedintheconsolidatedbalancesheetfortheplanswhichinadditionwillalsoimpactthepensionfinancechargeintheconsolidatedincomestatement.

Amounts recognised in respect of defined benefit schemesThefollowingamountsrelatingtotheGroup’sdefinedbenefitanddefinedcontributionarrangementshavebeenrecognisedintheGroupincomestatementandGroupstatementofcomprehensiveincome:

Group income statement2018

52 weeks£m

201753 weeks

£m

Operatingprofit:Employercontributions(definedcontributionplans) (8) (7)Administrativecosts(definedbenefitplans) (2) (2)Chargetooperatingprofitbeforeadjusteditems (10) (9)Financecosts:Netpensionsfinanceincome/(charge)onactuarialsurplus/(deficit) 5 (4)Additionalpensionsfinancechargeduetominimumfunding (12) (3)Netfinancechargeinrespectofpensions (7) (7)Totalcharge (17) (16)

Group statement of comprehensive income2018

52 weeks£m

201753 weeks

£m

Returnonschemeassetsandeffectsofchangesinassumptions 114 337Movementinpensionliabilityrecognisedduetominimumfunding (109) (329)Remeasurementofpensionliability 5 8


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4.5 Pensions continued

Group balance sheet2018

£m2017

£m

Fairvalueofschemeassets 2,404 2,390Presentvalueofschemeliabilities (2,068) (2,219)Actuarialsurplusintheschemes 336 171Additionalliabilityrecognisedduetominimumfunding (585) (463)Totalpensionliabilitya (249) (292)Associateddeferredtaxasset 43 50

a. Thetotalpensionliabilityof£249m(2017£292m)isrepresentedbya£49mcurrentliability(2017£47m)anda£200mnon-currentliability(2017£245m).

Themovementinthefairvalueoftheschemes’assetsintheperiodisasfollows:

Scheme assets

2018£m

2017£m

Fairvalueofschemeassetsatbeginningofperiod 2,390 2,381Interestincome 63 53Remeasurementgain: –Returnonschemeassets(excludingamountsincludedinnetfinancecharge) 23 3Additionalemployercontributions 48 46Benefitspaid (118) (91)Administrationcosts (2) (2)Atendofperiod 2,404 2,390

Changesinthepresentvalueofdefinedbenefitobligationsareasfollows:

Defined benefit obligation

2018£m

2017£m

Presentvalueofdefinedbenefitobligationatbeginningofperiod (2,219) (2,587)Interestcost (58) (57)Benefitspaid 118 91Remeasurementlosses: –Effectofchangesindemographicassumptions – 139 –Effectofchangesinfinancialassumptions 100 164 –Effectofexperienceadjustments (9) 31Atendofperioda (2,068) (2,219)

a. Thedefinedbenefitobligationcomprises£33m(2017£34m)relatingtotheMABETUSunfundedplanand£2,035m(2017£2,185m)relatingtothefundedplans.

Theweightedaveragedurationofthedefinedbenefitobligationis20years(201720years).

ThemajorcategoriesandfairvaluesofassetsoftheMABPPandMABEPPschemesattheendofthereportingperiodareasfollows:

2018£m

2017£m

Cashandequivalents 111 18Equityinstruments 626 730Debtinstruments: –Bonds 1,513 1,512 –Realestatedebt 76 90 –Infrastructuredebt 95 73 –Securedincomedebt 80 – –Absolutereturnbondfunds 202 200 –Giltrepurchasetransactions (303) (245)Gold 8 4Forwardforeignexchangecontracts (4) 8Fairvalueofassets 2,404 2,390


Theactualinvestmentreturnachievedontheschemeassetsovertheperiodwas4.3%(20172.2%),whichrepresentedagainof£86m(2017£56m).

Virtuallyallequityinstruments,bondsandgoldhavequotedpricesinactivemarketsandareclassifiedasLevel1instruments.Absolutereturnbondfunds,giltrepurchasetransactionsandforwardforeignexchangecontractsareclassifiedasLevel2instruments.RealestatedebtandinfrastructuredebtareclassifiedasLevel3instruments.

Inthe52weeksended29September2018theGrouppaid£7m(2017£7m)inrespectofthedefinedcontributionarrangements,withanadditional£2m(2017£1m)outstandingasattheperiodend.

At29September2018theMABPPowed£1m(2017£2m)totheGroupinrespectofexpensespaidonitsbehalf.Thisamountisincludedinotherreceivablesinnote3.2.

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(2017£2m).

TheGrouphadfourequity-settledshareschemes(2017four)inoperationduringtheperiod;thePerformanceRestrictedSharePlan(PRSP);SharesavePlan;ShareIncentivePlan(SIP)andShortTermDeferredIncentivePlan(STDIP).

Thevestingofallawardsoroptionsisgenerallydependentuponparticipantsremainingintheemploymentofaparticipatingcompanyduringthevestingperiod.FurtherdetailsoneachschemeareprovidedintheReportonDirectors’remunerationonpages68to91.

Thefollowingtablessetoutweightedaverageinformationabouthowthefairvalueofeachoptiongrantwascalculated:

2018 2017

Performance RestrictedShare Plan

SharesavePlan

Performance RestrictedShare Plan

SharesavePlan

Valuationmodel Monte Carlo and Binomial Black-Scholes

MonteCarloandBinomial Black-Scholes

Weightedaverageshareprice 259.2p 264.2p 246.1p 231.0pExercisepricea – 246.0p – 221.0pExpecteddividendyieldb – 1.97% – 2.94%Risk-freeinterestrate 0.68% 0.86% 0.34% 0.31%Volatilityc 32.5% 31.0% 32.0% 29.43%Expectedlife(years)d 2.4 4.0 3.5 4.10Weightedaveragefairvalueofgrantsduringtheperiod 224.2 61.3 182.4 42.8

a. TheexercisepriceforthePerformanceRestrictedSharePlanis£1perparticipatingemployee.b. TheexpecteddividendyieldfortheSharesavePlanhasusedhistoricaldividendinformation.FordetailsontheGroup’scurrentdividendpolicyrefertotheFinancialreviewonpage45.

TheexpecteddividendyieldforthePerformanceRestrictedSharePlanoptionsiszeroasparticipantsareentitledtoDividendAccruedSharestothevalueofordinarydividendspaidorpayableduringthevestingperiod.

c. TheexpectedvolatilityisdeterminedbycalculatingthehistoricalvolatilityoftheCompany’ssharepricecommensuratewiththeexpectedtermoftheoptionsandshareawards.d. Theexpectedlifeoftheoptionsrepresentstheaveragelengthoftimebetweengrantdateandexercisedate.

ThefairvalueofawardsundertheShortTermDeferredIncentivePlanandtheShareIncentivePlanareequaltothesharepriceonthedateofawardasthereisnopricetobepaidandemployeesareentitledtoDividendAccruedSharestothevalueofordinarydividendspaidorpayableduringthevestingperiod.Theassumptionssetoutabovearethereforenotrelevanttotheseschemes.ThefairvalueofoptionsgrantedundertheShareIncentivePlanduringtheperiodwas264.2p(2017231.0p).


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4.6 Share-based payments continued

Thetablesbelowsummarisethemovementsinoutstandingoptionsduringtheperiod.

Number of sharesWeighted average

exercise price

2018m

2017m

2018p

2017p

Sharesave planOutstandingatthebeginningoftheperiod 4.1 3.6 264.1 297.0Granted 1.3 1.8 246.0 221.0Exercised (0.1) (0.1) 182.2 249.0Forfeited (0.8) (0.8) 257.3 296.8Expired (0.4) (0.4) 323.5 302.6Outstandingattheendoftheperiod 4.1 4.1 256.0 264.1Exercisableattheendoftheperiod – 0.5 – 291.1

TheoutstandingoptionsfortheSAYEschemehadanexercisepriceofbetween221.0pand362.0p(2017between182.0pand362.0p)andtheweightedaverageremainingcontractlifewas2.8years(20173.0years).Thenumberofforfeitedsharesintheperiodincludes545,646(2017615,998)cancellations.

SAYEoptionswereexercisedonarangeofdates.Theaveragesharepricethroughtheperiodwas258.4p(2017251.1p).

Number of shares

2018m

2017m

Share Incentive PlanOutstandingatthebeginningoftheperiod 1.7 1.5Granted 0.4 0.5Exercised (0.2) (0.2)Forfeited (0.1) (0.1)Outstandingattheendoftheperiod 1.8 1.7Exercisableattheendoftheperiod 0.8 0.8

OptionsundertheShareIncentivePlanarecapableofremainingwithintheSIPtrustindefinitelywhileparticipantscontinuetobeemployed.

Number of shares

2018m

2017m

Performance Restricted Share PlanOutstandingatthebeginningoftheperiod 5.2 4.1Granted 2.2 2.1Forfeited (0.2) (0.1)Expired (1.1) (0.9)Outstandingattheendoftheperiod 6.1 5.2Exercisableattheendoftheperiod – –

TheexercisepriceforthePerformanceRestrictedSharePlanis£1perparticipatingemployee,thereforetheweightedaverageexercisepricefortheseoptionsis£nil(2017£nil).

Optionsoutstandingat29September2018hadanexercisepriceof£nilandaweightedaverageremainingcontractuallifeof3.2years(20173.3years).



4.7 Equity

Accounting policiesOwn sharesThecostofownsharesheldinemployeesharetrustsandintreasuryaredeductedfromshareholders’equityuntilthesharesarecancelled,reissuedordisposedof.Wheresuchsharesaresubsequentlysoldorreissued,thefairvalueofanyconsiderationreceivedisalsoincludedinshareholders’equity.

DividendsDividendsproposedbytheBoardbutunpaidattheperiodendarenotrecognisedinthefinancialstatementsuntiltheyhavebeenapprovedbyshareholdersattheAnnualGeneralMeeting.Interimdividendsarerecognisedwhenpaid.

Scripdividendsarefullypaidupfromthesharepremiumaccount.Theyareaccountedforasanincreaseinsharecapitalforthenominalvalueofthesharesissued,andaresultingreductioninsharepremium.

Called up share capital

2018Number of shares £m

2017Number of shares £m

Allotted, called up and fully paidOrdinarysharesof813/24peachAtstartofperiod 422,548,604 36 413,624,294 35Sharecapitalissueda 5,762,219 1 8,924,310 1At end of period 428,310,823 37 422,548,604 36

a. UnderthetermsoftheCompany’sscripdividendscheme,shareholdersareabletoelecttoreceiveordinarysharesinplaceofbothinterimandfinaldividends.Thishasresultedintheissueof5,354,617newfullypaidordinarysharesinrelationtothefinaldividendforthe53weeksended30September2017(20178,506,296).Therewasnointerimdividenddeclaredinthecurrentperiod.Inaddition,theCompanyissued407,602(2017418,014)sharesduringtheperiodundershareoptionschemesforaconsiderationof£nil(2017£nil).

Alloftheordinarysharesrankequallywithrespecttovotingrightsandrightstoreceiveordinaryandspecialdividends.Therearenorestrictionsontherightstotransfershares.

DetailsofoptionsgrantedundertheGroup’sshareschemesarecontainedinnote4.6.

Dividends2018 2017

Cash dividend

£m

Settled via scrip

£m

Total dividend

£m

Cash dividend

£m

Settled via scrip

£m

Total dividend

£m

Declared and paid in the periodFinaldividendof5.0ppershare–53weeksended30September2017 7 14 21 – – –Interimdividendof2.5ppershare–53weeksended30September2017 – – – 8 3 11Finaldividendof5.0ppershare–52weeksended24September2016 – – – 4 17 21

7 14 21 12 20 32

Thefinaldividendof5.0pperordinarysharedeclaredinrelationtothe53weeksended30September2017wasapprovedattheAnnualGeneralMeetingon23January2018andwaspaidtoshareholderson6February2018.ShareholderswereabletoelecttoreceiveordinarysharescreditedasfullypaidinsteadofthecashdividendunderthetermsoftheCompany’sscripdividendscheme.Ofthe£21mfinaldividend,£14mwasintheformoftheissueofordinarysharestoshareholdersoptingintothescripalternative.Themarketvaluepershareatthedateofpaymentwas264.4ppershare,resultingintheissueof5millionnewshares,fullypaidupfromthesharepremiumaccount.Thenominalvalueofthe5millionsharesissuedinrelationtothefinalscripdividendsis£1m.


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4.7 Equity continued

Share premium accountThesharepremiumaccountrepresentsamountsreceivedinexcessofthenominalvalueofsharesonissueofnewshares.Sharepremiumof£1mhasbeenrecognisedonsharesissuedintheperiod(2017£nil).

Capital redemption reserveThecapitalredemptionreservemovementaroseontherepurchaseandcancellationbytheCompanyofordinarysharesduringpriorperiods.

Revaluation reserveTherevaluationreserverepresentstheunrealisedgaingeneratedonrevaluationofthepropertyestatewitheffectfrom29September2007.Itcomprisestheexcessofthefairvalueoftheestateoverdeemedcost,netofrelateddeferredtaxation.

Own shares heldOwnsharesheldbytheGrouprepresentthesharesintheCompanyheldbytheemployeesharetrusts.

Duringtheperiod,theemployeesharetrustsacquirednoshares(2017nil)andsubscribedfor296,144(2017353,025)sharesatacostof£nil(2017£nil)andreleased159,956(2017188,586)sharestoemployeesontheexerciseofoptionsandothershareawardsforatotalconsiderationof£nil(2017£nil).The1,885,130sharesheldbythetrustsat29September2018hadamarketvalueof£5m(30September20171,748,942sharesheldhadamarketvalueof£5m).

TheCompanyhasestablishedtwoemployeesharetrusts:

Share Incentive Plan (SIP) TrustTheSIPTrustwasestablishedin2003topurchasesharesonbehalfofemployeesparticipatingintheCompany’sShareIncentivePlan.Underthisscheme,eligibleemployeesareawardedfreeshareswhicharenormallyheldintrustforaholdingperiodofatleastthreeyears.AfterfiveyearsthesharesmaybetransferredtoorsoldbytheemployeefreeofincometaxandNationalInsurancecontributions.TheSIPTrustbuysthesharesinthemarketorsubscribesfornewlyissuedshareswithfundsprovidedbytheCompany.Duringtheholdingperiod,dividendsarepaiddirectlytotheparticipatingemployees.At29September2018,thetrustees,EquinitiSharePlanTrusteesLimited,held1,847,623(20171,698,880)sharesintheCompany.Oftheseshares,583,410(2017553,839)sharesareunconditionallyavailabletoemployees,245,415(2017272,341)shareshavebeenconditionallyawardedtoemployees,982,143(2017842,954)shareshavebeenawardedtoemployeesbutarestillrequiredtobeheldwithintheSIPTrustandtheremaining36,655(201729,746)sharesareunallocated.

Employee Benefit Trust (EBT)TheEBTwasestablishedin2003inordertosatisfytheexerciseorvestingofexistingandfutureshareoptionsandawardsundertheExecutiveShareOptionPlan,PerformanceRestrictedSharePlan,ShortTermDeferredIncentivePlanandtheSharesavePlan.TheEBTpurchasessharesinthemarketorsubscribesfornewlyissuedshares,usingfundsprovidedbytheCompany,basedonexpectationsoffuturerequirements.DividendsarewaivedbytheEBT.At29September2018,thetrustees,SanneFiduciaryServicesLimited,wereholding37,507(201750,062)sharesintheCompany.

Hedging reserveThehedgingreservecomprisestheeffectiveportionofthecumulativenetchangeinthefairvalueofcashflowhedginginstrumentsrelatedtohedgedfuturecashflows.

Translation reserveThetranslationreserveisusedtorecordexchangedifferencesarisingfromthetranslationofthefinancialstatementsofforeignsubsidiaries.

Retained earningsTheGroup’smainoperatingsubsidiary,Mitchells&ButlersRetailLimited,hadretainedearningsunderFRS101of£2,199mat29September2018(2017£2,157m).Itsabilitytodistributethesereservesbywayofdividendsisrestrictedbythesecuritisationcovenants(seenote4.2).



5.1 Related party transactions

Key management personnelEmployeesoftheMitchells&ButlersplcGroupwhoaremembersoftheBoardofDirectorsortheExecutiveCommitteeofMitchells&Butlersplcaredeemedtobekeymanagementpersonnel.ItistheBoardwhohaveresponsibilityforplanning,directingandcontrollingtheactivitiesoftheGroup.

CompensationofkeymanagementpersonneloftheGroup:

201852 weeks

£m

201753 weeks

£m

Short-termemployeebenefits 4 4

MovementsinshareoptionsheldbytheDirectorsofMitchells&ButlersplcaresummarisedintheReportonDirectors’remuneration.

5.2 Subsidiaries and associates

SubsidiariesTransactionsbetweentheCompanyanditssubsidiaries,whicharerelatedparties,havebeeneliminatedonconsolidation.

Mitchells&Butlersplcisthebeneficialownerofalloftheequitysharecapital,eitheritselforthroughsubsidiaryundertakings,ofthefollowingcompanies:

Name of subsidiary Country of incorporation Country of operation Nature of business

Principal operating subsidiariesMitchells&ButlersRetailLimited EnglandandWales UnitedKingdom LeisureretailingMitchells&ButlersRetail(No.2)Limited EnglandandWales UnitedKingdom LeisureretailingHaHaBar&GrillLimited EnglandandWales UnitedKingdom LeisureretailingOrchidPubs&DiningLimited EnglandandWales UnitedKingdom LeisureretailingALEXGaststättenGesellschaftmbH&CoKG Germany Germany LeisureretailingMidco1Limited EnglandandWales UnitedKingdom PropertyleasingcompanyMitchells&Butlers(Property)Limited EnglandandWales UnitedKingdom PropertymanagementMitchells&ButlersLeisureRetailLimited EnglandandWales UnitedKingdom ServicecompanyMitchells&ButlersGermanyGmbHa Germany Germany ServicecompanyMitchells&ButlersFinanceplc EnglandandWales UnitedKingdom FinancecompanyStandardCommercialPropertyDevelopmentsLimited EnglandandWales UnitedKingdom PropertydevelopmentOther subsidiariesMitchells&ButlersHoldings(No.2)Limiteda EnglandandWales UnitedKingdom HoldingcompanyMitchells&ButlersHoldingsLimited EnglandandWales UnitedKingdom HoldingcompanyMitchells&ButlersLeisureHoldingsLimited EnglandandWales UnitedKingdom HoldingcompanyMitchells&ButlersRetailHoldingsLimited EnglandandWales UnitedKingdom HoldingcompanyOldKentuckyRestaurantsLimited EnglandandWales UnitedKingdom TrademarkownershipBedeRetailInvestmentsLimited EnglandandWales UnitedKingdom Non-tradingLastbrewLimited EnglandandWales UnitedKingdom Non-tradingMitchells&Butlers(IP)Limited EnglandandWales UnitedKingdom Non-tradingMitchells&ButlersAcquisitionCompany EnglandandWales UnitedKingdom Non-tradingMitchells&ButlersRetailPropertyLimiteda EnglandandWales UnitedKingdom Non-tradingMitchellsandButlersHealthcareTrusteeLimited EnglandandWales UnitedKingdom HealthcaretrusteeStandardCommercialPropertyInvestmentsLimited EnglandandWales UnitedKingdom Non-tradingStandardCommercialPropertySecuritiesLimited EnglandandWales UnitedKingdom Non-tradingTempleCircusDevelopmentsLimited EnglandandWales UnitedKingdom Non-tradingALEXGaststättenImmobiliengesellschaftmbH Germany Germany PropertymanagementALLBARONEGaststättenBetriebsgesellschaftmbH Germany Germany LeisureretailingALEXAlsterpavillonImmobilienGmbH&CoKG Germany Germany PropertymanagementALEXAlsterpavillonManagementGmbH Germany Germany ManagementcompanyALEXGaststättenManagementGmbH Germany Germany ManagementcompanyPLAN-BARGastronomieEinrichtungsGmbH Germany Germany Non-tradingBrownsRestaurant(Brighton)Limited EnglandandWales UnitedKingdom DormantBrownsRestaurant(Bristol)Limited EnglandandWales UnitedKingdom DormantBrownsRestaurant(Cambridge)Limited EnglandandWales UnitedKingdom DormantBrownsRestaurant(London)Limited EnglandandWales UnitedKingdom DormantBrownsRestaurant(Oxford)Limited EnglandandWales UnitedKingdom Dormant

Notes to the financial statements Section5–Othernotes


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Name of subsidiary Country of incorporation Country of operation Nature of business

BrownsRestaurantsLimited EnglandandWales UnitedKingdom DormantCrownhillEstates(Derriford)Limited EnglandandWales UnitedKingdom DormantEastLondonPubs&RestaurantsLimited EnglandandWales UnitedKingdom DormantMitchells&ButlersLeaseCompanyLimited EnglandandWales UnitedKingdom DormantIntertain(Dining)Limited EnglandandWales UnitedKingdom DormantLander&CookLimitedb EnglandandWales UnitedKingdom Dormant

a. ShareshelddirectlybyMitchells&Butlersplc.b. Incorporatedon3January2018.

TheregisteredofficeforcompaniesoperatingintheUnitedKingdomis27FleetStreet,Birmingham,B31JP.

TheregisteredofficeforcompaniesoperatinginGermanyisAdolfstrasse16,65185Wiesbaden.

AssociatesDetailsoftheCompany’sassociates,heldindirectly,areasfollows.Sharesintheseassociateshavebeenacquiredintheperiod.

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 Events after the balance sheet date

On26October2018theHighCourtprovidedarulingregardingguaranteedminimumpensions(GMPs)equalisation.Thecourtruledthatpensionsprovidedtomemberswhohadcontracted-outoftheirschememustberecalculatedtoensurepaymentsreflecttheequalisationofstatepensionagesinthe1990s.TherulingconfirmedthattherearefourmethodsofequalisingGMPthatarelawfulinprinciple,butimportantlyemployerscandirecttrusteestoapply‘methodC’i.e.providethebetterofmaleorfemalecomparatorpensionseachyear,subjecttoaccumulatedoffsetting.Thecourtalsoruledthattrusteesareobligedtomakearrearspaymentstomembersandsimpleinterestonthearrearsshouldbepaidat1%abovethebaserate.

ThisrulingwillimpacttheGroup’sactuarialsurplus/(deficit),asitwillleadtoanincreaseinpensionobligations,howeveritshouldbenotedthatduetotherecognitionofanadditionalliabilityinrelationtominimumfunding,therewillbenochangetothereportedpensionpositiononthebalancesheet.AstheTrustee’shavenotpreviouslyattemptedtoequaliseGMPs,therulingistreatedasanon-adjustingevent.

Giventhedateoftherulingandcomplexityofapplication,itisnotcurrentlypracticaltoestimatetheimpactontheactuarialsurplus/(deficit)andincomestatement.

5.4 Five year review

201852 weeks

£m

201753 weeks

£m

201652 weeks

£m

201552 weeks

£m

201452 weeks

£m

Revenue 2,152 2,180 2,086 2,101 1,970Operating profit before adjusted items 303 314 318 328 313Adjusteditems (48) (106) (87) (58) (49)Operating profit 255 208 231 270 264Financecosts (119) (125) (126) (130) (132)Financerevenue 1 1 1 1 1Netpensionsfinancecharge (7) (7) (12) (15) (10)Profit before taxation 130 77 94 126 123Taxexpense (26) (14) (5) (23) (30)Profit for the period 104 63 89 103 93Earnings per shareBasic 24.5p 15.1p 21.6p 25.0p 22.6pDiluted 24.4p 15.0p 21.6p 24.9p 22.5pAdjusted(Basic)a 34.1p 34.9p 34.9p 35.7p 32.6p

a. Adjustedearningspershareisstatedafterremovingtheimpactofadjusteditemsasexplainedinnote2.2.

5.2 Subsidiaries and associates continued

Notes to the financial statements Section5–Othernotescontinued


Notes2018

£m2017

£m

Non-current assetsInvestmentsinsubsidiaries 5 1,474 1,474Deferredtaxasset 9 48 56

1,522 1,530Current assetsTradeandotherreceivables 6 739 828Cashandcashequivalents 14 1

753 829Current liabilitiesPensionliabilities 4 (49) (47)Borrowings 8 (28) (28)Tradeandotherpayables 7 (288) (419)

(365) (494)Non-current liabilitiesPensionliabilities 4 (200) (245)Net assets 1,710 1,620

EquityCalledupsharecapital 10 37 36Sharepremiumaccount 26 26Capitalredemptionreserve 3 3Ownsharesheld (1) (1)Retainedearnings 1,645 1,556Total equity 1,710 1,620

TheCompanyreportedprofitforthe52weeksended29September2018of£89m(53weeksended30September2017£121m).

ThefinancialstatementswereapprovedbytheBoardandauthorisedforissueon21November2018.

Theyweresignedonitsbehalfby:

Tim Jones Finance Director

Theaccountingpoliciesandthenotesonpages145to147formanintegralpartofthesefinancialstatements.

RegisteredNumber:04551498

Mitchells & Butlers plc Company financial statementsCompany balance sheet 29September2018


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Sharecapital

£m

Sharepremium

£m

Capitalredemption

reserve£m

Ownshares

held£m

Retainedearnings

£m

Totalequity

£m

At 24 September 2016 35 27 3 (1) 1,438 1,502Profitaftertaxation – – – – 121 121Remeasurementofpensionliability – – – – 8 8Deferredtaxonremeasurementofpensionliability – – – – (1) (1)Totalcomprehensiveincome – – – – 128 128Creditinrespectofemployeeshareschemes – – – – 2 2Dividendspaid – – – – (12) (12)Scripdividendrelatedshareissue 1 (1) – – – –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 1,710

Theretainedearningsaccountiswhollydistributableafterthedeductionforownshares.

Company statement of changes in equity Forthe52weeksended29September2018


1. Basis of preparation

Basis of accountingThesefinancialstatementswerepreparedinaccordancewithFinancialReportingStandard101‘ReducedDisclosureFramework’asissuedbytheFRC.

AspermittedbyFRS101,theCompanyhastakenadvantageofthedisclosureexemptionsavailableunderthatstandardinrelationtoshare-basedpayments,financialinstruments,presentationofacashflowstatement,standardsnotyeteffective,impairmentofassetsandrelatedpartytransactions.Whererequired,equivalentdisclosuresaregivenintheconsolidatedfinancialstatements.

Thefinancialstatementshavebeenpreparedunderthehistoricalcostconvention.TheCompany’saccountingpolicieshavebeenappliedonaconsistentbasistothosesetoutintherelevantnotestotheconsolidatedfinancialstatements.Therehavebeennochangestopoliciesduringtheperiod.ThecriticaljudgementsandestimatesoftheCompanyareconsideredalongsidethoseoftheGroup.ThekeycriticaljudgementoftheCompanyisrelatedtotheselectionofthediscountrateandinflationrateassumptionsusedinthecalculationofthedefinedbenefitpensionliabilitydescribedinnote4.5oftheconsolidatedfinancialstatements.ThekeycriticalestimatesfortheCompanyaretheestimateoffuturecashflowsandtheselectionofdiscountrateintheinvestmentimpairmentreviewdescribedinnote5.

Foreign currenciesTransactionsinforeigncurrenciesarerecordedattheexchangeratesrulingonthedatesofthetransactions.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedintosterlingattherelevantratesofexchangerulingatthebalancesheetdate.

2. Profit and loss account

Profit and loss accountTheCompanyhasnotpresenteditsownprofitandlossaccount,aspermittedbySection408oftheCompaniesAct2006.

TheCompanyrecordedaprofitaftertaxof£89m(2017£121m),lessdividendsof£7m(2017£12m).Dividendsaredisclosedinnote4.7oftheconsolidatedfinancialstatements.

Audit remunerationAuditor’sremunerationforauditservicestotheCompanywas£22,000(2017£22,000).ThisisbornebyanotherGroupcompany,asareanyothercostsrelatingtonon-auditservices(seenote2.3totheconsolidatedfinancialstatements).

3. Employees and Directors

201852 weeks

201753 weeks

Averagenumberofemployees,includingpart-timeemployees 2 2

EmployeesofMitchells&ButlersplcconsistofExecutiveDirectorswhoareconsideredtobethekeymanagementpersonneloftheCompany.

Detailsofemployeebenefitsandpost-employmentbenefits,includingshare-basedpayments,areincludedwithintheReportonDirectors’remunerationonpages68to91.Thechargerecognisedforshare-basedpaymentsintheperiodis£nil(2017£nil).

4. Pensions

Accounting policyTheaccountingpolicyforpensionsisdisclosedintheconsolidatedfinancialstatementsinnote4.5.

Pension liabilityAt29September2018theCompany’spensionliabilitywas£249m(2017£292m).Ofthisamount,£49m(2017£47m)isacurrentliabilityand£200m(2017£245m)isanon-currentliability.

TheCompanyisthesponsoringemployeroftheGroup’spensionplans.InformationconcerningthepensionschemearrangementsoperatedbytheCompanyandassociatedcurrentandfuturecontributionsiscontainedwithinnote4.5totheconsolidatedfinancialstatementsonpages133to137.

Thepensionamountsanddisclosuresincludedinnote4.5totheconsolidatedfinancialstatementsareequivalenttothoseapplicablefortheCompany.

Notes to the Mitchells & Butlers plc Company financial statements


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5. Investments in subsidiaries

Accounting policyTheCompany’sinvestmentsinGroupundertakingsareheldatcostlessprovisionforimpairment,exceptforthoseamountsdesignatedasbeinginafairvaluehedge.

Critical accounting estimatesTheapplicationoftheimpairmentmethodologyrequirestwocriticalaccountingestimates;theforecastofcashflowsandtheselectionofanappropriatediscountrate.Asensitivityanalysisofchangesincashflowsandthediscountrateinrelationtotheinvestmentstowhichtheseestimatesapply,isprovidedbelow.

Shares in subsidiary

undertakings£m

CostAt24September2016 3,104Exchangedifferences 1Additionsa 248At 30 September 2017 3,353Exchangedifferences –At 29 September 2018 3,353

ProvisionAt24September2016 1,879Impairment –At 30 September 2017 1,879Impairment –At 29 September 2018 1,879

Net book valueAt 29 September 2018 1,474

At30September2017 1,474

At24September2016 1,225

a. Additionsinthepriorperiodof£248mrelatetoacapitalcontribution,intheformofaloanwaiver,providedtoasubsidiarycompanywithintheMitchells&ButlersplcGroup.Theintercompanyloanwastestedforimpairmentpriortotheloanwaiver,withnoimpairmentrequired.

Mitchells&ButlersplcisthebeneficialownerofalloftheequitysharecapitalofcompanieswithintheGroup,eitheritselforthroughsubsidiaryundertakings.Inaddition,theCompanyhasindirectinvestmentsinassociatecompaniesthroughsubsidiaryundertakings.Seenote5.2oftheconsolidatedfinancialstatementsforafulllistofsubsidiariesandassociates.

Investmentshavebeentestedforimpairmentusingforecastcashflows,discountedbyapplyingapre-taxdiscountrateof7.7%(20177.5%).Forthepurposesofthecalculationoftherecoverableamount,thecashflowprojectionsinclude0.0%(20170.0%)ofgrowthperannum.

Sensitivity analysisTheCompanyhasperformedasensitivityanalysisontheimpairmenttestsforitsinvestmentsinsubsidiariesusingvariousreasonablypossiblescenarios.Itisestimatedthatneithera0.5%increaseinthediscountratenora5%reductioninfuturecashflowswouldgenerateanimpairmentcharge.

6. Trade and other receivables

2018£m

2017£m

Amountsowedbysubsidiaryundertakings 739 828

Amountsowedbysubsidiaryundertakingsarerepayableondemand.Interestisnotchargedonallbalances.Whereinterestischarged,itischargedatmarketrate,basedonwhatcanbeachievedoncorporatedeposits.

Notes to the Mitchells & Butlers plc Company financial statements continued


7. Trade and other payables

2018£m

2017£m

Amountsowedtosubsidiaryundertakingsa 283 416Accruedcharges 4 –Otherpayables 1 3

288 419

a. Amountsowedtosubsidiaryundertakingsarerepayableondemand.Interestisnotchargedonallbalances.Whereinterestischarged,itischargedatmarketrate,basedonwhatcanbeachievedoncorporatedeposits.

8. Borrowings

Accounting policy Theaccountingpolicyforborrowingsisdisclosedintheconsolidatedfinancialstatementsinnote4.2.

Borrowingscanbeanalysedasfollows:

2018£m

2017£m

CurrentBankoverdraft 28 28Totalborrowings 28 28

Unsecured revolving credit facilityTheCompanyholdsuncommittedcreditfacilitiesof£15m.Theamountdrawnat29September2018is£nil(2017£nil).

9. Taxation

Accounting policyTheaccountingpolicyfortaxationisdisclosedintheconsolidatedfinancialstatementsinnote2.4.

Deferred tax assetMovementsinthedeferredtaxassetcanbeanalysedasfollows:

£m

At24September2016 66Chargedtoincomestatement–pensions (6)Chargedtoincomestatement–taxlosses (3)Chargedtoothercomprehensiveincome–pensions (1)At30September2017 56Chargedtoincomestatement–pensions (6)Chargedtoincomestatement–taxlosses (1)Chargedtoothercomprehensiveincome–pensions (1)At 29 September 2018 48

Analysedastaxtimingdifferencesrelatedto:

2018£m

2017£m

Pensions 43 50Taxlossesa 5 6

48 56

a. Taxlossesarisingin2008whicharenowrecoverablebyoffsetagainstotherincome.

Furtherinformationonthechangestotaxlegislationareprovidedinnote2.4totheconsolidatedfinancialstatements.

10. Equity

Called up share capitalDetailsoftheamountandnominalvalueofallotted,calledupandfullypaidsharecapitalarecontainedinnote4.7totheconsolidatedfinancialstatements.

DividendsDetailsofthedividendsdeclaredandpaidbytheCompanyarecontainedinnote4.7totheconsolidatedfinancialstatements.


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Documents

Financial statements - Mitchells & Butlers · 128 4.4 Financial instruments 133 4.5 Pensions 137 4.6 Share-based payments 139 4.7 Equity 141 Section 5 – Other notes 141 5.1 Related