Mitchells & Butlers PLC Annual Report 2016 (9681R)

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RNS Number : 9681R

Mitchells & Butlers PLC

15 December 2016

15 December 2016

MITCHELLS & BUTLERS PLC

Annual Report 2016

In compliance with Listing Rule 9.6.1, Mitchells & Butlers plc has today submitted copies of the following documents to the National Storage Mechanism:

 
 1.   Company Annual Report and 
       Accounts 2016 
 2.   Notice of the 2017 Annual 
       General Meeting 
 

These documents will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM

The above documents can also be accessed on the Company's website at: www.mbplc.com

The Company's Annual General Meeting will be held at Mitchells & Butlers plc, Retail Support Centre, 27 Fleet Street, Birmingham, B3 1JP on Tuesday 24 January 2017 at 2.00pm.

A condensed set of Mitchells & Butlers plc financial statements, information on important events that have occurred during the year and their impact on the financial statements and responsibility statements were included in the Company's Full Year Results announcement on 22 November 2016. That information, together with the information on Risks and Uncertainties given below, constitutes the requirements of DGTR 6.3.5 which is to be communicated via an RIS in unedited full text. This announcement is not a substitute for reading the full Annual Report and financial statements. To view the Full Year Results announcement, visit the Company website: www.mbplc.com/investors/

Risks and uncertainties

This section highlights the principal risks and uncertainties that affect the Company, together with the key mitigating activities in place to manage those risks. This does not represent a comprehensive list of all of the risks that the Company faces, but focuses on those that are currently considered to be most relevant at the current time.

The processes that are used to identify and manage risks are described in the internal control and risk management statement on pages 52 and 53 of the 2016 Annual Report.

 
 Risk category and               Controls/mitigating activities 
  description 
------------------------------  --------------------------------------- 
 Market risks 
----------------------------------------------------------------------- 
 Declining sales performance     Right team and structure 
  This risk falls into            in place. Brand alignment 
  three main categories:          ensures the right research 
  Sales: There is a               gets done and is acted on. 
  risk that declining             Daily, weekly and periodic 
  sales may adversely             sales reporting, monitoring 
  affect our market               and scrutiny activity is 
  share and profitability,        in place. 
  reducing headroom               Our Eat Drink Share panel 
  against securitisation          provides robust, quick and 
  tests.                          cost effective research. 
  Consumer and market             This is our own panel of 
  insight:                        27,000 M&B guests whom we 
  If M&B fails to manage          can use for research purposes 
  and develop its existing        for quick and cost-effective 
  (and new) brands in             insights. 
  line with consumer              Primary research in partnership 
  needs and market trends         with brand/category teams. 
  due to failure to               Working with suppliers to 
  obtain or use sufficient        tap into their research. 
  insight in a timely             Each brand has its own pricing 
  manner, this may lead           strategy. 
  to a decline in revenues        Price promotions are in 
  and profits.                    line with the agreed strategy. 
  Pricing and market              Sales training for Management. 
  changes:                        Consumer/insight led innovation 
  If price changes                process and development 
  are not intelligently           for new brands. 
  applied due to a lack           Reduce customer complaints 
  of appreciation of              by improving the local management 
  market sensitivities            of social media responses 
  and elasticities,               (ie TripAdvisor). 
  this may result in              Increased digital marketing 
  decreased revenue               activity. 
  and profit.                     Online guest satisfaction 
                                  survey to collect guest 
                                  feedback. This feedback 
                                  together with the results 
                                  of research studies is monitored 
                                  and evaluated by a dedicated 
                                  guest insight team to ensure 
                                  that the relevance to guests 
                                  of the Company's brands 
                                  is maintained. 
------------------------------  --------------------------------------- 
 Cost of goods price             Overall, price increases 
  increases                       are mitigated as Mitchells 
  This risk falls into            & Butlers leverages its 
  three main categories:          scale to drive competitive 
  Food: The price of              cost advantage and collaborates 
  goods increases due             with suppliers to increase 
  to increases in demand          efficiencies in the supply 
  and uncertainty of              chain. The fragmented nature 
  supply, leading to              of the food supply industry 
  decreased profits.              on the world commodity markets 
  Drinks: The price               gives the Company the opportunity 
  of drinks goods increases       to source products from 
  due to changes in               a number of alternative 
  demand, legislation,            suppliers in order to drive 
  exchange rates and              down cost. Key mitigating 
  production costs,               activities for food and 
  leading to decreased            drink are detailed below: 
  profits.                        Food: 
  Goods not for resale:           A Food Procurement Strategy 
  Increases in the price          is in place. 
  of goods not for resale         Full reviews have been carried 
  and utilities costs             out on key categories to 
  as a result of increases        ensure optimum value is 
  in global demand and            achieved in each category. 
  uncertainty of supply           A full range review was 
  in producing nations            completed in early 2015 
  can have a significant          ensuring the correct number 
  impact on the cost              of products/suppliers. 
  base, consequently              Regular reporting of current 
  impacting margins.              and projected inflation. 
                                  Good relationships with 
                                  key suppliers. 
                                  Drinks: 
                                  Each drinks category has 
                                  a clearly defined strategic 
                                  sourcing plan to ensure 
                                  company scale is leveraged, 
                                  supply base is rationalised 
                                  and consumer needs are met. 
                                  Good relationships with 
                                  key suppliers. 
                                  Supplier collaboration programmes 
                                  are in place. 
                                  Plans in development to 
                                  mitigate Sugar Tax. 
                                  Risk is increasing mainly 
                                  due to the devaluation of 
                                  sterling following Brexit, 
                                  changes in Government (raising 
                                  risk of punitive duty changes) 
                                  and the introduction of 
                                  the Sugar Tax in 2018. 
------------------------------  --------------------------------------- 
 Operational risks 
----------------------------------------------------------------------- 
 People planning and             The Company makes significant 
  development                     investment in training to 
  Mitchells & Butlers             ensure that its people have 
  has a strong guest              the right skills to perform 
  focus, and as such              their jobs successfully. 
  it is important that            Furthermore, an employee 
  it is able to attract,          survey is conducted annually 
  retain, develop and             to establish employee satisfaction 
  motivate the best               and engagement and this 
  people with the right           is compared with other companies, 
  capabilities throughout         as well as previous surveys. 
  the organisation.               Where appropriate, changes 
  There is a risk that            in working practices are 
  without the right               made in response to the 
  people our customer             findings of these surveys. 
  service levels would            Remuneration packages are 
  be affected.                    benchmarked to ensure that 
                                  they remain competitive 
                                  and a talent review process 
                                  is used to provide structured 
                                  succession planning. 
------------------------------  --------------------------------------- 
 Business continuity             The Company has in place 
  and crisis                      crisis and continuity plans 
  management                      that are tested and refreshed 
  Mitchells & Butlers             regularly. 
  relies on its food              The Company's third-party 
  and drink supply chain          back-up facility, for retail 
  and the key IT systems          support centre employees, 
  underlying the business         has been successfully tested 
  to serve its guests             to ensure critical business 

  efficiently and effectively.    systems are able to function 
  Supply chain interruption,      in the event of a disaster. 
  IT system failure               In addition, during FY 2016, 
  or crises such as               departmental Business Continuity 
  terrorist activity              Plans have been revised, 
  or the threat of disease        updated and reviewed by 
  pandemic might restrict         the Risk Committee. 
  sales or reduce operational 
  effectiveness. 
------------------------------  --------------------------------------- 
 Information security            In FY 2016 a detailed review 
  and                             of information security, 
  disaster recovery               disaster recovery and IT 
  There is a risk that            resilience was performed 
  inadequate disaster             in order to highlight any 
  recovery plans and              gaps and address any challenges 
  information security            that had been presented 
  processes are in place          in exploring the viability 
  to mitigate against             of a disaster recovery test 
  a system outage, or             for our business critical 
  failure to ensure               applications. During the 
  appropriate back-up             year a number of improvements 
  facilities (covering            have been made, including: 
  key business systems            Establishment of an Information 
  and the recovery of             Security Steering Group. 
  critical data) and              Group Assurance review of 
  loss of sensitive               Information Security controls. 
  data.                           Review and implementation 
                                  of appropriate cyber security 
                                  governance policy and procedures. 
                                  Ongoing security awareness 
                                  initiatives have been and 
                                  continue to be undertaken. 
------------------------------  --------------------------------------- 
 Wage cost inflation             A detailed review of the 
  There is a risk that            risks associated with successfully 
  increased costs associated      implementing the National 
  with the introduction           Living Wage has been completed. 
  of the National Living          This review has been undertaken 
  Wage may adversely              at a strategic level and 
  impact upon overall             seeks to ensure that appropriate 
  operational costs.              mitigating actions are in 
                                  place, some of which are 
                                  in relation to how the Group 
                                  carefully manages productivity 
                                  and efficiency across the 
                                  estate. Implementation of 
                                  the National Living Wage 
                                  will continue to remain 
                                  an area of focus in FY 2017. 
                                  We are currently trialling 
                                  a new Time and Attendance 
                                  system to improve the management 
                                  controls and reporting of 
                                  staff hours. 
------------------------------  --------------------------------------- 
 Borrowing covenants             The Company maintains headroom 
  There are risks that            against these risks. The 
  borrowing covenants             finance team conducts daily 
  are breached because            cash forecasting with periodic 
  of circumstances such           reviews at the Treasury 
  as:                             Committee, the roles of 
  i. A change in the              which include ensuring that 
  economic climate leading        the Board Treasury Policy 
  to reduced cash inflows;        is adhered to, monitoring 
  or                              its operation and agreeing 
  ii. A material change           appropriate strategies for 
  in the valuation of             recommendation to the Board. 
  the property portfolio.         In addition, regular forecasting 
                                  and testing of covenant 
                                  compliance is performed 
                                  and frequent communication 
                                  is maintained with the Securitisation 
                                  Trustee. 
------------------------------  --------------------------------------- 
 Pension fund deficit            The Company has made significant 
  The material value              additional contributions 
  of the pension fund             to reduce the funding deficit. 
  deficit remains a               In May 2014, the Company 
  risk.                           reached agreement on the 
                                  triennial valuation of the 
                                  Group pension schemes as 
                                  at 31 March 2013, at an 
                                  increased funding shortfall 
                                  of GBP572m (March 2010 valuation 
                                  GBP400m). The value of total 
                                  deficit at the end of FY 
                                  2016, following the revised 
                                  contributions, is GBP337m 
                                  (FY 2015 GBP350m). 
------------------------------  --------------------------------------- 
 Failure to operate              Mitchells & Butlers maintains 
  safely and legally              a robust programme of health 
  A major health and              and safety checks both within 
  safety failure could            its restaurants and pubs 
  lead to illness, injury         and throughout the supply 
  or loss of life or              chain. The dedicated Safety 
  significant damage              Assurance team uses a number 
  to the Company's or             of technical partners including 
  a brand's reputation.           food technologists, microbiologists 
                                  and allergen specialists 
                                  to ensure that our food 
                                  procedures are safe. Regular 
                                  independent audits of trading 
                                  sites are performed to ensure 
                                  that procedures are followed 
                                  and that appropriate standards 
                                  are maintained. Food suppliers 
                                  are required to meet the 
                                  British Retail Consortium 
                                  Global Standard for Food 
                                  Safety and are subject to 
                                  regular safety and quality 
                                  audits. Comprehensive health 
                                  and safety training programmes 
                                  are in place. 
------------------------------  --------------------------------------- 
 Food supply chain               M&B has a Safety Assurance 
  safety                          team and uses a number of 
  Malicious or accidental         technical partners including 
  contamination in the            food technologists, food 
  supply chain could              safety experts, a microbiologist, 
  lead to food goods              allergy consultants, trading 
  for resale being unfit          standards specialists, nutritionists, 
  for human consumption           etc. 
  or being dangerous              M&B uses a robust system 
  to consume. This could          of detailed product specifications. 
  lead to restrictions            All food products are risk 
  in supply which in              rated using standard industry 
  turn causes an increase         definitions and assessment 
  in cost of goods and            of the way the products 
  reduced sales due               are used in M&B kitchens. 
  to consumer fears               Suppliers are then risk 
  and physical harm               rated according to their 
  to customers/employees.         products. 
                                  Each food supplier is audited 
                                  at least once per annum 
                                  in respect of safety and 
                                  additionally in response 
                                  to a serious food safety 
                                  complaint or incident. 
------------------------------  --------------------------------------- 
 

For further information, please contact:

Investor Relations

James Cooper

0121 498 4525

Media:

James Murgatroyd (Finsbury)

020 7251 3801

This information is provided by RNS

The company news service from the London Stock Exchange

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December 15, 2016 07:00 ET (12:00 GMT)