Mitchells & Butlers PLC Annual Report 2017 (3848Z)

TIDMMAB

RNS Number : 3848Z

Mitchells & Butlers PLC

14 December 2017

14 December 2017

Mitchells & Butlers plc

LEI no. 213800JHYNDNB1NS2W10

Annual Report 2017

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 2017 
 2.   Notice of the 2018 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 23 January 2018 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 23 November 2017. 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 top ten principal risks and uncertainties that affect the Company, together with the key mitigating activities in place to manage those risks. This does not represent a comprehensive list of all of the risks that the Company faces, but focuses on those that are currently considered to be most relevant.

The processes that are used to identify and manage risks are described in the internal control and risk management statement on pages 60 and 61 of the 2017 Annual Report.

 
 Risk category and description      Controls/mitigating activities 
---------------------------------  ------------------------------------------- 
 1. Market risks 
---------------------------------  ------------------------------------------- 
 Declining sales performance        Right team and structure 
                                     in place. Brand alignment 
  This risk falls into               ensures the right research 
  three main categories:             gets done and is acted 
                                     on. 
  Sales: There is a risk 
  that declining sales,              Daily, weekly and periodic 
  concerns around consumer           sales reporting, monitoring 
  confidence, increased              and scrutiny activity is 
  personal debt levels,              in place. 
  squeezes on disposable 
  income and rising inflation        Our Eat Drink Share panel 
  together may adversely             provides robust, quick 
  affect our market share            and cost effective research. 
  and profitability, reducing        This is our own panel of 
  headroom against securitisation    27,000 M&B guests whom 
  tests.                             we can use for research 
                                     purposes for quick and 
  Consumer and market                cost effective insights. 
  insight: If M&B fails 
  to manage and develop              Primary research in partnership 
  its existing (and new)             with brand/category teams. 
  brands in line with 
  consumer needs and market          Working with suppliers 
  trends due to failure              to tap into their research. 
  to obtain or use sufficient 
  insight in a timely                Each brand has its own 
  manner, this may lead              pricing strategy. 
  to a decline in revenues 
  and profits.                       Price promotions are in 
                                     line with the agreed strategy. 
  Pricing and market changes: 
  If price changes are               Sales training for Management. 
  not intelligently applied 
  due to a lack of appreciation      Consumer/insight led innovation 
  of market sensitivities            process and development 
  and elasticities, this             for new brands. 
  may result in decreased 
  revenue and profit.                Reduce customer complaints 
                                     by improving the local 
                                     management of social media 
                                     responses (e.g. TripAdvisor). 
 
                                     Increased digital marketing 
                                     activity. 
 
                                     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 
                                     & Butlers leverages its 
  Food: The price of goods           scale to drive competitive 
  increases due to increases         cost advantage and collaborates 
  in demand and uncertainty          with suppliers to increase 
  of supply, leading to              efficiencies in the supply 
  decreased profits.                 chain. The fragmented nature 
                                     of the food supply industry 
  Drinks: The price of               on the world commodity 
  drinks goods increases             markets gives the Company 
  due to changes in demand,          the opportunity to source 
  legislation, exchange              products from a number 
  rates and production               of alternative suppliers 
  costs, leading to decreased        in order to drive down 
  profits.                           cost. Key mitigating activities 
                                     for food and drink are 
  Goods not for resale:              detailed below: 
  Increases in the price 
  of goods not for resale            Food: 
  and utilities costs                A Food Procurement Strategy 
  as a result of increases           is in place. 
  in global demand and 
  uncertainty of supply              Full reviews have been 
  in producing nations               carried out on key categories 
  can have a significant             to ensure optimum value 
  impact on the cost base,           is achieved in each category. 
  consequently impacting 
  margins.                           A full range review was 
                                     completed in 2017 ensuring 
                                     the correct number of products/suppliers. 
 
                                     Regular reporting of current 
                                     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 the pound following 
                                     Brexit, changes in Government 
                                     policy (raising risk of 
                                     punitive duty changes) 
                                     and the introduction of 
                                     the Sugar Tax in 2018. 
---------------------------------  ------------------------------------------- 
 2. Operational Risks 
---------------------------------  ------------------------------------------- 
 People planning and                The Company makes significant 
  development                        investment in training 
                                     to ensure that its people 
  Mitchells & Butlers                have the right skills to 
  has a strong guest focus,          perform their jobs successfully. 
  and as such it is important 
  that it is able to attract,        Furthermore, an employee 
  retain, develop and                survey is conducted annually 
  motivate the best people           to establish employee satisfaction 
  with the right capabilities        and engagement and this 
  throughout the organisation.       is compared with other 
  There is a risk that               companies, as well as previous 
  without the right people           surveys. Where appropriate, 
  our customer service               changes in working practices 
  levels would be affected.          are made in response to 
                                     the findings of these surveys. 
 
                                     Remuneration packages are 

                                     benchmarked to ensure that 
                                     they remain competitive 
                                     and a talent review process 
                                     is used to provide structured 
                                     succession planning. 
---------------------------------  ------------------------------------------- 
 Business continuity                The Company has in place 
  and crisis                         crisis and continuity plans 
  management                         that are tested and refreshed 
                                     regularly. The Company's 
  Mitchells & Butlers                third-party back-up facility, 
  relies on its food and             for Retail Support Centre 
  drink supply chain and             employees, has been successfully 
  the key IT systems underlying      tested to ensure critical 
  the business to serve              business systems are able 
  its guests efficiently             to function in the event 
  and effectively. Supply            of a disaster. 
  chain interruption, 
  IT system failure or               In addition, during FY 
  crises such as terrorist           2017, departmental Business 
  activity or the threat             Continuity Plans have been 
  of disease pandemic                revised, updated and reviewed 
  might restrict sales               by the Risk Committee. 
  or reduce operational 
  effectiveness. 
---------------------------------  ------------------------------------------- 
 Information security               In FY 2017 a further review 
  and                                of information security, 
  disaster recovery                  disaster recovery and IT 
                                     resilience was performed 
  There is a risk that               in order to highlight any 
  inadequate disaster                gaps and address any challenges 
  recovery plans and information     that had been presented 
  security processes are             in exploring the viability 
  in place to mitigate               of a disaster recovery 
  against a system outage,           test for our business critical 
  or failure to ensure               applications. During the 
  appropriate back-up                year a number of improvements 
  facilities (covering               have been made, including: 
  key business systems 
  and the recovery of                Further development of 
  critical data) and loss            the information security 
  of sensitive data.                 steering group. 
 
                                     Group Assurance follow-up 
                                     review of information security 
                                     controls. 
 
                                     Review and implementation 
                                     of appropriate cyber security 
                                     governance policy and procedures. 
 
                                     Ongoing security awareness 
                                     initiatives have been and 
                                     continue to be undertaken. 
 
                                     Penetration testing. 
---------------------------------  ------------------------------------------- 
 Wage cost inflation                A detailed review of the 
                                     risks associated with successfully 
  There is a risk that               implementing the National 
  increased costs associated         Living Wage has been completed. 
  with the introduction              This review has been undertaken 
  of the National Living             at a strategic level and 
  Wage may adversely impact          seeks to ensure that appropriate 
  upon overall operational           mitigating actions are 
  costs.                             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 
                                     2018. We have successfully 
                                     implemented a new Time 
                                     and Attendance system to 
                                     improve the management 
                                     controls and reporting 
                                     of staff hours. 
---------------------------------  ------------------------------------------- 
 Borrowing covenants                The Company maintains headroom 
                                     against these risks. The 
  There are risks that               finance team conducts daily 
  borrowing covenants                cash forecasting with periodic 
  are breached because               reviews at the Treasury 
  of circumstances such              Committee, the roles of 
  as:                                which include ensuring 
   i.    A change in the             that the Board Treasury 
          economic climate           Policy is adhered to, monitoring 
          leading to reduced         its operation and agreeing 
          cash inflows; or           appropriate strategies 
   ii.   A material change           for recommendation to the 
          in the valuation           Board. 
          of 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 
                                     additional contributions 
  The material value of              to reduce the funding deficit. 
  the pension fund deficit           In July 2017, the Company 
  remains a risk.                    reached agreement on the 
                                     triennial valuation of 
                                     the Group pension schemes 
                                     as at 31 March 2016, with 
                                     a funding shortfall of 
                                     GBP451m (March 2013 valuation 
                                     GBP572m shortfall). 
 
                                     The Company will continue 
                                     to pay cash contributions 
                                     (of GBP46m p.a. indexed) 
                                     to 2023, with an additional 
                                     payment of GBP13m into 
                                     escrow in 2024 should such 
                                     further funding be required 
                                     at that time. 
---------------------------------  ------------------------------------------- 
 Failure to operate safely          Mitchells & Butlers maintains 
  and                                a robust programme of health 
  legally                            and safety checks both 
                                     within its restaurants 
  A major health and safety          and pubs and throughout 
  failure could lead to              the supply chain. 
  illness, injury or loss 
  of life or significant             The dedicated Safety Assurance 
  damage to the Company's            team uses a number of technical 
  or a brand's reputation.           partners including food 
                                     technologists, microbiologists 
                                     and allergen specialists 
                                     to ensure that our food 
                                     procedures are safe. 
 
                                     Regular independent audits 
                                     of trading sites are performed 
                                     to ensure that procedures 
                                     are followed and that appropriate 
                                     standards are maintained. 
 
                                     Food suppliers are required 
                                     to meet the British Retail 
                                     Consortium Global Standard 
                                     for Food Safety and are 
                                     subject to regular safety 
                                     and quality audits. 
 
                                     Comprehensive health and 
                                     safety training programmes 
                                     are in place. 
---------------------------------  ------------------------------------------- 
 Food supply chain safety           M&B has a Safety Assurance 
                                     team and uses a number 
  Malicious or accidental            of technical partners including 
  contamination in the               food technologists, food 
  supply chain could lead            safety experts, a microbiologist, 
  to food goods for resale           allergy consultants, trading 
  being unfit for human              standards specialists, 
  consumption or being               nutritionists etc. 
  dangerous to consume.              M&B uses a robust system 
  This could lead to restrictions    of detailed product specifications. 
  in supply which in turn 
  causes an increase in              All food products are risk 
  cost of goods and reduced          rated using standard industry 
  sales due to consumer              definitions and assessment 

  fears and physical harm            of the way the products 
  to customers/employees.            are used in M&B kitchens. 
                                     Suppliers are then risk 
                                     rated according to their 
                                     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

Amy De Marsac

0121 498 6514

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 14, 2017 07:00 ET (12:00 GMT)