Financial statements · Practice, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’; and • the financial statements have been prepared in accordance

IN THIS SECTION99 Independent auditor’s report to the

members of Mitchells & Butlers plc106 Group income statement107 Group statement of comprehensive income108 Group balance sheet109 Group statement of changes in equity110 Group cash flow statement

Notes to the consolidated financial statements111 Section 1 – Basis of preparation

115 Section 2 – Results for the year 115 2.1 Segmental analysis 115 2.2 Separately disclosed items 117 2.3 Revenue and operating costs 119 2.4 Taxation 121 2.5 Earnings per share

122 Section 3 – Operating assets and liabilities 122 3.1 Property, plant and equipment 126 3.2 Working capital 127 3.3 Provisions 128 3.4 Goodwill and other intangible

assets 130 3.5 Associates

131 Section 4 – Capital structure and financing costs

131 4.1 Net debt 132 4.2 Borrowings 133 4.3 Finance costs and revenue 134 4.4 Financial instruments 141 4.5 Pensions 145 4.6 Share-based payments 146 4.7 Equity

148 Section 5 – Other notes 148 5.1 Related party transactions 149 5.2 Subsidiaries and associates 150 5.3 Five year review

151 Mitchells & Butlers plc Company financial statements

153 Notes to the Mitchells & Butlers plc Company financial statements

Financial statements

98ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLCANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTSOpinionInouropinion:

• thefinancialstatementsofMitchells&Butlersplc(the‘Company’)anditssubsidiaries(the‘Group’)giveatrueandfairviewofthestateoftheGroup’sandoftheCompany’saffairsasat28September2019andoftheGroup’sprofitforthe52weeksthenended;

• theGroupfinancialstatementshavebeenproperlypreparedinaccordancewithInternationalFinancialReportingStandards(IFRSs)asadoptedbytheEuropeanUnion;

• theCompanyfinancialstatementshavebeenproperlypreparedinaccordancewithUnitedKingdomGenerallyAcceptedAccountingPractice,includingFinancialReportingStandard101‘ReducedDisclosureFramework’;and

• thefinancialstatementshavebeenpreparedinaccordancewiththerequirementsoftheCompaniesAct2006and,asregardstheGroupfinancialstatements,Article4oftheIASRegulation.

Wehaveauditedthefinancialstatementswhichcomprise:

• theGroupincomestatement;• theGroupstatementofcomprehensive

income;• theGroupandCompanybalancesheets;• theGroupandCompanystatementsof

changesinequity;• theGroupcashflowstatement;• therelatednotes1to5ofGroupfinancial

statements;and• therelatednotes1to10oftheCompany

financialstatements

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:

• Onerousleaseprovisions• Valuationofthepubestate• Compliancewithdebtcovenants

Materiality ThematerialitythatweusedfortheGroupfinancialstatementswas£9.65mwhichwasdeterminedonthebasisofapproximately5%ofprofitbeforetaxbeforeseparatelydiscloseditems.

Scoping AfullscopeaudithasbeenperformedinrespectoftheUKbusiness,consistentwith2018.

Significant changes in our approach Therehavebeennochangesinthekeyauditmattersincludedinourauditreportsince2018.ThisisconsistentwiththefactthattheoperationsoftheGrouparelargelyunchangedfromthepreviousyear.

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

WeconsideredaspartofourriskassessmentthenatureoftheGroup,itsbusinessmodelandrelatedrisksincludingwhererelevanttheimpactofBrexit,therequirementsoftheapplicablefinancialreportingframeworkandthesystemofinternalcontrol.WeevaluatedtheDirectors’assessmentoftheGroup’sabilitytocontinueasagoingconcern,includingchallengingtheunderlyingdataandkeyassumptionsusedtomaketheassessment,andevaluatedtheDirectors’plansforfutureactionsinrelationtotheirgoingconcernassessment.

WearerequiredtostatewhetherwehaveanythingmaterialtoaddordrawattentiontoinrelationtothatstatementrequiredbyListingRule9.8.6R(3)andreportifthestatementismateriallyinconsistentwithourknowledgeobtainedintheaudit.

Weconfirmthatwehavenothingmaterialtoreport,addordrawattentiontoinrespectofthesematters.

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

• thedisclosuresonpages40–45thatdescribetheprincipalrisksandexplainhowtheyarebeingmanagedormitigated;• theDirectors’confirmationonpage40thattheyhavecarriedoutarobustassessmentoftheprincipalrisksfacingtheGroup,

includingthosethatwouldthreatenitsbusinessmodel,futureperformance,solvencyorliquidity;or• theDirectors’explanationonpage45astohowtheyhaveassessedtheprospectsoftheGroup,overwhatperiodtheyhavedone

soandwhytheyconsiderthatperiodtobeappropriate,andtheirstatementastowhethertheyhaveareasonableexpectationthattheGroupwillbeabletocontinueinoperationandmeetitsliabilitiesastheyfalldueovertheperiodoftheirassessment,includinganyrelateddisclosuresdrawingattentiontoanynecessaryqualificationsorassumptions.

WearealsorequiredtoreportwhethertheDirectors’statementrelatingtotheprospectsoftheGrouprequiredbyListingRule9.8.6R(3)ismateriallyinconsistentwithourknowledgeobtainedintheaudit.

Weconfirmthatwehavenothingmaterialtoreport,addordrawattentiontoinrespectofthesematters.

99ANNUAL REPORT AND ACCOUNTS 2019MITCHELLS & BUTLERS PLC

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MITCHELLS & BUTLERS PLC

KEY AUDIT MATTERSKeyauditmattersarethosemattersthat,inourprofessionaljudgement,wereofmostsignificanceinourauditofthefinancialstatementsofthecurrentperiodandincludethemostsignificantassessedrisksofmaterialmisstatement(whetherornotduetofraud)thatweidentified.Thesemattersincludedthosewhichhadthegreatesteffecton:theoverallauditstrategy,theallocationofresourcesintheaudit;anddirectingtheeffortsoftheengagementteam.

Thesematterswereaddressedinthecontextofourauditofthefinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.

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

Onerous lease provisions Assetoutinsection3.3,propertyprovisionsare£36m(2018£43m)ofwhich£34.7m(2018£41.9m)relatestoonerousleaseprovisions.Theaccountingpolicyandthecriticalaccountingjudgementinrelationtopropertyprovisionsaresetoutinsection3.3.

TheAuditCommittee’sdiscussionofthiskeyauditmatterissetoutonpage74.

Loss-makingshortleaseholdpropertiesarereviewedbymanagementtodeterminewhetheranonerousleaseprovisionisrequired.Judgementsinrelationtoexpectedtradinglevels,theappropriateleasetermoverwhichtoprovide,theimpactofexpansionarycapital,thepotentialopportunitytoexittheleasesearlyandtheappropriatediscountratetouseareappliedwhenassessingthelevelofonerousleaseprovisionrequired.Therefore,wehaveidentifiedapotentialriskoffraudinthiskeyauditmatter.

Focus areasGiventhesizeoftheleaseholdestatethereisariskthatwhereasiteisunderperforming,thecashflowsgeneratedmaynotbeadequatetocoverfutureleaseobligations,resultingintherequirementforanonerousleaseprovisionfortheunavoidablecashoutflowsonlossmakingproperties.Wefocusedonthevaluationandcompletenessoftheonerousleaseprovisionbyassessingthejudgementsusedinarrivingattheleveloftheprovisionforeachsite.Furthermore,wealsofocusedonsiteswhereaturnaroundorexitplanisinplace.

Weperformedthefollowingprocedurestorespondtothekeyauditmatter:

• weassessedtheappropriatenessoftheclassificationofpropertyprovisionsprovidedintheperiodasabeforeseparatelydisclosediteminaccordancewithIAS1PresentationofFinancialStatements;

• wecheckedthatallleaseholdsiteswereconsideredinmanagement’sprocesstoidentifysiteswhichwerepotentiallysubjecttoonerousleaseprovisions;

• whereonerousleaseprovisionshavenotbeenrecognised,despitehistoricalresultsindicatingthataprovisionmayberequired,weobtainedevidencetosupportmanagement’sassertionthatpropertiescanbesuccessfullyturnedaround.Thisincludedassessingthesuccessofpreviousactionsundertakenbymanagementtoturnaroundsimilarsites;

• wetestedasampleoflossmakingshortleaseholdandunlicensedpropertiestochallengemanagement’sestimateoftheunavoidablecashoutflowsonlossmakingpropertiesthatareforecasttoarisefromthesepropertiesovertheremainingtermofthelease;

• weassessedtheappropriatenessofforecastEBITDAstakingintoconsiderationthecostsavingandsalesopportunitiesidentifiedbymanagementfollowingabenchmarkingexercise.Thisincludedperformingaretrospectivereviewofforecastingaccuracyforthosepropertiesincludedinthe2018benchmarkingexercise;

• wetestedtheintegrityoftheinformationusedwithintheonerousleaseprovisioncalculationbyagreeinginputsbacktosourcedataincludinghistoricalresults,andrentalcommitments;and

• weassessedtheappropriatenessoftheriskfreediscountrateusedthroughcomparisontoappropriateexternalbenchmarks.

Additionally,wetestedthecontrolsinrelationtothecalculationoftheonerousleaseprovisionforpropertieswherecurrentperiodEBITDAisusedasaproxyforfuturecashflowsarisingfromproperties.Thecontrolstestedcoveredmanagement’sreviewof:

• thecompletenessandaccuracyoftheinputsintotheonerousleaseprovisionmodel;and

• thekeyassumptionsusedindeterminingtheprovisiontoberecognised.

WeconsiderthattheonerousleaseprovisioniswithinareasonablerangeandthatthepresentationofthemovementsintheonerousleaseprovisionisinaccordancewithIAS1.


INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF MITCHELLS & BUTLERS PLC CONTINUED


Valuation of the pub estateAssetoutinsection3.1thevalueoftheestateis£4,528m(2018£4,426m).

Freehold and long leaseholdTheaccountingpolicyadopted,criticalaccountingjudgementsappliedandkeysourcesofestimationuncertaintyaredescribedinsection3.1tothefinancialstatements.


Thisisconsideredtobeakeyauditmatterduetothejudgementsinherentwithinthevaluationexerciseandtherangeofacceptablejudgements.Thetotalnetbookvalueofrevaluedpropertiesasat28September2019is£4,343m(2018£4,230m).Therevaluationexerciseperformedintheyearhasresultedinanetincreaseof£87mversuscarryingvalue(2018£33mdecrease),whichincludesanimpairmentchargeof£4m(2018£28m)recognisedintheincomestatement.TheGroup’saccountingpolicysetsoutthatthemarketvalueisdeterminedusingfactorssuchasestimatedfairmaintainabletradinglevelsandestimatedmultipleswhicharederivedforeachoftheGroup’stradingbrands.Approximately20%ofthefreeholdandlongleaseholdestatehasbeeninspectedbytheGroup’sexternalvaluers,withtheresultoftheinspectioninformingthebrandstandardmultipleswhicharethenextrapolatedacrosstheremainderoftheestate.

Inspecificcircumstanceswherethisapproachdoesnotfairlyrepresenttheunderlyingvalueoftheproperty,forexampleifasiteislossmaking,aspotvaluationisapplied.

Wheresiteshavebeenimpactedbyexpansionarycapitalinvestmentinthepreceding12months,fairmaintainabletradeistakenasthepostinvestmentforecast.Sitesthathavebeenopenformorethanthreeperiods(2018threeperiods)arereviewedforimpairment.

Weworkedwithourpropertyvaluationspecialistsandmanagement’sexternaladviserstochallengethemethodologyandunderlyingassumptionsusedinthefreeholdandlongleaseholdpubestatevaluation.Thisincluded:

• confirmingtheappropriatenessoftheestimatedfairmaintainabletradinglevelsbeingusedtovaluetheproperties;

• obtainingevidencetosupporttheappropriatenessofthevaluationsoftheinspectedestatewhenbenchmarkedtotransactionactivityinthelicensedretailpropertymarket.InparticularweconsideredtheagreedtermsofthesalesofGreeneKingplcandEiGroupplcduring2019andtheassociatedimpactonthevaluationoftheGroup’sproperties;

• testingtheapplicationofthemultiplederivedfromthevaluationofinspectedpropertiestotherestoftheestate;

• obtainingevidencetosupportthefutureprojectedincomeusedintheimpairmentreviewsforfreeholdandlongleaseholdsiteswhichhavebeenimpactedbyexpansionarycapitalinvestmentintheprecedingtwelvemonths.Thisincludedperformingaretrospectivereviewofforecastingaccuracyforthosepropertiesimpactedbyexpansionarycapitalinvestmentinthepastthreeyears;and

• reviewingtheappropriatenessandcompletenessofanyspotvaluationsmade.

Additionally,wetestedcontrolsinrelationtothevaluationofthefreeholdandlongleaseholdestate.Thecontrolstestedcoveredmanagement’sreviewof:

• thecompletenessandaccuracyofthekeyinputsintotherevaluationmodel;

• thekeyjudgementsmadeinrelationtofairmaintainabletradinglevelsandmultiples;and

• thecompletenessofspotvaluations.

Weareinagreementwiththemethodologychosenandtheassumptionsadoptedtorevaluethepubestate.Weconsiderthedeterminationoffairmaintainabletradinglevelstobeattheconservativeendoftherange.Weconcurthatthevaluationsaresuitableforinclusioninthefinancialstatements.


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Valuation of the pub estate continuedShort leaseholdTheaccountingpolicyadoptedandjudgementsusedaredescribedinsection3.1tothefinancialstatements.

Thetotalvalueofshortleaseholdpropertiesasat28September2019is£157m(2018£156m).Judgementsinrelationtoexpectedtradinglevels,whetherthesitehasthepotentialtobeturnedaroundanddiscountratesareappliedwhencalculatingshortleaseholdpropertyimpairments.TheGrouprecordedanimpairmentchargeof£7m(2018£15m)intheyear,offsetbyreversalofpastimpairmentsof£2m(2018£nil).

Focus areasGiventheamountscapitalisedandtheriskassociatedacrossthefreehold,longleaseholdandshortleaseholdsiteswehavefocusedourproceduresontheassessmentmadebymanagementof:

• theappropriatenessofthefairmaintainabletradinglevelsandbrandmultipleassumptionsappliedtothefreeholdandlongleaseholdestateonasitebysitebasis;

• thevaluationoffreeholdandlongleaseholdsitesimpactedbyexpansionarycapital,challengingtheneedforanyimpairmentofproperty,plantandequipmentrequiredatanindividualoutletlevel;and

• therequirementforanyimpairmentinrespectoftheproperty,plantandequipmentheldintheshortleaseholdestateatanindividualoutletlevel.

Inaddition,duetothelevelofsubjectivejudgementsinvolvedinrespectofmultipleandfairmaintainabletradeassumptionswhichareinherentlyuncertain,wehaveidentifiedapotentialriskoffraudinthiskeyauditmatter.

Wechallengedtheassumptionsusedbymanagementwithintheimpairmentreviewsperformedfortheshortleaseholdestate.Thisincluded:

• obtainingevidencetosupportmanagement’sassertionthatshortleaseholdpropertiescanbesuccessfullyturnedaroundwherepropertieshavenotbeenimpairedduetomanagement’sexpectationthattheperformanceofthepropertieswillimprove.Thisincludedobtainingevidencetosupportmanagement’sturnaroundplansandperformanceofaretrospectivereviewconsideringthesuccessofhistoricturnaroundplans;

• wetestedasampleoflossmakingshortleaseholdpropertiestochallengemanagement’sestimateofthecashflowsthatareforecasttoarisefromthesepropertiesovertheremainingtermofthelease;

• weassessedtheappropriatenessofforecastEBITDAstakingintoconsiderationthecostsavingandsalesopportunitiesidentifiedbymanagementfollowingabenchmarkingexercise.Thisincludedperformingaretrospectivereviewofforecastingaccuracyforthosepropertiesincludedinthe2018benchmarkingexercise;

• testingtheintegrityoftheinformationusedwithinthemodelbyagreeinginputsbacktosourcedataincludinghistoricalresultsandleaseterms;and

• assessingtheappropriatenessofthediscountratethroughrecalculationandperformingsensitivityanalysis.

Additionally,wetestedcontrolsinrelationtotheshortleaseholdimpairmentreview.Thecontrolstestedcoveredmanagement’sreviewsof:

• thecompletenessandaccuracyoftheinputsintotheshortleaseholdimpairmentmodel;and

• thekeyassumptionsusedindeterminingtheimpairmenttorecognise.




Compliance with debt covenants TheprimarysourceofborrowingfortheGroupissecuredloannotesof£1,752mat28September2019(2018£1,830m).ThisdebtissecuredonthemajorityofthepropertiesownedbytheGroup(propertiesheldwithinasubsidiarycompany,Mitchells&ButlersRetailLimited).TheGroupalsohas£150mofunsecuredcreditfacilities.Therearecovenantsattachedtoboththesecuredloannotesandtheunsecuredrevolvingcreditfacilities.

Theindustrycontinuestofaceinflationarycostpressures.Inaddition,thereisuncertaintyaroundthetermsandtimingoftheUnitedKingdom’sexitfromtheEuropeanUnion,andtheoutcomeofthegeneralelectionon12December2019.WethereforeidentifiedthattheforecastingofEBITDAduringthegoingconcernperiodissubjecttosignificantjudgementsandestimates.

ThekeyriskidentifiedistheGroup’sabilitytomeettheforecastedEBITDAoverthegoingconcernperiodforthefinancialcovenantsattachedtothesecuredloannotes.Thistestismeasuredateachquarterenddate,inrespectoftheprevioustwoquartersandthepreviousyear,forMitchells&ButlersRetailLimited.

DebtcovenantsarefurtherdisclosedwithinNote4.2oftheGroupfinancialstatements,aswellasbeingdisclosedonpage48.


Weperformedthefollowingprocedurestorespondtothekeyauditmatter:

• obtainedanunderstandingofcontrolsinrelationtothemanagementreviewofthebudgetandforecastcovenantcompliance;

• reviewedmanagement’sgoingconcernassessment,bychallengingmanagementtounderstandthekeydriversformingthebasisoftheEBITDAforecastsandchallengingtheassumptionsusedinthebasecasescenariousingindustryforecasts,historicalperformanceandourunderstandingofthebusiness;

• challengedtheappropriatenessofthereasonablypossiblesensitivitiesusedinmanagement’sdownsidescenariooverthegoingconcernperiod;

• reviewedandchallengedmanagement’skeyassumptionsbyreferencetoindependentindustrysourcesandrelevantsupportingevidenceandsensitisingtheimpactthesehaveonmanagement’sassessmentofprofitability;

• consideredthefeasibilityofthemitigatingactionsthatmanagementhaveattheirdisposalshouldthefinancialcovenantsbeclosetobeingbreached;and

• reviewedthedisclosuresongoingconcerntoconfirmthattheyareconsistentwiththeknowledgewehaveacquiredduringthecourseofourauditandtoconfirmthatthedisclosuresareconsistentwiththeoverallrequirementfortheAnnualReporttobefair,balancedandunderstandable.

Weconcurwithmanagement’sassumptionsinrelationtothegoingconcernstatusoftheGroupandtheresultinggoingconcerndisclosures.

OUR APPLICATION OF MATERIALITYWedefinematerialityasthemagnitudeofmisstatementinthefinancialstatementsthatmakesitprobablethattheeconomicdecisionsofareasonablyknowledgeablepersonwouldbechangedorinfluenced.Weusematerialitybothinplanningthescopeofourauditworkandinevaluatingtheresultsofourwork.

Basedonourprofessionaljudgement,wedeterminedmaterialityforthefinancialstatementsasawholeasfollows:

Group financial statements Company financial statementsMateriality £9.65m(2018£8.8m) £9.3m(2018£8.5m)

Basis for determining materiality

Approximately5%(20185%)ofprofitbeforetaxadjustedfornetprofitarisingonpropertydisposals,movementsinthevaluationofthepropertyportfolioandpastservicecostinrelationtothedefinedbenefitpensionschemeobligation.Adjusteditemsrelatetoseparatelydiscloseditemsinnote2.2(2018profitbeforetaxadjustedfornetprofitarisingonpropertydisposals,movementsinthevaluationofthepropertyportfolioandseparatelydisclosedpensionlegalcosts).

Parentcompanymaterialityequatesto0.5%ofnetassets(20180.4%),whichiscappedat96%ofGroupmateriality(201897%).

Rationale for the benchmark applied

ProfitbeforetaxbeforeseparatelydiscloseditemsisakeymeasureusedbytheGroupinreportingitsresultstoallowabetterunderstandingoftheadjustedtradingoftheGroupandisalsoakeymeasureconsideredbyusersoftheaccounts.

Theparentcompanydoesnottradesomaterialityhasbeendeterminedusingnetassets.

2. Group materiality £9.65m

Statutory materiality range £9.30m to £0.10m

Audit Committee reporting threshold £0.465m

Adjusted PBT £197m 1 2

1. Profit before tax before separately disclosed items


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Our consideration of the control environmentTheGroupusesJDEEnterpriseforfinancialreportinginallofitslegalentities.WeutilisedourITspecialiststoassesskeycontrolsovertheJDEEnterprisesystem,plusotherkeyITsystemsrelevanttoourauditincludingStockWastageSystem,STEP,Aztec,DataWarehouses,RobotScheduler,SterlingandBiztalkandthesupportinginfrastructurefortheseapplications.

Overthecourseoftheyear,managementhaveundertakenanexercisetofurtherstrengthentheITenvironment,whichresultedinanumberofnewcontrolsbeingimplementedduringtheyear.Weperformedadditionalprocedures,throughacombinationofreviewofmitigatingcontrolsinplaceandexposuretesting,tomitigateITauditriskswherenewcontrolshadnotbeeninplaceforthefullyear,orareduetobeimplementedpostyear-end,forexample,reviewingsystemlogstodeterminewhethertherehadbeenanyinappropriateaccessduringtheyear.WewereabletomitigateallidentifiedITauditrisksrelevanttoourauditthroughacombinationofoperatingeffectivenesstestingofcontrolsandadditionalprocedures.

Inrespondingtotheassessedrisksofmaterialmisstatement,theauditengagementteamplacedrelianceontheoperatingeffectivenessoftheGroup’scontrolsinrelationtorevenue,foodanddrinkexpenditure,property,plantandequipmentreturngeneratingcapitalexpenditure,depreciation,onerousleaseprovisionsandthevaluationofthepubestate.

OTHER INFORMATIONTheDirectorsareresponsiblefortheotherinformation.TheotherinformationcomprisestheinformationincludedintheAnnualReport,otherthanthefinancialstatementsandourauditor’sreportthereon.

Ouropiniononthefinancialstatementsdoesnotcovertheotherinformationand,excepttotheextentotherwiseexplicitlystatedinourreport,wedonotexpressanyformofassuranceconclusionthereon.

Inconnectionwithourauditofthefinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.

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

Wesetperformancematerialityatalevellowerthanmaterialitytoreducetheprobabilitythat,inaggregate,uncorrectedandundetectedmisstatementsexceedthematerialityforthefinancialstatementsasawhole.Groupperformancematerialitywassetat70%ofGroupmaterialityforthe2019audit(201870%).Indeterminingperformancemateriality,weconsideredfactorsincluding:

• ourriskassessment,includingourassessmentoftheGroup’soverallcontrolenvironmentandthatweconsideritappropriatetorelyoncontrolsoverkeybusinessprocesses;and

• ourpastexperienceoftheaudit,whichhasindicatedalownumberofcorrectedanduncorrectedmisstatementsidentifiedinpriorperiods.

WeagreedwiththeAuditCommitteethatwewouldreporttotheCommitteeallauditdifferencesinexcessof£465,000(2018£440,000),aswellasdifferencesbelowthatthresholdthat,inourview,warrantedreportingonqualitativegrounds.WealsoreporttotheAuditCommitteeondisclosuremattersthatweidentifiedwhenassessingtheoverallpresentationofthefinancialstatements.

AN OVERVIEW OF THE SCOPE OF OUR AUDITOurGroupauditwasscopedbyobtaininganunderstandingoftheGroupanditsenvironment,includingGroup-widecontrols,andassessingtherisksofmaterialmisstatementattheGrouplevel.Basedonthatassessment,weperformedafullscopeauditinrespectoftheUKretailoperatingbusinesswhichaccountsfor99%(201899%)oftheGroup’stotalassets,96%(201896%)ofrevenueand96%(201896%)ofoperatingprofit.ThisauditworkwasperformeddirectlybytheGroupauditengagementteam,whoalsotestedtheconsolidationprocess.GiventherelativesizeoftheGermanbusiness(‘ALEX’)weconsidertheUKbusinessprovidessufficientauditassuranceovertheGroupbalances.Thisapproachisconsistentwith2018.Attheparententitylevelwealsotestedtheconsolidationprocess,aswellastheCompanybalancesheettoparentcompanymateriality.

OurauditworkontheUKbusinesswasexecutedatlevelsofmaterialityapplicabletoeachindividualentitywhichwerelowerthanGroupmaterialityandrangedfrom£0.1mto£9.3m(2018£1to£8.5m).

Full audit scope

Review at Group level

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

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 DIRECTORSAsexplainedmorefullyintheDirectors’responsibilitiesstatement,theDirectorsareresponsibleforthepreparationofthefinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview,andforsuchinternalcontrolastheDirectorsdetermineisnecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

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

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTSOurobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditor’sreportthatincludesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithISAs(UK)willalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements.



Detailsoftheextenttowhichtheauditwasconsideredcapableofdetectingirregularities,includingfraud,aresetoutbelow.

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

EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUDWeidentifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror,andthendesignandperformauditproceduresresponsivetothoserisks,includingobtainingauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.

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

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

− identifying,evaluatingandcomplyingwithlawsandregulationsandwhethertheywereawareofanyinstancesofnon-compliance;

− detectingandrespondingtotherisksoffraudandwhethertheyhaveknowledgeofanyactual,suspectedorallegedfraud;

− theinternalcontrolsestablishedtomitigaterisksrelatedtofraudornon-compliancewithlawsandregulations;

• discussingamongtheengagementteamandinvolvingrelevantinternalspecialists,includingproperty,tax,pensions,ITandfinancialinstrumentsspecialistsregardinghowandwherefraudmightoccurinthefinancialstatementsandanypotentialindicatorsoffraud.Aspartofthisdiscussion,weidentifiedpotentialforfraudinthefollowingareas:valuationofpubestate,onerousleaseprovisionsandcompliancewithdebtcovenants;and

• obtaininganunderstandingofthelegalandregulatoryframeworkthattheGroupoperatesin,focusingonthoselawsandregulationsthathadadirecteffectonthefinancialstatementsorthathadafundamentaleffectontheoperationsoftheGroup.ThekeylawsandregulationsweconsideredinthiscontextincludedtheUKCompaniesAct,ListingRules,pensionslegislation,taxlegislation,dataprotectionregulations,licensingregulations,occupationalhealthandsafetyregulations,responsibledrinkingregulations,planningandbuildinglegislationandemploymentlegislation.

Audit response to risks identifiedAsaresultofperformingtheabove,weidentifiedonerousleaseprovisions,valuationofthepubestateandcompliancewithdebtcovenantsaskeyauditmatters.Thekeyauditmatterssectionofourreportexplainsthemattersinmoredetailandalsodescribesthespecificproceduresweperformedinresponsetothosekeyauditmatters.

Inadditiontotheabove,ourprocedurestorespondtorisksidentifiedincludedthefollowing:

• reviewingthefinancialstatementdisclosuresandtestingtosupportingdocumentationtoassesscompliancewithrelevantlawsandregulationsdiscussedabove;

• enquiringofmanagement,theAuditCommitteeandin-houselegalcounselconcerningactualandpotentiallitigationandclaims;

• performinganalyticalprocedurestoidentifyanyunusualorunexpectedrelationshipsthatmayindicaterisksofmaterialmisstatementduetofraud;

• readingminutesofmeetingsofthosechargedwithgovernance,reviewingGroupAssurancereports;and

• inaddressingtheriskoffraudthroughmanagementoverrideofcontrols,testingtheappropriatenessofjournalentriesandotheradjustments;assessingwhetherthejudgementsmadeinmakingaccountingestimatesareindicativeofapotentialbias;andevaluatingthebusinessrationaleofanysignificanttransactionsthatareunusualoroutsidethenormalcourseofbusiness.

Wealsocommunicatedrelevantidentifiedlawsandregulationsandpotentialfraudriskstoallengagementteammembers,includinginternalspecialists,andremainedalerttoanyindicationsoffraudornon-compliancewithlawsandregulationsthroughouttheaudit.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTSOpinions 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.Theperiodoftotaluninterruptedengagementincludingpreviousrenewalsandreappointmentsofthefirmisnineyears,coveringtheyearsending24September2011to28September2019.

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

USE OF OUR REPORTThisreportismadesolelytotheCompany’smembers,asabody,inaccordancewithChapter3ofPart16oftheCompaniesAct2006.OurauditworkhasbeenundertakensothatwemightstatetotheCompany’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthantheCompanyandtheCompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.

JOHN CHARLTON FCA (Seniorstatutoryauditor)

ForandonbehalfofDeloitteLLPStatutoryAuditorLondon,UnitedKingdom

19November2019


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201952 weeks

201852 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 2,237 – 2,237 2,152 – 2,152Operating costs before depreciation, amortisation and movements in the valuation of the property portfolio 2.2, 2.3 (1,801) (19) (1,820) (1,730) (6) (1,736)Net profit arising on property disposals 2.2, 2.3 – 1 1 – 1 1 EBITDAb 436 (18) 418 422 (5) 417Depreciation, amortisation and movements in the valuation of the property portfolio 2.2, 2.3 (119) (2) (121) (119) (43) (162)Operating profit 317 (20) 297 303 (48) 255 Finance costs 4.3 (114) – (114) (119) – (119)Finance revenue 4.3 1 – 1 1 – 1 Net pensions finance charge 4.3, 4.5 (7) – (7) (7) – (7)Profit before tax 197 (20) 177 178 (48) 130

Tax (charge)/credit 2.2, 2.4 (38) 4 (34) (33) 7 (26)

Profit/(loss) for the period 159 (16) 143 145 (41) 104Earnings per ordinary share – Basic 2.5 37.2p 33.5p 34.1p 24.5p – Diluted 2.5 37.1p 33.3p 34.0p 24.4p

a. Separately disclosed items are explained and analysed in note 2.2.b. Earnings before interest, tax, depreciation, amortisation and movements in the valuation of the property portfolio.

The notes on pages 111 to 150 form an integral part of these consolidated financial statements.

All results relate to continuing operations.


GROUP INCOME STATEMENT FOR THE 52 WEEKS ENDED 28 SEPTEMBER 2019

Notes

201952 weeks

£m

201852 weeks

£m

Profit for the period 143 104Items that will not be reclassified subsequently to profit or loss:Unrealisedgain/(loss)onrevaluationofthepropertyportfolio 3.1 84 (5)Remeasurementofpensionliability 4.5 15 5Taxrelatingtoitemsnotreclassified 2.4 (18) –

81 –Items that may be reclassified subsequently to profit or loss:Cashflowhedges: –(Losses)/gainsarisingduringtheperiod 4.4 (81) 16 –Reclassificationadjustmentsforitemsincludedinprofitorloss 4.4 23 34Taxrelatingtoitemsthatmaybereclassified 2.4 10 (8)

(48) 42Other comprehensive income after tax 33 42Total comprehensive income for the period 176 146

Thenotesonpages111to150formanintegralpartoftheseconsolidatedfinancialstatements.


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GROUP STATEMENT OF COMPREHENSIVE INCOME FORTHE52WEEKSENDED28SEPTEMBER2019

Notes2019

£m2018

£m

AssetsGoodwillandotherintangibleassets 3.4 14 11Property,plantandequipment 3.1 4,528 4,426Leasepremiums 1 1Interestsinassociates 3.5 5 5Deferredtaxasset 2.4 66 63Derivativefinancialinstruments 4.4 53 44Total non-current assets 4,667 4,550Inventories 3.2 26 26Tradeandotherreceivables 3.2 63 56Othercashdeposits 4.1 – 120Cashandcashequivalents 4.1 133 122Derivativefinancialinstruments 4.4 3 4Total current assets 225 328Total assets 4,892 4,878LiabilitiesPensionliabilities 4.5 (50) (49)Tradeandotherpayables 3.2 (327) (302)Currenttaxliabilities (12) (9)Borrowings 4.2 (95) (233)Derivativefinancialinstruments 4.4 (36) (37)Total current liabilities (520) (630)Pensionliabilities 4.5 (165) (200)Borrowings 4.2 (1,657) (1,744)Derivativefinancialinstruments 4.4 (266) (207)Deferredtaxliabilities 2.4 (301) (285)Provisions 3.3 (36) (43)Total non-current liabilities (2,425) (2,479)Total liabilities (2,945) (3,109)Net assets 1,947 1,769

EquityCalledupsharecapital 4.7 37 37Sharepremiumaccount 4.7 26 26Capitalredemptionreserve 4.7 3 3Revaluationreserve 4.7 1,267 1,197Ownsharesheld 4.7 (4) (1)Hedgingreserve 4.7 (250) (202)Translationreserve 4.7 14 14Retainedearnings 854 695Total equity 1,947 1,769


TheconsolidatedfinancialstatementswereapprovedbytheBoardandauthorisedforissueon19November2019.

Theyweresignedonitsbehalfby:

TIM JONESChiefFinancialOfficer


GROUP BALANCE SHEET 28SEPTEMBER2019

Calledup share

capital£m

Sharepremiumaccount

£m

Capitalredemption

reserve£m

Revaluationreserve

£m

Ownshares

held£m

Hedgingreserve

£m

Translationreserve

£m

Retainedearnings

£m

Totalequity

£m

At 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 1,769Profitfortheperiod – – – – – – – 143 143Othercomprehensiveincome/(expense) – – – 70 – (48) – 11 33Total comprehensive income/(expense) – – – 70 – (48) – 154 176Purchaseofownshares – – – – (3) – – – (3)Creditinrespectofshare-basedpayments – – – – – – – 3 3Taxonshare-basedpayments – – – – – – – 2 2At 28 September 2019 37 26 3 1,267 (4) (250) 14 854 1,947


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GROUP STATEMENT OF CHANGES IN EQUITY FORTHE52WEEKSENDED28SEPTEMBER2019

Notes

201952 weeks

£m

201852 weeks

£m

Cash flow from operationsOperatingprofit 297 255Addback:adjusteditems 2.2 20 48Operatingprofitbeforeadjusteditems 317 303Addback:Depreciationofproperty,plantandequipment 2.3 116 116Amortisationofintangibles 2.3 3 3Costchargedinrespectofshare-basedpayments 4.6 3 3Administrativepensioncosts 4.5 3 2Operating cash flow before adjusted items, movements in working capital and additional pension contributions 442 427Increaseininventories – (1)Increaseintradeandotherreceivables (9) (1)Increaseintradeandotherpayables 25 4Decreaseinprovisions (7) –Additionalpensioncontributions 4.5 (49) (48)Cash flow from operations before adjusted items 402 381Cashflowfromadjusteditems – (2)Interestpaid (113) (120)Interestreceived 2 1Taxpaid (25) (20)Net cash from operating activities 266 240Investing activitiesPurchasesofproperty,plantandequipment (147) (167)Purchasesofintangibleassets (5) (4)Proceedsfromsaleofproperty,plantandequipment 14 5Acquisitionofinvestmentinassociates 3.5 – (5)Transfersfromothercashdeposits 120 –Net cash used in investing activities (18) (171)Financing activitiesIssueofordinarysharecapital – 1Purchaseofownshares (3) –Dividendspaid(netofscripdividend) 4.7 – (7)Repaymentofprincipalinrespectofsecuritiseddebt 4.1 (87) (82)Repaymentofliquidityfacility 4.1 (147) –Netmovementonunsecuredrevolvingcreditfacilities 4.1 – (6)Net cash used in financing activities (237) (94)Net increase/(decrease) in cash and cash equivalents 11 (25)Cashandcashequivalentsatthebeginningoftheperiod 122 147Cash and cash equivalents at the end of the period 4.1 133 122



GROUP CASH FLOW STATEMENT FORTHE52WEEKSENDED28SEPTEMBER2019

GENERAL INFORMATIONMitchells&Butlersplc(theCompany)isapubliclimitedcompanylimitedbysharesandisregisteredinEnglandandWales.TheCompany’ssharesarelistedontheLondonStockExchange.TheaddressoftheCompany’sregisteredofficeisshownonpage149.

TheprincipalactivitiesoftheCompanyanditssubsidiaries(theGroup)andthenatureoftheGroup’soperationsaresetoutintheStrategicreportonpages10to49.

TheGroupisrequiredtoprepareitsconsolidatedfinancialstatementsinaccordancewithInternationalFinancialReportingStandards(IFRSs)asadoptedbytheEuropeanUnionandinaccordancewiththeCompaniesAct2006.

TheGroup’saccountingreferencedateis30September.TheGroupdrawsupitsconsolidatedfinancialstatementstotheSaturdaydirectlybeforeorfollowingtheaccountingreferencedate,aspermittedbysection390(3)oftheCompaniesAct2006.Theperiodended28September2019andthecomparativeperiodended29September2018bothinclude52tradingweeks.

Theconsolidatedfinancialstatementshavebeenpreparedonthehistoricalcostbasisasmodifiedbytherevaluationofproperties,pensionobligationsandfinancialinstruments.

TheGroup’saccountingpolicieshavebeenappliedconsistently.

BASIS OF CONSOLIDATIONTheconsolidatedfinancialstatementsincorporatethefinancialstatementsofMitchells&Butlersplc(‘theCompany’)andentitiescontrolledbytheCompany(itssubsidiaries).

ControlisachievedwhentheCompany:

• hasthepowerovertheinvestee;• isexposed,orhasrights,tovariablereturnfrom

itsinvolvementwiththeinvestee;and• hastheabilitytouseitspowertoaffect

itsreturns.

TheCompanyreassesseswhetherornotitcontrolsaninvesteeiffactsandcircumstancesindicatethattherearechangestooneormoreofthethreeelementsofcontrollistedabove.

WhentheCompanyhaslessthanamajorityofvotingrightsofaninvestee,itconsidersthatithaspowerovertheinvesteewhenthevotingrightsaresufficienttogiveitthepracticalabilitytodirecttherelevantactivitiesoftheinvesteeunilaterally.TheCompanyconsidersallrelevantfactsandcircumstancesinassessingwhetherornottheCompany’svotingrightsinaninvesteearesufficienttogiveitpower,including:

• thesizeoftheCompany’sholdingofvotingrightsrelativetothesizeanddispersionofholdingsoftheothervoteholders;

• potentialvotingrightsheldbytheCompany,othervoteholdersorparties;

• rightsarisingfromothercontractualarrangements;and

• anyadditionalfactsandcircumstancesthatindicatethattheCompanyhas,ordoesnothave,thecurrentabilitytodirecttherelevantactivitiesatthetimethatdecisionsneedtobemade,includingvotingpatternsatthepreviousshareholders’meetings.

ConsolidationofasubsidiarybeginswhentheCompanyobtainscontroloverthesubsidiaryandceaseswhentheCompanylosescontrolofthesubsidiary.Specifically,theresultsofthesubsidiariesacquiredordisposedofduringtheyearareincludedintheGroupincomestatementfromthedatetheCompanygainscontroluntilthedatewhentheCompanyceasestocontrolthesubsidiary.

ThefinancialstatementsofthesubsidiariesarepreparedforthesamefinancialreportingperiodastheCompany.Intercompanytransactions,balancesandunrealisedgainsandlossesontransactionsbetweenGroupcompaniesareeliminatedonconsolidation.

GOING CONCERNTheGroup’sbusinessactivities,togetherwiththefactorslikelytoaffectitsfuturedevelopment,performanceandpositionaresetoutintheStrategicreportonpages10to49.ThefinancialpositionoftheGroup,itscashflows,liquiditypositionandborrowingfacilitiesarealsodescribedwithintheFinancereview.

Note4.4totheconsolidatedfinancialstatementsincludestheGroup’sobjectives,policiesandprocessesformanagingitscapital;itsfinancialriskmanagementobjectives;detailsofitsfinancialinstrumentsandhedgingactivities;anditsexposurestocreditriskandliquidityrisk.Ashighlightedinnote4.2totheconsolidatedfinancialstatements,theGroup’sfinancingisbaseduponsecuritiseddebtandunsecuredborrowingfacilities.

TheDirectorshave,atthetimeofapprovingtheconsolidatedfinancialstatements,areasonableexpectationthattheCompanyandtheGrouphaveadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.Thustheycontinuetoadoptthegoingconcernbasisofaccountinginpreparingtheconsolidatedfinancialstatements.Inaddition,theDirectorshaveprovidedareviewoflong-termviabilityonpage45,whichassessestheGroup’sabilitytocontinueinoperationandmeetitsliabilitiesastheyfalldueoverathreeyearperiod.

FOREIGN CURRENCIESTransactionsinforeigncurrenciesarerecordedattheexchangeratesrulingonthedatesofthetransactions.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedintothefunctionalcurrencyattherelevantratesofexchangerulingatthebalancesheetdate.ForeignexchangedifferencesarisingontranslationarerecognisedintheGroupincomestatement.Non-monetaryassetsandliabilitiesaremeasuredatcostusingtheexchangerateonthedateoftheinitialtransaction.

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

Theresultsofoverseasoperationshavebeentranslatedintosterlingattheweightedaverageeurorateofexchangefortheperiodof£1=€1.13(2018£1=€1.13),wherethisisareasonableapproximationtotherateatthedatesofthetransactions.EuroandUSdollardenominatedassetsandliabilitieshavebeentranslatedattherelevantrateofexchangeatthebalancesheetdateof£1=€1.12(2018£1=€1.12)and£1=$1.23(2018£1=$1.30)respectively.


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION1–BASISOFPREPARATION

contractualcashflowsandthesecashflowsconsistsolelyofpaymentsofprincipalandinterestontheprincipalamountoutstanding.Additionally,thereisnochangetotheclassificationormeasurementofthederivativefinancialinstrumentassetsdesignatedineffectivehedgerelationships.

Thedisclosureinnote4.4hasbeenamendedtodescribethesefinancialassetsasfinancialassetsatamortisedcostfromloansandreceivables.

Impairment of financial assetsInrelationtotheimpairmentoffinancialassets,IFRS9requiresanexpectedcreditlossmodelasopposedtoanincurredcreditlossmodelunderIAS39.

TheexpectedcreditlossmodelrequirestheGrouptoaccountforexpectedcreditlossesandchangesinthoseexpectedcreditlossesateachreportingdatetoreflectchangesincreditrisksinceinitialrecognitionofthefinancialassetsi.e.itisnolongernecessaryforacrediteventtohaveoccurredbeforecreditlossesarerecognised.

Specifically,IFRS9requirestheGrouptorecognisealossallowanceforexpectedcreditlosseson:

(i) debtinvestmentsmeasuredsubsequentlyatamortisedcostoratFVTOCI;

(ii) leasereceivables;(iii) tradereceivablesandcontractassets;(iv) financialguaranteecontractstowhichthe

impairmentrequirementsofIFRS9apply;and

(v) cashandcashequivalents.

Inparticular,IFRS9requirestheGrouptomeasurethelossallowanceforafinancialinstrumentatanamountequaltothelifetimeexpectedcreditlosses(ECL)ifthecreditriskonthatfinancialinstrumenthasincreasedsignificantlysinceinitialrecognition,orifthefinancialinstrumentisapurchasedororiginatedcredit-impairedfinancialasset.However,ifthecreditriskonafinancialinstrumenthasnotincreasedsignificantlysinceinitialrecognition(exceptforapurchasedororiginatedcredit-impairedfinancialasset),theGroupisrequiredtomeasurethelossallowanceforthatfinancialinstrumentatanamountequalto12-months’ECL.IFRS9alsorequiresasimplifiedapproachformeasuringthelossallowanceatanamountequaltolifetimeECLfortradereceivables,contractassetsandleasereceivablesincertaincircumstances.

TheDirectorshaveassessedtheimpactoflifetimeexpectedcreditlossesfortherelevantfinancialassetsoftheGroup.Forcashandcashequivalents,allbankbalancesareassessedtohavelowcreditriskastheyareheldwithreputableinternationalbankinginstitutions.FortradeandotherreceivablestheGrouphasadoptedthesimplifiedapproachunderIFRS9.Thelifetimeexpectedcreditlosscalculatedhasnotresultedinanadditionalcreditlossallowancebeingrecognisedinthecurrentperiod.

TheconsequentialamendmentstoIFRS7havealsoresultedinmoreextensivedisclosuresabouttheGroup’sexposuretocreditrisk(seenote4.4).

General hedge accountingThenewgeneralhedgeaccountingrequirementsretainthethreetypesofhedgeaccounting.However,greaterflexibilityhasbeenintroducedtothetypesoftransactionseligibleforhedgeaccounting,specificallybroadeningthetypesofinstrumentsthatqualifyforhedginginstrumentsandthetypesofriskcomponentsofnon-financialitemsthatareeligibleforhedgeaccounting.Inaddition,theeffectivenesstesthasbeenreplacedwiththeprincipleofan‘economicrelationship’.Retrospectiveassessmentofhedgeeffectivenessisnolongerrequired.EnhanceddisclosurerequirementsabouttheGroup’sriskmanagementactivitieshavealsobeenintroduced.

InaccordancewithIFRS9’stransitionprovisionsforhedgeaccounting,theGrouphasappliedtheIFRS9hedgeaccountingrequirementsprospectivelyfromthedateofinitialapplicationon30September2018.TheGroup’squalifyinghedgingrelationshipsinplaceasatthisdatealsoqualifyforhedgeaccountinginaccordancewithIFRS9andwerethereforeregardedascontinuinghedgingrelationships.Norebalancingofanyofthehedgingrelationshipswasnecessaryoninitialapplication.Asthecriticaltermsofthehedginginstrumentsmatchthoseoftheircorrespondinghedgeditems,allhedgingrelationshipsmeetIFRS9’seffectivenessassessmentrequirements.TheGrouphasnotdesignatedanyhedgingrelationshipsunderIFRS9thatwouldnothavemetthequalifyinghedgeaccountingcriteriaunderIAS39.

IFRS9requireshedginggainsandlossestoberecognisedasanadjustmenttotheinitialcarryingamountofnon-financialhedgeditems(basisadjustment).IFRS9clarifiesthattransfersfromthehedgingreservetotheinitialcarryingamountofthehedgeditemarenotreclassificationadjustmentsunderIAS1PresentationofFinancialStatementsandhencetheydonotaffectothercomprehensiveincome.Hedginggainsandlossessubjecttobasisadjustmentsarecategorisedasamountsthatwillnotbesubsequentlyreclassifiedtoprofitorlossinothercomprehensiveincome.ThisisconsistentwiththeGroup’spracticepriortotheadoptionofIFRS9.

TheapplicationoftheIFRS9hedgeaccountingrequirementshashadnoimpactontheresultsandfinancialpositionoftheGroupforthecurrentand/orprioryears.Pleaserefertonote4.4fordetaileddisclosuresregardingtheGroup’sriskmanagementactivities.

Overall IFRS 9 impactTheapplicationofIFRS9hashadnoimpactontheGroupbalancesheet,theGroupincomestatement,theGroupstatementofcomprehensiveincomeortheGroupcashflowstatement.

NEW AND AMENDED IFRS STANDARDS THAT ARE EFFECTIVE FOR THE CURRENT PERIODTheInternationalAccountingStandardsBoard(IASB)andInternationalFinancialReportingInterpretationsCommittee(IFRIC)haveissuedthefollowingstandardsandinterpretationswhichhavebeenadoptedbytheGroupintheseconsolidatedfinancialstatementsforthefirsttime,withnomaterialimpact:

IFRS 9 Financial InstrumentsInthecurrentperiod,theGrouphasadoptedIFRS9andtherelatedconsequentialamendmentstootherIFRSStandardsthatareeffectiveforfinancialperiodsstartingonorafter1January2018.ThedateofinitialapplicationfortheGroupis30September2018.

IFRS9introducednewrequirementsfor:

(i) classificationandmeasurementoffinancialassetsandfinancialliabilities;

(ii) impairmentoffinancialassets;and(iii) generalhedgeaccounting.

Detailsofthesenewrequirementsaswellastheirimpactontheconsolidatedfinancialstatementsaredescribedbelow:

Classification and measurement of financial assetsAllrecognisedfinancialassetsthatarewithinthescopeofIFRS9arerequiredtobemeasuredsubsequentlyatamortisedcostorfairvalueonthebasisoftheentity’sbusinessmodelformanagingthefinancialassetsandthecontractualcashflowcharacteristicsofthosefinancialassets.

Specifically:

• debtinstrumentsthatareheldwithinabusinessmodelwhoseobjectiveistocollectthecontractualcashflows,andthathavecontractualcashflowsthataresolelypaymentsofprincipalandinterestontheprincipalamountoutstanding,aremeasuredsubsequentlyatamortisedcost;

• debtinstrumentsthatareheldwithinabusinessmodelwhoseobjectiveisbothtocollectthecontractualcashflowsandtosellthedebtinstruments,andthathavecontractualcashflowsthataresolelypaymentsofprincipalandinterestontheprincipalamountoutstanding,aremeasuredsubsequentlyatfairvaluethroughothercomprehensiveincome(FVTOCI);

• allotherdebtinvestmentsandequityinvestmentsaremeasuredsubsequentlyatfairvaluethroughprofitorloss(FVTPL).

TheDirectorsoftheCompanyreviewedandassessedtheGroup’sexistingfinancialassetsasat30September2018basedonthefactsandcircumstancesthatexistedatthatdateandconcludedthattheinitialapplicationofIFRS9hashadnosignificantimpactontheclassificationandmeasurementoffinancialassetsintheconsolidatedfinancialstatements.TheonlyfinancialassetsoftheGrouprelatedtothoseclassifiedasloansandreceivablesunderIAS39thatweremeasuredatamortisedcostcontinuetobemeasuredatamortisedcostunderIFRS9astheyareheldwithinabusinessmodeltocollect


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION1–BASISOFPREPARATIONCONTINUED

IFRS 15 Revenue from Contracts with CustomersInthecurrentperiod,theGrouphasadoptedIFRS15whichiseffectiveforfinancialperiodsbeginningonorafter1January2018.ThecoreprincipleofIFRS15isthatanentityshouldrecogniserevenuetodepictthetransferofgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.Specifically,thestandardintroducesafive-stepapproachtorevenuerecognition:

Step1:IdentifythecontractwithacustomerStep2:Identifytheperformanceobligations

inthecontractStep3:DeterminethetransactionpriceStep4:Allocatethetransactionpricetothe

performanceobligationsinthecontractStep5:Recogniserevenuewhentheentity

satisfiesaperformanceobligation

AsthemajorityoftheGroup’srevenueisinrelationtothesaleoffoodanddrinkwithinpubsandrestaurants,forwhichtheconsiderationisknownandtheperformanceobligationsaresatisfiedatthepointofsale,theapplicationofIFRS15hashadnoimpactonthefinancialpositionorperformanceoftheGroup.

IFRS 2 (amendments) Classification and Measurement of Share-based Payment TransactionsTheGrouphasadoptedtheamendmentstoIFRS2forthefirsttimeinthecurrentperiod.Theamendmentsclarifythefollowing:

(i) Inestimatingthefairvalueofacash-settledshare-basedpayment,theaccountingfortheeffectsofvestingandnon-vestingconditionsshouldfollowthesameapproachasforequitysettledshare-basedpayments.

(ii) Wheretaxlaworregulationrequiresanentitytowithholdaspecifiednumberofequityinstrumentsequaltothemonetaryvalueoftheemployee’staxobligationtomeettheemployee’staxliability,suchanarrangementshouldbeclassifiedasequity-settledinitsentirety,providedthattheshare-basedpaymentwouldhavebeenclassifiedasequity-settledhaditnotincludedthenetsettlementfeature.

(iii) Amodificationofashare-basedpaymentthatchangesthetransactionfromcash-settledtoequity-settledshouldbeaccountedforasfollows:theoriginalliabilityisderecognised;theequity-settledshare-basedpaymentisrecognisedatthemodificationdatefairvalueoftheequityinstrumentgrantedtotheextentthatserviceshavebeenrendereduptothemodificationdate;andanydifferencebetweenthecarryingamountoftheliabilityatthemodificationdateandtheamountrecognisedinequityshouldberecognisedinprofitorlossimmediately.

Theseamendmentshavehadnoimpactontheconsolidatedfinancialstatements.

Annual improvements to IFRSs: 2014 to 2016 CycleTheGrouphasadoptedtheamendmentstoIAS28includedintheAnnualImprovementstoIFRSStandards2014–2016Cycleforthefirsttimeinthecurrentyear.TheamendmentsclarifythattheoptionforaventurecapitalorganisationandothersimilarentitiestomeasureinvestmentsinassociatesandjointventuresatFVTPLisavailableseparatelyforeachassociateorjointventure,andthatelectionshouldbemadeatinitialrecognition.Theseamendmentshavehadnoimpactontheconsolidatedfinancialstatements.

IFRIC 22 Foreign Currency Transactions and Advance ConsiderationIFRIC22addresseshowtodeterminethe‘dateoftransaction’forthepurposeofdeterminingtheexchangeratetouseoninitialrecognitionofanasset,expenseorincome,whenconsiderationforthatitemhasbeenpaidorreceivedinadvanceinaforeigncurrencywhichresultedintherecognitionofanon-monetaryassetornon-monetaryliability(forexample,anon-refundabledepositordeferredrevenue).

TheInterpretationspecifiesthatthedateoftransactionisthedateonwhichtheentityinitiallyrecognisesthenon-monetaryassetornon-monetaryliabilityarisingfromthepaymentorreceiptofadvanceconsideration.Iftherearemultiplepaymentsorreceiptsinadvance,theInterpretationrequiresanentitytodeterminethedateoftransactionforeachpaymentorreceiptofadvanceconsideration.

Theseamendmentshavehadnoimpactontheconsolidatedfinancialstatements.

NEW AND REVISED IFRS STANDARDS IN ISSUE BUT NOT YET EFFECTIVETheIASBandIFRIChaveissuedthefollowingstandardsandinterpretationswhichcouldimpacttheGroup,withaneffectivedateforfinancialperiodsbeginningonorafterthedatesdisclosedbelow:

Accounting standard Effective dateIFRIC 23 Uncertainty over Income Tax Treatments 1January2019Amendments to IAS 28 Long- term Interest in Associates and Joint Ventures 1January2019Annual Improvements to IFRSs 2015–2017 Cycle 1January2019Amendments to IAS 19 Employee Benefits: Plan Amendment, Curtailment or Settlement 1January2019

TheDirectorsdonotexpectthattheadoptionofthestandardslistedabovewillhaveamaterialimpactontheconsolidatedfinancialstatementsinfutureperiods.

IMPACT OF ADOPTION OF IFRS 16 LEASESGeneral impact of application of IFRS 16IFRS16,whichwasendorsedbytheEUon9November2017,providesacomprehensivemodelfortheidentificationofleasearrangementsandtheirtreatmentintheconsolidatedfinancialstatementsforbothlessorsandlessees.IFRS16willsupersedethecurrentleaseguidanceincludingIAS17LeasesandtherelatedInterpretationswhenitbecomeseffectiveforaccountingperiodsbeginningonorafter1January2019.ThedateofinitialapplicationofIFRS16fortheGroupis29September2019.

Giventhenumberofleasesandhistoricaldatarequirementstoadoptthefullyretrospectiveapproach,theGroupintendstoapplythemodifiedretrospectiveapproach,withassetsequaltoliabilities,attransition.Thisapproachwillnotrequirerestatementofcomparativeinformation.

Incontrasttolesseeaccounting,IFRS16substantiallycarriesforwardthelessoraccountingrequirementsinIAS17.

Impact on the new definition of a lease TheGroupwillmakeuseofthepracticalexpedientavailableontransitiontoIFRS16nottoreassesswhetheracontractisorcontainsalease.Accordingly,thedefinitionofaleaseinaccordancewithIAS17andIFRIC4willcontinuetoapplytothoseleasesenteredintoormodifiedbefore29September2019.

Thechangeindefinitionofaleasemainlyrelatestotheconceptofcontrol.IFRS16distinguishesbetweenleasesandservicecontractsonthebasisofwhethertheuseofanidentifiedassetiscontrolledbythecustomer.Controlisconsideredtoexistifthecustomerhas:

• therighttoobtainsubstantiallyalloftheeconomicbenefitsfromtheuseofanidentifiedasset;and

• therighttodirecttheuseofthatasset.

TheGroupwillapplythedefinitionofaleaseandrelatedguidancesetoutinIFRS16toallleasecontractsenteredintoormodifiedonorafter29September2019(whetheritisalessororalesseeintheleasecontract).Inpreparationforthefirst-timeapplicationofIFRS16,theGrouphascarriedoutanimplementationproject.TheprojecthasshownthatthenewdefinitioninIFRS16willnotchangesignificantlythescopeofcontractsthatmeetthedefinitionofaleasefortheGroup.


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Impact on lessee accounting IFRS16willchangehowtheGroupaccountsforleasespreviouslyclassifiedasoperatingleasesunderIAS17,whichwereoff-balancesheet.

OninitialapplicationofIFRS16,forallleases(exceptasnotedbelow),theGroupwill:

(i) recogniseright-of-useassetsandleaseliabilitiesintheGroupbalancesheet,initiallymeasuredatthepresentvalueofthefutureleasepayments;

(ii) recognisedepreciationofright-of-useassetsandinterestonleaseliabilitiesintheGroupincomestatement;and

(iii) separatethetotalamountofcashpaidintoaprincipalportion(presentedwithinfinancingactivities)andinterest(presentedwithinoperatingactivities)intheGroupcashflowstatement.

Forshort-termleases(leasetermof12monthsorless)andleasesoflow-valueassets(suchaspersonalcomputersandofficefurniture),theGroupwillopttorecognisealeaseexpenseonastraight-linebasisaspermittedbyIFRS16.

TheGroupwillrecognisetotalleaseliabilitiesof£546minrespectofallitsleases.Theweightedaverageincrementalborrowingrateusedtocalculatetheopeningleaseliabilitieswas3.5%.

Thefollowingisareconciliationoftotaloperatingleasecommitmentsat28September2019,asdisclosedinnote2.3,totheleaseliabilitiesrecognisedat29September2019:

£m

Totaloperatingleasecommitmentsat28September2019(note2.3) 678Reconcilingitems: –Shorttermleases (1) –Leasecommitmentsforperiodspost

breakclauses 120 –Assumedleaseextensions 5Operatingleaseliabilitiesbeforediscounting 802Impactofdiscountingusingincrementalborrowingrate (256)TotalleaseliabilitiesrecognisedunderIFRS16at29September2019 546

TheGroupwillrecogniseacorrespondingright-of-useassetof£500minrespectofallofitsleases.

Leaseincentives(e.g.rent-freeperiods)willberecognisedaspartofthemeasurementoftheright-of-useassetsandleaseliabilitieswhereasunderIAS17theyresultedintherecognitionofaleaseliabilityincentive,amortisedasareductionofrentalcostsonastraight-linebasis.

Thefollowingisareconciliationoftheopeningleaseliabilitiestotheopeningright-of-useassets:

£m

TotalleaseliabilitiesrecognisedunderIFRS16at29September2019 546Reconcilingitems: –Leasepremiums 1 –Leaseincentives (9) –Leaseprepayments 11 –Dilapidationscosts 1 –Impairmentrecognised (31) –Subleasesderecognisedand

recognisedasfinanceleasereceivables (19)

Totalright-of-useassetsrecognisedunderIFRS16at29September2019 500

CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTYThepreparationoftheconsolidatedfinancialstatementsrequiresmanagementtomakejudgements,estimatesandassumptionsintheapplicationofaccountingpoliciesthataffectreportedamountsofassets,liabilities,incomeandexpense.

Estimatesandjudgementsareperiodicallyreviewedandarebasedonhistoricalexperienceandotherfactorsincludingexpectationsoffutureeventsthatarebelievedtobereasonableunderthecircumstances.Actualresultsmaydifferfromtheseestimates.DetailsoftheGroup’scriticalaccountingjudgementsandestimatesaredescribedwithintherelevantaccountingpolicysectionineachofthenotestotheconsolidatedfinancialstatements.

Criticaljudgementsaredescribedineachsectionlistedbelow:

• Note2.2Separatelydiscloseditems• Note3.1Property,plantandequipment• Note3.3Provisions• Note4.5Pensions

Keysourcesofestimationuncertaintyaredescribedin:

• Note3.1Property,plantandequipment

Leasepremiumswillberecognisedaspartofthemeasurementoftheright-of-useassetswhereasunderIAS17theyresultedintherecognitionofaprepaymentandweredepreciatedonastraight-linebasis.

UnderIFRS16,right-of-useassetswillbetestedforimpairmentinaccordancewithIAS36ImpairmentofAssets.Thiswillreplacethepreviousrequirementtorecogniseaprovisionforonerousleasecontracts.TheGroupwillapplythepracticalexpedienttorelyonitsassessmentofonerousleasecontractsunderIAS37asanalternativetoperforminganimpairmentreviewatthetransitiondate.Therightofuseassetwillbeadjustedforthevalueoftheonerousleaseprovisionimmediatelybeforethetransitiondate.Theonerousleaseprovisionat28September2019is£35m.Anamountof£31mwillberecognisedasimpairmentattransition,withanamountof£2mrecognisedinopeningretainedearnings,representingtheexcessonerousleaseprovisionasaresultofalowerdiscountratebeingusedfortheonerousleaseprovisioncomparedtoleaseliabilitiesunderIFRS16.Theremainingprovisionof£2mwillcontinuetobeheldasaprovisionasitrelatestoservicecharge,whichisavariableleasecommitment.

Impact on lessor accountingUnderIFRS16,alessorcontinuestoclassifyleasesaseitherfinanceleasesoroperatingleasesandaccountforthosetwotypesofleasesdifferently.However,IFRS16haschangedandexpandedthedisclosuresrequired,inparticularregardinghowalessormanagestherisksarisingfromitsresidualinterestinleasedassets.

UnderIFRS16,anintermediatelessoraccountsfortheheadleaseandthesubleaseastwoseparatecontracts.Theintermediatelessorisrequiredtoclassifythesubleaseasafinanceoroperatingleasebyreferencetotheright-of-useassetarisingfromtheheadlease(andnotbyreferencetotheunderlyingassetaswasthecaseunderIAS17).

BecauseofthischangetheGroupwillreclassifycertainofitssubleaseagreementsasfinanceleases.AsrequiredbyIFRS9,anallowanceforexpectedcreditlosseswillberecognisedonthefinanceleasereceivables.Theleasedassetswillbederecognisedandfinanceleaseassetreceivablesrecognised.Thischangeinaccountingwillchangethetimingofrecognitionoftherelatedrevenue(recognisedinfinanceincome).Anamountof£19mwillbederecognisedfromtheopeningright-of-useassetandrecognisedasafinanceleasereceivableattransition.Theexpectedcreditlossattransitionis£nil.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION1–BASISOFPREPARATIONCONTINUED

2.1 SEGMENTAL ANALYSIS

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

TheCODMusesEBITDAandprofitbeforeinterestandadjusteditems(operatingprofitpre-adjustments)asthekeymeasuresoftheGroup’sresultsonanaggregatedbasis.

Geographical segmentsSubstantiallyalloftheGroup’sbusinessisconductedintheUnitedKingdom.Inpresentinginformationbygeographicalsegment,segmentrevenueandnon-currentassetsarebasedonthegeographicallocationofcustomersandassets.

Geographical segmentsUK Germany Total

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Revenue–salestothirdparties 2,147 2,071 90 81 2,237 2,152Segmentnon-currentassetsa 4,531 4,428 12 10 4,543 4,438

a. Includesbalancesrelatingtointangibles,property,plantandequipmentandnon-currentleasepremiums.

2.2 SEPARATELY DISCLOSED ITEMS

Accounting policyInadditiontopresentinginformationonanIFRSbasis,theGroupalsopresentsadjustedprofitandearningspershareinformationthatexcludesseparatelydiscloseditemsandtheimpactofanyassociatedtax.AdjustedprofitabilitymeasuresarepresentedexcludingseparatelydiscloseditemsaswebelievethisprovidesbothmanagementandinvestorswithusefuladditionalinformationabouttheGroup’sperformanceandsupportsamoreeffectivecomparisonoftheGroup’stradingperformancefromoneperiodtothenext.AdjustedprofitandearningspershareinformationisusedbymanagementtomonitorbusinessperformanceagainstbothshortertermbudgetsandforecastsbutalsoagainsttheGroup’slongertermstrategicplans.

Separatelydiscloseditemsarethosewhichareseparatelyidentifiedbyvirtueoftheirsizeorincidenceandincludemovementsinthevaluationofthepropertyportfolioasaresultoftheannualrevaluationexercise,impairmentreviewofshortleaseholdandunlicensedproperties,revaluationofassetsheldforsale,legalcostsassociatedwiththedisputeinrelationtothedefinedbenefitpensionschemeandpastservicecostinrelationtothedefinedbenefitpensionobligation.

Critical accounting judgements JudgementisusedtodeterminethoseitemswhichshouldbeseparatelydisclosedtoallowabetterunderstandingoftheadjustedtradingperformanceoftheGroup.Thisjudgementincludesassessmentofwhetheranitemisofsufficientsizeorofanaturethatisnotconsistentwithnormaltradingactivities.

Separatelydiscloseditemsareidentifiedasfollows:

• One-offlegalcostsassociatedwiththeongoingcourtcasebetweentheCompanyandtheTrusteeoftheDefinedBenefitPensionschemeinrelationtotherateofinflationappliedtopensionincreasesforcertainsectionsofthemembership.ThesecostswouldpreventyearonyearcomparabilityoftheGroup’stradingifnotseparatelydisclosed.

• PastservicecostinrelationtothedefinedbenefitpensionobligationasaresultoftheHighCourtrulingonguaranteedminimumpensions(GMPs)equalisations.ThishasbeendisclosedseparatelyasitisnotconsideredpartoftheadjustedtradeperformanceoftheGroupandwouldpreventyearonyearcomparabilityoftheGroup’stradingifnotseparatelydisclosed.

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

• Movementinthevaluationofthepropertyportfolio–thisisdisclosedseparately,duetothesizeandvolatilityofthemovementinpropertyvaluationeachperiod,whichcanbepartlydrivenbymovementsinthepropertymarket.ThismovementisalsonotconsideredtobepartoftheadjustedtradeperformanceoftheGroupandwouldpreventyearonyearcomparabilityoftheGroup’stradingperformanceifnotseparatelydisclosed.


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION2–RESULTSFORTHEYEAR

2.2 SEPARATELY DISCLOSED ITEMS CONTINUEDTheitemsidentifiedinthecurrentperiodareasfollows:

Notes

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Adjusted itemsLegalcostsassociatedwiththedefinedbenefitpensionscheme a – (6)Pastservicecostinrelationtothedefinedbenefitobligation b (19) –Totaladjusteditemsrecognisedwithinoperatingcosts (19) (6)Netprofitarisingonpropertydisposals 1 1Movementinthevaluationofthepropertyportfolio(seenote3.1): –Impairmentarisingfromtherevaluation c (4) (28) –Impairmentofshortleaseholdandunlicensedproperties d (5) (15) –Reversalofpastimpairmentontransfertoassetsheldforsale e 7 –Netmovementinthevaluationofthepropertyportfolio (2) (43)Total adjusted items before tax (20) (48)Taxcreditrelatingtoaboveitems 4 7Total adjusted items after tax (16) (41)

a. Aspreviouslydisclosedinthepriorperiod,thereareongoinglegalproceedingsbetweentheCompany(asprincipalemployer)andMitchells&ButlersPensionsLimited(asTrustee)forwhichcostshavebeenincurredbothbytheCompanyandbytheTrustee,butwhichtheCompanyhasagreedtopay.ThelegalproceedingsareinrelationtotheMitchells&ButlersPensionPlan(MABPP),wherebytheTrustDeedandRulesprovidethatitisamatterfortheCompanytodeterminetherateofinflationwhichshouldbeappliedtopensionincreasesforcertainsectionsofthemembershipinexcessofguaranteedminimumpensions.TheCompanyhasinstructedtheTrusteetoapplyCPI(subjecttocertaincaps)inrespectofsuchincreases.TheTrusteebelievesthatthispowerwasincorrectlyvestedintheCompanyintheTrustDeedandRulesoftheMABPPin1996and,despiteitbeingreflectedinfurtherversionsoftheTrustDeedandRules,hasmadeanapplicationtocourtforthosevariousTrustDeedandRulestoberectified.ItistheBoard’sbeliefthattheCompanyholdsthepowertofixsuchaninflationindexandtheCompanyisthereforecontestingthatapplication.Thehearingisexpectedtobeheardinmid-2020.

b. On26October2018theHighCourtprovidedarulingregardingguaranteedminimumpensions(GMPs)equalisation.Thecourtruledthatpensionsprovidedtomemberswhohadcontracted-outoftheirschememustberecalculatedtoensurepaymentsreflecttheequalisationofstatepensionagesinthe1990s.TherulingprovidedpensiontrusteeswitharangeofacceptablemethodsforcalculatingtheGMPequalisation.Thecourtalsoruledthattrusteesareobligedtomakearrearspaymentstomembersandsimpleinterestonthearrearsshouldbepaidat1%abovethebaserate.TheestimatedincreaseinpensionliabilitiesrequiredtoequaliseforGMPsis£19m.

c. TheimpairmentarisingfromtheGroup’srevaluationofitsfreeholdandlongleaseholdpubestatecomprisesanimpairmentcharge,wherethecarryingvaluesofthepropertiesexceedtheirrecoverableamount,netofarevaluationsurplusthatreversespastimpairments.Seenote3.1forfurtherdetails.

d. Theimpairmentofshortleaseholdandunlicensedpropertiescomprisesanimpairmentcharge,wheretheircarryingvaluesexceedtheirrecoverableamount,netofanimpairmentreversalwherecarryingvalueshavebeenincreasedtotherecoverableamounts.Seenote3.1forfurtherdetails.

e. Arevaluationuplift,whichreversesapreviousimpairment,hasbeenrecognisedonreclassificationofproperty,plantandequipmenttoassetsheldforsaleattheinterimdate.Theseassetshavebeendisposedofduringthesecondhalfofthefinancialperiod.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION2–RESULTSFORTHEYEARCONTINUED

2.3 REVENUE AND OPERATING COSTS

Accounting policyRevenue recognitionRevenueismeasuredbasedontheconsiderationtowhichtheGroupexpectstobeentitledinacontractwithacustomerandexcludesamountscollectedonbehalfofthirdparties.TheGrouprecognisesrevenuewhenittransferscontrolofaproductorservicetoacustomer.

Revenue – food and drinkThemajorityofrevenuecomprisesfoodanddrinkssoldintheGroup’soutlets.Revenueisrecognisedwhencontrolofthegoodshastransferred,beingatthepointthecustomerpurchasesthegoodsattheoutlet.Paymentofthetransactionpriceisdueimmediatelyatthepointthecustomermakesapurchase.Revenueexcludessales-basedtaxes,couponsanddiscounts.

Revenue – servicesRevenueforservicesmainlyrepresentsincomefromgamingmachines,hotelaccommodationandrentreceivablefromunlicensedandleasedoperations.Revenueforgamingmachinesandhotelaccommodationisrecognisedatthepointtheserviceisprovidedandexcludessales-basedtaxesanddiscounts.

RentalincomeisreceivedfromoperatingleaseswheretheGroupactsaslessorforanumberofunlicensedandleasedoperations.Incomefromtheseleasesisrecognisedonastraight-linebasisoverthetermofthelease.

Operating profitOperatingprofitisstatedafterchargingadjusteditemsbutbeforeinvestmentincomeandfinancecosts.

Supplier incentivesSupplierincentivesandrebatesarerecognisedwithinoperatingcostsastheyareearned.Theaccruedvalueatthereportingdateisincludedinotherreceivables.

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

Premiumspaidonacquiringanewleasearespreadonastraight-linebasisovertheleaseterm.Suchpremiumsareclassifiedinthebalancesheetascurrentornon-currentleasepremiums,withthecurrentportionbeingtheelementwhichrelatestothefollowingperiod.

TheGroup’spolicyistoaccountforlandheldunderbothlongandshortleaseholdcontractsasoperatingleases,sinceithasnoexpectationthattitlewillpassonexpiryoftheleasecontracts.

Revenueisanalysedasfollows:

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Food 1,137 1,092Drink 1,025 991Services 75 69

2,237 2,152

Revenuefromservicesincludesrentreceivablefromunlicensedpropertiesandleasedoperationsof£10m(2018£9m).

Operatingcostsareanalysedasfollows:

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Rawmaterialsandconsumablesrecognisedasanexpensea 574 564Changesininventoryoffinishedgoodsandworkinprogress – (1)Employeecosts 721 676Hireofplantandmachinery 23 23Propertyoperatingleasecosts 59 63Othercosts 424 405Operatingcostsbeforedepreciation,amortisationandmovementsinthevaluationofthepropertyportfoliobeforeseparatelydiscloseditems 1,801 1,730Otheradjusteditems(note2.2) 19 6

1,820 1,736Netprofitarisingonpropertydisposals (1) (1)

Depreciationofproperty,plantandequipment(note3.1) 116 116Amortisationofintangibleassets(note3.4) 3 3Netmovementinthevaluationofthepropertyportfolio(note3.1) 2 43Depreciation,amortisationandmovementsinthevaluationofthepropertyportfolio 121 162Total operating costs 1,940 1,897

a. Supplierincentivesareincludedasareductiontotherawmaterialsandconsumablesexpense.Thesearenotdisclosedseparatelyasthevalueisimmaterial.


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2.3 REVENUE AND OPERATING COSTS CONTINUEDEmployee costs

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Wagesandsalaries 656 620Share-basedpayments(note4.6) 3 3Totalwagesandsalaries 659 623Socialsecuritycosts 50 45Pensions(note4.5) 12 8Totalemployeecosts 721 676

Theaveragenumberofemployeesincludingpart-timeemployeeswas44,521retailemployees(201843,777)and1,039supportemployees(20181,025).

Informationregardingkeymanagementpersonnelisincludedinnote5.1.DetailedinformationregardingDirectors’emoluments,pensions,long-termincentiveschemeentitlementsandtheirinterestsinshareoptionsisgivenintheReportonDirectors’remunerationonpages76to97.

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

Totalfutureminimumleaserentalpaymentsundernon-cancellableoperatingleasesareasfollows:

2019£m

2018£m

Duewithinoneyear 47 55Betweenoneandfiveyears 198 196Afterfiveyears 433 419

678 670

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

Totalfutureminimumleaserentalreceiptsundernon-cancellableoperatingleasesareasfollows:

2019£m

2018£m

Duewithinoneyear 9 8Betweenoneandfiveyears 27 26Afterfiveyears 52 45

88 79

Thetotalvalueoffutureminimumsubleaserentalreceiptsincludedaboveis£39m.£3mofsubleaseincomehasbeenderecognisedasrentalincomeintheGroupincomestatementintheperiod.

Auditor remuneration2019

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FeespayabletotheGroup’sauditorforthe: –auditoftheconsolidatedfinancialstatements 0.2 0.1 –auditoftheCompany’ssubsidiaries’financialstatements 0.3 0.3Totalauditfees 0.5 0.4Otherfeestoauditor: –auditrelatedassuranceservices 0.1 0.1Totalnon-auditfees 0.1 0.1

Auditor’sremunerationof£0.4m(2018£0.3m)waspaidintheUKand£0.1m(2018£0.1m)waspaidinGermany.



2.4 TAXATION

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

Deferred taxDeferredtaxisthetaxexpectedtobepayableorrecoverableondifferencesbetweenthecarryingamountofassetsandliabilitiesinthefinancialstatementsandthecorrespondingtaxbasesusedinthecomputationoftaxableprofitsandisaccountedforusingthebalancesheetliabilitymethod.Deferredtaxliabilitiesaregenerallyrecognisedforalltaxabletemporarydifferencesanddeferredtaxassetsarerecognisedtotheextentthatitisprobablethattaxableprofitswillbeavailableagainstwhichdeductibletemporarydifferencescanbeutilised.

Deferredtaxliabilitiesarerecognisedfortaxabletemporarydifferencesarisingoninvestmentsinsubsidiariesandassociates,exceptwheretheGroupisabletocontrolthereversalofthetemporarydifferenceanditisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.Deferredtaxassetsarisingfromdeductibletemporarydifferencesassociatedwithsuchinvestmentsandinterestsareonlyrecognisedtotheextentthatitisprobablethattherewillbesufficienttaxableprofitsagainstwhichtoutilisethebenefitsofthetemporarydifferencesandtheyareexpectedtoreverseintheforeseeablefuture.

Thecarryingamountofdeferredtaxassetsisreviewedateachbalancesheetdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitswillbeavailabletoallowallorpartoftheassettoberecovered.

Deferredtaxiscalculatedatthetaxratesthatareexpectedtoapplyintheperiodwhentheliabilityissettledortheassetrealisedbasedontaxlawsandratesthathavebeensubstantivelyenactedatthebalancesheetdate.Theamountofdeferredtaxrecognisedisbasedontheexpectedmannerofrealisationorsettlementofthecarryingamountofassetsandliabilities.

Taxation – Group income statement2019

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Currenttax: –UKcorporationtax (31) (28) –Amountsoverprovidedinpriorperiods 3 2Totalcurrenttaxcharge (28) (26)Deferredtax: –Originationandreversaloftemporarydifferences (5) – –Adjustmentsinrespectofpriorperiods (1) –Totaldeferredtaxcharge (6) –TotaltaxchargedintheGroupincomestatement (34) (26)Furtheranalysedastaxrelatingto:Profitbeforeadjusteditems (38) (33)Adjusteditems 4 7

(34) (26)

Thestandardrateofcorporationtaxappliedtothereportedprofitis19.0%(201819.0%).

ThetaxchargeintheGroupincomestatementfortheperiodisequalto(2018higherthan)thestandardrateofcorporationtaxintheUK.Thedifferencesarereconciledbelow:

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Profitbeforetax 177 130TaxationchargeattheUKstandardrateofcorporationtaxof19.0%(201819.0%) (34) (25)Expensesnotdeductible (2) (4)Incomenottaxable 1 2Adjustmentsinrespectofpriorperiods 2 2Effectofdifferenttaxratesofsubsidiariesoperatinginotherjurisdictions (1) (1)TotaltaxchargeintheGroupincomestatement (34) (26)

Taxationforotherjurisdictionsiscalculatedattheratesprevailinginthosejurisdictions.


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2.4 TAXATION CONTINUED2019

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Deferred tax in the Group income statement:Acceleratedcapitalallowances 1 1Retirementbenefitobligations (4) (6)Depreciatednon-qualifyingassets – 1Unrealisedgainsonrevaluations (1) 5Taxlosses–UK (2) (2)Taxlosses–overseas (1) 1Share-basedpayments 1 –TotaldeferredtaxchargeintheGroupincomestatement (6) –

Taxation – other comprehensive income2019

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Deferredtax:Itemsthatwillnotbereclassifiedsubsequentlytoprofitorloss: –Unrealised(gains)/lossesduetorevaluations–revaluationreserve (14) 1 –Unrealisedgainsduetorevaluations–retainedearnings (1) – –Remeasurementofpensionliability (3) (1)

(18) –Itemsthatmaybereclassifiedsubsequentlytoprofitorloss: –Cashflowhedges: –(Losses)/gainsarisingduringtheperiod 14 (3) –Reclassificationadjustmentsforitemsincludedinprofitorloss (4) (5)

10 (8)Totaltaxchargerecognisedinothercomprehensiveincome (8) (8)

Tax relating to items recognised directly in equity2019

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Deferredtax: –Taxcreditrelatedtoshare-basedpayments 2 –

Taxation – Group balance sheet ThedeferredtaxassetsandliabilitiesrecognisedintheGroupbalancesheetareshownbelow:

2019£m

2018£m

Deferred tax asset:Retirementbenefitobligations(note4.5) 36 43Derivativefinancialinstruments 52 42Taxlosses–UK 4 6Taxlosses–overseas – 1Share-basedpayments 4 2Totaldeferredtaxasset 96 94Deferred tax liability:Acceleratedcapitalallowances (30) (31)Rolledoverandheldovergains (112) (112)Unrealisedgainsonrevaluations (186) (170)Depreciatednon-qualifyingassets (3) (3)Totaldeferredtaxliability (331) (316)Total (235) (222)



Deferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttooffsetincometaxassetsandincometaxliabilitiesandwhenitistheintentiontosettlethebalancesonanetbasis.DeferredtaxassetsandliabilitieshavebeenoffsetanddisclosedintheGroupbalancesheetasfollows:

2019£m

2018£m

Deferredtaxasset 66 63Deferredtaxliability (301) (285)Netdeferredtaxliability (235) (222)

Unrecognised tax allowancesAtthebalancesheetdatetheGrouphadunusedtaxallowancesof£87minrespectofunclaimedcapitalallowances(2018£87m)availableforoffsetagainstfutureprofits.

Adeferredtaxassethasnotbeenrecognisedontaxallowanceswithavalueof£15m(2018£15m)becauseitisnotcertainthatfuturetaxableprofitswillbeavailableinthecompanywherethesetaxallowancesaroseagainstwhichtheGroupcanutilisethesebenefits.Thesetaxcreditscanbecarriedforwardindefinitely.

Factors which may affect future tax chargesTheFinanceAct2016wassubstantivelyenactedon15September2016andreducedthemainrateofcorporationtaxfrom19%to17%from1April2020.Theeffectofthesechangeshasbeenreflectedintheclosingdeferredtaxbalancesat28September2019and29September2018.

2.5 EARNINGS PER SHAREBasicearningspershare(EPS)hasbeencalculatedbydividingtheprofitorlossfortheperiodbytheweightedaveragenumberofordinarysharesinissueduringtheperiod,excludingownsharesheldbyemployeesharetrusts.

Fordilutedearningspershare,theweightedaveragenumberofordinarysharesisadjustedtoassumeconversionofalldilutivepotentialordinaryshares.

Adjustedearningsperordinaryshareamountsarepresentedbeforeadjusteditems(seenote2.2)inordertoallowabetterunderstandingoftheadjustedtradingperformanceoftheGroup.

Profit£m

BasicEPS

pence perordinary

share

DilutedEPS

pence perordinary

share

52 weeks ended 28 September 2019:Profit/EPS 143 33.5p 33.3pAdjusteditems,netoftax 16 3.7p 3.8pAdjustedprofit/EPSa 159 37.2p 37.1p

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

a. AdjustedprofitandadjustedEPSarealternativeperformancemeasures(APMs)andareconsideredcriticaltoaidunderstandingoftheGroup’sperformance.Thesemeasuresareexplainedonpages156to158ofthisreport.

Theweightedaveragenumberofordinarysharesusedinthecalculationsaboveareasfollows:

201952 weeks

£m

201852 weeks

£m

ForbasicEPScalculations 427 425Effectofdilutivepotentialordinaryshares: –Contingentlyissuableshares 1 2 –Othershareoptions 1 –FordilutedEPScalculations 429 427

At28September2019,782,078(20182,746,844)othershareoptionswereoutstandingthatcouldpotentiallydilutebasicEPSinthefuturebutwerenotincludedinthecalculationofdilutedEPSastheyareanti-dilutivefortheperiodspresented.


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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 3to7yearsFixturesandfittings 3to20years

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

DisposalsProfitsandlossesondisposalofproperty,plantandequipmentarecalculatedasthedifferencebetweenthenetsalesproceedsandthecarryingamountoftheassetatthedateofdisposal.

RevaluationTherevaluationutilisesvaluationmultiples,whicharedeterminedviathird-partyinspectionof20%ofthesitessuchthatallsitesareindividuallyvaluedapproximatelyeveryfiveyears;estimatesoffairmaintainabletrade(FMT);andestimatedresalevalueoftenant’sfixturesandfittings.Propertiesarevaluedasfullyoperationalentities,toincludefixturesandfittingsbutexcludingstockandpersonalgoodwill.Thevalueoftenant’sfixturesandfittingsisthenremovedfromthisvaluationviareferencetoitsassociatedresalevalue.Wheresiteshavebeenimpactedbyexpansionarycapitalinvestmentinthepreceding12months,FMTistakenasthepostinvestmentforecast,asthecurrentyeartradingperformanceincludesaperiodofclosure.

Valuationmultiplesderivedviathird-partyinspectionsdeterminebrandstandardmultipleswhicharethenusedtovaluetheremainderofthenon-inspectedestateviaanextrapolationexercise,withtheoutputofthisexercisereviewedatahighlevelbytheDirectorsandthethird-partyvaluer.

Wherethevalueoflandandbuildingsderivedpurelyfromamultipleappliedtothefairmaintainabletrademisrepresentstheunderlyingassetvalue,forexample,duetolowlevelsofincomeorlocationcharacteristics,aspotvaluationisapplied.

Surpluseswhicharisefromtherevaluationexerciseareincludedwithinothercomprehensiveincome(intherevaluationreserve)unlesstheyarereversingarevaluationdeficitwhichhasbeenrecognisedintheincomestatementpreviously;inwhichcaseanamountequaltoamaximumofthatrecognisedintheincomestatementpreviouslyisrecognisedintheincomestatement.Wheretherevaluationexercisegivesrisetoadeficit,thisisreflecteddirectlywithintheincomestatement,unlessitisreversingapreviousrevaluationsurplusagainstthesameasset;inwhichcaseanamountequaltothemaximumoftherevaluationsurplusisrecognisedwithinothercomprehensiveincome(intherevaluationreserve).

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

Whereanimpairmentlosssubsequentlyreverses,thecarryingamountoftheassetisincreasedtotherevisedestimateofitsrecoverableamount,butonlysothattheincreasedcarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendeterminedhadnoimpairmentlossbeenrecognisedfortheassetinpriorperiods.Areversalofanimpairmentlossisrecognisedintheincomestatementimmediately.Animpairmentreversalisonlyrecognisedwherethereisachangeintheestimatesusedtodeterminerecoverableamounts,notwhereitresultsfromthepassageoftime.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION3–OPERATINGASSETSANDLIABILITIES

Critical accounting judgementsTherevaluationmethodologyisdeterminedusingmanagementjudgement,withadvicefromthird-partyvaluers.TheapplicationofavaluationmultipletothefairmaintainabletradeofeachsiteisconsideredthemostappropriatemethodfortheGrouptodeterminethefairvalueoflicensedlandandbuildings.Wheresiteshavebeenimpactedbyexpansionarycapitalinvestmentinthepreceding12months,managementjudgementisusedtodeterminethemostappropriateFMT.TheFMTistakenasthepostinvestmentforecast,asthecurrentyeartradingperformanceincludesaperiodofclosure.

Key sources of estimation uncertaintyTheapplicationofthevaluationmethodologyrequirestwokeysourcesofestimationuncertainty;theestimationofvaluationmultiples,whicharedeterminedviathird-partyinspections;andanestimateoffairmaintainabletrade,includingreferencetohistoricandfutureprojectedincomelevels.AsensitivityanalysisofchangesinvaluationmultiplesandFMT,inrelationtothepropertiestowhichtheseestimatesapply,isprovidedonpage124.Thecarryingvalueofpropertiestowhichtheseestimatesapplyis£4,343m(2018£4,230m).

Property, plant and equipmentProperty,plantandequipmentcanbeanalysedasfollows:

Land and buildings

£m

Fixtures, fittings and equipment

£mTotal

£m

Cost or valuationAt30September2017 3,953 1,118 5,071Additions 39 125 164Disposalsa (12) (123) (135)Revaluation/(impairment) (41) (7) (48)At29September2018 3,939 1,113 5,052Additions 37 114 151Transfertoassetsheldforsale (12) (2) (14)Disposalsa (2) (158) (160)Revaluation/(impairment) 86 (4) 82At 28 September 2019 4,048 1,063 5,111

Accumulated depreciationAt30September2017 78 564 642Providedduringtheperiod 6 110 116Disposalsa (10) (122) (132)At29September2018 74 552 626Providedduringtheperiod 7 109 116Transfertoassetsheldforsale – (1) (1)Disposalsa (2) (156) (158)At 28 September 2019 79 504 583

Net book valueAt 28 September 2019 3,969 559 4,528 At29September2018 3,865 561 4,426At30September2017 3,875 554 4,429

a. Includesassetswhicharefullydepreciatedandhavebeenremovedfromthefixedassetregister.

Certainassetswithanetbookvalueof£41m(2018£43m)ownedbytheGrouparesubjecttoafixedchargeinrespectofliabilitiesheldbytheMitchells&ButlersExecutiveTop-UpScheme(MABETUS).

Includedwithinproperty,plantandequipmentareassetswithanetbookvalueof£3,881m(2018£3,788m),whicharepledgedassecurityforthesecuritisationdebtandoverwhichtherearecertainrestrictionsontitle.

Costat28September2019includes£7m(2018£18m)ofassetsinthecourseofconstruction.

Assets held for saleDuringthefirsthalfofthefinancialperiod,agroupofpropertieswereclassifiedasheldforsale.Attheinterimdate,13April2019,thenetbookvalueofthesepropertieswas£13m.Arevaluationupliftof£7mwasrecognisedtoincreasethecarryingvalueoftheseassetstothefairvaluelesscoststosell.TherevaluationuplifthasbeenrecognisedintheGroupincomestatementasitreversesapreviouslyrecognisedimpairment.Thepropertiesweresoldduringthesecondhalfofthefinancialperiodandthereforethevalueofassetsheldforsaleremainingat28September2019is£nil.


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3.1 PROPERTY, PLANT AND EQUIPMENT CONTINUEDRevaluation of freehold and long leasehold propertiesThefreeholdandlongleaseholdpropertieshavebeenvaluedatfairvalue,asat28September2019,usinginformationprovidedbyCBRE,independentcharteredsurveyors.ThevaluationwascarriedoutinaccordancewiththeRICSValuation–GlobalStandards2017whichincorporatetheInternationalValuationStandardsandtheRICSValuation–ProfessionalStandardsUKJanuary2014(revisedApril2015)(the‘RedBook’)assumingeachassetissoldasafullyoperationaltradingentity.Thefairvaluehasbeendeterminedhavingregardtofactorssuchascurrentandfutureprojectedincomelevels,takingaccountoflocation,qualityofthepubrestaurantandrecentmarkettransactionsinthesector.

Sensitivity analysisChangesineithertheFMTorthemultiplecouldmateriallyimpactthevaluationofthefreeholdandlongleaseholdproperties.TheaveragemovementinFMTofrevaluedpropertiesinthepastthreeyearsis1.0%.Itisestimatedthat,giventhemultipliereffect,a1.0%changeintheFMTofthefreeholdorlongleaseholdpropertieswouldgenerateanapproximate£37mmovementintheirvaluation.

Multiplesaredeterminedatanindividualbrandlevel.Overthelastthreeyears,theweightedaverageofallbrandmultipleshasmovedbyanaverageof0.1.Itisestimatedthata0.1changeinthemultiple,wouldgenerateanapproximate£43mmovementinvaluation.

Impairment review of short leasehold and unlicensed propertiesShortleaseholdandunlicensedproperties(comprisinglandandbuildingsandfixtures,fittingsandequipment)whicharenotrevaluedtofairmarketvalue,arereviewedforimpairmentbycomparingsitevalueinusecalculationstotheircarryingvalues.Thevalueinusecalculationusesforecasttradingperformancecashflows,whicharediscountedbyapplyingapre-taxdiscountrateof7.7%(20187.5%).Anyresultingimpairmentrelatestositeswithpoortradingperformance,wheretheoutputofthevalueinusecalculationisinsufficienttojustifytheircurrentnetbookvalue.

CurrentyearvaluationshavebeenincorporatedintotheconsolidatedfinancialstatementsandtheresultingrevaluationadjustmentshavebeentakentotherevaluationreserveorGroupincomestatementasappropriate.Theimpactoftherevaluations/impairmentsdescribedaboveisasfollows:

201952 weeks

£m

201852 weeks

£m

Group income statementRevaluationdeficitchargedasanimpairment (76) (89)Reversalofpastrevaluationdeficits 72 61Totalimpairmentarisingfromtherevaluation (4) (28)Impairmentofshortleaseholdandunlicensedproperties (7) (15)Reversalofpastimpairmentsofshortleaseholdandunlicensedproperties 2 –Totalimpairmentofshortleaseholdandunlicensedproperties (5) (15)Reversalofpastimpairmentontransfertoassetsheldforsale 7 –

(2) (43)Revaluation reserveUnrealisedrevaluationsurplus 199 171Reversalofpastrevaluationsurplus (115) (176)

84 (5)Net increase/(decrease) in property, plant and equipment 82 (48)

ThevaluationtechniquesareconsistentwiththeprinciplesinIFRS13andusesignificantunobservableinputssuchthatthefairvaluemeasurementofeachpropertywithintheportfoliohasbeenclassifiedasLevel3inthefairvaluehierarchy.

Thenumberofpubsincludedintherevaluationandtheresultingvaluationofthesepropertiesisreconciledtothetotalvalueofproperty,plantandequipmentbelow.

28 September 2019Number of pubs

Land and buildings

£m


£m

Net book valuea

£m

Freeholdproperties 1,331 3,603 433 4,036 Longleaseholdproperties 96 270 37 307 Totalrevaluedproperties 1,427 3,873 470 4,343 Shortleaseholdproperties 77 80 157 Unlicensedproperties 15 2 17 Othernon-pubassets 1 3 4 Assetsunderconstruction 3 4 7 Totalproperty,plantandequipment 3,969 559 4,528


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION3–OPERATINGASSETSANDLIABILITIESCONTINUED

29September2018Number of pubs

Land and buildings

£m


£m

Net book valuea

£m

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

a. Thecarryingvalueoffreeholdandlongleaseholdpropertiesbasedontheirhistoricalcost(ordeemedcostattransitiontoIFRS)is£2,657mand£190mrespectively(2018£2,635mand£186m).

Thetablesbelowshow,byclassofasset,thenumberofpropertiesthathavebeenvaluedwithineachFMTandmultiplebanding:

Valuation multiple applied to FMT

28 September 2019Over 12

times10 to 12

times8 to 10

times6 to 8 times

Under 6 times Total

NumberofpubsineachFMTincomebanding:<£200kpa 56 9 163 158 6 392 £200kto£360kpa 1 14 302 133 18 468 >£360kpa 1 59 430 61 16 567

58 82 895 352 40 1,427

Valuation multiple applied to FMT

29September2018Over 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

Year-on-yearmovementsinvaluationmultiplesaretheresultofchangesinpropertymarketconditions.Theaverageweightedmultipleis8.6(20188.6).

Inadditiontotheabove,premiumspaidonacquiringanewleaseareclassifiedseparatelyintheGroupbalancesheet.At28September2019anamountof£1m(2018£1m)wasincludedintheGroupbalancesheet.

Capital commitments2019

£m2018

£m

Contractsplacedforexpenditureonproperty,plantandequipmentnotprovidedforinthefinancialstatements 19 24


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3.2 WORKING CAPITALInventories

Accounting policyInventoriesarestatedatthelowerofcostandnetrealisablevalue.Costiscalculatedusingtheweightedaveragemethod.

Inventoriescanbeanalysedasfollows:

2019£m

2018£m

Goodsheldforresale 26 26

Trade and other receivables

Accounting policyTradereceivablesandotherreceivablesareinitiallyrecognisedatfairvalue.Itemsaresubsequentlycarriedatamortisedcostlessanallowanceforanylifetimeexpectedcreditlosses(seefinancialassetsimpairmentpolicyinnote4.4).

Tradeandotherreceivablescanbeanalysedasfollows:

2019£m

2018£m

Tradereceivables 7 7Otherreceivables 15 14Prepayments 41 35Totaltradeandotherreceivables 63 56

Allamountsfallduewithinoneyear.

Tradereceivablesandotherreceivablesarenon-interestbearing.TheDirectorsconsiderthatthecarryingamountoftradereceivablesandotherreceivablesapproximatelyequatestotheirfairvalue.Alifetimeexpectedcreditlossof£2mhasbeenrecognisedagainsttradereceivablesandotherreceivables.

Creditriskisconsideredinnote4.4.

Trade and other payables

Accounting policyTradeandotherpayablesareinitiallyrecognisedatfairvalueandrecognisedsubsequentlyatamortisedcost.

Tradeandotherpayablescanbeanalysedasfollows:

2019£m

2018£m

Tradepayables 88 83Othertaxationandsocialsecurity 78 64Accruedcharges 104 103Otherpayables 57 52Totaltradeandotherpayables 327 302

Currenttradeandotherpayablesarenon-interestbearing.TheDirectorsconsiderthatthecarryingamountoftradeandotherpayablesapproximatelyequatestotheirfairvalue.



3.3 PROVISIONS

Accounting policyProvisionsarerecognisedwhentheGrouphasapresentlegalorconstructiveobligationasaresultofpastevents;itismorelikelythannotthatanoutflowofresourceswillberequiredtosettletheobligation;andtheamountcanbereliablyestimated.ProvisionsaremeasuredusingtheDirectors’bestestimateoftheexpenditurerequiredtosettletheobligationatthebalancesheetdateandarediscountedtopresentvaluewheretheeffectismaterial.

Onerouspropertyprovisionsrepresenttheexpectedunavoidablelossesononerousandvacantpropertyleasesandcomprisethelowerofthenetleasecommitments(includingrentalcostsandservicecharge)ortheoperatinglossafterrentalcostsandservicecharge.Theprovisioniscalculatedonasitebysitebasiswithaprovisionbeingmadefortheremainingcommittedleaseterm,wherealeaseisconsideredtobeonerous.Othercontractualdilapidationscostsarealsorecordedasprovisionsasappropriate.

Critical accounting judgementsDeterminationofwhetheralossisunavoidablerequiresareasofjudgementsuchasconsiderationofpotentialfutureinvestmentdecisionsorlocalconditionswhichmaybeimpactingoncurrentperformance.

ProvisionsTheprovisionforunavoidablelossesononerouspropertyleaseshasbeensetuptocoverrentalpaymentsandservicechargeofvacantorloss-makingproperties.Paymentsareexpectedtocontinueonthesepropertiesforperiodsof1to24years.

Provisionscanbeanalysedasfollows:

Onerous property

provisions£m

Dilapidation provisions

£m

Total property provisions

£m

At30September2017 42 – 42Releasedintheperioda (6) – (6)Providedintheperiod 10 1 11Unwindingofdiscount 1 – 1Utilisedintheperiod (5) – (5)At29September2018 42 1 43Releasedintheperioda (9) (1) (10)Providedintheperiod 8 1 9Unwindingofdiscount 1 – 1Utilisedintheperiod (7) – (7)At 28 September 2019 35 1 36

a. Releasesinthecurrentandpriorperiodprimarilyrelatetoimprovementinperformanceofmanagedproperties.


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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,theimpairmentlossisallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtotheunitandthentotheotherassetsoftheunitpro-rataonthebasisofthecarryingamountofeachassetintheunit.Animpairmentlossisrecognisedimmediatelyintheincomestatementandisnotsubsequentlyreversed.

Ondisposalofasubsidiary,theattributableamountofgoodwillisincludedinthedeterminationoftheprofitorlossondisposal.

Computer softwareComputersoftwareandassociateddevelopmentcosts,whicharenotanintegralpartofarelateditemofhardware,arecapitalisedasanintangibleassetandamortisedonastraight-linebasisovertheirusefullife.Theperiodofamortisationrangesbetweenthreeandsevenyearswiththemajoritybeingfiveyears.



Intangible assetsIntangibleassetscanbeanalysedasfollows:

Goodwill£m

Computer software

£mTotal

£m

CostAt30September2017 7 14 21Additions – 4 4Disposals – (2) (2)At29September2018 7 16 23Additions – 6 6Disposals – (6) (6)At 28 September 2019 7 16 23

Accumulated amortisation and impairmentAt30September2017 5 6 11Providedduringtheperiod – 3 3Disposals – (2) (2)At29September2018 5 7 12Providedduringtheperiod – 3 3Disposals – (6) (6)At 28 September 2019 5 4 9

Net book valueAt 28 September 2019 2 12 14 At29September2018 2 9 11At30September2017 2 8 10

Therearenointangibleassetswithindefiniteusefullives.Allamortisationchargeshavebeenexpensedthroughoperatingcosts.

Goodwillhasbeentestedforimpairmentwithineachcash-generating-unit,onasite-by-sitebasisusingforecastcashflows,discountedbyapplyingapre-taxdiscountrateof7.7%(20187.5%).Forthepurposesofthecalculationoftherecoverableamount,thecashflowprojectionsbeyondthetwo-yearperiodinclude0.0%(20180.0%)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,theGroupmeasurestheretainedinterestatfairvalueatthatdateandthefairvalueisregardedasitsfairvalueoninitialrecognitioninaccordancewithIFRS9.Thedifferencebetweenthecarryingamountoftheassociateatthedatetheequitymethodwasdiscontinued,andthefairvalueofanyretainedinterestandanyproceedsfromdisposingofapartinterestintheassociateisincludedinthedeterminationofthegainorlossondisposaloftheassociate.Inaddition,theGroupaccountsforallamountspreviouslyrecognisedinothercomprehensiveincomeinrelationtothatassociateonthesamebasisaswouldberequiredifthatassociatehaddirectlydisposedoftherelatedassetsorliabilities.Therefore,ifagainorlosspreviouslyrecognisedinothercomprehensiveincomebythatassociatewouldbereclassifiedtoprofitorlossonthedisposaloftherelatedassetsorliabilities,theGroupreclassifiesthegainorlossfromequitytoprofitorlosswhentheequitymethodisdiscontinued.

WhentheGroupreducesitsownershipinterestinanassociatebuttheGroupcontinuestousetheequitymethod,theGroupreclassifiestoprofitorlosstheproportionofthegainorlossthathadpreviouslybeenrecognisedinothercomprehensiveincomerelatingtothatreductioninownershipinterestifthatgainorlosswouldbereclassifiedtoprofitorlossonthedisposaloftherelatedassetsorliabilities.

WhenaGroupentitytransactswithanassociateoftheGroup,profitsandlossesresultingfromthetransactionswiththeassociatearerecognisedintheconsolidatedfinancialstatementsonlytotheextentofinterestsintheassociatethatarenotrelatedtotheGroup.

ThenatureoftheactivitiesofalloftheGroup’sassociatesistradinginpubsandrestaurants,whichareseenascomplementingtheGroup’soperationsandcontributingtotheGroup’soverallstrategy.

Associatescanbeanalysedasfollows:

£m

CostAt30September2017 –Additions 5At29September2018 5Additions –At 28 September 2019 5

Associatesrelatetoshareholdingsin3SixtyRestaurantsLimitedandFatboyPubCompanyLimitedthatwereacquiredinthepriorperiod.Detailsoftheseassociatesareprovidedinnote5.2.

Therehavebeennoeventsorchangesincircumstanceduringthecurrentperiodtoindicatethatthecarryingamountoftheinvestmentsinassociatesmaynotberecoverable.Assuch,noimpairmenthasbeenrecognised.

Duringthepriorperiod,aputandcalloptionagreementwasenteredinto,whichallowstheCompanytoacquiretheremaining60%sharecapitaloftheassociate,3SixtyRestaurantsLimited,atanypointintimeafterthreeyearsfromtheinitialpurchasedate.Theinitial40%investmentwaspurchasedon1August2018for£4m.Thecurrentshareholdersalsohavetheabilityundertheoptiontoselltheremaining60%totheCompany,subjecttoanumberofconditions.Thefairvalueofthisoptionat28September2019is£1m(2018£nil).ThishasbeenrecognisedasafinancialassetatFVTPL(seenote4.4)andthegaindeferredandrecognisedoverthethreeyearoptionlife.



4.1 NET DEBT

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

Net debtNetdebtcomprisescashandcashequivalentsandcashdeposits,netofborrowings.Borrowings(asdefinedinnote4.2)areincludedinnetdebtonaconstantcurrencybasisincludingthefixedexchangeratecomponentofthecrosscurrencyswap(asdescribedinnote4.4).CashflowsontheinterestrateandcrosscurrencyswapsareshownwithininterestpaidintheGroupcashflowstatement.

Net debt2019

£m2018

£m

Cashandcashequivalents 133 122Othercashdeposits – 120Securitiseddebt(note4.2) (1,752) (1,830)Liquidityfacility(note4.2) – (147)Derivativeshedgingsecuritiseddebta(note4.2) 55 47

(1,564) (1,688)

a. RepresentstheelementofthefairvalueofcurrencyswapshedgingthebalancesheetvalueoftheGroup’sUS$denominatedA3Nloannotes.Thisamountisdisclosedseparatelytoremovetheimpactofexchangemovementswhichareincludedinthesecuritiseddebtamount.

Movement in net debt2019

52 weeks£m

201852 weeks

£m

Net increase/(decrease) in cash and cash equivalents 11 (25)Addbackcashflowsinrespectofothercomponentsofnetdebt:Transfersfromothercashdeposits (120) –Repaymentofprincipalinrespectofsecuritiseddebt 87 82Repaymentofliquidityfacility 147 –Netmovementonunsecuredrevolvingfacilities – 6Decrease in net debt arising from cash flows 125 63Movementincapitaliseddebtissuecostsnetofaccruedinterest (1) (1)Decrease in net debt 124 62Openingnetdebt (1,688) (1,750)Closing net debt (1,564) (1,688)

Thenetdebtmovementforthe52weeksended28September2019isrepresentedby:

At 29 September

2018 £m

Cash flow movements

in the period £m

Non-cash movements

in the period £m

Foreign currency

movements £m

At 28 September

2019 £m

Securitiseddebt (1,830) 87 (1) (8) (1,752)Liquidityfacility (147) 147 – – – Derivativeshedgingsecuritiseddebt 47 – – 8 55 Totalliabilitiesarisingfromfinancingactivities (1,930) 234 (1) – (1,697)Cashandcashequivalents 122 11 – – 133 Othercashdeposits 120 (120) – – – Net debt (1,688) 125 (1) – (1,564)

Thenetdebtmovementforthe52weeksended29September2018isrepresentedby:

At 30 September

2017£m

Cash flow movements

in the period £m

Non-cash movements

in the period £m

Foreign currency

movements £m

At 29 September

2018 £m

Securitiseddebt (1,909) 82 (1) (2) (1,830)Liquidityfacility (147) – – – (147)Revolvingcreditfacilities (6) 6 – – –Derivativeshedgingsecuritiseddebt 45 – – 2 47Totalliabilitiesarisingfromfinancingactivities (2,017) 88 (1) – (1,930)Cashandcashequivalents 147 (25) – – 122Othercashdeposits 120 – – – 120Net debt (1,750) 63 (1) – (1,688)


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION4–CAPITALSTRUCTUREANDFINANCINGCOSTS

4.2 BORROWINGS

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

Borrowingscanbeanalysedasfollows:

2019£m

2018£m

CurrentSecuritiseddebta,b 95 86Liquidityfacility – 147Totalcurrent 95 233Non-current Securitiseddebta,b 1,657 1,744Totalborrowings 1,752 1,977

a. Furtherdetailsoftheassetspledgedassecurityagainstthesecuritiseddebtaregivenonpage123.b. Statednetofdeferredissuecosts.

2019£m

2018£m

Analysis by year of repaymentDuewithinoneyearorondemand 95 233Duebetweenoneandtwoyears 158 142Duebetweentwoandfiveyears 347 328Dueafterfiveyears 1,152 1,274Totalborrowings 1,752 1,977

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%

28 September2019

£m

29 September2018

£mExpected

WALa

A1N 200 Floating 2011to2028 6.21b 121 131 5yearsA2 550 Fixed–5.57% 2003to2028 6.01 220 240 5yearsA3N 250 Floating 2011to2028 6.29b 152c 165c 5yearsA4 170 Floating 2016to2028 5.97b 139 150 5yearsAB 325 Floating 2020to2032 6.28b 325 325 9yearsB1 350 Fixed–5.97% 2003to2023 6.12 84 102 2yearsB2 350 Fixed–6.01% 2015to2028 6.12 297 312 6yearsC1 200 Fixed–6.47% 2029to2030 6.56 200 200 10yearsC2 50 Floating 2033to2034 6.47b 50 50 14yearsD1 110 Floating 2034to2036 6.68b 110 110 16years

2,555 1,698 1,785

a. Expectedweightedaveragelife(WAL)assumesnoearlyredemptioninrespectofanyloannotes.b. Aftertheeffectofinterestrateswaps.c. A3NnotesareUS$noteswhichareshownastranslatedtosterlingatthehedgedswaprate.Valuesattheperiodendspotrateare£207m(2018£212m).Thereforetheexchange

differenceontheA3Nnotesis£55m(2018£47m).


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION4–CAPITALSTRUCTUREANDFINANCINGCOSTSCONTINUED

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%(20186.2%)aftertakingaccountofinterestratehedgingandthecostoftheprovisionofafinancialguaranteeprovidedbyAmbacinrespectoftheClassAandABnotes.

Thesecuritisationisgovernedbyvariouscovenants,warrantiesandeventsofdefault,manyofwhichapplytoMitchells&ButlersRetailLimited,theGroup’smainoperatingsubsidiary.Theseincludecovenantsregardingthemaintenanceanddisposalofsecuritisedpropertiesandrestrictionsonitsabilitytomovecash,bywayofdividendsforexample,tootherGroupcompanies.At28September2019,Mitchells&ButlersRetailLimitedhadcashandcashequivalentsof£61m(2018£54m).Ofthisamount£1m(2018£1m),representingdisposalproceeds,washeldondepositinanaccountoverwhichthereareanumberofrestrictions.Theuseofthiscashrequirestheapprovalofthesecuritisationtrusteeandmayonlybeusedforcertainspecifiedpurposessuchascapitalenhancementexpenditureandbusinessacquisitions.

ThecarryingvalueofthesecuritiseddebtintheGroupbalancesheetisanalysedasfollows:

2019£m

2018£m

Principaloutstandingatbeginningofperiod 1,832 1,911Principalrepaidduringtheperiod (87) (82)Exchangeontranslationofdollarloannotes 8 3Principaloutstandingatendofperiod 1,753 1,832Deferredissuecosts (4) (5)Accruedinterest 3 3Carryingvalueatendofperiod 1,752 1,830

Liquidity facilityUnderthetermsofthesecuritisation,theGroupholdsaliquidityfacilityof£295mprovidedbytwocounterparties.Asaresultofthedecreaseincreditratingofoneofthecounterparties,theGroupwasobligedtodrawthatcounterparty’sportionofthefacilityduringthe52weeksended27September2014.DuringtheperiodtheGroupnovatedpartofthefacilitytoahigherratedcounterpartyandrepaidtheamountdrawn.Theamountdrawnat28September2019is£nil(2018£147m).

Thefacility,whichisnotavailableforanyotherpurpose,issizedtocover18monthsdebtservice.

Unsecured revolving credit facilitiesTheGroupholdsthreeunsecuredcommittedrevolvingcreditfacilitiesof£50meach,anduncommittedrevolvingcreditfacilitiesof£15m,availableforgeneralcorporatepurposes.Theamountdrawnat28September2019is£nil(2018£nil).Allcommittedfacilitiesexpireon31December2020.

4.3 FINANCE COSTS AND REVENUE2019

52 weeks£m

201852 weeks

£m

Finance costsInterestonsecuritiseddebt (109) (114)Interestonotherborrowings (4) (4)Unwindingofdiscountonprovisions(note3.3) (1) (1)Totalfinancecosts (114) (119)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.

Debtinstrumentsthatmeetthefollowingconditionsaremeasuredsubsequentlyatamortisedcost:

• thefinancialassetisheldwithinabusinessmodelwhoseobjectiveistoholdfinancialassetsinordertocollectcontractualcashflows;and• thecontractualtermsofthefinancialassetgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipalandinterestontheprincipal

amountoutstanding.

Debtinstrumentsthatmeetthefollowingconditionsaremeasuredsubsequentlyatfairvaluethroughothercomprehensiveincome(FVTOCI):

• thefinancialassetisheldwithinabusinessmodelwhoseobjectiveisachievedbybothcollectingcontractualcashflowsandsellingthefinancialassets;and

• thecontractualtermsofthefinancialassetgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipalandinterestontheprincipalamountoutstanding.

Bydefault,allotherfinancialassetsaremeasuredsubsequentlyatfairvaluethroughprofitorloss(FVTPL).

Theclassificationdependsonthenatureandpurposeofthefinancialassetsandisdeterminedatthetimeofinitialrecognition.

Impairment of financial assetsTheGrouprecognisesalossallowanceforexpectedcreditlossesonfinancialassets,whereapplicable.Theamountofexpectedcreditlossesisupdatedateachreportingdatetoreflectchangesincreditrisksinceinitialrecognitionoftherespectivefinancialasset.

TheGroupadoptsthesimplifiedapproachdetailedinIFRS9fortradereceivablesandotherreceivablesandthereforerecogniseslifetimeECLontheseassets.TheexpectedcreditlossesonthesefinancialassetsareestimatedusingaprovisionmatrixbasedontheGroup’shistoricalcreditlossexperience,adjustedforfactorsthatarespecifictothedebtors,generaleconomicconditionsandanassessmentofboththecurrentaswellastheforecastdirectionofconditionsatthereportingdate,includingtimevalueofmoneywhereappropriate.

Forallotherfinancialassets,theGrouprecogniseslifetimeECLwhentherehasbeenasignificantincreaseincreditrisksinceinitialrecognition.However,ifthecreditriskonthefinancialassethasnotincreasedsignificantlysinceinitialrecognition,theGroupmeasuresthelossallowanceforthatfinancialinstrumentatanamountequalto12-monthECL.

LifetimeECLrepresentstheexpectedcreditlossesthatwillresultfromallpossibledefaulteventsovertheexpectedlifeofafinancialinstrument.Incontrast,12-monthECLrepresentstheportionoflifetimeECLthatisexpectedtoresultfromdefaulteventsonafinancialinstrumentthatarepossiblewithin12monthsafterthereportingdate.

Definition of defaultTheGroupconsidersthefollowingasconstitutinganeventofdefaultforinternalcreditriskmanagementpurposesashistoricalexperienceindicatesthatfinancialassetsthatmeeteitherofthefollowingcriteriaaregenerallynotrecoverablewheninformationdevelopedinternallyorobtainedfromexternalsourcesindicatesthatthedebtorisunlikelytopayitscreditors,includingtheGroup,infull(withouttakingintoaccountanycollateralheldbytheGroup).

Credit-impaired financial assetsAfinancialassetiscredit-impairedwhenoneormoreeventsthathaveadetrimentalimpactontheestimatedfuturecashflowsofthatfinancialassethaveoccurred.Evidencethatafinancialassetiscredit-impairedincludesobservabledataaboutthefollowingevents:

(a) significantfinancialdifficultyoftheissuerortheborrower;(b) abreachofcontract,suchasadefaultorpastdueevent;(c) thelenderoftheborrower,foreconomicorcontractualreasonsrelatingtotheborrower’sfinancialdifficulty,havinggrantedtotheborrower

aconcessionthatthelender(s)wouldnototherwiseconsider;(d) itisbecomingprobablethattheborrowerwillenterbankruptcyorotherfinancialreorganisation;or(e) thedisappearanceofanactivemarketforthatfinancialassetbecauseoffinancialdifficulties.



Write-off policyTheGroupwritesoffafinancialassetwhenthereisinformationindicatingthatthedebtorisinseverefinancialdifficultyandthereisnorealisticprospectofrecovery.FinancialassetswrittenoffmaystillbesubjecttoenforcementactivitiesundertheGroup’srecoveryprocedures,takingintoaccountlegaladvicewhereappropriate.Anyrecoveriesmadearerecognisedinprofitorloss.

Measurement and recognition of expected credit lossesThemeasurementofexpectedcreditlossesisafunctionoftheprobabilityofdefault,lossgivendefault(i.e.themagnitudeofthelossifthereisadefault)andtheexposureatdefault.Theassessmentoftheprobabilityofdefaultandlossgivendefaultisbasedonhistoricaldataadjustedbyforward-lookinginformation.Asfortheexposureatdefault,forfinancialassets,thisisrepresentedbytheassets’grosscarryingamountatthereportingdate.

Forfinancialassets,theexpectedcreditlossisestimatedasthedifferencebetweenallcontractualcashflowsthatareduetotheGroupinaccordancewiththecontractandallthecashflowsthattheGroupexpectstoreceive,discountedattheoriginaleffectiveinterestrate.

IftheGrouphasmeasuredthelossallowanceforafinancialassetatanamountequaltolifetimeECLinthepreviousreportingperiod,butdeterminesatthecurrentreportingdatethattheconditionsforlifetimeECLarenolongermet,theGroupmeasuresthelossallowanceatanamountequalto12-monthECLatthecurrentreportingdate,exceptforassetsforwhichthesimplifiedapproachwasused.

TheGrouprecognisesanimpairmentgainorlossinprofitorlossforallfinancialassetswithacorrespondingadjustmenttotheircarryingamountthroughalossallowanceaccount.

Derecognition of financial assetsTheGroupderecognisesafinancialassetonlywhenthecontractualrightstothecashflowsfromtheassetexpire,orwhenittransfersthefinancialassetandsubstantiallyalltherisksandrewardsofownershipoftheassettoanotherentity.IftheGroupdoesnotretainsubstantiallyalltherisksandrewardsofownershipbutcontinuestocontrolatransferredasset,theGrouprecognisesitsretainedinterestintheassetandanassociatedliabilityforamountsitmayhavetopay.IftheGroupretainssubstantiallyalltherisksandrewardsofownershipofatransferredfinancialasset,theGroupcontinuestorecognisethefinancialassetandalsorecognisesacollateralisedborrowingfortheproceedsreceived.

Onderecognitionofafinancialassetmeasuredatamortisedcost,thedifferencebetweentheasset’scarryingamountandthesumoftheconsiderationreceivedandreceivableisrecognisedinprofitorloss.

Financial liabilitiesTheGrouphasfinancialliabilitiesrelatingtoborrowings,forwhichtheaccountingpolicyisprovidedinnote4.2.Otherfinancialliabilitiesareinitiallymeasuredatfairvalue,netoftransactioncosts.

AllfinancialliabilitiesaremeasuredsubsequentlyatamortisedcostusingtheeffectiveinterestmethodoratFVTPL.

Derecognition of financial liabilitiesTheGroupderecognisesfinancialliabilitieswhen,andonlywhen,theGroup’sobligationsaredischarged,cancelledorexpired.Thedifferencebetweenthecarryingamountofthefinancialliabilitydischargedandtheconsiderationpaidandpayableisrecognisedinprofitorloss.

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

Derivative financial instrumentsTheGroupentersintoavarietyofderivativefinancialinstrumentstomanageitsexposuretointerestrateandforeignexchangeraterisks,includinginterestrateandcurrencyswaps.

Derivativefinancialinstrumentsareinitiallymeasuredatfairvalueonthecontractdateandareremeasuredtofairvalueateachreportingdate.Theresultinggainorlossisrecognisedinprofitorlossimmediatelyunlessthederivativeisdesignatedandeffectiveasahedginginstrument,inwhicheventthetimingoftherecognitioninprofitorlossdependsonthenatureofthehedgerelationship.

Aderivativewithapositivefairvalueisrecognisedasafinancialassetwhereasaderivativewithanegativefairvalueisrecognisedasafinancialliability.DerivativesarenotoffsetinthefinancialstatementsunlesstheGrouphasboththecurrentlegalrighttooffsetandintentiontosettleonanetbasisorrealisesimultaneously.Aderivativeispresentedasanon-currentassetoranon-currentliabilityiftheremainingmaturityoftheinstrumentismorethan12monthsanditisnotexpectedtoberealisedorsettledwithin12months.Otherderivativesarepresentedascurrentassetsorcurrentliabilities.


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4.4 FINANCIAL INSTRUMENTS CONTINUED

Hedge accountingTheGroupdesignatesitsderivativefinancialinstruments,i.e.interestrateandcurrencyswaps,ascashflowhedges.

Attheinceptionofthehedgerelationship,theGroupdocumentstherelationshipbetweenthehedginginstrumentandthehedgeditem,alongwithitsriskmanagementobjectivesanditsstrategyforundertakingvarioushedgetransactions.Furthermore,attheinceptionofthehedgeandonanongoingbasis,theGroupdocumentswhetherthehedginginstrumentishighlyeffectiveinoffsettingchangesincashflowsofthehedgeditemattributabletothehedgedrisk,whichiswhenthehedgingrelationshipsmeetallofthefollowinghedgeeffectivenessrequirements:

• thereisaneconomicrelationshipbetweenthehedgeditemandthehedginginstrument;• theeffectofcreditriskdoesnotdominatethevaluechangesthatresultfromthateconomicrelationship;and• thehedgeratioofthehedgingrelationshipisthesameasthatresultingfromthequantityofthehedgeditemthattheGroupactuallyhedgesandthe

quantityofthehedginginstrumentthattheGroupactuallyusestohedgethatquantityofhedgeditem.

Ifahedgingrelationshipceasestomeetthehedgeeffectivenessrequirementrelatingtothehedgeratiobuttheriskmanagementobjectiveforthatdesignatedhedgingrelationshipremainsthesame,theGroupadjuststhehedgeratioofthehedgingrelationship(i.e.rebalancesthehedge)sothatitmeetsthequalifyingcriteriaagain.

Cash flow hedgesTheeffectiveportionofchangesinthefairvalueofderivativesthataredesignatedandqualifyascashflowhedgesisrecognisedinothercomprehensiveincomeandaccumulatedundertheheadingofhedgingreserve,limitedtothecumulativechangeinfairvalueofthehedgeditemfrominceptionofthehedge.

Amountspreviouslyrecognisedinothercomprehensiveincomeandaccumulatedinequityarereclassifiedtoprofitorlossintheperiodswhenthehedgeditemaffectsprofitorloss,inthesamelineastherecognisedhedgeditem.However,whenthehedgedforecasttransactionresultsintherecognitionofanon-financialassetoranon-financialliability,thegainsandlossespreviouslyrecognisedinothercomprehensiveincomeandaccumulatedinequityareremovedfromequityandincludedintheinitialmeasurementofthecostofthenon-financialassetornon-financialliability.Thistransferdoesnotaffectothercomprehensiveincome.Furthermore,iftheGroupexpectsthatsomeorallofthelossaccumulatedinthehedgingreservewillnotberecoveredinthefuture,thatamountisimmediatelyreclassifiedtoprofitorloss.

Hedgeaccountingisdiscontinuedonlywhenthehedgingrelationshipceasestomeetthequalifyingcriteria(afterrebalancing,ifapplicable).Thisincludesinstanceswhenthehedginginstrumentexpiresorissoldorterminated.Thediscontinuationisaccountedforprospectively.Anygainorlossrecognisedinothercomprehensiveincomeandaccumulatedinthehedgingreserveatthattimeremainsinequityandisreclassifiedtoprofitorlosswhentheforecasttransactionoccurs.Whenaforecasttransactionisnolongerexpectedtooccur,thegainorlossaccumulatedinthehedgingreserveisreclassifiedimmediatelytoprofitorloss.

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.TheGroupalsohasuncommittedcreditfacilitiesof£15m.

TheGrouppreparesarollingdailycashforecastcoveringasixweekperiodandanannualcashforecastbyperiod.TheseforecastsarereviewedonadailybasisandareusedtomanagetheinvestmentandborrowingrequirementsoftheGroup.Acombinationofcashpoolingandzerobalancingagreementsareinplacetoensuretheoptimumliquiditypositionismaintained.TheGroupmaintainssufficientcashbalancesorcommittedfacilitiesoutsidethesecuritisationtoensurethatitcanmeetitsmedium-termanticipatedcashflowrequirements.



Thematuritytablebelowdetailsthecontractualundiscountedcashflows(bothprincipalandinterest),basedontheprevailingperiodendinterestandexchangerates,fortheGroup’sfinancialliabilities,aftertakingintoaccounttheeffectofinterestrateandcurrencyswapsandassumesnoearlyredemptioninrespectofanyloannotes.

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

28 September 2019Securitiseddebt–loannotes (171) (175) (177) (179) (180) (1,381) (2,263)Cashflowhedges (27) (26) (24) (21) (20) (106) (224)Fixedrate:Securitiseddebt (198) (201) (201) (200) (200) (1,487) (2,487)Tradeandotherpayables (327) – – – – – (327)

29 September 2018Securitiseddebt–loannotes (165) (170) (174) (176) (177) (1,554) (2,416)Cashflowhedges (30) (28) (27) (25) (23) (133) (266)Fixedrate:Securitiseddebt (195) (198) (201) (201) (200) (1,687) (2,682)Floatingrate:Liquidityfacility (147) – – – – – (147)Tradeandotherpayables (302) – – – – – (302)

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.

Creditriskisontradereceivablesandotherreceivablesisconsideredtobealow-levelrisk.Tradereceivablesandotherreceivablesmainlyrepresentamountsduefromtenantsofunlicensedproperties,amountsduefromGroupsuppliersandcashcollateraldepositsheldbythirdparties.

Creditexposurerelatingtotenantsisconsideredtobelowrisk,withanexpectedlifetimecreditlosscalculatedattheperiodendtoreflecttheriskofirrecoverableamounts.Tominimisecreditrisknewtenantsareassessedusinganexternalcreditratingsystembeforetheyareapprovedfortenancy.CreditexposureisreducedfortheamountsduefromGroupsuppliersastheGroupholdsoffsettingamountsintradeandotherpayablesthatareduetosomeofthesesuppliers.Creditriskoncashcollateraldepositsheldbythirdpartiesareconsideredtobelowcreditriskastheyareheldwithreputablebankinginstitutionsbythirdparties.

TheGroup’screditexposureatthebalancesheetdatewas:

FVTPL 2019

£m

12 month ECL2019

£m

Lifetime ECL2019

£m

Total2019

£m

Total2018

£m

Cashandcashequivalents – 133 – 133 122Othercashdeposits – – – – 120Tradereceivables – – 7 7 7Otherreceivables – – 15 15 14Derivatives 56 – – 56 48

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.TheGroupChiefFinancialOfficerisalsoamemberoftheCommittee.

Totalcapitalatthebalancesheetdateisasfollows:

2019£m

2018£m

Netdebt(note4.1) 1,564 1,688Totalequity 1,947 1,769Totalcapital 3,511 3,457


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4.4 FINANCIAL INSTRUMENTS CONTINUEDMarket riskTheGroupisexposedtotheriskthatthefairvalueoffuturecashflowsofitsfinancialinstrumentswillfluctuatebecauseofchangesinmarketprices.Marketriskcomprisesforeigncurrencyandinterestraterisk.

Foreign currency riskThemostsignificantcurrencyrisktheGroupfacesisinrelationtotheclassA3Nfloatingratenotes.Atissuanceofthesenotes,theGroupenteredintoacrosscurrencyinterestrateswaptomanagetheforeigncurrencyexposureresultingfromboththeUS$principalandinitialinterestelementsofthenotes.TheA3Nnoteshaveacarryingvalueof£207m(2018£212m)andformpartofthesecuritiseddebt(seenote4.2).

Sensitivity analysis Furthertothestep-upontheA3Nnoteson15December2010,theGrouphasadditionalforeigncurrencyexposureasaresultoftheincreaseinUS$financecosts.Amovementof10%intheUS$exchangeratewouldhave£nil(2018£nil)impactonthereportedGroupprofitand£21m(2018£21m)impactonthereportedGroupequity.

TheGrouphasnosignificantprofitandlossexposureasaresultofretranslatingmonetaryassetsandliabilitiesatdifferentexchangerates.AstheGroupispredominantlyUKbasedandacquiresthemajorityofitssuppliesinsterling,ithasnosignificantdirectcurrencyexposurefromitsoperations.

Interest rate riskTheGrouphasamixtureoffixedandfloatinginterestratedebtinstrumentsandmanagesthevariabilityincashflowsresultingfromchangesininterestratesbyusingderivativefinancialinstruments.Wherethenecessarycriteriaaremet,theGroupminimisesthevolatilityinitsconsolidatedfinancialstatementsthroughtheadoptionofthehedgeaccountingprovisionspermittedunderIFRS9.TheinterestrateexposureresultingfromtheGroup’s£1.8bnsecuritisationislargelyfixed,eitherasaresultofthenotesthemselvesbeingissuedatfixedinterestrates,orthroughacombinationoffloatingratenotesagainstwhicheffectiveinterestrateswapsareheld,whichareeligibleforhedgeaccounting.

Sensitivity analysisThesensitivityanalysisbelowhasbeencalculatedbasedontheGroup’sexposuretointerestratesforbothderivativeandnon-derivativeinstrumentsasatthebalancesheetdate.A1%movementisusedwhenreportinginterestrateriskinternallytokeymanagementpersonnelandrepresentsmanagement’sassessmentofthisreasonablypossiblechangeininterestrates.

Forfloatingrateliabilities,whicharenothedgedbyderivativeinstruments,theanalysishasbeenpreparedassumingthattheliabilityoutstandingatthebalancesheetdatewasoutstandingforthewholeperiod.Forinterestincometheanalysisassumesthatcashandcashequivalentsandothercashdepositsthatwereheldininterestbearingaccountsatthebalancesheetdatewereheldforthewholeperiod.

TheGroup’ssensitivitytoa1%increaseininterestratesisdetailedbelow:

2019£m

2018£m

Interestincomea 1 2Interestexpenseb – (1)Profitimpact 1 1Derivativefinancialinstruments(fairvalues)c 72 76Totalequity 73 77

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

Derivative financial instrumentsCash flow hedgesChangesincashflowhedgefairvaluesarerecognisedinthehedgingreserveinequitytotheextentthatthehedgesareeffective.Thecashflowhedgesdetailedbelowhavebeenassessedasbeinghighlyeffectiveduringtheperiodandareexpectedtoremainhighlyeffectiveovertheremainingcontractlives.Thefollowingamountshavebeenrecognisedduringtheperiod:

2019£m

2018£m

(Losses)/gainsarisingduringtheperiod (81) 16Reclassificationadjustmentsforlossesincludedinprofitorloss 23 34

(58) 50



Cash flow hedges – securitised borrowingsAt28September2019,theGroupheldten(2018ten)interestrateswapcontractswithanominalvalueof£897m(2018£931m),designatedasahedgeofthecashflowinterestrateriskof£897m(2018£931m)oftheGroup’sfloatingrateborrowings,comprisingtheA1N,A3N,A4,AB,C2andD1loannotes.

Thecashflowsonthesecontractsoccurquarterly,receivingafloatingrateofinterestbasedonLIBORandpayingafixedrateof4.8399%(20184.8483%).Thecontractmaturitydatesmatchthoseofthehedgeditem.TheteninterestrateswapsareheldontheGroupbalancesheetatfairmarketvalue,whichisaliabilityof£302m(2018£244m).

At28September2019theGroupheldone(2018one)crosscurrencyinterestrateswapcontract,withanominalvalueof£152m(2018£165m),designatedasahedgeofthecashflowinterestrateandcurrencyriskoftheGroup’sUS$denominatedA3Nfloatingrate$254m(2018$276m)notes.ThecrosscurrencyinterestrateswapisheldontheGroupbalancesheetatafairvalueassetof£55m(2018£48m).

Thecashflowsonthiscontractoccurquarterly,receivingafloatingrateofinterestbasedonUS$LIBORandpayingafloatingrateofinterestatLIBORinsterling.

Thecashflowsarisingfrominterestrateswappositionsonthesamecounterpartymaybesettledasanetposition.Thecrosscurrencyinterestrateswapisheldunderaseparateagreementandcashmovementsforthisinstrumentaresettledindividually.

Share optionsDuringthepriorperiod,aputandcalloptionagreementwasenteredinto,whichallowstheCompanytoacquiretheremaining60%sharecapitaloftheassociate,3SixtyRestaurantsLimited,atanypointintimeafterthreeyearsfromtheinitialpurchasedate.Theinitial40%investmentwaspurchasedon1August2018for£4m(seenote3.5).Thecurrentshareholdersalsohavetheabilityundertheoptiontoselltheremaining60%tothecompany,subjecttoanumberofconditions.Thefairvalueofthisoptionat28September2019is£1m(2018£nil).Thishasbeenrecognisedasafinancialassetandthegaindeferredandrecognisedoverthethreeyearoptionlife.

Fair values of derivative financial instrumentsThefairvaluesofthederivativefinancialinstrumentsweremeasuredat28September2019andmaybesubjecttomaterialmovementsintheperiodsubsequenttothebalancesheetdate.Thefairvaluesofthederivativefinancialinstrumentsarereflectedonthebalancesheetasfollows:

Derivative financial instruments – fair value

Non-currentassets

£m

Currentassets

£m

Currentliabilities

£m

Non-currentliabilities

£mTotal

£m

Cash flow hedges at FVTOCI: –Interestrateswaps – – (36) (266) (302) –Crosscurrencyswap 52 3 – – 55 ShareoptionsatFVTPL 1 – – – 128 September 2019 53 3 (36) (266) (246)29September2018 44 4 (37) (207) (196)

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

Movementsinderivativevaluesforthe52weeksended28September2019arerepresentedby:

At 29 September

2018£m

Cash movements£m

Fair value adjustments

£m

At 28 September

2019 £m

Cashflowhedges (196) 31 (82) (247)Shareoptions – – 1 1 Total derivatives (196) 31 (81) (246)

Movementsinderivativevaluesforthe52weeksended29September2018arerepresentedby:

At 30 September

2017£m

Cash movements£m

Fair value adjustments

£m

At 29 September

2018£m

Cashflowhedges (249) 37 16 (196)Total derivatives (249) 37 (16) (196)


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4.4 FINANCIAL INSTRUMENTS CONTINUEDFair value of financial assets and liabilitiesThefairvalueandcarryingvalueoffinancialassetsandliabilitiesbycategoryisasfollows:

2019 2018

Bookvalue

£m

Fairvalue

£m

Bookvalue

£m

Fairvalue

£m

Financialassetsatamortisedcost: –Cashandcashequivalents 133 133 122 122 –Othercashdeposits – – 120 120 –Tradeandotherreceivables 7 7 7 7 –Otherreceivables 15 15 14 14Financialassets–derivatives: –Derivativeinstrumentsindesignatedhedgeaccountingrelationships 55 55 48 48 –Shareoptions 1 1 – –Financialliabilitiesatamortisedcost: –Borrowings(note4.2) (1,752) (1,695) (1,977) (1,939) –Tradeandotherpayables (88) (88) (83) (83) –Othertaxationandsocialsecurity (78) (78) (64) (64) –Otherpayables (57) (57) (52) (52) –Accruedcharges (104) (104) (103) (103)Financialliabilities–derivatives: –Derivativeinstrumentsindesignatedhedgeaccountingrelationships (302) (302) (244) (244)

(2,170) (2,113) (2,212) (2,174)

Borrowingshavebeenvaluedaslevel1financialinstruments,asthevarioustranchesofthesecuritiseddebthavebeenvaluedusingperiodendquotedofferprices.Asthesecuritiseddebtistradedonanactivemarket,themarketvaluerepresentsthefairvalueofthisdebt.ThefairvalueofinterestrateandcurrencyswapsistheestimatedamountwhichtheGroupcouldexpecttopayorreceiveonterminationoftheagreements.Theseamountsarebasedonquotationsfromcounterpartieswhichapproximatetotheirfairmarketvalueandtakeintoconsiderationinterestandexchangeratesprevailingatthebalancesheetdate.Otherfinancialassetsandliabilitiesareeithershort-terminnatureortheirbookvaluesapproximatetofairvalues.

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

IFRS13FinancialInstrumentsrequirestheGroup’sderivativefinancialinstrumentstobedisclosedatfairvalueandcategorisedinthreelevelsaccordingtotheinputsusedinthecalculationoftheirfairvalue:

• Level1instrumentsusequotedpricesastheinputtofairvaluecalculations;• Level2instrumentsuseinputs,otherthanquotedprices,thatareobservableeitherdirectlyorindirectly;• Level3instrumentsuseinputsthatareunobservable.

ThetablebelowsetsoutthevaluationbasisofderivativefinancialinstrumentsheldatfairvaluebytheGroup:

Fair value at 28 September 2019Level 1

£mLevel 2

£mLevel 3

£mTotal

£m

Financial assets:Currencyswaps – 55 – 55 Shareoptions – – 1 1 Financial liabilities:Interestrateswaps – (302) – (302)

– (247) 1 (246)

Fair value at 29 September 2018Level 1

£mLevel 2

£mLevel 3

£mTotal

£m

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

– (196) – (196)



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.

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

Thereisnocurrentservicecostasalldefinedbenefitschemesareclosedtofutureaccrual.Thenetpensionfinancecharge,calculatedbyapplyingthediscountratetothepensiondeficitorsurplusatthebeginningoftheperiod,isshownwithinfinanceincomeorexpense.Theadministrationcostsoftheschemearerecognisedwithinoperatingcostsintheincomestatement.

Re-measurementcomprisingactuarialgainsandlosses,theeffectofminimumfundingrequirements,andthereturnonschemeassetsarerecognisedimmediatelyinthebalancesheetwithachargeorcredittothestatementofcomprehensiveincomeintheperiodinwhichtheyoccur.

CurtailmentsandsettlementsrelatingtotheGroup’sdefinedbenefitplanarerecognisedintheincomestatementintheperiodinwhichthecurtailmentorsettlementoccurs.

Forthedefinedcontributionarrangements,thechargeagainstprofitisequaltotheamountofcontributionspayableforthatperiod.

Critical accounting judgements Thecalculationofthedefinedbenefitliabilityrequiresmanagementjudgementtoselectanappropriatehigh-qualitycorporatebondtodeterminethediscountrate.Themostsignificantcriteriaconsideredfortheselectionofbondsincludetheratingofthebondsandthecurrencyandestimatedtermoftheretirementbenefitliabilities.

Inaddition,managementhaveusedjudgementtodeterminetheapplicablerateofinflationtoapplytopensionincreasesincalculatingthedefinedbenefitobligation.Detailsofthisaregivenbelow.

Measurement of scheme assets and liabilitiesActuarial valuationTheactuarialvaluationsusedforIAS19(revised)purposesarebasedontheresultsofthelatestfullactuarialvaluationcarriedoutat31March2019andupdatedbytheschemes’independentqualifiedactuariesto28September2019.Schemeassetsarestatedatmarketvalueat28September2019andtheliabilitiesoftheschemeshavebeenassessedasatthesamedateusingtheprojectedunitmethod.IAS19(revised)requiresthattheschemeliabilitiesarediscountedusingmarketyieldsattheendoftheperiodonhigh-qualitycorporatebonds.

InrelationtotheMABPP,theTrustDeedandRulesprovidethatitisamatterfortheCompanytodeterminetherateofinflationwhichshouldbeappliedtopensionincreasesforcertainsectionsofthemembershipinexcessofguaranteedminimumpensionsandtheCompanyhasinstructedtheTrusteetoapplyCPI(subjecttocertaincaps)inrespectofsuchincreases.TheTrusteebelievesthatthispowerwasincorrectlyvestedintheCompanyintheTrustDeedandRulesoftheMABPPin1996and,despiteitbeingreflectedinfurtherversions,hasmadeanapplicationtocourtforthosevariousTrustDeedsandRulestoberectified.ItistheBoard’sbeliefthattheCompanyholdsthepowertofixsuchaninflationindexandtheCompanyisthereforecontestingthatapplication.Thehearingisexpectedtobeheldinmid-2020.TheactuarialsurplusasdeterminedunderIAS19(revised)hascontinuedtobecalculatedusingRPI,pendingfinalresolutionofthematter.TheapplicablerateofCPIat28September2019is2.1%.Leavingallotherprincipalfinancialassumptionsconstant,theimpactofthischangeonthedefinedbenefitobligationasmeasuredunderIAS19(revised)isestimatedtobeareductionof£165m.However(underIFRIC14)anadditionalliabilityisrecognisedsuchthatthetotalbalancesheetpositionreflectsthescheduleofcontributionsagreedbytheCompany,extendingto2023.AssuchshouldtheCompanybesuccessfulincontestingtheapplicationtherewillbenonecessarymovementinthetotalbalancesheetposition.

Theprincipalfinancialassumptionshavebeenupdatedtoreflectchangesinmarketconditionsintheperiodandareasfollows:

2019 2018

Main planExecutive

plan Main planExecutive

plan

Discountratea 1.8% 1.8% 2.9% 2.9%Pensionsincreases–RPImax5% 3.0% 3.0% 3.0% 3.0%Inflationrate–RPI 3.1% 3.1% 3.2% 3.2%

a. ThediscountrateisbasedonayieldcurveforAAcorporateratedbondswhichareconsistentwiththecurrencyandestimatedtermofretirementbenefitliabilities.


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4.5 PENSIONS CONTINUEDThemortalityassumptionswerereviewedfollowingthe2019actuarialvaluation.Asummaryoftheaveragelifeexpectanciesassumedisasfollows:

2019 2018

Main planyears

Executive plan

yearsMain plan

years

Executive plan

years

Malememberaged65(currentlifeexpectancy) 20.9 23.4 21.2 23.9Malememberaged45(lifeexpectancyat65) 22.7 24.5 23.0 25.6Femalememberaged65(currentlifeexpectancy) 23.2 24.3 23.6 26.0Femalememberaged45(lifeexpectancyat65) 25.3 26.3 25.5 27.9

Minimum funding requirementsTheresultsofthe2019actuarialvaluationshowedafundingdeficitof£293m,usingamoreprudentbasistodiscounttheschemeliabilitiesthanisrequiredbyIAS19(revised).Asaresultofthe2019actuarialvaluation,theCompanyhassubsequentlyagreedrecoveryplansforboththeExecutiveandMainschemesinordertoclosethefundingdeficitinrespectofitspensionliabilities.Therecoveryplansshowanunchangedlevelofcashcontributionswithnoextensiontotheagreedpaymentterm(£45mperannumindexedwithRPIfrom1April2016subjecttoaminimumincreaseof0%andmaximumof5%,until31March2023).UnderIFRIC14,anadditionalliabilityisrecognised,suchthattheoverallpensionliabilityattheperiodendreflectsthescheduleofcontributionsinrelationtoaminimumfundingrequirement,shouldthisbehigherthantheactuarialdeficit.

Theemployercontributionsexpectedtobepaidduringthefinancialperiodending27September2020amountto£50m.

In2024,anadditionalpaymentof£13mwillbemadeintoescrow,shouldsuchfurtherfundingberequiredatthattime.Thisisacontingentliabilityandisnotreflectedinthepensionsliabilityasitisnotcommitted.

Sensitivity to changes in actuarial assumptions Thesensitivitiesregardingprincipalactuarialassumptions,assessedinisolation,thathavebeenusedtomeasuretheschemeliabilitiesaresetoutbelow.

2019

Increase or (decrease)

in actuarial surplus

2019£m

Decrease or (increase)

in total pension liability

2019£m

0.5%increaseindiscountratea 207 5 0.1%increaseininflationrate (41) (1)Additionalone-yeardecreasetolifeexpectancy 90 2

2018

Increase or (decrease) in actuarial

surplus 2018

£m

Decrease or (increase)

in total pension liability

2018£m

0.5%increaseindiscountratea 37 10.1%increaseininflationrate (34) (1)Additionalone-yeardecreasetolifeexpectancy 72 1

a. Thediscountratesensitivitydisclosedfor2019isahighersensitivityof0.5%,comparedto0.1%in2018.Thishasincreasedtoreflectareasonablypossiblechangeindiscountrateasaresultofvolatilityinthediscountrateinrecentyears.

Thesensitivityanalysispresentedabovemaynotberepresentativeoftheactualchangeinthedefinedbenefitobligationasitisunlikelythatthechangesinassumptionswouldoccurinisolationofoneanotherassomeoftheassumptionsmaybecorrelated.Inpresentingtheabovesensitivityanalysis,thepresentvalueofthedefinedbenefitobligationhasbeencalculatedusingtheprojectedunitcreditmethodattheendofthereportingperiod,whichisthesameasthatappliedincalculatingthedefinedbenefitobligationliabilityrecognisedinthestatementoffinancialposition.



Principal risks and assumptionsThedefinedbenefitschemesarenotexposedtoanyunusual,entityspecificorschemespecificrisksbuttherearegeneralrisks:

Inflation–themajorityoftheplans’obligationsarelinkedtoinflation.Higherinflationwillleadtoincreasedliabilitieswhichispartiallyoffsetbytheplansholdinginflationlinkedgiltsandotherinflationlinkedassets.

Interest rate–Theplans’liabilitiesaredeterminedusingdiscountratesderivedfromyieldsonAA-ratedcorporatebonds.Adecreaseincorporatebondyieldswillincreaseplanliabilitiesthoughthiswillbepartiallyoffsetbyanincreaseinthevalueofthebondsheldbytheplans.

Mortality–Themajorityoftheobligationsaretoprovidebenefitsforthelifeofthemembersandtheirpartners,soanyincreaseinlifeexpectancywillresultinanincreaseintheplans’liabilities.

Asset returns–Assetsheldbythepensionplansareinvestedinadiversifiedportfolioofequities,bondsandotherassets.Volatilityinassetvalueswillleadtomovementsinthenetdeficit/surplusreportedintheGroupbalancesheetfortheplanswhichinadditionwillalsoimpactthepensionfinancechargeintheGroupincomestatement.

Amounts recognised in respect of defined benefit schemesThefollowingamountsrelatingtotheGroup’sdefinedbenefitanddefinedcontributionarrangementshavebeenrecognisedintheGroupincomestatementandGroupstatementofcomprehensiveincome:

Group income statement2019

52 weeks£m

201852 weeks

£m

Operatingprofit:Employercontributions(definedcontributionplans) (12) (8)Administrativecosts(definedbenefitplans) (3) (2)Chargetooperatingprofitbeforeadjusteditems (15) (10)Pastservicecost(seenote2.2) (19) –Chargetooperatingprofit (34) (10)Financecosts:Netpensionsfinanceincomeonactuarialsurplus 10 5Additionalpensionsfinancechargeduetominimumfunding (17) (12)Netfinancechargeinrespectofpensions (7) (7)Totalcharge (41) (17)

Group statement of comprehensive income2019

52 weeks£m

201852 weeks

£m

Returnonschemeassetsandeffectsofchangesinassumptions (77) 114Movementinpensionliabilityrecognisedduetominimumfunding 92 (109)Remeasurementofpensionliability 15 5

Group balance sheet2019

£m2018

£m

Fairvalueofschemeassets 2,739 2,404Presentvalueofschemeliabilities (2,443) (2,068)Actuarialsurplusintheschemes 296 336Additionalliabilityrecognisedduetominimumfunding (511) (585)Totalpensionliabilitya (215) (249)Associateddeferredtaxasset 36 43

a. Thetotalpensionliabilityof£215m(2018£249m)ispresentedasa£50mcurrentliability(2018£49m)anda£165mnon-currentliability(2018£200m).


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4.5 PENSIONS CONTINUEDThemovementinthefairvalueoftheschemes’assetsintheperiodisasfollows:

Scheme assets

2019£m

2018£m

Fairvalueofschemeassetsatbeginningofperiod 2,404 2,390Interestincome 69 63Remeasurementgain: –Returnonschemeassets(excludingamountsincludedinnetfinancecharge) 312 23Additionalemployercontributions 49 48Benefitspaid (92) (118)Administrationcosts (3) (2)Atendofperiod 2,739 2,404

Changesinthepresentvalueofdefinedbenefitobligationsareasfollows:

Defined benefit obligation

2019£m

2018£m

Presentvalueofdefinedbenefitobligationatbeginningofperiod (2,068) (2,219)Interestcost (59) (58)Pastservicecost (19) –Benefitspaid 92 118Remeasurementlosses: –Effectofchangesindemographicassumptions 26 – –Effectofchangesinfinancialassumptions (420) 100 –Effectofexperienceadjustments 5 (9)Atendofperioda (2,443) (2,068)

a. Thedefinedbenefitobligationcomprises£38m(2018£33m)relatingtotheMABETUSunfundedplanand£2,405m(2018£2,035m)relatingtothefundedplans.

Theweightedaveragedurationofthedefinedbenefitobligationis19years(201820years).

ThemajorcategoriesandfairvaluesofassetsoftheMABPPandMABEPPschemesattheendofthereportingperiodareasfollows:

2019£m

2018£m

Cashandequivalents 109 111Equityinstruments 502 626Debtinstruments: –Bonds 2,481 1,513 –Realestatedebt 75 76 –Infrastructuredebt 118 95 –Securedincomedebt 158 80 –Absolutereturnbondfunds 233 202 –Giltrepurchasetransactions (950) (303)Gold 8 8Forwardforeignexchangecontracts 5 (4)Fairvalueofassets 2,739 2,404

Theactualinvestmentreturnachievedontheschemeassetsovertheperiodwas16.0%(20184.3%),whichrepresentedagainof£381m(2018£86m).

Virtuallyallequityinstruments,bondsandgoldhavequotedpricesinactivemarketsandareclassifiedasLevel1instruments.Absolutereturnbondfunds,giltrepurchasetransactionsandforwardforeignexchangecontractsareclassifiedasLevel2instruments.RealestatedebtandinfrastructuredebtareclassifiedasLevel3instruments.

Inthe52weeksended28September2019theGrouppaid£11m(2018£7m)inrespectofthedefinedcontributionarrangements,withanadditional£3m(2018£2m)outstandingasattheperiodend.

At28September2019theMABPPowed£1m(2018£1m)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(2018£3m).

TheGrouphadfourequity-settledshareschemes(2018four)inoperationduringtheperiod;thePerformanceRestrictedSharePlan(PRSP);SharesavePlan;ShareIncentivePlan(SIP)andShortTermDeferredIncentivePlan(STDIP).

Thevestingofallawardsoroptionsisgenerallydependentuponparticipantsremainingintheemploymentofaparticipatingcompanyduringthevestingperiod.FurtherdetailsoneachschemeareprovidedintheReportonDirectors’remunerationonpages76to97.

Thefollowingtablessetoutweightedaverageinformationabouthowthefairvalueofeachoptiongrantwascalculated:

2019 2018

Performance RestrictedShare Plan

SharesavePlan

Performance RestrictedShare Plan

SharesavePlan

Valuationmodel Monte Carlo and Binomial

Black-Scholes MonteCarloandBinomial

Black-Scholes

Weightedaverageshareprice 272.4p 281.5p 259.2p 264.2pExercisepricea – 242.0p – 246.0pExpecteddividendyieldb – 0% – 1.97%Risk-freeinterestrate 0.79% 0.59% 0.68% 0.86%Volatilityc 31.4% 30.49% 32.5% 31.0%Expectedlife(years)d 3.0 4.0 2.4 4.0Weightedaveragefairvalueofgrantsduringtheperiod 240.3p 87.0p 224.2p 61.3p

a. TheexercisepriceforthePerformanceRestrictedSharePlanis£1perparticipatingemployee.b. TheexpecteddividendyieldfortheSharesavePlanhasusedhistoricaldividendinformation.FordetailsontheGroup’scurrentdividendpolicyrefertotheFinancialreviewonpage48.

TheexpecteddividendyieldforthePerformanceRestrictedSharePlanoptionsiszeroasparticipantsareentitledtoDividendAccruedSharestothevalueofordinarydividendspaidorpayableduringthevestingperiod.

c. TheexpectedvolatilityisdeterminedbycalculatingthehistoricalvolatilityoftheCompany’ssharepricecommensuratewiththeexpectedtermoftheoptionsandshareawards.d. Theexpectedlifeoftheoptionsrepresentstheaveragelengthoftimebetweengrantdateandexercisedate.

ThefairvalueofawardsundertheShortTermDeferredIncentivePlanandtheShareIncentivePlanareequaltothesharepriceonthedateofawardasthereisnopricetobepaidandemployeesareentitledtoDividendAccruedSharestothevalueofordinarydividendspaidorpayableduringthevestingperiod.Theassumptionssetoutabovearethereforenotrelevanttotheseschemes.ThefairvalueofoptionsgrantedundertheShareIncentivePlanduringtheperiodwas281.5p(2018264.2p).ThefairvalueofoptionsgrantedundertheShortTermDeferredIncentivePlanduringtheperiodwas272.4p(2018260.6p).

Thetablesbelowsummarisethemovementsinoutstandingoptionsduringtheperiod.

Number of sharesWeighted average

exercise price

2019m

2018m

2019p

2018p

Sharesave planOutstandingatthebeginningoftheperiod 4.1 4.1 256.0 264.1Granted 2.0 1.3 242.0 246.0Exercised – (0.1) 230.9 182.2Forfeited (0.7) (0.8) 246.2 257.3Expired (0.4) (0.4) 348.0 323.5Outstandingattheendoftheperiod 5.0 4.1 244.0 256.0Exercisableattheendoftheperiod – – – –

TheoutstandingoptionsfortheSAYEschemehadanexercisepriceofbetween221.0pand362.0p(2018between221.0pand362.0p)andtheweightedaverageremainingcontractlifewas2.8years(20182.8years).Thenumberofforfeitedsharesintheperiodincludes400,999(2018545,646)cancellations.

SAYEoptionswereexercisedonarangeofdates.Theaveragesharepricethroughtheperiodwas284.4p(2018258.4p).


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4.6 SHARE-BASED PAYMENTS CONTINUED

Number of shares

2019m

2018m

Share Incentive PlanOutstandingatthebeginningoftheperiod 1.8 1.7Granted 0.4 0.4Exercised (0.2) (0.2)Forfeited (0.1) (0.1)Outstandingattheendoftheperiod 1.9 1.8Exercisableattheendoftheperiod 0.9 0.8

OptionsundertheShareIncentivePlanarecapableofremainingwithintheSIPtrustindefinitelywhileparticipantscontinuetobeemployed.

Number of shares

2019m

2018m

Performance Restricted Share PlanOutstandingatthebeginningoftheperiod 6.1 5.2Granted 2.1 2.2Forfeited (0.1) (0.2)Expired (1.9) (1.1)Outstandingattheendoftheperiod 6.2 6.1Exercisableattheendoftheperiod – –

TheexercisepriceforthePerformanceRestrictedSharePlanis£1perparticipatingemployee,thereforetheweightedaverageexercisepricefortheseoptionsis£nil(2018£nil).

Optionsoutstandingat28September2019hadanexercisepriceof£nilandaweightedaverageremainingcontractuallifeof3.2years(20183.2years).

4.7 EQUITY

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

DividendsDividendsproposedbytheBoardbutunpaidattheperiodendarenotrecognisedinthefinancialstatementsuntiltheyhavebeenapprovedbyshareholdersattheAnnualGeneralMeeting.Interimdividendsarerecognisedwhenpaid.

Scripdividendsarefullypaidupfromthesharepremiumaccount.Theyareaccountedforasanincreaseinsharecapitalforthenominalvalueofthesharesissued,andaresultingreductioninsharepremium.

Called up share capital2019

Number of shares £m2018

Number of shares £m

Allotted, called up and fully paidOrdinarysharesof813⁄24peachAtstartofperiod 428,310,823 37 422,548,604 36Sharecapitalissueda 266,937 – 5,762,219 1At end of period 428,577,760 37 428,310,823 37

a. TheCompanyissued266,937(2018407,602)sharesduringtheperiodundershareoptionschemesforaconsiderationof£nil(2018£nil).Inaddition,underthetermsoftheCompany’sscripdividendscheme,shareholdersareabletoelecttoreceiveordinarysharesinplaceofbothinterimandfinaldividends.Inthepriorperiod,thisresultedintheissueof5,354,617newfullypaidordinarysharesinrelationtothefinaldividendforthe53weeksended30September2017.Therewerenodividendsdeclaredinthecurrentperiod.

Alloftheordinarysharesrankequallywithrespecttovotingrightsandrightstoreceiveordinaryandspecialdividends.Therearenorestrictionsontherightstotransfershares.

DetailsofoptionsgrantedundertheGroup’sshareschemes,arecontainedinnote4.6.



DividendsDeclared and paid in the periodTherewerenodividendsdeclaredorpaidduringthecurrentperiod.Dividendsdeclaredandpaidinthepriorperiodareasfollows:

2018

Cash dividend

£m

Settled via scrip

£m

Total dividend

£m

Finaldividendof5.0ppershare–53weeksended30September2017 7 14 21

7 14 21

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

Share premium accountThesharepremiumaccountrepresentsamountsreceivedinexcessofthenominalvalueofsharesonissueofnewshares.Sharepremiumof£nilhasbeenrecognisedonsharesissuedintheperiod(2018£1m).

Capital redemption reserveThecapitalredemptionreservemovementaroseontherepurchaseandcancellationbytheCompanyofordinarysharesduringpriorperiods.

Revaluation reserveTherevaluationreserverepresentstheunrealisedgaingeneratedonrevaluationofthepropertyestatewitheffectfrom29September2007.Itcomprisestheexcessofthefairvalueoftheestateoverdeemedcost,netofrelateddeferredtaxation.

Own shares heldOwnsharesheldbytheGrouprepresentthesharesintheCompanyheldbytheemployeesharetrusts.

Duringtheperiod,theemployeesharetrustsacquired900,000shares(2018nil)andsubscribedfor257,587(2018296,144)sharesatacostof£3m(2018£nil)andreleased226,936(2018159,956)sharestoemployeesontheexerciseofoptionsandothershareawardsforatotalconsiderationof£nil(2018£nil).The2,815,781sharesheldbythetrustsat28September2019hadamarketvalueof£11m(20181,885,130sharesheldhadamarketvalueof£5m).

TheCompanyhasestablishedtwoemployeesharetrusts:

Share Incentive Plan (SIP) TrustTheSIPTrustwasestablishedin2003topurchasesharesonbehalfofemployeesparticipatingintheCompany’sShareIncentivePlan.Underthisscheme,eligibleemployeesareawardedfreeshareswhicharenormallyheldintrustforaholdingperiodofatleastthreeyears.AfterfiveyearsthesharesmaybetransferredtoorsoldbytheemployeefreeofincometaxandNationalInsurancecontributions.TheSIPTrustbuysthesharesinthemarketorsubscribesfornewlyissuedshareswithfundsprovidedbytheCompany.Duringtheholdingperiod,dividendsarepaiddirectlytotheparticipatingemployees.At28September2019,thetrustees,EquinitiSharePlanTrusteesLimited,held1,904,568(20181,847,623)sharesintheCompany.Oftheseshares,577,636(2018583,410)sharesareunconditionallyavailabletoemployees,315,333(2018245,415)shareshavebeenconditionallyawardedtoemployees,987,565(2018982,143)shareshavebeenawardedtoemployeesbutarestillrequiredtobeheldwithintheSIPTrustandtheremaining24,034(201836,655)sharesareunallocated.

Employee Benefit Trust (EBT)TheEBTwasestablishedin2003inordertosatisfytheexerciseorvestingofexistingandfutureshareoptionsandawardsunderthePerformanceRestrictedSharePlan,ShortTermDeferredIncentivePlanandtheSharesavePlan.TheEBTpurchasessharesinthemarketorsubscribesfornewlyissuedshares,usingfundsprovidedbytheCompany,basedonexpectationsoffuturerequirements.DividendsarewaivedbytheEBT.At28September2019,thetrustees,SanneFiduciaryServicesLimited,wereholding911,213(201837,507)sharesintheCompany.

Hedging reserveThehedgingreservecomprisestheeffectiveportionofthecumulativenetchangeinthefairvalueofcashflowhedginginstrumentsrelatedtohedgedfuturecashflows.

Translation reserveThetranslationreserveisusedtorecordexchangedifferencesarisingfromthetranslationoftheconsolidatedfinancialstatementsofforeignsubsidiaries.

Retained earningsTheGroup’smainoperatingsubsidiary,Mitchells&ButlersRetailLimited,hadretainedearningsunderFRS101of£2,313mat28September2019(2018£2,199m).Itsabilitytodistributethesereservesbywayofdividendsisrestrictedbythesecuritisationcovenants(seenote4.2).


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5.1 RELATED PARTY TRANSACTIONSKey management personnelEmployeesoftheMitchells&ButlersplcGroupwhoaremembersoftheBoardofDirectorsortheExecutiveCommitteeofMitchells&Butlersplcaredeemedtobekeymanagementpersonnel.ItistheBoardwhohaveresponsibilityforplanning,directingandcontrollingtheactivitiesoftheGroup.

CompensationofkeymanagementpersonneloftheGroup:

201952 weeks

£m

201852 weeks

£m

Short-termemployeebenefits 5 4

MovementsinshareoptionsheldbytheDirectorsofMitchells&ButlersplcaresummarisedintheReportonDirectors’remuneration.

Associate companiesDuringtheperiod,theGrouphasheldanumberofpropertyleaseagreementswithitsassociatecompanies,3SixtyRestaurantsLimitedandFatboyPubCompanyLimited.

SincebecomingassociatesoftheGroup,theGrouphasenteredintothefollowingtransactionswiththeassociates:

3Sixty Restaurants Limited Fatboy Pub Company Limited

201952 weeks

£000

201852 weeks

£000

201952 weeks

£000

201852 weeks

£000

Rentcharged 372 29 75 –Salesofgoodsandservices 646 48 4 48Loans – – 175 –

1,018 77 254 48

Thebalanceduefrom3SixtyRestaurantsLimitedat28September2019was£102,000(2018£35,000).

ThebalanceduefromFatboyPubCompanyat28September2019was£186,000(2018£nil).


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION5–OTHERNOTES

5.2 SUBSIDIARIES AND ASSOCIATESSubsidiariesTransactionsbetweentheCompanyanditssubsidiaries,whicharerelatedparties,havebeeneliminatedonconsolidation.

Mitchells&Butlersplcistheultimatecontrollingpartyandthebeneficialownerofalloftheequitysharecapital,eitheritselforthroughsubsidiaryundertakings,ofthefollowingcompanies:

Name of subsidiary Country of incorporation Registration number Nature of business

Principal operating subsidiariesMitchells&ButlersRetailLimited EnglandandWales 00024542 LeisureretailingMitchells&ButlersRetail(No.2)Limited EnglandandWales 03959664 LeisureretailingHaHaBar&GrillLimited EnglandandWales 06295359 LeisureretailingOrchidPubs&DiningLimited EnglandandWales 06754332 LeisureretailingALEXGaststättenGesellschaftmbH&CoKG Germany LeisureretailingMidco1Limited EnglandandWales 05835640 PropertyleasingcompanyMitchells&ButlersLeisureRetailLimited EnglandandWales 01001181 ServicecompanyMitchells&ButlersGermanyGmbHa Germany ServicecompanyMitchells&ButlersFinanceplc EnglandandWales 04778667 FinancecompanyOther subsidiariesMitchells&Butlers(Property)Limitedc EnglandandWales 01299745 PropertymanagementStandardCommercialPropertyDevelopmentsLimitedb EnglandandWales 00056525 PropertydevelopmentMitchells&ButlersHoldings(No.2)Limiteda,b EnglandandWales 06475790 HoldingcompanyMitchells&ButlersHoldingsLimitedb EnglandandWales 03420338 HoldingcompanyMitchells&ButlersLeisureHoldingsLimitedb EnglandandWales 02608173 HoldingcompanyMitchells&ButlersRetailHoldingsLimited EnglandandWales 04887979 HoldingcompanyOldKentuckyRestaurantsLimited EnglandandWales 00465905 TrademarkownershipBedeRetailInvestmentsLimited EnglandandWales 04125272 DormantLastbrewLimited EnglandandWales 00075597 DormantMitchells&Butlers(IP)Limitedb EnglandandWales 04885717 DormantMitchells&ButlersAcquisitionCompany EnglandandWales 05879733 DormantMitchells&ButlersRetailPropertyLimiteda,b EnglandandWales 06301758 Non-tradingMitchellsandButlersHealthcareTrusteeLimitedb EnglandandWales 04659443 HealthcaretrusteeStandardCommercialPropertyInvestmentsLimited EnglandandWales 01954096 DormantStandardCommercialPropertySecuritiesLimited EnglandandWales 01689558 DormantTempleCircusDevelopmentsLimited EnglandandWales 06595222 DormantALEXGaststättenImmobiliengesellschaftmbH Germany PropertymanagementALLBARONEGaststättenBetriebsgesellschaftmbH Germany LeisureretailingALEXAlsterpavillonImmobilienGmbH&CoKG Germany PropertymanagementALEXAlsterpavillonManagementGmbH Germany ManagementcompanyALEXGaststättenManagementGmbH Germany ManagementcompanyPLAN-BARGastronomieEinrichtungsGmbH Germany Non-tradingBrownsRestaurant(Brighton)Limited EnglandandWales 01564302 DormantBrownsRestaurant(Bristol)Limited EnglandandWales 02351724 DormantBrownsRestaurant(Cambridge)Limited EnglandandWales 01237917 DormantBrownsRestaurant(London)Limited EnglandandWales 00291996 DormantBrownsRestaurant(Oxford)Limited EnglandandWales 01730727 DormantBrownsRestaurantsLimited EnglandandWales 01001320 DormantIntertain(Dining)Limited EnglandandWales 07035107 DormantLander&CookLimited EnglandandWales 11160005 Dormant

a. ShareshelddirectlybyMitchells&Butlersplc.b. Thesecompaniesareexemptfromtherequirementtoprepareindividualauditedfinancialstatementsinrespectofthe52weekperiodended28September2019byvirtueofsections

479Aand479CoftheCompaniesAct2006.

AllcompaniesregisteredinEnglandandWalesoperatewithintheUnitedKingdom.Theregisteredofficeforthesecompaniesis27FleetStreet,Birmingham,B31JP.

AllcompaniesregisteredinGermanyoperatesolelywithinGermany.TheregisteredofficeforthesecompaniesisAdolfstrasse16,65185Wiesbaden.


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AssociatesDetailsoftheCompany’sassociates,heldindirectly,areasfollows.Sharesintheseassociateswereacquiredinthepriorperiod.

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 FIVE YEAR REVIEW2019

52 weeks£m

201852 weeks

£m

201753 weeks

£m

201652 weeks

£m

201552 weeks

£m

Revenue 2,237 2,152 2,180 2,086 2,101Operating profit before adjusted items 317 303 314 318 328Adjusteditems (20) (48) (106) (87) (58)Operating profit 297 255 208 231 270Financecosts (114) (119) (125) (126) (130)Financerevenue 1 1 1 1 1Netpensionsfinancecharge (7) (7) (7) (12) (15)Profit before taxation 177 130 77 94 126Taxexpense (34) (26) (14) (5) (23)Profit for the period 143 104 63 89 103Earnings per shareBasic 33.5p 24.5p 15.1p 21.6p 25.0pDiluted 33.3p 24.4p 15.0p 21.6p 24.9pAdjusted(Basic)a 37.2p 34.1p 34.9p 34.9p 35.7p

a. Adjustedearningspershareisstatedafterremovingtheimpactofadjusteditemsasexplainedinnote2.2.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION5–OTHERNOTESCONTINUED

Notes2019

£m2018

£m

Non-current assetsInvestmentsinsubsidiaries 5 1,474 1,474Deferredtaxasset 9 41 48

1,515 1,522Current assetsTradeandotherreceivables 6 673 739Cashandcashequivalents 36 14

709 753Current liabilitiesPensionliabilities 4 (50) (49)Borrowings 8 (8) (28)Tradeandotherpayables 7 (284) (288)

(342) (365)Non-current liabilitiesPensionliabilities 4 (165) (200)Net assets 1,717 1,710

EquityCalledupsharecapital 10 37 37Sharepremiumaccount 26 26Capitalredemptionreserve 3 3Ownsharesheld (4) (1)Retainedearnings 1,655 1,645Total equity 1,717 1,710

TheCompanyreportedalossforthe52weeksended28September2019of£6m(52weeksended29September2018profitof£89m).

TheCompanyfinancialstatementswereapprovedbytheBoardandauthorisedforissueon19November2019.

Theyweresignedonitsbehalfby:

TIM JONES ChiefFinancialOfficer

Theaccountingpoliciesandthenotesonpages153to155formanintegralpartoftheseCompanyfinancialstatements.

RegisteredNumber:04551498


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MITCHELLS&BUTLERSPLCCOMPANYFINANCIALSTATEMENTSCOMPANY BALANCE SHEET 28SEPTEMBER2019

Sharecapital

£m

Sharepremium

£m

Capitalredemption

reserve£m

Ownshares

held£m

Retainedearnings

£m

Totalequity

£m

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 1,710Lossaftertaxation – – – – (6) (6)Remeasurementofpensionliability – – – – 15 15Deferredtaxonremeasurementofpensionliability – – – – (3) (3)Totalcomprehensiveincome – – – – 6 6Purchaseofownshares – – – (3) – (3)Creditinrespectofemployeeshareschemes – – – – 3 3Taxonshare-basedpayments – – – – 1 1At 28 September 2019 37 26 3 (4) 1,655 1,717

Theretainedearningsaccountiswhollydistributableafterthedeductionforownsharesheld.


COMPANY STATEMENT OF CHANGES IN EQUITY FORTHE52WEEKSENDED28SEPTEMBER2019

1. BASIS OF PREPARATIONBasis of accountingTheseCompanyfinancialstatementswerepreparedinaccordancewithFinancialReportingStandard101‘ReducedDisclosureFramework’asissuedbytheFRC.

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

TheCompanyfinancialstatementshavebeenpreparedunderthehistoricalcostconvention.TheCompany’saccountingpolicieshavebeenappliedonaconsistentbasistothosesetoutintherelevantnotestotheconsolidatedfinancialstatements.Inthecurrentperiod,theCompanyhasappliedanumberofamendmentstoIFRSStandardsissuedbytheInternationalAccountingStandardsBoard(theBoard)thataremandatorilyeffectiveforanaccountingperiodthatbeginsonorafter1January2018,asdescribedinsection1oftheconsolidatedfinancialstatements.OtherthanIFRS9FinancialInstruments,theiradoptionhasnothadanymaterialimpactonthedisclosuresorontheamountsreportedintheseCompanyfinancialstatements.

Impact of initial application of IFRS 9 Financial Instruments(a) Classification and measurement of financial instrumentsTheDirectorsoftheCompanyreviewedandassessedtheCompany’sexistingfinancialinstrumentsasat30September2018,basedonthefactsandcircumstancesthatexistedatthatdateandconcludedthattheinitialapplicationofIFRS9hashadnoimpactontheCompany’sfinancialinstrumentsasregardstheirclassificationandmeasurement.Detailsontheexpectedcreditlossandimpactonlossallowancesareprovidedin(b)below.

(b) Impairment of financial assetsInrelationtotheimpairmentoffinancialassets,IFRS9requiresanexpectedcreditlossmodelasopposedtoanincurredcreditlossmodelunderIAS39.TheexpectedcreditlossmodelrequirestheCompanytoaccountforexpectedcreditlossesandchangesinthoseexpectedcreditlossesateachreportingdatetoreflectchangesincreditrisksinceinitialrecognitionofthefinancialassets.Inotherwords,itisnolongernecessaryforacrediteventtohaveoccurredbeforecreditlossesarerecognised.

Inparticular,IFRS9requirestheCompanytomeasurethelossallowanceforafinancialinstrumentatanamountequaltothelifetimeexpectedcreditlosses(ECL)ifthecreditriskonthatfinancialinstrumenthasincreasedsignificantlysinceinitialrecognition,orifthefinancialinstrumentisapurchasedororiginatedcredit-impairedfinancialasset.However,ifthecreditriskonafinancialinstrumenthasnotincreasedsignificantlysinceinitialrecognition(exceptforapurchasedororiginatedcredit-impairedfinancialasset),theCompanyisrequiredtomeasurethelossallowanceforthatfinancialinstrumentatanamountequalto12-months’ECL.IFRS9alsoprovidesasimplifiedapproachformeasuringthelossallowanceatanamountequaltolifetimeECLfortradereceivablesincertaincircumstances.

TheCompanyhasatradeandotherreceivablesbalancethatrelatestoamountsowedbysubsidiaryundertakings(seenote6).TheDirectorshavereviewedthesebalancesandcalculatedthatthereisnoexpectedcreditlossforanyoftheindividualbalancesat29September2018.AssuchtherehasbeennoimpactontheCompanyfinancialstatementsandthereforenoprioryearrestatementrequired.

Critical accounting judgements and key sources of estimation uncertaintyThecriticaljudgementsandestimatesoftheCompanyareconsideredalongsidethoseoftheGroup.ThekeycriticaljudgementoftheCompanyisrelatedtotheselectionofthediscountrateandinflationrateassumptionsusedinthecalculationofthedefinedbenefitpensionliabilitydescribedinnote4.5oftheconsolidatedfinancialstatements.Therearenokeysourcesofestimationuncertaintyinthecurrentperiod.

Foreign currenciesTransactionsinforeigncurrenciesarerecordedattheexchangeratesrulingonthedatesofthetransactions.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedintosterlingattherelevantratesofexchangerulingatthebalancesheetdate.

2. PROFIT AND LOSS ACCOUNTProfit and loss accountTheCompanyhasnotpresenteditsownprofitandlossaccount,aspermittedbySection408oftheCompaniesAct2006.

TheCompanyrecordedalossaftertaxof£6m(2018profitof£89m),lessdividendsof£nil(2018£7m).Dividendsaredisclosedinnote4.7oftheconsolidatedfinancialstatements.

Audit remunerationAuditor’sremunerationforauditservicestotheCompanywas£30,000(2018£22,000).ThisisbornebyanotherGroupcompany,asareanyothercostsrelatingtonon-auditservices(seenote2.3totheconsolidatedfinancialstatements).

3. EMPLOYEES AND DIRECTORS2019

52 weeks2018

52 weeks

Averagenumberofemployees,includingpart-timeemployees 2 2

EmployeesofMitchells&ButlersplcconsistofExecutiveDirectorswhoareconsideredtobethekeymanagementpersonneloftheCompany.

Detailsofemployeebenefitsandpost-employmentbenefits,includingshare-basedpaymentsareincludedwithintheReportonDirectors’remunerationonpages76to97.Thechargerecognisedforshare-basedpaymentsintheperiodis£1m(2018£nil).


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NOTES TO THE MITCHELLS & BUTLERS PLC COMPANY FINANCIAL STATEMENTS

4. PENSIONS

Accounting policyTheaccountingpolicyforpensionsisdisclosedintheconsolidatedfinancialstatementsinnote4.5.

Pension liabilityAt28September2019theCompany’spensionliabilitywas£215m(2018£249m).Ofthisamount,£50m(2018£49m)isacurrentliabilityand£165m(2018£200m)isanon-currentliability.

TheCompanyisthesponsoringemployeroftheGroup’spensionplans.InformationconcerningthepensionschemearrangementsoperatedbytheCompanyandassociatedcurrentandfuturecontributionsiscontainedwithinnote4.5totheconsolidatedfinancialstatementsonpages141to144.

Thepensionamountsanddisclosuresincludedinnote4.5totheconsolidatedfinancialstatementsareequivalenttothoseapplicablefortheCompany.

5. INVESTMENTS IN SUBSIDIARIES

Accounting policyTheCompany’sinvestmentsinGroupundertakingsareheldatcostlessprovisionforimpairment,exceptforthoseamountsdesignatedasbeinginafairvaluehedge.

Investments in subsidiary

undertakings£m

CostAt30September2017 3,353Additions –At 29 September 2018 3,353Additions –At 28 September 2019 3,353

ProvisionAt30September2017 1,879Impairment –At 29 September 2018 1,879Impairment –At 28 September 2019 1,879

Net book valueAt 28 September 2019 1,474

At29September2018 1,474

At30September2017 1,474

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

Investmentshavebeentestedforimpairmentusingforecastcashflows,discountedbyapplyingapre-taxdiscountrateof7.3%(20187.7%).Forthepurposesofthecalculationoftherecoverableamount,thecashflowprojectionsinclude0.0%(20180.0%)ofgrowthperannum.

6. TRADE AND OTHER RECEIVABLES2019

£m2018

£m

Amountsowedbysubsidiaryundertakingsa 673 739

a. Amountsowedbysubsidiaryundertakingsarerepayableondemand.Interestisnotchargedonallbalances.Whereinterestischarged,itischargedatmarketrate,basedonwhatcanbeachievedoncorporatedeposits.

TheDirectorsconsiderthatthecarryingamountofamountsowedbysubsidiaryundertakingsapproximatelyequatestotheirfairvalue.AnassessmentofthelifetimeECLhasnowbeenperformedwith£nilrecognisedattheperiodend.


NOTES TO THE MITCHELLS & BUTLERS PLC COMPANY FINANCIAL STATEMENTS CONTINUED

7. TRADE AND OTHER PAYABLES2019

£m2018

£m

Amountsowedtosubsidiaryundertakingsa 282 283Accruedcharges 2 4Otherpayables – 1

284 288

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

8. BORROWINGS

Accounting policyTheaccountingpolicyforborrowingsisdisclosedintheconsolidatedfinancialstatementsinnote4.2.

Borrowingscanbeanalysedasfollows:

2019£m

2018£m

CurrentBankoverdraft 8 28Totalborrowings 8 28

Unsecured revolving credit facilityTheCompanyholdsuncommittedcreditfacilitiesof£15m.Theamountdrawnat28September2019is£nil(2018£nil).

9. TAXATION

Accounting policyTheaccountingpolicyfortaxationisdisclosedintheconsolidatedfinancialstatementsinnote2.4.

Deferred tax assetMovementsinthedeferredtaxassetcanbeanalysedasfollows:

£m

At30September2017 56Chargedtoincomestatement–pensions (6)Chargedtoincomestatement–taxlosses (1)Creditedtoothercomprehensiveincome–pensions (1)At29September2018 48Chargedtoincomestatement–pensions (4)Chargedtoincomestatement–taxlosses (1)Chargedtoothercomprehensiveincome–pensions (3)Creditedtoequity–sharebasedpayments 1At 28 September 2019 41

Analysedastaxtimingdifferencesrelatedto:

2019£m

2018£m

Pensions 36 43Taxlossesa 4 5Sharebasedpayments 1 –

41 48

a. Taxlossesarisingin2008whicharenowrecoverablebyoffsetagainstotherincome.

Furtherinformationonthechangestotaxlegislationareprovidedinnote2.4totheconsolidatedfinancialstatements.

10. EQUITYCalled up share capitalDetailsoftheamountandnominalvalueofallotted,calledupandfullypaidsharecapitalarecontainedinnote4.7totheconsolidatedfinancialstatements.

DividendsDetailsofthedividendsdeclaredandpaidbytheCompanyarecontainedinnote4.7totheconsolidatedfinancialstatements.


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Documents

Financial statements · Practice, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’; and • the financial statements have been prepared in accordance